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                       REVOLVING CREDIT FACILITY AGREEMENT


                          Dated as of November 3, 1995

                                      among

                         TEXAS-NEW MEXICO POWER COMPANY,


                            THE LENDERS PARTY HERETO,


       CHEMICAL BANK, as Administrative Agent and as Collateral Agent, and


                  THE BANK OF NEW YORK, CIBC, INC., NATIONSBANK

                   OF TEXAS, N.A. and UNION BANK, as Co-Agents














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<PAGE>


<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

Article       Section                                                                              Page

I.       DEFINITIONS

<S>       <C>                                                                                        <C>
          1.1    Defined Terms                                                                        1
          1.2    Terms Generally                                                                     17

II.      THE CREDITS
          2.1    Commitments                                                                         17
          2.2    Loans                                                                               18
          2.3    Borrowing Procedure                                                                 19
          2.4    Evidence of Debt; Repayment of Loans                                                19
          2.5    Commitment Fees                                                                     20
          2.6    Interest on Loans                                                                   20
          2.7    Default Interest                                                                    21
          2.8    Alternate Rate of Interest                                                          21
          2.9    Termination and Reduction of Commitments                                            21
          2.10   Prepayment                                                                          22
          2.11   Reserve Requirements; Change in Circumstances                                       22
          2.12   Change in Legality                                                                  23
          2.13   Indemnity                                                                           24
          2.14   Pro Rata Treatment                                                                  24
          2.15   Sharing of Setoffs                                                                  25
          2.16   Payments                                                                            25
          2.17   Taxes                                                                               25
          2.18   Assignment of Commitments Under Certain Circumstances; Duty to Mitigate             27
          2.19   The Replacement Loan                                                                29
III.     REPRESENTATIONS AND WARRANTIES
          3.1    Organization; Powers                                                                29
          3.2    Authorization                                                                       29
          3.3    Enforceability                                                                      30
          3.4    Government Approvals                                                                30
          3.5    Financial Statements                                                                30
          3.6    No Material Adverse Change                                                          30
          3.7    Title to Properties; Possession Under Leases                                        30
          3.8    Subsidiaries                                                                        31
          3.9    Litigation; Compliance with Laws                                                    31
          3.10   Agreements                                                                          31
          3.11   Federal Reserve Regulations                                                         31
          3.12   Investment Company Act; Public Utility Holding Company Act                          32
          3.13   Use of Proceeds                                                                     32
          3.14   Tax Returns                                                                         32
          3.15   No Material Misstatements                                                           32


<PAGE>


          3.16   Employee Benefit Plans                                                              32
          3.17   Environmental Matters                                                               32
          3.18   Insurance                                                                           33
          3.19   Pledge Agreements                                                                   33
          3.20   Labor Matters                                                                       33
          3.21   Solvency                                                                            34
          3.22   Existing Facility Agreement Representations                                         34

IV.      CONDITIONS PRECEDENT TO LENDING
          4.1    All Borrowings                                                                      34
          4.2    First Borrowing                                                                     35
          4.3    Borrowings in Excess of $100,000,000                                                38

V.       AFFIRMATIVE COVENANTS
          5.1    Existence; Businesses and Properties                                                39
          5.2    Insurance                                                                           39
          5.3    Obligations and Taxes                                                               39
          5.4    Financial Statements, Reports, etc.                                                 40
          5.5    Litigation and Other Notices                                                        41
          5.6    Employee Benefits                                                                   41
          5.7    Maintaining Records; Access to Properties
                 and Inspections                                                                     41
          5.8    Use of Proceeds                                                                     41
          5.9    Compliance with Laws and Environmental Laws                                         41
          5.10   Preparation of Environmental Reports                                                42
          5.11   Further Assurances                                                                  42
          5.12   Maintenance; Ownership of Guarantor Capital Stock                                   42
          5.13   Performance and Continuation of Certain Documents                                   42

VI.      NEGATIVE COVENANTS
          6.1    Indebtedness                                                                        43
          6.2    Liens                                                                               43
          6.3    Sale and Lease-Back Transactions                                                    44
          6.4    Investments, Loans and Advances                                                     44
          6.5    Mergers, Consolidations; Sales of Assets
                 and Acquisitions                                                                    45
          6.6    Dividends and Distributions; Restrictions on Ability
                  of Subsidiaries to Pay Dividends                                                   45
          6.7    Transactions with Affiliates                                                        46
          6.8    Business of Borrower and Subsidiaries                                               46
          6.9    Additional Generating Facilities                                                    46
          6.10   Amendment or Modification of Certain Agreements; Pledged Notes                      46
          6.11   Interest Coverage Ratio                                                             47
          6.12   Debt to Capitalization Ratio                                                        47
          6.13   Capital Expenditures                                                                47



<PAGE>


VII.     EVENTS OF DEFAULT                                                                           47

VIII.    THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT                                           50
IX.      MISCELLANEOUS
          9.1    Notices                                                                             52
          9.2    Survival of Agreement                                                               53
          9.3    Binding Effect                                                                      53
          9.4    Successors and Assigns                                                              53
          9.5    Expenses; Indemnity                                                                 55
          9.6    Right of Setoff                                                                     56
          9.7    Applicable Law                                                                      56
          9.8    Waivers; Amendment                                                                  56
          9.9    Interest Rate Limitation                                                            57
          9.10   Entire Agreement                                                                    57
          9.11   Waiver of Jury Trial                                                                57
          9.12   Severability                                                                        58
          9.13   Counterparts                                                                        58
          9.14   Headings                                                                            58
          9.15   Jurisdiction; Consent to Service of Process                                         58
          9.16   Confidentiality                                                                     59
          9.17   Release of Collateral                                                               59
          9.18   Representations of Lenders                                                          60



Schedule 2.1             Commitments
Schedule 3.6             Changes
Schedule 3.8             Subsidiaries
Schedule 3.9             Litigation
Schedule 3.17            Environmental Matters
Schedule 3.18            Insurance
Schedule 6.1             Intercompany Indebtedness
Schedule 6.2             Existing Liens

Exhibit A                Form of Administrative Questionnaire
Exhibit B                Form of Assignment and Acceptance
Exhibit C                Form of Borrowing Request
Exhibit D                Form of TGC II Guarantee and Pledge Agreement
Exhibit E                Form of Bond Agreement
Exhibit F                Form of Note Pledge Agreement
Exhibit G-1              Form of Opinion of Haynes and Boone, L.L.P.
Exhibit G-1-A            Form of Opinion of Michael Blanchard, General Counsel of Borrower and Guarantor
Exhibit G-2              Form of Opinion of Snell, Banowsky & Trent
Exhibit G-3              Form of Opinion of Rubin, Katz, Salazar, Alley & Rouse
Exhibit H                Form of Sixth TGC II Mortgage Modification and Extension Agreement
Exhibit I                Form of TNP Second Lien Mortgage Modification No.3


<PAGE>


Exhibit J                Form of Assignment and Amendment Agreement
Exhibit K                Form of Assignment of TGC II Mortgage Lien
Exhibit L                Form of Collateral Transfer of Notes, Rights and Interests
Exhibit M                Form of Assignment of TNP Second Lien Mortgage
Exhibit N                Form of Collateral Transfer of Notes, Rights and Interests
Exhibit O                Form of Amendment No. 1 to the TNP Security Agreement
</TABLE>


<PAGE>


     CREDIT AGREEMENT dated as of November 3, 1995, among TEXAS-NEW MEXICO POWER
COMPANY,  a Texas  corporation  (the  "Borrower"),  the  Lenders  (as defined in
Article I),  CHEMICAL BANK, a New York banking  corporation,  as  administrative
agent (in such capacity, the "Administrative Agent") and as collateral agent (in
such capacity, the "Collateral Agent") for the Lenders and THE BANK OF NEW YORK,
CIBC,  INC.,  NATIONSBANK  OF TEXAS,  N.A.  and UNION BANK,  as  Co-Agents  (the
"Co-Agents")


     The  Borrower  has  requested  the Lenders to extend  credit in the form of
Loans (such term and each other  capitalized  term used but not  defined  herein
having  the  meaning  given it in  Article  I) at any time and from time to time
prior  to the  Maturity  Date,  in an  aggregate  principal  amount  at any time
outstanding not in excess of  $150,000,000.  The proceeds of the Loans are to be
used solely to purchase loans outstanding under the Existing Facility  Agreement
and, directly or indirectly,  to repay existing Indebtedness of the Borrower and
for general corporate purposes.

     The Lenders are willing to extend such credit to the  Borrower on the terms
and subject to the conditions set forth herein. Accordingly,  the parties hereto
agree as follows:


ARTICLE I.  DEFINITIONS

     SECTION 1.1. Defined Terms. As used in this Agreement,  the following terms
shall have the meanings specified below:

     "ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.

     "ABR Loan" shall mean any Loan  bearing  interest at a rate  determined  by
reference  to the  Alternate  Base Rate in  accordance  with the  provisions  of
Article II.

     "Additional  Bonds" shall have the meaning assigned to such term in Section
4.3.

     "Administrative  Questionnaire" shall mean an Administrative  Questionnaire
in the form of Exhibit A.

     "Affiliate"  shall  mean,  when used with  respect to a  specified  person,
another person that directly,  or indirectly through one or more intermediaries,
Controls  or is  Controlled  by or is  under  common  Control  with  the  person
specified.

     "Aggregate Credit Exposure" shall mean the aggregate amount of the Lenders'
Credit Exposures.

     "Alternate  Base Rate" shall mean,  for any day, a rate per annum  (rounded
upwards, if necessary,  to the next 1/16 of 1%) equal to the greatest of (a) the
Prime  Rate in effect  on such  day,  (b) the Base CD Rate in effect on such day
plus 1% or (c) the Federal Funds  Effective  Rate in effect on such day plus 1/2
of 1%. If for any reason the  Administrative  Agent shall have determined (which
determination  shall be conclusive  absent  manifest error) that it is unable to
ascertain the Base CD Rate or the Federal Funds  Effective  Rate or both for any
reason, including the inability or failure of the Administrative Agent to obtain
sufficient  quotations in accordance  with the terms of the definition  thereof,
the Alternate Base Rate shall be determined without regard to clause (b) or (c),
or both, of the preceding  sentence,  as  appropriate,  until the  circumstances
giving rise to such inability no longer exist.  Any change in the Alternate Base
Rate due to a change in the Prime Rate,  the Base CD Rate or the  Federal  Funds
Effective  Rate shall be effective on the  effective  date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate,  respectively.
The term  "Prime  Rate"  shall  mean the rate of  interest  per  annum  publicly
announced  from time to time by the  Administrative  Agent as its prime  rate in
effect at its principal  office in New York City;  each change in the Prime Rate
shall be  effective  on the date such  change  is  publicly  announced  as being
effective.  The term "Base CD Rate" shall mean the sum of (a) the product of (i)
the  Three-Month  Secondary  CD Rate and  (ii)  Statutory  Reserves  and (b) the
Assessment  Rate.  The term "Federal Funds  Effective  Rate" shall mean, for any
day, the weighted average of the rates on overnight  federal funds  transactions
with members of the Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New
York,  or, if such rate is not so published  for any day that is a Business Day,
the average of the quotations for the day for such transactions  received by the
Administrative  Agent from three federal  funds  brokers of recognized  standing
selected by it.

     "Applicable  Percentage"  shall  mean,  for any day,  with  respect  to any
Eurodollar Loan or ABR Loan, or with respect to the Commitment Fees, as the case
may be, the applicable  percentage set forth below under the caption "Eurodollar
Spread", "ABR Spread" or "Fee Percentage",  respectively, based upon the ratings
by S&P and Moody's applicable on such date to the Index Debt:
<TABLE>
<CAPTION>


                                                Eurodollar           ABR               Fee
                                                  Spread            Spread         Percentage
Category 1

<S>                                                 <C>              <C>               <C>
BBB- or higher by S&P
  Baa3 or higher by Moody's                         0.8750%          0.0000%           0.2500%

Category 2
BB+ by S&P
  Ba1 by Moody's                                    1.3750%          0.3750%           0.3125%

Category 3
BB by S&P
  Ba2 by Moody's                                    1.6250%          0.6250%           0.3750%

Category 4
BB- by S&P
  Ba3 by Moody's                                    1.8750%          0.8750%           0.3750%

Category 5
B+ by S&P
  B1 by Moody's                                     2.2500%          1.2500%           0.5000%

Category 6
B or below by S&P
  B2 or below by Moody's                            2.5000%          1.5000%           0.5000%

</TABLE>


     For purposes of the foregoing,  (i) if either Moody's or S&P shall not have
in effect a rating for the Index Debt (other than by reason of the circumstances
referred to in the last  sentence of this  definition),  then such rating agency
shall be deemed to have  established a rating in Category 6; (ii) if the ratings
established or deemed to have been  established by Moody's and S&P for the Index
Debt shall fall within different Categories,  the Applicable Percentage shall be
based on the inferior (or numerically  higher) of the two Categories;  and (iii)
if the rating  established by Moody's or S&P for the Index Debt shall be changed
(other  than as a result of a change in the  rating  system of  Moody's or S&P),
such change shall be effective as of the date on which it is first  announced by
the applicable  rating agency.  Each change in the Applicable  Percentage  shall
apply  during the period  commencing  on the  effective  date of such change and
ending on the date  immediately  preceding the  effective  date of the next such
change.  If the rating system of Moody's or S&P shall change,  or if either such
rating  agency  shall  cease to be in the  business  of  rating  corporate  debt
obligations, the Borrower and the Lenders shall negotiate in good faith to amend
this definition to reflect such changed rating system or the non-availability of
ratings  from such rating  agency and,  pending  the  effectiveness  of any such
amendment,  the  Applicable  Percentage  shall be determined by reference to the
rating most recently in effect prior to such change or cessation.

     "Assessment Rate" shall mean for any date the annual rate (rounded upwards,
if  necessary,  to  the  next  1/100  of  1%)  most  recently  estimated  by the
Administrative Agent as the then current net annual assessment rate that will be
employed  in  determining  amounts  payable by the  Administrative  Agent to the
Federal Deposit Insurance  Corporation (or any successor  thereto) for insurance
by such  Corporation (or such successor) of time deposits made in dollars at the
Administrative Agent's domestic offices.

     "Assignment  Agreement"  shall mean the Assignment and Amendment  Agreement
substantially  in the  form of  Exhibit  J dated  the  date  hereof,  among  the
Borrower,  the Guarantor,  the Existing  Facility Banks,  the Existing  Facility
Agent, the Existing Facility Collateral Agent, the Administrative  Agent and the
Collateral Agent.

     "Assignment and Acceptance" shall mean an assignment and acceptance entered
into by a Lender and an assignee,  and accepted by the Administrative  Agent, in
the  form  of  Exhibit  B or  such  other  form  as  shall  be  approved  by the
Administrative Agent.

     "Board" shall mean the Board of Governors of the Federal  Reserve System of
the United States of America.

     "Bond Agreement" shall mean the Bond Agreement substantially in the form of
Exhibit E, between the Borrower and the Collateral  Agent for the benefit of the
Lenders.

     "Bonds" shall mean the $30,000,000 principal amount of non-redeemable First
Mortgage Bonds issued by the Borrower to the Collateral Agent for the benefit of
the Lenders pursuant to the Bond Agreement.

     "Bond  Total"  shall  mean the  aggregate  principal  amount  of Bonds  and
Additional Bonds issued to and held by the Collateral Agent pursuant to the Bond
Agreement.

     "Borrowing"  shall  mean a group  of Loans  of a  single  Type  made by the
Lenders on a single date and as to which a single Interest Period is in effect.

     "Borrowing Request" shall mean a request by the Borrower in accordance with
the terms of Section 2.3 and substantially in the form of Exhibit C.

     "Business  Day" shall mean any day other than a Saturday,  Sunday or day on
which  banks in New York  City  are  authorized  or  required  by law to  close;
provided, however, that when used in connection with a Eurodollar Loan, the term
"Business  Day"  shall  also  exclude  any day on which  banks  are not open for
dealings in dollar deposits in the London interbank market.

     "Capital  Expenditures" shall mean expenditures  related to the acquisition
of plant and equipment (including, without limitation,  capitalized interest and
start-up  expenses related to such plant and equipment) which are capitalized in
accordance with GAAP.

     "Capital Lease  Obligations"  of any person shall mean  obligations of such
person to pay rent or other  amounts  under  any lease of (or other  arrangement
conveying the right to use) real or personal property, or a combination thereof,
which  obligations  are required to be  classified  and accounted for as capital
leases on a balance  sheet of such  person  under  GAAP,  and the amount of such
obligations  shall be the  capitalized  amount thereof  determined in accordance
with GAAP.

     "Change in  Control"  shall mean an event or the last of a series of events
by which

     (i) any person or group (as such term is used in  Sections  13(d) and 14(d)
of the Securities  Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations of the Securities and Exchange Commission relating to such
sections,  as amended from time to time), is or becomes the  "beneficial  owner"
(as  defined in Rules  13d-3 and 13d-5  under the  Exchange  Act,  except that a
person  shall be deemed to have  "beneficial  ownership " of all shares that any
such  person  has the  right to  acquire,  whether  such  right  is  exercisable
immediately or only after the passage of time), directly or indirectly,  of more
than 40% of the  total  voting  power  of all  outstanding  common  stock of TNP
Enterprises;

     (ii) the Borrower  consolidates with or merges into another corporation and
the Borrower is not the surviving entity, or the Borrower conveys,  transfers or
leases  substantially  all of its assets,  or TNP Enterprises shall cease to own
100% of the common stock of the Borrower; or

     (iii) during any period of 24 consecutive months, whether commencing before
or after the date hereof, but ending on or after the date hereof,

     (a) individuals who at the beginning of such 24-month period were directors
of TNP Enterprises, and

     (b) any new directors who were elected or  recommended  for election to the
board of  directors of TNP  Enterprises  by a vote of at least a majority of the
directors  then still in office who either were  directors  at the  beginning of
such  24-month  period  or whose  election  was  previously  so  approved  or so
recommended,

     cease for any reason to  constitute a majority of the board of directors of
TNP Enterprises.

     "Chase" shall mean The Chase Manhattan Bank (National Association).

     "Closing Date" shall mean the date of the first Borrowing hereunder.

     "Code" shall mean the Internal  Revenue Code of 1986,  as amended from time
to time.

     "Collateral"  shall  mean all the  "Collateral"  as  defined  in the Pledge
Agreements.

     "Commitment"  shall mean,  with respect to each Lender,  the  commitment of
such  Lender to make  Loans  hereunder  as set forth on  Schedule  2.1 or in the
Assignment and Acceptance  pursuant to which such Lender assumed its Commitment,
as  applicable,  as the same may be (a)  reduced  from time to time  pursuant to
Section 2.9 or pursuant to Section 2.18 and (b) reduced or  increased  from time
to time pursuant to assignments by or to such Lender pursuant to Section 9.4.

     "Commitment  Fee" shall have the  meaning  assigned to such term in Section
2.5.

     "Confidential   Information   Memorandum"   shall  mean  the   Confidential
Information Memorandum of the Borrower dated August 1995.

     "Consolidated  EBIT"  shall  mean  with  respect  to the  Borrower  and its
consolidated Subsidiaries for any period, operating revenues of the Borrower and
its  consolidated  Subsidiaries  for such period less operating  expenses of the
Borrower and its consolidated  Subsidiaries,  but before the deduction therefrom
of any  applicable  interest  charges  and  income  taxes for such  period,  all
determined on a consolidated  basis in accordance with GAAP. For the purposes of
this  definition,  EBIT shall be  calculated  before any reduction for any write
down after the date  hereof in the book value of assets of the  Borrower  or its
Subsidiaries  resulting from any statute or any rule, regulation or order of the
PUCT.

     "Consolidated  Interest Expense" shall mean the aggregate  Interest Expense
of the Borrower and the  Subsidiaries,  determined  on a  consolidated  basis in
accordance with GAAP.

     "Consolidated Total Indebtedness" shall mean the aggregate  Indebtedness of
the Borrower and the  Subsidiaries  of the sort referred to in clause (a) of the
definition of  "Indebtedness",  determined on a consolidated basis in accordance
with GAAP.

     "Control" shall mean the possession,  directly or indirectly,  of the power
to direct or cause the  direction  of the  management  or  policies of a person,
whether  through the ownership of voting  securities,  by contract or otherwise,
and "Controlling" and "Controlled" shall have meanings correlative thereto.

     "Credit  Exposure"  shall mean, with respect to any Lender at any time, the
aggregate principal amount at such time of all outstanding Loans of such Lender.

     "Cumulative Net Income  Available for Common Dividends " shall mean for any
period the sum of all  consolidated net income available for common dividends as
reflected in the  Borrower's  consolidated  statements  of  operations  for such
period.

     "Debenture  Trustees"  shall  mean  the  First  Debenture  Trustee  and any
Subsequent Debenture Trustee, and "Debenture Trustee" shall mean any of them.

     "Default"  shall mean any event or condition  which upon  notice,  lapse of
time or both would constitute an Event of Default.

     "Dividend"  shall mean,  with  respect to any person,  any  dividend on any
shares of the common, preferred or preference stock, or any other class of stock
or equity capital,  of such person or any other  distribution in respect thereof
(other than  dividends  payable solely in shares of such stock) and any payments
on  account  of the  purchase,  redemption  or other  retirement  of any of such
person's  common  stock or any other  class of stock or equity  capital,  or any
warrants or options  therefor,  whether in cash or in property or in obligations
or securities.

     "dollars" or "$" shall mean lawful money of the United States of America.

     "environment"  shall  mean  ambient  air,  surface  water  and  groundwater
(including  potable water,  navigable  water and wetlands),  the land surface or
subsurface  strata,  the workplace or as otherwise  defined in any Environmental
Law.

     "Environmental Claim" shall mean any written accusation, allegation, notice
of violation,  claim, demand,  order,  directive,  cost recovery action or other
cause of action by, or on behalf of, any  Governmental  Authority  or any person
for  damages,   injunctive  or  equitable  relief,  personal  injury  (including
sickness,  disease or death),  Remedial  Action  costs,  tangible or  intangible
property damage,  natural resource  damages,  nuisance,  pollution,  any adverse
effect  on the  environment  caused by any  Hazardous  Material,  or for  fines,
penalties or restrictions,  resulting from or based upon: (a) the existence,  or
the  continuation  of  the  existence,  of  a  release  of  Hazardous  Materials
(including  sudden or non-sudden,  accidental or non-accidental  releases);  (b)
exposure  to  any  Hazardous   Material;   (c)  the  presence,   use,  handling,
transportation, storage, treatment or disposal of any Hazardous Material; or (d)
the violation or alleged  violation of any  Environmental  Law or  Environmental
Permit.

     "Environmental  Law" shall mean any and all  applicable  present and future
treaties,  laws,  rules,  regulations,   codes,  ordinances,   orders,  decrees,
judgments,  injunctions,  notices or binding agreements  issued,  promulgated or
entered  into  by  any  Governmental  Authority,  relating  in  any  way  to the
environment,  preservation or reclamation of natural resources,  the management,
release or threatened  release of any Hazardous Material or to health and safety
matters,  including the Comprehensive  Environmental Response,  Compensation and
Liability   Act  of  1980,   as  amended  by  the   Superfund   Amendments   and
Reauthorization  Act of  1986,  42  U.S.C.  Section  9601 et seq.  (collectively
"CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act of 1976 and Hazardous  and Solid  Amendments of 1984, 42 U.S.C.
Section 6901 et seq., the Federal Water Pollution Control Act, as amended by the
Clean Water Act of 1977,  33 U.S.C.  Section 1251 et seq.,  the Clean Air Act of
1970, as amended 42 U.S.C.  Section 7401 et seq., the Toxic  Substances  Control
Act of 1976, 15 U.S.C.  Section 2601 et seq., the Occupational Safety and Health
Act of 1970, as amended,  29 U.S.C.  Section 651 et seq., the Emergency Planning
and Community  Right-to-Know  Act of 1986, 42 U.S.C.  Section 11001 et seq., the
Safe Drinking Water Act of 1974, as amended,  42 U.S.C.  Section 300(f) et seq.,
the Hazardous Materials  Transportation Act, 49 U.S.C. Section 1801 et seq., and
any  similar  or  implementing  state  or  local  law,  and  all  amendments  or
regulations promulgated thereunder.

                  "Environmental  Permit"  shall  mean  any  permit,   approval,
authorization,  certificate, license, variance, filing or permission required by
or from any Governmental Authority pursuant to any Environmental Law.

                  "Equity  Capital" shall mean, as of any date of  determination
thereof,  the  sum of the  following  for  the  Borrower  and  its  Subsidiaries
determined on a consolidated  basis  (without  duplication)  in accordance  with
GAAP:

     (a) the amount of capital stock (including,  without limitation,  preferred
and preference stock), plus

     (b) the amount of  surplus  and  retained  earnings  (or,  in the case of a
surplus or retained earnings deficit, minus the amount of such deficit), plus

     (c) the amount of any other items of an equity capital nature, minus

     (d) the sum of (x) the cost of treasury shares plus (y) goodwill.

For the  purposes of this  definition,  the sum shall be  calculated  before any
reduction  for any write  down  after the date  hereof in the book  value of the
assets of the  Borrower or its  Subsidiaries  resulting  from any statute or any
rule,  regulation  or order of the PUCT;  provided,  that the excess of any such
write-downs  over $10,000,000 in the aggregate during the term of this Agreement
shall be taken into account in determining Equity Capital.

                  "Equity  Issuance"  shall  mean  any  issuance  or sale by any
person of any shares of capital stock or other equity securities of such person,
or any obligations  convertible into or exchangeable for, or giving any person a
right,  option or warrant to acquire,  such  securities or such  convertible  or
exchangeable obligations.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.

                  "ERISA Affiliate" shall mean any trade or business (whether or
not  incorporated)  that,  together  with the  Borrower,  is treated as a single
employer  under  Section  414(b) or (c) of the Code,  or solely for  purposes of
Section  302 of ERISA  and  Section  412 of the  Code,  is  treated  as a single
employer under Section 414 of the Code.

                  "ERISA  Event"  shall  mean  (a) any  "reportable  event",  as
defined in Section  4043 of ERISA or the  regulations  issued  thereunder,  with
respect  to a Plan;  (b) the  adoption  of any  amendment  to a Plan that  would
require the provision of security pursuant to Section  401(a)(29) of the Code or
Section  307 of  ERISA;  (c)  the  existence  with  respect  to any  Plan  of an
"accumulated  funding  deficiency"  (as  defined in  Section  412 of the Code or
Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section
412(d) of the Code or Section 303(d) of ERISA of an application  for a waiver of
the minimum funding standard with respect to any Plan; (e) the incurrence of any
liability under Title IV of ERISA with respect to the termination of any Plan or
the  withdrawal  or  partial  withdrawal  of the  Borrower  or any of its  ERISA
Affiliates from any Plan or Multiemployer  Plan; (f) the receipt by the Borrower
or any  ERISA  Affiliate  from the PBGC or a plan  administrator  of any  notice
relating to the intention to terminate any Plan or Plans or to appoint a trustee
to administer any Plan;  (g) the receipt by the Borrower or any ERISA  Affiliate
of  any  notice   concerning  the  imposition  of  Withdrawal   Liability  or  a
determination  that a Multiemployer  Plan is, or is expected to be, insolvent or
in  reorganization,  within the meaning of Title IV of ERISA; (h) the occurrence
of a "prohibited  transaction"  with respect to which the Borrower or any of its
Subsidiaries is a  "disqualified  person" (within the meaning of Section 4975 of
the Code) or with  respect to which the  Borrower or any such  Subsidiary  could
otherwise be liable; and (i) any other event or condition with respect to a Plan
or  Multiemployer  Plan that could reasonably be expected to result in liability
of the Borrower.

     "Eurodollar  Borrowing"  shall mean a  Borrowing  comprised  of  Eurodollar
Loans.

     "Eurodollar Loan" shall mean any Loan bearing interest at a rate determined
by reference to the LIBO Rate in accordance with the provisions of Article II.

     "Event of Default" shall have the meaning  assigned to such term in Article
VII.

     "Existing  Facility  Agent"  shall  mean  the  "Agent"  referred  to in the
Existing Facility Agreement.

     "Existing  Facility  Agreement"  shall  mean the Unit 2 First  Amended  and
Restated Project Loan and Credit Agreement dated January 8, 1992, as amended and
in  effect  immediately  prior to the  date  hereof,  among  the  Borrower,  the
Guarantor,  the Existing Facility Banks, the Existing Facility  Collateral Agent
and the Existing Facility Agent.

     "Existing  Facility  Amendment No. 1" shall mean the First Amendment to the
Existing Facility Agreement dated as of September 21, 1993.

     "Existing  Facility  Banks"  shall  mean the  banks  party to the  Existing
Facility Agreement.

     "Existing Facility  Collateral" shall have the meaning assigned to the term
"Collateral" in the Existing Facility Agreement.

     "Existing  Facility  Collateral  Agent" shall mean the  "Collateral  Agent"
referred to in the Existing Facility Agreement.

     "Existing  Facility Common  Collateral"  shall have the meaning assigned to
the term "Common Collateral" in the Intercreditor Agreement.

     "Existing  Facility  Documents"  shall  mean,  collectively,  the  Existing
Facility  Agreement,  the Existing  Facility Project  Documents and the Existing
Facility Security Documents.

     "Existing  Facility  Project  Documents" shall have the meaning assigned to
the term "Project Documents" in the Existing Facility Agreement.

     "Existing  Facility Secured Parties" shall have the meaning assigned to the
term "Secured Parties" in the Existing Facility Agreement.

     "Existing Facility Security Documents" shall mean the "Security  Documents"
and the "First Amendment Security  Documents",  as such terms are defined in the
Existing Facility Agreement.

     "Facility  Purchase  Agreement"  shall  mean the Unit 2 First  Amended  and
Restated Facility Purchase Agreement, among the Borrower and the Guarantor dated
as of January 8, 1992, as amended from time to time.

     "Financial  Officer"  of any  corporation  shall  mean the chief  financial
officer,   principal  accounting  officer,   treasurer  or  controller  of  such
corporation.

     "First Commitment Reduction Date" shall mean November 3, 1998.

     "First  Debenture  Trustee"  shall  mean  IBJ,  as  trustee  under,  or any
successor trustee under, the First Secured Debenture Indenture.

     "First  Mortgage  Bonds" shall mean the first  mortgage bonds issued by the
Borrower pursuant to the TNP Bond Indenture.

     "First Secured  Debenture  Indenture" shall mean the Indenture and Security
Agreement dated as of January 15, 1992 between the Borrower and IBJ, as trustee,
as the same may from time to time be amended,  modified or  supplemented  or its
provisions waived.

     "First Secured Debentures" shall mean the debentures, due January 15, 1999,
issued by the  Borrower on January 27,  1992 under the First  Secured  Debenture
Indenture.

     "GAAP" shall mean United States generally  accepted  accounting  principles
applied on a consistent  basis,  but giving effect to changes in such accounting
principles as provided in Section 1.2.

     "Governmental  Authority" shall mean any Federal,  state,  local or foreign
court or governmental agency, authority, instrumentality or regulatory body.

     "Guarantee"  of or by any person shall mean any  obligation,  contingent or
otherwise,  of such  person  guaranteeing  or  having  the  economic  effect  of
guaranteeing any Indebtedness of any other person (the "primary obligor") in any
manner,  whether  directly or  indirectly,  and including any obligation of such
person,  direct or indirect,  (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such  Indebtedness or to purchase (or to advance
or supply  funds for the  purchase  of) any  security  for the  payment  of such
Indebtedness,  (b) to purchase or lease property, securities or services for the
purpose  of  assuring  the owner of such  Indebtedness  of the  payment  of such
Indebtedness  or (c) to maintain  working  capital,  equity capital or any other
financial  statement  condition  or  liquidity  of the primary  obligor so as to
enable the primary obligor to pay such Indebtedness; provided, however, that the
term Guarantee shall not include  endorsements  for collection or deposit in the
ordinary course of business.

     "Guarantor" shall mean Texas Generating Company II, a Texas corporation.

     "IBJ" shall mean IBJ Schroder Bank & Trust Company.

     "Indebtedness"  of any person  shall  mean,  without  duplication,  (a) all
obligations  of such person for  borrowed  money,  (b) all  obligations  of such
person with respect to deposits or advances of any kind, (c) all  obligations of
such person evidenced by bonds,  debentures,  notes or similar instruments,  (d)
all obligations of such person upon which interest charges are customarily paid,
(e) all  obligations  of such  person  under  conditional  sale or  other  title
retention  agreements  relating to property or assets  purchased by such person,
(f) all  obligations  of such person issued or assumed as the deferred  purchase
price of property  or services  (excluding  trade  accounts  payable and accrued
obligations  incurred in the ordinary course of business),  (g) all Indebtedness
of  others  secured  by (or for which the  holder  of such  Indebtedness  has an
existing right,  contingent or otherwise, to be secured by) any Lien on property
owned or acquired by such person, whether or not the obligations secured thereby
have been assumed,  (h) all Guarantees by such person of Indebtedness of others,
(i) all Capital Lease  Obligations of such person,  (j) all  obligations of such
person in respect of  Interest  Rate  Protection  Agreements,  foreign  currency
exchange agreements or other interest or exchange rate hedging  arrangements and
(k) all  obligations of such person as an account party in respect of letters of
credit and bankers' acceptances.

     "Index Debt" shall mean the First Mortgage Bonds.

     "Intercreditor  Agreement" shall mean the Intercreditor and Non-disturbance
Agreement  dated as of October 1, 1988, as amended from time to time,  among the
Borrower,  the  Guarantor  (as  successor in interest to TPFC),  the banks party
thereto and Chase, in its several capacities as the Existing Facility Collateral
Agent and the Unit 1 Credit  Agent and the Unit 2 Credit  Agent (each as defined
therein).

     "Interest  Expense" shall mean with respect to any person,  for any period,
the sum of the following:  (a) all interest  expense in respect of  indebtedness
during such period  (whether or not  actually  paid during such period) plus (b)
the net amounts payable (or minus the net amounts receivable) under any Interest
Rate  Protection  Agreement  during such period (whether or not actually paid or
received during such period).

     "Interest  Payment Date" shall mean, with respect to any Loan, the last day
of the Interest Period  applicable to the Borrowing of which such Loan is a part
and, in the case of a Eurodollar  Borrowing with an Interest Period of more than
three months'  duration,  each day that would have been an Interest Payment Date
had successive  Interest  Periods of three months'  duration been  applicable to
such Borrowing,  and, in addition,  the date of any prepayment of such Borrowing
or refinancing of such Borrowing with a Borrowing of a different Type.

     "Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period
commencing  on the  date  of  such  Borrowing  and  ending  on  the  numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day)  in the  calendar  month  that is 1, 2, 3 or 6  months  thereafter,  as the
Borrower may elect (except that as to Eurodollar  Borrowings made on the Closing
Date or within  three  Business  Days  thereafter,  the  Borrower may request an
Interest  Period  of any  duration  not  fewer  than 7 days and not more  than 6
months) and (b) as to any ABR  Borrowing,  the period  commencing on the date of
such Borrowing and ending on the earliest of (i) the next  succeeding  March 31,
June 30,  September 30 or December 31, (ii) the Maturity Date and (iii) the date
such Borrowing is prepaid in accordance  with Section 2.10;  provided,  however,
that if any Interest  Period would end on a day other than a Business  Day, such
Interest Period shall be extended to the next succeeding Business Day unless, in
the case of a Eurodollar Borrowing only, such next succeeding Business Day would
fall in the next calendar month, in which case such Interest Period shall end on
the next  preceding  Business Day.  Interest shall accrue from and including the
first day of an Interest  Period to but  excluding the last day of such Interest
Period.

     "Interest Rate Protection Agreement" shall mean any agreement providing for
an interest rate swap,  cap or collar,  or for any other  financial  arrangement
designed to protect against fluctuations in interest rates.

     "Lenders" shall mean (a) the financial  institutions listed on Schedule 2.1
(other than any such financial  institution that has ceased to be a party hereto
pursuant to an Assignment and Acceptance) and (b) any financial institution that
has become a party hereto pursuant to an Assignment and Acceptance.

     "LIBO Rate" shall mean, with respect to any Eurodollar Borrowing,  the rate
(rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits
approximately  equal in principal amount to, the Administrative  Agent's portion
of such  Eurodollar  Borrowing  and for a maturity  comparable  to such Interest
Period are offered to the principal London office of the Administrative Agent in
immediately  available  funds in the London  interbank  market at  approximately
11:00 a.m.,  London time,  two Business Days prior to the  commencement  of such
Interest Period.

     "Lien" shall mean,  with respect to any asset,  (a) any  mortgage,  deed of
trust,  lien,  pledge,  encumbrance,  charge or security  interest in or on such
asset,  (b) the  interest  of a vendor or a lessor  under any  conditional  sale
agreement,  capital lease or title  retention  agreement (or any financing lease
having  substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities,  any purchase  option,  call or
similar right of a third party with respect to such securities.

     "Loan Documents" shall mean this Agreement,  the Assignment Agreement,  the
Pledge Agreements,  Amendment No. 1 to the TNP Security Agreement (as defined in
the Existing Facility Agreement)  substantially in the form of Exhibit O and any
promissory notes that may be issued pursuant to Section 9.4(h).

     "Loan Parties" shall mean the Borrower and the Guarantor.

     "Loans"  shall mean the loans made by the Lenders to the Borrower  pursuant
to Section 2.1. Each Loan shall be a Eurodollar Loan or an ABR Loan.

     "Margin  Stock" shall have the meaning  assigned to such term in Regulation
U.

     "Material Adverse Effect" shall mean (a) a materially adverse effect on the
business,  assets,  operations  or  condition,  financial or  otherwise,  of the
Borrower and the Subsidiaries taken as a whole or the Borrower and the Guarantor
on a combined basis,  (b) material  impairment of the ability of the Borrower or
any other Loan Party to perform any of its  obligations  under any Loan Document
to which it is or will be a party or (c) material impairment of the rights of or
benefits available to the Lenders under any Loan Document.

     "Maturity Date" shall mean November 3, 2000.

     "Moody's" shall mean Moody's Investors Service, Inc.

     "Multiemployer  Plan" shall mean a multiemployer plan as defined in Section
4001(a)(3) of ERISA.

     "Net Cash Proceeds"  shall mean with respect to any Equity  Issuance or any
issuance of debt  securities,  cash proceeds net of underwriting  commissions or
placement fees and expenses directly incurred in connection therewith.

     "Note Pledge Agreement" shall mean the Note Pledge Agreement, substantially
in the form of Exhibit F, between the Borrower and the Collateral  Agent for the
benefit of the Lenders.

     "Obligations"  shall mean all obligations  defined as  "Obligations" in the
TGC II Guarantee and Pledge Agreement and in the Pledge Agreements.

     "PBGC" shall mean the Pension Benefit Guaranty  Corporation referred to and
defined in ERISA.

     "Permitted Investments" shall mean:

                  (a) direct obligations of, or obligations the principal of and
         interest on which are unconditionally  guaranteed by, the United States
         of America (or by any agency thereof to the extent such obligations are
         backed by the full faith and credit of the United  States of  America),
         in each case  maturing  within  one year  from the date of  acquisition
         thereof;

                  (b)  investments in commercial  paper maturing within 270 days
         from  the date of  acquisition  thereof  and  having,  at such  date of
         acquisition,  the highest  credit  rating  obtainable  from S&P or from
         Moody's;

                  (c)   investments  in   certificates   of  deposit,   banker's
         acceptances and time deposits maturing within one year from the date of
         acquisition  thereof  issued or guaranteed by or placed with, and money
         market deposit  accounts  issued or offered by, any domestic  office of
         any commercial  bank  organized  under the laws of the United States of
         America or any State thereof  which has a combined  capital and surplus
         and undivided profits of not less than $250,000,000;

                  (d) deposits not exceeding  $2,000,000 in the aggregate  with,
         or investments issued by or guaranteed by (and backed by the full faith
         and credit of the United States of America),  any domestic  office of a
         commercial  bank  organized  under  the laws of the  United  States  of
         America or any State thereof  which has a combined  capital and surplus
         and  undivided  profits  of less  than  $250,000,000  but not less than
         $30,000,000; and

                  (e) other  investment  instruments  approved  in  writing  by
 the Required Lenders.

     "person" shall mean any natural person, corporation,  business trust, joint
venture,  association,  company,  partnership  or  government,  or any agency or
political subdivision thereof.

     "Plan"  shall  mean  any  employee  pension  benefit  plan  (other  than  a
Multiemployer  Plan)  subject to the  provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or
any ERISA  Affiliate is (or, if such plan were  terminated,  would under Section
4069 of ERISA be deemed to be) an  "employer"  as  defined  in  Section  3(5) of
ERISA.

     "Pledge  Agreements"  shall  mean  the  Bond  Agreement,  the  Note  Pledge
Agreement  and  the  TGC II  Guarantee  and  Pledge  Agreement  and  each of the
agreements and other  instruments  executed and delivered  pursuant to either of
them or pursuant to Section 5.11.

     "Pledged  Notes" shall mean the notes  issued  under the Existing  Facility
Agreement  and  held  immediately  prior  to the  Closing  Date by the  Existing
Facility Banks and purchased and pledged by the Borrower to the Collateral Agent
for the benefit of the Lenders pursuant to the Note Pledge Agreement.

     "Project" shall mean, collectively, Unit 2 and the Site.

     "PUCT" shall mean the Public  Utility  Commission  of the State of Texas or
any successor thereto.

     "Quarterly  Dates" shall mean the last day of each March,  June,  September
and December,  the first of which  Quarterly  Dates shall be the first such date
after  the  date  any Loan is made,  provided  that,  if any such  date is not a
Business Day, the relevant Quarterly Date shall be the next succeeding  Business
Day.

     "Register" shall have the meaning assigned to such term in Section 9.4(d).

     "Regulation G" shall mean Regulation G of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

     "Regulation U" shall mean Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

     "Regulation X" shall mean Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

     "Release  Conditions"  shall  have the  meaning  assigned  to such  term in
Section 9.17(a).

     "Release  Date"  shall have the  meaning  assigned  to such term in Section
9.17(a).

     "Release of  Collateral"  shall have the  meaning  assigned to such term in
Section 9.17(a).

     "Replacement  Loan" shall have the meaning assigned to such term in Section
2.19.

     "Replacement  Note" shall have the meaning assigned to such term in Section
2.19.

     "Replacement  Note Holder" shall have the meaning  assigned to such term in
the Existing Facility Agreement.

     "Replacement Note Maturity Date" shall mean January 15, 1999.

     "Required Lenders" shall mean, at any time, Lenders having Loans and unused
Commitments  representing  at least 66-2/3% of the sum of all Loans  outstanding
and unused Commitments at such time.

     "Responsible  Officer" of any corporation  shall mean any executive officer
or  Financial  Officer  of such  corporation  and any other  officer  or similar
official thereof  responsible for the  administration of the obligations of such
corporation in respect of this Agreement.

     "S&P"  shall  mean  Standard  &  Poor's  Ratings  Service,  a  division  of
McGraw-Hill, Inc.

     "Second Commitment Reduction Date" shall mean November 3, 1999.

     "Secured  Debenture  Indentures"  shall  mean the First  Secured  Debenture
Indenture  and  any  Subsequent  Secured  Debenture  Indentures,   and  "Secured
Debenture Indenture" shall mean any of them.

     "Secured  Debentures"  shall  mean the  First  Secured  Debentures  and any
Subsequent Secured Debentures (which may include subsequent series of debentures
issued under any indenture  supplemental  to any  Subsequent  Secured  Debenture
Indenture),  and may  refer to the  Secured  Debentures  of any one or more such
series, as the context may require.

     "Site" shall have the meaning assigned thereto in the TGC II Mortgage.

     "Statutory  Reserves" shall mean a fraction  (expressed as a decimal),  the
numerator of which is the number one and the  denominator of which is the number
one minus the  aggregate  of the  maximum  reserve  percentages  (including  any
marginal,  special,  emergency or supplemental  reserves) expressed as a decimal
established  by  the  Board  and  any  other  banking  authority  to  which  the
Administrative Agent is subject, for new negotiable nonpersonal time deposits in
dollars of over $100,000 with  maturities  approximately  equal to three months.
Statutory  Reserves shall be adjusted  automatically  on and as of the effective
date of any change in any reserve percentage.

     "Subsequent  Debenture Trustee" shall mean the trustee under any Subsequent
Secured Debenture Indenture.

     "Subsequent  Secured  Debenture  Indenture"  shall  mean any  indenture  or
agreement,  other than the First Secured Debenture Indenture, which provides for
the issuance of and sets out the terms and conditions of any Indebtedness of the
Borrower which is secured by the Replacement  Note pursuant to and in accordance
with  Section  2.19,  whether  or not said  agreement  shall be  denominated  an
"indenture" and whether or not said debt shall be denominated  "debentures,"  in
each  case,  as the  same  may  from  time  to  time  be  amended,  modified  or
supplemented or its provisions waived.

     "Subsequent   Secured  Debentures"  shall  mean  any  Indebtedness  of  the
Borrower,  other  than the First  Secured  Debentures,  which is  secured by the
Replacement Note in accordance with Section 2.19, whether or not said debt shall
be  denominated  "debentures".   Said  term  may  refer  to  Subsequent  Secured
Debentures of any one or more such series, as the context may require.

     "subsidiary"  shall mean, with respect to any person (herein referred to as
the  "parent"),  any  corporation,  partnership,  association  or other business
entity (a) of which securities or other ownership  interests  representing  more
than 50% of the  equity or more than 50% of the  ordinary  voting  power or more
than 50% of the general partnership interests are, at the time any determination
is  being  made,  owned,  controlled  or held,  or (b) that is,  at the time any
determination  is  made,  otherwise  Controlled,  by the  parent  or one or more
subsidiaries of the parent or by the parent and one or more  subsidiaries of the
parent.

     "Subsidiary" shall mean any subsidiary of the Borrower.

     "Supplemental  Bond Indenture"  shall mean the  Twenty-Fourth  Supplemental
Indenture  dated as of November 3, 1995 between the Borrower and Bank of America
Illinois, as trustee.

     "TGC" shall mean Texas Generating Company, a Texas corporation.

     "TGC II" shall mean Texas Generating Company II, a Texas corporation.

     "TGC II Guarantee and Pledge Agreement" shall mean the Guarantee and Pledge
Agreement,  substantially  in the form of  Exhibit D, made by the  Guarantor  in
favor of the Collateral Agent for the benefit of the Lenders.

     "TGC II Mortgage"  shall mean the Mortgage and Deed of Trust (with Security
Agreement and UCC Financing  Statement for Fixture Filing) dated to be effective
as of October 1, 1988 by TPFC in favor of Donald H. Snell as  mortgage  trustee,
recorded in Volume 521 at Page 601 of the Public  Records of  Robertson  County,
Texas, as amended or modified from time to time.

     "TGC II Mortgage Trust Estate" shall have the meaning  ascribed to the term
Mortgage  Trust  Estate as  defined in the TGC II  Mortgage,  as the same may be
reduced from time to time pursuant to the Facility Purchase Agreement.

     "Three-Month  Secondary  CD Rate" shall mean,  for any day,  the  secondary
market rate for three-month  certificates of deposit reported as being in effect
on such day (or,  if such day shall not be a Business  Day,  the next  preceding
Business Day) by the Board through the public information  telephone line of the
Federal Reserve Bank of New York (which rate will,  under the current  practices
of the Board,  be published in Federal  Reserve  Statistical  Release  H.15(519)
during the week  following  such day), or, if such rate shall not be so reported
on such day or such next  preceding  Business  Day, the average of the secondary
market quotations for three-month  certificates of deposit of major money center
banks in New York City received at approximately 10:00 a.m., New York City time,
on such day (or, if such day shall not be a Business Day, on the next  preceding
Business Day) by the  Administrative  Agent from three New York City  negotiable
certificate of deposit dealers of recognized standing selected by it.

     "TNP" shall mean the Borrower.

     "TNP Bond  Indenture"  shall mean the  Indenture  of  Mortgage  and Deed of
Trust,  dated as of November 1, 1944,  between  Community Public Service Company
(predecessor  to the  Borrower)  and City  National  Bank and Trust  Company  of
Chicago  (predecessor to Bank of America Illinois),  as Trustee,  as amended and
supplemented by supplemental indentures.

     "TNP Enterprises" shall mean TNP Enterprises, Inc., a Texas corporation.

     "TNP Second Lien Mortgage" shall have the meaning  assigned to such term in
the  Existing  Facility  Agreement,  as  amended  by any  modification  to  such
Mortgage.

     "Total  Capitalization"  shall  mean,  as of any  date,  the sum of  Equity
Capital and the  aggregate  amount of  Indebtedness  of the sort  referred to in
clause (a) of the definition of "Indebtedness" (including the current portion of
such  Indebtedness),  in  each  case  of  the  Borrower  and  its  Subsidiaries,
determined on a consolidated basis.

     "Total  Commitment"  shall mean, at any time,  the aggregate  amount of the
Commitments, as in effect at such time.

     "TPFC" shall mean Texas PFC, Inc.

     "Transactions" shall have the meaning assigned to such term in Section 3.2.

     "Type",  when used in respect of any Loan or Borrowing,  shall refer to the
Rate by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined.  For purposes hereof, the term "Rate" shall include the
LIBO Rate and the Alternate Base Rate.

     "Unit 1" shall  have the  meaning  assigned  to such  term in the  Existing
Facility Agreement.

     "Unit 1 Credit  Agreement"  shall have the meaning assigned to such term in
the Existing Facility ----------------------- Agreement.

     "Unit 2" shall  have the  meaning  assigned  to such  term in the  Existing
Facility Agreement.

     "wholly  owned  subsidiary"  of any person shall mean a subsidiary  of such
person of which securities  (except for directors'  qualifying  shares) or other
ownership  interests  representing  100% of the  equity or 100% of the  ordinary
voting power or 100% of the general  partnership  interests are, at the time any
determination is being made, owned,  controlled or held by such person or one or
more wholly owned  subsidiaries of such person or by such person and one or more
wholly owned subsidiaries of such person.

     "Withdrawal  Liability"  shall mean liability to a Multiemployer  Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.

     SECTION 1.2. Terms  Generally.  The  definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require,  any pronoun  shall  include the  corresponding  masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be  followed by the phrase  "without  limitation".  All  references
herein to Articles,  Sections, Exhibits and Schedules shall be deemed references
to Articles  and Sections of, and  Exhibits  and  Schedules  to, this  Agreement
unless the context shall otherwise require.  Whenever definitions in Section 1.1
are defined by reference to defined  terms in the Existing  Facility  Agreement,
and such defined terms in the Existing Facility  Agreement  contain  capitalized
terms not  otherwise  defined  herein,  such  capitalized  terms  shall have the
meanings  assigned to such terms in the Existing Facility  Agreement.  Except as
otherwise  expressly provided herein, (a) any reference in this Agreement to any
Loan Document  shall mean such document as amended,  restated,  supplemented  or
otherwise  modified  from  time to time and (b) all  terms of an  accounting  or
financial  nature shall be construed in accordance  with GAAP, as in effect from
time  to  time;   provided,   however,   that  if  the  Borrower   notifies  the
Administrative  Agent that the Borrower  wishes to amend any covenant in Article
VI or any  related  definition  to  eliminate  the  effect of any change in GAAP
occurring after the date of this Agreement on the operation of such covenant (or
if the Administrative Agent notifies the Borrower that the Required Lenders wish
to amend  Article  VI or any  related  definition  for such  purpose),  then the
Borrower's  compliance  with such  covenant  shall be determined on the basis of
GAAP in effect  immediately before the relevant change in GAAP became effective,
until either such notice is  withdrawn  or such  covenant is amended in a manner
satisfactory to the Borrower and the Required Lenders.


ARTICLE II.  THE CREDITS

     SECTION 2.1.  Commitments.  Subject to the terms and conditions and relying
upon the  representations  and warranties  herein set forth, each Lender agrees,
severally and not jointly,  to make Loans to the Borrower,  at any time and from
time to time on or after the date hereof,  and until the earlier of the Maturity
Date and the termination of the Commitment of such Lender in accordance with the
terms hereof, in an aggregate principal amount at any time outstanding that will
not result in such Lender's Credit Exposure exceeding its Commitment. Within the
limits set forth in the preceding sentence and subject to the terms,  conditions
and  limitations  set forth herein,  the Borrower may borrow,  pay or prepay and
reborrow Loans.

     SECTION  2.2.  Loans.  (a) Each Loan  shall be made as part of a  Borrowing
consisting  of Loans  made by the  Lenders  ratably  in  accordance  with  their
respective  Commitments;  provided,  however,  that the failure of any Lender to
make any Loan shall not in itself  relieve any other Lender of its obligation to
lend  hereunder  (it  being  understood,   however,  that  no  Lender  shall  be
responsible  for the failure of any other Lender to make any Loan required to be
made by such other Lender).  The Loans  comprising any Borrowing  shall be in an
aggregate  principal  amount that is (i) an integral  multiple of $1,000,000 and
not less than $2,000,000 or (ii) equal to the remaining available balance of the
applicable Commitments.

     (b) Subject to Sections  2.8 and 2.12,  each  Borrowing  shall be comprised
entirely of ABR Loans or Eurodollar  Loans as the Borrower may request  pursuant
to  Section  2.3.  Each  Lender may at its option  make any  Eurodollar  Loan by
causing any domestic or foreign  branch or Affiliate of such Lender to make such
Loan;  provided that any exercise of such option shall not affect the obligation
of the  Borrower  to  repay  such  Loan in  accordance  with  the  terms of this
Agreement. Borrowings of more than one Type may be outstanding at the same time;
provided,  however,  that the  Borrower  shall not be  entitled  to request  any
Borrowing  that, if made,  would result in more than six  Eurodollar  Borrowings
outstanding  hereunder at any time.  For purposes of the  foregoing,  Borrowings
having different  Interest  Periods,  regardless of whether they commence on the
same date, shall be considered separate Borrowings.

     (c) Each  Lender  shall  make each Loan to be made by it  hereunder  on the
proposed date thereof by wire transfer of  immediately  available  funds to such
account in New York City as the  Administrative  Agent may  designate  not later
than 11:00 a.m., New York City time, and the Administrative Agent shall by 12:00
(noon),  New York City time,  credit the amounts so received to an account  with
the Administrative  Agent designated by the Borrower in the applicable Borrowing
Request,  which  account  must be in the name of the Borrower or, if a Borrowing
shall not occur on such date because any condition  precedent  herein  specified
shall not have been met,  return  the  amounts  so  received  to the  respective
Lenders.

     (d) Unless the  Administrative  Agent  shall have  received  notice  from a
Lender  prior  to the  date of any  Borrowing  that  such  Lender  will not make
available to the  Administrative  Agent such Lender's portion of such Borrowing,
the  Administrative  Agent may assume  that such  Lender  has made such  portion
available  to the  Administrative  Agent  on  the  date  of  such  Borrowing  in
accordance  with  paragraph  (c)  above and the  Administrative  Agent  may,  in
reliance  upon such  assumption,  make  available to the Borrower on such date a
corresponding  amount.  If the  Administrative  Agent  shall  have so made funds
available  then, to the extent that such Lender shall not have made such portion
available to the  Administrative  Agent, such Lender and the Borrower  severally
agree  to  repay  to  the   Administrative   Agent   forthwith  on  demand  such
corresponding  amount together with interest thereon, for each day from the date
such  amount is made  available  to the  Borrower  until the date such amount is
repaid  to the  Administrative  Agent  at (i) in the case of the  Borrower,  the
interest rate applicable at the time to the Loans  comprising such Borrowing and
(ii) in the case of such Lender, a rate determined by the  Administrative  Agent
to  represent  its cost of overnight or  short-term  funds (which  determination
shall be conclusive  absent manifest  error).  If such Lender shall repay to the
Administrative  Agent such  corresponding  amount,  such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement.

     (e)  Notwithstanding  any other provision of this  Agreement,  the Borrower
shall not be entitled to request any Borrowing if the Interest Period  requested
with respect thereto would end after the Maturity Date.

     (f) The Borrower may refinance all or any part of a Borrowing  with another
Borrowing,  subject  to  the  conditions  and  limitations  set  forth  in  this
Agreement.  Any  Borrowing or part thereof so  refinanced  shall be deemed to be
repaid or prepaid in accordance with the applicable provisions of this Agreement
with the proceeds of the new Borrowing,  and the proceeds of such new Borrowing,
to the extent they do not exceed the  principal  amount of the  Borrowing  being
refinanced, shall not be transferred as contemplated by paragraph (c) above.

     SECTION 2.3.  Borrowing  Procedure.  In order to request a  Borrowing,  the
Borrower  shall hand  deliver or  telecopy  to the  Administrative  Agent a duly
completed  Borrowing  Request  (or  shall  notify  the  Administrative  Agent by
telephone of the information  contained in such a Borrowing Request, with a copy
of such  Borrowing  Request to be delivered or telecopied to the  Administrative
Agent promptly after such notice) (a) in the case of a Eurodollar Borrowing, not
later than 11:00 a.m., New York City time, three Business Days before a proposed
Borrowing,  and (b) in the case of an ABR Borrowing,  not later than 12:00 noon,
New York City time, one Business Day before a proposed Borrowing. Each Borrowing
Request  shall be  irrevocable,  shall be signed by or on behalf of the Borrower
and shall specify the  following  information:  (i) whether the  Borrowing  then
being  requested is to be a Eurodollar  Borrowing or an ABR Borrowing;  (ii) the
date of such  Borrowing  (which shall be a Business  Day),  (iii) the number and
location of the account to which funds are to be  disbursed  (which  shall be an
account that complies with the requirements of Section 2.2(c));  (iv) the amount
of such  Borrowing;  and (v) if such Borrowing is to be a Eurodollar  Borrowing,
the   Interest   Period  with  respect   thereto;   provided,   however,   that,
notwithstanding  any  contrary  specification  in any  Borrowing  Request,  each
requested Borrowing shall comply with the requirements set forth in Section 2.2.
If no election as to the Type of Borrowing is specified in any such notice, then
the requested  Borrowing  shall be an ABR Borrowing.  If no Interest Period with
respect to any  Eurodollar  Borrowing is specified in any such notice,  then the
Borrower  shall be deemed to have  selected  an  Interest  Period of one month's
duration.  The  Administrative  Agent shall  promptly  advise the Lenders of any
notice given  pursuant to this Section 2.3 (and the  contents  thereof),  and of
each Lender's portion of the requested Borrowing.

     If the Borrower shall not have delivered a Borrowing  Request in accordance
with this Section 2.3 prior to the end of the Interest Period then in effect for
any  Borrowing  and  requesting  that such  Borrowing  be  refinanced,  then the
Borrower shall (unless the Borrower has notified the  Administrative  Agent, not
less than three  Business  Days prior to the end of such Interest  Period,  that
such Borrowing is to be repaid at the end of such Interest  Period) be deemed to
have delivered a Borrowing Request  requesting that such Borrowing be refinanced
with a new Borrowing of equivalent  amount,  and such new Borrowing  shall be an
ABR Borrowing.

     SECTION 2.4. Evidence of Debt;  Repayment of Loans. (a) The Borrower hereby
unconditionally  promises to pay to the Administrative Agent, for the account of
each Lender, the principal amount of each Loan on the earlier of the last day of
the Interest Period applicable thereto and the Maturity Date.

     (b) Each Lender shall  maintain in  accordance  with its usual  practice an
account or accounts  evidencing the  indebtedness of the Borrower to such Lender
resulting  from each Loan made by such Lender from time to time,  including  the
amounts of principal  and interest  payable and paid to such Lender from time to
time under this Agreement.

     (c) The  Administrative  Agent  shall  maintain  accounts in which it shall
record  (i) the amount of each Loan made  hereunder,  the Type  thereof  and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and  payable or to become due and payable  from the  Borrower to each Lender
hereunder and (iii) the amount of any sum received by the  Administrative  Agent
hereunder from the Borrower or the Guarantor and each Lender's share thereof.

     (d) The entries made in the accounts  maintained pursuant to paragraphs (b)
and (c) above shall be prima facie  evidence of the existence and amounts of the
obligations therein recorded;  provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein shall
not in any manner affect the  obligations  of the Borrower to repay the Loans in
accordance with their terms.

     (e) Notwithstanding any other provision of this Agreement, in the event any
Lender shall  request and receive a  promissory  note payable to such Lender and
its  registered  assigns,  the interests  represented  by such note shall at all
times (including after any assignment of all or part of such interests  pursuant
to Section 9.4) be  represented by one or more  promissory  notes payable to the
payee named therein or its registered assigns.

     SECTION 2.5.  Commitment  Fees. The Borrower  agrees to pay to each Lender,
through the  Administrative  Agent,  on each  Quarterly Date and on each date on
which the  Commitment  of such Lender shall expire or be  terminated as provided
herein, a commitment fee (a "Commitment Fee") equal to the Applicable Percentage
per annum in effect from time to time on the average  daily unused amount of the
Commitment  of such  Lender  during  the  preceding  quarter  (or  other  period
commencing  with the date hereof or ending with the Maturity Date or the date on
which  the  Commitments  of such  Lender  shall  expire or be  terminated).  All
Commitment  Fees shall be  computed  on the basis of the  actual  number of days
elapsed  in a year of 360 days.  The  Commitment  Fee due to each  Lender  shall
commence  to accrue on the date  hereof and shall cease to accrue on the date on
which the Commitment of such Lender shall be terminated as provided herein.

     All  Commitment  Fees  shall  be  paid on the  dates  due,  in  immediately
available funds, to the Administrative Agent for distribution among the Lenders.
Once  paid,  none  of  the  Commitment  Fees  shall  be  refundable   under  any
circumstances.

     SECTION 2.6.  Interest on Loans.  (a) Subject to the  provisions of Section
2.7, the Loans  comprising each ABR Borrowing  shall bear interest  (computed on
the basis of the actual  number of days  elapsed over a year of 365 or 366 days,
as the case may be, when the  Alternate  Base Rate is determined by reference to
the  Prime  Rate and over a year of 360 days at all  other  times) at a rate per
annum equal to the Alternate Base Rate plus the Applicable  Percentage in effect
from time to time.

     (b) Subject to the  provisions  of Section 2.7, the Loans  comprising  each
Eurodollar  Borrowing  shall bear interest  (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to the
LIBO  Rate  for the  Interest  Period  in  effect  for such  Borrowing  plus the
Applicable Percentage in effect from time to time.

     Interest  on each Loan  shall be  payable  on the  Interest  Payment  Dates
applicable  to such Loan except as  otherwise  provided in this  Agreement.  The
applicable  Alternate  Base  Rate or LIBO Rate for each  Interest  Period or day
within  an  Interest  Period,  as the case may be,  shall be  determined  by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.

     SECTION 2.7. Default Interest. If the Borrower shall default in the payment
of the  principal  of or interest on any Loan or any other  amount  becoming due
hereunder,  by acceleration or otherwise,  or under any other Loan Document, the
Borrower shall on demand from time to time pay interest, to the extent permitted
by law, on such  defaulted  amount to but excluding  the date of actual  payment
(after as well as before judgment) at a rate per annum (computed on the basis of
the actual  number of days elapsed  over a year of 365 or 366 days,  as the case
may be, when  determined  by  reference to the Prime Rate and over a year of 360
days at all other  times) equal to the sum of the  Alternate  Base Rate plus the
Applicable Percentage plus 2.00%.

     SECTION  2.8.  Alternate  Rate  of  Interest.  In the  event,  and on  each
occasion,  that on the day two Business  Days prior to the  commencement  of any
Interest  Period for a  Eurodollar  Borrowing  the  Administrative  Agent or the
Required  Lenders shall have  determined  that dollar  deposits in the principal
amounts of the Loans  comprising  such Borrowing are not generally  available in
the London interbank market, or that the rates at which such dollar deposits are
being offered will not  adequately  and fairly reflect the cost to any Lender of
making or maintaining its Eurodollar Loan during such Interest  Period,  or that
reasonable means do not exist for ascertaining the LIBO Rate, the Administrative
Agent shall, as soon as practicable thereafter,  give written or telecopy notice
of such determination to the Borrower and the Lenders.  In the event of any such
determination,  until the  Administrative  Agent shall have advised the Borrower
and the  Lenders  that the  circumstances  giving  rise to such notice no longer
exist,  any  request by the  Borrower  for a  Eurodollar  Borrowing  pursuant to
Section  2.3  shall  be  deemed  to be a  request  for  an ABR  Borrowing.  Each
determination  by the  Administrative  Agent or the Required  Lenders  hereunder
shall be conclusive absent manifest error.

     SECTION 2.9. Termination and Reduction of Commitments.  (a) The Commitments
shall automatically terminate on the Maturity Date.

     (b) The Total Commitment shall be reduced  automatically to $125,000,000 on
the First Commitment Reduction Date and to $100,000,000 on the Second Commitment
Reduction  Date (unless,  in each case, it shall already have been reduced below
such amount prior to such Commitment Reduction Date).

     (c) On each date upon which the Borrower  receives  the  proceeds  from any
Equity   Issuance   (including  any  proceeds  of  an  Equity  Issuance  by  TNP
Enterprises)  (or within 6 months after the date of such Equity  Issuance if the
Borrower certifies to the Administrative  Agent that clause (i) or (ii) below is
expected to apply to such proceeds),  the Borrower shall permanently  reduce the
Total  Commitment  in an amount  equal to 100% of the Net Cash  Proceeds of such
Equity Issuance or, in the case of any Equity Issuance by TNP  Enterprises,  the
amount of cash proceeds received by the Borrower therefrom;  provided, that such
reduction will not be required to the extent such proceeds:

                  (i) result from an Equity  Issuance by TNP  Enterprises of its
         common  stock  and are  applied  within 6 months  from the date of such
         Equity Issuance (A) to make  acquisitions  permitted under Sections 6.4
         and 6.5, (B) to prepay or repay  Indebtedness  of the sort described in
         clause (a) of the definition of  "Indebtedness"  of the Borrower or the
         Guarantor or (C) to pay at maturity  (but not prepay)  Indebtedness  of
         such sort of TGC; or

                  (ii)  result  from  an  Equity  Issuance  by the  Borrower  of
         preferred  stock and are applied  within 6 months from the date of such
         Equity Issuance (A) to make  acquisitions  permitted under Sections 6.4
         and  6.5,  (B)  to  refinance  outstanding  preferred  stock  with  new
         preferred  stock which shall not be  redeemable  mandatorily  or at the
         option of the holder  thereof  (other  than in the event of a Change of
         Control)   prior  to  the  Maturity   Date,  (C)  to  prepay  or  repay
         Indebtedness  of the sort  described in clause (a) of the definition of
         "Indebtedness"  of the  Borrower  or the  Guarantor  or (D) to repay at
         maturity (but not prepay) Indebtedness of such sort of TGC.

     (d) Upon at  least  three  Business  Days'  prior  irrevocable  written  or
telecopy  notice to the  Administrative  Agent,  the Borrower may at any time in
whole permanently  terminate,  or from time to time in part permanently  reduce,
the  Commitments;  provided,  however,  that (i) each  partial  reduction of the
Commitments  shall be in an  integral  multiple of  $1,000,000  and in a minimum
amount of $5,000,000  and (ii) the Total  Commitment  shall not be reduced to an
amount that is less than the Aggregate Credit Exposure at the time.

     (e) In the event a Change in Control  shall  have  occurred,  the  Borrower
shall so notify the  Administrative  Agent and the Lenders and, in the event the
Required  Lenders  shall so elect in a notice  delivered  to the  Borrower,  the
Commitments  shall  permanently  terminate  on a date  specified  in such notice
(which  date shall be not fewer than five  Business  Days after the  delivery of
such notice to the Borrower).

     (f) Each reduction in the Commitments hereunder shall be made ratably among
the Lenders in accordance with their respective Commitments.  The Borrower shall
pay to the Administrative  Agent for the account of the applicable  Lenders,  on
the date of each termination or reduction,  the Commitment Fees on the amount of
the  Commitments  so terminated or reduced  accrued to but excluding the date of
such termination or reduction.

                  SECTION  2.10.  Prepayment.  (a) The  Borrower  shall have the
right at any time and from time to time to prepay any Borrowing,  in whole or in
part,  upon at least three Business  Days' prior written or telecopy  notice (or
telephone  notice  promptly  confirmed  by  written or  telecopy  notice) to the
Administrative Agent before 11:00 a.m., New York City time;  provided,  however,
that each partial  prepayment shall be in an amount that is an integral multiple
of $1,000,000 and not less than $2,000,000.

                  (b) In the  event of any  termination  of all the  Commitments
(whether  mandatory or  optional),  the  Borrower  shall repay or prepay all its
outstanding  Borrowings  on the date of such  termination.  In the  event of any
partial reduction of the Commitments  (whether mandatory or optional),  then (i)
at or  prior  to the  effective  date  of such  reduction  or  termination,  the
Administrative  Agent shall notify the Borrower and the Lenders of the Aggregate
Credit  Exposure  after giving effect  thereto and (ii) if the Aggregate  Credit
Exposure would exceed the Total Commitment after giving effect to such reduction
or  termination,  then the  Borrower  shall,  on the date of such  reduction  or
termination,  repay or prepay  Borrowings  in an amount  sufficient to eliminate
such excess.

                  (c) Each notice of  prepayment  shall  specify the  prepayment
date and the  principal  amount of each  Borrowing  (or  portion  thereof) to be
prepaid,  shall be  irrevocable  and shall  commit the  Borrower  to prepay such
Borrowing  by  the  amount  stated  therein  on the  date  stated  therein.  All
prepayments  under this  Section  2.10  shall be  subject  to  Section  2.13 but
otherwise  without premium or penalty.  All prepayments  under this Section 2.10
shall be accompanied by accrued  interest on the principal  amount being prepaid
to the date of payment.

                  SECTION 2.11. Reserve  Requirements;  Change in Circumstances.
(a) Notwithstanding any other provision of this Agreement,  if after the date of
this   Agreement  any  change  in  applicable   law  or  regulation  or  in  the
interpretation or administration  thereof by any Governmental  Authority charged
with the  interpretation  or  administration  thereof (whether or not having the
force of law) shall  change the basis of  taxation  of payments to any Lender of
the principal of or interest on any  Eurodollar  Loan made by such Lender or any
Commitment  Fees or other  amounts  payable  hereunder  (other  than  changes in
respect  of taxes  imposed  on the  overall  net  income  of such  Lender by the
jurisdiction  in which such Lender has its principal  office or by any political
subdivision  or  taxing  authority  therein),  or shall  impose,  modify or deem
applicable any reserve,  special deposit or similar  requirement  against assets
of,  deposits  with or for the  account of or credit  extended  by any Lender or
shall impose on such Lender or the London  interbank  market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender, and the result
of any of the  foregoing  shall be to increase the cost to such Lender of making
or maintaining  any Eurodollar  Loan or to reduce the amount of any sum received
or  receivable  by such  Lender  hereunder  (whether of  principal,  interest or
otherwise) by an amount deemed by such Lender to be material,  then the Borrower
will pay to such Lender upon  demand such  additional  amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.

                  (b) If any Lender  shall  have  determined  that the  adoption
after the date  hereof of any law,  rule,  regulation,  agreement  or  guideline
regarding capital adequacy, or any change after the date hereof in any such law,
rule,  regulation,  agreement or guideline (whether such law, rule,  regulation,
agreement  or  guideline  has  been  adopted)  or  in  the   interpretation   or
administration   thereof  by  any  Governmental   Authority   charged  with  the
interpretation  or administration  thereof,  or compliance by any Lender (or any
lending office of such Lender) or any Lender's  holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any Governmental  Authority has or would have the effect of reducing the rate
of return on such Lender's  capital or on the capital of such  Lender's  holding
company,  if any, as a consequence  of this  Agreement or the Loans made by such
Lender  pursuant hereto to a level below that which such Lender or such Lender's
holding company could have achieved but for such applicability, adoption, change
or compliance (taking into consideration such Lender's policies and the policies
of such Lender's holding company with respect to capital  adequacy) by an amount
deemed by such Lender to be material,  then from time to time the Borrower shall
pay to such Lender such  additional  amount or amounts as will  compensate  such
Lender or such Lender's holding company for any such reduction suffered.

                  (c) A  certificate  of a Lender  setting  forth the  amount or
amounts  necessary to compensate such Lender or its holding company as specified
in paragraph (a) or (b) above, and setting forth in reasonable detail the manner
in which such amount or amounts shall have been  determined,  shall be delivered
to the Borrower and shall be  conclusive  absent  manifest  error.  The Borrower
shall pay such Lender the amount shown as due on any such certificate  delivered
by it within 10 days after its receipt of the same.

                  (d) Except as provided in Section 2.18(c), failure or delay on
the  part of any  Lender  to  demand  compensation  for any  increased  costs or
reduction in amounts  received or  receivable  or reduction in return on capital
shall  not   constitute  a  waiver  of  such  Lender's   right  to  demand  such
compensation.  The  protection of this Section shall be available to each Lender
regardless of any possible  contention of the invalidity or  inapplicability  of
the law,  rule,  regulation,  agreement,  guideline or other change or condition
that shall have occurred or been imposed.

                  SECTION  2.12.  Change in Legality.  (a)  Notwithstanding  any
other provision of this Agreement,  if, after the date hereof, any change in any
law or regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar  Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Administrative Agent:

                  (i) such Lender may  declare  that  Eurodollar  Loans will not
         thereafter  (for the  duration  of such  unlawfulness)  be made by such
         Lender  hereunder,  whereupon  any request for a  Eurodollar  Borrowing
         shall,  as to such  Lender  only,  be deemed a request for an ABR Loan,
         unless such declaration shall be subsequently withdrawn; and

             (ii) such Lender may require that all outstanding  Eurodollar Loans
         made  by it be  converted  to  ABR  Loans,  in  which  event  all  such
         Eurodollar  Loans shall be  automatically  converted to ABR Loans as of
         the effective date of such notice as provided in paragraph (b) below.

In the event any Lender shall  exercise its rights under (i) or (ii) above,  all
payments and  prepayments of principal that would otherwise have been applied to
repay the  Eurodollar  Loans  that  would  have been made by such  Lender or the
converted  Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting  from the  conversion of,
such Eurodollar Loans.

                  (b) For  purposes  of  this  Section  2.12,  a  notice  to the
Borrower by any Lender  shall be effective  as to each  Eurodollar  Loan made by
such  Lender,  if  lawful,  on the last  day of the  Interest  Period  currently
applicable  to such  Eurodollar  Loan;  in all other cases such notice  shall be
effective on the date of receipt by the Borrower.

                  SECTION 2.13.  Indemnity.  The Borrower  shall  indemnify each
Lender  against  any loss or expense  that such Lender may sustain or incur as a
consequence  of (a) any  event,  other  than a  default  by such  Lender  or the
Administrative  Agent in the  performance of its  obligations  hereunder,  which
results in (i) such Lender  receiving  or being  deemed to receive any amount on
account of the principal of any Eurodollar Loan prior to the end of the Interest
Period in effect  therefor or (ii) any Eurodollar Loan to be made by such Lender
not being made after  notice of such Loan shall have been given by the  Borrower
hereunder  (any of the events  referred  to in this  clause  (a) being  called a
"Breakage  Event") or (b) any default in the making of any payment or prepayment
required to be made  hereunder.  In the case of any  Breakage  Event,  such loss
shall include an amount equal to the excess,  as  reasonably  determined by such
Lender,  of (i) its cost of obtaining  funds for the Eurodollar Loan that is the
subject of such  Breakage  Event for the period  from the date of such  Breakage
Event to the last day of the Interest  Period in effect (or that would have been
in effect) for such Loan over (ii) the amount of interest  likely to be realized
by such Lender in  redeploying  the funds  released or not utilized by reason of
such Breakage  Event for such period.  A certificate of any Lender setting forth
any amount or amounts,  and  setting  forth in  reasonable  detail the manner in
which such amount or amounts  shall have been  determined,  which such Lender is
entitled to receive  pursuant to this  Section  2.13 shall be  delivered  to the
Borrower and shall be conclusive absent manifest error.

                  SECTION 2.14.  Pro Rata  Treatment.  Except as required  under
Section  2.12,  each  Borrowing,  each payment or prepayment of principal of any
Borrowing, each payment of interest on the Loans, each payment of the Commitment
Fees, each reduction of the  Commitments  and each  refinancing of any Borrowing
with a Borrowing  of any Type shall be  allocated  pro rata among the Lenders in
accordance with their respective applicable Commitments (or, if such Commitments
shall  have  expired  or been  terminated,  in  accordance  with the  respective
principal  amounts of their  outstanding  Loans).  Each  Lender  agrees  that in
computing  such  Lender's  portion of any  Borrowing to be made  hereunder,  the
Administrative  Agent may, in its discretion,  round each Lender's percentage of
such Borrowing to the next higher or lower whole dollar amount.

                  SECTION 2.15.  Sharing of Setoffs.  Each Lender agrees that if
it  shall,  through  the  exercise  of a  right  of  banker's  lien,  setoff  or
counterclaim  against the  Borrower  or any other Loan  Party,  or pursuant to a
secured  claim under  Section 506 of Title 11 of the United States Code or other
security or interest  arising from, or in lieu of, such secured claim,  received
by such Lender under any applicable bankruptcy,  insolvency or other similar law
or otherwise,  or by any other means,  obtain payment (voluntary or involuntary)
in  respect  of any  Loan or Loans as a result  of which  the  unpaid  principal
portion of its Loans  shall be  proportionately  less than the unpaid  principal
portion of the Loans of any other Lender,  it shall be deemed  simultaneously to
have purchased  from such other Lender at face value,  and shall promptly pay to
such other Lender the purchase price for, a  participation  in the Loans of such
other Lender,  so that the aggregate  unpaid  principal  amount of the Loans and
participation  in Loans held by each Lender shall be in the same  proportion  to
the  aggregate  unpaid  principal  amount of all Loans then  outstanding  as the
principal amount of its Loans prior to such exercise of banker's lien, setoff or
counterclaim or other event was to the principal amount of all Loans outstanding
prior to such exercise of banker's lien,  setoff or counterclaim or other event;
provided,  however,  that if any such purchase or purchases or adjustments shall
be made pursuant to this Section 2.15 and the payment  giving rise thereto shall
thereafter be  recovered,  such  purchase or purchases or  adjustments  shall be
rescinded to the extent of such  recovery  and the  purchase  price or prices or
adjustment  restored without interest.  The Borrower  expressly  consents to the
foregoing  arrangements  and agrees that any Lender holding a participation in a
Loan  deemed  to have  been so  purchased  may  exercise  any and all  rights of
banker's lien,  setoff or counterclaim  with respect to any and all moneys owing
by the Borrower to such Lender by reason  thereof as fully as if such Lender had
made a Loan directly to the Borrower in the amount of such participation.

                  SECTION  2.16.  Payments.  (a) The  Borrower  shall  make each
payment  (including  principal of or interest on any Borrowing or any Commitment
Fees or other  amounts)  hereunder  and under any other Loan  Document not later
than  12:00  (noon),  New York City  time,  on the date when due in  immediately
available dollars,  without setoff,  defense or counterclaim.  Each such payment
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York.

                  (b) Whenever any payment  (including  principal of or interest
on any Borrowing or any Commitment Fees or other amounts) hereunder or under any
other Loan Document shall become due, or otherwise would occur, on a day that is
not a Business  Day,  such payment may be made on the next  succeeding  Business
Day,  and  such  extension  of time  shall  in  such  case  be  included  in the
computation of interest or Commitment Fees, if applicable.

                  SECTION 2.17.  Taxes. (a) Any and all payments by or on behalf
of the Borrower or any Loan Party  hereunder  and under any other Loan  Document
shall be made,  in accordance  with Section 2.16,  free and clear of and without
deduction for any and all current or future taxes, levies, imposts,  deductions,
charges or withholdings, and all liabilities with respect thereto, excluding (i)
income taxes imposed on the net income of the Administrative Agent or any Lender
(or any transferee or assignee  thereof,  including a participation  holder (any
such entity a "Transferee"))  and (ii) franchise taxes imposed on the net income
of the Administrative  Agent or any Lender (or Transferee),  in each case by the
jurisdiction under the laws of which the Administrative Agent or such Lender (or
Transferee)  is  organized  or  any  political  subdivision  thereof  (all  such
nonexcluded  taxes,  levies,  imposts,  deductions,  charges,  withholdings  and
liabilities,  collectively  or  individually,  being  called  "Taxes").  If  the
Borrower  or any Loan  Party  shall be  required  to deduct any Taxes from or in
respect of any sum  payable  hereunder  or under any other Loan  Document to the
Administrative  Agent or any Lender  (or any  Transferee),  (i) the sum  payable
shall be  increased  by the amount (an  "additional  amount")  necessary so that
after  making  all  required  deductions  (including  deductions  applicable  to
additional  sums payable  under this Section 2.17) the  Administrative  Agent or
such Lender (or  Transferee),  as the case may be, shall receive an amount equal
to the sum it would have  received had no such  deductions  been made,  (ii) the
Borrower or such Loan Party shall make such deductions and (iii) the Borrower or
such Loan Party shall pay the full amount deducted to the relevant  Governmental
Authority in accordance with applicable law.

                  (b) In addition,  the  Borrower  agrees to pay to the relevant
Governmental  Authority in accordance  with applicable law any current or future
stamp or  documentary  taxes or any other excise or property  taxes,  charges or
similar  levies that arise from any payment  made  hereunder  or under any other
Loan Document or from the execution,  delivery or registration  of, or otherwise
with respect to, this Agreement or any other Loan Document ("Other Taxes").

                  (c) The Borrower will indemnify the  Administrative  Agent and
each Lender (or Transferee) for the full amount of Taxes and Other Taxes paid by
the Administrative Agent or such Lender (or Transferee), as the case may be, and
any liability (including penalties,  interest and expenses (including reasonable
attorney's  fees and  expenses))  arising  therefrom  or with  respect  thereto,
whether or not such Taxes or Other Taxes were  correctly or legally  asserted by
the relevant  Governmental  Authority.  A  certificate  as to the amount of such
payment or liability, and setting forth in reasonable detail the manner in which
such  payment  or  liability  shall  have  been  determined,   prepared  by  the
Administrative Agent or a Lender (or Transferee), or the Administrative Agent on
its behalf,  absent manifest error,  shall be final,  conclusive and binding for
all purposes.  Such indemnification  shall be made within 30 days after the date
the  Administrative  Agent or any  Lender (or  Transferee),  as the case may be,
makes written demand therefor.

                  (d) If the  Administrative  Agent or a Lender (or  Transferee)
receives a refund in respect of any Taxes or Other Taxes as to which it has been
indemnified  by the  Borrower or with respect to which the Borrower or any other
Loan Party has paid  additional  amounts  pursuant to this  Section  2.17 and no
Event of Default shall have occurred and be continuing,  it shall within 30 days
from the date of such receipt pay over such refund to the Borrower or such other
Loan Party (but only to the extent of indemnity  payments  made,  or  additional
amounts  paid,  by the Borrower or such other Loan Party under this Section 2.17
with respect to the Taxes or Other Taxes giving rise to such refund), net of all
out-of-pocket   expenses  of  the  Administrative   Agent  or  such  Lender  (or
Transferee)  and without  interest  (other than  interest  paid by the  relevant
Governmental Authority with respect to such refund); provided, however, that the
Borrower or such other Loan Party, upon the request of the Administrative  Agent
or such Lender (or Transferee), shall repay the amount paid over to the Borrower
or such other Loan Party  (plus  penalties,  interest  or other  charges) to the
Administrative   Agent  or  such  Lender  (or   Transferee)  in  the  event  the
Administrative  Agent or such Lender (or  Transferee)  is required to repay such
refund to such Governmental Authority.

                  (e) As soon as  practicable  after the date of any  payment of
Taxes or Other  Taxes by the  Borrower  or any other Loan Party to the  relevant
Governmental  Authority,  the  Borrower or such other Loan Party will deliver to
the  Administrative  Agent,  at its  address  referred  to in Section  9.1,  the
original or a certified copy of a receipt issued by such Governmental  Authority
evidencing payment thereof.

                  (f) Each Lender (or  Transferee)  that is organized  under the
laws of a jurisdiction  other than the United  States,  any State thereof or the
District of Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S.  Lender claiming exemption
from U.S.  Federal  withholding  tax under Section  871(h) or 881(c) of the Code
with respect to payments of "portfolio interest",  a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S.  Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10-percent  shareholder (within
the meaning of Section  871(h)(3)(B)  of the Code) of the  Borrower and is not a
controlled  foreign  corporation  related to the Borrower (within the meaning of
Section  864(d)(4) of the Code)),  properly  completed and duly executed by such
Non-U.S.  Lender  claiming  complete  exemption  from,  or reduced rate of, U.S.
Federal withholding tax on payments by the Borrower under this Agreement and the
other Loan Documents.  Such forms shall be delivered by each Non-U.S.  Lender on
or before the date it becomes a party to this  Agreement  (or,  in the case of a
Transferee  that  is  a  participation  holder,  on  or  before  the  date  such
participation holder becomes a Transferee  hereunder) and on or before the date,
if  any,  such  Non-U.S.   Lender  changes  its  applicable  lending  office  by
designating a different  lending office (a "New Lending  Office").  In addition,
each Non-U.S.  Lender shall deliver such forms promptly upon the obsolescence or
invalidity  of  any  form   previously   delivered  by  such  Non-U.S.   Lender.
Notwithstanding  any other provision of this Section 2.17(f), a Non-U.S.  Lender
shall not be required to deliver any form pursuant to this Section  2.17(f) that
such Non-U.S. Lender is not legally able to deliver.

                  (g) The  Borrower  shall  not be  required  to  indemnify  any
Non-U.S.  Lender or to pay any  additional  amounts to any Non-U.S.  Lender,  in
respect of United States  Federal  withholding  tax pursuant to paragraph (a) or
(c) above to the extent that (i) the obligation to withhold amounts with respect
to United  States  Federal  withholding  tax  existed on the date such  Non-U.S.
Lender became a party to this Agreement (or, in the case of a Transferee that is
a  participation  holder,  on  the  date  such  participation  holder  became  a
Transferee  hereunder) or, with respect to payments to a New Lending Office, the
date such Non-U.S.  Lender  designated such New Lending Office with respect to a
Loan;  provided,  however,  that this  paragraph  (g) shall not apply (x) to any
Transferee or New Lending Office that becomes a Transferee or New Lending Office
as a result of an assignment, participation, transfer or designation made at the
request  of the  Borrower  and  (y) to  the  extent  the  indemnity  payment  or
additional amounts any Transferee, or any Lender (or Transferee), acting through
a New  Lending  Office,  would be entitled  to receive  (without  regard to this
paragraph  (g)) do not exceed the indemnity  payment or additional  amounts that
the person making the assignment,  participation or transfer to such Transferee,
or Lender (or  Transferee)  making the  designation of such New Lending  Office,
would  have  been  entitled  to  receive  in the  absence  of  such  assignment,
participation,  transfer  or  designation  or (ii)  the  obligation  to pay such
additional  amounts  would not have  arisen but for a failure  by such  Non-U.S.
Lender to comply with the provisions of paragraph (g) above.

                  (h) Nothing  contained in this Section 2.17 shall  require any
Lender (or any Transferee) or the Administrative  Agent to make available any of
its tax returns (or any other  information  that it deems to be  confidential or
proprietary).

                  SECTION  2.18.   Assignment  of   Commitments   Under  Certain
Circumstances;  Duty to  Mitigate.  (a) In the event (i) any  Lender  delivers a
certificate  requesting  compensation  pursuant to Section 2.11, (ii) any Lender
delivers a notice described in Section 2.12 or (iii) the Borrower is required to
pay any additional amount to any Lender or any Governmental Authority on account
of any Lender  pursuant to Section  2.17,  the Borrower may, at its sole expense
and  effort  (including  with  respect to the  processing  and  recordation  fee
referred   to  in  Section   9.4(b)),   upon  notice  to  such  Lender  and  the
Administrative  Agent,  require  such  Lender to transfer  and  assign,  without
recourse  (in  accordance  with and  subject to the  restrictions  contained  in
Section 9.4), all of its interests,  rights and obligations under this Agreement
to an assignee that shall assume such assigned  obligations  (which assignee may
be another Lender, if a Lender accepts such assignment);  provided that (x) such
assignment  shall not conflict  with any law, rule or regulation or order of any
court or other  Governmental  Authority  having  jurisdiction,  (y) the Borrower
shall have received the prior written consent of the Administrative Agent, which
consent  shall  not  unreasonably  be  withheld,  and (z) the  Borrower  or such
assignee shall have paid to the affected  Lender in immediately  available funds
an amount equal to the sum of the principal of and interest  accrued to the date
of such payment on the outstanding Loans of such Lender plus all Commitment Fees
and other amounts  accrued for the account of such Lender  hereunder  (including
any amounts  under  Section 2.11 and Section  2.13);  provided  further that, if
prior to any such  transfer  and  assignment  the  circumstances  or event  that
resulted in such Lender's  claim for  compensation  under Section 2.11 or notice
under Section 2.12 or the amounts paid pursuant to Section 2.17, as the case may
be,  cease to cause  such  Lender to suffer  increased  costs or  reductions  in
amounts  received or receivable  or reduction in return on capital,  or cease to
have the  consequences  specified in Section 2.12, or cease to result in amounts
being  payable  under Section 2.17, as the case may be (including as a result of
any action  taken by such Lender  pursuant to paragraph  (b) below),  or if such
Lender shall waive its right to claim further compensation under Section 2.11 in
respect  of such  circumstances  or event or shall  withdraw  its  notice  under
Section 2.12 or shall waive its right to further  payments under Section 2.17 in
respect of such  circumstances  or event,  as the case may be,  then such Lender
shall not  thereafter  be  required  to make any such  transfer  and  assignment
hereunder.

                  (b) If (i) any Lender shall request compensation under Section
2.11, (ii) any Lender shall deliver a notice  described in Section 2.12 or (iii)
the Borrower shall be required to pay any additional amount to any Lender or any
Governmental Authority on account of any Lender,  pursuant to Section 2.17, then
such Lender shall use reasonable efforts (which shall not require such Lender to
incur an unreimbursed loss or unreimbursed cost or expense or otherwise take any
action   inconsistent   with  its  internal  policies  or  legal  or  regulatory
restrictions  or  suffer  any   disadvantage  or  burden  deemed  by  it  to  be
significant)  (x) to file any  certificate or document  reasonably  requested in
writing by the  Borrower or (y) to assign its rights and  delegate  and transfer
its obligations hereunder to another of its offices,  branches or affiliates, if
such filing or assignment would reduce its claims for compensation under Section
2.11 or enable it to  withdraw  its notice  pursuant  to  Section  2.12 or would
reduce  amounts  payable  pursuant to Section  2.17,  as the case may be, in the
future.  The Borrower  hereby  agrees to pay all  reasonable  costs and expenses
incurred  by any  Lender  in  connection  with any such  filing  or  assignment,
delegation and transfer.

                  (c) Notwithstanding any other provision of this Agreement,  no
Lender shall be entitled to  compensation  under Section 2.11 or 2.13, or to the
payment of any  additional  amount under Section 2.17, for any costs incurred or
imposed,  reductions suffered or amounts withheld on or with respect to any date
unless  it  shall  have   notified  the  Borrower  that  it  will  request  such
compensation  or the payment of such  additional  amount not later than 180 days
after the later of (i) such date and (ii) the date on which  such  Lender  shall
have become aware of such costs or reductions or such withholding.

                  SECTION 2.19.     The Replacement Loan.

                  (a) On January 27, 1992, the Borrower  purchased pro rata from
the Existing  Facility  Banks  $65,000,000  of the loans  outstanding  under the
Existing Facility Agreement.  Automatically upon their purchase by the Borrower,
such loans were  converted  into a replacement  loan (the  "Replacement  Loan"),
evidenced by a replacement note (the  "Replacement  Note"),  that was secured by
the  Existing  Facility  Collateral,  pari passu with the other  loans under the
Existing  Facility  Agreement,   pursuant  to  the  Existing  Facility  Security
Documents.  Simultaneously with the conversion, the Replacement Note was pledged
to the First  Debenture  Trustee as security for First Secured  Debentures,  the
proceeds  of which were used by the  Borrower  to  purchase  the loans under the
Existing  Facility  Agreement.  As a result of such  pledge,  the First  Secured
Debentures indirectly share pari passu in the Existing Facility Collateral.

                  (b) Subject to the  limitations  set forth in Section  6.1(c),
the Borrower shall have the right (i) to issue Subsequent  Secured Debentures to
refinance the First Secured  Debentures (or previously issued Subsequent Secured
Debentures) so long as such  Subsequent  Secured  Debentures are secured only by
the Replacement  Note, and (ii) to issue  Subsequent  Secured  Debentures if the
Commitments are terminated and the Loans and other  Obligations are paid in full
at the time of such issuance.

                  (c) Without  limiting any other  provision of this  Agreement,
the Borrower,  the  Guarantor and any Debenture  Trustee shall have the right to
extend  the  maturity  date  of the  Replacement  Loan  (and to  make  any  such
conforming changes to the Replacement Note), in accordance with the terms of the
applicable  Secured  Debenture  Indenture  and the  Replacement  Loan,  so as to
facilitate the refinancing of any Secured  Debentures.  Neither the Borrower nor
the Guarantor  shall borrow  additional  Replacement  Loans or issue  additional
Replacement Notes, as such terms are defined in the Existing Facility Agreement.


ARTICLE III.  REPRESENTATIONS AND WARRANTIES

                  The Borrower  represents  and  warrants to the  Administrative
Agent, the Collateral Agent and each of the Lenders that:

                  SECTION 3.1.  Organization;  Powers.  The Borrower and each of
the Subsidiaries  (a) is a corporation  duly organized,  validly existing and in
good standing under the laws of the  jurisdiction of its  organization,  (b) has
all requisite power and authority to own its property and assets and to carry on
its business as now conducted and as proposed to be conducted,  (c) is qualified
to do business in, and is in good  standing in,  every  jurisdiction  where such
qualification  is  required,  except  where the failure so to qualify  could not
reasonably  be  expected  to result in a Material  Adverse  Effect,  (d) has the
corporate  power and authority to execute,  deliver and perform its  obligations
under each of the Loan Documents,  the Existing  Facility Project  Documents and
the Existing Facility Security Documents (including any amendments thereto to be
entered into in connection with the transactions  contemplated  hereby) and each
other  agreement or instrument  contemplated  hereby to which it is or will be a
party and, in the case of the Borrower, to borrow hereunder.

                  SECTION  3.2.  Authorization.   The  execution,  delivery  and
performance  by each  Loan  Party of each of the Loan  Documents,  the  Existing
Facility Project Documents and the Existing Facility Security Documents to which
such Loan Party is a party,  including any amendments thereto to be entered into
in  connection  with  the  transactions   contemplated  hereby,  the  borrowings
hereunder,  the advance by the Guarantor to the Borrower provided for in Section
4.2(h) and the issuance and the pledge of the Pledged Bonds  (collectively,  the
"Transactions") (a) have been duly authorized by all requisite corporate and, if
required,  stockholder  action and (b) will not (i) violate (A) any provision of
law,  statute,  rule  or  regulation,  or of  the  certificate  or  articles  of
incorporation or other constitutive  documents or by-laws of the Borrower or any
Subsidiary,  (B) any order of any Governmental Authority or (C) any provision of
any indenture  (including the TNP Bond Indenture and the First Secured Debenture
Indenture),  agreement  (including  the Existing  Facility  Agreement)  or other
instrument to which the Borrower or any Subsidiary is a party or by which any of
them or any of their property is or may be bound, except to the extent that such
violation  could not  reasonably  be  expected  to result in a Material  Adverse
Effect,  (ii) be in conflict with, result in a breach of or constitute (alone or
with notice or lapse of time or both) a default under, or give rise to any right
to  accelerate  or to require the  prepayment,  repurchase  or redemption of any
obligation  under any such  indenture,  agreement or other  instrument  or (iii)
result in the  creation or  imposition  of any Lien upon or with  respect to any
property  or assets  now owned or  hereafter  acquired  by the  Borrower  or any
Subsidiary  (other than any Lien created  under the Existing  Facility  Security
Documents or the Pledge Agreements).

                  SECTION  3.3.  Enforceability.  This  Agreement  has been duly
executed and  delivered by the  Borrower  and  constitutes,  and each other Loan
Document and each amendment to the Existing  Facility  Project  Documents or the
Existing Facility  Security  Documents being entered into in connection with the
transactions contemplated hereby, when executed and delivered by each Loan Party
thereto,  will constitute,  a legal,  valid and binding  obligation of such Loan
Party enforceable against such Loan Party in accordance with its terms.

                  SECTION 3.4.  Governmental  Approvals.  No action,  consent or
approval of, registration or filing with or any other action by any Governmental
Authority is or will be required in connection with the Transactions, except for
(a) the filing of Uniform  Commercial Code financing  statements and (b) such as
have been made or obtained and are in full force and effect.

                  SECTION 3.5. Financial Statements. The Borrower has heretofore
furnished  to the  Lenders  its  consolidated  balance  sheet and  statement  of
operations  and cash flow (a) as of and for the fiscal year ended  December  31,
1994,  audited  by and  accompanied  by the  opinion of KPMG Peat  Marwick  LLP,
independent public accountants, and (b) as of and for the fiscal quarter and the
six months ended June 30, 1995,  certified by its chief financial officer.  Such
financial  statements  present  fairly the  financial  condition  and results of
operations and cash flows of the Borrower and its  consolidated  Subsidiaries as
of such dates and for such  periods.  Such balance  sheets and the notes thereto
disclose all material liabilities, direct or contingent, of the Borrower and its
consolidated  Subsidiaries  as of the dates thereof.  Such financial  statements
were prepared in accordance with GAAP.

                  SECTION 3.6. No Material  Adverse Change.  Except as set forth
on Schedule 3.6, there has been no material  adverse  change,  and no event that
could  reasonably  be expected to result in a material  adverse  change,  in the
business,  assets,  operations,  condition,  financial or otherwise, or material
agreements  of the  Borrower  and the  Subsidiaries,  taken  as a  whole,  since
December 31, 1994.

                  SECTION 3.7. Title to Properties; Possession Under Leases. (a)
The Borrower and each of the Subsidiaries  has good and commercially  acceptable
title to, or valid  leasehold  interests  in, all its  material  properties  and
assets  including all of the Collateral,  except for minor defects in title that
do not interfere with its ability to conduct its business as currently conducted
or to utilize such properties and assets for their intended  purposes.  All such
material  properties  and assets  are free and clear of Liens,  other than Liens
expressly permitted by Section 6.2.

                  (b) The  Borrower  and each of the  Subsidiaries  has complied
with all  obligations  under all material  leases to which it is a party and all
such  leases  are in  full  force  and  effect.  The  Borrower  and  each of the
Subsidiaries enjoys peaceful and undisturbed  possession under all such material
leases.

                  SECTION 3.8.  Subsidiaries.  Schedule 3.8 sets forth as of the
Closing Date a list of all Subsidiaries and the percentage ownership interest of
the Borrower therein.  The shares of capital stock or other ownership  interests
so indicated on Schedule 3.8 are fully paid and  non-assessable and are owned by
the Borrower, directly or indirectly, free and clear of all Liens.

                  SECTION 3.9.  Litigation;  Compliance with Laws. (a) Except as
set forth on Schedule 3.9,  there are not any actions,  suits or  proceedings at
law or in equity or by or before any  Governmental  Authority now pending or, to
the knowledge of the Borrower,  threatened  against or affecting the Borrower or
any  Subsidiary or any business,  property or rights of any such person (i) that
involve  any Loan  Document or the  Transactions  or (ii) as to which there is a
reasonable  possibility  of an  adverse  determination  and that,  if  adversely
determined,  could reasonably be expected,  individually or in the aggregate, to
result in a Material Adverse Effect.

                  (b) None of the Borrower or any of the  Subsidiaries or any of
their respective  material properties or assets is in violation of, nor will the
continued  operation  of their  material  properties  and  assets  as  currently
conducted  violate,  any  law,  rule  or  regulation,  or  any  judgment,  writ,
injunction,  decree or order of any Governmental Authority, where such violation
or default could reasonably be expected to result in a Material Adverse Effect.

     SECTION  3.10.  Agreements.  (a)  Neither  the  Borrower  nor  any  of  the
Subsidiaries  is a party  to any  agreement  or  instrument  or  subject  to any
corporate  restriction  that has  resulted  or could  reasonably  be expected to
result in a Material Adverse Effect.

                  (b) Neither the  Borrower  nor any of the  Subsidiaries  is in
default in any manner under any provision of any indenture or other agreement or
instrument  evidencing   Indebtedness,   or  any  other  material  agreement  or
instrument  to which it is a party  or by which it or any of its  properties  or
assets are or may be bound,  where such default could  reasonably be expected to
result in a Material Adverse Effect.

                  (c) The Borrower has furnished to the  Administrative  Agent a
true and  complete  copy of each  Existing  Facility  Project  Document and each
Existing  Facility  Security  Document  (including  all  amendments  thereto and
exhibits,  schedules  and  disclosure  letters  referred to therein or delivered
pursuant  thereto,  if any).  Except as permitted  pursuant to Section  10.05 or
10.11 of the Existing  Facility  Agreement none of the Existing Facility Project
Documents or the Existing Facility  Security  Documents to which the Borrower or
the Guarantor is a party has been amended,  modified or  terminated,  and all of
such  Existing   Facility  Project  Documents  and  Existing  Facility  Security
Documents are in full force and effect.

     SECTION 3.11. Federal Reserve Regulations. (a) Neither the Borrower nor any
of  the  Subsidiaries  is  engaged  principally,  or as  one  of  its  important
activities,  in the  business of  extending  credit for the purpose of buying or
carrying Margin Stock.

                  (b) No part of the proceeds of any Loan will be used,  whether
directly or indirectly, and whether immediately,  incidentally or ultimately, to
buy or carry any Margin Stock or for any purpose that entails a violation of, or
that is  inconsistent  with,  the  provisions of the  Regulations  of the Board,
including Regulation G, U or X.

                  SECTION 3.12.  Investment  Company Act; Public Utility Holding
Company Act. Neither the Borrower nor any Subsidiary is an "investment  company"
as defined in, or subject to regulation  under,  the  Investment  Company Act of
1940. TNP is exempt from regulation under the Public Utility Holding Company Act
of 1935, as amended, other than under Section 9(a)(2) thereof.

     SECTION  3.13.  Use of Proceeds.  The Borrower will use the proceeds of the
Loans only for the purposes specified in the preamble to this Agreement.

                  SECTION  3.14.  Tax  Returns.  Each  of the  Borrower  and the
Subsidiaries  has  filed or caused to be filed  all  Federal,  state,  local and
foreign tax returns or materials  required to have been filed by it and has paid
or  caused  to be paid  all  taxes  due and  payable  by it and all  assessments
received  by it,  except  taxes  that  are  being  contested  in good  faith  by
appropriate  proceedings  and for  which the  Borrower  or such  Subsidiary,  as
applicable,  has set aside on its books  adequate  reserves in  accordance  with
GAAP.

                  SECTION  3.15.  No  Material  Misstatements.  None  of (a) the
Confidential  Information  Memorandum  or (b)  any  other  information,  report,
financial  statement,  exhibit  or  schedule  furnished  by or on  behalf of the
Borrower  or the  Guarantor  to  the  Administrative  Agent  or  any  Lender  in
connection  with the  negotiation  of any Loan  Document or included  therein or
delivered  pursuant  thereto  contained,  contains or will  contain any material
misstatement  of fact or omitted,  omits or will omit to state any material fact
necessary  to make the  statements  therein,  in the light of the  circumstances
under which they were, are or will be made, not misleading.

                  SECTION 3.16. Employee Benefit Plans. Each of the Borrower and
its  ERISA  Affiliates  is in  compliance  in all  material  respects  with  the
applicable  provisions of ERISA and the Code and the  regulations  and published
interpretations  thereunder.  No  ERISA  Event  has  occurred  or is  reasonably
expected to occur that,  when taken  together  with all other such ERISA Events,
could reasonably be expected to result in material  liability of the Borrower or
any of its ERISA Affiliates.  The present value of all benefit liabilities under
each Plan (based on those assumptions used to fund such Plan) did not, as of the
last annual valuation date applicable  thereto,  exceed by more than $20,000,000
the fair market value of the assets of such Plan,  and the present  value of all
benefit liabilities of all underfunded Plans (based on those assumptions used to
fund each such Plan) did not, as of the last annual  valuation dates  applicable
thereto,  exceed by more than $20,000,000 the fair market value of the assets of
all such underfunded Plans.

     SECTION 3.17. Environmental Matters. Except as set forth in Schedule 3.17:

                  (a) The  properties  owned or operated by the Borrower and the
Subsidiaries  (the  "Properties")  do not contain  any  Hazardous  Materials  in
amounts or concentrations which (i) constitute, or have constituted, a violation
of, or (ii)  could  give rise to  liability  under,  Environmental  Laws,  which
violations and liabilities, in the aggregate, could result in a Material Adverse
Effect;

                  (b) The  Properties and all operations of the Borrower and the
Subsidiaries  are  in  compliance,  and in the  last  ten  years  have  been  in
compliance,  with all Environmental Laws and all necessary Environmental Permits
have  been  obtained  and  are  in  effect,  except  to  the  extent  that  such
non-compliance  or failure to obtain any necessary  permits,  in the  aggregate,
could not result in a Material Adverse Effect;

                  (c) There have been no  releases  or  threatened  releases  of
Hazardous  Materials at, from or under the Properties or otherwise in connection
with the  operations  of the  Borrower or the  Subsidiaries,  which  releases or
threatened  releases,  in the  aggregate,  could  result in a  Material  Adverse
Effect;

                  (d)  Neither  the  Borrower  nor any of the  Subsidiaries  has
received any notice of an Environmental  Claim in connection with the Properties
or the  operations  of the  Borrower or the  Subsidiaries  or with regard to any
person  whose  liabilities  for  environmental   matters  the  Borrower  or  the
Subsidiaries  has retained or assumed,  in whole or in part,  contractually,  by
operation  of law or  otherwise,  which,  in the  aggregate,  could  result in a
Material Adverse Effect,  nor do the Borrower or the Subsidiaries have reason to
believe that any such notice will be received or is being threatened;

                  (e) Hazardous  Materials  have not been  transported  from the
Properties,  nor have Hazardous  Materials been  generated,  treated,  stored or
disposed  of at, on or under any of the  Properties  in a manner that could give
rise to  liability  under any  Environmental  Law,  nor have the Borrower or the
Subsidiaries retained or assumed any liability,  contractually,  by operation of
law or otherwise, with respect to the generation, treatment, storage or disposal
of Hazardous Materials, which transportation,  generation, treatment, storage or
disposal, or retained or assumed liabilities,  in the aggregate, could result in
a Material Adverse Effect.

                  SECTION  3.18.  Insurance.  Schedule  3.18 sets  forth a true,
complete and correct description of all insurance  maintained by the Borrower or
by the Borrower for its Subsidiaries as of the date hereof and the Closing Date.
As of each  such  date,  such  insurance  is in full  force and  effect  and all
premiums have been duly paid. The Borrower and its  Subsidiaries  have insurance
in such amounts and covering  such risks and  liabilities  as are in  accordance
with normal industry practice.

                  SECTION 3.19. Pledge Agreements. Each of the Pledge Agreements
is effective to create in favor of the Collateral Agent, for the ratable benefit
of the  Lenders,  a  legal,  valid  and  enforceable  security  interest  in the
Collateral  (as defined in such Pledge  Agreement)  and, when the  Collateral is
delivered to the Collateral Agent, the Pledge Agreement shall constitute a fully
perfected first priority Lien on, and security interest in, all right, title and
interest of the pledgor  thereunder in such  Collateral,  in each case prior and
superior in right to any other person.

                  SECTION  3.20.  Labor  Matters.  As of the date hereof and the
Closing Date, there are no strikes,  lockouts or slowdowns  against the Borrower
or any Subsidiary pending or, to the knowledge of the Borrower,  threatened. The
hours  worked  by and  payments  made  to  employees  of the  Borrower  and  the
Subsidiaries  have not been in violation of the Fair Labor  Standards Act or any
other applicable Federal, state, local or foreign law dealing with such matters,
except to the extent such violations  could not reasonably be expected to result
in a  Material  Adverse  Effect.  All  payments  due  from the  Borrower  or any
Subsidiary,  or for  which any claim may be made  against  the  Borrower  or any
Subsidiary,  on account of wages and employee  health and welfare  insurance and
other  benefits,  have been paid or accrued as a  liability  on the books of the
Borrower or such  Subsidiary,  except to the extent the failure to pay or accrue
such  liabilities  could not  reasonably  be  expected  to result in a  Material
Adverse Effect.  The consummation of the Transactions  will not give rise to any
right of  termination or right of  renegotiation  on the part of any union under
any collective  bargaining  agreement to which the Borrower or any Subsidiary is
bound.

                  SECTION 3.21. Solvency. (a) Immediately prior to and after the
consummation  of the  Transactions  to occur on the Closing  Date,  (i) the fair
market  value  of  the  assets  of  the  Borrower  and  its  Subsidiaries  on  a
consolidated  basis  will  exceed  their  debts and  liabilities,  subordinated,
contingent or otherwise;  (ii) the present fair saleable  value of the assets of
the Borrower and its  Subsidiaries on a consolidated  basis will be greater than
the amount that will be required to pay the  probable  liability  on their debts
and other liabilities,  subordinated, contingent or otherwise, as such debts and
other  liabilities  become  absolute  and  matured;  (iii) the  Borrower and its
Subsidiaries  on a  consolidated  basis  will  be able to pay  their  debts  and
liabilities,   subordinated,   contingent  or  otherwise,   as  such  debts  and
liabilities  become  absolute  and  matured;  and  (iv)  the  Borrower  and  its
Subsidiaries on a consolidated  basis will not have  unreasonably  small capital
with which to conduct the business in which they are engaged as such business is
now conducted and is proposed to be conducted following the Closing Date.

                  SECTION 3.22. Existing Facility Agreement Representations. The
representations  and  warranties  of the Borrower and the Guarantor set forth in
the Existing Facility Agreement, the Existing Facility Project Documents and the
Existing Facility Security  Documents were when made and remain at and as of the
present,  true and  correct,  except  to the  extent  such  representations  and
warranties expressly relate to an earlier date.


ARTICLE IV.  CONDITIONS PRECEDENT TO LENDING

                  The  obligations  of the Lenders to make Loans  hereunder  are
subject to the satisfaction of the following conditions:

                  SECTION 4.1. All  Borrowings.  On the date of each  Borrowing,
including  each  Borrowing  in which  Loans  are  refinanced  with new  Loans as
contemplated by Section 2.2(f) (each such event being called a "Credit Event"):

                  (a) The  Administrative  Agent shall have received a notice of
         such  Borrowing  as required by Section 2.3 (or such notice  shall have
         been deemed given in accordance with Section 2.3).

                  (b) The  representations  and  warranties set forth in Article
         III hereof shall be true and correct in all material respects on and as
         of the date of such  Borrowing  with the same  effect as though made on
         and as of such date,  except to the  extent  such  representations  and
         warranties expressly relate to an earlier date.

                  (c) The  Borrower  and  each  other  Loan  Party  shall  be in
         compliance with all the terms and provisions set forth herein,  in each
         other  Loan  Document,  in the  Existing  Facility  Agreement,  in each
         Existing  Facility  Project  Document  and in  each  Existing  Facility
         Security  Document on its part to be observed or performed,  and at the
         time of and immediately  after such  Borrowing,  no Event of Default or
         Default shall have occurred and be continuing.

Each Borrowing  shall be deemed to constitute a  representation  and warranty by
the  Borrower  on the date of such  Borrowing  as to the  matters  specified  in
paragraphs (b) and (c) of this Section 4.1.

                  SECTION 4.2.  First Borrowing.  On the Closing Date:

                  (a) The Administrative Agent shall have received, on behalf of
         itself  and the  Lenders,  a written  opinion  of (i) Haynes and Boone,
         L.L.P.,  counsel for the Borrower and the Guarantor,  substantially  to
         the effect set forth in Exhibit G-1;  (ii) Michael  Blanchard,  General
         Counsel of the Borrower and the Guarantor,  substantially to the effect
         set forth in  Exhibit  G-1-A;  (iii)  Snell,  Banowsky  & Trent,  Texas
         counsel to the Administrative  Agent and the Lenders,  substantially to
         the effect  set forth in Exhibit  G-2 and (iv)  Rubin,  Katz,  Salazar,
         Alley & Rouse, New Mexico  regulatory  counsel for the Borrower and the
         Guarantor,  substantially  in the form of Exhibit G-3, in each case (A)
         dated the Closing Date, (B) addressed to the  Administrative  Agent and
         the Lenders,  and (C) covering such other matters as the Administrative
         Agent shall reasonably  request,  and the Borrower hereby requests such
         counsel to deliver such opinions.

                  (b) All legal matters  incident to the  Transactions  shall be
         satisfactory  to the Lenders and their counsel,  to the  Administrative
         Agent and to Cravath,  Swaine & Moore,  counsel for the  Administrative
         Agent.

                  (c) The Administrative Agent shall have received (i) a copy of
         the certificate or articles of incorporation,  including all amendments
         thereto,  of each  Loan  Party,  certified  as of a recent  date by the
         Secretary of State of the state of its organization,  and a certificate
         as to the good  standing  of each Loan  Party as of a recent  date from
         such  Secretary  of State and,  in the case of the  Borrower,  from the
         Secretary of State of the State of New Mexico;  (ii) a  certificate  of
         the  Secretary or an  Assistant  Secretary of each Loan Party dated the
         Closing Date and  certifying  (A) that  attached  thereto is a true and
         complete  copy of the  by-laws  of such Loan  Party as in effect on the
         Closing  Date and at all  times  since a date  prior to the date of the
         resolutions described in clause (B) below, (B) that attached thereto is
         a true and complete  copy of  resolutions  duly adopted by the Board of
         Directors of such Loan Party  authorizing  the execution,  delivery and
         performance  of the Loan  Documents to which such Loan Party is a party
         and the Transactions  and, in the case of the Borrower,  the borrowings
         hereunder, and that such resolutions have not been modified,  rescinded
         or amended and are in full force and effect,  (C) that the  certificate
         or articles of  incorporation  of such Loan Party have not been amended
         since the date of the last amendment  thereto shown on the  certificate
         of good standing  furnished pursuant to clause (i) above, and (D) as to
         the  incumbency  and specimen  signature of each officer  executing any
         Loan Document or any other document delivered in connection herewith on
         behalf of such Loan Party; (iii) a certificate of another officer as to
         the  incumbency  and specimen  signature of the  Secretary or Assistant
         Secretary  executing the certificate  pursuant to (ii) above;  and (iv)
         such  other   documents   as  the   Lenders  or  their   counsel,   the
         Administrative  Agent  or  Cravath,  Swaine &  Moore,  counsel  for the
         Administrative Agent, may reasonably request.

                  (d)  The   Administrative   Agent   shall   have   received  a
         certificate,  dated the Closing Date and signed by a Financial  Officer
         of the Borrower,  confirming  compliance with the conditions  precedent
         set forth in paragraphs (b) and (c) of Section 4.1.

                  (e)  The   Administrative   Agent  shall  have   received  all
         Commitment  Fees and other  amounts  due and payable on or prior to the
         Closing  Date,  including,  to the extent  invoiced,  reimbursement  or
         payment of all out-of-pocket expenses required to be reimbursed or paid
         by the Borrower hereunder or under any other Loan Document.

                  (f) The Assignment Agreement shall have been duly executed and
         delivered  by  each  of the  parties  thereto  and  shall  have  become
         effective  in  accordance  with its terms,  and the  amendments  to the
         Existing Facility Agreement and the transfer to the Collateral Agent of
         rights to the Existing Facility  Collateral  provided for therein shall
         have become effective.

                  (g) The Bonds  shall have been  validly  issued in  compliance
         with the TNP Bond Indenture pursuant to the Supplemental Bond Indenture
         and registered in the name of Chemical Bank, as Collateral  Agent.  The
         Bonds  (i)  shall  bear  interest  at 0% per  annum  unless an Event of
         Default shall have occurred and be continuing or shall have resulted in
         an  exercise of  remedies  pursuant to Article  VII, in which case they
         shall bear  interest at Chemical  Bank's  prime rate plus 2% per annum,
         (ii) shall be  nonredeemable,  (iii) shall  mature no earlier  than the
         Maturity Date,  (iv) shall become  immediately due and payable upon any
         acceleration  of the maturity of the Loans pursuant to Article VII, (v)
         shall have been  authenticated  and  acknowledged  to be  "outstanding"
         under the TNP Bond  Indenture by the trustee  thereunder and (vi) shall
         otherwise have terms satisfactory to the Lenders and the Administrative
         Agent.

                  (h) Immediately prior to the initial  borrowing  hereunder not
         less than  $147,750,000  aggregate  principal  amount of loans shall be
         outstanding and held by the Existing  Facility Banks under the Existing
         Facility.  TGC II shall have  transferred  to the  Borrower  in partial
         satisfaction  of intercompany  indebtedness  owed by it to the Borrower
         proceeds of borrowings  under the Existing  Facility  Agreement  which,
         together  with the  proceeds of the initial  borrowing  hereunder,  are
         sufficient in amount to provide the funds  required for the purchase by
         TNP from the  Existing  Facility  Banks of the loans under the Existing
         Facility  Agreement.  The Pledged Notes,  evidencing the full amount of
         the loans outstanding under the Existing  Facility,  shall have been or
         shall  simultaneously with the initial borrowing hereunder be purchased
         by the Borrower pursuant to the Assignment  Agreement with the proceeds
         of the initial  borrowing  hereunder and of the advance  referred to in
         the preceding  sentence and shall have been or shall  simultaneously be
         delivered to the Borrower  accompanied by duly executed  instruments of
         transfer  meeting the requirements of the Existing  Facility  Agreement
         and satisfactory to the Collateral Agent.

                  (i) Each of the Bond  Agreement and the Note Pledge  Agreement
         shall have been duly  executed by the parties  thereto and delivered to
         the Collateral Agent and shall be in full force and effect, and all the
         Bonds and the Pledged  Notes  shall have been duly and validly  pledged
         thereunder  to the  Collateral  Agent for the  ratable  benefit  of the
         Lenders  and the  Bonds  and the  Pledged  Notes,  accompanied  by duly
         executed,   undated   instruments  of  transfer   satisfactory  to  the
         Collateral  Agent,  shall be in the actual possession of the Collateral
         Agent. The TNP Security  Agreement (as defined in the Existing Facility
         Agreement)  shall have been amended  pursuant to Amendment No. 1 to the
         TNP Security Agreement  substantially in the form of Exhibit O in order
         to  provide  for a pledge  by the  Borrower  of its  rights  under  the
         Operating  Agreement (as defined in the Existing Facility Agreement) to
         Chemical  Bank,  for the benefit of the Secured  Parties (as defined in
         the Existing Facility Agreement).

                  (j) The TGC II Guarantee and Pledge  Agreement shall have been
         duly executed by the Guarantor  and delivered to the  Collateral  Agent
         and  shall  be in full  force  and  effect,  and any  promissory  notes
         evidencing  intercompany  indebtedness shall have been duly and validly
         pledged  thereunder to the Collateral  Agent for the ratable benefit of
         the Lenders and shall have been delivered to and shall be in the actual
         possession  of the  Collateral  Agent,  together  with  duly  executed,
         undated instruments of transfer satisfactory to the Collateral Agent.

                  (k) The Administrative  Agent shall have received on behalf of
         the Lenders a satisfactory  certificate dated the Closing Date from the
         Borrower as to the solvency of the Borrower and its  Subsidiaries  on a
         consolidated basis after giving effect to the transactions contemplated
         hereby and by the Assignment Agreement.

                  (l) The Existing  Facility Project  Documents and the Existing
         Facility  Security  Documents  shall be in full force and effect on the
         Closing Date. The Existing Facility  Collateral Agent, on behalf of the
         holders from time to time of the Pledged Notes and the Replacement Note
         Holder,  shall  have  a  security  interest  in the  Existing  Facility
         Collateral of the type and priority described in each Existing Facility
         Security Document, perfected to the extent contemplated by Section 2.05
         or 2.18, as the case may be, of the Existing Facility Agreement.

                  (m) The Administrative Agent shall have received, on behalf of
         the Lenders,  duly executed copies of (i) this Agreement;  (ii) the TNP
         Second Lien Mortgage  Modification  No. 3 substantially  in the form of
         Exhibit I; (iii) the Sixth TGC II Mortgage  Modification  and Extension
         Agreement  substantially  in the form of Exhibit H; (iv) the Assignment
         of TGC II  Lien  substantially  in the  form  of  Exhibit  K;  (v)  the
         Collateral Transfer of Notes, Rights and Interests substantially in the
         form of Exhibit L; (vi) the  Assignment  of TNP  Second  Mortgage  Lien
         substantially  in the  form  of  Exhibit  M and  (vii)  the  Collateral
         Transfer of Notes,  Rights and Interests  substantially  in the form of
         Exhibit N, each executed by each Person which is or is intended to be a
         party thereto.

                  (n) The Administrative Agent shall have received, on behalf of
         the Lenders,  (i) duly executed Financing  Statements under the Uniform
         Commercial  Code as are  necessary or advisable in the judgement of the
         Collateral  Agent to protect,  preserve  and  maintain  the priority of
         liens contemplated by the Existing Facility Security Documents in favor
         of the Collateral  Agent, on behalf of the holders from time to time of
         the  Pledged  Notes  and the  Replacement  Note  Holder,  (ii)  Uniform
         Commercial  Code search  reports  together with copies of the financing
         statements (or similar documents) disclosed by such search reports with
         respect  to  each  of the  Guarantor  and the  Borrower,  as  "debtor",
         confirming  the  absence  of any Liens that are not  permitted  by this
         Agreement  or the  Existing  Facility  Agreement  and  (iii)  all other
         instruments to be recorded or filed or delivered in connection with the
         purchases by the Borrower of the Pledged Notes on the Closing Date.

                  (o) No Default or Event of Default under the Existing Facility
         Documents shall have occurred and be continuing or would occur upon the
         effectiveness hereof.

                  (p) The Transactions,  the continuance of the Liens created by
         the Existing  Facility  Security  Documents in favor of the  Collateral
         Agent on behalf of the holders  from time to time of the Pledged  Notes
         and the  Replacement  Note  Holder,  the  pledge  of the  Bonds and the
         Additional  Bonds  pursuant to the Bond Agreement and the pledge of the
         Pledged  Notes  pursuant to the Note Pledge  Agreement  shall have been
         approved  or  exempted by all  Governmental  Authorities  to the extent
         required  under  applicable  law, and all such approvals or exemptions,
         including any conditions imposed thereby,  shall be satisfactory in all
         respects  to the  Lenders.  No  action  shall  have  been  taken by any
         Governmental Authority which restrains or prevents or seeks to restrain
         or prevent, or imposes or seeks to impose materially adverse conditions
         upon, any of the Transactions.

                  (q) Except as set forth in  Schedule  3.9,  no  action,  suit,
         investigation, litigation or other proceeding at law or in equity or by
         or before any court or other Governmental  Authority shall exist or, in
         the case of litigation by a Governmental Authority, be threatened, with
         respect  to any of  the  Transactions  which  would  in the  reasonable
         opinion  of the  Lenders  be  likely  to  restrain,  prevent  or impose
         burdensome  conditions  to any of the  Transactions,  or to result in a
         Material Adverse Effect.

                  (r) All  aspects of the  structure  and  documentation  of the
         Transactions  and all  corporate and other  proceedings  taken or to be
         taken in connection  therewith and all documents incidental thereto, in
         each case to the extent not  otherwise  provided  for herein,  shall be
         reasonably  satisfactory in form and substance to the Lenders and their
         counsel,  to the Administrative  Agent and to Cravath,  Swaine & Moore,
         counsel  for the  Administrative  Agent,  and the  Lenders  shall  have
         received  copies of all such  documents  as the Lenders may  reasonably
         request.

                  (s) At the  sole  cost  of the  Borrower  and  the  Guarantor,
         Stewart Title Guaranty  Company (the "Original  Title  Company")  shall
         have  issued  to the  Administrative  Agent  (i) a T-3  Endorsement  in
         accordance  with  Procedural  Rule  P-9b(2) to that  certain  Mortgagee
         Policy of Title  Insurance No.  M-5842-12343  dated  September 29, 1993
         (the "Original  Mortgagee Policy") naming the  Administrative  Agent as
         the Insured and changing the effective  date of the Original  Mortgagee
         Policy  to the  date of said  Endorsement  and  containing  such  other
         information reasonably requested by the Administrative Agent and (ii) a
         T-38  Endorsement in accordance  with the provisions of Procedural Rule
         P-9b(3)  stating  that the Original  Title  Company will not claim that
         policy  coverage  has  terminated  or been  reduced  by  reason  of the
         execution of this Agreement or the Assignment  Agreement and containing
         such other provisions reasonably requested by the Administrative Agent.
         In addition,  the Guarantor,  at the sole cost of the Guarantor and the
         Borrower, shall deliver to the Administrative Agent a title information
         report  showing  that  (A) good  and  indefeasible  title to the TGC II
         Mortgage  Trust  Estate  is  vested  in the  Guarantor,  (B) the TGC II
         Mortgage constitutes a valid first mortgage lien on the TGC II Mortgage
         Trust  Estate  and  (C)  there  are  no  intervening   liens  or  other
         encumbrances  which would  adversely  affect the  priority of the liens
         securing  the Loans or the TGC II  Mortgage  Trust  Estate  other  than
         Permitted Liens.

                  (t) The Collateral  Agent shall have received  evidence of the
         effectiveness  of the insurance  required to be maintained  pursuant to
         Section 5.2 and the Existing Facility Documents.

                  SECTION 4.3. Borrowings in Excess of $100,000,000. In addition
to the  conditions  set forth in Section 4.1, the  obligations of the Lenders to
make Loans which,  when aggregated with the principal  amount of all other Loans
then outstanding, would exceed $100,000,000 shall be subject to the satisfaction
of the following conditions precedent:

                  (a) The  Borrower  shall have  issued or shall  simultaneously
         issue to the Collateral Agent, for the benefit of the Lenders, pursuant
         to and in accordance with the Bond Agreement,  an additional  principal
         amount of its  nonredeemable  First Mortgage Bonds in the same form as,
         and with the same terms  (including a maturity date no earlier than the
         Maturity  Date) as, the Bonds (such  additional  First  Mortgage  Bonds
         being herein called the "Additional Bonds") such that the Bond Total is
         equal to or greater than the aggregate  principal  amount of Loans that
         would be  outstanding  after  giving  effect to such  Borrowing,  minus
         $70,000,000.

                  (b) The  Additional  Bonds shall have been  validly  issued in
         compliance  with the TNP Bond  Indenture and  registered in the name of
         Chemical Bank, as Collateral Agent for the Lenders,  and the Collateral
         Agent shall have received,  on behalf of the Lenders, (i) an opinion of
         counsel reasonably satisfactory to the Collateral Agent with respect to
         the issuance and pledge of such Additional Bonds, in form and substance
         comparable  to the opinions  delivered on the Closing Date with respect
         to the issuance and pledge of the Bonds, and (ii) the Additional Bonds;
         provided,  that,  any  Borrowings  in excess of  $100,000,000  (and the
         Additional  Bonds pledged  pursuant to this Section 4.3) shall be in an
         aggregate  principal amount that is an integral  multiple of $1,000,000
         and not less than $5,000,000.


ARTICLE V.  AFFIRMATIVE COVENANTS

                  The  Borrower  covenants  and agrees  with each Lender that so
long as this  Agreement  shall remain in effect and until the  Commitments  have
been  terminated  and the principal of and interest on each Loan, all Commitment
Fees and all other  expenses or amounts  payable under any Loan  Document  shall
have been paid in full,  unless the Required Lenders shall otherwise  consent in
writing, the Borrower will, and will cause each of the Subsidiaries to:

                  SECTION 5.1.  Existence; Businesses and Properties.  

                  (a)  Do or cause to be done all things necessary to 
preserve, renew and keep in full force and effect its legal existence, except as
otherwise expressly permitted under Section 6.5.

                  (b) Do or cause to be done all  things  necessary  to  obtain,
preserve,  renew, extend and keep in full force and effect the rights, licenses,
permits, franchises,  authorizations,  patents, copyrights, trademarks and trade
names  material  to the  conduct of its  business;  maintain  and  operate  such
business in  substantially  the manner in which it is  presently  conducted  and
operated;  comply in all material  respects  with all  applicable  laws,  rules,
regulations and decrees and orders of any Governmental Authority, whether now in
effect or hereafter enacted; and at all times maintain and preserve all property
material to the conduct of such  business and keep such property in good repair,
working order and condition and from time to time make, or cause to be made, all
needful and proper repairs, renewals,  additions,  improvements and replacements
thereto necessary in order that the business carried on in connection  therewith
may be properly conducted at all times.

                  SECTION  5.2.   Insurance.   Keep  its  insurable   properties
adequately  insured at all times by  financially  sound and reputable  insurers;
maintain such other insurance,  to such extent and against such risks, including
fire and other risks insured against by extended coverage,  as is customary with
companies  in the same or similar  businesses  operating  in the same or similar
locations,  including  public  liability  insurance  against claims for personal
injury or death or property  damage  occurring  upon, in, about or in connection
with the use of any properties owned, occupied or controlled by it; and maintain
such  other  insurance  as may be  required  by law or by  Section  9.17  of the
Existing Facility Agreement.

                  SECTION 5.3.  Obligations and Taxes.  Pay its Indebtedness and
other  obligations  promptly  and in  accordance  with  their  terms and pay and
discharge promptly when due all taxes,  assessments and governmental  charges or
levies  imposed  upon it or upon its  income or  profits  or in  respect  of its
property,  before the same shall become delinquent or in default, as well as all
lawful claims for labor,  materials  and supplies or otherwise  that, if unpaid,
might give rise to a Lien upon such  properties or any part  thereof;  provided,
however,  that such payment and discharge  shall not be required with respect to
any such tax, assessment,  charge, levy or claim set forth in Schedule 3.9 or so
long as the  validity  or amount  thereof  shall be  contested  in good faith by
appropriate  proceedings  and the  Borrower  shall  have set  aside on its books
adequate  reserves with respect thereto in accordance with GAAP and such contest
operates to suspend collection of the contested  obligation,  tax, assessment or
charge and enforcement of a Lien.

     SECTION  5.4.  Financial  Statements,  Reports,  etc.  In the  case  of the
Borrower,  the Guarantor and TGC, furnish to the  Administrative  Agent and each
Lender:

                  (a)  within  100 days  after the end of each  fiscal  year,  a
         balance  sheet and  related  statements  of  operations,  stockholders'
         equity  and cash  flows  showing  the  financial  condition  of (i) the
         Borrower  and  its  Subsidiaries  on a  consolidated  basis,  (ii)  the
         Guarantor  and (iii) TGC,  each as of the close of such fiscal year and
         the  results of their  respective  operations  during  such  year,  all
         audited  by  KPMG  Peat  Marwick  LLP  or  other   independent   public
         accountants  of  recognized   national   standing   acceptable  to  the
         Administrative  Agent and accompanied by an opinion of such accountants
         (which shall not be  qualified  in any material  respect) to the effect
         that such financial  statements fairly present the financial  condition
         and results of operations of (i) the Borrower and its Subsidiaries on a
         consolidated   basis,  (ii)  the  Guarantor  and  (iii)  TGC,  each  in
         accordance with GAAP;

                  (b)  within 50 days  after the end of each of the first  three
         fiscal  quarters  of each  fiscal  year,  a balance  sheet and  related
         statements of operations,  stockholders'  equity and cash flows showing
         the financial  condition of (i) the Borrower and its  Subsidiaries on a
         consolidated  basis,  (ii) the  Guarantor and (iii) TGC, each as of the
         close of such  fiscal  quarter  and the  results  of  their  respective
         operations  during such fiscal quarter and the then elapsed  portion of
         the fiscal  year,  all  certified by one of its  Financial  Officers as
         fairly presenting the financial  condition and results of operations of
         (i) the Borrower and its Subsidiaries on a consolidated basis, (ii) the
         Guarantor  and (iii) TGC,  each in  accordance  with  GAAP,  subject to
         normal year-end audit adjustments;

                  (c)  concurrently  with any delivery of  financial  statements
         under paragraph (a) or (b) above, a certificate of a Financial Officer,
         and,  in the  case of any  delivery  under  paragraph  (a)  above,  the
         accounting firm opining on such  statements  (which  certificate,  when
         furnished by an accounting  firm, may be limited to accounting  matters
         and disclaim  responsibility for legal  interpretations) (i) certifying
         that in  making  the  examination  necessary  for their  opinion,  they
         obtained no knowledge,  except as specifically stated, that an Event of
         Default  or  Default  has  occurred  or, if such an Event of Default or
         Default has occurred,  specifying the nature and extent thereof and any
         corrective action which the Borrower has taken or proposed to take with
         respect  thereto and (ii)  setting  forth  computations  in  reasonable
         detail   satisfactory  to  the   Administrative   Agent   demonstrating
         compliance with the covenants contained in Sections 6.11 and 6.12;

                  (d) promptly after the same become publicly available,  copies
         of all periodic and other reports, proxy statements and other materials
         filed  by the  Borrower  or any  Subsidiary  with  the  Securities  and
         Exchange Commission, or any Governmental Authority succeeding to any or
         all  of  the  functions  of  said  Commission,  or  with  any  national
         securities  exchange,  or distributed to its shareholders,  as the case
         may be; and

                  (e)  promptly,  from  time to  time,  such  other  information
         regarding the operations,  business affairs and financial  condition of
         the Borrower or any  Subsidiary,  or  compliance  with the terms of any
         Loan Document, as the Administrative Agent or any Lender may reasonably
         request.

     SECTION 5.5.  Litigation and Other Notices.  Furnish to the  Administrative
Agent and each Lender prompt written notice of the following:

                  (a) any Event of Default or Default, specifying the nature and
         extent thereof and the corrective  action (if any) taken or proposed to
         be taken with respect thereto;

                  (b) the filing or commencement  of, or any threat or notice of
         intention  of any  person  to file or  commence,  any  action,  suit or
         proceeding,   whether  at  law  or  in  equity  or  by  or  before  any
         Governmental  Authority,  against the Borrower or any Affiliate thereof
         that could  reasonably  be  expected  to result in a  Material  Adverse
         Effect;

          (c) any change in the ratings by S&P or Moody's of the Index Debt; and

                  (d) any development  that has resulted in, or could reasonably
         be expected to result in, a Material Adverse Effect.

                  SECTION  5.6.  Employee  Benefits.  (a) Comply in all material
respects with the applicable provisions of ERISA and the Code and (b) furnish to
the  Administrative  Agent as soon as possible after, and in any event within 10
days after any Responsible  Officer of the Borrower or any ERISA Affiliate knows
or has reason to know that, any ERISA Event has occurred that, alone or together
with any other ERISA Event could  reasonably  be expected to result in liability
of the  Borrower in an  aggregate  amount  exceeding  $20,000,000  or  requiring
payments exceeding $5,000,000 in any year, a statement of a Financial Officer of
the Borrower  setting  forth  details as to such ERISA Event and the action,  if
any, that the Borrower proposes to take with respect thereto.

                  SECTION 5.7.  Maintaining  Records;  Access to Properties  and
Inspections.  Keep proper  books of record and  account in which full,  true and
correct entries in conformity with GAAP and all  requirements of law are made of
all dealings and  transactions in relation to its business and activities.  Each
Loan  Party  will,  and will  cause  each of its  Subsidiaries  to,  permit  any
representatives  designated by the  Administrative  Agent or any Lender to visit
and inspect the  financial  records and the  properties  of the  Borrower or any
Subsidiary at reasonable times and as often as reasonably  requested and to make
extracts   from  and  copies  of  such   financial   records,   and  permit  any
representatives  designated by the Administrative Agent or any Lender to discuss
the affairs,  finances and condition of the Borrower or any Subsidiary  with the
officers thereof and independent accountants therefor.

     SECTION 5.8.  Use of  Proceeds.  Use the proceeds of the Loans only for the
purposes set forth in the preamble to this Agreement.

                  SECTION  5.9.  Compliance  with Laws and  Environmental  Laws.
Comply,  and cause all lessees and other  persons  occupying  its  Properties to
comply, in all material  respects with all laws, rules,  regulations and orders,
and with all  Environmental  Laws and  Environmental  Permits  applicable to its
operations and Properties,  except in each case to the extent that failure to so
comply could not reasonably be expected to result in a Material  Adverse Effect;
obtain and renew all material Environmental Permits necessary for its operations
and Properties; and conduct any Remedial Action in accordance with Environmental
Laws; provided,  however,  that neither the Borrower nor any of the Subsidiaries
shall be  required  to  undertake  any  Remedial  Action to the extent  that its
obligation to do so is being  contested in good faith and by proper  proceedings
and  appropriate  reserves in  accordance  with GAAP are being  maintained  with
respect to such circumstances.

                  SECTION  5.10.  Preparation  of  Environmental  Reports.  If a
Default  caused by reason of a breach of Section 3.17 or 5.9 shall have occurred
and  be  continuing,  at  the  request  of  the  Required  Lenders  through  the
Administrative  Agent, provide to the Lenders within 60 days after such request,
at the expense of the Borrower,  an environmental site assessment report for the
Properties  which are the subject of such default  prepared by an  environmental
consulting  firm  acceptable  to the  Administrative  Agent and  indicating  the
presence  or  absence  of  Hazardous  Materials  and the  estimated  cost of any
compliance or Remedial Action in connection with such Properties.

                  SECTION 5.11. Further Assurances.  Execute any and all further
documents,  financing  statements,  agreements  and  instruments,  and  take all
further action  (including  filing Uniform  Commercial  Code and other financing
statements)  that may be required  under  applicable  law, or that the  Required
Lenders,  the  Administrative  Agent  or the  Collateral  Agent  may  reasonably
request,  in order  to  effectuate  the  transactions  contemplated  by the Loan
Documents and in order to grant, preserve,  protect and perfect the validity and
first  priority of the security  interests  created or intended to be created by
the Pledge Agreements and the Existing Facility Security Documents. The Borrower
agrees to provide such evidence as the Collateral Agent shall reasonably request
as to the  perfection  and priority  status of each such  security  interest and
Lien.

                  Section 5.12. Maintenance;  Ownership of the Guarantor Capital
Stock.  (a) Maintain  and  preserve the Project and all of its other  properties
necessary or useful in the proper conduct of its business, in good working order
and condition,  ordinary wear and tear excepted; and restore, replace or rebuild
its property,  or any part thereof now or hereafter  damaged or destroyed by any
casualty  (whether or not insured against or insurable) except any such property
that the Borrower determines in good faith not to be necessary to the conduct of
its business.

                  (b) In the case of the  Borrower,  own all of the  issued  and
outstanding capital stock of the Guarantor free and clear of all Liens.

                  Section  5.13.   Performance   and   Continuation  of  Certain
Documents.  Perform and observe all of its covenants and agreements contained in
the Existing Facility Agreement,  any of the Existing Facility Project Documents
and  any of the  Existing  Facility  Security  Documents  to  which  it or  such
Subsidiary is a party,  take all reasonable and necessary  action to prevent the
termination of the Existing Facility Agreement, any such Project Document or any
of the Existing Facility Security Documents in accordance with the terms thereof
or otherwise,  maintain the Facility Purchase Agreement in full force and effect
in accordance with its terms on the date hereof,  enforce each material covenant
or obligation of the Existing Facility Agreement, such Project Document and such
Existing  Facility  Security  Document in accordance with its terms and take all
such action to that end as from time to time may be reasonably  requested by the
Administrative Agent.


ARTICLE VI.  NEGATIVE COVENANTS

                  The Borrower  covenants  and agrees with each Lender that,  so
long as this  Agreement  shall remain in effect and until the  Commitments  have
been  terminated  and the principal of and interest on each Loan, all Commitment
Fees and all other expenses or amounts payable under any Loan Document have been
paid in full,  unless the Required  Lenders shall otherwise  consent in writing,
the Borrower will not, and will not cause or permit any of the Subsidiaries to:

     SECTION 6.1.  Indebtedness.  Incur,  create,  assume or permit to exist any
Indebtedness, except:

     (a)  Indebtedness  incurred  hereunder or under any other Loan  Document or
under the Existing Facility Documents;

     (b) accounts  payable owed by the Borrower to the  Guarantor or TGC, to the
extent incurred and paid in the ordinary course of business;

     (c) Secured Debentures; provided, however, that (i) the aggregate principal
amount  of  Secured  Debentures   outstanding  at  any  time  shall  not  exceed
$270,000,000  and (ii) no Secured  Debentures  shall be secured by a Lien on any
asset other than the Replacement  Note and replacement  notes issued pursuant to
the  Unit 1 Credit  Agreement,  unless  in  either  case,  the  Commitments  are
terminated and the Loans and other Obligations paid in full at the time any such
Secured Debentures are issued;

     (d) First Mortgage Bonds;  provided,  however, that the aggregate principal
amount of First  Mortgage  Bonds  outstanding  at any time  (including any First
Mortgage  Bonds  pledged  pursuant  to the Bond  Pledge  Agreement  or any other
agreement)  shall not exceed the sum of (x)  $360,000,000  and (y) the aggregate
amount by which the Total Commitment has been reduced  subsequent to the Closing
Date; and provided further that the limitations of the foregoing proviso to this
clause (d) shall not apply (i) so long as the Pledged  Bond Total is equal to or
greater than the Total Commitment or (ii) after the Release Conditions have been
satisfied and the Release Date has occurred as provided in Section 9.17;

     (e)  intercompany  Indebtedness  pledged  to the  Collateral  Agent for the
benefit  of the  Lenders  on terms  satisfactory  to the  Collateral  Agent  and
intercompany  Indebtedness owed to the Borrower by TNP Enterprises or TGC on the
Closing Date and listed on Schedule 6.1;

     (f)  Indebtedness  in respect  of  interest  rate  swaps or other  interest
hedging  agreements  to the extent  such swaps or  agreements  are used to hedge
interest rate risk in respect of outstanding  floating rate Indebtedness and not
for speculative purposes;

     (g) Indebtedness of TGC under the Unit 1 Credit Agreement;

     (h)  customer  advances and  security  deposits in the  ordinary  course of
business; and

     (i) additional Indebtedness not exceeding $2,000,000 in aggregate principal
amount outstanding at any time with local banking institutions.

     SECTION 6.2. Liens.  Create,  incur,  assume or permit to exist any Lien on
any  property or assets  (including  capital  stock or other  securities  of any
Subsidiary  or other  person)  now owned or  hereafter  acquired by it or on any
income or revenues or rights in respect of any thereof, except:

     (a)  Liens on  property  or  assets of the  Borrower  and its  Subsidiaries
existing on the date hereof and set forth in Schedule  6.2;  provided  that such
Liens shall secure only those obligations which they secure on the date hereof;

     (b) any Lien  created  under  the Loan  Documents,  the  Existing  Facility
Agreement or the Existing Facility Security Documents;

     (c) Liens arising under any trust indenture  pursuant to which the Borrower
issues First Mortgage Bonds;

     (d) Liens arising under the Secured Debenture  Indentures (and refinancings
thereof);

     (e) Liens expressly permitted under the Existing Facility Agreement;

     (f) in the case of TGC, Liens  expressly  permitted under the Unit 1 Credit
Agreement; and

     (g)  sales of  accounts  receivable  consistent  with the  Borrower's  past
practices.

     SECTION 6.3. Sale and Lease-Back Transactions.  Enter into any arrangement,
directly or  indirectly,  with any person  whereby it shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or other property
which it intends to use for  substantially  the same  purpose or purposes as the
property being sold or transferred.

                  SECTION 6.4. Investments,  Loans and Advances.  Purchase, hold
or acquire any capital stock,  evidences of indebtedness or other securities of,
make or permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other person, except:

                  (a) investments by the Borrower existing on the date hereof in
         the capital stock of the  Subsidiaries  or resulting from  acquisitions
         made in accordance with Section 6.5;

                  (b) intercompany Indebtedness permitted under Section 6.1(e);

                  (c) investments  accepted by the Borrower or any Subsidiary in
         the  ordinary  course of business  from  customers in  satisfaction  of
         indebtedness of such customers.

                  (d) Permitted Investments;

                  (e)  investments,  loans and  advances  that  shall not exceed
         $1,000,000  in the  aggregate  outstanding  at  any  time  made  in the
         ordinary course of business; and

                  (f) key  personnel  life  insurance  the proceeds of which are
intended to fund the excess benefit plan.

                  SECTION  6.5.  Mergers,  Consolidations,  Sales of Assets  and
Acquisitions. (a) Merge into or consolidate with any other person, or permit any
other person to merge into or consolidate with it, or sell,  transfer,  lease or
otherwise  dispose of (in one transaction or in a series of transactions) all or
any substantial part of its assets (whether now owned or hereafter  acquired) or
any capital stock of any Subsidiary, or purchase, lease or otherwise acquire (in
one transaction or a series of transactions)  all or any substantial part of the
assets of any other person,  except that (i) the Borrower and any Subsidiary may
purchase  and sell  inventory  in the  ordinary  course  of  business,  (ii) the
Borrower and any  Subsidiary may permit any assets to be taken for any public or
quasi-public use under any governmental law, ordinance or regulation or by right
of  eminent  domain  and to be sold  under  threat  of  condemnation;  (iii) the
Borrower may sell accounts receivable  consistent with its past practices;  (iv)
acquisitions  (in one  transaction  or a series  of  transactions)  of assets or
capital stock of another person not to exceed $25,000,000 in the aggregate;  and
(v) if at the time thereof and immediately  after giving effect thereto no Event
of Default or Default shall have occurred and be continuing (A) any wholly owned
Subsidiary  (other  than  TGC and  TGC II) may  merge  into  the  Borrower  in a
transaction  in which the  Borrower  is the  surviving  corporation  and (B) any
wholly  owned  Subsidiary  (other  than  TGC  and  TGC  II)  may  merge  into or
consolidate with any other wholly owned Subsidiary in a transaction in which the
surviving  entity is a wholly  owned  Subsidiary  and no person  other  than the
Borrower  or a  wholly  owned  Subsidiary  receives  any  consideration  (C) the
Borrower or any  Subsidiary  may sell assets which when taken  together with any
assets sold by the  Borrower or any of its  Subsidiaries  during the same period
have an aggregate book value not exceeding (x)  $10,000,000  in any  consecutive
twelve  month period and (y)  $25,000,000  during the period  commencing  on the
Closing Date and ending upon the  termination of the  Commitments and payment in
full of all outstanding Loans;  provided,  however, that, to the extent that the
proceeds  of any asset  sale made in  reliance  upon  clause  (a)(ii)  or clause
(a)(v)(C) are not used to reduce or redeem First  Mortgage  Bonds within 40 days
after such asset sale, the Borrower shall be required to reduce the  Commitments
pursuant to Section 2.9 by an amount equal to the proceeds that are not so used,
and shall effect such reduction  immediately upon the expiration of such period;
provided,  that the foregoing limitation with respect to proceeds of asset sales
made in  reliance  upon such  clauses  shall not apply to the first  $500,000 of
proceeds received during any consecutive twelve month period; provided,  further
that in no event shall the  immediately  preceding  exclusion apply to more than
$1,000,000  of proceeds  during the period  commencing  on the Closing  Date and
ending  upon the  termination  of the  Commitments  and  payment  in full of all
outstanding Loans.

                  (b) In the case of TGC II,  purchase  or  acquire  any  assets
other than (i) assets  reasonably  required for the  maintenance or operation of
the Project, and (ii) supplies purchased in the ordinary course of business.

                  SECTION 6.6.  Dividends  and  Distributions;  Restrictions  on
Ability of  Subsidiaries  to Pay  Dividends.  (a)  Declare or pay,  directly  or
indirectly, any dividend or make any other distribution (by reduction of capital
or otherwise),  whether in cash, property,  securities or a combination thereof,
with  respect to any  shares of its  capital  stock or  directly  or  indirectly
redeem,  purchase,  retire  or  otherwise  acquire  for  value  (or  permit  any
Subsidiary  to purchase or acquire) any shares of any class of its capital stock
or set aside any amount for any such purpose;  provided,  however,  that (i) any
Subsidiary  may declare and pay  dividends  or make other  distributions  to the
Borrower,  (ii) the  Borrower  may declare and pay cash  dividends on its common
stock to its  shareholder  if (A) no Event of Default shall have occurred and be
continuing (or would result therefrom) and (B) such declaration or payment would
not  cause the sum of all  Dividends  declared  or paid on  common  stock by the
Borrower  during the most recently  ended  twenty-four  month period (or shorter
period,  as the case may be)  commencing not earlier than September 30, 1995 and
ending on the Quarterly Date next preceding the date of any proposed declaration
or payment to exceed  Cumulative Net Income  Available For Common  Dividends for
such  period,  (iii) the  Borrower  may  declare and pay cash  dividends  on its
preferred  stock if (A) no Event of Default  specified in paragraph  (b), (c) or
(d) of Article  VII (if,  in the case of  paragraph  (d),  such Event of Default
relates  to a default in  Sections  6.11 or 6. 12) shall  have  occurred  and be
continuing  (or would  result  therefrom)  and (B) if any other Event of Default
shall have occurred and be continuing (or would result therefrom),  the Borrower
shall have requested in writing permission to continue declaring and paying such
dividends  and the Required  Lenders  shall have  delivered to the Borrower such
authorization  and (iv) the Borrower may redeem its preferred stock (A) pursuant
to mandatory  redemption  requirements  in effect on the date hereof or (B) with
the  proceeds  of newly  issued  preferred  stock  which will not be  redeemable
mandatorily or at the option of any holder thereof (other than in the event of a
Change of Control) prior to the Maturity Date.

                  (b) Permit any Subsidiary,  directly or indirectly,  to create
or otherwise  cause or suffer to exist or become  effective any  encumbrance  or
restriction  on the ability of any such  subsidiary  to (i) pay any dividends or
make any other  distributions on its capital stock or any other interest or (ii)
make or repay  any  loans or  advances  to the  Borrower  or the  parent of such
Subsidiary  except  encumbrances  and  restrictions  existing on the date hereof
under this  Agreement,  the Existing  Facility  Agreement  and the Unit 1 Credit
Agreement.

                  SECTION 6.7.  Transactions  with Affiliates.  Sell or transfer
any  property or assets to, or purchase or acquire any  property or assets from,
or  otherwise  engage in any other  transactions  with,  any of its  Affiliates,
except that the Borrower or any  Subsidiary  may engage in any of the  foregoing
transactions  in the  ordinary  course of  business  at prices  and on terms and
conditions not less favorable to the Borrower or such  Subsidiary  than could be
obtained on an arm's-length  basis from unrelated  third parties;  provided that
this Section 6.7 shall not apply to (i) any transactions  expressly permitted or
contemplated  by the Existing  Facility  Project  Documents or the Unit 1 Credit
Agreement  and the project  documents  described  therein,  (ii) the creation of
subsidiaries  and the entry  into  transactions  for the  purpose  of  financing
Capital  Expenditures  with  respect  to Unit 1,  (iii)  the  sale of  power  to
Affiliates and (iv) the payment of Dividends to TNP  Enterprises as permitted by
this Agreement.

                  SECTION 6.8. Business of Borrower and Subsidiaries.  Engage at
any time in any business or business activity other than the business  currently
conducted by it and business activities reasonably incidental thereto.

                  SECTION 6.9.  Additional Generating Facilities.  Create, 
acquire or construct any additional generating facilities or generating assets
(pursuant to the exercising of its rights under the Construction Contract or 
otherwise).

                  SECTION 6.10. Amendment or Modification of Certain Agreements;
Pledged Notes. (a) Enter into, consent to or permit any amendment, modification,
supplement or waiver of a Secured  Debenture  Indenture or the Replacement  Note
which  shall  (1)  shorten  the  stated  maturity  of the  principal  of, or any
installment  of  interest  on, any Secured  Debenture  then  outstanding  or the
Replacement  Note,  or  increase  the  principal  amount  thereof or the rate of
interest thereon,  (2) grant any additional  collateral security for any Secured
Debenture  or the  Replacement  Note or (3) have the effect of  impairing in any
material respect, directly or indirectly, the rights or interests of the Lenders
in the Existing Facility  Collateral or the Collateral under this Agreement,  or
make or permit any payment or  prepayment  of the  principal of the  Replacement
Note; provided,  that nothing in this Section 6.10 shall prohibit (i) the pledge
of the Replacement Note under the First Secured Debenture Indenture as in effect
on the Closing Date and (ii) securing  Subsequent  Secured  Debentures  with the
Replacement  Note in  accordance  with  Section  2.19 under  Subsequent  Secured
Debenture Indentures.

                  (b)  Enter   into,   consent  to  or  permit  any   amendment,
modification,  supplement or waiver of the Existing Facility Agreement or any of
the  Existing  Facility  Project  Documents or the  Existing  Facility  Security
Documents or the Pledged  Notes,  or make or permit any payment or prepayment of
the  principal  of the Pledged  Notes or any  prepayment  of interest  due or to
become due thereon.

                  SECTION 6.11. Interest Coverage Ratio. Permit the ratio of (i)
Consolidated EBIT to (ii)  Consolidated  Interest Expense for any period of four
consecutive  fiscal  quarters ending on any Quarterly Date during any period set
forth below to be less than the ratio set forth opposite such period:
<TABLE>
<CAPTION>

  Period                                                               Ratio
  ------                                                               -----
      <S>                                                               <C> 
      Closing Date through June 30, 1996                                1.20
      July 1, 1996 through June 30, 1997                                1.30
      July 1, 1997 through June 30, 1998                                1.30
      Thereafter                                                        1.50

</TABLE>

                  SECTION 6.12. Debt to Capitalization  Ratio.  Permit the ratio
of (i) Consolidated Total Indebtedness to (ii) Total  Capitalization  (the "Debt
to  Capitalization  Ratio") at any time  during  any  period set forth  below to
exceed the ratio set forth opposite such period:

<TABLE>
<CAPTION>

  Period                                                                Ratio
  ------                                                                -----
      <S>                                                               <C> 
      Closing Date through June 30, 1996                                0.77
      July 1, 1996 through June 30, 1997                                0.75
      July 1, 1997 through June 30, 1998                                0.72
      July 1, 1998 through June 30, 1999                                0.68
      Thereafter                                                        0.65
</TABLE>


                  SECTION 6.13. Capital Expenditures.  Make Capital Expenditures
in excess of $40,000,000  during any fiscal year;  provided,  that any amount of
such  $40,000,000  not used in any fiscal year may be carried over into and used
in the next fiscal year but not any subsequent  fiscal year (it being understood
that for purposes of computing  the amount  permitted  to be carried  over,  the
$40,000,000  applicable  to each fiscal year shall be deemed to be used prior to
the use of any applicable carryover).


ARTICLE VII.  EVENTS OF DEFAULT

                  In  case  of the  happening  of any  of the  following  events
("Events of Default"):

                  (a) any  representation  or warranty made or deemed made in or
         in connection with any Loan Document or Existing  Facility  Document or
         the  borrowings   hereunder  or  thereunder,   or  any  representation,
         warranty,   statement   or   information   contained   in  any  report,
         certificate,  financial  statement  or other  instrument  furnished  in
         connection  with or pursuant to any Loan Document or Existing  Facility
         Document,  shall prove to have been false or misleading in any material
         respect when so made, deemed made or furnished;

                  (b) default  shall be made in the payment of any  principal of
         any Loan when and as the same shall become due and payable,  whether at
         the due date  thereof or at a date fixed for  prepayment  thereof or by
         acceleration thereof or otherwise;

                  (c) default  shall be made in the  payment of any  interest on
         any Loan or any  Commitment  Fee or any  other  amount  (other  than an
         amount  referred  to in (b)  above)  due  under  any Loan  Document  or
         Existing Facility  Document,  when and as the same shall become due and
         payable,  and such default shall  continue  unremedied  for a period of
         five days;

                  (d) default shall be made in the due observance or performance
         by  the  Borrower  or any  Subsidiary  of any  covenant,  condition  or
         agreement  contained  in  Section  5.1(a),  5.8,  5.12(b) or 5.13 or in
         Article VI;

                  (e) default shall be made in the due observance or performance
         by  the  Borrower  or any  Subsidiary  of any  covenant,  condition  or
         agreement  contained  in Section 5.5 and such  default  shall  continue
         unremedied for a period of 10 days;

                  (f) default shall be made in the due observance or performance
         by  the  Borrower  or any  Subsidiary  of any  covenant,  condition  or
         agreement contained in any Loan Document (other than those specified in
         (b), (c) or (d) above) and such default shall continue unremedied for a
         period of 30 days after notice thereof from the Administrative Agent or
         any Lender to the Borrower;

                  (g) default shall be made in the due observance or performance
         by  the  Borrower  or any  Subsidiary  of any  covenant,  condition  or
         agreement  contained in any  Existing  Facility  Document  after giving
         effect to any applicable cure periods thereunder;

                  (h) the Borrower or any  Subsidiary  shall (i) fail to pay any
         principal  or  interest,  regardless  of amount,  due in respect of any
         Indebtedness in a principal  amount in excess of $5,000,000 in the case
         of the Borrower, and $100,000, in the case of any Subsidiary,  when and
         as the same shall  become due and  payable,  or (ii) fail to observe or
         perform any other term,  covenant,  condition or agreement contained in
         any   agreement  or   instrument   evidencing  or  governing  any  such
         Indebtedness  if the effect of any  failure  referred to in this clause
         (ii)  is to  cause,  or  to  permit  the  holder  or  holders  of  such
         Indebtedness  or a trustee on its or their  behalf (with or without the
         giving  of  notice,   the  lapse  of  time  or  both)  to  cause,  such
         Indebtedness to become due prior to its stated maturity;

                  (i)  an  involuntary  proceeding  shall  be  commenced  or  an
         involuntary   petition   shall  be  filed  in  a  court  of   competent
         jurisdiction  seeking  (i)  relief in respect  of the  Borrower  or any
         Subsidiary,  or of a substantial  part of the property or assets of the
         Borrower or a Subsidiary,  under Title 11 of the United States Code, as
         now constituted or hereafter  amended,  or any other Federal,  state or
         foreign bankruptcy,  insolvency,  receivership or similar law, (ii) the
         appointment   of  a   receiver,   trustee,   custodian,   sequestrator,
         conservator  or similar  official for the Borrower or any Subsidiary or
         for a  substantial  part of the property or assets of the Borrower or a
         Subsidiary or (iii) the  winding-up or  liquidation  of the Borrower or
         any  Subsidiary;   and  such  proceeding  or  petition  shall  continue
         undismissed for 60 days or an order or decree approving or ordering any
         of the foregoing shall be entered;

                  (j) the  Borrower  or any  Subsidiary  shall  (i)  voluntarily
         commence any proceeding or file any petition seeking relief under Title
         11 of the United States Code, as now constituted or hereafter  amended,
         or  any  other  Federal,  state  or  foreign  bankruptcy,   insolvency,
         receivership  or similar law,  (ii) consent to the  institution  of, or
         fail to contest in a timely and appropriate  manner,  any proceeding or
         the filing of any petition  described in (h) above,  (iii) apply for or
         consent  to  the  appointment  of  a  receiver,   trustee,   custodian,
         sequestrator,  conservator or similar  official for the Borrower or any
         Subsidiary or for a  substantial  part of the property or assets of the
         Borrower or any Subsidiary,  (iv) file an answer admitting the material
         allegations of a petition filed against it in any such proceeding,  (v)
         make a general  assignment  for the benefit of  creditors,  (vi) become
         unable,  admit in writing its  inability  or fail  generally to pay its
         debts as they  become due or (vii)  take any action for the  purpose of
         effecting any of the foregoing;

                  (k) one or more  judgments  for the  payment  of  money  in an
         aggregate  amount in excess of $7,500,000 shall be rendered against the
         Borrower,  any Subsidiary or any combination thereof and the same shall
         remain  undischarged  for a period of 30 consecutive  days during which
         execution  shall not be  effectively  stayed,  or any  action  shall be
         legally taken by a judgment  creditor to levy upon assets or properties
         of the Borrower or any Subsidiary to enforce any such judgment;

                  (l) an ERISA Event shall have occurred that, in the opinion of
         the Required  Lenders,  when taken  together  with all other such ERISA
         Events,  could  reasonably  be expected to result in  liability  of the
         Borrower  and its ERISA  Affiliates  in an aggregate  amount  exceeding
         $20,000,000 or requires payments exceeding $5,000,000 in any year; or

                  (m) any  security  interest  purported  to be  created  by any
         Pledge  Agreement,  any Existing  Facility Security Document or the TNP
         Bond Indenture  shall cease to be, or shall be asserted by the Borrower
         or any other Loan Party not to be, a valid,  perfected,  first priority
         (except as otherwise expressly provided in this Agreement, such Pledged
         Agreement,  such Existing  Facility  Security  Document or the TNP Bond
         Indenture)  security  interest in the securities,  assets or properties
         covered thereby,  except to the extent that any such loss of perfection
         or  priority  results  from  the  failure  of the  Collateral  Agent to
         maintain  possession of certificates  representing  securities  pledged
         under either Pledge Agreement;

then,  and in every such event (other than an event with respect to the Borrower
described in paragraph (i) or (j) above),  and at any time thereafter during the
continuance of such event, the  Administrative  Agent may, and at the request of
the Required  Lenders shall,  by notice to the Borrower,  take either or both of
the following actions,  at the same or different times: (i) terminate  forthwith
the Commitments and (ii) declare the Loans then  outstanding to be forthwith due
and  payable  in whole or in  part,  whereupon  the  principal  of the  Loans so
declared to be due and payable,  together with accrued  interest thereon and any
unpaid accrued Fees and all other  liabilities of the Borrower accrued hereunder
and under any other Loan  Document,  shall  become  forthwith  due and  payable,
without  presentment,  demand,  protest or any other notice of any kind,  all of
which are hereby expressly waived by the Borrower,  anything contained herein or
in any other Loan  Document to the  contrary  notwithstanding;  and in any event
with  respect to the  Borrower  described  in  paragraph  (i) or (j) above,  the
Commitments  shall  automatically  terminate and the principal of the Loans then
outstanding,  together with accrued interest thereon and any unpaid accrued Fees
and all other  liabilities of the Borrower accrued hereunder and under any other
Loan Document,  shall automatically become due and payable, without presentment,
demand,  protest  or any  other  notice of any  kind,  all of which  are  hereby
expressly waived by the Borrower, anything contained herein or in any other Loan
Document to the  contrary  notwithstanding.  Notwithstanding  the  foregoing,  a
Default (as defined in the Existing  Facility  Agreement)  under Sections 10.01,
10.02,  10.08,  10.14,  10.17,  10.21 and 10.22 or paragraphs (g), (i) or (l) of
Section 11 of the Existing Facility  Agreement will not be deemed to be an Event
of Default  hereunder if the events or circumstances  constituting  such Default
would  not,  but  for  such  provisions  of  the  Existing  Facility  Agreement,
constitute  or result in an Event of Default  under  Section 6.5, 6.6, 6.1, 6.5,
6.13,  6.6,  6.11 or 6.12 or  paragraph  (k),  (h) or (l) of Article VII of this
Agreement,  respectively;  it being  agreed,  however,  that if the  events  and
circumstances  constituting  such a Default  shall  result in a violation of any
provisions  of any Loan  Document  other  than  those  enumerated  above in this
sentence,  nothing in this sentence  shall prevent the occurrence of an Event of
Default hereunder by reason of such violation.


ARTICLE VIII.  THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT

                  In order to expedite  the  transactions  contemplated  by this
Agreement,  Chemical Bank is hereby appointed to act as Administrative Agent and
Collateral  Agent on behalf of the Lenders (for  purposes of this Article  VIII,
the  Administrative  Agent and the Collateral Agent are referred to collectively
as the  "Agents").  Each of the  Lenders  and each  assignee  of any such Lender
hereby irrevocably  authorizes the Agents to take such actions on behalf of such
Lender or assignee and to exercise such powers as are specifically  delegated to
the Agents by the terms and  provisions  hereof and of the other Loan  Documents
and Existing  Facility  Documents,  together with such actions and powers as are
reasonably  incidental  thereto.  The  Administrative  Agent is hereby expressly
authorized by the Lenders, without hereby limiting any implied authority, (a) to
receive on behalf of the Lenders all  payments of  principal  of and interest on
the Loans and all other  amounts due to the Lenders  hereunder,  and promptly to
distribute  to each Lender its proper share of each payment so received;  (b) to
give  notice on behalf of each of the  Lenders to the  Borrower  of any Event of
Default specified in this Agreement of which the Administrative Agent has actual
knowledge  acquired  in  connection  with  its  agency  hereunder;  and  (c)  to
distribute to each Lender copies of all notices,  financial statements and other
materials  delivered  by the  Borrower or any other Loan Party  pursuant to this
Agreement or the other Loan Documents as received by the  Administrative  Agent.
Without limiting the generality of the foregoing, the Collateral Agent is hereby
expressly  authorized to execute any and all documents (including releases) with
respect to the  Collateral  and the rights of the Secured  Parties  with respect
thereto,  as  contemplated  by and in  accordance  with the  provisions  of this
Agreement, the other Loan Documents and the Existing Facility Documents.

                  None of the Agents,  the Co-Agents or any of their  respective
directors,  officers, employees or agents shall be liable as such for any action
taken or omitted by any of them  except for its or his own gross  negligence  or
wilful   misconduct,   or  be  responsible   for  any  statement,   warranty  or
representation  herein or the contents of any document  delivered in  connection
herewith,  or be required to  ascertain  or to make any inquiry  concerning  the
performance  or observance by the Borrower or any other Loan Party of any of the
terms,  conditions,  covenants or  agreements  contained in any Loan Document or
Existing  Facility  Document.  None  of the  Agents  or any  Co-Agent  shall  be
responsible  to the  Lenders  for  the  due  execution,  genuineness,  validity,
enforceability  or effectiveness of this Agreement or any other Loan Document or
Existing Facility Document,  or any related instrument or agreement.  The Agents
shall in all cases be fully protected in acting,  or refraining from acting,  in
accordance with written  instructions signed by the Required Lenders and, except
as otherwise  specifically  provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. Each Agent shall,
in the  absence  of  knowledge  to the  contrary,  be  entitled  to  rely on any
instrument  or  document  believed by it in good faith to be genuine and correct
and to have been  signed or sent by the proper  person or  persons.  None of the
Agents, the Co-Agents or any of their respective directors,  officers, employees
or agents shall have any  responsibility to the Borrower or any other Loan Party
on account of the failure of or delay in  performance or breach by any Lender of
any of its  obligations  hereunder or to any Lender on account of the failure of
or delay in  performance  or breach by any other  Lender or the  Borrower or any
other Loan Party of any of their respective  obligations  hereunder or under any
other Loan Document or in connection  herewith or therewith.  Each of the Agents
may execute any and all duties  hereunder by or through  agents or employees and
shall be entitled to rely upon the advice of legal  counsel  selected by it with
respect to all matters arising  hereunder and shall not be liable for any action
taken or  suffered  in good  faith by it in  accordance  with the advice of such
counsel.

                  The Lenders  hereby  acknowledge  that neither  Agent shall be
under  any duty to take any  discretionary  action  permitted  to be taken by it
pursuant to the  provisions  of this  Agreement  unless it shall be requested in
writing to do so by the Required Lenders.

                  Subject to the appointment and acceptance of a successor Agent
as provided below,  either Agent may resign at any time by notifying the Lenders
and the Borrower. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor  which,  unless a Default or Event of Default shall
have  occurred  and be  continuing,  shall  be  reasonably  satisfactory  to the
Borrower.  If no successor shall have been so appointed by the Required  Lenders
and shall have accepted such appointment within 30 days after the retiring Agent
gives notice of its  resignation,  then the retiring Agent may, on behalf of the
Lenders,  appoint a successor  Agent which shall be a bank with an office in New
York, New York,  having a combined capital and surplus of at least  $500,000,000
or an Affiliate of any such bank.  Upon the  acceptance  of any  appointment  as
Agent  hereunder by a successor bank, such successor shall succeed to and become
vested with all the rights, powers,  privileges and duties of the retiring Agent
and the  retiring  Agent  shall be  discharged  from its duties and  obligations
hereunder.  After the Agent's  resignation  hereunder,  the  provisions  of this
Article and  Section 9.5 shall  continue in effect for its benefit in respect of
any actions taken or omitted to be taken by it while it was acting as Agent.

                  With respect to the Loans made by it hereunder, each Agent and
Co-Agent in its individual capacity and not as Agent or Co-Agent,  respectively,
shall have the same rights and powers as any other  Lender and may  exercise the
same as though it were not an Agent or Co-Agent,  respectively,  and the Agents,
Co-Agents  and their  Affiliates  may accept  deposits  from,  lend money to and
generally  engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not an Agent or Co-Agent, respectively.

                  Each Lender agrees (a) to reimburse the Agents and  Co-Agents,
on  demand,  in the  amount of their  pro rata  share  (based on its  Commitment
hereunder) of any expenses incurred for the benefit of the Lenders by the Agents
or Co-Agents,  as the case may be,  including  counsel fees and  compensation of
agents and employees paid for services  rendered on behalf of the Lenders,  that
shall not have been  reimbursed  by the Borrower  and (b) to indemnify  and hold
harmless each Agent, Co-Agent and any of their directors, officers, employees or
agents,  on demand,  in the amount of such pro rata share,  from and against any
and all liabilities,  taxes, obligations,  losses, damages, penalties,  actions,
judgments,  suits,  costs,  expenses  or  disbursements  of any  kind or  nature
whatsoever  that may be imposed on,  incurred  by or asserted  against it in its
capacity  as Agent or  Co-Agent,  as the case may be,  or any of them in any way
relating  to or arising  out of this  Agreement  or any other Loan  Document  or
Existing  Facility  Document or any action taken or omitted by it or any of them
under this Agreement or any other Loan Document or Existing  Facility  Document,
to the extent the same shall not have been  reimbursed  by the  Borrower  or any
other Loan Party,  provided that no Lender shall be liable to an Agent, Co-Agent
or any such  other  indemnified  person  for any  portion  of such  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses  or  disbursements  as shall  be  determined  by a court  of  competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence  or  wilful  misconduct  of  such  Agent,  Co-Agent  or any of  their
directors, officers, employees or agents.

                  Each  Lender  acknowledges  that  it  has,  independently  and
without reliance upon the Agents, the Co-Agents or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis  and  decision  to  enter  into  this   Agreement.   Each  Lender  also
acknowledges  that it will,  independently and without reliance upon the Agents,
the Co-Agents or any other Lender and based on such documents and information as
it shall from time to time deem appropriate,  continue to make its own decisions
in taking or not taking  action under or based upon this  Agreement or any other
Loan  Document,  any related  agreement or any document  furnished  hereunder or
thereunder.


ARTICLE IX.  MISCELLANEOUS

                  SECTION  9.1.  Notices.   Notices  and  other   communications
provided  for  herein  shall be in  writing  and shall be  delivered  by hand or
overnight  courier  service,  mailed by certified or registered  mail or sent by
telecopy, as follows:

     (a) if to the  Borrower,  to it at  Texas-New  Mexico Power  Company,  4100
International Plaza, Fort Worth, TX 76109,  Attention of Chief Financial Officer
(Telecopy No. 817-737-1343);

     (b) if to the  Administrative  Agent,  to  Chemical  Bank  Agency  Services
Corporation,  Grand  Central  Tower,  140 East 45th Street,  New York,  New York
10017,  Attention of Janet Belden (Telecopy No. (212) 622-0122),  with a copy to
Chemical  Bank,  at 270 Park Avenue,  New York 10017,  Attention of Jaimin Patel
(Telecopy No. 212-270-2555); and

     (c) if to a Lender,  to it at its address (or telecopy number) set forth on
Schedule 2.01 or in the Assignment and Acceptance  pursuant to which such Lender
shall have become a party hereto.

All notices and other  communications  given to any party  hereto in  accordance
with the provisions of this Agreement  shall be deemed to have been given on the
date of receipt if  delivered by hand or  overnight  courier  service or sent by
telecopy  or on the date five  Business  Days after  dispatch  by  certified  or
registered  mail if mailed,  in each case  delivered,  sent or mailed  (properly
addressed) to such party as provided in this Section 9.1 or in  accordance  with
the latest  unrevoked  direction  from such party given in accordance  with this
Section 9.1.

                  SECTION 9.2. Survival of Agreement. All covenants, agreements,
representations   and  warranties  made  by  the  Borrower  herein  and  in  the
certificates  or other  instruments  prepared or delivered in connection with or
pursuant to this  Agreement or any other Loan  Document  shall be  considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Loans,  regardless of any  investigation  made by the Lenders or on their
behalf,  and shall continue in full force and effect as long as the principal of
or any accrued  interest on any Loan or any  Commitment  Fee or any other amount
payable  under this  Agreement  or any other Loan  Document is  outstanding  and
unpaid and so long as the Commitments have not been  terminated.  The provisions
of Sections 2.11,  2.13,  2.17 and 9.5 shall remain  operative and in full force
and effect  regardless  of the  expiration  of the term of this  Agreement,  the
consummation of the transactions  contemplated  hereby,  the repayment of any of
the Loans, the expiration of the Commitments, the invalidity or unenforceability
of any term or provision of this  Agreement or any other Loan  Document,  or any
investigation made by or on behalf of the  Administrative  Agent, the Collateral
Agent or any Lender.

                  SECTION  9.3.  Binding  Effect.  This  Agreement  shall become
effective   when  it  shall  have  been   executed  by  the   Borrower  and  the
Administrative  Agent and when the  Administrative  Agent  shall  have  received
counterparts  hereof which, when taken together,  bear the signatures of each of
the other parties hereto,  and thereafter shall be binding upon and inure to the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns.

                  SECTION  9.4.  Successors  and  Assigns.  (a) Whenever in this
Agreement  any of the parties  hereto is referred  to, such  reference  shall be
deemed to include the permitted  successors  and assigns of such party;  and all
covenants,  promises  and  agreements  by or on  behalf  of  the  Borrower,  the
Administrative  Agent or the Lenders that are contained in this Agreement  shall
bind and inure to the benefit of their respective successors and assigns.

                  (b) Each Lender may assign to one or more  assignees  all or a
portion of its interests, rights and obligations under this Agreement (including
all or a  portion  of its  Commitment  and the  Loans at the time  owing to it);
provided,  however,  that (i) except in the case of an assignment to a Lender or
an  Affiliate of such  Lender,  (x) the Borrower  (except if an Event of Default
shall have occurred and be continuing)  and the  Administrative  Agent must give
their prior  written  consent to such  assignment  (which  consent  shall not be
unreasonably  withheld)  and (y) the amount of the  Commitment  of the assigning
Lender subject to each such assignment shall not be less than $5,000,000 (or, if
less, the entire remaining amount of such Lender's Commitment), (ii) the parties
to each such assignment shall execute and deliver to the Administrative Agent an
Assignment and  Acceptance,  together with a processing and  recordation  fee of
$5,000 and (iii) the assignee, if it shall not be a Lender, shall deliver to the
Administrative  Agent  an  Administrative  Questionnaire.  Upon  acceptance  and
recording  pursuant to paragraph  (e) of this  Section  9.4,  from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least  five  Business  Days  after the  execution  thereof,  (A) the
assignee  thereunder  shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement and (B) the assigning  Lender  thereunder  shall, to
the extent of the  interest  assigned  by such  Assignment  and  Acceptance,  be
released  from its  obligations  under this  Agreement  (and,  in the case of an
Assignment and Acceptance  covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall  continue to be entitled to the benefits of Sections
2.11,  2.13,  2.17 and 9.5, as well as to any  Commitment  Fees  accrued for its
account and not yet paid).

                  (c) By executing and delivering an Assignment and  Acceptance,
the assigning Lender  thereunder and the assignee  thereunder shall be deemed to
confirm to and agree with each other and the other  parties  hereto as  follows:
(i) such assigning  Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitment,  and the outstanding  balance of its Loans, in each case without
giving effect to assignments thereof which have not become effective, are as set
forth in such Assignment and Acceptance,  (ii) except as set forth in (i) above,
such  assigning  Lender  makes no  representation  or  warranty  and  assumes no
responsibility  with respect to any  statements,  warranties or  representations
made in or in  connection  with  this  Agreement,  or the  execution,  legality,
validity, enforceability,  genuineness,  sufficiency or value of this Agreement,
any other Loan Document or Existing Facility Document or any other instrument or
document furnished pursuant hereto or thereto, or the financial condition of the
Borrower or any  Subsidiary or the  performance or observance by the Borrower or
any Subsidiary of any of its obligations  under this  Agreement,  any other Loan
Document  or Existing  Facility  Document  or any other  instrument  or document
furnished  pursuant  hereto or  thereto;  (iii)  such  assignee  represents  and
warrants  that it is  legally  authorized  to enter  into  such  Assignment  and
Acceptance;  (iv) such  assignee  confirms  that it has  received a copy of this
Agreement, together with copies of the most recent financial statements referred
to in Section 3.5 or delivered  pursuant to Section 5.4 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such  Assignment and  Acceptance;  (v) such assignee will
independently and without reliance upon the Administrative Agent, the Collateral
Agent, such assigning Lender or any other Lender and based on such documents and
information as it shall deem  appropriate at the time,  continue to make its own
credit decisions in taking or not taking action under this Agreement;  (vi) such
assignee  appoints and  authorizes the  Administrative  Agent and the Collateral
Agent to take such  action as agent on its behalf and to  exercise  such  powers
under  this  Agreement  as are  delegated  to the  Administrative  Agent and the
Collateral Agent,  respectively,  by the terms hereof, together with such powers
as are reasonably  incidental  thereto;  and (vii) such assignee  agrees that it
will perform in  accordance  with their terms all the  obligations  which by the
terms of this Agreement are required to be performed by it as a Lender.

                  (d) The  Administrative  Agent,  acting for this purpose as an
agent of the Borrower,  shall  maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the  recordation  of the names and addresses of the Lenders,  and the Commitment
of, and  principal  amount of the Loans owing to,  each  Lender  pursuant to the
terms  hereof from time to time (the  "Register").  The entries in the  Register
shall be conclusive and the Borrower,  the Administrative  Agent, the Collateral
Agent and the  Lenders  may treat  each  person  whose name is  recorded  in the
Register  pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement,  notwithstanding  notice to the contrary.  The Register shall be
available for inspection by the Borrower,  the Collateral  Agent and any Lender,
at any reasonable time and from time to time upon reasonable prior notice.

                  (e)  Upon  its  receipt  of a duly  completed  Assignment  and
Acceptance  executed by an assigning Lender and an assignee,  an  Administrative
Questionnaire  completed in respect of the assignee  (unless the assignee  shall
already be a Lender  hereunder),  the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of the Borrower and
the Administrative Agent to such assignment,  the Administrative Agent shall (i)
accept such  Assignment and Acceptance,  (ii) record the  information  contained
therein in the Register and (iii) give prompt notice thereof to the Lenders.  No
assignment  shall be  effective  unless it has been  recorded in the Register as
provided in this paragraph (e).

                  (f) Each Lender may without the consent of the Borrower or the
Administrative  Agent sell participations to one or more banks or other entities
in  all  or a  portion  of its  rights  and  obligations  under  this  Agreement
(including  all or a  portion  of its  Commitment  and the  Loans  owing to it);
provided, however, that (i) such Lender's obligations under this Agreement shall
remain unchanged,  (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations,  (iii) the participating
banks or other entities shall be entitled to the benefit of the cost  protection
provisions  contained in Sections  2.11,  2.13 and 2.17 to the same extent as if
they  were  Lenders  and (iv) the  Borrower,  the  Administrative  Agent and the
Lenders  shall  continue  to deal  solely  and  directly  with  such  Lender  in
connection with such Lender's rights and obligations  under this Agreement,  and
such  Lender  shall  retain  the sole right to enforce  the  obligations  of the
Borrower  relating to the Loans and to approve any  amendment,  modification  or
waiver of any provision of this Agreement (other than amendments,  modifications
or waivers  decreasing any fees payable  hereunder or the amount of principal of
or the rate at which  interest is payable on the Loans,  extending any scheduled
principal  payment  date or date fixed for the payment of interest on the Loans,
increasing or extending the  Commitments or releasing all or  substantially  all
the Collateral or the Existing Facility Collateral).

                  (g) Any Lender or  participant  may,  in  connection  with any
assignment or participation or proposed assignment or participation  pursuant to
this Section 9.4,  disclose to the assignee or participant or proposed  assignee
or participant any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower;  provided that, prior to any such disclosure of
information  designated by the Borrower as  confidential,  each such assignee or
participant  or proposed  assignee or  participant  shall  execute an  agreement
whereby  such  assignee  or  participant   shall  agree  (subject  to  customary
exceptions) to preserve the confidentiality of such confidential  information on
terms no less  restrictive  than those  applicable  to the  Lenders  pursuant to
Section 9.16.

                  (h) Any  Lender may at any time  assign all or any  portion of
its rights under this Agreement to a Federal  Reserve Bank to secure  extensions
of credit by such Federal  Reserve Bank to such  Lender;  provided  that no such
assignment  shall  release a Lender  from any of its  obligations  hereunder  or
substitute  any  such  Bank  for  such  Lender  as a party  hereto.  In order to
facilitate  such an assignment to a Federal Reserve Bank, the Borrower shall, at
the request of the assigning  Lender,  duly execute and deliver to the assigning
Lender a promissory  note or notes  evidencing the Loans made to the Borrower by
the assigning Lender hereunder.

                  (i) The  Borrower  shall  not  assign or  delegate  any of its
rights  or  duties   hereunder   without  the  prior  written   consent  of  the
Administrative  Agent and each Lender, and any attempted assignment without such
consent shall be null and void.

                  SECTION 9.5. Expenses;  Indemnity.  (a) The Borrower agrees to
pay all reasonable  out-of-pocket  expenses incurred by the Administrative Agent
and the  Collateral  Agent in  connection  with the  syndication  of the  credit
facilities  provided for herein and the preparation and  administration  of this
Agreement  and the other Loan  Documents or in connection  with any  amendments,
modifications or waivers of the provisions  hereof or thereof or of the Existing
Facility  Documents   (whether  or  not  the  transactions   hereby  or  thereby
contemplated shall be consummated) or incurred by the Administrative  Agent, the
Collateral  Agent or any Lender in connection with the enforcement or protection
of its rights in connection with this Agreement, the other Loan Documents or the
Existing  Facility  Documents  or in  connection  with  the  Loans  made  issued
hereunder,  including  the fees,  charges and  disbursements  of counsel for the
Administrative  Agent and the Collateral Agent, and, in connection with any such
enforcement  or protection,  the fees,  charges and  disbursements  of any other
counsel for the Administrative Agent, the Collateral Agent or any Lender.

                  (b) The Borrower agrees to indemnify the Administrative Agent,
the  Collateral  Agent and each Lender,  each  Affiliate of any of the foregoing
persons and each of their respective directors,  officers,  employees and agents
(each  such  person  being  called an  "Indemnitee")  against,  and to hold each
Indemnitee harmless from, any and all losses, claims,  damages,  liabilities and
related expenses,  including reasonable counsel fees, charges and disbursements,
incurred  by or  asserted  against  any  Indemnitee  arising  out of, in any way
connected  with,  or as a  result  of (i)  the  execution  or  delivery  of this
Agreement  or any other Loan  Document  or  Existing  Facility  Document  or any
agreement or instrument  contemplated  thereby,  the  performance by the parties
thereto of their  respective  obligations  thereunder or the consummation of the
Transactions and the other transactions  contemplated  thereby,  (ii) the use of
the  proceeds  of the  Loans,  (iii) any  claim,  litigation,  investigation  or
proceeding relating to any of the foregoing,  whether or not any Indemnitee is a
party  thereto,  or (iv) any actual or alleged  presence or release of Hazardous
Materials  on any  property  owned or  operated  by the  Borrower  or any of the
Subsidiaries,  or any Environmental  Claim (including any claim under CERCLA, as
defined in the  definition  of  "Environmental  Law")  related in any way to the
Borrower or the Subsidiaries;  provided that such indemnity shall not, as to any
Indemnitee,  be  available  to the extent  that such  losses,  claims,  damages,
liabilities  or  related  expenses  are  determined  by  a  court  of  competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or wilful misconduct of such Indemnitee.

                  (c) The provisions of this Section 9.5 shall remain  operative
and in full force and effect  regardless  of the  expiration of the term of this
Agreement,  the  consummation  of  the  transactions  contemplated  hereby,  the
repayment of any of the Loans, the expiration of the Commitments, the invalidity
or unenforceability of any term or provision of this Agreement or any other Loan
Document or  Existing  Facility  Document,  or any  investigation  made by or on
behalf of the  Administrative  Agent,  the Collateral  Agent or any Lender.  All
amounts due under this Section 9.5 shall be payable on written demand therefor.

                  SECTION  9.6.  Right of Setoff.  If an Event of Default  shall
have occurred and be  continuing,  each Lender is hereby  authorized at any time
and from  time to time,  with the  consent  of the  Administrative  Agent or the
Required  Lenders,  to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand,  provisional or final)
at any time held and other  indebtedness  at any time owing by such Lender to or
for  the  credit  or the  account  of the  Borrower  against  any of and all the
obligations  of the Borrower now or hereafter  existing under this Agreement and
other Loan  Documents held by such Lender,  irrespective  of whether or not such
Lender  shall  have made any  demand  under  this  Agreement  or such other Loan
Document and although  such  obligations  may be  unmatured.  The rights of each
Lender  under this  Section  9.6 are in addition  to other  rights and  remedies
(including other rights of setoff) which such Lender may have.

SECTION 9.7.  Applicable Law.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW 
YORK.

                  SECTION 9.8.  Waivers;  Amendment.  (a) No failure or delay of
the  Administrative  Agent, the Collateral Agent or any Lender in exercising any
power or right  hereunder or under any other Loan  Document  shall  operate as a
waiver  thereof,  nor shall any single or partial  exercise of any such right or
power, or any abandonment or  discontinuance of steps to enforce such a right or
power,  preclude  any other or further  exercise  thereof or the exercise of any
other right or power. The rights and remedies of the  Administrative  Agent, the
Collateral  Agent and the Lenders  hereunder and under the other Loan  Documents
are  cumulative  and are not exclusive of any rights or remedies that they would
otherwise  have. No waiver of any provision of this  Agreement or any other Loan
Document  or  Existing  Facility  Document  or consent to any  departure  by the
Borrower  or any other  Loan  Party  therefrom  shall in any event be  effective
unless the same shall be permitted by paragraph (b) below,  and then such waiver
or consent shall be effective only in the specific  instance and for the purpose
for which given.  No notice or demand on the Borrower in any case shall  entitle
the  Borrower  to any other or  further  notice or  demand in  similar  or other
circumstances.

                  (b) None of this Agreement, or any other Loan Document, or any
Existing Facility Document may be waived, amended or modified except pursuant to
an  agreement  or  agreements  in writing  entered  into by the Borrower and the
Required Lenders (or, in the case of any Pledge  Agreement or Existing  Facility
Document,  an agreement or agreements in writing entered into by the Borrower or
other  Loan Party or person  party  thereto  and the  Collateral  Agent,  acting
pursuant to the provisions of this Agreement or with the consent of the Required
Lenders);  provided,  however,  that no such  agreement  shall (i)  decrease the
principal  amount  of, or extend  the  maturity  of or any  scheduled  principal
payment  date or date for the payment of any  interest on any Loan,  or waive or
excuse any such payment or any part thereof, or decrease the rate of interest on
any Loan,  without the prior written  consent of each Lender  affected  thereby,
(ii) change or extend the  Commitment  or decrease  the  Commitment  Fees of any
Lender  without  the prior  written  consent of such  Lender,  or (iii) amend or
modify the provisions of Section 2.14 or 9.4(i),  the provisions of this Section
or the definition of the term "Required Lenders" or release the Guarantee of the
Guarantor  or all or any  substantial  part  of the  Collateral  other  than  as
provided  herein,  without the prior  written  consent of each Lender;  provided
further  that no such  agreement  shall amend,  modify or  otherwise  affect the
rights or duties of the  Administrative  Agent or the Collateral Agent hereunder
or under any other  Loan  Document  without  the prior  written  consent  of the
Administrative Agent or the Collateral Agent, as the case may be.

                  SECTION  9.9.   Interest  Rate   Limitation.   Notwithstanding
anything herein to the contrary,  if at any time the interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively  the "Charges"),  shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged,  taken,  received  or  reserved  by the  Lender  holding  such  Loan in
accordance with applicable law, the rate of interest  payable in respect of such
Loan hereunder,  together with all Charges payable in respect thereof,  shall be
limited to the Maximum Rate and, to the extent lawful,  the interest and Charges
that would have been  payable in respect of such Loan but were not  payable as a
result of the  operation of this Section 9.9 shall be cumulated and the interest
and Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest  thereon at the Federal Funds  Effective Rate to the date
of repayment, shall have been received by such Lender.

                  SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter
and the other Loan Documents  constitute the entire contract between the parties
relative to the subject matter hereof.  Any other previous  agreement  among the
parties  with  respect  to the  subject  matter  hereof  is  superseded  by this
Agreement  and the other Loan  Documents.  Nothing in this  Agreement  or in the
other Loan Documents, expressed or implied, is intended to confer upon any party
other than the parties hereto and thereto any rights,  remedies,  obligations or
liabilities under or by reason of this Agreement or the other Loan Documents.

                  SECTION 9.11.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION  DIRECTLY OR INDIRECTLY  ARISING
OUT OF,  UNDER OR IN  CONNECTION  WITH THIS  AGREEMENT  OR ANY OF THE OTHER LOAN
DOCUMENTS.  EACH PARTY HERETO (A)  CERTIFIES  THAT NO  REPRESENTATIVE,  AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,  EXPRESSLY OR OTHERWISE,  THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER  AND (B)  ACKNOWLEDGES  THAT IT AND THE OTHER  PARTIES  HERETO  HAVE BEEN
INDUCED  TO  ENTER  INTO  THIS  AGREEMENT  AND  THE  OTHER  LOAN  DOCUMENTS,  AS
APPLICABLE,  BY, AMONG OTHER THINGS,  THE MUTUAL WAIVERS AND  CERTIFICATIONS  IN
THIS SECTION 9.11.

                  SECTION  9.12.  Severability.  In the event any one or more of
the provisions  contained in this Agreement or in any other Loan Document should
be held invalid, illegal or unenforceable in any respect, the validity, legality
and  enforceability  of the remaining  provisions  contained  herein and therein
shall not in any way be affected or impaired thereby. The parties shall endeavor
in  good-faith  negotiations  to replace the invalid,  illegal or  unenforceable
provisions with valid  provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.

                  SECTION 9.13. Counterparts.  This Agreement may be executed in
counterparts (and by different parties hereto on different  counterparts),  each
of which shall constitute an original but all of which when taken together shall
constitute a single contract,  and shall become effective as provided in Section
9.3.  Delivery of an executed  signature  page to this  Agreement  by  facsimile
transmission  shall be as effective as delivery of a manually signed counterpart
of this Agreement.

                  SECTION 9.14.  Headings.  Article and Section headings and the
Table of Contents used herein are for  convenience  of reference  only,  are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.

                  SECTION 9.15. Jurisdiction; Consent to Service of Process. (a)
The Borrower hereby irrevocably and unconditionally  submits, for itself and its
property,  to the  nonexclusive  jurisdiction  of any New  York  State  court or
Federal court of the United States of America  sitting in New York City, and any
appellate court from any thereof,  in any action or proceeding arising out of or
relating to this  Agreement  or the other Loan  Documents  or Existing  Facility
Documents,  or for  recognition or enforcement of any judgment,  and each of the
parties hereto hereby irrevocably and unconditionally  agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent  permitted by law, in such Federal  court.  Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive  and may be enforced in other  jurisdictions  by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the  Administrative  Agent,  the  Collateral  Agent or any
Lender may  otherwise  have to bring any action or  proceeding  relating to this
Agreement or the other Loan Documents or Existing Facility Documents against the
Borrower or its properties in the courts of any jurisdiction.

                  (b)  The  Borrower  hereby  irrevocably  and   unconditionally
waives,  to the  fullest  extent  it may  legally  and  effectively  do so,  any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding  arising out of or relating to this  Agreement or the other
Loan Documents or Existing  Facility  Documents in any New York State or Federal
court.  Each of the parties  hereto hereby  irrevocably  waives,  to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.

                  (c)  Each  party to this  Agreement  irrevocably  consents  to
service of process in the manner provided for notices in Section 9.1. Nothing in
this  Agreement  will affect the right of any party to this  Agreement  to serve
process in any other manner permitted by law.

                  SECTION 9.16.  Confidentiality.  The Administrative Agent, the
Collateral Agent and each of the Lenders agrees to keep confidential (and to use
its best  efforts to cause its  respective  agents and  representatives  to keep
confidential)  the  Information  (as  defined  below)  and all  copies  thereof,
extracts  therefrom and analyses or other materials  based thereon,  except that
the Administrative  Agent, the Collateral Agent or any Lender shall be permitted
to  disclose  Information  (a) to such of its  respective  officers,  directors,
employees,   agents,  affiliates  and  representatives  as  need  to  know  such
Information, (b) to the extent requested by any regulatory authority, (c) to the
extent otherwise  required by applicable laws and regulations or by any subpoena
or similar legal process,  (d) in connection with any suit, action or proceeding
relating  to the  enforcement  of its rights  hereunder  or under the other Loan
Documents or (e) to the extent such Information (i) becomes  publicly  available
other  than as a  result  of a  breach  of  this  Section  9.16 or (ii)  becomes
available to the  Administrative  Agent, any Lender or the Collateral Agent on a
nonconfidential basis from a source other than the Borrower. For the purposes of
this Section,  "Information" shall mean all financial statements,  certificates,
reports,  agreements and information  (including all analyses,  compilations and
studies prepared by the Administrative Agent, the Collateral Agent or any Lender
based on any of the  foregoing)  that are received from the Borrower and related
to the Borrower,  any  shareholder of the Borrower or any employee,  customer or
supplier of the Borrower, other than any of the foregoing that were available to
the   Administrative   Agent,   the   Collateral   Agent  or  any  Lender  on  a
nonconfidential basis prior to its disclosure thereto by the Borrower, and which
are in  the  case  of  Information  provided  after  the  date  hereof,  clearly
identified  at the time of  delivery as  confidential.  The  provisions  of this
Section 9.16 shall remain  operative and in full force and effect  regardless of
the expiration and term of this Agreement.

                  SECTION 9.17. Release of Collateral.  (a)  Notwithstanding any
other provision of this Agreement,  the Bond Pledge Agreement or the Note Pledge
Agreement, the Pledged Bonds and the Pledged Notes and all other collateral held
under the Pledge  Agreements  shall be  released  from the Liens  created by the
Pledge Agreements, in each case without representation,  warranty or recourse of
any nature,  on a Business Day specified by the Borrower  (the "Release  Date"),
upon the  satisfaction  of the  following  conditions  precedent  (the  "Release
Conditions"):

                  (i) the  Borrower  shall  have  given  written  notice  to the
         Lenders and the Collateral Agent at least 10 Business Days prior to the
         Release Date, specifying the proposed Release Date;

                  (ii) as of the Release Date, the First Mortgage Bonds shall be
         rated  "BBB-"  or better by S&P and  "Baa3" or better by  Moody's,  and
         shall have been so rated by each of S&P and Moody's for a period of not
         less than 30 consecutive days;

                  (iii) no Default or Event of  Default  hereunder  or under the
         Existing Facility Agreement shall have occurred and be continuing as of
         the Release Date;

                  (iv) on the Release Date, the Administrative  Agent shall have
         received a  certificate,  dated the Release Date and executed on behalf
         of each of the Borrower  and the  Guarantor  by a  Responsible  officer
         thereof,  confirming  the  satisfaction  of the Release  Conditions set
         forth in clauses (ii) and (iii) above; and

                  (v) a successor  Collateral  Agent (which may be the Debenture
         Trustee for the Secured  Debentures  then  outstanding,  if any, or its
         designee)  shall  have been  appointed  with  respect  to the  Existing
         Facility  Collateral and the Existing Facility Common  Collateral,  and
         shall have accepted  such  appointment,  under each  Existing  Facility
         Security  Document  that will continue in effect after the Release Date
         for the benefit of the holders  from time to time of the Pledged  Notes
         and the  Replacement  Note Holder,  and  Chemical  Bank shall have been
         released and  discharged,  effective  on the Release  Date  immediately
         following the release of collateral  provided for herein,  from any and
         all  obligations  and  duties  under  the  Existing  Facility  Security
         Documents  on terms  and  pursuant  to  documentation  satisfactory  to
         Chemical Bank.

                  (b) The  releases of  collateral  provided for in this Section
9.17 shall not release or otherwise  affect the Liens granted under the Existing
Facility Security  Documents,  which shall continue in effect for the benefit of
the holders  from time to time of the  Pledged  Notes and the  Replacement  Note
Holder to the extent contemplated by the Existing Facility Documents.

                  (c) Subject to the satisfaction of the conditions set forth in
paragraph (a) above,  on and after the Release Date, the Collateral  Agent shall
deliver  the  Pledged  Bonds and the  Pledged  Notes to the  Borrower  and shall
execute and deliver to the Borrower all such  instruments  and  documents as the
Borrower  may  reasonably  request  to  evidence  or  confirm  the  releases  of
collateral provided for in this Section 9.17.

                  (d)  Without  limiting  the  provisions  of Section  9.5,  the
Borrower  and  the  Guarantor   shall  reimburse  the  Collateral   Agent,   the
Administrative  Agent and the Lenders  upon  demand for all costs and  expenses,
including  attorneys'  fees  and  disbursements,  incurred  by  any of  them  in
connection with any action contemplated by this Section 9.17.

                  SECTION 9.18.  Representations  of the Lenders.  In connection
with the issuance of the Bonds and their  deposit with the  Collateral  Agent as
provided in the Bond  Agreement,  each  Lender  represents  and  warrants to the
Borrower as follows:

                  (a) Such Lender is acquiring its interest in the Bonds for its
own account with a view to holding  such  interest on the terms set forth in the
Bond Agreement and not with a view to or in connection with any  distribution or
resale thereof. Such Lender is familiar with the limitations imposed by the Bond
Agreement and applicable  Federal and state securities laws upon the transfer or
other disposition of the Bonds.

                  (b) Such Lender has had, during the course of the transactions
contemplated  hereby and prior to its  acquisition of its interest in the Bonds,
the opportunity to ask such questions of, and receive answers from, the Borrower
and to obtain such additional  information  with respect to the Borrower and the
Bonds as it has deemed  necessary in connection with its decision to acquire its
interest in the Bonds (it being  understood  that nothing  herein shall limit or
qualify the Borrower's representations under Section 3.15).


                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be duly executed by their respective  authorized officers as of the
day and year first above written.


                                       TEXAS-NEW MEXICO POWER COMPANY,

                                       by   /s/ M. S. Cheema
                                       Name:   M. S. Cheema
                                       Title:    Vice President


                                       CHEMICAL BANK, individually and as 
                                       Administrative Agent and Collateral Agent

                                       by /s/  Jane Ritchie
                                       Name:   Jane Ritchie
                                       Title:    Vice President


                                       THE FIRST NATIONAL BANK OF BOSTON,

                                       by  /s/  Rita M. Cahill
                                       Name:  Rita M. Cahill
                                       Title:    Vice President


                                       THE BANK OF MONTREAL,

                                       by   /s/  Julia B. Buthman
                                       Name:   Julia B. Buthman
                                       Title:    Director


                                       THE BANK OF NEW YORK, individually and as
                                       Co-Agent,

                                       by /s/  Ian K. Stewart
                                       Name:   Ian K. Stewart
                                       Title:  Senior Vice President


                                       CIBC, INC., individually and as Co-Agent,

                                       by /s/  Robert S. Lyle
                                       Name:   Robert S. Lyle
                                       Title:    Vice President


                                       CREDIT LYONNAIS, NEW YORK BRANCH,

                                       by /s/  Robert Ivosevich
                                       Name:   Robert Ivosevich
                                       Title:  Senior Vice President


                                       NATIONSBANK OF TEXAS, N.A., individually
                                       and as Co-Agent,

                                       by /s/  Bryan L. Diers
                                       Name:  Bryan L. Diers
                                       Title:  Senior Vice President


                                       THE NIPPON CREDIT BANK, LTD.,

                                       by /s/  James J. Pasquale
                                       Name:   James J. Pasquale
                                       Title:    Senior Manager


                                       UNION BANK, individually and as Co-Agent,

                                       by /s/  John M. Edmonston
                                       Name:   John M. Edmonston
                                       Title:    Vice President


<PAGE>


                                                                EXHIBIT A
                                    [Form of]

                         TEXAS-NEW MEXICO POWER COMPANY

                          ADMINISTRATIVE QUESTIONNAIRE




Please accurately complete the following  information and return via Telecopy to
the attention of Janet Belden at Chemical Bank Agency  Services  Corporation  as
soon as possible, at Telecopy No. (212) 622-0002.

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

LENDER LEGAL NAME TO APPEAR IN DOCUMENTATION:

GENERAL INFORMATION - DOMESTIC LENDING OFFICE:

Institution Name:

Street Address:

City, State, Zip Code:


GENERAL INFORMATION - EURODOLLAR LENDING OFFICE:

Institution Name:

Street Address:

City, State, Zip Code:


POST-CLOSING, ONGOING CREDIT CONTACTS/NOTIFICATION METHODS:

CREDIT CONTACTS:

Primary Contact:

Street Address:

City, State, Zip Code:

Phone Number:

Telecopy Number:

<PAGE> 2

Backup Contact:

Street Address:

City, State, Zip Code:

Phone Number:

Telecopy Number:


TAX WITHHOLDING:

         Nonresident Alien    \   \  Y*      \     \  N

         * Form 4224 Enclosed

         Tax ID Number  _________________________


POST-CLOSING, ONGOING ADMINISTRATIVE CONTACTS/NOTIFICATION METHODS:

ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, FEES, ETC.

Contact:

Street Address:

City, State, Zip Code:

Phone Number:

Telecopy Number:


PAYMENT INSTRUCTIONS:

Name of Bank to which funds are to be transferred:



Routing Transit/ABA number of Bank to which funds are to be transferred:



Name of Account, if applicable:



Account Number:

Additional information:




MAILINGS:

Please  specify  the  person to whom the  Borrower  should  send  financial  and
compliance  information  received  subsequent to the closing (if different  from
primary credit contact):

Name:

Street Address:

City, State, Zip Code:

It is very important that all the above information be accurately  completed and
that this  questionnaire be returned to the person specified in the introductory
paragraph of this  questionnaire as soon as possible.  If there is someone other
than yourself who should  receive this  questionnaire,  please notify us of that
person's  name  and  telecopy  number  and  we  will  telecopy  a  copy  of  the
questionnaire.  If you have any  questions  about this form,  please  call Janet
Belden at (212) 622-0001.


<PAGE>


                                                                EXHIBIT B


                                    [FORM OF]

                            ASSIGNMENT AND ACCEPTANCE


                  Reference is made to the Credit Agreement dated as of November
3, 1995 (as the same may be modified, amended, extended or restated from time to
time,  the "Credit  Agreement"),  among  Texas-New  Mexico  Power  Company  (the
"Borrower"),  the lenders from time to time party  thereto (the  "Lenders")  and
Chemical Bank, as  administrative  agent for the Lenders (in such capacity,  the
"Administrative  Agent")  and  collateral  agent.  Terms  defined  in the Credit
Agreement are used herein with the same meanings.

                  1. The Assignor hereby sells and assigns, without recourse, to
the Assignee,  and the Assignee hereby purchases and assumes,  without recourse,
from the Assignor,  effective as of the Effective  Date set forth below (but not
prior to the  registration of the information  contained  herein in the Register
pursuant to Section  9.4(e) of the Credit  Agreement),  the  interests set forth
below (the "Assigned  Interest") in the Assignor's  rights and obligations under
the  Credit  Agreement  and  the  other  Loan  Documents,   including,   without
limitation,  the amounts and  percentages set forth below of (i) the Commitments
of the Assignor on the  Effective  Date and (ii) the Loans owing to the Assignor
which are  outstanding  on the  Effective  Date.  Each of the  Assignor  and the
Assignee  hereby  makes  and  agrees  to be  bound  by all the  representations,
warranties and agreements set forth in Section 9.4(c) of the Credit Agreement, a
copy of which has been received by each such party. From and after the Effective
Date (i) the Assignee  shall be a party to and be bound by the provisions of the
Credit Agreement and, to the extent of the interests assigned by this Assignment
and Acceptance,  have the rights and obligations of a Lender thereunder and (ii)
the Assignor shall,  to the extent of the interests  assigned by this Assignment
and Acceptance, relinquish its rights and be released from its obligations under
the Credit Agreement.

                  2. This  Assignment and  Acceptance is being  delivered to the
Administrative  Agent  together with (i) if the Assignee is organized  under the
laws of a jurisdiction outside the United States, the forms specified in Section
2.17(f) of the Credit  Agreement,  duly completed and executed by such Assignee,
(ii) if the  Assignee is not  already a Lender  under the Credit  Agreement,  an
Administrative  Questionnaire  in the form of Exhibit A to the Credit  Agreement
and (iii) a processing and recordation fee of $5,000.

                  3. This  Assignment and Acceptance  shall be governed by and 
construed in accordance with the laws of the State of New York.

Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment):


<PAGE>


                                                              Percentage
                                                              Assigned        of
                                                              Commitment    (set
                                                              forth, to at least
                                                              8  decimals,  as a
                                                              percentage  of the
                                                              aggregate
                                                              Commitments of all
                                                              Lenders
                                                              thereunder)

                                          Principal Amount Assigned

Commitment Assigned:                           $                      %

Loans:



The terms set forth above and on the
reverse side hereof are hereby agreed to:                     Accepted: */


______________, as Assignor         CHEMICAL BANK, as administrative agent,


By: __________________________      By: _________________________
      Name:                                            Name:
      Title:                                           Title:


_____________, as Assignee                       TEXAS-NEW MEXICO POWER COMPANY,


By: ______________________                        By: __________________________
      Name:                                            Name:
      Title:                                           Title:




*/ To be completed to the extent  consents are required  under Section 9.4(b) of
the Credit Agreement.


<PAGE>


                                                                    EXHIBIT C
                            FORM OF BORROWING REQUEST


Chemical Bank, as Administrative Agent for
the Lenders referred to below,
270 Park Avenue
New York, NY 10017

Attention of Jaimin Patel

                                                                    [Date]

Ladies and Gentlemen:

                  The   undersigned,   Texas-New   Mexico  Power   Company  (the
"Company"),  refers to the Credit  Agreement  dated as of  November 3, 1995 (the
"Credit  Agreement"),  among the  Company,  the lenders  from time to time party
thereto (the  "Lenders")  and Chemical  Bank,  as  administrative  agent for the
Lenders (in such capacity, the "Agent") and collateral agent.  Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned to
such terms in the Credit Agreement. The Company hereby gives you notice pursuant
to Section 2.3 of the Credit  Agreement  that it requests a Borrowing  under the
Credit  Agreement,  and in that  connection  sets forth below the terms on which
such Borrowing is requested to be made:

(A)  Date of Borrowing
         (which is a Business Day)             ______________________________

(B)  Principal Amount of
         Borrowing 1/                          ______________________________

(C)  Interest rate basis 2/                    ______________________________

(D)  Interest Period and the last
         day thereof 3/                        ______________________________

(E) Funds are  requested  to be  disbursed  to the  Company's  account with
Chemical Bank (Account No. ).

                  Upon  acceptance  of any or all of the  Loans  offered  by the
Lenders  in  response  to this  request,  the  Company  shall be  deemed to have
represented  and warranted that the conditions to lending  specified in Sections
4.1(b) and (c) of the Credit Agreement have been satisfied.



                         TEXAS-NEW MEXICO POWER COMPANY,

                                              by

                                                   Name:
                                                   Title: [Responsible Officer]

1/ Not less than $2,000 and in an integral  multiple of  $1,000,000,  but in any
event not exceeding the available Total Commitment.

2/ Specify Eurodollar borrowing or ABR Borrowing.

3/ Which shall be subject to the  definition  of  "Interest  Period" and end not
later than the Maturity Date (applicaable only for Eurodollar Borrowings).


<PAGE>


                                                                    EXHIBIT D


                                            GUARANTEE AND PLEDGE AGREEMENT (this
                           "Agreement")  dated as of November  3, 1995,  between
                           TEXAS GENERATING COMPANY II, a Texas corporation (the
                           "Guarantor"),  a subsidiary of TEXAS-NEW MEXICO POWER
                           COMPANY,  a Texas corporation (the  "Borrower"),  and
                           CHEMICAL  BANK,  a New York banking  corporation,  as
                           collateral  agent (the  "Collateral  Agent")  for the
                           Lenders (as defined in the Credit Agreement  referred
                           to below).

                  Reference is made to the Credit Agreement dated as of November
3, 1995 (as amended,  supplemented or otherwise  modified from time to time, the
"Credit  Agreement"),  among the  Borrower,  the lenders from time to time party
thereto  (the  "Lenders")  and Chemical  Bank,  as  administrative  agent and as
collateral agent. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement.

                  The Lenders have agreed to make Loans to the Borrower pursuant
to,  upon the terms of and  subject to the  conditions  specified  in the Credit
Agreement.  The  Guarantor  is a wholly  owned  Subsidiary  of the  Borrower and
acknowledges  that it will  derive  substantial  benefit  from the making of the
Loans  by the  Lenders.  The  obligations  of the  Lenders  to  make  Loans  are
conditioned on, among other things,  the execution and delivery by the Guarantor
of a Guarantee in the form  hereof.  As  consideration  therefor and in order to
induce the Lenders to make Loans,  the  Guarantor  is willing to enter into this
Agreement.

                  Accordingly, the parties hereto agree as follows:

                  SECTION   1.   Guarantee.   The   Guarantor    unconditionally
guarantees,  as a  primary  obligor  and not  merely  as a  surety,  the due and
punctual  payment and  performance  by the Borrower of (a) the  principal of and
interest  (including  interest  accruing  during the pendency of any bankruptcy,
insolvency,  receivership  or other  similar  proceeding,  regardless of whether
allowed or allowable in such proceeding) on the Loans,  when and as due, whether
at  maturity,  by  acceleration,  upon one or more dates set for  prepayment  or
otherwise,  (b) all other monetary  obligations  (including monetary obligations
incurred  during the pendency of any  bankruptcy,  insolvency,  receivership  or
other similar  proceeding,  regardless  of whether  allowed or allowable in such
proceeding),  of the Loan Parties to the Lenders under the Loan  Documents,  (c)
the due and punctual performance of all covenants,  agreements,  obligations and
liabilities  of the Loan Parties under or pursuant to the Loan Documents and (d)
all  obligations of the Borrower under each Interest Rate  Protection  Agreement
entered into with a Lender to protect against  interest rate  fluctuations  with
respect to Indebtedness  under the Credit  Agreement (the foregoing  obligations
described  in  clauses  (a),  (b),  (c) and (d) being  collectively  called  the
"Obligations").  The  Guarantor  further  agrees  that  the  Obligations  may be
extended or renewed,  in whole or in part,  without  notice to or further assent
from it, and that it will remain bound upon its  guarantee  notwithstanding  any
extension or renewal of any Obligation.

                  Anything   contained   in  this   Agreement  to  the  contrary
notwithstanding,  the obligations of the Guarantor hereunder shall be limited to
a maximum  aggregate  amount equal to the greatest  amount that would not render
the  Guarantor's  obligations  hereunder  subject to  avoidance  as a fraudulent
transfer or  conveyance  under Section 548 of Title 11 of the United States Code
or any  provisions  of  applicable  state  law  (collectively,  the  "Fraudulent
Transfer  Laws"),  in each case after giving effect to all other  liabilities of
the Guarantor,  contingent or otherwise,  that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of the Guarantor
(a) in respect of intercompany indebtedness to the Borrower or Affiliates of the
Borrower to the extent that such  indebtedness  would be discharged in an amount
equal to the amount paid by the Guarantor  hereunder and (b) under any Guarantee
of  senior  unsecured  indebtedness  or  Indebtedness  subordinated  in right of
payment to the Obligations  which Guarantee  contains a limitation as to maximum
amount  similar  to that set  forth in this  paragraph,  pursuant  to which  the
liability of such Guarantor  hereunder is included in the liabilities taken into
account in determining such maximum amount) and after giving effect as assets to
the value (as  determined  under the  applicable  provisions  of the  Fraudulent
Transfer  Laws)  of any  rights  to  subrogation,  contribution,  reimbursement,
indemnity or similar  rights of the Guarantor  pursuant to (i) applicable law or
(ii) any agreement providing for an equitable allocation among the Guarantor and
other Affiliates of the Borrower of obligations arising under Guarantees by such
parties.

                  SECTION 2. Pledge of  Intercompany  Indebtedness.  As security
for the payment and performance in full of the Obligations, the Guarantor hereby
transfers,  grants, bargains, sells, conveys,  hypothecates,  pledges, sets over
and delivers unto the Collateral  Agent, for the ratable benefit of the Lenders,
and grants to the Collateral  Agent,  for the ratable benefit of the Lenders,  a
security  interest in, (a) all intercompany  Indebtedness  owed to the Guarantor
including  any  promissory  notes  that may be  issued to and  delivered  to the
Guarantor  or the  Collateral  Agent in respect  thereof or in  substitution  or
exchange for any such promissory notes and held by the Collateral Agent pursuant
to the terms hereof  (collectively,  the "Intercompany  Indebtedness"),  (b) all
other  property  which  may be  delivered  to and held by the  Collateral  Agent
pursuant to the terms hereof (whether described herein or not), (c) all payments
of principal,  interest and other amounts from time to time received, receivable
or  otherwise  distributed  in respect of the  Intercompany  Indebtedness  or in
exchange for or upon the  conversion  of any  promissory  notes  evidencing  the
Intercompany  Indebtedness,  (d) all rights and privileges of the Guarantor with
respect to the property  referred to in clauses (a), (b) and (c) above,  and (e)
all  proceeds  of any of the  foregoing  (the items  referred  to in clauses (a)
through (e) being collectively  called the  "Collateral").  Upon delivery to the
Collateral  Agent,  (x) any  certificates,  notes  or  other  securities  now or
hereafter  included in the  Collateral  shall be  accompanied  by instruments of
transfer  satisfactory to the Collateral Agent and by such other instruments and
documents  as the  Collateral  Agent may  reasonably  request  and (y) all other
property  comprising  part of the  Collateral  shall be  accompanied  by  proper
instruments  of  assignment  duly  executed  by the  Guarantor  and  such  other
instruments or documents as the  Collateral  Agent may  reasonably  request.  In
addition to the rights and remedies  granted to it in this  Agreement and in any
other  instrument  or agreement  securing,  evidencing or relating to any of the
Obligations,  the  Collateral  Agent shall have all the rights and remedies of a
secured party under the Uniform Commercial Code of the State of New York at that
time (the "Code"), whether or not the Code applies to the affected Collateral.

                  SECTION 3.  Obligations  Not  Waived.  To the  fullest  extent
permitted by applicable  law, the  Guarantor  waives  presentment  to, demand of
payment  from and protest to the  Borrower of any of the  Obligations,  and also
waives  notice  of  acceptance  of its  guarantee  and  notice  of  protest  for
nonpayment.  To the fullest extent  permitted by applicable law, the obligations
of the  Guarantor  hereunder  shall not be  affected  by (a) the  failure of the
Collateral Agent or any other Lender to assert any claim or demand or to enforce
or exercise any right or remedy  against the Borrower or any other  guarantor of
the  Obligations  under the provisions of the Credit  Agreement,  any other Loan
Document or otherwise, (b) any rescission, waiver, amendment or modification of,
or any release from any of the terms or provisions of this Agreement,  any other
Loan Document,  any Guarantee or any other agreement,  including with respect to
any other  guarantor  of the  Obligations  or (c) the  failure  to  perfect  any
security  interest  in, or the  release  of, any of the  security  held by or on
behalf of the Collateral Agent or any other Lender.

                  SECTION 4. Security.  The Guarantor  authorizes the Collateral
Agent  and each of the  other  Lenders,  to (a) take and hold  security  for the
payment of this Guarantee and the Obligations and exchange,  enforce,  waive and
release  any such  security,  (b)  following  an Event of  Default,  apply  such
security  and direct  the order or manner of sale  thereof as they in their sole
discretion  may  determine  and  (c)  release  or  substitute  any  one or  more
endorsees, other guarantors of other obligors.

                  SECTION 5. Guarantee of Payment.  The Guarantor further agrees
that its  guarantee  constitutes  a  guarantee  of  payment  when due and not of
collection,  and  waives  any  right to  require  that any  resort be had by the
Collateral  Agent or any other Lender to any of the security held for payment of
the  Obligations or to any balance of any deposit account or credit on the books
of the  Collateral  Agent or any other  Lender in favor of the  Borrower  or any
other person.

                  SECTION 6. No  Discharge or  Diminishment  of  Guarantee.  The
obligations  of the Guarantor  hereunder  shall not be subject to any reduction,
limitation,   impairment  or   termination   for  any  reason  (other  than  the
indefeasible payment in full in cash of the Obligations), including any claim of
waiver, release, surrender,  alteration or compromise of any of the Obligations,
and shall not be subject to any defense or setoff,  counterclaim,  recoupment or
termination   whatsoever   by   reason   of  the   invalidity,   illegality   or
unenforceability   of  the  Obligations  or  otherwise.   Without  limiting  the
generality of the foregoing,  the  obligations of the Guarantor  hereunder shall
not be  discharged  or  impaired  or  otherwise  affected  by the failure of the
Collateral Agent or any other Lender to assert any claim or demand or to enforce
any remedy  under the Credit  Agreement,  any other Loan  Document  or any other
agreement, by any waiver or modification of any provision of any thereof, by any
default,  failure  or delay,  wilful or  otherwise,  in the  performance  of the
Obligations,  or by any other act or omission that may or might in any manner or
to any extent vary the risk of the Guarantor or that would otherwise  operate as
a  discharge  of the  Guarantor  as a matter  of law or equity  (other  than the
indefeasible  payment in full in cash of all the  Obligations).  It is expressly
agreed that the  obligations of the Guarantor  hereunder  shall continue in full
force and  effect  following,  and shall not be  affected  by,  any  release  of
Collateral pursuant to Section 9.17 of the Credit Agreement.

                  SECTION 7. Defenses of Borrower Waived.  To the fullest extent
permitted  by  applicable  law,  the  Guarantor  waives any defense  based on or
arising  out of any  defense  of the  Borrower  or the  unenforceability  of the
Obligations or any part thereof from any cause,  or the cessation from any cause
of the liability of the Borrower,  other than the final and indefeasible payment
in full in cash of the  Obligations.  The Collateral Agent and the other Lenders
may, at their election, foreclose on any security held by one or more of them by
one or more  judicial or  nonjudicial  sales,  accept an  assignment of any such
security  in  lieu  of  foreclosure,  compromise  or  adjust  any  part  of  the
Obligations,  make any  other  accommodation  with  the  Borrower  or any  other
guarantor  or exercise  any other right or remedy  available to them against the
Borrower or any other guarantor,  without  affecting or impairing in any way the
liability of the Guarantor  hereunder  except to the extent the Obligations have
been fully,  finally and  indefeasibly  paid in cash.  The Guarantor  waives any
defense  arising out of any such election  even though such  election  operates,
pursuant  to  applicable   law,  to  impair  or  to  extinguish   any  right  of
reimbursement  or subrogation or other right or remedy of the Guarantor  against
the Borrower or any other guarantor, as the case may be, or any security.

                  SECTION 8. Agreement to Pay; Subordination.  In furtherance of
the foregoing and not in limitation of any other right that the Collateral Agent
or any other  Lender has at law or in equity  against  the  Guarantor  by virtue
hereof,  upon the  failure  of the  Borrower  or any other Loan Party to pay any
Obligation  when and as the same  shall  become  due,  whether at  maturity,  by
acceleration,  after notice of  prepayment or  otherwise,  the Guarantor  hereby
promises to and will forthwith pay, or cause to be paid, to the Collateral Agent
or such  other  person or  persons  as shall be  designated  thereby in cash the
amount of such unpaid Obligations.  Upon payment by the Guarantor of any sums to
the  Collateral  Agent or such other  person or persons as provided  above,  all
rights of the Guarantor  against the Borrower arising as a result thereof by way
of right of  subrogation,  contribution,  reimbursement,  indemnity or otherwise
shall in all respects be subordinate and junior in right of payment to the prior
indefeasible  payment in full in cash of all the Obligations.  In addition,  any
indebtedness  of the Borrower now or hereafter  held by the  Guarantor is hereby
subordinated  in  right  of  payment  to  the  prior  payment  in  full  of  the
Obligations. If any amount shall erroneously be paid to the Guarantor on account
of (i) such subrogation, contribution, reimbursement, indemnity or similar right
or (ii) any such  indebtedness  of the  Borrower,  such amount  shall be held in
trust  for  the  benefit  of the  Lenders  and  shall  forthwith  be paid to the
Collateral Agent to be credited against the payment of the Obligations,  whether
matured or unmatured, in accordance with the terms of the Loan Documents.

                  SECTION   9.   Information.    The   Guarantor   assumes   all
responsibility for being and keeping itself informed of the Borrower's financial
condition and assets,  and of all other  circumstances  bearing upon the risk of
nonpayment of the Obligations and the nature, scope and extent of the risks that
the  Guarantor  assumes  and  incurs  hereunder,  and  agrees  that  none of the
Collateral Agent or the other Lenders will have any duty to advise the Guarantor
of information known to it or any of them regarding such circumstances or risks.

                  SECTION 10.  Representations  and  Warranties.  The  Guarantor
represents and warrants that (a) all  representations and warranties relating to
it contained in the Credit  Agreement  are true and correct and (b) by virtue of
the execution and delivery by the Guarantor of this Agreement,  when the filings
listed in Schedule 10(b) have been made, the Collateral  Agent will have a valid
and first perfected lien upon and interest in the  Intercompany  Indebtedness as
security for the payment and performance of the Obligations,  prior to all other
liens and encumbrances thereon and security interests therein.

                  SECTION 11.  Termination.  The  Guarantee  made  hereunder (a)
shall terminate when all the Obligations have been indefeasibly paid in full and
the  Lenders  have no  further  commitment  to extend  credit  under the  Credit
Agreement and (b) shall continue to be effective or be  reinstated,  as the case
may be,  if at any time  payment,  or any part  thereof,  of any  Obligation  is
rescinded  or must  otherwise be restored by any Lender upon the  bankruptcy  or
reorganization of the Borrower or the Guarantor or otherwise.

                  SECTION 12. Binding Agreement;  Assignments.  Whenever in this
Agreement  any of the parties  hereto is referred  to, such  reference  shall be
deemed to include the successors  and assigns of such party;  and all covenants,
promises and  agreements by or on behalf of the Guarantor  that are contained in
this  Agreement  shall bind and inure to the  benefit  of each party  hereto and
their respective  successors and assigns.  This Agreement shall become effective
when a counterpart  hereof  executed on behalf of the Guarantor  shall have been
delivered to the  Collateral  Agent,  and a  counterpart  hereof shall have been
executed on behalf of the Collateral Agent, and thereafter shall be binding upon
the Guarantor  and the  Collateral  Agent and their  respective  successors  and
assigns,  and shall inure to the benefit of the Guarantor,  the Collateral Agent
and the other Lenders, and their respective successors and assigns,  except that
the  Guarantor  shall  not have the right to assign  its  rights or  obligations
hereunder or any interest  herein (and any such  attempted  assignment  shall be
void).

                  SECTION 13. Waivers; Amendment. (a) No failure or delay of the
Collateral  Agent in exercising any power or right  hereunder shall operate as a
waiver  thereof,  nor shall any single or partial  exercise of any such right or
power, or any abandonment or  discontinuance of steps to enforce such a right or
power,  preclude  any other or further  exercise  thereof or the exercise of any
other right or power.  The rights and remedies of the Collateral Agent hereunder
are  cumulative  and are not exclusive of any rights or remedies that they would
otherwise  have. No waiver of any provision of this  Agreement or consent to any
departure by the Guarantor  therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below,  and then such waiver or consent
shall be effective  only in the specific  instance and for the specific  purpose
for which  given.  No notice to or  demand on the  Guarantor  in any case  shall
entitle  the  Guarantor  to any other or further  notice or demand in similar or
other circumstances.

                  (b) Neither this  Agreement  nor any  provision  hereof may be
waived,  amended or modified except pursuant to a written agreement entered into
between the Guarantor and the Collateral  Agent,  with the prior written consent
of the Required Lenders (except as otherwise provided in the Credit Agreement).

     SECTION  14.  Governing  Law.  THIS  AGREEMENT  SHALL  BE  GOVERNED  BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

     SECTION 15. Notices.  All  communications and notices hereunder shall be in
writing  and given as  provided  in  Section  9.1 of the Credit  Agreement.  All
communications  and notices  hereunder to the Guarantor  shall be given to it in
care of the Borrower.

                  SECTION  16.  Survival  of  Agreement;  Severability.  (a) All
covenants,  agreements,  representations  and  warranties  made by the Guarantor
herein and in the  certificates  or other  instruments  prepared or delivered in
connection  with or pursuant to this  Agreement or any other Loan Document shall
be  considered  to have been relied upon by the  Collateral  Agent and the other
Lenders and shall  survive the making by the Lenders of the Loans  regardless of
any investigation  made by the Lenders or on their behalf, and shall continue in
full force and effect as long as the principal of or any accrued interest on any
Loan or any other fee or amount  payable under this  Agreement or any other Loan
Document is outstanding and unpaid and as long as the Commitments  have not been
terminated.

                  (b) In the event any one or more of the  provisions  contained
in this Agreement or in any other Loan Document should be held invalid,  illegal
or unenforceable in any respect,  the validity,  legality and  enforceability of
the remaining  provisions  contained  herein and therein shall not in any way be
affected  or  impaired  thereby.   The  parties  shall  endeavor  in  good-faith
negotiations to replace the invalid,  illegal or  unenforceable  provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

                  SECTION 17.  Counterparts.  This  Agreement may be executed in
counterparts,  each of which shall constitute an original, but all of which when
taken  together  shall  constitute  a single  contract.  Delivery of an executed
signature page to this Agreement by facsimile transmission shall be as effective
as delivery of a manually executed counterpart of this Agreement.

     SECTION 18. Rules of Interpretation.  The rules of interpretation specified
in Section 1.2 of the Credit Agreement shall be applicable to this Agreement.

                  SECTION 19.  Jurisdiction;  Consent to Service of Process. (a)
The Guarantor hereby irrevocably and unconditionally submits, for itself and its
property,  to the  nonexclusive  jurisdiction  of any New  York  State  court or
Federal court of the United States of America  sitting in New York City, and any
appellate court from any thereof,  in any action or proceeding arising out of or
relating to this Agreement or the other Loan  Documents,  or for  recognition or
enforcement of any judgment,  and each of the parties hereto hereby  irrevocably
and  unconditionally  agrees  that all claims in  respect of any such  action or
proceeding  may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court.  Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other  jurisdictions  by suit on the judgment or in any other manner
provided  by law.  Nothing  in this  Agreement  shall  affect any right that the
Collateral  Agent or any other Lender may otherwise  have to bring any action or
proceeding  relating to this Agreement or the other Loan  Documents  against the
Guarantor or its properties in the courts of any jurisdiction.

                  (b)  The  Guarantor  hereby  irrevocably  and  unconditionally
waives,  to the  fullest  extent  it may  legally  and  effectively  do so,  any
objection  that it may now or hereafter have to the laying of venue of any suit,
action or proceeding  arising out of or relating to this  Agreement or the other
Loan  Documents  in any New York State or  Federal  court.  Each of the  parties
hereto hereby  irrevocably  waives,  to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.

                  (c)  Each  party to this  Agreement  irrevocably  consents  to
service of process in the manner  provided for notices in Section 15. Nothing in
this  Agreement  will affect the right of any party to this  Agreement  to serve
process in any other manner permitted by law.

                  SECTION 20.  Waiver of Jury Trial.  EACH PARTY  HERETO  HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION  DIRECTLY OR INDIRECTLY  ARISING
OUT OF, UNDER OR IN CONNECTION  WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF  LITIGATION,  SEEK TO ENFORCE THE FOREGOING  WAIVER AND (B)
ACKNOWLEDGES  THAT IT AND THE OTHER  PARTIES  HERETO HAVE BEEN  INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 20.

                  SECTION 21. Right of Setoff. If an Event of Default shall have
occurred and be  continuing,  each Lender is hereby  authorized  at any time and
from time to time, to the fullest extent  permitted by law, to set off and apply
any and all deposits (general or special, time or demand,  provisional or final)
at any time held and other  Indebtedness  at any time owing by such Lender to or
for  the  credit  or  the  account  of the  Guarantor  against  any  or all  the
obligations of the Guarantor now or hereafter  existing under this Agreement and
the other Loan  Documents  held by such Lender,  irrespective  of whether or not
such Lender  shall have made any demand  under this  Agreement or any other Loan
Document and although  such  obligations  may be  unmatured.  The rights of each
Lender  under  this  Section 21 are in  addition  to other  rights and  remedies
(including other rights of setoff) which such Lender may have.


                  IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

                                            TEXAS GENERATING COMPANY II,

                                                       by
                                                         -----------------------
                                      Name:
                                     Title:


                                            CHEMICAL BANK, as Collateral Agent,

                                                       by
                                                         -----------------------
                                      Name:
                                     Title:




<PAGE>


                                                                Schedule 10(b)


                                   UCC Filings


                            Secretary of State, Texas

                             Robertson County, Texas


<PAGE>


                                                                 EXHIBIT  E

     THIS INSTRUMENT  GRANTS A SECURITY INTEREST BY A UTILITY AND WHICH CONTAINS
AFTER-ACQUIRED  PROPERTY  PROVISIONS  PURSUANT  TO  SUBCHAPTER  35A OF THE TEXAS
BUSINESS AND COMMERCE CODE


                                    BOND AGREEMENT dated as of November 3, 1995,
                           by   TEXAS-NEW   MEXICO   POWER   COMPANY,   a  Texas
                           corporation ("TNP"), in favor of CHEMICAL BANK, a New
                           York banking corporation, as collateral agent for the
                           lenders (in such capacity,  the  "Collateral  Agent")
                           party to the Credit Agreement dated as of November 3,
                           1995 (the "Credit Agreement"), among TNP, the lenders
                           named therein (the  "Lenders")  and CHEMICAL BANK, as
                           administrative  agent  and  collateral  agent for the
                           Lenders.


                  The  Lenders  have  agreed to make  Loans  (such term and each
other term used but not defined herein having the meaning  assigned to it in the
Credit  Agreement) to the Borrower pursuant to, and subject to the terms of, the
Credit  Agreement.  The  obligations  of the  Lenders  to  make  the  Loans  are
conditioned,  among other things, upon the execution and delivery by the Pledgor
of a bond pledge  agreement  in the form  hereof to secure the due and  punctual
payment by the Borrower of (a) the principal of and interest on the Loans,  when
and as due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise,  (b) all other monetary  obligations of the Borrower to
the Lenders under the Loan  Documents and (c) all  obligations of the Pledgor or
any Subsidiary under any Interest Rate Protection  Agreement entered into with a
Lender  to  protect  against   interest  rate   fluctuations   with  respect  to
Indebtedness under the Credit Agreement (the foregoing  obligations described in
clauses (a), (b) and (c) being  collectively  called the  "Obligations").  It is
understood  that TNP is the  issuer of the  Bonds  pledged  hereunder  and that,
accordingly,  the Bonds constitute  obligations,  and not property,  of TNP, the
purpose of the  arrangements  provided for herein being to furnish  security for
the Obligations  through the issuance and pledge of the Bonds as contemplated by
Section 15.04 of the TNP Bond Indenture.

                  Accordingly, the Pledgor and the Collateral Agent hereby agree
as follows:

                  SECTION 1. Pledge of Bonds.  As  security  for the payment and
performance in full of the Obligations,  the Pledgor hereby  transfers,  grants,
bargains, sells, conveys, hypothecates, pledges, sets over and delivers unto the
Collateral  Agent,  for the ratable  benefit of the  Lenders,  and grants to the
Collateral Agent, for the ratable benefit of the Lenders, a security interest in
(a) the First Mortgage  Bonds listed on Schedule I hereto (the "Initial  Bonds")
and the  certificate  or  certificates  representing  or  evidencing  such First
Mortgage  Bonds  and any  First  Mortgage  Bonds  that may be  delivered  to the
Collateral Agent pursuant to Section 4.3 of the Credit Agreement and held by the
Collateral  Agent  pursuant  to the terms  hereof (the  "Additional  Bonds" and,
together with the Initial Bonds, the "Bonds"),  (b) all other property which may
be delivered to and held by the  Collateral  Agent  pursuant to the terms hereof
(whether or not described herein),  (c) all payments of principal,  interest and
other amounts from time to time received, receivable or otherwise distributed in
respect of, in exchange for or upon the conversion of the securities referred to
in clauses (a) and (b) above,  (d) all rights and privileges of the Pledgor with
respect to the securities and other property  referred to in clauses (a) and (b)
above,  and (e) all proceeds of any of the foregoing  (the items  referred to in
clauses  (a)  through  (e) being  collectively  called the  "Collateral").  Upon
delivery to the Collateral Agent, (x) the Bonds and any  certificates,  notes or
other  securities  now  or  hereafter   included  in  the  Collateral  shall  be
accompanied  by  duly  executed  instruments  of  transfer  satisfactory  to the
Collateral  Agent and by such other  instruments and documents as the Collateral
Agent  may  reasonably  request  and  (y) all  other  property  included  in the
Collateral  shall be  accompanied  by  proper  instruments  of  assignment  duly
executed  by  the  Pledgor  and  such  other  instruments  or  documents  as the
Collateral Agent may reasonably request.

     SECTION 2.  Representations,  Warranties and Covenants.  The Pledgor hereby
represents, warrants and covenants to and with the Collateral Agent that:

                  (a) at the time of their  delivery  hereunder,  the Bonds will
         have been authorized,  executed,  issued,  authenticated and delivered,
         and  registered  as provided  in Section 3 below,  in  accordance  with
         applicable  law and the terms and  provisions of the TNP Bond Indenture
         and will  constitute  the legal,  valid and binding  obligations of the
         Borrower,  enforceable  in accordance  with their terms and entitled to
         the benefits of the TNP Bond Indenture and the Liens created thereby to
         the same extent as the other First Mortgage Bonds issued thereunder;

                  (b) the Bonds  delivered to and held by the  Collateral  Agent
         hereunder will at all times be outstanding  for all purposes of the TNP
         Bond Indenture and the Collateral Agent and its successors,  as holders
         thereof,  will be entitled to all voting,  consensual  and other rights
         accruing  to  holders  of  First   Mortgage  Bonds  issued  under  such
         Indenture;

                  (c)  the  Pledgor  will  make  no  sale,  assignment,  pledge,
         hypothecation  or other  transfer  of,  or create  any  other  security
         interest in, the Bonds or other Collateral;

                  (d) the  Pledgor  (i) has good  right and legal  authority  to
         pledge the Bonds and other  Collateral to the  Collateral  Agent in the
         manner  hereby done or  contemplated,  (ii) will defend the interest of
         the Collateral Agent in the Bonds and other Collateral  against any and
         all attachments,  liens,  claims,  encumbrances,  security interests or
         other  impediments of any nature,  however arising,  of all persons and
         (iii) will  promptly turn over to the  Collateral  Agent in the form in
         which  received  any  Collateral  which shall at any time come into its
         possession;

                  (e) no consent or approval of any Governmental Authority,  the
         Trustee under the TNP Bond Indenture or any securities  exchange was or
         is necessary for the valid issuance of the Bonds or the pledge effected
         hereby  except  such as have been  obtained  and are in full  force and
         effect;

                  (f) by virtue of the  execution and delivery by the Pledgor of
         this Agreement,  when the certificates,  instruments or other documents
         representing  or evidencing  the Bonds are delivered to the  Collateral
         Agent in accordance  with this  Agreement,  the  Collateral  Agent will
         obtain a valid and perfected  first lien upon and security  interest in
         such Bonds and the other  Collateral  as  security  for the payment and
         performance  of  the   Obligations,   prior  to  all  other  liens  and
         encumbrances thereon and security interests therein; and

                  (g) the pledge  effected  hereby is  effective  to vest in the
         Collateral  Agent,  on  behalf  of  the  Lenders,  the  rights  of  the
         Collateral Agent in the Bonds and other Collateral as set forth herein.

                  SECTION 3.  Registration  of Bonds;  Denominations.  The Bonds
shall be registered on the register maintained by the Trustee under the TNP Bond
Indenture in the name of the  Collateral  Agent or its nominee.  The  Collateral
Agent shall have the right to exchange the certificates  representing such Bonds
for  certificates of smaller or larger  denominations to facilitate the exercise
of its rights hereunder.

                  SECTION 4. Voting and  Consensual  Rights,  Etc. (a) Until the
Collateral  shall have been  released as provided in Section 13, the  Collateral
Agent shall have and may exercise,  to the exclusion of the Pledgor, all voting,
consensual  and  other  rights  accruing  to a holder of the  Bonds,  including,
without  limitation,  (i) the right to demand and receive  payments of principal
and interest on the Bonds in accordance  with the terms of the Bonds and the TNP
Bond  Indenture  (ii) the  right to  attend  or be  represented  by proxy at any
meeting of bondholders under the TNP Bond Indenture, (iii) the right to vote the
Bonds in accordance with the terms of the TNP Bond Indenture,  (iv) the right to
issue  consents  and  waivers  with  respect to the Bonds,  as a holder of First
Mortgage  Bonds,  under or in connection  with the TNP Bond  Indenture,  (v) the
right to issue any and all  instructions  and requests for action to the Trustee
under the TNP Bond Indenture  which are permitted to a bondholder  under the TNP
Bond  Indenture and (vi) the right to exercise all remedies  provided in the TNP
Bond  Indenture  for the benefit of the  holders of First  Mortgage  Bonds.  The
Pledgor  shall not amend,  supplement  or  otherwise  modify,  or consent to any
amendment,  supplement or other  modification  to, the terms of the Bonds or the
TNP Bond  Indenture in any manner that could  directly or indirectly  affect the
Collateral, the Lien of the TNP Bond Indenture or the rights or interests of the
Lenders (other than issuances of First  Mortgage Bonds  permitted  under Section
6.1(d) of the Credit Agreement  pursuant to supplemental  bond  indentures),  in
each case except with the prior written consent of the Collateral Agent.

                  (b) The Pledgor shall not consent to any voluntary  prepayment
or redemption of the Bonds without the prior written  consent of the  Collateral
Agent,  and any amounts received by or for the account of the Pledgor in respect
of any such prepayment or redemption shall constitute  Collateral  hereunder and
shall be held by the Collateral Agent for application as provided herein.

                  SECTION 5. No  Disposition.  Without the prior written consent
of the  Collateral  Agent,  the Pledgor  agrees  that it will not sell,  assign,
transfer,  exchange,  or otherwise  dispose of, or grant any option with respect
to, the  Collateral,  nor will it create,  incur or permit to exist any  pledge,
lien, mortgage,  hypothecation,  security interest,  charge, option or any other
encumbrance with respect to any of the Collateral,  or any interest therein,  or
any proceeds thereof,  except for the lien and security interest provided for by
this Agreement.

                  SECTION 6. Amendment,  Modifications  and Waivers with Respect
to  Obligations.  The Pledgor  hereby agrees that,  without notice to or further
assent by the Pledgor,  any demand for payment of any of the Obligations made by
the Collateral  Agent or the Lenders may be rescinded by the Collateral Agent or
the Lenders and any of the Obligations  continued,  and the Obligations,  or the
liability of the Pledgor or any other party upon or for any part thereof, or any
collateral  security  or  guarantee  therefor  or right of setoff  with  respect
thereto,  may,  from time to time,  in whole or in part,  be renewed,  refunded,
extended, amended, modified, accelerated,  compromised,  waived, surrendered, or
released by the Collateral  Agent or any Lender and the Credit Agreement and any
other Loan Document or any other documents delivered in connection therewith may
be amended,  modified,  supplemented  or  terminated in whole or in part, as the
Lenders may deem advisable from time to time, and any collateral security at any
time  held by the  Lenders  for the  payment  of the  Obligations  may be  sold,
exchanged,  waived,  surrendered  or  released  on terms  that in the good faith
judgement of the  Collateral  Agent are  commercially  reasonable in view of the
applicable circumstances and in view of the limitations described in Section 12,
all without  notice to or the consent of the  Pledgor,  which will remain  bound
hereunder,   notwithstanding   any  such   renewal,   extension,   modification,
acceleration,  compromise,  amendment, supplement,  termination, sale, exchange,
waiver, surrender or release. Neither the Collateral Agent nor the Lenders shall
have any obligation to protect,  secure,  perfect or insure any other collateral
security  document or property  subject thereto at any time held as security for
the Obligations. The Pledgor waives any and all notice of the creation, renewal,
extension  or  accrual  of any of the  Obligations  and  notice  of or  proof of
reliance  by the  Collateral  Agent or any Lender upon this  Agreement,  and the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred in reliance upon this Agreement, and all dealings between
the  Pledgor  and  the  Collateral  Agent  and the  Lenders  shall  likewise  be
conclusively  presumed to have been had or  consummated  in  reliance  upon this
Agreement.  The  Pledgor  waives  diligence,  presentment,  protest,  demand for
payment and notice of default or  nonpayment to or upon the Pledgor with respect
to the Obligations.

                  SECTION  7.  Remedies.  (a) If a Default  or Event of  Default
shall have occurred and be continuing,  the Collateral Agent,  without demand of
performance  or other  demand,  advertisement  or notice of any kind (except the
notice  specified  below of time and place of public or private sale) to or upon
the Pledgor or any other person (all and each of which  demands,  advertisements
and/or notices are hereby expressly  waived),  may forthwith  collect,  receive,
appropriate  and realize upon the  Collateral,  or any part thereof,  and/or may
forthwith sell, assign, give option or options to purchase,  contract to sell or
otherwise dispose of and deliver said Collateral, or any part thereof, in one or
more parcels at public or private sale or sales, at any exchange, broker's board
or at any of the  Collateral  Agent's  offices or elsewhere  upon such terms and
conditions as it may deem  advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without  assumption of any credit risk,
and the Collateral Agent or any Lender shall have the right,  upon any such sale
or  sales,  public  or  private,  to  purchase  the  whole  or any  part of said
Collateral  so sold,  free of any right or equity of  redemption in the Pledgor,
which right or equity is hereby expressly waived or released. In addition to the
rights and remedies  granted to it in this Agreement and in any other instrument
or agreement  securing,  evidencing or relating to any of the  Obligations,  the
Collateral Agent shall have all the rights and remedies of a secured party under
the Uniform  Commercial Code of the State of New York at that time (the "Code"),
whether or not the Code applies to the affected Collateral. The Pledgor shall be
liable for the  deficiency if the proceeds of any sale or other  disposition  of
the Collateral are insufficient to pay the Obligations.

                  (b)  Neither  the  Collateral  Agent nor any  Lender  shall be
liable for failure to collect or realize upon the  Obligations or any collateral
security or  guarantee  therefor,  or any part  thereof,  or for any delay in so
doing  nor  shall  any of them be  under  any  obligation  to  take  any  action
whatsoever with regard thereto. Although the Collateral Agent or its nominee may
without notice exercise any and all rights,  privileges or options pertaining to
any of the Bonds as if it were the absolute owner thereof,  the Collateral Agent
shall  have no duty to  exercise  any of the  aforesaid  rights,  privileges  or
options,  shall not be responsible for any failure to do so or delay in so doing
and, in any event, may do so without liability.

                  SECTION 8.  Application of Proceeds.  The cash proceeds of any
sale of Collateral  received by the  Collateral  Agent pursuant to Section 7, as
well as any cash Collateral  received by the Collateral Agent,  shall be applied
by the Collateral  Agent as follows (the timing of such application to be in the
sole discretion of the Collateral Agent):

                  FIRST,  to the payment of all costs and  expenses  incurred by
         the Collateral  Agent in connection  with any such sale or otherwise in
         connection  with this Agreement or any of the  Obligations,  including,
         but not  limited  to,  all  court  costs  and the  reasonable  fees and
         expenses  of its  agents  and  legal  counsel  and any  other  costs or
         expenses  incurred  in  connection  with the  exercise  of any right or
         remedy hereunder;

                  SECOND,  to the  payment  in full of the  Obligations  due but
         unpaid at the time of such  receipt,  pro rata among the holders of the
         Obligations in accordance with the amounts of the  Obligations  held by
         them on the date of any  distribution;  provided  that in the  event no
         such Obligations are due and payable at such time, or to the extent the
         Collateral  Agent receives  noncash  Proceeds,  all cash Collateral and
         Proceeds  shall be retained  by the  Collateral  Agent for  application
         against the Obligations as they become due and payable; and

                  THIRD,  to the Pledgor,  its  successors  or assigns,  or as a
         court of competent jurisdiction may otherwise direct.

                  SECTION 9.  Reimbursement of the Collateral Agent. The Pledgor
hereby agrees to reimburse the Collateral  Agent, on demand,  for all reasonable
out of pocket expenses  incurred by the Collateral  Agent in connection with the
administration  and enforcement of this  Agreement,  and agrees to indemnify the
Collateral Agent and hold the Collateral Agent harmless from and against any and
all  liability  incurred by the  Collateral  Agent  hereunder,  or in connection
herewith,  unless  such  liability  shall be due to wilful  misconduct  or gross
negligence on the part of the Collateral Agent.

                  SECTION 10. The Collateral  Agent Appointed  Attorney-in-Fact.
The Pledgor hereby  appoints the  Collateral  Agent as  attorney-in-fact  of the
Pledgor for the purpose of carrying out the  provisions  of this  Agreement  and
taking any action and executing any instrument  which the  Collateral  Agent may
deem necessary or advisable to accomplish the purposes hereof, which appointment
is irrevocable and coupled with an interest.  Without limiting the generality of
the foregoing,  the Collateral  Agent shall have the right and power to receive,
endorse and  collect  all checks and other  orders for the payment of money made
payable  to  the  Pledgor   representing   any  payment  of  interest  or  other
distribution  payable in respect of the  Collateral  or any part  thereof and to
give full discharge for the same.

                  SECTION  11.  No  Waiver.  No  failure  on  the  part  of  the
Collateral Agent to exercise,  and no delay in exercising,  any right,  power or
remedy  hereunder  shall  operate as a waiver  thereof,  nor shall any single or
partial  exercise of any such  right,  power or remedy by the  Collateral  Agent
preclude  any other or further  exercise  thereof or the  exercise  of any other
right,  power or remedy.  All  remedies  hereunder  are  cumulative  and are not
exclusive of any other remedies provided by law.

                  SECTION 12. Securities Act, etc. The Pledgor  understands that
compliance  with the Securities  Act of 1933, as now or hereafter in effect,  or
any similar statute  hereafter  enacted analogous in purpose or effect (such Act
and any such  similar  statute as from time to time in effect  being  called the
"Federal  Securities  Laws") might very strictly  limit the course of conduct of
the Collateral  Agent if the Collateral  Agent were to attempt to dispose of all
or any part of the  Collateral  pursuant  to Section 7, and might also limit the
extent  to which  or the  manner  in  which  any  subsequent  transferee  of any
Collateral  could  dispose  of the same.  Similarly,  there  may be other  legal
restrictions  or limitations  affecting the  Collateral  Agent in any attempt to
dispose of all or part of the Collateral  pursuant to Section 7 under applicable
Blue Sky or other state  securities laws or similar laws analogous in purpose or
effect.  Under  applicable  law, in the absence of an agreement to the contrary,
the  Collateral  Agent  might  be  held  to  have  certain  general  duties  and
obligations  to the Pledgor,  to make some effort toward  obtaining a fair price
even though the  Obligations  may be  discharged or reduced by the proceeds of a
sale at a lesser price.  The Pledgor  clearly  understands  that the  Collateral
Agent is not to have any such general duty or obligation to the Pledgor, and the
Pledgor  will not in any way  whatsoever  attempt to hold the  Collateral  Agent
responsible for selling all or any part of the Collateral at an inadequate price
even if the  Collateral  Agent shall accept the first offer received or does not
approach more than one possible purchaser.

                  SECTION 13.  Termination;  Redelivery of Pledged  Bonds.  This
Agreement  shall  terminate  when (a) all the  Obligations  have been  fully and
indefeasibly  paid and the Lenders have no further  commitment  to extend credit
under  the  Credit  Agreement  or  (b)  the  conditions  to the  release  of the
Collateral  set forth in Section  9.17 of the Credit  Agreement  shall have been
satisfied.  At the  request  of the  Pledgor  following  such  termination,  the
Collateral Agent shall reconvey, reassign and deliver to the Pledgor, or to such
person or persons as the Pledgor shall designate,  against receipt,  such of the
Collateral  (if any) as shall  not have been  applied  by the  Collateral  Agent
pursuant to the terms hereof and shall still be held by it  hereunder,  together
with appropriate instruments of reconveyance, reassignment and release. Any such
reconveyance and reassignment  shall be without recourse to or representation or
warranty by the Collateral Agent and at the expense of the Pledgor.

     SECTION 14. Notices.  All  communications and notices hereunder shall be in
writing and given as provided in Section 9.1 of the Credit Agreement.

                  SECTION 15. Further Assurances.  The Pledgor agrees to do such
further acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Collateral Agent may at any time
reasonably request in connection with the administration and enforcement of this
Agreement  or with  respect to the  Collateral  or any part  thereof or in order
better to assure and confirm unto the  Collateral  Agent its rights and remedies
hereunder.

                  SECTION 16. Binding  Agreement;  Assignments.  This Agreement,
and the terms,  covenants and conditions hereof, shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
(including  any future Lender  becoming a party to the Credit  Agreement and any
purchaser of a participation in any of the Obligations), except that the Pledgor
shall not be permitted to assign this Agreement or any interest herein or in the
Collateral,  or any part thereof, or otherwise convey, pledge, encumber or grant
any option with respect to the Collateral,  or any part thereof,  or any cash or
property held by the Collateral  Agent as Collateral under this Agreement except
as contemplated by this Agreement.

                  SECTION  17.   Survival  of   Agreement.   All  covenants  and
agreements  made  by  the  Pledgor  herein  and  in the  certificates  or  other
instruments  prepared or delivered in connection  with this  Agreement  shall be
considered to have been relied upon by the Collateral  Agent and the Lenders and
shall survive the making by the Lenders of the Loans and shall  continue in full
force and effect as long as the principal of or any accrued interest on any Loan
or any other fee or amount payable under this Agreement or, without  duplication
of the  foregoing,  under any of the other Loan  Documents,  or any of the other
Obligations,  is  outstanding  and unpaid and so long as this  Agreement has not
terminated.  The representations  and warranties  contained in Section 2 of this
Agreement  shall be considered to have been relied upon by the Lenders and shall
survive the making of the Loans and shall  remain in full force and effect after
the termination of this Agreement.

                  SECTION  18.  Provisions  Severable.  The  provisions  of this
Agreement are  severable,  and if any clause or provision  shall be held invalid
and unenforceable in whole or in part, then such invalidity or  unenforceability
shall affect only such clause or provision,  or part  thereof,  and shall not in
any manner affect any other clause or provision of this Agreement.

     SECTION 19.  GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK.

     SECTION  20.  Counterparts.  This  Agreement  may be  executed  in multiple
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.

     SECTION 21. Headings. Section headings used herein are for convenience only
and are not to affect the  construction  of, or be taken into  consideration  in
interpreting, this Agreement.


                  IN WITNESS WHEREOF, the parties hereto have duly executed this
Bond Pledge Agreement,  or caused this Bond Pledge Agreement to be duly executed
on their behalf, as of the day and year first above written.


                                           TEXAS-NEW MEXICO POWER COMPANY,

                                            by
                                               ---------------------------

                                                              Name:
                                                              Title:


                                           CHEMICAL BANK, as Collateral Agent,

                                            by
                                               -----------------------------
                                      Name:
                                     Title:


<PAGE>


                  The undersigned hereby  acknowledges  receipt of a copy of the
Bond Agreement dated as of November 3, 1995 by Texas-New Mexico Power Company in
favor of Chemical Bank, as Collateral Agent (the "Bond Agreement"), and confirms
that  the  Bonds  pledged  under  the Bond  Agreement  on the  date  hereof  are
outstanding for all purposes of the TNP Bond Indenture.


     BANK OF AMERICA ILLINOIS, as Trustee under the TNP Bond Indenture,

     by ------------------------------- 
     Name:
     Title:


November __, 1995



<PAGE>


THE STATE OF TEXAS

COUNTY OF ROBERTSON

         This instrument was acknowledged before me on the ____ day of November,
1995, by __________ , ______________ of TEXAS-NEW MEXICO POWER COMPANY,  a Texas
corporation, on behalf of said corporation.


                                                ----------------------------
                                                NOTARY PUBLIC in and for the
                                                  State of TEXAS
My Commission Expires:

--------------------------------------          -----------------------------
                                                Typed or Printed Name of Notary




<PAGE>


THE STATE OF NEW YORK

COUNTY OF NEW YORK

         This  instrument  was  acknowledged  before  me  on  the  ____  day  of
November,1995,  by _________,  ____________________ of CHEMICAL BANK, a New York
banking corporation, on behalf of said corporation.


                                             ---------------------------
                                             NOTARY PUBLIC in and for the 
                                                    Sate of NEW YORK

My Commission Expires:

--------------------------------------------      -----------------------
                                                Typed or Printed Name of Notary



<PAGE>



     EXHIBIT F THIS  INSTRUMENT  GRANTS A  SECURITY  INTEREST  BY A UTILITY  AND
CONTAINS  AFTER-ACQUIRED  PROPERTY  PROVISIONS PURSUANT TO SUBCHAPTER 35A OF THE
TEXAS BUSINESS AND COMMERCE CODE

                                    NOTE PLEDGE  AGREEMENT  dated as of November
                           3, 1995, by TEXAS-NEW  MEXICO POWER COMPANY,  a Texas
                           corporation  (the  "Pledgor"),  in favor of  CHEMICAL
                           BANK, a New York banking  corporation,  as collateral
                           agent  for  the  lenders  (in  such   capacity,   the
                           "Collateral  Agent")  party to the  Credit  Agreement
                           dated  as  of   November   3,   1995   (the   "Credit
                           Agreement"),  among the  Pledgor,  the lenders  named
                           therein  (the   "Lenders")   and  CHEMICAL  BANK,  as
                           administrative  agent  and  collateral  agent for the
                           Lenders.


                  The  Lenders  have  agreed to make  Loans  (such term and each
other  capitalized  term used but not defined herein having the meaning assigned
to it in the Credit  Agreement) to the Borrower  pursuant to, and subject to the
terms of, the Credit Agreement. The obligations of the Lenders to make the Loans
are  conditioned,  among other  things,  upon the  execution and delivery by the
Pledgor of a pledge  agreement in the form hereof to secure the due and punctual
payment by the Borrower of (a) the principal of and interest on the Loans,  when
and as due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise,  (b) all other monetary  obligations of the Borrower to
the Lenders under the Loan  Documents and (c) all  obligations of the Pledgor or
any Subsidiary under any Interest Rate Protection  Agreement entered into with a
Lender to  protect  against  interest  rate  fluctuations  with  respect  to the
Indebtedness under the Credit Agreement (the foregoing  obligations described in
clauses (a), (b) and (c) being collectively called the "Obligations").

                  Accordingly, the Pledgor and the Collateral Agent hereby agree
as follows:

                  SECTION 1. Pledge. As security for the payment and performance
in full of the  Obligations,  the Pledgor hereby  transfers,  grants,  bargains,
sells,  conveys,  hypothecates,   pledges,  sets  over  and  delivers  unto  the
Collateral  Agent,  for the ratable  benefit of the  Lenders,  and grants to the
Collateral  Agent, for the ratable benefit of the Lenders,  a security  interest
in, (a) the  promissory  notes  listed on  Schedule I hereto and any  promissory
notes that may be issued and  delivered to the Pledgor or the  Collateral  Agent
pursuant to the Existing Facility Agreement in substitution or exchange therefor
or otherwise  (collectively,  the "Notes"), (b) the Project Loans (as defined in
the Existing  Facility  Agreement)  of the Pledgor  under the Existing  Facility
Agreement  and all rights,  interests  and  privileges of the Pledgor in, to and
under such Project Loans,  the Notes,  the Existing  Facility  Agreement and the
other Existing Facility Documents in so far as such rights relate to the Project
Loans and all other documents, title insurance policies, financing statements or
agreements  executed and/or  delivered  evidencing  and/or securing such Project
Loans,  (c)  all  other  property  which  may be  delivered  to and  held by the
Collateral Agent pursuant to the terms hereof (whether or not described herein),
(d)  all  intercompany   Indebtedness  owed  to  the  Pledgor  (other  than  the
Replacement  Note  and  intercompany  indebtedness  owed to the  Pledgor  by TNP
Enterprises or TGC on the Closing Date or any  replacement  note issued pursuant
to the Unit 1 Credit  Agreement)  including  any  promissory  notes  that may be
issued to and  delivered  to the  Pledgor  or the  Collateral  Agent in  respect
thereof or in substitution or exchange for any such  promissory  notes,  (e) all
rights under the Facility  Purchase  Agreement,  (f) all payments of  principal,
interest  and other  amounts  from time to time  received or  receivable  by the
Pledgor under the Existing  Facility  Agreement or any other  Existing  Facility
Document or otherwise in respect of any of the items referred to in clauses (a),
(b), (c), (d) and (e) above,  and (g) all proceeds of any of the foregoing  (the
items  referred  to in clauses (a)  through  (g) being  collectively  called the
"Collateral").  Upon  delivery to the  Collateral  Agent,  (x) the Notes and any
certificates,  notes  or  other  securities  now or  hereafter  included  in the
Collateral  shall be accompanied by instruments of transfer  satisfactory to the
Collateral  Agent and by such other  instruments and documents as the Collateral
Agent may reasonably  request and (y) all other property  comprising part of the
Collateral  shall be  accompanied  by  proper  instruments  of  assignment  duly
executed  by  the  Pledgor  and  such  other  instruments  or  documents  as the
Collateral Agent may reasonably request.

     SECTION 2.  Representations,  Warranties and Covenants.  The Pledgor hereby
represents, warrants and covenants to and with the Collateral Agent as follows:

                  (a) at the time of their  delivery  hereunder,  the Notes will
         have been authorized,  executed,  issued and delivered by the Guarantor
         in accordance  with  applicable law and the terms and provisions of the
         Existing  Facility  Agreement and will constitute the legal,  valid and
         binding  obligations of the Guarantor,  enforceable in accordance  with
         their terms;

                  (b) except for the interest of the  Collateral  Agent therein,
         (i) the Notes are owned by the Pledgor  free and clear of all Liens and
         (ii) the Pledgor will make no sale, assignment,  pledge,  hypothecation
         or other transfer of, or create any security  interest in, the Notes or
         other Collateral;

                  (c) the  Pledgor  (i) has good  right and legal  authority  to
         pledge the Notes and other  Collateral to the  Collateral  Agent in the
         manner  hereby done or  contemplated,  (ii) will defend the interest of
         the Collateral Agent in the Notes and other Collateral  against any and
         all attachments,  liens,  claims,  encumbrances,  security interests or
         other  impediments of any nature,  however arising,  of all persons and
         (iii) will  promptly turn over to the  Collateral  Agent in the form in
         which  received  any  Collateral  which shall at any time come into its
         possession ;

                  (d) no consent or approval of any Governmental Authority,  any
         Existing  Facility  Bank  or  the  First  Debenture  Trustee  was or is
         necessary  to the  validity of the issuance of the Notes and the pledge
         effected hereby;

                  (e) by virtue of the  execution and delivery by the Pledgor of
         this Agreement,  when the Notes and any other  certificates  evidencing
         securities  included  in the  Collateral  have  been  delivered  to the
         Collateral  Agent in  accordance  with this  Agreement  and the filings
         listed in  Schedule  2(e) hereto  have been duly made,  the  Collateral
         Agent  will have a valid and  perfected  first  lien upon and  security
         interest in the Collateral as security for the payment and  performance
         of the Obligations,  prior to all other liens and encumbrances  thereon
         and security interests therein; and

                  (f) the pledge  effected  hereby is  effective  to vest in the
         Collateral  Agent,  on  behalf  of  the  Lenders,  the  rights  of  the
         Collateral Agent in the Notes and other Collateral set forth herein.

                  SECTION 3. Endorsement; Denominations. The Notes and any other
certificates  evidencing securities included in the Collateral shall be promptly
delivered to the Collateral  Agent endorsed in the name of the Collateral  Agent
or its nominee for the benefit of the Lenders.  The Collateral  Agent shall have
the right to exchange the Notes for notes of smaller or larger  denominations to
facilitate the exercise of its rights hereunder.

                  SECTION 4. Voting and Consensual  Rights;  Payments in Respect
of Notes.  (a) Until the  Collateral  shall have been  released  as  provided in
Section 13, the Collateral  Agent shall have and may exercise,  to the exclusion
of the  Pledgor,  all voting,  consensual  and other rights of the Pledgor as an
Existing Facility Bank and holder of the Notes,  including,  without limitation,
(i) the right to demand and receive payments of principal of and interest on the
Notes in accordance with the terms of the Existing Facility Agreement,  (ii) the
right to vote with respect to any  amendment or waiver of any Existing  Facility
Document and the taking of any action  contemplated  thereby and (iii) the right
to exercise all remedies  provided in the Existing  Facility  Documents  for the
benefit of the Existing  Facility Banks. The Pledgor will not amend,  supplement
or  otherwise  modify,  or  consent  to  any  amendment,   supplement  or  other
modification  to, or consent to the taking of any action under, the terms of the
Existing Facility Agreement, the other Existing Facility Documents or the Notes,
in each case except as provided in the  Assignment  Agreement  or with the prior
written consent of the Collateral Agent.

                  (b) The Pledgor shall not consent to any voluntary  prepayment
of the  principal  of  the  Notes  without  the  prior  written  consent  of the
Collateral  Agent, and any amounts received by or for the account of the Pledgor
in respect of any such  prepayment  shall  constitute  Collateral  hereunder and
shall be paid  over to and  held by the  Collateral  Agent  for  application  as
provided herein.

                  SECTION 5. No  Disposition.  Without the prior written consent
of the  Collateral  Agent,  the Pledgor  agrees  that it will not sell,  assign,
transfer,  exchange,  or otherwise  dispose of, or grant any option with respect
to, the  Collateral,  nor will it create,  incur or permit to exist any  pledge,
lien, mortgage,  hypothecation,  security interest,  charge, option or any other
encumbrance with respect to any of the Collateral,  or any interest therein,  or
any proceeds thereof,  except for the lien and security interest provided for by
this Agreement.

                  SECTION 6. Amendment,  Modifications  and Waivers with Respect
to Obligations. The Pledgor hereby agrees that, without notice to or the consent
of the  Pledgor,  any demand for payment of any of the  Obligations  made by the
Collateral  Agent or the Lenders may be rescinded by the Collateral Agent or the
Lenders  and  any of the  Obligations  continued,  and the  Obligations,  or the
liability of the Pledgor or any other party upon or for any part thereof, or any
collateral  security  or  guarantee  therefor  or right of setoff  with  respect
thereto,  may,  from time to time,  in whole or in part,  be renewed,  refunded,
extended, amended, modified, accelerated,  compromised,  waived, surrendered, or
released  by the  Collateral  Agent  or any  Lender  and the  Existing  Facility
Agreement,  the Existing Facility Documents,  the Credit Agreement and any other
Loan Document or any other  documents  delivered in connection  therewith may be
amended,  modified,  supplemented  or  terminated  in whole  or in part,  as the
Lenders may deem advisable from time to time, and any collateral security at any
time  held by the  Lenders  for the  payment  of the  Obligations  may be  sold,
exchanged, waived, surrendered or released, all without notice to or the consent
of the Pledgor,  which will remain  bound  hereunder,  notwithstanding  any such
renewal,   extension,   modification,   acceleration,   compromise,   amendment,
supplement,  termination,  sale, exchange, waiver, surrender or release. Neither
the  Collateral  Agent nor the  Lenders  shall have any  obligation  to protect,
secure,  perfect or insure any other  collateral  security  document or property
subject  thereto at any time held as security for the  Obligations.  The Pledgor
waives any and all notice of the creation,  renewal, extension or accrual of any
of the Obligations and notice of or proof of reliance by the Collateral Agent or
any Lender upon this  Agreement,  and the  Obligations,  and any of them,  shall
conclusively be deemed to have been created,  contracted or incurred in reliance
upon this  Agreement,  and all dealings  between the Pledgor and the  Collateral
Agent and the Lenders shall likewise be  conclusively  presumed to have been had
or consummated in reliance upon this  Agreement.  The Pledgor waives  diligence,
presentment,  protest, demand for payment and notice of default or nonpayment to
or upon the Pledgor with respect to the Obligations.

                  SECTION  7.  Remedies.  (a) If a Default  or Event of  Default
shall have occurred and be continuing,  the Collateral Agent,  without demand of
performance  or other  demand,  advertisement  or notice of any kind (except the
notice  specified  below of time and place of public or private sale) to or upon
the Pledgor or any other person (all and each of which  demands,  advertisements
and/or notices are hereby expressly  waived),  may forthwith  collect,  receive,
appropriate  and realize upon the  Collateral,  or any part thereof,  and/or may
forthwith sell, assign, give option or options to purchase,  contract to sell or
otherwise dispose of and deliver said Collateral, or any part thereof, in one or
more parcels at public or private sale or sales, at any exchange, broker's board
or at any of the  Collateral  Agent's  offices or elsewhere  upon such terms and
conditions as it may deem  advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without  assumption of any credit risk,
and the Collateral Agent or any Lender shall have the right,  upon any such sale
or  sales,  public  or  private,  to  purchase  the  whole  or any  part of said
Collateral  so sold,  free of any right or equity of  redemption in the Pledgor,
which right or equity is hereby expressly waived or released. In addition to the
rights and remedies  granted to it in this Agreement and in any other instrument
or agreement  securing,  evidencing or relating to any of the  Obligations,  the
Collateral Agent shall have all the rights and remedies of a secured party under
the Uniform  Commercial Code of the State of New York at that time (the "Code"),
whether or not the Code applies to the affected Collateral. The Pledgor shall be
liable for the  deficiency if the proceeds of any sale or other  disposition  of
the Collateral are insufficient to pay the Obligations.

                  (b)  Neither  the  Collateral  Agent nor any  Lender  shall be
liable for failure to collect or realize upon the  Obligations or any collateral
security or  guarantee  therefor,  or any part  thereof,  or for any delay in so
doing  nor  shall  any of them be  under  any  obligation  to  take  any  action
whatsoever with regard thereto. Although the Collateral Agent or its nominee may
without notice exercise any and all rights,  privileges or options pertaining to
any of the Collateral as if it were the absolute  owner thereof,  the Collateral
Agent shall have no duty to exercise any of the aforesaid rights,  privileges or
options,  shall not be responsible for any failure to do so or delay in so doing
and, in any event, may do so without liability.

                  SECTION 8.  Application of Proceeds.  The cash proceeds of any
sale of Collateral  received by the  Collateral  Agent pursuant to Section 7, as
well as any cash Collateral  received by the Collateral Agent,  shall be applied
by the Collateral  Agent as follows (the timing of such application to be in the
sole discretion of the Collateral Agent):

                  FIRST,  to the payment of all costs and  expenses  incurred by
         the Collateral  Agent in connection  with any such sale or otherwise in
         connection  with this Agreement or any of the  Obligations,  including,
         but not  limited  to,  all  court  costs  and the  reasonable  fees and
         expenses  of its  agents  and  legal  counsel  and any  other  costs or
         expenses  incurred  in  connection  with the  exercise  of any right or
         remedy hereunder;

                  SECOND,  to the  payment  in full of the  Obligations  due but
         unpaid at the time of such  receipt,  pro rata among the holders of the
         Obligations in accordance with the amounts of the  Obligations  held by
         them on the date of any  distribution;  provided  that in the  event no
         such Obligations are due and payable at such time, or to the extent the
         Collateral  Agent receives  noncash  Proceeds,  all cash Collateral and
         Proceeds  shall be retained  by the  Collateral  Agent for  application
         against the Obligations as they become due and payable; and

                  THIRD,  to the Pledgor,  its  successors  or assigns,  or as a
         court of competent jurisdiction may otherwise direct.

                  SECTION 9.  Reimbursement of the Collateral Agent. The Pledgor
hereby agrees to reimburse the Collateral  Agent, on demand,  for all reasonable
out-of-pocket  expenses  incurred by the Collateral Agent in connection with the
administration  and enforcement of this  Agreement,  and agrees to indemnify the
Collateral Agent and hold the Collateral Agent harmless from and against any and
all  liability  incurred by the  Collateral  Agent  hereunder,  or in connection
herewith,  unless  such  liability  shall be due to wilful  misconduct  or gross
negligence on the part of the Collateral Agent.

                  SECTION 10. The Collateral  Agent Appointed  Attorney-in-Fact.
The Pledgor hereby  appoints the  Collateral  Agent as  attorney-in-fact  of the
Pledgor for the purpose of carrying out the  provisions  of this  Agreement  and
taking any action and executing any instrument  which the  Collateral  Agent may
deem necessary or advisable to accomplish the purposes hereof, which appointment
is irrevocable and coupled with an interest.  Without limiting the generality of
the foregoing,  the Collateral  Agent shall have the right and power to receive,
endorse and  collect  all checks and other  orders for the payment of money made
payable  to  the  Pledgor   representing   any  payment  of  interest  or  other
distribution  payable in respect of the  Collateral  or any part  thereof and to
give full discharge for the same.

                  SECTION  11.  No  Waiver.  No  failure  on  the  part  of  the
Collateral Agent to exercise,  and no delay in exercising,  any right,  power or
remedy  hereunder  shall  operate as a waiver  thereof,  nor shall any single or
partial  exercise of any such  right,  power or remedy by the  Collateral  Agent
preclude  any other or further  exercise  thereof or the  exercise  of any other
right,  power or remedy.  All  remedies  hereunder  are  cumulative  and are not
exclusive of any other remedies provided by law.

                  SECTION 12. Securities Act, etc. The Pledgor  understands that
compliance  with the Securities  Act of 1933, as now or hereafter in effect,  or
any similar statute  hereafter  enacted analogous in purpose or effect (such Act
and any such  similar  statute as from time to time in effect  being  called the
"Federal  Securities  Laws") might very strictly  limit the course of conduct of
the Collateral  Agent if the Collateral  Agent were to attempt to dispose of all
or any part of the  Collateral  pursuant  to Section 7, and might also limit the
extent  to which  or the  manner  in  which  any  subsequent  transferee  of any
Collateral  could  dispose  of the same.  Similarly,  there  may be other  legal
restrictions  or limitations  affecting the  Collateral  Agent in any attempt to
dispose of all or part of the Collateral  pursuant to Section 7 under applicable
Blue Sky or other state  securities laws or similar laws analogous in purpose or
effect.  Under  applicable  law, in the absence of an agreement to the contrary,
the  Collateral  Agent  might  be  held  to  have  certain  general  duties  and
obligations  to the Pledgor,  to make some effort toward  obtaining a fair price
even though the  Obligations  may be  discharged or reduced by the proceeds of a
sale at a lesser price.  The Pledgor  clearly  understands  that the  Collateral
Agent is not to have any such general duty or obligation to the Pledgor, and the
Pledgor  will not in any way  whatsoever  attempt to hold the  Collateral  Agent
responsible for selling all or any part of the Collateral at an inadequate price
even if the  Collateral  Agent shall accept the first offer received or does not
approach more than one possible purchaser.

                  SECTION 13.  Termination;  Redelivery of Pledged  Notes.  This
Agreement  shall  terminate  when (a) all the  Obligations  have been  fully and
indefeasibly  paid and the Lenders have no further  commitment  to extend credit
under  the  Credit  Agreement  or  (b)  the  conditions  to the  release  of the
Collateral  set forth in Section  9.17 of the Credit  Agreement  shall have been
satisfied.  At the request of the Pledgor  following any such  termination,  the
Collateral Agent shall reconvey, reassign and deliver to the Pledgor, or to such
person or persons as the Pledgor shall designate,  against receipt,  such of the
Collateral  (if any) as shall  not have been  applied  by the  Collateral  Agent
pursuant to the terms hereof and shall still be held by it  hereunder,  together
with appropriate instruments of reconveyance, reassignment and release. Any such
reconveyance and reassignment  shall be without recourse to or representation or
warranty by the Collateral Agent and at the expense of the Pledgor.

                  SECTION 14.  Notices.  All communications and notices here
under shall be in writing and given as provided in Section 9.1 of the Credit 
Agreement.

                  SECTION 15. Further Assurances.  The Pledgor agrees to do such
further acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Collateral Agent may at any time
reasonably request in connection with the administration and enforcement of this
Agreement  or with  respect to the  Collateral  or any part  thereof or in order
better to assure and confirm unto the  Collateral  Agent its rights and remedies
hereunder.

                  SECTION 16. Binding  Agreement;  Assignments.  This Agreement,
and the terms,  covenants and conditions hereof, shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
(including  any future Lender  becoming a party to the Credit  Agreement and any
purchaser of a participation in any of the Obligations), except that the Pledgor
shall not be permitted to assign this Agreement or any interest herein or in the
Collateral,  or any part thereof, or otherwise convey, pledge, encumber or grant
any option with respect to the Collateral,  or any part thereof,  or any cash or
property held by the Collateral  Agent as Collateral under this Agreement except
as contemplated by this Agreement.

                  SECTION  17.   Survival  of   Agreement.   All  covenants  and
agreements  made  by  the  Pledgor  herein  and  in the  certificates  or  other
instruments  prepared or delivered in connection  with this  Agreement  shall be
considered to have been relied upon by the Collateral  Agent and the Lenders and
shall survive the making by the Lenders of the Loans and shall  continue in full
force and effect as long as the principal of or any accrued interest on any Loan
or any other fee or amount payable under this Agreement or, without  duplication
of the  foregoing,  under any of the other Loan  Documents,  or any of the other
Obligations,  is  outstanding  and unpaid and so long as this  Agreement has not
terminated in accordance  with its terms.  The  representations  and  warranties
contained in Section 2 of this Agreement shall be considered to have been relied
upon by the Lenders and shall  survive the making of the Loans and shall  remain
in full force and effect after the termination of this Agreement.

                  SECTION  18.  Provisions  Severable.  The  provisions  of this
Agreement are  severable,  and if any clause or provision  shall be held invalid
and unenforceable in whole or in part, then such invalidity or  unenforceability
shall affect only such clause or provision,  or part  thereof,  and shall not in
any manner affect any other clause or provision of this Agreement.

     SECTION 19.  GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK.

     SECTION  20.  Counterparts.  This  Agreement  may be  executed  in multiple
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.

     SECTION 21. Headings. Section headings used herein are for convenience only
and are not to affect the  construction  of, or be taken into  consideration  in
interpreting, this Agreement.


                  IN WITNESS WHEREOF, the parties hereto have duly executed this
Note Pledge Agreement,  or caused this Note Pledge Agreement to be duly executed
on their behalf, as of the day and year first above written.


                             TEXAS-NEW MEXICO POWER COMPANY,

                              by
                                  ------------------------------

                              Name:
                              Title:


                             CHEMICAL BANK, as Collateral Agent,

                              by
                                  -------------------------------
                              Name:
                              Title:


<PAGE>


                  The undersigned  hereby (a) acknowledges  receipt of a copy of
the Note Pledge Agreement dated as of November 3, 1995 by Texas-New Mexico Power
Company in favor of Chemical Bank, as Collateral Agent (the "Pledge  Agreement")
and  consents  to  such  Agreement  and  the  pledge   effected  and  the  other
transactions  contemplated  thereby  (including  the  exercise  of any  and  all
remedies set forth  therein) and affirms that the  representations  set forth in
Section 2 thereof are true and correct and (b)  consents to the pledge by TNP of
its rights under the Facility Purchase Agreement and the Operating Agreement.

                                        TEXAS GENERATING COMPANY II,

                                         by
                                            -----------------------------------
                                         Name:
                                         Title:


November __, 1995


                  Chemical  Bank,  in its  capacity as Agent under the  Existing
Facility Documents, acknowledges that the liens securing the Pledged Notes under
such  Existing  Facility  Documents  will  continue to secure such Pledged Notes
following  the pledge  thereof to the  Collateral  Agent,  and TNP's  beneficial
interests in and to such liens are also  intended to be pledged  pursuant to the
Note Pledge  Agreement (it being  understood  that nothing herein shall diminish
the rights of the Replacement  Note Holder as a secured party under the Existing
Facility Documents).


                                      CHEMICAL BANK, as Agent,

                                       by
                                          ---------------------------
                                                                  Name:
                                                                  Title


November __, 1995


<PAGE>


                                                                 Schedule 2(e)




                                   UCC Filings

                            Secretary of State, Texas

                             Robertson County, Texas


<PAGE>


STATE OF NEW YORK,)
                           )  ss.:
COUNTY OF NEW YORK,)


                  This instrument was  acknowledged  before me on this __ day of
November, 1995 by ___________________________________________________of CHEMICAL
BANK, as Collateral Agent.

                                            ----------------------------------
                                            NOTARY PUBLIC in and for the Stat
                                                       of NEW YORK

[Notarial Seal]


<PAGE>






STATE OF TEXAS,)
                           )  ss.:
COUNTY OF ROBERTSON,)


                  This instrument was  acknowledged  before me on this __ day of
November,  1995 by  ________________________  of TEXAS GENERATING  COMPANY II, a
Texas corporation.

                                           ---------------------------------
                                           NOTARY PUBLIC in and for the 
                                                   State of TEXAS

[Notarial Seal]


<PAGE>






STATE OF TEXAS,)
                           )  ss.:
COUNTY OF ROBERTSON,)


                  This instrument was  acknowledged  before me on this __ day of
November,  1995 by  _______________________________  of  TEXAS-NEW  MEXICO POWER
COMPANY, a Texas corporation.

                                      ----------------------------------
                                      NOTARY PUBLIC in and for the 
                                               State of TEXAS

[Notarial Seal]


<PAGE>


                                                                EXHIBIT G-1


                            HAYNES AND BOONE, L.L.P.
                         ATTORNEYS AND COUNSELORS AT LAW
                                                                       AUSTIN
                                                                       DALLAS
                                                                   FORT WORTH
                          3100 NATIONSBANK PLAZA                      HOUSTON
                       DALLAS, TEXAS  75202-3789                  MEXICO CITY
                         TELEPHONE 214/651-5000                   SAN ANTONIO
                            FAX 214/651-5940                   WASHINGTON D.C.


                          November 3, 1995


Chemical Bank
   individually and as Administrative
   Agent under the TNP Credit
   Agreement referred to below
270 Park Avenue
New York, NY 10017

The Lenders from time to time
   under the TNP Credit Agreement

The Chase Manhattan Bank
   (National Association), as agent
   under the Existing Facility
   Agreement referred to in the
   TNP Credit Agreement
One Chase Manhattan Plaza
New York, NY 10005

Ladies and Gentlemen:

         We have acted as special counsel to Texas-New  Mexico Power Company,  a
Texas corporation  ("TNP"), and Texas Generating Company II, a Texas corporation
and  wholly  owned  subsidiary  of  TNP  ("TGC  II"),  in  connection  with  the
transactions contemplated by (i) the Assignment and Amendment Agreement dated as
of November 3, 1995 (the "Assignment Agreement") among TNP, TGC II, the Existing
Facility Banks, the Original  Collateral Agent, the Original Agent, the Lenders,
the  Administrative  Agent and the Collateral  Agent (each as defined  therein),
(ii) the  Revolving  Credit  Agreement  dated as of  November  3, 1995 (the "TNP
Credit  Agreement")  among TNP, each of the lenders that is a signatory  thereto
(the "Lenders") and Chemical Bank, as administrative  agent and collateral agent
for  the  Lenders  (in  such  capacities,  the  "Administrative  Agent"  and the
"Collateral Agent",  respectively,  and, together, the "Agents"), (iii) the Bond
Agreement dated as of November 3, 1995 (the "Bond Agreement") by TNP in favor of
Chemical Bank, as Collateral Agent, (iv) the Supplemental  Indenture dated as of
November 3, 1995 (the "Supplemental  Indenture") pursuant to which the Bonds (as
defined in the Bond  Agreement)  have been issued,  (v) the Bonds (as defined in
the Bond Agreement), (vi) the Note Pledge Agreement dated as of November 3, 1995
(the "Note Pledge Agreement") by TNP in favor of the Collateral Agent, (vii) the
Guarantee  and Pledge  Agreement  dated as of November  3, 1995 (the  "Guarantee
Agreement") by TGC II in favor of the Collateral Agent,  (viii) the Sixth TGC II
Modification  and Extension  Agreement  dated as of November 3, 1995 (the "Sixth
TGC II  Modification")  among TGC II, TNP and the  Secured  Parties  (as defined
therein),  (ix) the TNP  Second  Lien  Mortgage  Modification  No. 3 dated as of
November 3, 1995 (the "TNP Mortgage  Modification No. 3") by TNP for the benefit
of the Secured  Parties  (as  defined  therein),  (x) the  Assignment  of TGC II
Mortgage Lien dated as of November 3, 1995 (the  "Assignment of TGC II Lien") by
The Chase  Manhattan  Bank  (National  Association),  as Agent and as Collateral
Agent  (each as defined  therein) in favor of  Chemical  Bank,  as agent for TNP
under the Existing Facility  Agreement  (pursuant to the Assignment  Agreement),
and as agent  for the  Replacement  Note  Holder  under  the  Existing  Facility
Agreement,  (xi) the Collateral Transfer of Notes, Rights and Interests dated as
of  November  3, 1995 (the "TGC II  Collateral  Transfer")  between  TNP and the
Administrative  Agent and the  Collateral  Agent,  (xii) the  Assignment  of TNP
Second Mortgage Lien dated as of November 3, 1995 (the "Assignment of TNP Lien")
by The Chase Manhattan Bank (National  Association),  as Agent and as Collateral
Agent  (each as defined  therein) in favor of  Chemical  Bank,  as agent for TNP
under the Existing Facility  Agreement  (pursuant to the Assignment  Agreement),
and as agent  for the  Replacement  Note  Holder  under  the  Existing  Facility
Agreement,  (xiii) the Collateral  Transfer of Liens, Rights and Interests dated
as of  November  3, 1995 (the "TNP  Collateral  Transfer")  between  TNP and the
Administrative  Agent and the Collateral Agent, (xiv) Amendment No. 1 to the TNP
Security  Agreement dated as of November 3, 1995 (the "TNP Security  Amendment")
and (xv) financing  statements naming TNP and TGC II, as applicable,  as debtor,
and TNP and the Collateral Agent, as applicable,  as secured party, which are to
be filed in the filing  offices of the  Secretary of State of the State of Texas
and the county clerk's office for Robertson  County,  Texas (such filing offices
collectively  referred to as the "Filing Offices" and such financing  statements
as  the  "Financing  Statements")  (each  of  the  agreements,  instruments  and
documents   referred  to  in  the  foregoing  clauses  (i)  through  (xv)  being
collectively called the "Opinion  Documents").  Unless otherwise defined herein,
terms defined in the TNP Credit  Agreement  are used herein as therein  defined.
Except  where the context  otherwise  requires,  words  importing  the  singular
include the plural and vice versa.

         In rendering  the opinions  expressed  below,  we have examined (a) the
Opinion  Documents,  the  Existing  Facility  Agreement  and  each of the  other
Existing Facility Project  Documents and Existing  Facility Security  Documents,
(b)  such  corporate  records  of TNP and TGC II,  agreements,  instruments  and
documents  which  affect or purport to affect the  obligations  of TNP or TGC II
under the Opinion  Documents,  the  Existing  Facility  Agreement,  the Existing
Facility Project Documents and the Existing Facility Security Documents, and (c)
the TNP Bond Indenture and such other documents as we have deemed necessary as a
basis  for  the  opinions   expressed  below.   When  relevant  facts  were  not
independently  established,   we  have  relied  upon  statements  of  government
officials and upon  representations made in or pursuant to the Opinion Documents
and certificates of appropriate representatives of TNP or TGC II.

         In  our  examination  we  have  assumed,  with  your  consent  (a)  the
genuineness of all signatures  (except as relates to the execution by TNP or TGC
II of any of the Opinion  Documents) and the legal capacity of natural  persons,
(b)  the  authenticity  of  documents  submitted  to us  as  originals  and  the
conformity with authentic original documents of all documents submitted to us as
copies, (c) the full corporate (or equivalent) power,  authority and legal right
of each party other than TNP and TGC II to enter into and perform all agreements
to which it is a party and the due authorization, execution and delivery of each
Opinion Document by each such party, (d) the full corporate power, authority and
legal  right  of TNP and TGC II to  enter  into  and  perform  the TNP  Security
Agreement  and the TGC II Security  Agreement  (each as defined in the  Existing
Facility Agreement), respectively, (e) that the Opinion Documents constitute the
valid,  binding and enforceable  agreement of all parties thereto other than TNP
and TGC II,  (f) the  prompt and  proper  recordation  or filing of any  Opinion
Document  for which  recordation  or filing is  anticipated,  (g) receipt of the
consideration  contemplated by the Opinion Documents and (h) the correctness and
accuracy of all the facts set forth in all documents and certificates identified
in this Opinion.

         As used in the opinions  expressed  herein, a "Material Adverse Effect"
means our reasonable view of what would  constitute a material adverse effect on
(a) the validity, performance or enforceability of any Opinion Document, (b) the
financial condition,  operations and assets of TNP or TGC II, or (c) the ability
of TNP or TGC II to fulfill its obligations under the Opinion Documents.

         We have  been  advised  by  officers  of TNP and TGC II (and  with your
consent have relied on that advice) that the  agreements  described on Exhibit A
hereto (the "Material  Agreements") are the only agreements that are material to
TNP or TGC II and which,  if violated by the execution,  delivery or performance
of the Opinion  Documents,  would have a Material Adverse Effect on TNP's or TGC
II's  ability to comply with the Opinion  Documents.  We advise you that we have
not  reviewed,  and  have  not  devoted  substantive  attention  to,  any  other
agreements (other than those described on Exhibit A)
for the purposes of rendering the opinion set forth in paragraph 2 below.

         Based  upon  and  subject  to the  foregoing  and  subject  also to the
comments  and  qualifications  set  forth  below,  and  having  considered  such
questions  of law as we  have  deemed  necessary  as a basis  for  the  opinions
expressed below, we are of the opinion that:

1. Each of TNP and TGC II is a corporation duly  incorporated,  validly existing
and in good standing  under the laws of the State of Texas and has the necessary
corporate power, authority and legal right to execute,  deliver and perform each
of the Opinion Documents to which it is party.

2. The execution,  delivery and performance by each of TNP and TGC II of the TNP
Credit  Agreement,  the Assignment  Agreement and each other Opinion Document to
which it is a party have been duly authorized by all necessary  corporate action
and do not (a) require any consent or approval of the shareholders of either TNP
or TGC II or of the trustee  under the TNP Bond  Indenture  or any holder of any
interest in any of the bonds issued and outstanding under the TNP Bond Indenture
or of the trustee under the First Secured  Debenture  Indenture or any holder of
any  of the  First  Secured  Debentures  outstanding  under  the  First  Secured
Debenture  Indenture,  each as presently in effect, (b) violate any provision of
law,  rule,  regulation,  or any  order,  writ,  judgment,  injunction,  decree,
determination  or award of any Governmental  Authority,  or any provision of the
articles  or  by-laws of TNP or TGC II, or the TNP Bond  Indenture  or the First
Secured Debenture Indenture, each as currently in effect, (c) result in a breach
of, or constitute a default or require any consent under, any Material Agreement
or (d) to our knowledge,  result in or require the imposition of any Lien (other
than a Lien  permitted  under Section 6.2 of the TNP Credit  Agreement)  upon or
with respect to any property now owned or hereafter acquired by TNP or TGC II.

3. Each of TNP and TGC II has duly  executed and  delivered  each of the Opinion
Documents to which it is a party.

4. Each Opinion Document (other than the Financing  Statements)  constitutes the
legal,  valid  and  binding  obligation  of TNP or TGC II,  as the  case may be,
enforceable against such party in accordance with its terms, in each case except
as the  enforceability  thereof  may be limited by (a)  bankruptcy,  insolvency,
reorganization  or moratorium or other similar laws relating to the  enforcement
of creditors' rights generally, (b) general principles of equity,  regardless of
whether  enforcement  of  any  obligations  mentioned  therein  is  sought  in a
proceeding  at  equity  or at  law,  (c)  statutory  provisions  of the  federal
Bankruptcy Code and the Uniform Fraudulent Transfer Act as adopted by the States
of  New  York  and  Texas  (and  related  court  decisions)  pertaining  to  the
voidability  of   preferential   or  fraudulent   transfers,   conveyances   and
obligations,  (d) the rights of the United States under the Federal Tax Lien Act
of 1966, as amended, (e) applicable laws or judicial decisions which may qualify
or limit certain rights,  remedies or provisions contained therein but which, in
our opinion, will not materially interfere with the practical realization of the
benefits intended to be provided thereby except for the economic consequences of
any procedural delay which may result therefrom.

5. The  provisions  of each of the TNP Security  Agreement,  the TGC II Security
Agreement and the TNP Security  Amendment  are  sufficient to create in favor of
the Collateral  Agent a security  interest in TNP's or TGC II's, as the case may
be,  interest  in the  Collateral  referred  to therein  and in which a security
interest  may be  created  pursuant  to  Article  9 of the  Code.  The  security
interests  in the  Collateral  described in the TGC II Security  Agreement  were
perfected by the filing of the TGC II Security  Agreement,  pursuant to a Notice
of Utility Security Instrument,  on July 26, 1991 in the office of the Secretary
of State of Texas,  as  Instrument  No.  91-00145009,  to the  extent  that such
Collateral  constitutes  personal  property located in Texas in which a security
interest may be perfected  by filing under  Article 9 of the Code.  The security
interests in the  Collateral  described in the TNP  Security  Agreement  will be
perfected upon the filing,  in the office of the Secretary of State of Texas, of
the Notice of Utility Security Instrument executed by TNP with a copy of the TNP
Security  Agreement  attached  as  Exhibit A  thereto  to the  extent  that such
Collateral  constitutes  personal  property located in Texas in which a security
interest may be perfected by filing under Article 9 of the Code.

6. The execution, delivery and performance by TNP or TGC II (or both) of the TNP
Credit Agreement,  the Assignment Agreement and each of the Opinion Documents to
which it is a party  has not  extinguished  and will not  extinguish  any  Liens
created by the Existing  Facility Security  Documents,  diminish the priority of
such Liens as existing  prior to the date of this  opinion,  or have any similar
result.

7. Except as set forth in Schedule 3.9 to the TNP Credit Agreement,  there is to
our knowledge no action,  suit or proceeding at law or in equity or by or before
any Governmental Authority now pending or threatened against or affecting either
TNP or TGC II or any of their  properties,  rights,  or assets,  or the Project,
which could reasonably be expected to materially and adversely affect the assets
or operations of TNP or TGC II or the ability of either of them to carry out the
transactions  contemplated  by the Opinion  Documents or  materially  impair the
value of the security granted by either of them to the Collateral Agent.

8. The  Bonds  have  been  duly  issued  pursuant  to,  and are  outstanding  in
accordance  with,  the  terms  of the  Supplemental  Indenture  and the TNP Bond
Indenture and are entitled to the benefits of the TNP Bond Indenture  (including
the  benefit  of  the  Liens  created   thereby).   The  Bonds  have  been  duly
authenticated by the trustee under the TNP Bond Indenture.

9. Neither TNP nor TGC II is an "investment  company" or an "investment advisor"
within the meaning of the Investment Company Act of 1940, as amended.

10. The Note Pledge  Agreement is effective to create in favor of the Collateral
Agent, as collateral  security for the  Obligations  (as defined in therein),  a
valid  security  interest in all of the right,  title and interest of TNP in the
Collateral  described  therein.  Upon  delivery to the  Collateral  Agent of the
Pledged Notes and the filing of the Note Pledge  Agreement as a utility security
instrument  in the  office of the  Secretary  of State of Texas,  such  security
interest in the Pledged Notes will be perfected.

11. The Financing  Statements are in appropriate  form for filing in each of the
Filing  Offices  under the  Uniform  Commercial  Code as adopted in the State of
Texas and as effective on the date hereof (the  "Code").  Upon the filing of the
TNP Security  Amendment as a utility  security  instrument  in the office of the
Secretary of State of Texas,  the security  interests in favor of the Collateral
Agent for the  benefit of the  Lenders in the  Collateral  described  in the TNP
Security Amendment will be perfected.

12. The "Replacement  Loans" as defined in and under the Unit 1 Credit Agreement
do not constitute "Project Loans" thereunder.

         The foregoing opinions are qualified as set forth below:

A.  Without   limiting  the  generality  of  paragraph  4(b)  hereof,   we  note
specifically  that in applying such principles of equity,  a court,  among other
things  (1) might  not allow  acceleration  of the  maturity  of a debt upon the
occurrence of a default deemed immaterial or if a determination is made that any
Lender's  security has not been  impaired,  (2) might  require any Lender to act
with reasonableness and in good faith, (3) might not permit any Lender to retain
certain  interests in any collateral  which a court might view as resulting in a
forfeiture,  (4) might apply its  discretion in granting  specific  performance,
injunctive  relief  or  other  equitable  remedies  and (5)  might  not  enforce
provisions  purporting to give any Lender or any other party a power of attorney
to act on TNP's, TGC II's or any other party's behalf.

B. In rendering  the opinion  expressed in paragraph 4, we express no opinion as
to the  enforceability of provisions of the Opinion Documents to the extent that
such  provisions:  (1) purport to waive or affect any rights to notices required
by law or that may be  required  by  Section  9.504 of the Code and that are not
subject to waiver under Section 9.501 of the Code, (2) state that the failure or
delay in exercising  rights,  powers,  privileges or remedies  under the Opinion
Documents  by any Lender or agent  shall not  operate as a waiver  thereof,  (3)
purport to indemnify any person for (a) such  person's  violations of federal or
state securities laws or environmental laws, or (b) any obligation to the extent
such  obligation  arises from or is a result of any  Lender's or any Agent's own
negligence,  (4)  purport  to grant to  Agents  or  Lenders  the right to offset
special deposits of TNP or TGC II against any of the Obligations, (5) purport to
establish or satisfy certain factual standards or conditions (e.g., standards of
"commercial reasonableness" or "reasonable care" under Article 9 of the Code) in
a manner  not  permitted  by  Section  9.501 of the Code,  (6)  purport to sever
unenforceable  provisions  from the  Opinion  Documents,  to the extent that the
enforcement of remaining  provisions  would frustrate the fundamental  intent of
the parties to such documents; (7) provide that TNP or TGC II has waived Agents'
and Lenders' duties of reasonable  care and disposition of Collateral  which may
be imposed by Sections 9.207 and 9.504 of the Code, (8) restrict access to legal
or  equitable  remedies,  or (9)  purport  to waive  any  claim of TNP or TGC II
against  Agents or any  Lender  arising  out of, or in any way  related  to, the
Opinion  Documents.  We advise you that the inclusion of such  provisions in the
Opinion  Documents  does not  render  void or  invalidate  the  obligations  and
liabilities of TNP or TGC II under other provisions of such documents.

C. In  rendering  the opinion  expressed  in  paragraph  4 above,  we express no
opinion as to the enforceability of those provisions of the Guarantee  Agreement
that (1)  state or mean that the  Guarantee  Agreement  shall  not be  impaired,
adversely  affected or released by any of the  following (a) any action taken by
Agents or any  Lender in bad  faith,  for the  purpose of or with the effect of,
impairing any of Guarantor's rights of subrogation, reimbursement, contribution,
indemnity or exoneration  against TNP, any other guarantor or collateral for the
obligations  guaranteed  or  (b) a  legal  determination  that  the  obligations
guaranteed are void as a result of illegality, or (2) provide that Guarantor has
waived (i) notices that may be required and that are not subject to waiver under
Section 9.504 of the Code, or (ii) any duties of reasonable care and disposition
of collateral  that may be imposed upon Agents or Lenders by Sections  9.207 and
9.504 of the Code.  We note that a guarantor,  as a "debtor" for the purposes of
Article 9 of the Code,  may not validly waive those duties and  obligations of a
secured  party to the  "debtor"  under  Article  9 of the Code and as  otherwise
rendered nonwaivable by Sections 9.501 and 1.102 of the Code.

D. No  opinion is  expressed  herein as to (1) the status of title to any of the
Collateral,  (2) whether TNP and TGC II have "rights in the  Collateral" as that
term in used in Section  9.203 of the Code,  (3) the  priority  of any  security
interests,  (4) the creation or perfection of any security  interest in property
excluded from  coverage of the Code pursuant to Sections  9.102 and 9.104 of the
Code or any proceeds of any of such property,  (5) the creation or perfection of
liens  and  security  interests  in the  Collateral  insofar  as the  laws  of a
jurisdiction  other than the States of New York or Texas  govern the creation or
perfection  of  such  liens  and  security  interests,  or (6) the  creation  or
perfection  of  liens  and  security  interests  in the  Collateral  that is not
described in the Opinion Documents.

E. We express no opinion as to the validity or  enforceability  of any provision
contained  in any of the Opinion  Documents  that (1)  purports to preclude  the
amendment,  waiver,  release or discharge of obligations except by an instrument
in writing, (2) relates to the subject matter jurisdiction of the Federal courts
of the United  States of  America  sitting  in New York City to  adjudicate  any
controversy  relating to any of the Opinion Documents,  (3) purports to waive or
otherwise  restrict or deny access to claims,  causes of action or remedies that
may be asserted in any suit or other proceeding, (4) allows Lenders to institute
foreclosure proceedings, or to exercise any similar right, without notice to the
person or entity  signatory  thereto  or bound  thereby  or (5)  relates  to the
appointment  of a  receiver,  to the extent  that  appointment  of a receiver is
governed  by  applicable  statutory  requirements,  and to the extent  that such
provision may not be in compliance with such requirements.

F. With  respect  to our  opinion  in  paragraph  2(b),  we  express  no opinion
regarding the statutes and ordinances,  the  administrative  decisions,  and the
rules and regulations of counties,  towns,  municipalities and special political
subdivisions  (whether  created or  enabled  through  legislative  action at the
federal, state or regional level), and any judicial decisions to the extent they
deal with any of the foregoing.

G. With  respect to the opinion set forth in  paragraph 9, we express no opinion
as to whether TNP or TGC II is a "special  investment  company" for the purposes
of Rule 3a-1  promulgated  pursuant to the  Investment  Company Act of 1940,  as
amended.

H. With respect to  indemnification of environmental  liabilities,  we note that
although courts have generally upheld  contractual  indemnification  agreements,
see,  e.g.,  Marmon Group,  Inc. v. Rexnord,  Inc.,  822 F.2d 31 (7th Cir. 1987)
(complaint stated cause of action under indemnity  provision of sales contract),
Hays v. Mobil Oil Corp.,  736 F.  Supp.  387,  393 (D.  Mass.  1990)  (indemnity
clauses  are  permitted   under  the   Comprehensive   Environmental   Response,
Compensation  and Liability Act ("CERCLA") and Joslyn  Manufacturing  Company v.
T.L.  James & Company Inc., 836 F.Supp.  1264 (D. La. 1993) (in a footnote,  the
district court stated without  discussion that  indemnification  provisions were
enforceable under Section  107(e)(1)),  several decisions have held that certain
agreements do not cover  statutory  liability  under CERCLA unless the agreement
"clearly and unequivocally"  expresses an intent to address such liability.  See
e.g.,  Southland  Corp. v. Ashland Oil,  Inc.,  696 F.Supp.  994, 1000 (contract
provisions  did not specify in clear enough  terms that the parties  intended to
include CERCLA  statutory  recovery actions in the two year cut-off of liability
under the  "survival"  clause).  One court,  however,  has recently  interpreted
Section  107(e)(1)  of CERCLA to  prohibit  any  contractual  transfer of CERCLA
liability between two potentially responsible parties. In Harley-Davidson,  Inc.
v. Minstar,  Inc., 837 F.Supp. 978 (E.D. Wisc. 1993), the court held that, under
appropriate principals of statutory interpretation,  Section 107(e)(1) of CERCLA
precludes the use of any indemnification,  hold harmless or similar agreement to
contractually  transfer the liability of one  potentially  responsible  party to
another potentially responsible party. But see also, A.M. International, Inc. v.
International Forging Equipment, 743 F.Supp. 525 (N.D. Ohio 1990), aff'd in part
and  rev'd  in  part,  982  F.2nd  989  (6th  Cir.,   1993).   If  the  rule  in
Harley-Davidson  is  generally  followed by other  courts,  indemnification  for
CERCLA  liabilities  between  potentially   responsible  parties  would  not  be
permitted.  The United States Supreme Court has not considered this issue. While
we  believe  that  the  view   expressed  in  the  Joslyn  case  is  the  better
interpretation of Section 107(e)(1), our opinion regarding the enforceability of
the Opinion Documents (to the extent such opinion relates to the  enforceability
of indemnification obligations covering environmental liabilities) is subject to
any subsequent  definitive  judicial resolution of the present conflicting views
of the courts on this issue.

I. We express no opinion as to the enforceability of exculpatory  provisions (or
their  corresponding  indemnity  provisions)  contained in the Opinion Documents
which purport to exculpate or indemnify Agents or Lenders for their own tortious
acts, or if Agents or Lenders  should exceed their  authority  under the Opinion
Documents.

J. The  qualification of any opinion or statement herein by the use of the words
"to our knowledge" means that during the course of  representation  as described
in this opinion,  no  information  has come to the attention of the attorneys of
this firm involved in the  transaction  evidenced by the Opinion  Documents that
would give such attorneys current actual knowledge of the existence of the facts
so  qualified.   Except  as  set  forth  herein,  we  have  not  undertaken  any
investigation  to determine  the  existence of such facts and no inference as to
our knowledge thereof shall be drawn from the fact of our  representation of any
party or otherwise.

K. We express no opinion as to any matters which may be, or which purport to be,
governed  by any law of any  jurisdiction  other  than the  federal  laws of the
United States of America,  the laws of the State of New York and the laws of the
State of Texas.

L. This opinion is limited to the matters  expressly  set forth  herein,  and no
opinion is implied  or may be  inferred  beyond  the  matters  expressly  stated
herein. This opinion is solely for the information of the addressees hereof, and
is not to be quoted in whole or in part or  otherwise  referred  to (except in a
list of closing  documents),  nor is it to be filed with any governmental agency
or other person  without our prior written  consent.  Other than the  addressees
hereof, no one is entitled to rely on this opinion. This opinion is based on our
knowledge  of the law and  facts as of the date  hereof.  We  assume  no duty to
communicate  with you with  respect to any matter  which comes to our  attention
hereafter.

                                            Very truly yours,



                                            HAYNES AND BOONE, L.L.P.



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HAYNES AND BOONE, L.L.P.

                                    EXHIBIT A


    Material Contracts Relating to TNP One

1.   Fuel Supply  Agreement,  dated  November 18, 1987,  between  Phillips  Coal
     Company  and TNMP  (Exhibit  10(j) to Form 10-K of TNMP for the year  ended
     December 31. 1987. File No. 2-97230).

2.   Amendment  No. 1, dated as of April 1, 1988,  to the Fuel Supply  Agreement
     dated November 18, 1987, between Phillips Coal Company and TNMP.

3.   Amendment No. 2, dated as of November 29, 1994, between Walnut Creek Mining
     Company and TNMP,  to the Fuel Supply  Agreement  dated  November 18, 1987,
     between Phillips Coal Company and TNMP, effective as of January 1, 1995.

4.   Unit I First Amended and Restated Project Loan and Credit Agreement,  dated
     as of  January 8, 1992 (the "Unit I Credit  Agreement"),  among TNP,  Texas
     Generating  Company ("TGC"),  the banks named therein as Banks (the "Unit I
     Banks") and the Chase Manhattan Bank (National  Association),  as Agent for
     the Unit I Banks (the "Unit I Agent"),  amending and  restating the Project
     Loan and Credit  Agreement  among such parties dated as of December 1, 1987
     (Exhibit  10(c) to Form 10-K of TNMP for the year ended  December 31, 1991.
     File No. 2-97230).

5.   Participation Agreement, dated as of January 8, 1992, among the banks named
     therein as Banks,  the parties named therein as Participants and the Unit I
     Agent (Exhibit  10(c)1 to Form 10-K of TNMP for the year ended December 31,
     1991, File No. 2-97230).

6.   Amendment  No. 1,  dated as of  September  21,  1993,  to the Unit I Credit
     Agreement  (Exhibit 10(b)2 to Form 10-K of TNMP for the year ended December
     31, 1993, File No. 2-97230).

7.   Assignment and Security  Agreement,  dated as of January 8, 1992, among TGC
     and the Unit I Agent, for the benefit of the Secured Parties, as defined in
     the Unit I Credit  Agreement,  amending and  restating the  Assignment  and
     Security Agreement among such parties dated as of December 1, 1987 (Exhibit
     10(d) to Form 10-K of TNMP for the year ended  December 31, 1991,  File No.
     2-97230).

8.   Assignment and Security Agreement, dated December 1, 1987, executed by TNMP
     in favor of the Unit I Agent for the  benefit of the  Secured  Parties,  as
     defined  therein  (Exhibit  10(u) to Form  10-K of TNMP for the year  ended
     December 31, 1987, File No. 2-97230).

9.   Amended and Restated Subordination Agreement,  dated as of October 1, 1988,
     among TNMP, Continental Illinois National Bank and Trust Company of Chicago
     and the Unit I Agent,  amending and restating the  Subordination  Agreement
     among such parties dated as


<PAGE>


HAYNES AND BOONE, L.L.P.

               of December 1, 1987 (Exhibit  10(uu) to Form 10-K of TNMP for the
          year ended December 31, 1988, File No. 2-97230).

10.  Mortgage  and Deed of Trust  (With  Security  Agreement  and UCC  Financing
     Statement  for Fixture  Filing),  dated to be  effective  as of December 1,
     1987, and executed by Project Funding Corporation ("PFC"), as Mortgagor, to
     Donald H.  Snell.  as  Mortgage  Trustee.  for the  benefit of the  Secured
     Parties,  as defined  therein  (Exhibit 10(ee) to Form 10-K of TNMP for the
     year ended December 31, 1987, File No. 2-97230).

11.  Supplemental  Mortgage and Deed of Trust (With  Security  Agreement and UCC
     Financing Statement for Fixture Filing),  executed by TGC, as Mortgagor, on
     January 27,  1992,  to be  effective  as of December 1, 1987,  to Donald H.
     Snell,  as Mortgage  Trustee,  for the benefit of the Secured  Parties,  as
     defined  therein  (Exhibit  10(g)4 to Form 10-K of TNMP for the year  ended
     December 31, 1991, File No. 2-97230).

12.  First TGC  Modification  and Extension  Agreement,  dated as of January 24.
     1992,  among  the Unit I Banks,  the  Unit I Agent,  TNMP and TGC  (Exhibit
     10(g)1 to Form 10-K of TNMP for the year ended December 31, 1991,  File No.
     2-97230).

13.  Second TGC  Modification and Extension  Agreement.  dated as of January 27,
     1992,  among  the Unit I Banks,  the  Unit I Agent,  TNMP and TGC  (Exhibit
     10(g)2 to Form 10K of TNMP for the year ended  December 31, 1991,  File No.
     2-97230).

14.  Third TGC  Modification  and Extension  Agreement,  dated as of January 27,
     1992,  among  the Unit I Banks,  the  Unit I Agent,  TNMP and TGC  (Exhibit
     10(g)3 to Form 10-K of TNMP for the year ended December 31, 1991,  File No.
     2-97230).

15.  Fourth TGC Modification and Extension Agreement,  dated as of September 29,
     1993,  among  the Unit 1 Banks,  the  Unit I Agent,  TNMP and TGC  (Exhibit
     10(g)5 to Form 10-K of TNMP for the year ended December 31, 1993,  File No.
     2-97230).

16.  Fifth TGC Modification and Extension  Agreement,  dated as of September 29,
     1993,  among  the Unit I Banks,  the  Unit I Agent.  TNMP and TGC  (Exhibit
     10(g)6 to Form 10-K of TNMP for the year ended December 31, 1993.  File No.
     2-97230).

17.  Indemnity  Agreement,  made  as of  the  1st  day  of  December,  1987,  by
     Westinghouse. CE and Zachry, as Indemnitors, for the benefit of the Secured
     Parties.  as defined  therein  (Exhibit 10(ff) to Form 10-K of TNMP for the
     year ended December 31, 1987, File No. 2-97230).

18.  Second Lien Mortgage and Deed of Trust (With Security  Agreement)  executed
     by TNMP, as Mortgagor,  to Donald H. Snell,  as Mortgage  Trustee,  for the
     benefit of the Secured Parties,  as defined therein (Exhibit 10(jj) to Form
     10-K of TNMP for the year ended December 31, 1987, File No. 2-97230).

                                       -2-


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HAYNES AND BOONE, L.L.P.

19.  Correction   Second  Lien  Mortgage  and  Deed  of  Trust  (with   Security
     Agreement),  dated as of December 1, 1987,  executed by TNMP, as Mortgagor.
     to Donald H.  Snell,  as Mortgage  Trustee,  for the benefit of the Secured
     Parties.  as defined  therein  (Exhibit 10(vv) to Form 10-K of TNMP for the
     year ended December 31, 1988, File No. 2-97230).

20.  Second  Lien  Mortgage  and  Deed  of  Trust  (with   Security   Agreement)
     Modification,  Extension  and Amendment  Agreement,  dated as of January 8,
     1992.  executed by TNMP to Donald H. Snell,  as Mortgage  Trustee,  for the
     benefit of the Secured Parties,  as defined therein (Exhibit 10(i)2 to Form
     10-K of TNMP for the year ended December 31, 1991, File No. 2-97230),

21.  TNP Second Lien  Mortgage  Modification  No. 2, dated as of  September  21,
     1993,  executed by TNMP to Donald H. Snell,  as Mortgage  Trustee,  for the
     benefit of the Secured Parties,  as defined therein (Exhibit 10(h)3 to Form
     10-K of TNMP for the year ended December 31, 1993, File No. 2-97230).

22.  Agreement for Conveyance and Partial  Release of Liens,  made as of the 1st
     day of  December,  1987 by PFC and the Unit I Agent for the benefit of TNMP
     (Exhibit  10(kk) to Form 10-K of TNMP for the year ended December 31, 1987.
     File No. 2-97230).

23.  Inducement  and  Consent  Agreement,  dated  as of June 15,  1988,  between
     Phillips  Coal  Company,   Kiewit  Texas  Mining  Company,  TNMP,  Phillips
     Petroleum Company and Peter Kiewit Son's. Inc. (Exhibit 10(nn) to Form 10-K
     of TNMP for the year ended December 31, 1988, File No. 2-97230).

24.  Assumption  Agreement,  dated as of October 1, 1988,  executed  by TGC,  in
     favor of the Issuing Bank, as defined therein, the Unit I Banks, the Unit I
     Agent and the Depositary,  as defined therein  (Exhibit 10(ww) to Form 10-K
     of TNMP for the year ended December 31, 1988, File No. 2-97230).

25.  Guaranty,  dated as of  October  1,  1988,  executed  by TNMP and  given in
     respect of the TGC obligations under the Unit I Credit Agreement,  (Exhibit
     10(xx) to Form 10-K of TNMP for the year ended  December 31, 988,  File No.
     2-97230).

26.  First Amended and Restated Facility Purchase Agreement, dated as of January
     8, 1992, among TNMP, as the Purchaser, and TGC, as the Seller, amending and
     restating the Facility  Purchase  Agreement  among such parties dated as of
     October  1,  1988,  (Exhibit  10(n) to Form 10-K of TNMP for the year ended
     December 31, 1991, File No. 2-97230).

27.  Operating  Agreement,  dated as of  October 1,  1988,  among,  TNMP and TGC
     (Exhibit  10(zz) to Form 10-K of TNMP for the year ended December 31, 1988,
     File No. 2-97230).



                                      - 3 -



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HAYNES AND BOONE, L.L.P.

28.  Unit 2 First Amended and Restated Project Loan and Credit Agreement,  dated
     as of January 8, 1991 (the "Unit 2 Credit  Agreement"),  among TNMP,  Texas
     Generating  Company II ("TGC II"),  the banks  named  therein as Banks (the
     "Unit 2 Banks") and The Chase  Manhattan  Bank (National  Association),  as
     Agent for the Unit 2 Banks (the "Unit 2 Agent"), amending and restating the
     Project Loan and Credit Agreement among such parties dated as of October 1,
     1988  (Exhibit  10(q) to Form 10-K of TNMP for the year ended  December 31,
     1991, File No. 2-97230).

29.  Amendment  No. 1,  dated as of  September  21,  1993,  to the Unit 2 Credit
     Agreement  (Exhibit  10(o) to Form 10-K of TNMP for the year ended December
     31, 1993, File No. 2-91230).

30.  Assignment and Security Agreement,  dated as of January 8, 1992, among, TGC
     II and the Unit 2 Agent, for the benefit of the Secured Parties, as defined
     in the Unit 2 Credit  Agreement,  amending and restating the Assignment and
     Security  Agreement among such parties dated as of October 1, 1988 (Exhibit
     10(r) to Form 10-K of TNMP for the year ended  December 31, 1991,  File No.
     2-97230).

31.  Assignment and Security Agreement, dated as of October 1, 1988, executed by
     TNMP in favor of the Unit 2 Agent for the benefit of the  Secured  Parties,
     as defined therein (Exhibit 10(jjj) to Form 10-K of TNMP for the year ended
     December 31, 1988, File No. 2-97230).

32.  Subordination  Agreement,   dated  as  of  October  1,  1988,  among  TNMP,
     Continental  Illinois  National  Bank and Trust  Company of Chicago and the
     Unit 2 Agent  (Exhibit  10  (mmm) to Form  10-K of TNMP for the year  ended
     December 31, 1988, File No. 297230).

33.  Mortgage  and Deed of Trust  (With  Security  Agreement  and UCC  Financing
     Statement for Fixture Filing), dated to be effective as of October 1, 1988,
     and  executed by Texas PFC,  Inc.,  as  Mortgagor,  to Donald H. Snell,  as
     Mortgage  Trustee.  for the  benefit  of the  Secured  Parties,  as defined
     therein  (Exhibit  10(uuu) to Form 10-K of TNMP for the year ended December
     31, 1988, File No. 2-97230).

34.  First TGC II Modification and Extension Agreement.  dated as of January 24,
     1992,  among the Unit 2 Banks,  the Unit 2 Agent,  TNMP and TGC II (Exhibit
     10(u)2 to Form 10-K of TNMP for the year ended December 31, 1991,  File No.
     2-97230).

35.  Second TGC II Modification and Extension Agreement, dated as of January 27,
     1992,  among the Unit 2 Banks,  the Unit 2 Agent,  TNMP and TGC II (Exhibit
     10(u)2 to Form 10-K of TNMP for the year ended December 31, 1991,  File No.
     2-97230).




                                       -4-



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HAYNES AND BOONE, L.L.P.

36.  Third TGC II Modification and Extension Agreement,  dated as of January 27,
     1992,  among the Unit 2 Banks,  the Unit 2 Agent,  TNMP and TGC II (Exhibit
     10(u)2 to Form 10-K of TNMP for the year ended December 31, 199 1, File No.
     2-97230).

37.  Fourth TGC II Modification and Extension  Agreement,  dated as of September
     29,  1992,  among  the  Unit 2 Banks,  the  Unit 2  Agent,  TNMP and TGC II
     (Exhibit  10(s)2 to Form 10-K of TNMP for the year ended December 31, 1993,
     File No. 2-97230).

38.  Fifth TGC II  Modification  and Extension  Agreement,  dated as of June 15,
     1994,  among the Unit 2 Banks,  the Unit 2 Agent,  TNMP and TGC II (Exhibit
     10(s)5 to Form 10-Q of TNMP for the quarter  ended June 30, 1994,  File No.
     2-97230).

39.  Release and Waiver of Liens and Indemnity  Agreement,  made effective as of
     the 1st day of October, 1988, by a consortium composed of Westinghouse, CE,
     and  Zachary  (Exhibit  10(vvv)  to Form  10-K of TNMP for the  year  ended
     December 31. 1988. File No. 297230).

40.  Second Lien Mortgage and Deed of Trust (With Security Agreement),  dated as
     of October 1, 1988, and executed by TNMP, as Mortgagor, to Donald H. Snell,
     as Mortgagor  Trustee,  for the benefit of the Secured Parties,  as defined
     therein  (Exhibit  10(www) to Form 10-K of TNMP for the year ended December
     31, 1988, File No. 2-97230).

41.  Second  Lien  Mortgage  and  Deed  of  Trust  (with   Security   Agreement)
     Modification,  Extension  and Amendment  Agreement,  dated as of January 8,
     1992,  executed by TNMP to Donald H. Snell,  as Mortgage  Trustee,  for the
     benefit of the Secured Parties.  as defined therein (Exhibit 10(w)1 to Form
     10-K of TNMP for the year ended December 3 1, 1991, File No. 2-97230).

42.  TNP Second Lien  Mortgage  Modification  No. 2, dated as of  September  21,
     1993,  executed by TNMP to Donald H. Snell,  as Mortgage  Trustee,  for the
     benefit of the Secured Parties,  as defined therein (Exhibit 10(u)2 to Form
     10-K of TNMP for the year ended December 31, 1993. File No. 2-97230).

43.  Intercreditor and  Nondisturbance  Agreement,  dated as of October 1, 1988,
     among  PFC,  Texas PFC,  Inc.,  TNMP,  the  Project  Creditors,  as defined
     therein,  and the Collateral  Agent, as defined therein (Exhibit 10(xxx) to
     Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230).

44.  Amendment  #1,  dated as of  January  8,  1992,  to the  Intercreditor  and
     Nondisturbance  Agreement,  dated as of October 1, 1988, among TGC, TGC II,
     TNMP,  the Unit I Banks,  the Unit 2 Banks  and The  Chase  Manhattan  Bank
     (National  Association) in its capacity as collateral  agent for the Unit I
     Banks and the Unit 2 Banks (Exhibit 10(x) to Form 10-K of TNMP for the year
     ended December 31, 1991, File No. 2-97230).


                                       -5-



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HAYNES AND BOONE, L.L.P.

45.  Amendment No. 2, dated as of September 21, 1993. to the  Intercreditor  and
     Nondisturbance  Agreement,  among TGC, TGC II, TNMP. the Unit I Banks.  the
     Unit 2 Banks and The Chase  Manhattan  Bank (National  Association)  in its
     capacity  as  collateral  agent  for the Unit I Banks  and the Unit 2 Banks
     (Exhibit  10(v)2 to Form 10-K of TNMP for the year ended December 31, 1993,
     File No. 2-97230).

46.  Grant of Reciprocal Easements and Declaration of Covenants Running with the
     Land, dated as of the 1st day of October,  1988, between PFC and Texas PFC.
     Inc.  (Exhibit10(yyy)  to Form 10-K of TNMP for the year ended December 31,
     1988, File No. 2-97230).

47.  Non-Partition Agreement, dated as of May 30, 1990, among, TNMP, TGC and The
     Chase Manhattan Bank (National  Association),  as Agent for the Banks which
     are parties to the Unit I Credit Agreement  (Exhibit 10(ss) to Form 10-K of
     TNMP for the year ended December 31, 1990, File No. 2-97230).

48.  Assumption  Agreement,  dated July 26, 199 1, to be effective as of May 31,
     1991, by TGC II in favor of the Issuing Bank, the Unit 2 Banks,  the Unit 2
     Agent and the Depositary,  as defined therein (Exhibit 10(kkk) to Amendment
     No. 1 to File No. 33-41903).

49.  Guaranty,  dated July 26, 1991, to be effective as of May 31, 1991, by TNMP
     and  given in  respect  of the TGC II  0bligations  under the Unit 2 Credit
     Agreement (Exhibit 10(lll) to Amendment No. 1 to File No. 33-41903).

50.  First Amended and Restated Facility Purchase Agreement, dated as of January
     8, 1992, among TNMP, as the Purchaser,  and TGC II, as the Seller,  amended
     and restating the Facility Purchase Agreement among such parties dated July
     26, 1991, to be effective as of May 31, 1991  (Exhibit  10(dd) to Form 10-K
     of TNMP for the year ended December 31, 1991, File No. 2-97230).

51.  Amendment No. 1 to the Unit 2 First Amended and Restated  Facility Purchase
     Agreement,  dated as of September 21, 1993,  among TNMP, as the  Purchaser,
     and TGC II, as the  Seller  (Exhibit  10(aa)1  to Form 10-K of TNMP for the
     year ended December 31, 1993, File No. 2-97230).

52.  Operating  Agreement,  dated July 26,  1991,  to be effective as of May 31,
     1991,  between TNMP and TGC II (Exhibit  10(nnn) to Amendment No. 1 to File
     No. 33-41903).

53.  Non-Partition Agreement,  executed July 26, 1991, to be effective as of May
     31,  1991,  among  TNMP,  TGC II and The  Chase  Manhattan  Bank  (National
     Association) (Exhibit 10(ppp) to Amendment No. 1 to File No. 33-41903).




                                                               -6-



<PAGE>


      HAYNES AND BOONE, L.L.P.

      Power Supply Contracts

54.  Contract  dated May 12,  1976  between  TNMP and  Houston  Lighting & Power
     Company (Exhibit 5(a), File No. 2-9353).

55.  Amendment,  dated  January  4, 1989,  to the  Contract  dated May 12,  1976
     between TNMP and Houston Lighting & Power Company (Exhibit 10(cccc) to Form
     10-K of TNMP for the year ended December 31, 1988, File No. 2-7230).

56.  Contract  dated  May 1, 1986  between  TNMP and  Texas  Electric  Utilities
     Company, amended September 29, 1986, October 24, 1986 and February 21, 1987
     (Exhibit 10(c) of Form 8 applicable to Form 10-K of TNMP for the year ended
     December 31, 1986. File No. 2-97230).

57.  Amended and  Restated  Agreement  for Electric  Service  dated May 14, 1990
     between TNMP and Texas Utilities  Electric  Company (Exhibit 10(vv) to Form
     10-K for the year ended December 31, 1990, File No 2-97230).

58.  Amendment,  dated April 19,  1993,  to Amended and Restated  Agreement  for
     Electric  Service,  dated May 14, 1990,  as Amended  between TNMP and Texas
     Utilities  Electric  Company  (Exhibit  10(ii)l  to Form  S-2  Registration
     Statement, filed on July 19. 1993. File No. 33-66232).

59.  Contract dated June 11, 1984 between TNMP and  Southwestern  Public Service
     Company  (Exhibit  10(d) of Form 8 applicable  to Form 10-K of TNMP for the
     year ended December 31, 1986, File No. 2 -97230).

60.  Contract dated April 27, 1977 between TNMP and West Texas Utilities Company
     amended April 14, 1982.  April 19, 1983,  May 18, 1984 and October 21, 1986
     (Exhibit 10(e) of Form 8 applicable to Form 10-K of TNMP for the year ended
     December 31, 1986, File No. 2-97230).

61.  Contract  dated April 29, 1987  between TNMP and El Paso  Electric  Company
     (Exhibit 10(f) of Form 8 applicable to Form 10-K of TNMP for the year ended
     December 31, 1986, File No. 2-97230).

62.  Contract dated February 28, 1974, amended May 13, 1974,  November 26, 1975,
     August 26, 1976 and October 7, 1980 between TNMP and Public Service Company
     of New Mexico  (Exhibit 10(g) of Form 8 applicable to Form 10-K of TNMP for
     the year ended December 31, 1986, File No. 2-97230).

63.  Amendment,  dated  February 22, 1982,  to the Contract  dated  February 28,
     1974, amended May 13, 1974,  November 26, 1975, August 26, 1976 and October
     7, 1980 between


                                       -7-



<PAGE>


      HAYNES AND BOONE, L.L.P.

     TNMP and Public  Service  Company of New Mexico  (Exhibit  10(iiii) to Form
          10-K of TNMP for the year ended December 31, 1988, File No. 2-97230).

64.  Amendment, dated February 8, 1988, to the Contract dated February 28, 1974,
     amended May 13, 1974,  November 26, 1975,  August 26, 1976,  and October 7,
     1980  between  TNMP and  Public  Service  Company  of New  Mexico  (Exhibit
     10(jjjj) to Form 10-K of TNMP for the year ended  December 31,  1988,  File
     No. 2-97230).

65.  Amended and Restated Contract for Electric  Service,  dated April 29, 1988,
     between TNMP and Public Service Company of New Mexico  (Exhibit  10(xx)3 to
     Amendment No. 1 to File No. 33-41903).

66.  Contract  dated  December  8, 1981  between  TNMP and  Southwestern  Public
     Service Company amended December 12, 1984, December 2, 1985 and December 9,
     1986 (Exhibit  10(h) of Form 8 applicable to Form 10-K of TNMP for the year
     ended December 31, 1986, File No. 2-97230).

67.  Amendment,  dated December 12, 1988, to the Contract dated December 8. 1981
     between TNMP and  Southwestern  Public Service Company amended December 12,
     1984, December 2, 1985 and December 19, 1986 (Exhibit 10(llll) to Form 10-K
     of TNMP for the year ended December 31, 1988, File No. 2-97230).

68.  Amendment,  dated December 12, 1990, to the Contract dated December 8, 1981
     between TNMP and Southwestern Public Service Company (Exhibit 19(t) to Form
     10-K of TNMP for the year ended December 31, 1990, File No. 2-97230).

69.  Contract  dated  August 31,  1983,  between  TNMP and Capitol  Cogeneration
     Company,  Ltd.  (including letter agreement dated August 14, 1986) (Exhibit
     10(i) of Form 8 applicable to Form 10-K of TNMP for the year ended December
     31, 1986, File No. 297230).

70.  Agreement   Substituting  a  Party,   dated  May  3,  1988,  among  Capitol
     Cogeneration Company, Ltd., Clear Lake Cogeneration Limited Partnership and
     TNMP (Exhibit 10(nnnn) to Form 10-K of TNMP for the year ended December 31,
     1988, File No. 297230).

71.  Letter  Agreements,  dated May 30, 1990 and August 28, 1991,  between Clear
     Lake  Cogeneration  Limited  Partnership and TNMP (Exhibit  10(oo)2 to Form
     10-K of TNMP for the year ended December 31, 1992, File No. 2-97230).

72.  Notice of  Extension  Letter,  dated August 31,  1992,  between  Clear Lake
     Cogeneration  Limited Partnership and TNMP (Exhibit 10(oo)3 to Form 10-K of
     TNMP for the year ended December 31, 1992, File No. 2-97230).


                                       -8-



<PAGE>
+

      HAYNES AND BOONE, L.L.P.

73.  Scheduling  Agreement,   dated  September  15,  1992,  between  Clear  Lake
     Cogeneration  Limited Partnership and TNMP (Exhibit 10(oo)4 to Form 10-K of
     TNMP  for the  year  ended  December  31,  1992,  File  No.  2-97230).  

74.  Interconnection  Agreement between TNMP and Plains Electric  Generation and
     Transmission Cooperative,  Inc. dated July 9, 1984, (Exhibit 100) of Form 8
     applicable to Form 10-K of TNMP for the year ended December 31, 1986,  File
     No. 2-97230).

75.  Interchange Agreement between TNMP and El Paso Electric Company dated April
     29, 1987,  (Exhibit 10(l) of Form 8 applicable to Form 10-K of TNMP for the
     year ended December 31, 1986, File No. 2-97230).

76.  Amendment  No. 1, dated  November 21, 1994,  to the  Interchange  Agreement
     between TNMP and El Paso Electric Company dated April 29, 1987.

77.  DC  Terminal  Participation  Agreement  between  TNMP and El Paso  Electric
     Company dated  December 8, 1981 amended  April 29, 1987  (Exhibit  10(m) of
     Form 8  applicable  to Form 10-K of TNMP for the year  ended  December  31,
     1986, File No. 2-97230).

78.  1996 Firm  Capacity  & Energy  Sale  Agreement  between  TNMP and TEP dated
     December 20, 1994, effective as of January 1, 1996.

      Employment Contracts

79.  Texas-New   Mexico  Power   Company   Executive   Agreement  for  Severance
     Compensation Upon Change in Control,  executed  November 11, 1993,  between
     Sector Vice  President and Chief  Financial  Officer and TNMP  (Pursuant to
     Instruction 2 of Reg. 229.601(a), accompanying this document is a schedule:
     (i)  identifying  documents  substantially  identical to the document which
     have been omitted from the  Exhibits;  and (ii) setting  forth the material
     details in which such omitted documents differ from the document)  (Exhibit
     10(pp) to Form 10-K of TNMP for the year ended December 31, 1993,  File No.
     2-97230).

80.  Texas-New  Mexico  Power  Company  Key  Employee  Agreement  for  Severance
     Compensation Upon Change in Control.  executed  November 11, 1993,  between
     Assistant Treasurer and TNMP (Pursuant to Instruction 2 of Reg. 229.601(a),
     accompanying  this  document  is  a  schedule:  (i)  identifying  documents
     substantially  identical to the  document  which have been omitted from the
     Exhibits; and (ii) setting forth the material details in which such omitted
     documents  differ from the document)  (Exhibit  10(qq) to Form 10-K of TNMP
     for the year ended December 31, 1993, File No. 2-97230).





                                                              - 9 -




<PAGE>


                                                                   EXHIBIT G-1-A

                              MICHAEL D. BLANCHARD
                                 ATTORNEY AT LAW
                            4100 INTERNATIONAL PLAZA
                                  P.O. BOX 2943
                             FORT WORTH, TEXAS 76113
                                 (817) 731-0099


                                                              November 3, 1995


Chemical Bank
  individually and as Administrative
  Agent under the TNP Credit
  Agreement referred to below
270 Park Avenue
New York, NY  10017

The Lenders from time to time
  under the TNP Credit Agreement

The Chase Manhattan Bank
  (National Association), as agent
  under the Existing Facility
  Agreement referred to in the
  TNP Credit Agreement
One Chase Manhattan Plaza
New York, NY  10005

Ladies and Gentlemen:

         I am the general  counsel of Texas-New  Mexico Power  Company,  a Texas
corporation  ("TNP"),  and Texas Generating  Company II, a Texas corporation and
wholly owned  subsidiary of TNP ("TGC II"),  and have served in such capacity in
connection  with  the  transactions  contemplated  by  (i)  the  Assignment  and
Amendment  Agreement dated as of November 3, 1995 (the  "Assignment  Agreement")
among TNP, TGC II, the Existing  Facility Banks, the Original  Collateral Agent,
the Original Agent, the Lenders,  the  Administrative  Agent, and the Collateral
Agent (each as defined therein), (ii) the Revolving Credit Agreement dated as of
November 3, 1995 (the "TNP  Credit  Agreement")  among TNP,  each of the lenders
that  is  a  signatory   thereto  (the   "Lenders"),   and  Chemical   Bank,  as
administrative  agent and collateral  agent for the Lenders (in such capacities,
the "Administrative Agent" and the "Collateral Agent", respectively),  (iii) the
Bond  Agreement  dated as of November 3, 1995 (the "Bond  Agreement")  by TNP in
favor of Chemical Bank, as Collateral  Agent,  (iv) the  Supplemental  Indenture
dated as of November 3, 1995 (the  "Supplemental  Indenture")  pursuant to which
the Bonds (as defined in the Bond Agreement) have been issued, (v) the Bonds (as
defined  in the Bond  Agreement),  (vi) the Note  Pledge  Agreement  dated as of
November 3, 1995 (the "Note Pledge Agreement") by TNP in favor of the Collateral
Agent,  (vii) the  Guarantee and Pledge  Agreement  dated as of November 3, 1995
(the "Guarantee  Agreement") by TGC II in favor of the Collateral Agent,  (viii)
the Sixth TGC II  Modification  and Extension  Agreement dated as of November 3,
1995 (the  "Sixth  TGC II  Modification")  among TGC II,  TNP,  and the  Secured
Parties (as defined therein), (ix) the TNP Second Lien Mortgage Modification No.
3 dated as of November 3, 1995 (the "TNP  Mortgage  Modification  No. 3") by TNP
for the benefit of the Secured Parties (as defined therein),  (x) the Assignment
of TGC II Mortgage Lien dated as of November 3, 1995 (the  "Assignment of TGC II
Lien") by The  Chase  Manhattan  Bank  (National  Association),  as Agent and as
Collateral  Agent (each as defined  therein) in favor of Chemical Bank, as agent
for TNP under the Existing Facility (pursuant to the Assignment Agreement),  and
as agent for the Replacement Note Holder under the Existing Facility  Agreement,
(xi) the Collateral Transfer of Notes, Rights and Interests dated as of November
3, 1995 (the "TGC II Collateral  Transfer")  between TNP and the  Administrative
Agent and the Collateral Agent, (xii) the Assignment of TNP Second Mortgage Lien
dated as of  November  3,  1995  (the  "Assignment  of TNP  Lien")  by The Chase
Manhattan Bank (National Association), as Agent and as Collateral Agent (each as
defined  therein) in favor of Chemical Bank, as agent for TNP under the Existing
Facility  (pursuant  to  the  Assignment  Agreement),   and  as  agent  for  the
Replacement  Note  Holder  under the  Existing  Facility  Agreement,  (xiii) the
Collateral  Transfer of Notes, Rights and Interests dated as of November 3, 1995
(the "TNP Collateral Transfer") between TNP and the Administrative Agent and the
Collateral Agent, (xiv) Amendment No. 1 dated as of November 3, 1995, to the TNP
Security  Agreement (as defined in the Existing  Facility  Agreement)  (the "TNP
Security Agreement Amendment"), and (xv) financing statements naming TNP and TGC
II, as applicable,  as debtor,  and TNP and the Collateral Agent, as applicable,
as secured  party,  which are to be filed in the filing offices of the Secretary
of State of the State of Texas  and the  county  clerk's  office  for  Robertson
County,  Texas  (such  filing  offices  collectively  referred to as the "Filing
Offices" and such financing  statements as the "Financing  Statements") (each of
the agreements,  instruments, and documents referred to in the foregoing clauses
(i) through  (xv) being  collectively  called the "Opinion  Documents").  Unless
otherwise  defined  herein,  terms defined in the TNP Credit  Agreement are used
herein as therein defined.  Except where the context otherwise  requires,  words
importing the singular include the plural and vise versa.

         In rendering  the opinions  expressed  below,  I have  examined (a) the
Opinion  Documents,  the  Existing  Facility  Agreement  and  each of the  other
Existing Facility Project  Documents and Existing  Facility Security  Documents,
(b) such  corporate  records  of TNP and TGC II,  agreements,  instruments,  and
documents  which  affect or purport to affect the  obligations  of TNP or TGC II
under the Opinion  Documents,  the  Existing  Facility  Agreement,  the Existing
Facility Project Documents,  and the Existing Facility Security  Documents,  (c)
the TNP Bond Indenture,  (d) the various orders of the New Mexico Public Utility
Commission  and  the  Federal  Energy  Regulatory   Commission  related  to  the
transactions contemplated by the Opinion Documents and such other documents as I
have  deemed  necessary  as a basis  for the  opinions  expressed  below.  In my
examination,  except as relates to the  execution by TNP or TGC II of any of the
Opinion  Documents,  I have assumed the  genuineness  of all  signatures and the
legal capacity of natural persons, the authenticity of documents submitted to me
as  originals,  and the  conformity  with  authentic  original  documents of all
documents  submitted to me as copies. When relevant facts were not independently
established,  I have relied upon  statements  of  government  officials and upon
representations made in or pursuant to the Opinion Documents and certificates of
appropriate representatives of TNP or TGC II.

         Based  upon  and  subject  to the  foregoing  and  subject  also to the
comments  and  qualifications  set  forth  below,  and  having  considered  such
questions  of law  as I have  deemed  necessary  as a  basis  for  the  opinions
expressed below, I am of the opinion that:

         1. Each of TNP and TGC II is, and was at the time of  execution of each
Existing Facility Document,  a corporation duly  incorporated,  validly existing
and in good standing under the laws of the State of Texas and presently has, and
had at the time of execution of each Existing Facility  Document,  the necessary
corporate power,  authority,  and legal right to execute,  deliver,  and perform
each of the Existing Facility Documents to which it is party.

         2. The execution,  delivery,  and performance by each of TNP and TGC II
of the Existing Facility Documents to which it is a party have been, and were at
the time of execution of such Existing  Facility  Documents,  duly authorized by
all necessary  corporate action and do not, and did not at the time of execution
of such Existing Facility Documents,  (a) require any consent or approval of the
shareholders  of  either  TNP or TGC II or of the  trustee  under  the TNP  Bond
Indenture  or any  holder  of any  interest  in any  of  the  bonds  issued  and
outstanding under the TNP Bond Indenture or of the First Debenture Trustee under
the  First  Secured  Debenture  Indenture  (except,  as to the  First  Debenture
Trustee,  such consent as may have been obtained at the time of the execution of
such  Existing  Facility  Documents)  or any holder of any of the First  Secured
Debentures  outstanding  under the First Secured  Debenture  Indenture , each as
presently in effect,  or as in effect at the time of execution of such  Existing
Facility Documents,  as the case may be, (b) violate any provision of law, rule,
regulation, or any order, writ, judgment,  injunction,  decree, determination or
award of any Governmental  Authority, or any provision of the articles or bylaws
of TNP or TGC II,  or the TNP Bond  Indenture  or the  First  Secured  Debenture
Indenture, each as currently in effect, or as in effect at the time of execution
of such Existing Facility Documents,  as the case may be, (c) result in a breach
of, or constitute a default or require any consent under,  any indenture or loan
or  credit  agreement  to  which  TNP or TGC II is a party or by which it or its
properties  are,  or were at the time of  execution  of such  Existing  Facility
Documents,  as the case may be, bound or (d) result in or require the imposition
of any Lien (other  than a Lien  permitted  under  Section 6.2 of the TNP Credit
Agreement)  upon or with respect to any property now owned, or owned at the time
of  execution  of such  Existing  Facility  Documents,  as the case  may be,  or
hereafter, or thereafter, as the case may be, acquired by TNP or TGC II. Neither
TNP nor TGC II is, or was at the time of  execution  of such  Existing  Facility
Documents,  as the case may be, in breach of or in default under any law,  rule,
regulation, order, writ, judgment, injunction, decree, determination or award or
any agreement or instrument  mentioned in the foregoing  which breach or default
could reasonably be expected to have a material adverse effect on its business.

     3.  Each of TNP and TGC II has  duly  executed  and  delivered  each of the
Existing Facility Documents to which it is a party.

         4. All actions, consents, approval,  registrations,  or filings with or
any other action by any Governmental  authority  necessary to be obtained by TNP
or TGC II under  applicable  Texas and Federal laws and regulations  (including,
without  limitation,  those  promulgated  by  the  PUCT  or the  Federal  Energy
Regulatory  Commission) in connection with (a) the due execution,  delivery, and
performance by each of TNP and TGC II of its obligations and the exercise of its
rights under, the TNP Credit Agreement,  the Assignment  Agreement,  each of the
other  Opinion  Documents  and each of the Existing  Facility  Documents and the
incurrence of the  indebtedness and obligations to be incurred by TNP and TGC II
thereunder,  and (b) the grant of the Liens  created  pursuant  to the  Existing
Facility Security Documents and the Pledge  Agreements,  have been duly obtained
or made and are in full force and effect.

         5. The Order of the PUCT in Docket No. 6992 of 1987, authorizing TNP to
construct,  own,  and operate the Project  (with TGC II as the owner  thereof as
contemplated by the Existing Facility Project  Documents)  remains in full force
and effect, is final, and is not subject to further  administrative  proceedings
or appeal periods. To my knowledge, there is no investigation,  action, suit, or
proceeding  pending or  threatened  against  TNP or TGC II which  seeks,  or may
reasonably be expected, to rescind,  terminate,  modify, or suspend any approval
by any Governmental Authority or which may impede or delay any such approval.

         6. None of the Administrative Agent, the Collateral Agent or any of the
Lenders,  solely by  reason  of any  extension  of loans  under  the TNP  Credit
Agreement or by reason of the execution,  delivery, or performance of any of the
Opinion  Documents  or the  other  Existing  Facility  Documents,  will be or be
subject  to  regulation  as an  "electric  utility",  "electrical  corporation",
"electric  company",  "electric utility  company",  an "electric utility holding
company",  "public  service  company",  or "holding  company" or a subsidiary or
affiliate of any of the  foregoing  under  either (i) the Federal  Power Act, as
amended,  (ii) the Public Utility  Holding  Company Act of 1935, as amended,  or
(iii) any Texas law.

         7.  Neither  TNP nor TGC II is subject to  regulation  under the Public
Utility Holding Company Act of 1935, as amended,  other than pursuant to Section
9(a)(2) thereof.

         This opinion is solely for the  information of the  addressees  hereof,
and is not to be quoted in whole or in part or otherwise  referred to (except in
a list of closing documents), nor is it to be filed with any governmental agency
or other person  without my prior  written  consent.  Other than the  addressees
hereof, no one is entitled to rely on this opinion.  This opinion is based on my
knowledge  of the law and  facts as of the  date  hereof.  I  assume  no duty to
communicate  with you with  respect to any matter  which  comes to my  attention
hereafter.

                                Very truly yours,



                              MICHAEL D. BLANCHARD



<PAGE>


                                                                  EXHIBIT G-2
                             SNELL, BANOWSKY & TRENT
                           A PROFESSIONAL CORPORATION
                            ATTORNEYS AND COUNSELORS
                          200 CRESCENT OURT, SUITE 1000
                              DALLAS, TEXAS 750201
DONALD H. SNELL                                            (214) 871-3515
                                                TELECOPIER (214) 871-3517


                                                      November 3, 1995




Chemical Bank
         individually and as Administrative Agent under
         the TNP Credit Agreement referred to below
270 Park Avenue
New York, New York  10017

The Lenders from time to time under the TNP Credit Agreement

Dear Sirs:

            the TNP Credit  Agreement  dated as of November 3, 1995 ("TNP Credit
Agreement") by and among  TEXAS-NEW  MEXICO POWER COMPANY,  a Texas  corporation
("TNP"),  the Lenders, and CHEMICAL BANK, as administrative agent and collateral
agent  for  the  Lenders   ("Administrative   Agent"  and  "Collateral   Agent",
respectively),  (ii) the Assignment and Amendment Agreement dated as of November
3, 1995 (the "Assignment  Agreement") among TNP, TEXAS GENERATING  COMPANY II, a
Texas  corporation  and wholly owned  subsidiary of TNP ("TGC II"), the Existing
Facility Banks, the Original  Collateral Agent, the Original Agent, the Lenders,
the  Administrative  Agent and the  Collateral  Agent  (each as  defined  in the
Assignment  Agreement),  (iii) the Bond Pledge Agreement dated as of November 3,
1995 (the "Bond Pledge Agreement") by TNP in favor of the Collateral Agent, (iv)
the  Supplemental  Indenture  dated as of  November  3, 1995 (the  "Supplemental
Indenture")  pursuant to which the Pledged  Bonds (as defined in the Bond Pledge
Agreement)  have been  issued,  (v) the  Pledged  Bonds (as  defined in the Bond
Pledge  Agreement,  (vi) the Note Pledge  Agreement dated as of November 3, 1995
(the "Note Pledge Agreement") by TNP in favor of the Collateral Agent, (vii) the
Guarantee  and Pledge  Agreement  dated as of November  3, 1995 (the  "Guarantee
Agreement") by TGC II in favor of the Collateral Agent,  (viii) the Sixth TGC II
Modification  and Extension  Agreement  dated as of November 3, 1995 (the "Sixth
TGC II  Modification")  among TGC II, TNP and the  Secured  Parties  (as defined
therein),  (ix) the  Amendment  No. 1 dated as of  November  3,  1995  (the "TNP
Security Agreement  Amendment") to the TNP Security Agreement (as defined in the
Existing Facility Agreement),  (x) the TNP Second Lien Mortgage Modification No.
3 dated as of November 3, 1995 (the "TNP Second Lien Mortgage  Modification  No.
3") by TNP for the benefit of the Secured Parties (as defined therein), (xi) the
Assignment of TGC II Mortgage Lien dated as of November 3, 1995 (the "Assignment
of TGC II Lien") by The Chase  Manhattan Bank (National  Association),  as Agent
and as Collateral  Agent (each as defined therein) in favor of Chemical Bank, as
agent for TNP under the Existing Facility Agreement  (pursuant to the Assignment
Agreement),  and as agent for the  Replacement  Note Holder  under the  Existing
Facility Agreement, (xii) the Collateral Transfer of Notes, Rights and Interests
dated as of November 3, 1995 (the "TNP  Collateral  Transfer-Robertson  County")
between TNP and the  Administrative  Agent and the Collateral Agent,  (xiii) the
Assignment  of TNP  Second  Mortgage  Lien  dated as of  November  3,  1995 (the
"Assignment of TNP Lien") by The Chase Manhattan Bank (National Association), as
Agent and as  Collateral  Agent  (each as defined  therein) in favor of Chemical
Bank, as agent for TNP under the Existing  Facility  Agreement  (pursuant to the
Assignment  Agreement),  and as agent for the Replacement  Note Holder under the
Existing Facility Agreement,  (xiv) the Collateral Transfer of Notes, Rights and
Interests dated as of November 3, 1995 (the "TNP  Collateral  Transfer-Secretary
of State") between TNP and the  Administrative  Agent and the Collateral  Agent,
and (xv) financing  statements  naming TNP and TGC II, as applicable,  as debtor
and TNP and the Collateral Agent, as applicable,  as secured party, which are to
be filed in the filing  offices of the  Secretary of State of the State of Texas
and the County Clerk's Office for Robertson County, Texas (each of the foregoing
agreements,  instruments and documents  referred to in the foregoing clauses (i)
through  (xiv)  being  collectively  called  the  "Opinion  Documents").  Unless
otherwise  defined  herein,  terms defined in the TNP Credit  Agreement are used
herein as therein defined.

     We have made such investigations regarding matters of law and examined such
of the Opinion  Documents,  Existing  Facility  Project  Documents  and Existing
Facility  Security  Documents as we deemed necessary or appropriate,  including,
but not limited to, executed counterparts of the following:

                            Mortgage and Deed of Trust (with Security  Agreement
                  and UCC  Financing  Statement  for  Fixture  Filing)  ("TGC II
                  Mortgage")  dated  to be  effective  as of  October  1,  1988,
                  executed by TPFC for the benefit of the Banks;

                            First TGC II  Modification  and Extension  Agreement
                  executed by Donald H. Snell, as Mortgage  Trustee,  the Agent,
                  the  Collateral   Agent,   TGC  II  and  TNP  ("First  TGC  II
                  Modification") dated as of January 24, 1992;

                            Second TGC II Modification  and Extension  Agreement
                  executed by the Agent,  the Collateral  Agent,  TGC II and TNP
                  ("Second TGC II Modification") dated as of January 27, 1992;

                            Third TGC II  Modification  and Extension  Agreement
                  executed by the Agent,  the Collateral  Agent,  TGC II and TNP
                  ("Third TGC II Modification") dated as of January 27, 1992;

                            Fourth TGC II Modification  and Extension  Agreement
                  executed by the Agent,  the Collateral  Agent,  TGC II and TNP
                  ("Fourth TGC II Modification") dated as of September 29, 1993;

                            Fifth TGC II  Modification  and Extension  Agreement
                  executed by the Agent,  the Collateral  Agent,  TGC II and TNP
                  ("Fifth TGC II Modification") dated as of June 15, 1994;

(the  First  TGC II  Modification,  Second  TGC II  Modification,  Third  TGC II
Modification,  Fourth  TGC II  Modification  and Fifth TGC II  Modification  are
hereinafter  collectively  called the "TGC II Mortgage  Modifications";  and the
Mortgage  Trust  Estate  defined  in the TGC II  Mortgage  and  TGC II  Mortgage
Modifications is hereinafter called the "TGC II Mortgage Trust Estate").

                  Second  Lien  Mortgage  and  Deed  of  Trust  (with   Security
                  Agreement) ("TNP Second Lien Mortgage") dated as of October 1,
                  1988,  executed by TNP in favor of Donald H. Snell as Mortgage
                  Trustee for the benefit of the Secured Parties;

                            Second  Lien   Mortgage  and  Deed  of  Trust  (with
                  Security  Agreement)  Modification,  Extension  and  Amendment
                  Agreement  ("TNP  Second Lien  Mortgage  Modification  No. 1")
                  dated  as of  January  8,  1992,  executed  by TNP in favor of
                  Donald H. Snell,  as  mortgage  trustee for the benefit of the
                  Secured Parties; and

                            Second  Lien   Mortgage  and  Deed  of  Trust  (with
                  Security  Agreement)  Modification,  Extension  and  Amendment
                  Agreement No. 2 ("TNP Second Lien Mortgage Modification No. 2"
                  and,  together  with  the  Unit  2 TNP  Second  Lien  Mortgage
                  Modification   No.   1,  the   "TNP   Second   Lien   Mortgage
                  Modifications";  and the Mortgage  Trust Estate defined in the
                  TNP  Second  Lien   Mortgage  and  TNP  Second  Lien  Mortgage
                  Modifications herein called the "TNP Mortgage Trust Estate").

     In stating our opinions,  we have assumed the due authorization,  execution
and  delivery  of the above  described  documents  by each  party  thereto,  the
genuineness of all signatures on all documents, and the authority of all persons
signing each of the above described  documents on behalf of the parties thereto,
the  authenticity  of  all  documents  submitted  to us  as  originals  and  the
conformity to authentic original  documents of all documents  submitted to us as
certified,  conformed or photostatic copies.  Furthermore,  we have assumed that
the Opinion  Documents  described in  subparagraphs  (viii) through (xiv) of the
first  paragraph of this letter will be promptly  and  properly  recorded in the
appropriate records of Robertson County, Texas or the Office of the Secretary of
State of the State of Texas, as the case may be.

         Based  and  relying  solely  upon the  foregoing,  and  subject  to the
comments and exceptions hereinafter stated, we are of the opinion that:

                  The  TGC II  Mortgage,  as  modified  by the  TGC II  Mortgage
                  Modifications,  each of which has been  recorded in the Public
                  Records of Robertson  County,  Texas,  and the TNP Second Lien
                  Mortgage,   as  modified  by  the  TNP  Second  Lien  Mortgage
                  Modifications,  each of which has been  recorded as a security
                  instrument  with the Office of the  Secretary  of State of the
                  State of Texas,  constitute,  and the TGC II Mortgage  and the
                  TNP Second Lien Mortgage, as hereafter modified on the Closing
                  Date  (when such  documents  are  executed  and  delivered  in
                  exchange for the contemplated  consideration) by the Sixth TGC
                  II Modification and the TNP Second Lien Mortgage  Modification
                  No. 3,  respectively,  will  constitute  the legal,  valid and
                  binding  obligations  of  the  parties  thereto,   enforceable
                  against such parties in accordance with their respective terms
                  and  effective  to create  the liens  they  purport to create,
                  except  as  the  enforceability  thereof  may  be  limited  by
                  bankruptcy, insolvency,  reorganization or moratorium or other
                  similar   laws  or  equitable   principles   relating  to  the
                  enforcement  of  creditors'  rights  generally  and by general
                  principles of equity regardless of whether  enforcement of any
                  obligation  therein  mentioned  is sought in a  proceeding  in
                  equity or at law.

                            The Sixth TGC II Mortgage  Modification is in proper
                  form (a) for  execution  under the laws of the State of Texas,
                  (b) for recording in the Public  Records of Robertson  County,
                  Texas,  and (c) for the extension of the Lien evidenced by the
                  TGC II Mortgage.

                            The   provisions  of  the  TNP  Security   Agreement
                  Amendment are  sufficient to create in favor of the Collateral
                  Agent a valid  security  interest  in  TNP's  interest  in the
                  Collateral  referred  to  therein  and  in  which  a  security
                  interest  may be  created  pursuant  to Article 9 of the Texas
                  Business and Commerce Code.

                            The TNP Second Lien Mortgage  Modification  No. 3 is
                  in proper form (a) for  execution  under the laws of the State
                  of Texas, (b) for recording as a security  instrument relating
                  to the  granting of a security  interest by a utility with the
                  Office of the  Secretary  of State of the State of Texas,  and
                  (c) for the extension of the Lien  evidenced by the TNP Second
                  Lien Mortgage.

                            The  Assignment of TGC II Lien is in proper form (a)
                  for  execution  under the laws of the State of Texas,  (b) for
                  recording in the Public  Records of Robertson  County,  Texas,
                  and (c) for  evidencing of record the assignment of all of the
                  rights, title, interest, security interests and assignments of
                  the Agent and  Collateral  Agent in and to the TGC II Mortgage
                  and the TGC II Mortgage Trust Estate.

                            The Assignment of TNP Lien is in proper form (a) for
                  execution  under  the  laws of the  State  of  Texas,  (b) for
                  recording  as  a  security  instrument  assigning  a  security
                  interest  by a utility  with the  Office of the  Secretary  of
                  State of the State of Texas,  and (c) for evidencing of record
                  the  assignment of all of the Agent's and  Collateral  Agent's
                  right,  title,   interest,   liens,   security  interests  and
                  assignments in and to the TNP Second Lien Mortgage.

                            The TNP Collateral Transfer - Robertson County is in
                  proper form (a) for  execution  under the laws of the State of
                  Texas,  (b) for  recording in the Public  Records of Robertson
                  County,  Texas,  and (c) for evidencing of record the transfer
                  of the Collateral by TNP to the  Administrative  Agent and the
                  Collateral Agent to secure the Obligations.

                            The  Collateral  Transfer - Secretary of State is in
                  proper form (a) for  execution  under the laws of the State of
                  Texas, (b) for recording as a security  instrument relating to
                  the  granting  of a security  interest  by a utility  with the
                  Office of the  Secretary  of State of the State of Texas,  and
                  (c) to evidence of record the  transfer of the  Collateral  by
                  TNP to the  Administrative  Agent and the Collateral  Agent as
                  security for the Obligations.

                            The  execution,  delivery  and  performance  by  TNP
                  and/or  TGC II of the TNP  Credit  Agreement,  the  Assignment
                  Agreement  and each of the other  Opinion  Documents  to which
                  it/they  are a part has not and will not  adversely  affect or
                  impair the lien created by the TGC II Mortgage.

                            None of the  Administrative  Agent,  the  Collateral
                  Agent or any of the Lenders  shall,  solely as a result of the
                  financing  evidenced  by the TNP Credit  Agreement,  or by the
                  exercise  of any rights  under the Note Pledge  Agreement  and
                  thereafter  under the TGC II  Mortgage  or the TNP Second Lien
                  Mortgage become subject to any  registration or  qualification
                  requirements  or any tax  imposed by the State of Texas or any
                  political   subdivision  thereof.  In  this  regard,   Article
                  1396-8.01  of the Texas  Miscellaneous  Corporation  Laws Act,
                  provides,  in part, that "a foreign  corporation  shall not be
                  considered  to be  conducting  affairs in this State,  for the
                  purposes  of this Act,  by reason of carrying on in this State
                  any  one  (1) or more of the  following  activities:  ...  (6)
                  creating  evidence  of  debt,  mortgages,  or liens on real or
                  personal  property ... (7) securing or collecting  debts to it
                  or  enforcing  any  rights in  property  securing  the  same".
                  However, if in the exercise of such rights, the Administrative
                  Agent,  the Collateral  Agent or any of the Lenders take title
                  to any of the TGC  Mortgage  Trust  Estate,  the TNP  Mortgage
                  Trust  Estate  and/or  any other of the  Collateral,  then the
                  Administrative Agent,  Collateral Agent or any such Lender, as
                  the case may be, may be  required to qualify to do business in
                  the State of Texas.

                            We call your  attention  to the fact that  effective
                  September  1, 1993,  Section  35.51  addressing  the Rights of
                  Parties to Choose Law Applicable to Certain  Transactions (the
                  "Texas  Choice of Law  Statute") was added to the Business and
                  Commerce  Code in the  State of Texas.  Pursuant  to the Texas
                  Choice of Law Statute, with certain limited exceptions, if the
                  parties to a "qualified  transaction" (as such term is defined
                  in the Texas Choice of Law Statute)  agree in writing that the
                  law of a particular  jurisdiction governs an issue relating to
                  the "transaction" (as such term is defined in the Texas Choice
                  of Law Statute),  including the validity or  enforceability of
                  an agreement relating to the transaction or a provision of the
                  agreement,  and the transaction bears a reasonable relation to
                  that jurisdiction, the law, other than conflict of laws rules,
                  of that  jurisdiction  governs the issue regardless of whether
                  the  application  of that law is contrary to a fundamental  or
                  public   policy  of  the  State  of  Texas  or  of  any  other
                  jurisdiction.  Moreover,  with certain limited exceptions,  if
                  the parties to a qualified  transaction  agree in writing that
                  the   law   of   a   particular   jurisdiction   governs   the
                  interpretation or construction of an agreement relating to the
                  transaction  or a provision of the  agreement,  the law, other
                  than conflict of laws rules, of that jurisdiction governs that
                  issue regardless of whether the transaction bears a reasonable
                  relation to that  jurisdiction.  Pursuant to subsection (a) of
                  the Texas Choice of Law Statute, a "qualified  transaction" is
                  a transaction under which a party:

     pays  or  receives,  or  is  obligated  to  pay  or  entitled  to  receive,
consideration with an aggregate value of at least $1,000,000.00; or

     lends, advances, borrows or receives, or is obligated to lend or advance or
is entitled to borrow or receive,  funds or credit with an aggregate value of at
least $1,000,000.00.

         While we have  been  unable to locate  any cases  applying,  enforcing,
construing or interpreting  the Texas Choice of Law Statute or the definition of
a "qualified transaction" and consequently cannot provide an unqualified opinion
with  respect  to the  enforceability  of the  choice of law  provisions  of the
Opinion Documents,  we are of the opinion that a Texas state court (or a federal
court applying Texas law) in a properly presented case applying Texas law should
enforce the choice of law  provisions  of the  Opinion  Documents  choosing  and
applying New York law as the law governing the Opinion Documents,  to the extent
the Opinion Documents provide that they are to be governed by New York law.

         We express no opinion as to the status of title to the TGC II  Mortgage
Trust Estate,  the TNP Trust Estate or any of the other  Collateral,  or related
personal property and fixtures,  or as to the relative priority of the liens and
security  interests  intended to be continued  and preserved by the Sixth TGC II
Modification,  the TNP  Security  Agreement  Amendment  and the TNP Second  Lien
Mortgage  Modification No. 3.  Furthermore,  we express no opinion as to whether
activities  other than  those  contemplated  by the  Opinion  Documents  and the
Existing Facility Project  Documents and Existing  Facility  Security  Documents
conducted by the  Administrative  Agent or any Lender in the State of Texas,  if
any, will constitute  transacting business in the State of Texas,  requiring the
Administrative  Agent or any such Lender to qualify as a foreign  corporation in
the State of Texas.

         For  purposes of the opinions  set forth  hereinabove,  we have assumed
that:

                  All the  parties to the  Opinion  Documents  and the  Existing
                  Facility  Project  Documents  and Existing  Facility  Security
                  Documents,  are duly organized,  validly  existing and in good
                  standing under the laws of their  respective  jurisdictions of
                  organization  and are duly qualified under such laws to engage
                  in the transactions contemplated by such Documents.

                            The  Opinion  Documents  and the  Existing  Facility
                  Project  Documents and Existing  Facility  Security  Documents
                  have been  duly  authorized,  executed  and  delivered  by the
                  Administrative  Agent and the Lenders,  to the extent required
                  and  constitute  legal,  valid and binding  obligations of the
                  Administrative Agent and the Lenders, enforceable against such
                  parties in accordance with their  respective  terms;  and that
                  the Agent and the Lenders have the requisite  corporate  power
                  and authority to perform their  respective  obligations  under
                  the Documents.

         This opinion is limited to the matters  expressly  set forth herein and
no opinion is to be inferred or may be implied  beyond the matters  expressly so
stated.

         We are  licensed  to  practice  law  only in the  State of  Texas.  The
opinions  expressed  herein are based  solely on the laws of the State of Texas,
and we  express no  independent  opinion  with  respect to the laws of any other
state, including, but not limited to, the laws of the State of New York.

         This  opinion is provided to you solely for your  benefit.  Without our
prior  written  consent,  this  opinion may not be quoted in whole or in part or
otherwise  referred to in any report or document or  furnished  to any person or
entity other than you or your counsel. This opinion is based on our knowledge of
the law and facts as of the date hereof.  We assume no duty to communicate  with
you with respect to any matter which comes to our attention hereafter.

                             Respectfully submitted,

                             SNELL, BANOWSKY & TRENT,
                             A Professional Corporation


                            By:
                               -----------------------------
                               Donald H. Snell,
                               For the Corporation
DHS:mdc


<PAGE>


                                                                 EXHIBIT G-3

                       RUBIN, KATZ, SALAZAR, ALLEY & ROUSE
                           A Professional Corporation
                                ATTORNEYS AT LAW
James B. Alley, Jr.*
Leonard S. Katz**                                       Street Address:
Owen C. Rouse III**                               123 East Marcy, Suite 200
James S. Rubin                                    Santa Fe, New Mexico  87501
Donald M. Salazar(degree)
                                                        Mailing Address:
Frank T. Herdman*                                  Post Office Drawer 250
Serina M. Garst(degree)                          Santa Fe, New Mexico  87504
                                                  November 3, 1995
 *Also admitted in New York                       Telephone (505) 982-3610
            **Also admitted in Colorado           Facsimile (505) 988-1286
 (degree)Also admitted in California


Chemical Bank
  individually and as
  Administrative Agent
  under the TNP Credit
  Agreement referred to below
270 Park Avenue
New York, New York  10017

The Lenders from time
  time under the TNP
  Credit Agreement

         RE:      TNP Credit Agreement

Ladies and Gentlemen:

         We have acted as New Mexico counsel to Texas-New  Mexico Power Company,
a Texas  corporation  ("TNP"),  since 1993.  During the period 1978 to 1993, the
undersigned  individual also acted as New Mexico counsel to TNP as a member of a
different  law firm.  During  this  period  from  1978 to date,  the scope of my
representation  has been limited to the specific  matters  referred to me by TNP
and has included all matters before  governmental or regulatory  agencies of New
Mexico with respect to the  activities of TNP as a public  utility under the New
Mexico Public Utility Act and material  litigation and claims against TNP in the
state and federal  courts in New Mexico.  The files of TNP in our office contain
the full and complete  record of all  proceedings  involving  TNP before the New
Mexico Public Utility Commission and in any material litigation in the state and
federal  courts in New Mexico  during this period.  To our  knowledge  after due
inquiry, we have been employed as counsel for all material matters of TNP in New
Mexico for the periods described above.

         Insofar as the law of the State of New Mexico and the law of the United
States of America,  as it applies to the opinions  expressed in this letter, are
concerned,  we have  acted  as  special  New  Mexico  counsel  to TNP and  Texas
Generating  Company II, a Texas  corporation and wholly owned  subsidiary of TNP
("TGC  II"),  in  connection  with  the  transactions  contemplated  by (i)  the
Assignment and Amendment Agreement dated as of November 3, 1995 (the "Assignment
Agreement")  among TNP,  TGC II,  the  Existing  Facility  Banks,  the  Original
Collateral Agent, the Original Agent, the Lenders,  the Administrative Agent and
the  Collateral  Agent  (each as defined  therein),  (ii) the  Revolving  Credit
Agreement dated as of November 3, 1995 (the "TNP Credit  Agreement")  among TNP,
each of the lenders  that is a signatory  thereto (the  "Lenders")  and Chemical
Bank,  as  administrative  agent and  collateral  agent for the Lenders (in such
capacities,   the   "Administrative   Agent"   and   the   "Collateral   Agent",
respectively),  (iii) the Bond  Pledge  Agreement  dated as of November 3, 1995,
(the "Bond Pledge  Agreement") by TNP in favor of the Collateral Agent, (iv) the
Supplemental   Indenture  dated  as  of  November  3,  1995  (the  "Supplemental
Indenture")  pursuant to which the Pledged  Bonds (as defined in the Bond Pledge
Agreement)  have been  issued,  (v) the  Pledged  Bonds (as  defined in the Bond
Pledge  Agreement),  (vi) the Note Pledge Agreement dated as of November 3, 1995
(the "Note Pledge Agreement") by TNP in favor of the Collateral Agent, (vii) the
Guarantee  and Pledge  Agreement  dated as of November  3, 1995 (the  "Guarantee
Agreement") by TGC II in favor of the Collateral Agent,  (viii) the Sixth TGC II
Modification  and Extension  Agreement  dated as of November 3, 1995 (the "Sixth
TGC II  Modification")  among TGC II, TNP and the  Secured  Parties  (as defined
therein  ), (ix) the TNP Second  Lien  Mortgage  Modification  No. 3 dated as of
November 3, 1995 (the "TNP Mortgage  Modification No. 3") by TNP for the benefit
of the Secured  Parties  (as  defined  therein),  (x) the  Assignment  of TGC II
Mortgage Lien dated as of November 3, 1995 (the  "Assignment of TGC II Lien") by
The Chase  Manhattan  Bank  (National  Association),  as Agent and as Collateral
Agent (each as defined therein) in favor of TNP, (xi) the Collateral Transfer of
Notes,  Rights and Interests  dated as of November 3, 1995 (the "TNP  Collateral
Transfer-Robertson  County")  between TNP and the  Administrative  Agent and the
Collateral  Agent,  (xii) the Assignment of TNP Second Mortgage Lien dated as of
November  3, 1995 (the  "Assignment  of TNP Lien") by The Chase  Manhattan  Bank
(National  Association,),  as Agent and as  Collateral  Agent  (each as  defined
therein) in favor of TNP.  (xiii) the Collateral  Transfer of Notes,  Rights and
Interests dated as of November 3, 1995 (the "TNP  Collateral  Transfer-Secretary
of State") between TNP and the  Administrative  Agent and the Collateral  Agent,
(xiv) The Amendment No. 1 to TNP Security Agreement dated as of November 3, 1995
(the "Amendment No. 1 to TNP Security Agreement"), and (xv) financing statements
naming  TNP and TGC II, as  applicable,  as debtor,  and TNP and the  Collateral
Agent as  applicable,  as  secured  party,  which are to be filed in the  filing
offices of the  Secretary of State of the State of Texas and the county  clerk's
office for Robertson County, Texas (such filing offices collectively referred to
as the  "Filing  Offices"  and  such  financing  statements  as  the  "Financing
Statements"  (each  of  the  foregoing  agreements,  instruments  and  documents
referred to in the foregoing clauses (i) through (xv) being collectively  called
the "Opinion Documents").

         Unless  otherwise  defined  herein,  terms  defined  in the TNP  Credit
Agreement are used herein as therein defined. Except where the context otherwise
requires, words importing the singular include the plural and vice versa.

         In rendering the opinions expressed below, we have examined (a) the TNP
Credit Agreement and each of the other Opinion  Documents and (b) such corporate
records of TNP and TGC II, agreements, instruments and documents in the files of
TNP and TGC II in our office which  affect or purport to affect the  obligations
of TNP or TGC II under the Opinion Documents,  (c) the Certificate of Comparison
for TNP dated October 19, 1995,  issued by the State  Corporation  Commission of
the State of New Mexico which  certifies  that a  Certificate  of Authority  was
issued to TNP on May 1, 1963  (collectively,  the "Certificate of Comparison and
Authority"), and such other documents as we have deemed necessary as a basis for
the  opinions  expressed  below.  In  our  examination,   we  have  assumed  the
genuineness of all signatures and the authenticity of documents  submitted to us
as  originals  and the  conformity  with  authentic  original  documents  of all
documents  submitted to us as copies. When relevant facts were not independently
established,  we have  relied  upon  such  statements  of  government  officials
expressly  referred  to in  this  letter  and  upon  representations  made in or
pursuant   to  the   Opinion   Documents   and   certificates   of   appropriate
representatives of TNP or TGC II.

         Despite any other express or implied statement in this letter,  each of
the  opinions  expressed  in this  letter is  subject to the  following  further
qualifications, conditions or assumptions, whether or not such opinions refer to
such qualifications, conditions or assumptions:

          1. As to the good standing of TNP in New Mexico, we have relied solely
on the  Certificate  of Good Standing for TNP dated October 19, 1995,  issued by
the State Corporation Commission of the State of New Mexico (the "Certificate of
Good Standing");

         2. As to our opinion that the State of New Mexico does not require that
TGC  II  be  authorized  to  transact  business  in  New  Mexico  as  a  foreign
corporation, we have relied primarily on the Certificate of TNP and TGC II dated
November 3, 1995, signed by Michael D. Blanchard (the "TNP/TGC II Certificate"),
but to our knowledge  after due inquiry,  we are aware of no facts that conflict
with the factual assertions stated in the TNP/TGC II Certificate.

          3. We  have  not  made  an  independent  inquiry  into  the law of any
jurisdiction  other than the State of New Mexico and the political  subdivisions
of the State of New  Mexico  and the United  States of  America,  insofar as the
Federal law of the United States of America applies to the opinions expressed in
this letter.  To the extent that matters  discussed in this letter  relate to or
are dependent on the application of Texas law to the  transactions  contemplated
by the Opinion Documents, to which TNP or TGC II is or is intended to be a party
or to the status, power and authority of TNP or TGC II, we have relied solely on
(i) the  opinion  letter from  Haynes & Boone,  addressed  to you dated the date
hereof, (ii) the Certificates of Comparison and Authority, (iii) the Certificate
of Good  Standing,  and (iv) the  TNP/TGC II  Certificate.  To the  extent  that
matters discussed in this opinion are dependent on the application of law of any
other jurisdiction, we state no opinion.

          4. Each of the parties to the Opinion Documents other than TNP and TGC
II, and each of the entities having an interest,  directly or indirectly, in any
of the parties to the Opinion  Documents,  is duly organized or formed,  validly
existing and in good standing in its respective  state or nation of organization
or incorporation.

          5. Each of the parties to the Opinion Documents other than TNP and TGC
II, and each of the entities having an interest,  directly or indirectly, in any
of such parties and executing  the Opinion  Documents on behalf of such parties,
has full power,  authority  and legal  rights  under the laws of its  respective
state or nation of  organization  or  incorporation  to execute  and deliver the
Opinion Documents to which each of such entities is a party, or on behalf of any
such party each of the entities executed the Opinion Documents.

          6. Where the phrase "to our knowledge after due inquiry"  appears,  we
have  reviewed the Opinion  Documents to which TNP or TGC II is a party and such
other  instruments as are specifically  referred to in this letter,  and we have
reviewed the files of TNP and TGC II in our offices,  and we have made inquiries
of the appropriate  officers of TNP and TGC II, but we have conducted no further
independent investigation and have made no independent inquiries of others.

         We have also reviewed  executed  originals or copies,  certified to our
satisfaction,  of such  other  documents,  corporate  records of TNP and TGC II,
certificates  of public  officials and of corporate  officers of TNP and TGC II,
agreements,  instruments  and  documents  in the  files of TNP and TGC II in our
offices  related to the matters  handled by us for TNP and TGC II since 1978 and
referred to above,  which affect or purport to affect the obligations of TNP and
TGC II under the Opinion Documents to which TNP or TGC II is a party, as we have
deemed necessary for the opinions expressed in this letter.

         In stating  these  opinions,  we have  assumed  the due  authorization,
execution,  issuance and delivery by each party thereto,  the genuineness of all
signatures,  and the authority of all persons  signing the Opinion  Documents to
which  TNP  or  TGC  II is a  party  on  behalf  of  the  parties  thereto,  the
authenticity of all documents submitted to us as originals and the conformity to
authentic original documents of all documents certified to us as copies.

         Based on the foregoing,  which includes such  investigations as we have
deemed necessary,  and subject to the further qualifications set forth below, we
are of the opinion that:

          1. TNP is in good standing as a foreign  corporation under the laws of
the  State  of New  Mexico  and has the  necessary  corporate  power,  corporate
authority  and  legal  right  in such  State  to make and  perform  the  Opinion
Documents  to  which it is or is  intended  to be a party.  No  further  filing,
recordation,  publishing  or  other  act is  necessary  in  connection  with the
existence  of TNP or the  conduct  of the  business  of TNP in the  State of New
Mexico.

          2. TGC II does not  presently  conduct  business  in the  State of New
Mexico  such  that the  State of New  Mexico  would  require  that TGC II become
authorized  to  transact  business  in the  State  of New  Mexico  as a  foreign
corporation.

          3. The  making  and  performance  by TNP and TGC II of the TNP  Credit
Agreement  and the other  Opinion  Documents to which each is, or is intended to
be, a party  do not and  will not (i)  violate  any  provision  of law,  rule or
regulation or, to our knowledge after due inquiry,  any order,  writ,  judgment,
injunction,  decree,  determination or award presently in effect in the State of
New Mexico which have applicability to TNP or TGC II or the Project.

          4.  Except  as set forth in the  attached  Schedule  A, no  approvals,
consents, orders, or other actions by any governmental or regulatory agencies of
the State of New Mexico are required to authorize  the execution and delivery by
TNP or TGC II of the TNP Credit Agreement and the other Opinion Documents nor to
authorize the consummation by TNP or TGC II of the transactions  contemplated by
the Opinion  Documents.  To our knowledge after due inquiry,  no  investigation,
action, suit or proceeding is pending or threatened against TNP or TGC II in the
State of New Mexico  which seeks,  or may  reasonably  be expected,  to rescind,
terminate, modify or suspend any Government Approval.

         5. To our knowledge after due inquiry, no action, suit or proceeding at
law or in equity or by or  before  any  governmental  or  regulatory  authority,
court,  arbitral,  tribunal  or other  body in the  State of New  Mexico  is now
pending or  threatened  which could  reasonably  be expected to  materially  and
adversely affect the financial condition, assets, or operations of TNP or TGC II
or the  ability of TNP or TGC II to perform  its  obligations  under the Opinion
Documents to which TNP or TGC II is or is intended to be a party.

          6. A New Mexico  court,  or a Federal court  applying  conflict of law
rules of the  State of New  Mexico,  would  give  effect  to the  choice  of law
provision  contained  in each  Opinion  Document to which TNP or TGC II is or is
intended to be a party  stating that such Opinion  Document  (excluding  matters
relating to title to property and security  interests therein) is to be governed
by the laws of the State of New York in the case of an Opinion  Document  stated
to be  governed  by the  laws of the  State  of New  York,  or in the case of an
Opinion Document stated to be governed by the laws of the State of Texas, by the
laws of the State of Texas.  With respect to our conflict of law rules  opinion,
we have assumed that the  principal  place of business and the site of the chief
executive  offices  of TNP  and  TGC II are in the  State  of  Texas,  that  the
principal  place of  business  and the site of the  chief  executive  office  of
Chemical Bank is in the State of New York, that the  negotiations  leading up to
the signing of the TNP Credit  Agreement  and the other Opinion  Documents  took
place in several states by telephone,  telephonic transmissions and face-to-face
meetings  both  inside and outside the State of Texas and the State of New York,
but not in the State of New Mexico,  that the last  signature  of a party to the
TNP Credit  Agreement and the other Opinion  Documents is the last act necessary
to form the agreements  contemplated  by the TNP Credit  Agreement and the other
Opinion  Documents,  and that the TNP  Credit  Agreement  and the other  Opinion
Documents were delivered by TNP or TGC II in the State of New York.

         These  opinions  are  limited to the matters  expressly  stated in this
letter,  and no  opinion  is  inferred  or may be  implied  beyond  the  matters
expressly  stated in this letter.  These opinions are being delivered to you, as
addressee at the direction of TNP with the intent that you, as  addressee,  rely
on these opinions. This letter does not constitute a guarantee of the TNP Credit
Agreement  or the other  Opinion  Documents or any of the  obligations  or other
matters referred to or opined upon in this letter, and by rendering the opinions
as  provided in this letter we are not  guarantying  or insuring  the TNP Credit
Agreement  or the other  Opinion  Documents or any of the  obligations  or other
matters  referred to or opined upon in this  letter.  This opinion is solely for
the  internal  information  and  assistance  of the  Administrative  Agent,  the
Collateral Agent and the Lenders,  as an  interpretation of the law of the State
of  New  Mexico  applicable  to the  transactions  contemplated  by the  Opinion
Documents  as of the date of this letter and may not be relied upon or quoted by
anyone else for any purpose whatsoever, nor may copies be delivered to any other
person or filed with any governmental  agency or corporation,  without our prior
written consent,  except that copies of this letter may be furnished to Haynes &
Boone and to  Cravath,  Swaine & Moore,  who may rely upon these  opinions as if
this  letter  were  separately  addressed  to them.  We make no  undertaking  to
supplement  this  opinion if facts or  circumstances  come to our  attention  or
changes in the law occur after the date of this letter  which could  affect this
opinion.

                                Very truly yours,

                                RUBIN, KATZ, SALAZAR, ALLEY & ROUSE
                                A Professional Corporation


                                By
                                   -------------------------------------
                                Donald M. Salazar


<PAGE>


                                   SCHEDULE A



At the time TNP and TGC II execute the TNP Credit  Amendment  and other  Opinion
Documents (herein referred to as the Amended Class I and Class II transactions),
TNP  must  give  written  notification  of such  Amended  Class I and  Class  II
transactions to the New Mexico Public Utility  Commission  ("NMPUC") within five
days after such Amended Class I and Class II  transactions,  in accordance  with
the provisions of Section 62-6-19 NMSA 1978 of the New Mexico Public Utility Act
and NMPUC Rule 450.

After  providing such written  notification,  Section 62-6-19 NMSA 1978 provides
that in order to assure  reasonable and proper utility service at fair, just and
reasonable  rates,  the NMPUC may  investigate  the Amended Class I and Class II
transactions to determine the reasonableness of the cost and contract conditions
to TNP in such Amended  Class I and Class II  transactions  and, if TNP fails to
carry its  burden to  produce  evidence  and  information  as is  sufficient  to
demonstrate that such Amended Class I and Class II transactions have resulted in
reasonable  cost and  contract  conditions  to TNP,  the NMPUC may issue  orders
consistent  with the authority  granted to the NMPUC under the New Mexico Public
Utility Act to assure the provision of such service at such rates.


<PAGE>


                                                                   EXHIBIT H


           [FORM OF SIXTH TGC II MODIFICATION AND EXTENSION AGREEMENT]

                SIXTH TGC II MODIFICATION AND EXTENSION AGREEMENT

ATTENTION ROBERTSON COUNTY, TEXAS RECORDER:

RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO:

The Chase Manhattan Bank (National Association)
In care of DONALD H. SNELL
Snell, Banowsky & Trent
200 Crescent Court, Suite 1000
Dallas, Texas  75201

THE STATE OF TEXAS

COUNTY OF ROBERTSON

                SIXTH TGC II MODIFICATION AND EXTENSION AGREEMENT

         THIS  SIXTH  TGC  II   MODIFICATION   AND  EXTENSION   AGREEMENT  (this
"Agreement") is made as of November 3, 1995, among the banks (the "Banks") which
are parties to that certain Unit 2 First  Amended and Restated  Project Loan and
Credit  Agreement  dated as of January 8, 1992 (the  "Existing  Facility  Credit
Agreement"),  The Chase Manhattan Bank (National Association),  as agent for the
Banks and the  Replacement  Note  Holder (in such  capacity,  together  with its
successors in such  capacity,  the "Agent")  (the Banks,  the  Replacement  Note
Holder  and  the  Agent  collectively  herein  called  the  "Secured  Parties"),
TEXAS-NEW  MEXICO  POWER  COMPANY,  a  Texas  corporation   ("TNP"),  and  TEXAS
GENERATING  COMPANY II, a Texas corporation ("TGC II"), Unless otherwise defined
herein, the capitalized terms used herein shall have the meanings given to those
terms in the Existing Facility Agreement defined in paragraph D of the recitals.

                                   WITNESSETH:

                                    Recitals:

         A.  Certain  of  the  Banks,   The  Chase   Manhattan   Bank  (National
Association), as agent, Texas PFC, Inc., a Delaware corporation ("TPFC") and TNP
entered into the Project Loan and Credit  Agreement  dated as of October 1, 1988
(as amended from time to time, the "Project Credit Agreement") pursuant to which
the Banks made Loans,  prior to the  Alternative  Assumption  Date, to TPFC and,
thereafter,  to the Borrower in a maximum outstanding aggregate principal amount
of  TWO  HUNDRED   EIGHTY   EIGHT   MILLION  FIVE   HUNDRED   THOUSAND   DOLLARS
($288,500,000).

                SIXTH TGC II MODIFICATION AND EXTENSION AGREEMENT

     B. The Alternative  Assumption Date occurred as of May 31, 1991. Certain of
the  obligations  of TPFC under the terms of the Project  Credit  Agreement were
assumed by the Borrower pursuant to that certain  Assumption  Agreement recorded
in Volume 566 at Page 252 of the Public Records of Robertson County,  Texas. The
TGC II Mortgage  Trust Estate was  conveyed by TPFC to the Borrower  pursuant to
that  certain  Conveyance  and Bill of Sale dated  effective as of May 31, 1991,
recorded in Volume 566 at Page 283 of the Public  Records of  Robertson  County,
Texas.

     C. The  Obligations  under the terms of the Project  Credit  Agreement were
secured, in part, by the terms, provisions, liens and security interests of that
certain  TGC II  Mortgage  and Deed of Trust (with  Security  Agreement  and UCC
Financing  Statement for Fixture Filing),  dated as of October 1, 1988 (the "TGC
II Mortgage") which was filed of record on October 4, 1988 in Volume 521 at Page
601 of the Public Records of Robertson County, Texas. The TGC II Mortgage covers
certain property as more particularly described therein.

     D. The parties to the Project Credit Agreement entered into an agreement in
principle in  connection  with certain  amendments  thereto.  To implement  such
amendments,  the parties  entered into the Existing  Facility  Credit  Agreement
which was amended by the First Amendment  thereto dated as of September 21, 1993
(the  "First  Amendment")  among such  parties  (the  Existing  Facility  Credit
Agreement, as so amended and as further amended from time to time, the "Existing
Facility Agreement").

     E. TGC II conveyed a 75.75/288.5  undivided interest in the TGC II Mortgage
Trust Estate to TNP pursuant to that certain  Conveyance  and Bill of Sale dated
as of  September  29, 1993 and  recorded in Volume 601 at Page 164 of the Public
Records of Robertson County, Texas. By the partial release of liens, recorded in
Volume 601 at page 207 of the Public  Records of Robertson  County,  Texas,  and
filed with the Secretary of State of the State of Texas, the Agent released from
the TGC II Mortgage the undivided interest which was purchased by TNP.

     F. In  connection  with  the  execution  of the  Existing  Facility  Credit
Agreement and the First Amendment,  TNP, TGC II and the Secured Parties executed
and delivered the (I) First TGC II Modification and Extension Agreement dated as
of January  24,  1992 and caused it to be  recorded in Volume 573 at Page 484 of
the  Public  Records  of  Robertson  County,  Texas,  (ii)  the  Second  TGC  II
Modification and Extension  Agreement dated as of January 27, 1992 and caused it
to be  recorded  in Volume  573 at Page 511 of the Public  Records of  Robertson
County, Texas, (iii) the Third TGC II Modification and Extension Agreement dated
as of January 27, 1992 and caused it to be recorded in Volume 573 at Page 525 of
the  Public  Records  of  Robertson  County,  Texas,  (iv)  the  Fourth  TGC  II
Modification  and Extension  Agreement dated as of September 29, 1993 and caused
it to be  recorded in Volume 601 at Page 87 of the Public  Records of  Robertson
County,  Texas and (v) the Fifth TGC II  Modification  and  Extension  Agreement
dated as of June 15, 1994 and caused it to be recorded in Volume 614 at Page 224
of the Public Records of Robertson  County,  Texas in each case as a memorial of
certain  modifications  of,  amendments  to or  occurrence  of events  under the
Existing  Facility  Credit  Agreement and the First Amendment and to confirm the
validity and priority of the liens, security interest and assignments of the TGC
II Mortgage securing the Obligations.

     G. TNP is entering into a revolving  credit  facility  agreement  dated the
date hereof (the "TNP Credit  Agreement")  with certain  Lenders (the "Lenders")
and Chemical Bank, as administrative agent and collateral agent for the Lenders.
It is a condition  precedent to the execution of the TNP Credit  Agreement  that
(a) the Existing  Facility  Agreement be amended as described in the  Assignment
Agreement (as defined in the TNP Credit  Agreement)  and (b) the parties  hereto
execute and deliver to Chemical Bank this Agreement.

     H. TNP,  TGC II and the  Secured  Parties  have  modified  the terms of the
Existing  Facility  Agreement as set forth in the Assignment  Agreement and have
executed,  delivered  and  caused  this  Agreement  to be filed of  record  as a
memorial of the occurrence of such modifications and to confirm the validity and
priority of the liens, security interests and assignments of the TGC II Mortgage
securing the Obligations.

     I. The  Agent is  authorized  by  Section  15.01 of the  Existing  Facility
Agreement to execute and deliver this Agreement.

                                   Agreements

     NOW,  THEREFORE,  for good and  valuable  consideration,  the  receipt  and
adequacy of which are hereby acknowledged,  TNP, TGC II and the Agent, on behalf
of the Secured Parties, agree as follows:

     1.  Effectiveness  of  Certain   Modifications  to  the  Existing  Facility
Agreement  in the form of the  Assignment  Agreement.  The terms of the Existing
Facility   Agreement  are  amended  and  modified  pursuant  to  the  Assignment
Agreement.  The  amendments  to the  Existing  Facility  Agreement  include  (I)
rescheduling  the  amounts  and  dates  of  certain  repayments,  including  the
extension of the Final  Maturity  Date on the Loans  payable to the Banks to the
Maturity Date (as defined in the TNP Credit Agreement) and (ii) amending certain
covenants (collectively,  the "Subject Provisions").  As of the date hereof, the
aggregate  principal  amount of Project  Loans  outstanding  under the  Existing
Facility Agreement is $147,750,000. In addition, there remains outstanding under
the Existing  Facility  Agreement  $65,000,000 of Replacement Loans evidenced by
the Replacement Note.

     2. Effect of  Modification.  The  Obligations  as described in the Existing
Facility Agreement arer secured by the liens, securtiy interests and assignments
of the TGC II Mortgage and the other Security  Documents and the First Amendment
Security Documents.  The validity and priority of the liens,  security interests
and  assignments  of the TGC II Mortgage  shall not be  extinguished,  impaired,
reduced,  released,  or adversely affected by the terms of this Agreement or the
execution of the Assignment Agreement.

3.  Extension of Rights and Liens. TGC II hereby extends all rights, titles, 
liens, security
interests,  assignments,  powers and  privileges  securing  the  Obligaitons  as
described in the Existing  Facility  Agreement by virture of the TGC II Mortgage
until all such  Obligations have been paid in full and agrees that the execution
of this Agreement shall in no manner impair the rights,  titles liens,  security
interests,  assignments,  powers and privileges existing by virtue of the TGC II
Mortgage as they are extended and modified hereby.

     4. Joinder of Guarantor.  TNP, as Guarantor under the TNP Guaranty,  hereby
(I)  consents  to the  execution,  delivery  and  performance  by TGC II of this
Agreement,  the Assignment  Agreement and any amendment to any Project Document,
Security Document or First Amendment  Security Document to which TGC II is or is
intended to be a party and the  consummation  of the  transactions  contemplated
hereby and thereby, (ii) agrees that the TNP Guaranty shall remain in full force
and effect after giving effect to such transactions and (iii)  acknowledges that
there are no claims or offsets against, or defenses or counterclaims to, the TNP
Guaranty.

     5. Successors and Assigns.  This Agreement shall be binding upon, and inure
to the benefit of, the successors and assigns of TNP, TGC II, and the Agent, for
the benefit of the Secured Parties; provided, however, nothing contained in this
Section is intended to authorize TNP or TGC II to assign any of the  Obligaitons
or to sell any of the TGC II aMortgage  Trust Estate except in  accordance  with
the Existing Facility Agreement and the Facility Purchase Agreement.

     6.  Counterparts.   This  Agreement  may  be  executed  in  any  number  of
counterparts,  all of which taken  together  shall  constitute  one and the same
instrument,  and any of the parties hereto may execute this Agreement by signing
any such counterpart.

                      EXECUTED as of the date first hereinabove written.

                      SECURED PARTIES:
                      THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), AS AGENT,

                      By:
                         ----------------------------------
                               Title

                      TGC II:
                      TEXAS GENERATING COMPANY II, a Texas corporation,

                      By:
                         -----------------------------------
                              Title:

The undersigned  hereby consents and agrees to the foregoing pursuant to Section
1(c) of the Intercreditor Agreement as defined in the Credit Agreement.

THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), AS
COLLATERAL AGENT,

By:__________________
   Title:

The undersigned is a party to this Agreement for the sole purpose of agreeing to
the provisions of Section 4 to this Agreement.

TNP:

TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation
BY: ___________________
    Title:




STATE OF NEW YORK

COUNTY OF NEW YORK

     This  instrument  was  acknowledged  before me on the ____ day of November,
1995, by  --------------------------- ,  -------------------------------  of THE
CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent.


                                                -----------------------------
                                                NOTARY PUBLIC in and for
                                                the State of NEW YORK

My Commission Expires:

------------------------------------------------------------------
                                                Typed or Printed Name of Notary

STATE OF NEW YORK

COUNTY OF NEW YORK

     This  instrument  was  acknowledged  before me on the_____ day of November,
1995, by -----------------------------------------------------------------------
of THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Collateral Agent.


                                       -----------------------------------------
                                          NOTARY PUBLIC in and for
                                          the State of NEW YORK

My Commission Expires:

                                        ----------------------------------------
                                          Typed or Printed Name of Notary

STATE OF TEXAS

COUNTY OF ______________

     This instrument was acknowledged  before me on the _______ day of November,
1995, by  ------------------------------------------------------------------- of
TEXAS-NEW  MEXICO  POWER  COMPANY,  a  Texas  corporation,  on  behalf  of  said
corporation.

                                    ------------------------------------------
                                     NOTARY PUBLIC in and for
                                       the State of TEXAS

My Commission Expires:

-------------------------------------------------------------------
                                 Typed or Printed Name of Notary

STATE OF TEXAS

COUNTY OF ______________

     This instrument was acknowledged  before me on the _______ day of November,
1995, by  ------------------------------------------------------------------- of
TEXAS GENERATING COMPANY II, a Texas corporation, on behalf of said corporation.

                                     ------------------------------------------
                                            NOTARY PUBLIC in and for
                                             the State of TEXAS

My Commission Expires:

-------------------------------------------------------------------
         Typed or Printed Name of Notary



<PAGE>


                                                                  EXHIBIT I

              [Form of TNP Second Lien Mortgage Modification No. 3]

                   TNP SECOND LIEN MORTGAGE MODIFICATION NO. 3

        THIS INSTRUMENT MODIFIES AND AMENDS AN INSTRUMENT WHICH GRANTED A
               SECURITY INTEREST BY A UTILITY AND WHICH CONTAINED
                 AFTER-ACQUIRED PROPERTY PROVISIONS PURSUANT TO
             SUBCHAPTER 35A OF THE TEXAS BUSINESS AND COMMERCE CODE


                            SECOND LIEN MORTGAGE AND
                     DEED OF TRUST (WITH SECURITY AGREEMENT)
              MODIFICATION, EXTENSION AND AMENDMENT AGREEMENT NO. 3



         THIS SECOND LIEN MORTGAGE AND DEED OF TRUST (WITH  SECURITY  AGREEMENT)
MODIFICATION, EXTENSION AND AMENDMENT AGREEMENT NO. 3 ("TNP Second Lien Mortgage
Modification  No. 3") dated as of November 3, 1995, is executed and delivered by
TEXAS-NEW MEXICO POWER COMPANY,  a Texas  corporation  ("Mortgagor"),  having an
office at 4100 International  Plaza, 820 Hulen Towers,  Fort Worth, Texas 76109,
Attention:  Chief  Financial  Officer,  to DONALD H. SNELL,  having an office at
Suite 1000,  200  Crescent  Court,  Dallas,  Texas  75201,  as mortgage  trustee
("Mortgage  Trustee"),  for the benefit of the Secured Parties,  as described in
the Credit Agreement (as hereinafter  defined).  Unless  otherwise  described or
defined herein, all terms used in this TNP Second Lien Mortgage Modification No.
3 shall  have the same  meanings  herein as are  assigned  to such terms in that
certain  Unit 2 Second  Amended and Restated  Project Loan and Credit  Agreement
dated as of January 8, 1992 as amended,  supplemented or otherwise modified from
time  to  time,  the  "Existing  Facility  Agreement")  among  Mortgagor,  TEXAS
GENERATING COMPANY II ("Borrower"),  the banks party thereto ("Banks"),  and THE
CHASE  MANHATTAN  BANK  (NATIONAL  ASSOCIATION),  as agent for the Banks and the
Replacement Note Holder (the "Agent").


                              W I T N E S S E T H:

                                    Recitals

         A. In connection with the Project Loan and Credit Agreement dated as of
October 1, 1988 (as amended from time to time, the "Project  Credit  Agreement")
among certain of the Banks, the Chase Manhattan Bank (National Association),  as
agent,  the Mortgagor,  and Texas PFC, Inc., a Delaware  corporation,  Mortgagor
executed  and  delivered  to  Mortgage  Trustee,  for the benefit of the Secured
Parties,  a  certain  Second  Lien  Mortgage  and Deed of Trust  (with  Security
Agreement) ("TNP Second Lien Mortgage"),  granting to Mortgage Trustee,  for the
benefit of the Secured  Parties,  a second lien  against  property of  Mortgagor
located in the State of Texas  ("Second  Lien Mortgage  Trust  Estate") and more
particularly  described in the TNP  Indenture (as defined in the TNP Second Lien
Mortgage),  which TNP Second Lien Mortgage was filed with the Secretary of State
of Texas on October 4, 1988, as Utility Security  Instrument Number 229147.  The
lien created by the TNP Second Lien Mortgage is  subordinate by its own terms to
the lien of the TNP Bond Indenture.

         B. By its terms, the TNP Second Lien Mortgage  excluded from the Second
Lien Mortgage  Trust Estate certain real property  located in Robertson  County,
Texas (the "Property") since no portion thereof was then owned by Mortgagor.

         C. Pursuant to a certain  Warranty Deed dated as of October 1, 1988 and
recorded in Volume 521 at Page 532 of the Public  Records of  Robertson  County,
Texas, Project Funding Corporation conveyed 7.466 acres of the Property ("Unit 2
Property")  to  Texas  TPFC,  Inc.  (the  Property  less and  except  the Unit 2
Property, hereinafter called the "Robertson County Property").

         D. On December 27, 1990,  pursuant to the Facility Purchase  Agreement,
Mortgagor  purchased  an  undivided  30/345  interest  in the  Robertson  County
Property  (including  Unit I located  thereon)  which  interest  was conveyed to
Mortgagor by that certain  Conveyance and Bill of Sale recorded in Volume 556 at
Page 653 of the Public Records of Robertson County, Texas.

         E.  The  Alternative  Assumption  Date  occurred  as of May  31,  1991.
Effective  as of that date,  the Unit 2 Property  was  conveyed to the  Borrower
pursuant to a certain  Conveyance and Bill of Sale dated effective May 31, 1991,
recorded  on July 26,  1991 in Volume 566 at Page 283 of the  Public  Records of
Robertson County,  Texas.  Contemporaneously  therewith,  all of the Obligations
under the terms of the Credit Agreement were assumed by the Borrower pursuant to
a certain  Assumption  Agreement recorded on July 26, 1991 in Volume 566 at Page
252 of the Public Records of Robertson  County,  Texas.  Also  contemporaneously
therewith,  the obligations of Mortgagor under that certain Guaranty dated as of
May 31, 1991  ("Guaranty")  became  effective  and pursuant  thereto,  Mortgagor
(sometimes hereinafter called "Guarantor")  guarantees the Obligations that were
assumed by the Borrower.

         F. On  January  8,  1992,  Mortgagor  and the  Agent,  on behalf of the
Secured  Parties,  executed that certain  Second Lien Mortgage and Deed of Trust
(With Security Agreement)  Modification,  Extension and Amendment Agreement (the
"TNP Second Lien Mortgage  Modification No. 1"), to among other things,  further
modify the TNP Second Lien  Mortgage to clarify and confirm  that any portion of
the Trust  Estate  under the TNP  Indenture  (as  defined in the TNP Second Lien
Mortgage) located in Robertson County,  Texas then owned or thereafter  acquired
by the Mortgagor would be included as a part of the Second Lien Trust Estate.

         G.  The  parties  to the  Project  Credit  Agreement  entered  into  an
agreement  in principle  in  connection  with  certain  amendments  thereto.  To
implement such amendments, the parties entered into the Unit 2 First Amended and
Restated  Project  Loan and  Credit  Agreement  dated as of January 8, 1992 (the
"Unit 2 Credit  Agreement")  which was amended  pursuant to the First  Amendment
thereto  dated as of  September  21,  1993 (the  "First  Amendment")  among such
parties (the Unit 2 Credit  Agreement,  as so amended,  the  "Existing  Facility
Agreement").

         H. On January 27, 1992, pursuant to the Facility Purchase Agreement (as
defined  in the Unit 1 Credit  Agreement),  Mortgagor  purchased  an  additional
undivided  45/345 interest in the Robertson  County  Property  (including Unit 1
located thereon).

         I. On September 21, 1993,  pursuant to the Facility Purchase  Agreement
(as defined in the Unit 1 Credit Agreement),  Mortgagor  purchased an additional
undivided  65/345 interest in the Robertson  County  Property  (including Unit 1
located thereon).

         J. On September 21, 1993,  pursuant to the Facility Purchase Agreement,
Mortgagor  purchased  an undivided  75.75/288.5  interest in the Unit 2 Property
(including Unit 2 located thereon).

         K. Although all of the undivided  interests  described in Recitals G, H
and I were  subject to the liens of the TNP Second  Lien  Mortgage  by reason of
provision to that effect  therein,  the parties  desired to reflect this fact of
record.

         L.  Mortgagor  and the Agent,  on behalf of the Secured  Parties,  have
modified the TNP Second Lien Mortgage to clarify and confirm that any portion of
the Robertson County Trust Estate Property owned by or acquired by the Mortgagor
shall be  included  as a part of the Second  Lien  Mortgage  Trust  Estate.  The
Mortgagor  and the Agent,  on behalf of the Secured  Parties,  have executed and
delivered the TNP Second Lien Mortgage Modification No. 1 dated as of January 8,
1992 and  caused  it to be filed  with the  Secretary  of State of the  State of
Texas.

         M. Borrower, Mortgagor and the Agent, on behalf of the Secured Parties,
agreed,  as set forth in the First Amendment,  to modify the terms of the Unit 2
Credit  Agreement in order to permit  Mortgagor and Borrower to secure Permitted
Collateralized  Indebtedness  (as  defined  in the  First  Amendment)  with  the
Collateral,  adjust the terms of payment  thereunder and to extend the dates for
payments required thereby,  and to make other  modifications all as set forth in
and subject to the terms and conditions of the Credit  Agreement.  In connection
with the  First  Amendment,  Borrower,  Mortgagor  and the Agent  executed  that
certain  Second  Lien  Mortgage  and Deed of  Trust  (with  Security  Agreement)
Modification,  Extension  and  Amendment  Agreement  No. 2 (the "TNP Second Lien
Mortgage  Modification  No.  2";  together  with the TNP  Second  Lien  Mortgage
Modification  No. 1, the "TNP Second Lien Mortgage  Modifications")  dated as of
September  21, 1993 to confirm the validity and priority of the liens,  security
interests and assignments of the TNP Second Lien Mortgage.

         N.  Mortgagor is entering into a revolving  credit  facility  agreement
dated the date hereof (the "TNP Credit  Agreement")  with  certain  lenders (the
"Lenders") and Chemical Bank, as  administrative  agent and collateral agent for
the  Lenders.  It is a condition  precedent  to the  execution of the TNP Credit
Agreement  that (a) the Existing  Facility  Agreement be amended as described in
the  Assignment  Agreement (as defined in the TNP Credit  Agreement) and (b) the
parties  hereto  execute and deliver this TNP Second Lien Mortgage  Modification
No. 3.

         O. Borrower,  Mortgagor and the Agent, or behalf of the Secured Parties
have modified the terms of the Existing  Facility  Agreement as set forth in the
Assignment  Agreement  and have  executed,  delivered and caused this TNP Second
Lien  Mortgage  Modification  No. 3 to be filed of record as a  memorial  of the
occurrence of such modifications and to confirm the validity and priority of the
liens, security interests and assignments of the TNP Second Lien Mortgage.

     P. The  Agent is  authorized  by  Section  15.01 of the  Existing  Facility
Agreement to execute and deliver this TNP Second Lien Mortgage  Modification No.
3.


                                   Agreements

         NOW, THEREFORE,  in consideration of the premises and of the sum of Ten
and No/100  Dollars  ($10.00)  and other good and  valuable  consideration,  the
receipt and sufficiency of all of which are hereby acknowledged,  the TNP Second
Lien  Mortgage,   as  previously  modified  by  the  TNP  Second  Lien  Mortgage
Modifications, is hereby modified and extended as follows:

         1. Modification of Terms of the Existing Facility Agreement.  The terms
of the Existing  Facility  Agreement  are amended and  modified  pursuant to the
Assignment Agreement.  The amendments to the Existing Facility Agreement include
(i)  rescheduling  the amounts and dates of certain  repayments,  including  the
extension of the Final  Maturity  Date on the Loans  payable to the Banks to the
Maturity Date (as defined in the TNP Credit Agreement) and (ii) amending certain
covenants (collectively,  the "Subject Provisions").  As of the date hereof, the
aggregate  principal  amount of Project  Loans  outstanding  under the  Existing
Facility Agreement is $147,750,000.  In addition, there remain outstanding under
the Existing  Facility  Agreement  $65,000,000 of Replacement Loans evidenced by
the Replacement Note.

         2. Effect of  Modification.  The Loans,  whether  evidenced  by Project
Notes or the  Replacement  Note,  and all other  Obligations as described in the
Existing  Facility  Agreement are secured by the liens,  security  interests and
assignments  of the TNP Second Lien Mortgage and the other  Security  Documents.
The validity and priority of the liens,  security  interests and  assignments of
the TNP Second  Lien  Mortgage  shall not be  extinguished,  impaired,  reduced,
released or  adversely  affected  by the terms of this TNP Second Lien  Mortgage
Modification  No. 3 or the  execution  of the  Assignment  Agreement  or the TNP
Credit Agreement.

         3.  Extension of Rights and Liens.  The  Mortgagor  hereby  extends all
rights,  titles, liens, security interests,  assignments,  powers and privileges
securing the  Obligations  as described  in the Existing  Facility  Agreement by
virtue of the TNP Second Lien Mortgage until all of such  Obligations  have been
paid in full and agrees  that the  execution  of this TNP Second  Lien  Mortgage
Modification No. 3 shall in no manner impair the rights, titles, liens, security
interests,  assignments,  powers and  privileges  existing  by virtue of the TNP
Second Lien Mortgage, as they are extended and modified hereby.

4.   No Merger.  Neither the Borrower nor the Mortgagor intend that there be 
and there shall not in any event be,
a merger of any of the liens, security interests and assignments of the TNP 
Second Lien Mortgage with the title or
interest of the Mortgagor by virtue of the assignments contained in the 
Assignment Agreement (as defined in the TNP
Credit Agreement) and the parties expressly provide that each such interest 
in such liens, security interests and
assignments on the one hand and title to the TNP Second Lien Mortgage, as 
modified, on the other, be and remain at all
times separate and distinct with all such validity and priority that existed
prior to the execution of the Assignment
Agreement and this TNP Second Lien Mortgage Modification No. 3.

         5.  Joinder of  Guarantor.  Contemporaneously  with the  execution  and
delivery  of  this  TNP  Second  Lien  Mortgage   Modification  No.  3,  and  as
consideration  therefor,  Mortgagor,  as  the  Guarantor,  hereby  confirms  and
consents to each and every of the terms and  conditions  of this TNP Second Lien
Mortgage Modification No. 3 and the Existing Facility Agreement, and agrees that
the terms and  conditions  of the  Guaranty  are in full  force and  effect  and
unaffected  by the  execution  by  Borrower  and  Mortgagor  of  the  Assignment
Agreement  or the TNP  Credit  Agreement  and  this  TNP  Second  Lien  Mortgage
Modification  No. 3, and  acknowledges  that  there  are no  claims  or  offsets
against, or defenses or counterclaims to, the Guaranty.

         6. Successors and Assigns.  This TNP Second Lien Mortgage  Modification
No. 3 shall be binding upon the successors and assigns of Mortgagor, the Secured
Parties  and the  Collateral  Agent,  and  shall  inure  to the  benefit  of the
successors  and  assigns of the  Secured  Parties;  provided,  however,  nothing
contained  in this  Section 6 is intended to  authorize  TNP or the  Borrower to
assign any of the  Obligations  or to sell any of the Second Lien Mortgage Trust
Estate  except  in  accordance  with the  Existing  Facility  Agreement  and the
Facility Purchase Agreement.

7.   Counterparts.  This TNP Second Lien Mortgage Modification No. 3 may be 
executed in any number of
counterparts, all of which taken together shall constitute one and the same 
instrument, and any of the parties hereto
many execute this TNP Second Lien Mortgage Modification No. 3 by signing any 
such counterpart.

         EXECUTED as of the date first hereinabove written.

                                SECURED PARTIES:

                                THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
                                as Agent

                                 By:________________________________
                                    Title:

                                 MORTGAGOR:
                                 TEXAS-NEW MEXICO POWER COMPANY, a Texas 
                                 corporation

                                 By:________________________________
                                    Title:

The undersigned  hereby consents and agrees to the foregoing pursuant to Section
l(c)  of  the  Intercreditor  Agreement  as  defined  in the  Existing  Facility
Agreement.

THE CHASE MANHATTAN BANK
 (NATIONAL ASSOCIATION),
as Collateral Agent


By:
Title:
STATE OF NEW YORK

COUNTY OF NEW YORK

     This  instrument  was  acknowledged  before me on the ____ day of November,
1995, by  --------------------------- ,  -------------------------------  of THE
CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent.


                                           -----------------------------
                                           NOTARY PUBLIC in and for
                                           the State of NEW YORK

My Commission Expires:

------------------------------------------------------------------
                     Typed or Printed Name of Notary

STATE OF NEW YORK

COUNTY OF NEW YORK

     This  instrument  was  acknowledged  before me on the_____ day of November,
1995, by -----------------------------------------------------------------------
of THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Collateral Agent.


                               -----------------------------------------
                                    NOTARY PUBLIC in and for
                                    the State of NEW YORK

My Commission Expires:

                          -----------------------------------------
                                   Typed or Printed Name of Notary

STATE OF TEXAS

COUNTY OF ______________

     This instrument was acknowledged  before me on the _______ day of November,
1995, by  ------------------------------------------------------------------- of
TEXAS-NEW  MEXICO  POWER  COMPANY,  a  Texas  corporation,  on  behalf  of  said
corporation.

                                  ------------------------------------------
                                        NOTARY PUBLIC in and for
                                          the State of TEXAS

My Commission Expires:

-------------------------------------------------------------------
                                 Typed or Printed Name of Notary


<PAGE>


                                                                    EXHIBIT J




                                            ASSIGNMENT  AND AMENDMENT  AGREEMENT
                                    dated  as  of   November   3,  1995,   among
                                    TEXAS-NEW  MEXICO  POWER  COMPANY,  a  Texas
                                    corporation   ("TNP");    TEXAS   GENERATING
                                    COMPANY II, a Texas  corporation ("TGC II");
                                    the   financial   institutions   listed   in
                                    Schedule   I  hereto  in  their   respective
                                    capacities   as  parties  to  the   Existing
                                    Facility  Agreement  referred  to below (the
                                    "Existing  Facility  Banks"),  including THE
                                    CHASE MANHATTAN BANK (NATIONAL  ASSOCIATION)
                                    ("Chase"),  in its capacity as agent for the
                                    Existing  Facility Banks and the Replacement
                                    Note  Holder  under  the  Existing  Facility
                                    Agreement  defined below (in such  capacity,
                                    the   "Original   Agent"),   including   its
                                    capacity as agent for the Existing  Facility
                                    Banks and the Replacement  Note Holder under
                                    the Existing Facility Security Documents (as
                                    defined in the TNP Credit Agreement  defined
                                    below)   (hereinafter   in   such   capacity
                                    referred  to  as  the  "Original  Collateral
                                    Agent");  the lenders (the "Lenders")  party
                                    to the  TNP  Credit  Agreement,  as  defined
                                    below;  and CHEMICAL BANK  ("Chemical"),  as
                                    administrative  agent and  collateral  agent
                                    for the  Lenders  (in such  capacities,  the
                                    "Administrative  Agent"  and the  Collateral
                                    Agent", respectively).


                                           Preliminary Statement

                  A. Certain of the parties hereto entered into the Project Loan
and Credit  Agreement,  dated as of October 1, 1988 (the "Unit 2 Original Credit
Agreement"), by and among TNP, Texas PFC, Inc. ("TPFC"), Algemene Bank Nederland
N.V., the Houston Agency,  as issuing bank (the "Issuing Bank"),  certain of the
Existing  Facility Banks (the "Prior Unit 2 Banks") and the Original Agent.  The
initial loans under the Unit 2 Original Credit Agreement were made on October 4,
1988.  Subsequent to such date,  certain of the parties  hereto entered into the
following  amendments to the Unit 2 Original Credit  Agreement:  Amendment No. 1
dated as of May 1, 1989;  and Amendment No. 2 dated as of May 31, 1991 (the Unit
2 Original  Credit  Agreement,  as amended by the  foregoing  amendments,  being
called  the "Unit 2 Prior  Credit  Agreement").  Capitalized  terms used but not
otherwise  defined in the  introductory  paragraph hereof or in this Preliminary
Statement shall have the meanings  ascribed to such terms in Section 1.01 of the
Existing  Facility  Agreement  referred to in paragraph (G) of this  Preliminary
Statement.

                  B. Certain of the parties hereto entered into the Project Loan
and Credit Agreement,  dated as of December 1, 1987 (the "Unit 1 Original Credit
Agreement"),  by and among TNP,  Project Funding  Corporation  ("PFC"),  Westpac
Banking Corporation ("Westpac"), as issuing bank, the banks party thereto (the "
Prior Unit 1 Banks") and Chase,  as agent.  The  initial  loans under the Unit 1
Original  Credit  Agreement  were made on December 3, 1987.  Subsequent  to such
date,  certain of the parties to the Unit 1 Original  Credit  Agreement  entered
into the following amendments thereto: Amendment No. 1 dated as of July 1, 1988;
Amendment No. 2 dated as of August 26, 1988; Amendment No. 3 dated as of October
1, 1988;  Amendment  No. 4 dated as of May 1, 1989;  Amendment No. 5 dated as of
May 30,  1990;  Amendment  No. 6 dated as of October  22,  1990;  and the letter
agreements  dated September 20, 1991 and September 23, 1991 (the Unit 1 Original
Credit Agreement, as amended by the foregoing amendments, being called the "Unit
1 Prior Credit  Agreement" and, together with the Unit 2 Prior Credit Agreement,
the "Prior Credit Agreements").

                  C. The  Preliminary  Acceptance  Date  occurred  as of May 31,
1991,  and on  that  date,  pursuant  to the  terms  of  the  TGC II  Assumption
Agreement,  TGC II assumed  certain of the  obligations  and liabilities of TPFC
under the Unit 2 Prior Credit Agreement and the other Project Documents to which
TPFC was a party.  Thus, the Alternative  Assumption Date occurred as of May 31,
1991, and as a result of such assumption,  TPFC transferred  ownership of Unit 2
to TGC II.

                  D. On September 30, 1991,  TNP canceled the  commercial  paper
program provided for in the Unit 2 Prior Credit Agreement and requested that the
Issuing Bank terminate the letter of credit  supporting  commercial  paper notes
issued  thereunder.  As a  result,  the  provisions  of the Unit 2 Prior  Credit
Agreement  pertaining to the Issuing Bank and commercial paper notes have become
inoperative and the Issuing Bank no longer acts as issuing bank thereunder.

                  E.  TNP,  the Prior  Unit 2 Banks  and the Prior  Unit 1 Banks
entered into an agreement in principle dated as of November 7, 1991 (as modified
on November 15, 1991) in connection with certain  amendments to the Prior Credit
Agreements for, among other things, the extension of certain scheduled repayment
dates,  the payment and  prepayment by TGC II and the purchase by TNP of Project
Loans and  increases  in interest  rates and fees  thereunder.  The Prior Unit 1
Banks entered into the Unit I First Amended and Restated Project Loan and Credit
Agreement dated as of January 8, 1992 (the "Unit 1 Credit Agreement") among TNP,
Texas  Generating  Company,  as  successor  in interest to PFC,  the banks party
thereto  (the  "Unit 1  Banks")  and  Chase,  as agent,  in order to effect  the
agreement in principle.  Simultaneously  with the execution of the Unit 1 Credit
Agreement,  the Prior Unit 2 Banks  entered  into the Unit 2 First  Amended  and
Restated  Project  Loan and  Credit  Agreement  dated as of January 8, 1992 (the
"Unit 2 Credit  Agreement") among TNP, TGC II, the Original Unit 2 Banks and the
Original  Agent.  The Unit 2 Credit  Agreement  became  effective on January 24,
1992, upon the  satisfaction of the conditions  precedent  thereto as set out in
Section 8.01 thereof.

                  F.  On  January  27,  1992,  TNP  and  TGC  II  satisfied  the
conditions  in  Section  8.02  of the  Unit 2  Credit  Agreement  to  cause  the
occurrence of the Extension Date (as defined  therein).  TNP issued its Series T
Bonds and its First Secured Debentures Due January 15, 1999, and applied the net
proceeds thereof to, among other things, purchase pro rata from the Unit 1 Banks
$65,000,000 of the loans  outstanding  under the Unit 1 Credit  Agreement and to
purchase  pro rata  from the  Original  Unit 2 Banks  $65,000,000  of the  loans
outstanding  under the Unit 2 Credit  Agreement.  The loans acquired by TNP from
the  Original  Unit 2 Banks  were,  automatically  upon their  purchase  by TNP,
converted into the First  Replacement  Loan,  evidenced by the First Replacement
Note that is secured  pursuant  to the  Security  Documents  pari passu with the
other  Obligations  under  the Unit 2 Credit  Agreement  and the  other  Project
Documents. The First Secured Debentures are secured by TNP's pledge of the First
Replacement Note to the First Debenture  Trustee (the "Replacement Note Holder")
under the First Secured  Debenture  Indenture.  As a result of the pledge of the
First Replacement Note, the First Secured Debentures indirectly share pari passu
in the Original Unit 2 Banks' Collateral.

                  G. The  parties to the Unit 2 Credit  Agreement  entered  into
Amendment No. 1 thereto  ("Amendment No. 1") dated as of September 21, 1993 (the
Unit 2 Credit  Agreement,  as  amended  by  Amendment  No. 1,  being  called the
"Existing Facility Agreement") in order (i) to provide,  among other things, for
the extension of certain scheduled  repayment dates and the prepayment by TGC II
of  $75,750,000  of Existing  Project Loans and (ii) to facilitate  TNP's or TGC
II's indirectly securing certain additional debt securities with the Collateral.

     H. By virtue of the First Debenture  Trustee Consent,  the Replacement Note
Holder consented to the extent required to the provisions of Amendment No. 1.

                  I.  Simultaneously  with the execution of Amendment No. 1, the
parties to the Unit 1 Credit Agreement  entered into Amendment No. 1 thereto (as
amended, the "Amended Unit 1 Credit Agreement") in order to effect amendments to
the Unit 1 Credit Agreement  providing,  among other things, for the purchase by
TNP of additional loans thereunder.

                  J. The funds  necessary  for the payments and  prepayments  of
Existing Project Loans pursuant to Amendment No. 1 and the Amended Unit 1 Credit
Agreement  were  provided in part by the  issuance by TNP of new first  mortgage
bonds in an  aggregate  principal  amount  of  $100,000,000  under  the TNP Bond
Indenture and available cash.

                  K. TNP is entering into a revolving credit agreement (the "TNP
Credit  Agreement")  with certain  lenders (the "Lenders") and Chemical Bank, as
Administrative  Agent and  Collateral  Agent for the Lenders.  It is a condition
precedent  to the  effectiveness  of the TNP  Credit  Agreement  that (a) TGC II
borrow and have outstanding under the Existing Facility  Agreement Project Loans
in an  aggregate  principal  amount  equal  to  $147,750,000,  (b) the  Existing
Facility Agreement be amended as provided herein, (c) TGC II transfer to TNP, in
satisfaction  of  intercompany  indebtedness  owed by it to TNP, the proceeds of
borrowings  made under the Existing  Facility  Agreement on the  Effective  Date
which, together with the borrowings to be made on the Effective Date pursuant to
the TNP Credit Agreement,  will be sufficient to provide the necessary funds for
the purchase contemplated by the following clause (d), (d) TNP purchase from the
Existing  Facility  Banks all of the Project  Loans under the Existing  Facility
Agreement and (e) TNP pledge to Chemical Bank, as Collateral  Agent, the Project
Loans and all of the  promissory  notes  evidencing the same, and all rights and
interests of TNP under the Existing  Facility  Agreement and the other  Existing
Facility Documents.

                  L. TNP has requested  that the Existing  Facility  Banks,  the
Original  Agent and the Original  Collateral  Agent  assign and  transfer  their
interests under the Existing Facility Agreement and certain related documents to
TNP,  the  Administrative  Agent and the  Collateral  Agent,  respectively.  TNP
desires to purchase all Project Loans  outstanding  under the Existing  Facility
Agreement and the Administrative Agent and the Collateral Agent desire to accept
the transfer of such interests.  The Existing Facility Banks, the Original Agent
and the Original Collateral Agent desire to effect the foregoing assignments and
transfers and to be released from their  obligations under the Existing Facility
Agreement.

                  M. The  parties  hereto  desire  that the  guarantee  of,  and
security  interests  securing,  the  obligations  under  the  Existing  Facility
Agreement  and  such  related   documents   continue  to  guarantee  and  secure
obligations under the Existing Facility Agreement after the amendments described
in Section  1.02 and the  assignments  described  in Section  1.03.  The parties
hereto desire to effect the transactions provided for herein, all upon the terms
and subject to the conditions set forth herein.

                  Accordingly, the parties hereto hereby agree as follows:


I.  ASSIGNMENT AND AMENDMENT

                  SECTION 1.01.  Effective  Date;  Funding  Memorandum.  (a) The
Effective Date (as defined in Article III) shall be specified by TNP as provided
in  paragraph  (b)  below  and  shall  be a  Business  Day as of  which  all the
conditions specified in Article III shall have been (or shall be) satisfied.

                  (b) TNP shall provide  written notice  proposing a date as the
Effective Date at least three Business Days prior thereto to the  Administrative
Agent,  which  shall  send  copies  of such  notice to the  Lenders,  and to the
Original Agent,  which shall send copies of such notice to the Existing Facility
Banks.  At least three  Business  Days prior to the  Effective  Date,  TNP shall
provide to the Original Agent and the Administrative  Agent a funding memorandum
(the  "Funding  Memorandum")  setting  forth (x) with  respect  to the  Existing
Facility Agreement, the amount of all outstanding Project Loans thereunder as of
the Effective Date, and (y) the respective amounts to be paid to and received by
the Existing  Facility Banks on the Effective Date pursuant to Sections  1.05(c)
and (d).

                  SECTION  1.02.  Amendments  to  Existing  Facility  Agreement.
Subject to the  conditions  set forth in Article  III,  on the  Effective  Date,
immediately prior to the consummation of the assignments  referred to in Section
1.03, the Existing Facility Agreement shall be amended as follows:

     (a) by adding the following  definitions to Section 1.01 in the appropriate
alphabetical order:

                           "Assignment and Amendment  Agreement"  shall mean the
                  Assignment and Amendment  Agreement  substantially in the form
                  of Exhibit J to the TNP Credit Agreement.

                           "TNP  Credit  Agreement"  shall  mean  the  Revolving
                  Credit  Facility  Agreement dated as of November 3, 1995 among
                  TNP,  the  lenders  party   thereto  and  Chemical   Bank,  as
                  Administrative Agent for the lenders, as amended,  modified or
                  otherwise supplemented from time to time.

     (b) by  deleting  from  Section  1.01 the  definition  for the term  "Final
Maturity Date" and replacing it with the following:

                           "Final Maturity Date"  shall mean November 3, 2000.

     (c) by deleting from Section 1.01 the definition of "Available Amount".

     (d) by deleting subsection 4.02(b)(iii) in its entirety;

     (e) by amending subsection  4.05(b)(ii) by adding the following sentence at
the end thereof:

                           "Notwithstanding  the  foregoing,   the  transactions
                  contemplated by the Assignment and Amendment Agreement and the
                  TNP Credit  Agreement,  including  the  borrowings  under this
                  Agreement,  the assignment of the Project Notes to TNP and the
                  pledge thereof to the collateral  agent for the benefit of the
                  Lenders  under the TNP Credit  Agreement,  shall be  expressly
                  permitted   under  this   subsection   4.05(b)(ii),   and  the
                  obligations  under the TNP Credit  Agreement may be indirectly
                  secured by the  Collateral as  contemplated  therein,  and the
                  requirements  of  paragraphs  (c) through (i) of this  Section
                  4.05 shall not apply to such transactions."

     (f)  by  deleting  subsections  5.02(b)(i)(A),  (B)  and  (C),  subsections
5.02(b)(iv) and (vi), Section 9.33 and Section 9.34 in their entirety;

     (g) by  amending  clause  (a) of  Section  7.05,  to  insert  the words "or
purchase by TNP" after the words "or Conversion"  and by amending  subclause (i)
of Section  7.05 by inserting  the words  "(including  upon any such  purchase)"
after the words "the amount so paid";

     (h) by deleting from Section 10.21(b) the phrase ", and for the period from
January  1,  1993  until  the  provisions  of  Section  9.33  hereof  have  been
terminated, Available Amount (including the components thereof),";

     (i) by  amending  Section  10.08 by (i) adding a new clause (e) which shall
read in its entirety as follows:

     "(e) any guaranty of the obligations of TNP under the TNP Credit Agreement;
provided  that the  obligations  of TGC II under any such guaranty in respect of
the principal  amount of (i)  borrowings by TNP and (ii) payments on the Project
Loans shall in no event exceed $150,000,000 in the aggregate."

         and (ii) relettering clause (e) as clause (f); and

     (j) by amending  Section  10.11 by adding the  following  clause at the end
thereof:

                           "; provided, that, notwithstanding the foregoing, the
                  transactions  contemplated  by the  Assignment  and  Amendment
                  Agreement  and the TNP  Credit  Agreement  shall be  expressly
                  permitted hereunder."

Other than as set forth in Section 1.03, the interests,  rights and  obligations
of TNP under the  Project  Documents  shall be limited to those set forth in the
Existing Facility Agreement,  as amended hereby, and the Project Documents,  the
Security  Documents and the First  Amendment  Documents,  each as defined in the
Existing Facility Agreement  (collectively,  the "Existing Facility Documents"),
as amended  (if  applicable),  and all the  Existing  Facility  Documents  shall
continue in their  original or amended  form, as  applicable,  in full force and
effect for the benefit of TNP and the Replacement Note Holder and all references
in any thereof to the Existing  Facility  Agreement or to any Existing  Facility
Document  shall be deemed  references to the Existing  Facility  Agreement or to
such Existing  Facility  Document,  as amended  hereby (if  applicable),  and as
hereafter amended, supplemented or otherwise modified from time to time.

                  SECTION 1.03.  Assignments.  (a) Subject to the conditions set
forth in Article III and the payment by TNP to the Original Agent of all amounts
required to be paid under Section  1.05(c),  effective as of the Effective Date,
(i) each of the Existing  Facility  Banks hereby  assigns and  transfers to TNP,
without recourse,  representation or warranty (other than as expressly set forth
in Article II), all its Project  Loans and all its related  rights and interests
under  (x)  the  Existing  Facility  Agreement  and (y)  the  Existing  Facility
Documents,  and (ii) The Chase  Manhattan  Bank (National  Association),  in its
capacities   as  the  Original   Agent  and  the  Original   Collateral   Agent,
respectively,  hereby  resigns in favor of, and assigns all its rights under the
Existing  Facility  Agreement  and  the  Existing  Facility  Documents,  without
recourse or warranty,  to Chemical  Bank,  and Chemical Bank hereby accepts such
assignment and agrees to serve as Agent and Collateral  Agent under the Existing
Facility  Agreement and the Existing Facility Security  Documents.  The purchase
price to be paid by TNP for the Project  Loans and all such rights and interests
to be  purchased  by it shall  be the  amount  payable  under  Section  1.05(c).
Notwithstanding the foregoing,  (i) the Existing Facility Banks shall retain the
exclusive right under the Existing Facility  Agreement to receive and retain the
payments  referred to in Section  1.05(c) and (ii) the Existing  Facility Banks,
the  Original  Agent  and  the  Original  Collateral  Agent  shall  retain  on a
non-exclusive  basis all their rights under the Existing Facility  Agreement and
the Existing  Facility  Documents (which rights shall also be vested in TNP, the
Administrative Agent and the Collateral Agent) in respect of indemnification and
expense reimbursement  obligations for any and all losses, damages,  expenses or
similar  amounts  which they may have  sustained  or incurred  or may  hereafter
sustain  or  incur  in  connection  with the  transactions  contemplated  by the
Existing Facility Agreement and the Existing Facility Documents, including under
Sections 7, 13 and 14 of the Existing  Facility  Agreement,  which shall survive
the amendment of the Existing Facility Agreement. Solely for purposes of Section
7.05 of the Existing  Facility  Agreement,  the assignments and purchases of the
Project Loans on the Effective Date shall be treated as if they were prepayments
of such Loans. In implementation  of the foregoing,  the Existing Facility Banks
agree to deliver to the Original Agent, who will deliver to TNP on the Effective
Date,  all  promissory  notes  issued to the Existing  Facility  Banks under the
Existing  Facility  Agreement  (the  "Original  Notes") duly endorsed to TNP and
delivered to the Collateral Agent, on behalf of the Lenders,  together with duly
executed  instruments  of transfer  satisfactory  to TNP and the Lenders and the
Collateral Agent.

                  (b) Subject only to the effectiveness of the assignment to TNP
of the  Project  Loans and the  related  rights and  interests  of the  Existing
Facility Banks pursuant to paragraph (a) above, TNP hereby assumes and agrees to
perform and be bound by all the  provisions of and  obligations  of the Existing
Facility Banks under the Existing  Facility  Agreement and the Existing Facility
Documents.  Without limiting the foregoing,  TNP expressly agrees with Chase, in
its capacity as  Collateral  Agent under the  Intercreditor  Agreement,  for the
benefit of the Project Creditors (as defined in the Intercreditor Agreement), to
be bound  as a  Project  Creditor  by and  comply  with  the  provisions  of the
Intercreditor Agreement.

                  (c) As a result of the assignments and agreements provided for
in  paragraph  (a) above,  Chemical,  as Agent and  Collateral  Agent  under the
Existing  Facility  Agreement  and the Security  Documents,  will be the nominal
agent of (i) TNP in its  capacity as a lender and holder of Project  Loans under
the Existing  Facility  Agreement  and (ii) the  Replacement  Note Holder in its
capacity as holder of the First  Replacement  Note under the  Existing  Facility
Agreement.  TNP  acknowledges  that it is purchasing the Project Loans solely in
order to pledge the same to Chemical as  Collateral  Agent under the Note Pledge
Agreement (as defined in and pursuant to the TNP Credit  Agreement)  and for the
benefit of  Chemical  and the  Lenders  under such  Agreement,  and agrees  that
Chemical shall have no fiduciary or other  obligations to TNP in its capacity as
Agent or Collateral Agent under the Existing Facility  Agreement or the Security
Documents,  other than any  obligations  expressly  set forth in the Note Pledge
Agreement  (as  such  term is  defined  in the TNP  Credit  Agreement).  Without
limiting the  foregoing,  TNP agrees that  Chemical may take or omit to take, in
its  capacity as Agent and  Collateral  Agent,  any such  actions as it shall be
requested  to take or omit to take by the  Lenders or any of them,  or as it may
deem to be in the best interests of the Lenders  (including  Chemical) or in its
own best interests as Agent and Collateral  Agent,  regardless of the effects or
potential  effects of such actions or omissions  upon the rights or interests of
TNP, and that Chemical  shall have no liability to TNP for the  consequences  of
any such actions or omissions. Nothing in this paragraph shall in any way affect
the  obligations of Chemical to the  Replacement  Note Holder in its capacity as
Agent or Collateral Agent under the Existing Facility  Agreement or the Existing
Facility Security Documents.

                  (d)  In  connection  with  the  assignments  provided  for  in
paragraph (a) above,  Chase and Chemical  hereby waive the assignment  fees that
would  otherwise  be  payable  under  Section  16.01  of the  Existing  Facility
Agreement.

                  SECTION 1.04  Consents and  Releases.  (a) TNP and TGC II each
hereby consent and agree to the transactions to be effected pursuant to Sections
1.02 and 1.03 and hereby release,  effective on the Effective Date, the Existing
Facility Banks from all their obligations under the Existing Facility  Agreement
and the Existing  Facility  Documents.  From and after the Effective  Date,  the
Existing  Facility  Banks shall have no further  rights to or interest in any of
the  Collateral.  TNP and TGC II  each  acknowledge  that  the  Lenders  are not
assuming  the  obligations  of the  Existing  Facility  Banks under the Existing
Facility  Agreement  and agree  that the  obligations  of the  Lenders  shall be
limited to those set forth in the TNP Credit Agreement.

                  (b) Each of the Existing  Facility  Banks and the  Replacement
Note Holder hereby  authorizes and instructs Chase in its capacities as Original
Agent and Original  Collateral  Agent to execute and deliver (i) this Agreement,
(ii) the Sixth TGC II Modification  and Extension  Agreement made as of November
3, 1995 among the Original Agent, the Original Collateral Agent, TNP and TGC II,
(iii) the TNP Second Lien  Mortgage  Modification  No. 3 dated as of November 3,
1995 between TNP, the Original Agent and the Original Collateral Agent, (iv) the
Assignment  of TGC II Mortgage  Lien made as of November 3, 1995 by the Original
Agent and the Original  Collateral  Agent to and in favor of Chemical  Bank,  as
Agent under the Existing  Facility  Documents,  (v) the Assignment of TNP Second
Mortgage Lien made as of November 3, 1995 by the Original Agent and the Original
Collateral  Agent to and in favor of Chemical  Bank, as Agent under the Existing
Facility Documents and (vi) such other instruments,  documents, certificates and
agreements,  and to take such other action,  as may be  reasonably  necessary or
proper to accomplish the assignments contemplated by this Agreement.

     SECTION 1.05. Payments.  Subject to the conditions set forth in Article III
hereof, on the Effective --------- Date:

                  (a) TGC II shall transfer to TNP proceeds of borrowings  under
the  Existing  Facility  Agreement  which,  together  with the  proceeds  of the
borrowing  provided for in (b) below,  will provide the necessary  funds for the
payments required to be made by TNP under (c) below;

                  (b) TNP shall borrow $43,000,000.00 under the TNP Credit 
         Agreement;

                  (c)  TNP  shall  pay  to the  Original  Agent,  in the  manner
         provided in the Funding  Memorandum,  an amount equal to the sum of (i)
         the aggregate  principal amount of all Project Loans  outstanding under
         the Existing  Facility  Agreement  (whether or not then due),  (ii) all
         accrued and unpaid interest on all Project Loans  outstanding under the
         Existing Facility Agreement (whether or not then due) and (iii) without
         limitation of Section 1.03, all fees and other  amounts,  including any
         break funding  costs  arising as a result of the payments  provided for
         herein (to the extent  provided  in the  Funding  Memorandum),  accrued
         (whether or not then due) under the Existing Facility  Agreement or any
         Existing Facility Document and unpaid;

                  (d) the Original Agent shall forthwith  distribute the amounts
received by it pursuant to paragraph (c) above to the Existing Facility Banks in
the manner required under the Existing Facility Agreement; and

                  (e) TNP shall pay to the  Administrative  Agent, in the manner
         provided in Section 2.16 of the TNP Credit  Agreement for  distribution
         to the Lenders in accordance  with the TNP Credit  Agreement,  all fees
         and other amounts payable to the Lenders pursuant to Article III hereof
         on the Effective Date.

                  The parties acknowledge that certain break funding costs under
the Existing Facility Agreement may not have been notified to TGC II, and TGC II
agrees to pay such costs in accordance with the Existing Facility Agreement.


II.  REPRESENTATIONS AND WARRANTIES

                  SECTION  2.01.  Representations  and  Warranties  of  Existing
Facility Banks. (a) Each of the Existing Facility Banks represents and warrants,
as of the Effective Date, to TNP, the Lenders,  the Administrative Agent and the
Collateral Agent that it is the beneficial and record owner of the Project Loans
to be  assigned by it as  contemplated  by Section  1.03,  that it has not sold,
transferred or created any  participating  interest in or lien upon such Project
Loans (except  participating  interests which will terminate upon the assignment
provided for in Section 1.03) and that the Notes being  delivered by it pursuant
to Article III are the only Notes evidencing such Project Loans.

                  (b)  Each  of  the  Existing  Facility  Banks  represents  and
warrants to TNP,  TGC II, the Lenders and the  Administrative  Agent that it has
the power and authority to execute,  deliver and perform its  obligations  under
this Agreement and that this Agreement  constitutes its legal, valid and binding
obligation,  enforceable against it in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium  and other similar laws  affecting the  enforceability  of creditors'
rights generally and by general principles of equity.

                  SECTION   2.02.   Representations   and   Warranties   of  the
Administrative  Agent  and  the  Collateral  Agent  and  Lenders.  Each  of  the
Administrative  Agent,  the  Collateral  Agent and the  Lenders  represents  and
warrants  to  TNP,  TGC II and  the  Existing  Facility  Banks  that  it has the
corporate  power and authority to execute,  deliver and perform its  obligations
under this Agreement and that this Agreement  constitutes  its legal,  valid and
binding obligation,  enforceable against it in accordance with its terms, except
as  such  enforcement  may be  limited  by  applicable  bankruptcy,  insolvency,
reorganization,  moratorium and other similar laws affecting the  enforceability
of creditors' rights generally and by general principles of equity.

                  SECTION 2.03.  Representations  and  Warranties of TNP and TGC
II. Each of TNP and TGC II  represents  and  warrants to the  Existing  Facility
Banks, the Lenders,  the Administrative  Agent and the Collateral Agent that (a)
it has the  corporate  power and  authority to execute,  deliver and perform its
obligations under this Agreement and that this Agreement  constitutes its legal,
valid and binding  obligation,  enforceable  against it in  accordance  with its
terms,  except as such  enforcement  may be  limited by  applicable  bankruptcy,
insolvency,  reorganization,  moratorium  and other  similar laws  affecting the
enforceability  of  creditors'  rights  generally  and by general  principles of
equity,  and  (b)  this  Agreement  and  the  consummation  of the  transactions
contemplated hereby will not (i) violate (A) any provision of law, statute, rule
or regulation,  or of the certificate of incorporation or by-laws of such party,
(B)  any  order  of any  governmental  authority  or (C)  any  provision  of any
indenture or other material agreement or other instrument to which such party is
bound,  (ii) result in a breach of or constitute  (alone or with notice or lapse
of time or both) a default under any such indenture,  agreement or instrument or
(iii) result in the creation or  imposition  of any Lien upon or with respect to
any property or assets of such party other than as contemplated  hereby,  by the
TNP Credit Agreement or by the Existing Facility Documents.  No action,  consent
or  approval  of,  registration  or filing  with or any  other  action  by,  any
governmental  authority or the  Replacement  Note Holder,  other than those that
have  previously  been obtained and  disclosed in writing to the  Administrative
Agent,  is or will  be  required  in  connection  with  this  Agreement  and the
transactions contemplated hereby.


III.  CONDITIONS

                  The transactions contemplated by Sections 1.02, 1.03, 1.04 and
1.05 shall become  effective only upon the  satisfaction,  on a single date (the
"Effective Date") on or prior to November 3, 1995, of the following conditions:

     (a) the  Administrative  Agent shall have received one or more counterparts
of this Agreement executed by each of the parties hereto;

                  (b) the  Existing  Facility  Banks  shall have  delivered  the
         Original Notes,  endorsed in favor of TNP, to the Original  Agent,  and
         such  Original  Notes shall be  available  for  delivery as provided in
         Section 1.03; and

                  (c) the TNP  Credit  Agreement  shall have been  executed  and
         delivered by the parties thereto and shall have become  effective,  and
         each  condition  precedent  set forth in Section  4.1 or 4.2 of the TNP
         Credit Agreement shall have been satisfied.


IV.  MISCELLANEOUS

     SECTION 4.01.  Successors and Assigns.  This  Agreement  shall inure to the
benefit  of  and be  binding  upon  the  parties  hereto  and  their  respective
successors and assigns.

                  SECTION 4.02.  Effect of  Modification.  The  Obligations  (as
defined in the Existing Facility  Agreement) are secured by the liens,  security
interests and  assignments of the TGC II Mortgage,  the TNP Second Lien Mortgage
and the other  Security  Documents and guaranteed by TNP under the TNP Guaranty.
The validity and priority of the liens,  security  interests and  assignments of
the TGC II  Mortgage,  the TNP  Second  Lien  Mortgage  and the  other  Security
Documents, and the validity and enforceability of the TNP Guaranty, shall not be
extinguished, impaired, reduced, released, or adversely affected by the terms of
this Agreement or the TNP Credit Agreement.

                  SECTION  4.03.  Extension of Rights and Liens.  Each of TGC II
and  TNP  hereby  extends  all  rights,   titles,   liens,  security  interests,
assignments, powers and privileges securing the Obligations by virtue of the TGC
II Mortgage,  the TNP Second Lien Mortgage and the other Security Documents,  as
the case may be, until all of such Obligations have been paid in full and agrees
that the  execution of this  Agreement or the TNP Credit  Agreement  shall in no
manner impair the rights, titles, liens, security interests, assignments, powers
and  privileges  existing by virtue of the TGC II Mortgage,  the TNP Second Lien
Mortgage or the other  Security  Documents,  as they are  extended  and modified
hereby or by agreements and instruments executed pursuant to the terms hereof.

                  SECTION  4.04.  Joinder of Guarantor;  No Merger.  (a) TNP, as
guarantor under the TNP Guaranty, hereby (i) consents to the execution, delivery
and  performance  by TGC II of this  Agreement  and any amendment to any Project
Document  or  Security  Document to which TGC II is or is intended to be a party
and the consummation of the transactions  contemplated hereby and thereby,  (ii)
agrees that the TNP Guaranty  shall remain in full force and effect after giving
effect to such  transactions and (iii)  acknowledges that there are no claims or
offsets against, or defenses or counterclaims to, the TNP Guaranty.

(b) Neither TNP nor any of the other parties to this Agreement intend that there
be and  there  shall  not in any  event  be, a merger  of any of the  rights  or
interests of the Secured  Parties  under the terms of the TNP Guaranty  with the
rights  or  interests  of  TNP  in and to the  TNP  Guaranty  by  virtue  of the
assignments and purchases contemplated hereby, and the parties expressly provide
that such rights and interests of the Secured  Parties on the one hand,  and the
rights and  interests of TNP on the other,  be and remain at all times  separate
and distinct  with all such rights and  obligations  continuing to guarantee the
Obligations.

     SECTION  4.05.  APPLICABLE  LAW.  THIS  AGREEMENT  SHALL  BE  CONSTRUED  IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

     SECTION 4.06. Amendment.  This Agreement may be waived, modified or amended
only by a written agreement  executed by TNP, TGC II, the Original Agent and the
Administrative Agent.

                  SECTION 4.07. Counterparts.  This Agreement may be executed in
any number of  counterparts  and by the  different  parties  hereto on  separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same agreement.  Delivery
of an executed  counterpart  of a signature  page of this Agreement by facsimile
transmission  shall be effective as delivery of a manually executed  counterpart
of this Agreement.

                  SECTION 4.08. Expenses;  Indemnity. (a) Each of TGC II and TNP
agrees  to pay  all  reasonable  out-of-pocket  expenses  incurred  by  (i)  the
Administrative  Agent in connection with the preparation of this Agreement,  the
TNP Credit  Agreement and the other  documents  contemplated  hereby and thereby
(whether  or not the  transactions  hereby  or  thereby  contemplated  shall  be
consummated), (ii) any Existing Facility Bank, the Original Agent, any Lender or
the  Administrative  Agent in connection with any action which may be instituted
by any Person against any of them in respect of the foregoing, or as a result of
any transaction arising from the foregoing and (iii) the Administrative Agent in
connection  with the  preparation of any amendments to or waivers or consents of
or  under  this  Agreement  or the  TNP  Credit  Agreement  or  other  documents
contemplated  hereby or thereby including,  without  limitation,  the reasonable
fees and disbursements of counsel for the Administrative  Agent. TNP agrees that
it shall indemnify each Existing  Facility Bank, the Original Agent, each Lender
and the  Administrative  Agent from and hold such parties  harmless  against any
documentary taxes,  assessments or charges made by any governmental authority by
reason of the execution and delivery of this Agreement.

                  (b) Each of TGC II and TNP agrees to indemnify  each  Existing
Facility Bank, the Original Agent, each Lender and the Administrative  Agent and
its directors,  officers, employees and agents (each such Person being called an
"Indemnitee")  against,  and to hold each Indemnitee  harmless from, any and all
losses, claims, damages,  liabilities and related expenses,  including,  without
limitation,  reasonable  counsel  fees and  expenses,  incurred  by or  asserted
against any Indemnitee arising out of, in any way connected with, or as a result
of (i) the preparation, execution and delivery of this Agreement, the TNP Credit
Agreement  and  the  other  documents   contemplated  hereby  or  thereby,   the
performance  by the parties  hereto or thereto of their  respective  obligations
hereunder or thereunder and the  consummation of the  transactions  contemplated
hereby or thereby or (ii) any  funding or other costs  incurred by the  Existing
Facility  Banks or the Lenders in the event the Effective Date does not occur on
the date proposed by TNP; provided,  however,  that such indemnity shall not, as
to any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities  or  related  expenses  are  determined  by  a  court  of  competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or wilful misconduct of such Indemnitee.

                  (c) The  provisions  of this  Section  4.08 shall  survive and
remain  operative and in full force and effect  regardless of whether or not the
transactions  contemplated  hereby  are  consummated  or  such  consummation  is
delayed, and regardless of the amendment of the Existing Facility Agreement, the
purchase of the Project  Loans,  the  termination  of this  Agreement or the TNP
Credit Agreement, the invalidity or unenforceability of any term or provision of
this Agreement,  the Existing  Facility  Agreement or any agreement  referred to
therein,  the TNP Credit  Agreement or any agreement  referred to therein or the
Original Notes, or any investigation made by or on behalf of any Indemnitee. All
amounts due under this Section 4.08 shall be payable on written demand  therefor
accompanied by evidence in reasonable  detail  sufficient to identify the nature
and amount of the expense so incurred.

                  SECTION  4.09.  No Novation.  Neither this  Agreement  nor the
execution,   delivery  or  effectiveness  of  the  TNP  Credit  Agreement  shall
extinguish  the  obligations  for the  payment  of money  outstanding  under the
Existing Facility  Agreement or discharge or release the Lien or priority of any
Security Document or any other security therefor. Nothing herein contained shall
be construed as a substitution or novation of the obligations  outstanding under
the Existing  Facility  Agreement or instruments  securing the same, which shall
remain in full  force and  effect,  except to the extent  modified  hereby or by
instruments executed pursuant hereto. Nothing in this Agreement,  the TNP Credit
Agreement,  or any  other  document  contemplated  hereby  or  thereby  shall be
construed as a release or other  discharge  of any Borrower or any  Guarantor or
any  Pledgor  or any  Assignor  or any  Mortgagor  under any  Existing  Facility
Document  from  any  of  its   obligations  and  liabilities  as  a  "Borrower",
"Guarantor" or "Pledgor" under the Existing  Facility  Agreement or the Existing
Facility  Documents.  Each of the Existing  Facility  Agreement and the Existing
Facility  Documents  shall remain in full force and effect  except to any extent
modified hereby or in connection herewith. Notwithstanding any provision of this
Agreement or the TNP Credit  Agreement,  the provisions of Sections 13 and 14 of
the Existing Facility Agreement,  including all defined terms used therein, will
continue to be effective as to all matters  arising out of or in any way related
to facts or events existing or occurring prior to the Effective Date.

                  SECTION  4.10.  Certain  Agreements.  Each  of TNP  and TGC II
agrees that (a) for all purposes of the TNP Credit  Agreement,  the transactions
contemplated by this Agreement shall be deemed to constitute  "Transactions"  as
defined in the TNP Credit Agreement.  It is understood and agreed by all parties
hereto that in the event that the  assignments  provided  for in Section 1.03 do
not occur for any reason, then the amendments to the Existing Facility Agreement
provided  for  herein  shall be null  and  void.  TNP and TGC II agree  that any
obligations of TGC II on account of interest on the Pledged Notes (as defined in
the TNP Credit Agreement) shall be cancelled until the occurrence of an Event of
Default (as defined in the TNP Credit  Agreement) at which time and at all times
thereafter  such Pledged Notes shall bear interest at the rates,  and payable in
the manner,  provided in the Existing  Facility  Agreement  with  payments to be
delivered to and held by the Collateral Agent for application in accordance with
the  provisions  of the Note  Pledge  Agreement  (as  defined  in the TNP Credit
Agreement).


                  IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first above written.


     TEXAS-NEW MEXICO POWER COMPANY,

     by /s/ Patrick L. Bridges 
     Name: Patrick L. Bridges 
     Title: Treasuer


     TEXAS GENERATING COMPANY II,

     by /s/ M. S. Cheema
     Name:   M. S. Cheema
     Title:    Vice President


     THE CHASE MANHATTAN BANK, N.A.,  individually as an Existing  Facility Bank
and as Original Agent and Original Collateral Agent,

     by /s/ Thomas L. Casey
     Name:  Thomas L. Casey
     Title:    Vice President


     CHEMICAL BANK, individually as a Lender and as Administrative Agent
       and Collateral Agent,

     by /s/ Jane Ritchie
     Name:  Jane Ritchie
     Title:   Vice President

Existing Facility Banks

ABN AMRO BANK N.V., HOUSTON AGENCY,

     by /s/ Michael N. Oakes
     Name:  Michael N. Oakes
     Title:    Vice President


     by /s/ M. A. Tribolet
     Name:  M. A. Tribolet
     Title:    Group Vice President


BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION,

     by
          /s/ Robert Eaton
        Name:  Robert Eaton
        Title:   Vice President


THE BANK OF NEW YORK,

     by
          /s/ Ian K. Stewart
        Name:  Ian K. Stewart
        Title:   Senior Vice President


THE BANK OF NOVA SCOTIA,

     by
          /s/ A. S. Norsworthy
        Name:  A. S. Norsworthy
        Title:   Assistant Agent


CREDIT SUISSE,

     by
          /s/ David Worthington
        Name:  David Worthington
        Title:    Member of Senior Management

     by
          /s/ Marilou Palenzuela
        Name:  Marilou Palenzuela
        Title:    Member of Senior Management


FLEET BANK OF MASSACHUSETTS, N.A.,

     by
          /s/ Brian O'Connor
        Name:  Brian O'Connor
        Title:   Vice President


NATIONSBANK OF TEXAS, N.A.,

     by
        /s/  Bryan L. Diers
       Name:   Bryan L. Diers
       Title:    Senior Vice President

PROSPECT STREET SENIOR PORTFOLIO, L.P.,

     by  PROSPECT STREET SENIOR LOAN CORP., Managing General Partner,

     by
          /s/ Dana E. Erikson
        Name:  Dana E. Erikson
        Title:   Vice President

UNION BANK,

     by
          /s/   John M. Edmonston
        Name:  John M. Edmonston
        Title:   Vice President


WESTPAC BANKING CORPORATION,

     by
          /s/ George Alexander
        Name:  George Alexander
        Title:   Vice President


BANK AUSTRIA AKTIENGESELLSCHAFT
(Succesor in Interest to Z - LNDERBANK
AUSTRIA A.G.),

     by
          /s/ Mark Nolan                     /s/ J. Anthony Seay
        Name:  Mark Nolan                    Anthony Seay
        Title:   Assistant Vice President     Vice President



Voting Participants under Chase Credit Agreement


CHRISTIANA BANK,

     by
          /s/ Justin F. McCarty, III
        Name:  Justin F. McCarty, III
        Title:   Vice President

     by
          /s/ Hans Chr. Kjelsrud
        Name:  Hans Chr. Kjelsrud
        Title:   Vice President


THE NIPPON CREDIT BANK, LTD.,

     by
          /s/  James J. Pasquale
        Name:   James J. Pasquale
        Title:    Senior Manager



<PAGE>


Lenders under the TNP Credit Agreement


THE FIRST NATIONAL BANK OF BOSTON,

                                    by
                                         /s/  Rita M. Cahill
                                       Name:  Rita M. Cahill
                                       Title:   Vice President
THE BANK OF MONTREAL,

                                    by
                                         /s/   Julia B. Buthman
                                       Name:   Julia B. Buthman
                                       itle:    Director

THE BANK OF NEW YORK,

                                    by
                                         /s/  Ian K. Stewart
                                       Name:   Ian K. Stewart
                                       Title:    Senior Vice President

CIBC, INC.,

                                    by
                                         /s/   Robert S. Lyle
                                       Name:   Robert S. Lyle
                                      Title:    Vice President

CREDIT LYONNAIS, NEW YORK BRANCH,

                                    by
                                         /s/   Robert Ivosevich
                                       Name:   Robert Ivosevich
                                       Title:    Senior Vice President

NATIONSBANK OF TEXAS, N.A.,

                                    by
                                         /s/   Bryan L. Diers
                                        Name:   Bryan L. Diers
                                        Title:    Senior Vice President

THE NIPPON CREDIT BANK, LTD.,

                                    by
                                         /s/   James J. Pasquale
                                       Name:   James J. Pasquale
                                       Title:    Senior Manager

UNION BANK,

                                    by
                                         /s/   John M. Edmonston
                                       Name:   John M. Edmonston
                                       Title:    Vice President


<PAGE>

                                                              EXHIBIT K
                  [FORM OF ASSIGNMENT OF TGC II MORTGAGE LIEN]

ATTENTION:  ROBERTSON COUNTY, TEXAS RECORDER
RECORDING REQUESTED BY, AND WHEN RECORDED MAIL TO:

Chemical Bank
In care of Donald H. Snell, Esq.
Snell, Banowsky & Trent
200 Crescent Court, Suite 1000
Dallas, Texas 75201


                       ASSIGNMENT OF TGC II MORTGAGE LIEN

THE STATE OF TEXAS,        )
                                )  ss.:
COUNTY OF ROBERTSON,)

                  THIS ASSIGNMENT OF TGC II MORTGAGE LIEN ("Assignment") is made
as of November 3, 1995, by THE CHASE  MANHATTAN BANK (NATIONAL  ASSOCIATION)  as
Agent for the Banks and the Replacement Note Holder (in such capacity, on behalf
of the Secured  Parties,  together with its successors in such capacity,  herein
called the "Assignor") to, and in favor of CHEMICAL BANK, as agent for Texas-New
Mexico Power Company ("TNP") under the Existing  Facility  Agreement (as defined
in Paragraph A of the Recitals) (pursuant to the Assignment  Agreement described
in paragraph E of the Recitals),  and as agent for the  Replacement  Note Holder
under the Existing  Facility  Agreement (in such  capacities,  the  "Assignee").
Unless otherwise  defined herein,  the capitalized  terms used herein shall have
the  meanings  given to those  terms in the TNP  Credit  Agreement,  defined  in
Paragraph E of the  Recitals,  or the Existing  Facility  Agreement,  defined in
Paragraph A of the Recitals, as applicable.


                                   WITNESSETH

                  A. Certain of the Banks,  the Chase  Manhattan  Bank (National
Association) as Agent, TEXAS PFC, INC., a Delaware  corporation ("TPFC") and TNP
entered into the Project Loan and Credit  Agreement  dated as of October 1, 1988
(as amended and restated from time to time, the "Existing  Facility  Agreement")
pursuant to which the Banks made Loans, prior to the Alternative Assumption Date
to TPFC, and thereafter,  to TEXAS  GENERATING  COMPANY II, a Texas  corporation
("TGC II"), in a maximum  outstanding  aggregate principal amount of TWO HUNDRED
EIGHTY-EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS ($288,500,000.00).

                  B. The  Obligations  under the terms of the Existing  Facility
Agreement  were secured,  in part,  by the terms,  provisions,  liens,  security
interests  and  assignments  of that  certain TGC II Mortgage  and Deed of Trust
(with Security  Agreement and UCC Financing  Statement for Fixture Filing) dated
as of October 1, 1988 ("TGC II Mortgage"),  which was filed of record on October
4, 1988 in Volume 521 at Page 601 of the Public  Records  of  Robertson  County,
Texas.

                  C. The  Alternative  Assumption  Date  occurred  as of May 31,
1991.  Certain  of the  obligations  of TPFC  under  the  terms of the  Existing
Facility  Agreement  were assumed by TGC II pursuant to that certain  Assumption
Agreement  recorded in Volume 566 at Page 252 of the Public Records of Robertson
County,  Texas.  The TGC II Mortgage Trust Estate was conveyed by TPFC to TGC II
pursuant to that  certain  Conveyance  and Bill of Sale  effective as of May 31,
1991,  recorded  in Volume  566 at Page 283 of the Public  Records of  Robertson
County, Texas.

                  D.  Subsequent  to the  execution  and  delivery of the TGC II
Mortgage,  TNP, TGC II and the Assignor executed and delivered (i) the First TGC
II Modification and Extension  Agreement dated as of January 24, 1992 and caused
it to be recorded in Volume 573 at Page 484 of the Public  Records of  Robertson
County, Texas, (ii) the Second TGC II Modification and Extension Agreement dated
as of January 27, 1992 and caused it to be recorded in Volume 573 at Page 511 of
the  Public  Records  of  Robertson  County,  Texas,  (iii)  the  Third  TGC  II
Modification and Extension  Agreement dated as of January 27, 1992 and caused it
to be  recorded  in Volume  573 at Page 525 of the Public  Records of  Robertson
County, Texas, (iv) the Fourth TGC II Modification and Extension Agreement dated
as of  September  29, 1993 and caused it to be recorded in Volume 601 at Page 87
of the  Public  Records  of  Robertson  County,  Texas,  (v)  the  Fifth  TGC II
Modification and Extension  Agreement dated as of June 15, 1994 and caused it to
be recorded in Volume 614 at Page 224 of the Public Records of Robertson County,
Texas, in each case as a memorial of certain  modifications of, amendments to or
occurrences of events under the Existing  Facility  Agreement and to confirm the
validity and priority of the liens,  security  interests and  assignments of the
TGC II Mortgage securing the Obligations.

                  E. TNP is entering into a Revolving Credit Facility  Agreement
dated as of the date  hereof  ("TNP  Credit  Agreement")  with  certain  Lenders
(herein so called) and Chemical  Bank, as  Administrative  Agent and  Collateral
Agent for the Lenders.  It is a condition  precedent to the execution of the TNP
Credit Agreement that,  pursuant to the Assignment  Agreement (as defined in the
TNP Credit  Agreement),  (i) the Existing Facility Agreement be further amended,
(ii) all of the Project  Loans be  purchased by TNP and (iii) all of the related
rights and  interests  under the  Existing  Facility  Documents  be assigned and
transferred  to Assignee by the  Assignor  pursuant to this  Assignment  and the
Assignment  Agreement,  so  that  TNP may  then  pledge  to  Chemical  Bank,  as
Collateral  Agent, the Project Loans,  including all promissory notes evidencing
such Project Loans and all of TNP's interest in the Collateral,  as security for
TNP's obligations under the TNP Credit Agreement.

                  F.  TNP,  TGC  II  and  the  Secured  Parties  have  executed,
delivered  and caused  that  certain  Sixth TGC II  Modification  and  Extension
Agreement  to be  filed  of  record  as a  memorial  of the  occurrence  of such
modifications  and  amendments  set forth in the  Assignment  Agreement,  and to
confirm  the  validity  and  priority  of  the  liens,  security  interests  and
assignments of the TGC II Mortgage securing the Obligations,  and Assignor,  TNP
and  Assignee  now desire to execute,  deliver and cause this  Assignment  to be
filed of record to memorialize the Assignment of the liens,  security  interests
and assignments of the TGC II Mortgage by the Assignor to the Assignee.


                                   Agreements

                  NOW,  THEREFORE,  for and in  consideration  of the  foregoing
recitals,  together  with the sum of Ten  Dollars  ($10.00)  and other  good and
valuable consideration,  paid and delivered by Assignee to Assignor, the receipt
and sufficiency of which are hereby  acknowledged  and confessed,  Assignor does
hereby  SELL,  ASSIGN,  TRANSFER,  CONVEY and DELIVER  unto  Assignee all of the
liens, security interests, assignments and all of the other rights and interests
of  Assignor  in,  to and  under  the TGC II  Mortgage  and in and to the TGC II
Mortgage  Trust  Estate,  TO HAVE  AND TO  HOLD  the  same  unto  Assignee,  its
successors and assigns forever.


                  IN WITNESS  WHEREOF,  this  Assignment  has been  executed  by
Assignor  in favor of  Assignee  effective  as of the day and year  first  above
written.


                            ASSIGNOR:

                            THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
                             as Agent and as Collateral Agent,
                           by________________________________
                             Name:
                             Title:


                                                     ASSIGNEE:

                                                     CHEMICAL BANK, as agent for
                                                     TNP  under   the   Existing
                                                     Facility          Agreement
                                                     (pursuant to the Assignment
                                                     Agreement),  and  as  agent
                                                     for  the  Replacement  Note
                                                     Holder  under the  Existing
                                                     Facility Agreement,

                               by________________________________
                                 Name:
                                 Title:


                            TNP:

                            TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation,

                            by________________________________
                                      Name:
                                     Title:
STATE OF NEW YORK,)
                           )  ss.:
COUNTY OF NEW YORK,)


                  This instrument was  acknowledged  before me on this __ day of
November,  1995 by  ________________________________  THE CHASE  MANHATTAN  BANK
(NATIONAL ASSOCIATION), as Agent and as Collateral Agent.

                                          ----------------------------------
                                          NOTARY PUBLIC in and for the State
                                                   of NEW YORK

[Notarial Seal]
STATE OF NEW YORK,)
                           )  ss.:
COUNTY OF NEW YORK,)


                  This instrument was  acknowledged  before me on this __ day of
November, 1995 by ______________________________________ of CHEMICAL BANK.

                                               --------------------------------
                                                 NOTARY PUBLIC in and for the
                                                     State of NEW YORK

[Notarial Seal]
STATE OF TEXAS,)
                           )  ss.:
COUNTY OF ___________,)


                  This instrument was  acknowledged  before me on this __ day of
November,  1995 by  ______________________________________  of TEXAS-NEW  MEXICO
POWER COMPANY, a Texas corporation.

                                            ---------------------------------
                                              NOTARY PUBLIC in and for the
                                                     State of TEXAS

[Notarial Seal]


<PAGE>


                                                                    EXHIBIT L
                          COLLATERAL TRANSFER OF NOTES,
                              RIGHTS AND INTERESTS


THE STATE OF TEXAS         )
                                    )       KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF ROBERTSON        )

         THAT,  TEXAS-NEW  MEXICO  POWER  COMPANY,  a Texas  corporation,  whose
mailing address is 4100 International Plaza, Fort Worth, Texas 76109, Attention:
Chief Financial Officer ("Debtor"),  for a valuable and sufficient consideration
paid,  the  receipt of which is hereby  acknowledged,  and as  security  for the
herein  described  Obligations,  hereby  transfers,  assigns  and  conveys  unto
CHEMICAL BANK, a New York banking  corporation,  as Administrative  Agent and as
Collateral Agent for the Lenders,  whose mailing address is 270 Park Avenue, New
York, New York 10017, Attention:  Jaimin Patel ("Secured Party"), the Collateral
as more  particularly  described in that certain Note Pledge  Agreement dated of
even date herewith by and between the Debtor and the Secured Party ("Note Pledge
Agreement").  Unless otherwise defined herein, the capitalized terms used herein
shall have the meanings given to those terms in the Note Pledge  Agreement or in
that certain Revolving Credit Facility  Agreement  ("Credit  Agreement") of even
date herewith by and between the Debtor,  the Lenders and the Secured Party,  as
the case may be.

         This  transfer of Collateral is made to secure (a) the principal of and
interest on the Loans,  when and as due,  whether at maturity,  by acceleration,
upon one or more dates set for  prepayment or otherwise,  (b) all other monetary
obligations of the Debtor to the Lenders under the Loan  Documents,  and (c) all
obligations of the Debtor or any Subsidiary  under any Interest Rate  Protection
Agreement   entered  into  with  a  Lender  to  protect  against  interest  rate
fluctuations  with  respect  to the  Indebtedness  under  the  Credit  Agreement
(collectively, the "Obligations").

         All of the  terms  and  provisions  of the Note  Pledge  Agreement  are
incorporated herein and made a part hereof for all purposes.

         THE LAW GOVERNING THIS SECURED  TRANSACTION SHALL BE THE CODE AND OTHER
APPLICABLE  LAWS OF THE  STATE OF NEW  YORK.  ALL TERMS  USED  HEREIN  WHICH ARE
DEFINED IN THE CODE SHALL HAVE THE SAME MEANING HEREIN AS IN THE CODE.

         EXECUTED as of the ____ day of November, 1995.

                                            DEBTOR:

                                            TEXAS-NEW MEXICO POWER COMPANY,
                                            a Texas corporation

                                            By:  _______________________
                                            Name:__________________
                                            Title:_________________


                                 SECURED PARTY:

     CHEMICAL BANK, as Administrative Agent and Collateral Agent for the Lenders

                                           By: _______________________ 
                                           Name:__________________ 
                                           Title:_________________

THE STATE OF TEXAS         )
                                    )
COUNTY OF ________         )

         BEFORE  ME,  the  undersigned  notary  public,  on this day  personally
appeared _________________________________, of TEXAS-NEW MEXICO POWER COMPANY, a
Texas  corporation,  known to me to be the  person  and  officer  whose  name is
subscribed to the foregoing  instrument and  acknowledged to me that he executed
the  same for the  purposes  and  consideration  therein  expressed,  and in the
capacity therein stated, and as the act and deed of said corporation.

         GIVEN UNDER MY HAND AND SEAL OF OFFICE this ___ day of November, 1995.

                                         ----------------------------
                                           NOTARY PUBLIC in and for
                                             the State of TEXAS

My Commission Expires:


<PAGE>


THE STATE OF NEW YORK)
                           )
COUNTY OF NEW YORK)

         BEFORE  ME,  the  undersigned  notary  public,  on this day  personally
appeared ______________________________________, ____________________________ of
CHEMICAL BANK, as Administrative  Agent and Collateral Agent for the Lenders,  a
______________________,  known to me to be the person and officer  whose name is
subscribed to the foregoing  instrument and  acknowledged to me that he executed
the  same for the  purposes  and  consideration  therein  expressed,  and in the
capacity therein stated, and as the act and deed of said corporation.

         GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of November, 1995.

                                         ----------------------------
                                         NOTARY PUBLIC in and for the 
                                                 Sate of NEW YORK

My Commission Expires:
---------------------


<PAGE>


         The  undersigned  hereby  (a)  acknowledges  receipt  of a copy  of the
Collateral  Transfer of Notes, Rights and Interests dated as of November 3, 1995
by TEXAS-NEW  MEXICO POWER COMPANY in favor of CHEMICAL BANK, as  Administrative
Agent and Collateral Agent for the Lenders ("Collateral  Transfer") and consents
to such Collateral  Transfer effected,  and the other transactions  contemplated
thereby  (including  the exercise of any and all remedies  provided for therein)
and (b) consents to the Collateral Transfer by Texas-New Mexico Power Company of
its rights under the Facility Purchase Agreement and the Operating Agreement.

                              TEXAS GENERATING COMPANY II, a TEXAS corporation
                              By:  _________________________
                              Name:____________________
                              Title:___________________
                              Date:  November __, 1995



<PAGE>


                  Chemical  Bank,  in its  capacity as Agent under the  Existing
Facility Documents, acknowledges that the liens securing the Pledged Notes under
such  Existing  Facility  Documents  will  continue to secure such Pledged Notes
following  the pledge  thereof to the  Collateral  Agent,  and TNP's  beneficial
interests in and to such liens are also intended to be pledged,  pursuant to the
Note Pledge  Agreement (it being  understood  that nothing herein shall diminish
the rights of the Replacement  Note Holder as a secured party under the Existing
Facility Documents).


                                                      CHEMICAL BANK, as Agent,
                                       by
                                            --------------------------------
                                             Name:
                                             Title


November __, 1995


<PAGE>

                                                                    EXHIBIT M
                [FORM OF ASSIGNMENT OF TNP SECOND LIEN MORTGAGE]


  THIS INSTRUMENT ASSIGNS AN INSTRUMENT WHICH GRANTED A SECURITY INTEREST BY A
   UTILITY AND WHICH CONTAINED AFTER-ACQUIRED PROPERTY PROVISIONS PURSUANT TO
             SUBCHAPTER 35A OF THE TEXAS BUSINESS AND COMMERCE CODE

                     ASSIGNMENT OF SECOND LIEN MORTGAGE AND
                     DEED OF TRUST (WITH SECURITY AGREEMENT)


         THIS  ASSIGNMENT  OF  SECOND  LIEN  MORTGAGE  AND DEED OF  TRUST  (WITH
SECURITY AGREEMENT)  ("Assignment") dated as of November 3, 1995 is entered into
by and between THE CHASE MANHATTAN BANK (NATIONAL  ASSOCIATION) as Agent for the
Banks  and the  Replacement  Note  Holder  (in such  capacity,  on behalf of the
Secured  Parties,  together with its successors in such capacity,  herein called
the "Assignor")  and CHEMICAL BANK, as agent for Texas-New  Mexico Power Company
("TNP") under the Existing  Facility  Agreement  defined below  (pursuant to the
Assignment Agreement described in paragraph N of the Recitals), and as agent for
the  Replacement  Note Holder under the  Existing  Facility  Agreement  (in such
capacities, "Assignee"). Unless otherwise described or defined herein, all terms
used in this  Assignment  shall have the same meanings herein as are assigned to
such terms in that certain Unit 2 Second  Amended and Restated  Project Loan and
Credit  Agreement  dated as of  January  8, 1992 (as  amended,  supplemented  or
otherwise  modified from time to time the "Existing  Facility  Agreement") among
TNP, TEXAS GENERATING COMPANY II ("Borrower"), the Banks party thereto ("Banks")
and Assignor.


                              W I T N E S S E T H:

                                    Recitals

         A. In connection with the Project Loan and Credit Agreement dated as of
October 1, 1988 (as amended from time to time, the "Project  Credit  Agreement")
among certain of the Banks, the Chase Manhattan Bank (National Association),  as
agent,  TNP,  and TEXAS PFC,  INC.,  a Delaware  corporation,  TNP  executed and
delivered to Mortgage Trustee, for the benefit of the Secured Parties, a certain
Second Lien Mortgage and Deed of Trust (with  Security  Agreement)  ("TNP Second
Lien  Mortgage"),  granting to DONALD H. SNELL, as Mortgage  Trustee  ("Mortgage
Trustee"),  for the  benefit  of the  Secured  Parties,  a second  lien  against
property  of TNP  located in the State of Texas  ("Second  Lien  Mortgage  Trust
Estate") and more particularly described in the TNP Indenture (as defined in the
TNP Second Lien  Mortgage),  which TNP Second Lien  Mortgage  was filed with the
Secretary of State of the State of Texas on October 4, 1988, as Utility Security
Instrument  Number  229147.  The lien created by the TNP Second Lien Mortgage is
subordinate by its own terms to the lien of the TNP Bond Indenture.

         B. By its terms, the TNP Second Lien Mortgage  excluded from the Second
Lien Mortgage  Trust Estate certain real property  located in Robertson  County,
Texas (the "Property") since no portion thereof was then owned by TNP.

         C. Pursuant to a certain  Warranty Deed dated as of October 1, 1988 and
recorded in Volume 521 at Page 532 of the Public  Records of  Robertson  County,
Texas, Project Funding Corporation conveyed 7,466 acres of the Property ("Unit 2
Property")  to  TEXAS  TPFC,  INC.  (the  Property  less and  except  the Unit 2
Property, hereinafter called the "Robertson County Property").

         D. On December 27, 1990,  pursuant to the Facility Purchase  Agreement,
TNP  purchased an undivided  30/345  interest in the Robertson  County  Property
(including  Unit 1 located  thereon)  which interest was conveyed to Assignee by
that certain  Conveyance  and Bill of Sale recorded in Volume 556 at Page 653 of
the Public Records of Robertson County, Texas.

         E.  The  Alternative  Assumption  Date  occurred  as of May  31,  1991.
Effective  as of that date,  the Unit 2 Property  was  conveyed to the  Borrower
pursuant to a certain  Conveyance and Bill of Sale dated effective May 31, 1991,
recorded  on July 26,  1991 in Volume 566 at Page 283 of the  Public  Records of
Robertson County,  Texas.  Contemporaneously  therewith,  all of the Obligations
under the terms of the Project  Credit  Agreement  were  assumed by the Borrower
pursuant to a certain  Assumption  Agreement recorded on July 26, 1991 in Volume
566 at  Page  252  of the  Public  Records  of  Robertson  County,  Texas.  Also
contemporaneously  therewith, the obligations of TNP under that certain Guaranty
dated as of May 31, 1991 ("Guaranty") became effective and pursuant thereto, TNP
(sometimes hereinafter called "Guarantor")  guarantees the Obligations that were
assumed by the Borrower.

         F. On January 8, 1992, TNP and the Agent, on behalf of Secured Parties,
executed  that certain  Second Lien  Mortgage  and Deed of Trust (with  Security
Agreement) Modification, Extension and Amendment Agreement (the "TNP Second Lien
Mortgage  Modification  No. 1"), to among other things,  further  modify the TNP
Second Lien Mortgage to clarify and confirm that any portion of the Trust Estate
under the TNP Indenture (as defined in the TNP Second Lien Mortgage)  located in
Robertson  County,  Texas  then  owned or  thereafter  acquired  by TNP would be
included as a part of the Second Lien Trust Estate.

         G.  The  parties  to the  Project  Credit  Agreement  entered  into  an
agreement  in principle  in  connection  with  certain  amendments  thereto.  To
implement such amendments, the parties entered into the Unit 2 First Amended and
Restated  Project  Loan and  Credit  Agreement  dated as of January 8, 1992 (the
"Unit 2 Credit  Agreement")  which was amended  pursuant to the First  Amendment
thereto  dated as of  September  21,  1993 (the  "First  Amendment")  among such
parties (the Unit 2 Credit  Agreement,  as so amended,  the  "Existing  Facility
Agreement").

         H. On January 27, 1992, pursuant to the Facility Purchase Agreement (as
defined in the Unit 1 Credit Agreement),  TNP purchased an additional  undivided
45/345  interest in the Robertson  County,  Property  (including  Unit 1 located
thereon).

         I. On September 21, 1993,  pursuant to the Facility Purchase  Agreement
(as  defined  in the Unit 1  Credit  Agreement),  TNP  purchased  an  additional
undivided  65/345 interest in the Robertson  County  Property  (including Unit 1
located thereon).

     J. On September 21, 1993, pursuant to the Facility Purchase Agreement,  TNP
purchased an undivided  75.75/288.5  interest in the Unit 2 Property  (including
Unit 2 located thereon).\

         K. Although all of the undivided  interests  described in Recitals G, H
and I were  subject to the liens of the TNP Second  Lien  Mortgage  by reason of
provision to that effect  therein,  the parties  desired to reflect this fact of
record.

         L. TNP and the Agent, on behalf of the Secured  Parties,  have modified
the TNP Second Lien  Mortgage  to clarify  and  confirm  that any portion of the
Robertson  County  Trust  Estate  Property  owned by or acquired by TNP shall be
included as a part of the Second Lien Mortgage Trust Estate.  TNP and the Agent,
on behalf of the Secured  Parties,  executed and  delivered  the TNP Second Lien
Mortgage  Modification  No. 1 dated as of  January  8, 1992 and  caused it to be
filed with the Secretary of State of the State of Texas.
         M.  Borrower,  TNP and the  Agent,  on behalf of the  Secured  Parties,
agreed,  as set forth in the First Amendment,  to modify the terms of the Unit 2
Credit  Agreement  in order to  permit  TNP and  Borrower  to  secure  Permitted
Collateralized  Indebtedness  (as  defined  in the  First  Amendment)  with  the
Collateral,  adjust the terms of payment  thereunder and to extend the dates for
payments required thereby,  and to make other  modifications all as set forth in
and subject to the terms and conditions of the Existing Facility  Agreement.  In
connection with the First Amendment,  Borrower,  TNP and the Agent executed that
certain  Second  Lien  Mortgage  and Deed of  Trust  (with  Security  Agreement)
Modification,  Extension  and  Amendment  Agreement  No. 2 (the "TNP Second Lien
Mortgage  Modification  No.  2");  together  with the TNP Second  Lien  Mortgage
Modification  No. 1, the "TNP Second Lien  Mortgage  Modification")  dated as of
September  21, 1993 to confirm the validity and priority of the liens,  security
interests and assignments of the TNP Second Lien Mortgage.

         N. TNP is entering into a revolving credit facility agreement dated the
date hereof (the "TNP Credit  Agreement")  with certain  lenders (the "Lenders")
and Chemical Bank, as administrative agent and collateral agent for the Lenders.
It is a condition  precedent to the execution of the TNP Credit  Agreement  that
(a) the Existing  Facility  Agreement be amended as described in the  Assignment
Agreement (as defined in the TNP Credit  Agreement)  and (b) the parties  hereto
execute and deliver this Assignment.

         O. TNP,  Assignee and the Assignor have executed,  delivered and caused
this  Assignment  to be filed of record as a memorial of the  occurrence of such
modifications  and to confirm the  assignment of the TNP Second Lien Mortgage by
Assignor to Assignee and their  agreement  that the validity and priority of the
liens,  security interests and assignments of the TNP Second Lien Mortgage shall
continue and remain in full force and effect.


                                   Agreements

         NOW, THEREFORE,  in consideration of the foregoing  recitals,  together
with the sum of Ten Dollars ($10.00) and other good and valuable  consideration,
paid and delivered by Assignee to Assignor, the receipt and sufficiency of which
are hereby  acknowledged  and confessed,  Assignor and Assignee  hereby agree as
follows:

                  1. Assignment.  Assignor does hereby sell,  assign,  transfer,
         convey and deliver unto Assignee the TNP Second Lien Mortgage,  and all
         of  Assignor's  rights,   interests,   liens,  security  interests  and
         assignments  thereunder  and in and to the Second Lien  Mortgage  Trust
         Estate, TO HAVE AND TO HOLD the same unto Assignee,  its successors and
         assigns forever.

                  2. No Merger.  None of TNP,  Assignor or Assignee  intend that
         there be,  and there  shall not in any event be, a merger of any of the
         liens,  security  interests  or  assignments  of the  TNP  Second  Lien
         Mortgage with the title or interest of TNP by virtue of the assignments
         contained  in the  Assignment  Agreement  or the  assignment  contained
         hereinabove,  and the parties expressly provide that each such interest
         in such liens,  security interests and assignments on the one hand, and
         title to the TNP Second Lien Mortgage,  as modified, on the other hand,
         be and remain at all times separate and distinct with all such validity
         and priority  that existed  prior too the  execution of the  Assignment
         Agreement and this Assignment.

                  3. Successors and Assigns.  This  Assignment  shall be binding
         upon the  successors  and assigns of the  Assignor and the Assignee and
         shall  inure  to the  benefit  of the  successors  and  assigns  of the
         Assignee;  provided,  however,  nothing  contained in this Section 3 is
         intended to authorize TNP to assign any of the  Obligations  or to sell
         any of the Second Lien Mortgage Trust Estate except in accordance  with
         the Existing Facility Agreement and the Facility Purchase Agreement.

     4.  Counterparts.  This  Assignment  may  be  executed  in  any  number  of
counterparts,  all of which taken  together  shall  constitute  one and the same
instrument and any of the parties hereto may execute this  Assignment by signing
any such counterpart.

         EXECUTED as of the date first hereinabove written.


                                         ASSIGNOR:

                                         THE CHASE MANHATTAN BANK (NATIONAL
                                         ASSOCIATION), as Agent and as
                                         Collateral Agent


                                         By:____________________________
                                         Name:
                                         Title:


                                                     ASSIGNEE:

                                                     CHEMICAL BANK, as agent for
                                                     TNP  under   the   Existing
                                                     Facility          Agreement
                                                     (pursuant to the Assignment
                                                     Agreement),  and  as  agent
                                                     for  the  Replacement  Note
                                                     Holder  under the  Existing
                                                     Facility Agreement,


                                      By:____________________________
                                      Name:
                                     Title:


                                                   TNP:

                                                   TEXAS-NEW MEXICO POWER 
                                                   COMPANY, a Texas corporation


                                      By:_______________________
                                      Name:
                                     Title:


<PAGE>


THE STATE OF NEW YORK )
                      )
COUNTY OF NEW YORK    )

     This  instrument  was  acknowledged  before me on the ____ day of November,
1995, by  ________________________________________  of THE CHASE  MANHATTAN BANK
(NATIONAL ASSOCIATION), as Agent and as Collateral Agent.


     ---------------------------------------------------------------------
NOTARY PUBLIC in and for The State of NEW YORK

My Commission Expires:

     --------------------------------------------------------------------- 
Typed  or Printed Name of Notary



<PAGE>


THE STATE OF NEW YORK)
                      )
COUNTY OF NEW YORK    )

     This  instrument was  acknowledged  before me on the _____ day of November,
1995,  by______________________________________________  of  CHEMICAL  BANK,  as
agent for TNP and the Replacement Note Holder.


     ---------------------------------------------------------------------
NOTARY PUBLIC in and for The State of NEW YORK

My Commission Expires:

     --------------------------------------------------------------------- Typed
or Printed Name of Notary


<PAGE>


THE STATE OF TEXAS)
                           )
COUNTY OF ________)

     This  instrument was  acknowledged  before me on the _____ day of November,
1995, by  ___________________________________________  of TEXAS-NEW MEXICO POWER
COMPANY, a Texas corporation, on behalf of said corporation.


     -------------------------------------------------------------------  NOTARY
PUBLIC in and for The State of NEW YORK

My Commission Expires:

     --------------------------------------------------------------------- Typed
or Printed Name of Notary


<PAGE>


                                                                    EXHIBIT N
             THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY
                                       AND
           THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
       PURSUANT TO SUBCHAPTER 35A OF THE TEXAS BUSINESS AND COMMERCE CODE

                          COLLATERAL TRANSFER OF NOTES,
                              RIGHTS AND INTERESTS


         THAT,  TEXAS-NEW  MEXICO  POWER  COMPANY,  a Texas  corporation,  whose
mailing address is 4100 International Plaza, Fort Worth, Texas 76109, Attention:
Chief Financial Officer ("Debtor"),  for a valuable and sufficient consideration
paid,  the  receipt of which is hereby  acknowledged,  and as  security  for the
herein  described  Obligations,  hereby  transfers,  assigns  and  conveys  unto
CHEMICAL BANK, a New York banking  corporation,  as Administrative  Agent and as
Collateral Agent for the Lenders,  whose mailing address is 270 Park Avenue, New
York, New York 10017, Attention:  Jaimin Patel ("Secured Party"), the Collateral
as more  particularly  described in that certain Note Pledge  Agreement dated of
even date herewith by and between the Debtor and the Secured Party ("Note Pledge
Agreement"). The Collateral includes, but is not limited to, that certain Second
Lien Mortgage and Deed of Trust (with Security Agreement) and all of the rights,
titles, interests and liens of the beneficiary thereunder,  which was filed with
the  Secretary  of State of the State of Texas on October  4,  1988,  as Utility
Security Instrument No. 229147. Unless otherwise defined herein, the capitalized
terms used  herein  shall  have the  meanings  given to those  terms in the Note
Pledge Agreement or in that certain Revolving Credit Facility Agreement ("Credit
Agreement") of even date herewith by and between the Debtor, the Lenders and the
Secured Party, as the case may be.

         This  transfer of Collateral is made to secure (a) the principal of and
interest on the Loans,  when and as due,  whether at maturity,  by acceleration,
upon one or more dates set for  prepayment or otherwise,  (b) all other monetary
obligations of the Debtor to the Lenders under the Loan  Documents,  and (c) all
obligations of the Debtor or any Subsidiary  under any Interest Rate  Protection
Agreement   entered  into  with  a  Lender  to  protect  against  interest  rate
fluctuations  with  respect  to the  Indebtedness  under  the  Credit  Agreement
(collectively, the "Obligations").

         All of the  terms  and  provisions  of the Note  Pledge  Agreement  are
incorporated herein and made a part hereof for all purposes.

         THE LAW GOVERNING THIS SECURED  TRANSACTION SHALL BE THE CODE AND OTHER
APPLICABLE  LAWS OF THE  STATE OF NEW  YORK.  ALL TERMS  USED  HEREIN  WHICH ARE
DEFINED IN THE CODE SHALL HAVE THE SAME MEANING HEREIN AS IN THE CODE.

         EXECUTED as of the______________- day of November, 1995.

                                      DEBTOR:

     TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation


                                    By:____________________________
                                      Name:
                                     Title:


                                 SECURED PARTY:

     CHEMICAL BANK, as Administrative Agent and Collateral Agent for the Lenders


                                    By:___________________________
                                     Name:
                                     Title:


THE STATE OF TEXAS         )
                                    )
COUNTY OF ______________)

     BEFORE ME, the undersigned  notary public, on this day personally  appeared
___________________________________________________________________ of TEXAS-NEW
MEXICO  POWER  COMPANY,  a Texas  corporation,  known to me to be the person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that  he  executed  the  same  for the  purposes  and  consideration  therein
expressed,  and in the capacity therein stated,  and as the act and deed of said
corporation.

         GIVEN  UNDER MY HAND AND SEAL OF OFFICE  this  ______ day of  November,
1995.


     --------------------------------  NOTARY  PUBLIC  in and for the  State  of
TEXAS

My Commission Expires:

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



<PAGE>


THE STATE OF NEW YORK  )
                           )
COUNTY OF NEW YORK)


     BEFORE ME, the undersigned  notary public, on this day personally  appeared
______________________________________________     of    CHEMICAL    BANK,    as
Administrative    Agent   and    Collateral    Agent   for   the   Lenders,    a
______________________  known to me to be the person and  officer  whose name is
subscribed to the foregoing  instrument and  acknowledged to me that he executed
the  same for the  purposes  and  consideration  therein  expressed,  and in the
capacity therein stated, and as the act and deed of said corporation.

         GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of November, 1995.


     -------------------------------  NOTARY  PUBLIC in and for the State of NEW
YORK

My Commission Expires:

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




<PAGE>


         The  undersigned  hereby  (a)  acknowledges  receipt  of a copy  of the
Collateral  Transfer of Notes, Rights and Interests dated as of November 3, 1995
by TEXAS-NEW  MEXICO POWER COMPANY in favor of CHEMICAL BANK, as  Administrative
Agent and Collateral Agent for the Lenders ("Collateral  Transfer") and consents
to such Collateral  Transfer effected,  and the other transactions  contemplated
thereby  (including  the exercise of any and all remedies  provided for therein)
and (b) consents to the Collateral Transfer by Texas-New Mexico Power Company if
its rights under the Facility Purchase Agreement and the Operating Agreement.

                               TEXAS GENERATING COMPANY II,
                               a Texas corporation


                                By:____________________________
                                      Name:
                                     Title:

                                                     Date:  November ___, 1995


<PAGE>


                  Chemical  Bank,  in its  capacity as Agent under the  Existing
Facility Documents, acknowledges that the liens securing the Pledged Notes under
such  Existing  Facility  Documents  will  continue to secure such Pledged Notes
following  the pledge  thereof to the  Collateral  Agent,  and TNP's  beneficial
interests in and to such liens are also intended to be pledged,  pursuant to the
Note Pledge  Agreement (it being  understood  that nothing herein shall diminish
the rights of the Replacement  Note Holder as a secured party under the Existing
Facility Documents).


                                      CHEMICAL BANK, as Agent,

                                   by
                                     ----------------------------
                                      Name:
                                      Title


November __, 1995


<PAGE>


                                    EXHIBIT O
                FORM OF AMENDMENT NO. 1 TO TNP SECURITY AGREEMENT

        THIS INSTRUMENT MODIFIES AND AMENDS AN INSTRUMENT WHICH GRANTED A
               SECURITY INTEREST BY A UTILITY AND WHICH CONTAINED
                 AFTER-ACQUIRED PROPERTY PROVISIONS PURSUANT TO
             SUBCHAPTER 35A OF THE TEXAS BUSINESS AND COMMERCE CODE


                                    AMENDMENT NO. 1 (this  "Amendment") dated as
                           of November 3, 1995, to the  Assignment  and Security
                           Agreement  dated as of  October  1, 1988 (as the same
                           has  been  or may  hereafter  be  amended,  restated,
                           supplemented,  modified  or waived from time to time,
                           the "Security  Agreement")  between  TEXAS-NEW MEXICO
                           POWER  COMPANY,  a Texas  corporation  ("TNP"  or the
                           "Assignor")  and THE CHASE  MANHATTAN  BANK (NATIONAL
                           ASSOCIATION),  in its capacity as agent (the "Agent")
                           under the Credit Agreement  referred to below for the
                           benefit of the  Secured  Parties  (as  defined in the
                           Credit Agreement).

         A.  Reference is made to the Unit 2 First Amended and Restated  Project
Loan and Credit  Agreement  dated as of January 8, 1992 (as  amended,  restated,
supplemented,  modified  or waived from time to time,  the "Credit  Agreement"),
among Texas Generating Company II, a Texas corporation ("TGC II"), the Assignor,
the banks party thereto (the  "Banks") and The Chase  Manhattan  Bank  (National
Association) as agent for the Banks and the Replacement Note Holder.

         B. Capitalized terms used herein and not otherwise defined herein shall
have the  meanings  assigned  to such terms in the  Security  Agreement  and the
Credit Agreement.

         C. Assignor is entering  into a revolving  credit  agreement  (the "TNP
Credit  Agreement")  with certain  lenders  (the  "Lenders")  and Chemical  Bank
("Chemical"),  as Administrative  Agent and Collateral Agent for the Lenders. It
is a condition  precedent to the  effectiveness of the TNP Credit Agreement that
the Assignor shall have executed this Amendment.

         D. In connection with execution of the TNP Credit Agreement, (i) TGC II
borrowed and had  outstanding  under the Credit  Agreement  Project  Loans in an
aggregate principal amount equal to $147,750,000 and (ii) the Assignor,  TGC II,
the Banks,  the Agent,  the Lenders and Chemical have entered into an Assignment
and Amendment Agreement (the "Assignment  Agreement")  pursuant to which (a) the
Credit Agreement was amended as provided therein,  (b) TGC II transferred to the
Assignor,  in  satisfaction of  intercompany  indebtedness  owed by it to by the
Assignor,  the  proceeds of  borrowings  made under the Credit  Agreement on the
Closing  Date  (as  defined  in the TNP  Credit  Agreement),  together  with the
borrowings to be made on such Closing Date pursuant to the TNP Credit Agreement,
which  would be  sufficient  to provide  the  necessary  funds for the  purchase
contemplated by the following clause,  (c) the Assignor purchased from the Banks
all of the  outstanding  Project Loans (and related rights and interests)  under
the Credit  Agreement  and (d) the Original  Agent and the  Original  Collateral
Agent (each as defined in the Assignment Agreement) assigned all of their rights
to Chemical (in such capacity herein called the "Successor Agent").

         Accordingly, the Successor Agent and the Assignor agree as follows:

                  SECTION 1. Grant of Security  Interest.  As  security  for the
payment or performance  when due of the  Obligations,  now existing or hereafter
arising,  the Assignor hereby pledges,  assigns and transfers to the Agent,  for
the  ratable  benefit of the  Secured  Parties,  and grants to the Agent for the
ratable benefit of the Secured Parties,  a lien on and security interest in, all
of the  Assignor's  right,  title and  interest,  whether now owned or hereafter
acquired,  in, to and under the Operating  Agreement;  as such  agreement may be
amended,  supplemented  or  otherwise  modified  from  time to time,  including,
without limitation,  (a) all rights of the Assignor to receive moneys due and to
become due under or pursuant to the Operating  Agreement,  (b) all rights of the
Assignor to receive proceeds of any condemnation or taking, indemnity,  warranty
or  guaranty  with  respect to the  Operating  Agreement,  (c) all claims of the
Assignor  for  damages  arising  out of or for  breach of or  default  under the
Operating  Agreement and (d) subject to Section 12(i), the right of the Assignor
to terminate,  amend,  supplement or modify the Operating Agreement,  to perform
thereunder  and  to  complete   performance  and  otherwise   exercise  remedies
thereunder.

                  SECTION 2.  Amendment  to Section  2.  Section  2(a)(A) of the
Security  Agreement is hereby  amended by (a) deleting the word "and" at the end
of  clause  (iii),  (b)  adding a new  clause  (iv) to read in its  entirety  as
follows:

                  "(iv) the Operating Agreement, and ",

and (c) renumbering existing clause (iv) as clause (v).

                  SECTION 3. Amendment to Section 12. Section 12 of the Security
Agreement is hereby  amended by adding  thereto a new  paragraph (i) which shall
read in its entirety as follows:

                  "(i) if any Event of Default  under the Credit  Agreement or a
         Default  or an Event of Default  under and as defined in the  Revolving
         Credit  Facility  Agreement  dated as of  November  3,  1995  among the
         Assignor,  the lenders party thereto (the "Lenders") and Chemical Bank,
         as  administrative  agent and collateral agent for the lenders (in such
         capacities,  the  "Administrative  Agent" and the  "Collateral  Agent",
         respectively)  shall have occurred and be  continuing,  the  Collateral
         Agent, without demand of performance or other demand,  advertisement or
         notice of any kind to or upon the Assignor or any other person (all and
         each  of  which  demands,  advertisements  and/or  notices  are  hereby
         expressly  waived),   may  terminate  the  Operating   Agreement.   The
         Collateral  Agent agrees that in the event it terminates  the Operating
         Agreement  pursuant to this Section  12(i),  it will  negotiate in good
         faith with the  Assignor  with  respect to  permitting  the Assignor to
         purchase  power on market  terms;  provided  that nothing  herein shall
         require the  Collateral  Agent to take any action that in its  judgment
         would not be in the best interests of the Lenders.

                  SECTION 4. Representations and Warranties. Assignor represents
and warrants to the Successor  Agent and the other Secured  Parties that (a) the
representations  and warranties  made by Assignor in the Security  Agreement are
true and  correct on and as of the date hereof and (b) this  Amendment  has been
duly authorized,  executed and delivered by it and constitutes its legal,  valid
and binding  obligation,  enforceable  against it in accordance  with its terms,
except as the enforceability  thereof may be limited by bankruptcy,  insolvency,
reorganization,  fraudulent transfer, moratorium or other similar laws affecting
creditors' rights generally and by general  principles of equity  (regardless of
whether such enforceability is considered in a proceeding at law or in equity).

                  SECTION 5. Counterparts. This Amendment may be executed in two
or more  counterparts,  each of which shall  constitute an original,  but all of
which, when taken together, shall constitute but one instrument.  This Amendment
shall become effective when the Successor Agent shall have received counterparts
of this Amendment that, when taken together, bear the signatures of the Assignor
and the Successor Agent.

     SECTION 6. Full Force and Effect. Except as expressly  supplemented hereby,
the Security Agreement shall remain in full force and effect.

     SECTION  7.  GOVERNING  LAW.  THIS  AMENDMENT  SHALL BE  GOVERNED  BY,  AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

                  SECTION  8.  Severability.  In  case  any  one or  more of the
provisions  contained  in this  Amendment  should be held  invalid,  illegal  or
unenforceable  in any respect,  neither party hereto shall be required to comply
with such provision for so long as such provision is held to be invalid, illegal
or unenforceable, but the validity, legality and enforceability of the remaining
provisions  contained herein and in the Security  Agreement shall not in any way
be affected  or  impaired.  The  parties  hereto  shall  endeavor in  good-faith
negotiations to replace the invalid,  illegal or  unenforceable  provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

     SECTION 9. Notices.  All  communications  and notices hereunder shall be in
writing and given as provided in Section 15 of the Security Agreement.

     SECTION 10. Expenses.  Assignor agrees to reimburse the Successor Agent for
its  reasonable  out-of-pocket  expenses  in  connection  with  this  Amendment,
including the reasonable  fees,  other charges and  disbursements of counsel for
the Successor Agent.


         IN WITNESS  WHEREOF,  Assignor and the  Successor  Agent have been duly
executed this  Amendment to the Security  Agreement as of the day and year first
above written.


                                      TEXAS-NEW MEXICO POWER COMPANY,

                                   by
                                      -----------------------------------
                                      Name:
                                     Title:


                                      CHEMICAL BANK, as Successor Agent,

                                   by
                                       -----------------------------------
                                      Name:
                                     Title:


ACKNOWLEDGED AND ACCEPTED:

TEXAS GENERATING COMPANY II,

  by
      ---------------------------
      Name:
      Title:
THE STATE OF TEXAS              )
                                )
COUNTY OF ROBERTSON   )

         This instrument was acknowledged  before me on the ___ day of November,
1995, by  ____________  , ________ of TEXAS-NEW  MEXICO POWER  COMPANY,  a Texas
corporation, on behalf of said corporation.


     ------------------------------  NOTARY PUBLIC in and for the State of TEXAS
My Commission Expires:

     -------------------------------------------------------------------------
Typed or Printed Name of Notary




THE STATE OF TEXAS              )
                                )
COUNTY OF   ROBERTSON     )

         This instrument was acknowledged  before me on the ___ day of November,
1995, by ______________ , of TEXAS GENERATING  COMPANY II, a Texas  corporation,
on behalf of said corporation.


     -----------------------------------  NOTARY  PUBLIC in and for the State of
TEXAS My Commission Expires:

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

-----------------------------------
Typed or Printed Name of Notary

THE STATE OF NEW YORK    )
                                )
COUNTY OF NEW YORK              )

     This   instrument  was   acknowledged   before  me  on  the  _____  day  of
November,1995,  by______________,_________________________  of CHEMICAL  BANK, a
New York banking corporation, on behalf of said corporation.


     --------------------------- NOTARY PUBLIC in and for the Sate of NEW YORK

My Commission Expires:

---------------------------------------------------------------
                                Typed or Printed Name of Notary





<PAGE>


<TABLE>
<CAPTION>
                                                                 Schedule 2.01
                                                                 Commitments

Name and Address of Lender                           Contact Person
                                                   and Telecopy Number
                                                      Commitment

<S>                                            <C>                                  <C>
Chemical Bank
270 Park Avenue
New York, NY 10017                             Mr. Jaimin Patel
                                               Vice President
                                               (212) 270-2555                       $         22,000,000

Bank of Boston
100 Federal Street
Mailstop 01-08-82
Boston, MA 02110                               Mr. Michael Kane
                                               Managing Director
                                               (617) 434-3652                       $         14,500,000

Bank of Montreal
700 Louisiana, Suite 4400
Houston, TX 77002                              Ms. Julie Buthman
                                               Vice President
                                               (713) 223-4007                       $         14,500,000

The Bank of New York
One Wall Street, 19th Floor
New York, NY 10286                             Mr. Nathan Howard
                                               Vice President
                                               (212) 635-7923                       $         17,500,000

CIBC, Inc.
200 West Madison, Suite 2300
Chicago, IL 60606                              Mr. Robert Lyle
                                               Managing Director
                                               (312) 750-0927                       $         17,500,000

Credit Lyonnais
500 North Akard, Suite 3210
Dallas, TX 75201                               Ms.Karen Watson
                                               Vice President
                                               (214) 954-3312                       $         14,500,000

NationsBank of Texas, N.A.
901 Main Street, 64th Floor
Dallas, TX 75202                               Mr. Bryan L. Diers
                                               Senior Vice President
                                               (214) 508-3943                       $         17,500,000

The Nippon Credit Bank, Ltd
245 Park Avenue, 30th Floor.
New York, NY 10167                             Mr. Doron Sabag
                                               Vice President
                                               (212) 490-3895                       $         14,500,000

Union Bank
445 South Figueroa Street
15th Floor
Los Angeles, CA 90071                          Mr. David Musicant
                                               Assistant Vice President
                                               (213) 236-4096                       $         17,500,000
TOTAL                                                                               $        150,000,000


</TABLE>

<PAGE>


                                  SCHEDULE 3.6

                                     Changes



During 1994, Phillips  Petroleum's Sweeny,  Texas,  refinery contracted with CSW
Energy to construct a 300-megawatt  cogeneration  plant.  If  constructed,  this
plant is  expected to begin  operations  in 1998.  The  refinery  accounted  for
approximately  $29 million of Borrower's 1994 operating  revenues ($9 million in
base revenues).  Revenues attributable to the refinery may be impacted adversely
if the  cogeneration  facility  is  constructed.  Borrower's  goal is to  retain
Phillips  Petroleum as a customer and to lower overall  system  operating  costs
through  negotiation with Phillips  Petroleum and CSW Energy.  Although Borrower
cannot  predict the  ultimate  outcome of the process or its impact on Borrower,
Borrower  and Phillips  Petroleum  are  discussing  arrangements  through  which
Borrower may retain electric service to Phillips Petroleum.


<PAGE>





                                  SCHEDULE 3.8

       Subsidiaries and percentage ownership interest therein of Borrower



      Texas Generating  Company - l,000 shares common stock, no par value,  100%
owned by Borrower

      Texas  Generating  Company II - l,000 shares common  stock,  no par value,
100% owned by Borrower



<PAGE>



                                  SCHEDULE 3.9


1.  Revocation  proceedings  concerning  1991  private  letter  ruling  from the
Internal Revenue Service  confirming that Unit 1 of the TNP One generating plant
was property eligible for investment tax credit.

2. A. Joseph Burch v. Coastal Spray Company and Texas-New  Mexico Power Company,
Cause No. 92CV1094,  212th Judicial  District Court,  Galveston  County,  Texas.
Plaintiff  is claiming  property  damages to land due to drifting of  herbicides
sprayed on  Texas-New  Mexico  Power  Company  R.O.W.  adjacent  to  plaintiff's
property. No amount of damages has been stated.

3. Billie  Neumann v. Coastal Spray Company and Texas-New  Mexico Power Company,
Cause No. 92CV0998,  10th Judicial  District Court,  Galveston,  County,  Texas.
Plaintiff  is claiming  property  damages to land and  animals due to  herbicide
spraying on  Texas-New  Mexico  Power  Company  R.O.W.  adjacent to  Plaintiff's
property. No amount of damages has been stated. Discovery continues.

4. James P.  Entrekin v.  Coastal  Spray  Company  and  Texas-New  Mexico  Power
Company,  Cause No. 92CV0953,  10th Judicial  District Court,  Galveston County,
Texas.  Plaintiff is claiming property damages to land and Arabian horses due to
herbicide  spraying  on  Texas-New  Mexico  Power  Company  R.O.W.  adjacent  to
Plaintiff's property. No amount of damages has been stated. Discovery continues.

5. Ralph Fellers v. Texas-New Mexico Power Company, *Consolidated with Davis and
Hurst,  Cause No.  94-30074-211,  211th Judicial District Court,  Denton County,
Texas.  Plaintiff is claiming  property damages in the amount of $160,000 due to
environmental contamination of land located in Denton County, Texas.

6. H. Eugene Davis v. Texas-New Mexico Power Company, *Consolidated with Fellers
and Hurst, Cause No. 94-30074-211, 211th Judicial District Court, Denton County,
Texas. Plaintiff is claiming property damages due to environmental contamination
of land located in Denton County, Texas. No amount of damages has been stated.

7. Harold Hurst v. Texas-New  Mexico Power Company,  *Consolidated  with Fellers
and Davis, Cause No. 94-30074-211, 211th Judicial District Court, Denton County,
Texas. Plaintiff is claiming property damages due to environmental contamination
of land located in Denton County, Texas. No amount of damages has been stated.

8.   Texas-New   Mexico  Power  Company  v.  PPM  America,   Inc.  and  Bank  of
America-Illinois,  No.  495-CV-738-A,  in  the  United  States  District  Court,
Northern  District of Texas,  Fort Worth Division.  Declaratory  judgment action
concerning  redemption  of the  Borrower's  Series T first  mortgage  bonds with
proceeds from the sale of its Panhandle  properties under threat of condemnation
by local municipalities.


                             SEE ALSO SCHEDULE 3.17


<PAGE>





                                  SCHEDULE 3.17

                              Environmental Matters

1.  Transformers  and  capacitors  that may  contain  polychlorinated  biphenyls
("PCBs").  Borrower does not know the concentration of PCBs, if any, in each and
every transformer and capacitor owned or operated by Borrower.  If a transformer
or capacitor that contains  dielectric fluid with a PCB  concentration in excess
of 50 parts per million leaks into the environment and thereby  contaminates the
water or soil, then Borrower would be liable for clean up and remediation costs.
Depending upon the location and magnitude of such an occurrence, the costs could
be significant.

         In addition,  Borrower contracts with licensed companies to pick up and
transport  transformers  and  capacitors  that contain over 50 parts per million
PCBs. Borrower reasonably believes that these companies perform their service in
accordance  with  applicable  laws  and  regulations.  However,  if one of these
companies has violated an applicable law or  regulation,  then Borrower could be
held  responsible  for fines  and  damages  resulting  from  improper  handling,
transport,  storage,  treatment,  or  disposal  of the  PCB-contaminated  items.
Borrower believes that the probability of such a situation  occurring is remote.
If such an event  occurred,  however,  the fines and damages for which  Borrower
would be responsible could be significant.

2.  Remediation  at 300 Crews Way, West Columbia,  Brazoria  County,  Texas.  In
September,  1990,  Borrower  hired an  environmental  consultant  to remove  two
underground  storage tanks at Borrower's former construction center site in West
Columbia.  Based on sample  results  from the soil and water  near the tank hold
area, Borrower installed 12 monitoring wells and, in April 1993, began "pump and
treat"  technology to treat the  groundwater.  To date, no significant  progress
toward "clean" status has been made, the "plume" of  contamination  has not been
defined to the TNRCC's  satisfaction,  and Borrower has paid almost  $300,000 to
the  consultant.  Borrower  recently  terminated  the  consultant  and  hired an
environmental engineering firm to assess the progress of the remediation, define
the plume of contamination,  if any, and recommend alternatives to the "pump and
treat" technology.  Borrower  anticipates that remediation efforts will continue
for at  least  another  year at a cost of at  least  $100,000.  Borrower  cannot
reasonably  predict the  duration or total cost of  remediation  efforts at this
time.

3. Davis Utility  Hydraulics,  Inc.,  Highway 121,  Lewisville,  Denton  County,
Texas; Notice of Violation from Texas Natural Resource  Conservation  Commission
("TNRCC") and Pending  Litigation.  In July 1992,  Borrower received a Notice of
Violation  from the TNRCC  indicating  a release of  Hazardous  Materials at the
Borrower's former  construction center location in Lewisville,  Texas.  Borrower
immediately  hired  an  environmental  consultant  to  begin  excavation  of the
allegedly  contaminated  area,  conduct  soil and water  sampling,  and  install
monitoring wells.  Borrower has cooperated fully with TNRCC and has submitted to
TNRCC the sample  results  and  reports it  requires.  The  landowners  of three
separate  but  adjacent  tracts have sued  Borrower in state  district  court in
Denton County,  Texas,  for damages in contract and tort, and Borrower has hired
outside counsel to defend these suits. To date, Borrower has spent approximately
$300,000 in connection with the remediation  activities at the Lewisville  site.
However,  based on results of recent soil and water sampling,  Borrower believes
that it will not be liable  for the  landowners'  claims and that the TNRCC will
permit Borrower to cease its remediation efforts at the site within the next six
months.


<PAGE>











                                  SCHEDULE 3.18


                        Insurance maintained by Borrower













<PAGE>


                                  SCHEDULE 3.19

                        Insurance maintained by Borrower