AMENDMENT NO. 3
                                      to
                                LEASE AGREEMENT


     This AMENDMENT NO. 3, dated as of June 1, 2003, to Lease Agreement, dated
as of December 1, 1985, between TUCSON ELECTRIC POWER COMPANY, an Arizona
corporation ("TEP"), and SAN CARLOS RESOURCES INC., an Arizona corporation ("San
Carlos"), jointly and severally as Lessee (such term and all other capitalized
terms used herein without definition having the meanings provided in Section 1
hereof), and WILMINGTON TRUST COMPANY, a Delaware corporation, and WILLIAM J.
WADE (not in their respective individual capacities but solely as Owner Trustee
and Cotrustee, respectively, under the Trust Agreement between such parties and
Philip Morris Capital Corporation, as Owner Participant), as Lessor (this
"Lease Amendment"),

                              W I T N E S S E T H

     WHEREAS, the Lessee and the Lessor have heretofore entered into a Lease
Agreement, dated as of December 1, 1985, as duly recorded in the office of the
County Recorder of Apache County, Arizona on January 8, 1986, in Docket 499 at
Pages 50-184, as supplemented by a Lease Supplement dated December 31, 1985, as
duly recorded in the aforesaid office in Docket 499 at Pages 453-470, as amended
by Amendment No. 1 to Lease Agreement, dated as of December 15, 1992, duly
recorded in the aforesaid office in Docket 700 at Pages 318-344, and as amended
by Amendment No. 2 to Lease Agreement, dated as of December 1, 1999, duly
recorded in the aforesaid office in Docket 969 at Pages 1-10, providing for the
lease by the Lessor to the Lessee of the Leased Assets (such Lease Agreement, as
so supplemented and amended and as further amended, modified or supplemented
from time to time in accordance with the provisions thereof, being hereinafter
referred to as the "Lease"),

     WHEREAS, the Lessee and the Lessor have agreed pursuant to a Refunding
Agreement, dated as of June 1, 2003 (as amended, modified or supplemented from
time to time in accordance with the provisions thereof, the "Refunding
Agreement"), with the Owner Participant, the Loan Participants named therein,
the Indenture Trustee and certain other parties to participate in refinancing
the outstanding Secured Notes on the Refunding Date (as defined in the Refunding
Agreement),

     WHEREAS, the Lessee and Lessor have agreed to amend the Lease as
contemplated herein so as to effectuate such refinancing,

     WHEREAS, Section 31(b) of the Lease provides, among other things, that
until the Lessee has received notice from the Indenture Trustee that the Lien of
the Indenture on the Trust Indenture Estate has been released, no term of the
Lease shall be amended without the consent of the Indenture Trustee, and

<PAGE>

     WHEREAS, pursuant to Section 15.1 of the Indenture, the Indenture Trustee
has, at the direction and with the consent of each holder of a Secured Note,
consented, by executing and delivering the Refunding Agreement, to the
amendments to the Lease set forth in this Lease Amendment,

     NOW THEREFORE, in consideration of the premises and of such other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

     Section 1.  Definitions.

     (a)   General Definitions.  Except as otherwise expressly provided herein
or unless the context otherwise requires, capitalized terms used herein shall
have the meanings set forth in Section 1 of the Lease.

     (b)   Additional Definitions. Section 1 of the Lease is hereby amended by
adding the following definitions thereto:

           "Series 4 Notes" shall have the meaning specified in the Indenture.

     (c)   Deleted Definitions. The definition of Series 3 Notes is hereby
deleted in its entirety.

     (d)   Special Event of Loss.  Clause (iii) of the definition of "Special
Event of Loss" in Section 1 of the Lease is hereby amended in its entirety to
read as follows:

           (iii) (a) any of the Series 4 Notes are outstanding after July 1,
           2006 unless subclause  (b) of this clause (iii) shall apply, or (b)
           upon any date occurring prior to July 1, 2006 which shall have been
           agreed to by the Lessee and the Owner Participant; or

     Section 2.  Sublease.  Clause (ii)(B)(1) of the proviso to Section 13(a) of
the Lease is hereby amended to delete the words "Series 3 Notes" and to
substitute the words "Series 4 Notes" in lieu thereof.

     Section 3.  Counterpart Execution.  This Lease Amendment may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts shall together
constitute but one and the same instrument.  The single executed original of
this Lease Amendment which provides that it is the "original counterpart" and
which contains the receipt therefor executed by the Indenture Trustee on or
immediately following the signature page thereof shall evidence the monetary
obligations of the Lessee hereunder and thereunder.  To the extent, if any, that
this Lease Amendment constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction), no
security interest in this Lease Amendment may be created by the transfer or
possession of any counterpart thereof other than the original counterpart and
containing the receipt therefor executed by the Indenture Trustee on or
immediately following the signature page thereof.

                                        2
<PAGE>

     Section 4.  Ratification of the Lease.  This Lease Amendment is an
amendment to the Lease.  As amended by this Lease Amendment, the Lease is in all
respects ratified, approved and confirmed, and the Lease and this Lease
Amendment shall together constitute one and the same instrument.

     Section 5.  Governing Law.  This Lease Amendment has been delivered in, and
shall in all respects be governed by and construed in accordance with, the laws
of the State of Arizona applicable to agreements made and to be performed
entirely within such state, including matters of construction, validity and
performance.

     Section 6.  Liabilities of Owner Participant.  Sections 23 and 31 of the
Lease are hereby incorporated by reference mutatis mutandis in this Lease
Amendment.

                                        3
<PAGE>

       IN WITNESS WHEREOF, the undersigned Lessee and Lessor have each caused
this Lease Amendment to be duly executed and delivered and their corporate seals
to be hereunto affixed and attested by their respective officers thereunto duly
authorized as of the day and year first above written.

                                      TUCSON ELECTRIC POWER COMPANY,
                                             as Lessee



                                      By:  _________________________
                                             Name:
                                             Title:

[seal]

Attest:

____________________
Assistant Secretary

                                      SAN CARLOS RESOURCES INC.
                                             as Lessee



                                      By:  _________________________
                                             Name:
                                             Title:

[seal]

Attest:

____________________
Assistant Secretary

                                        4
<PAGE>

                                      WILMINGTON TRUST COMPANY,
                                             not in its individual capacity but
                                             solely as Owner Trustee under the
                                             Trust Agreement, as Lessor



                                      By:  _________________________
                                             Name:
                                             Title:

[seal]

Attest:

_______________________
Title:

                                      ____________________________
                                      WILLIAM J. WADE,
                                             not in his individual capacity but
                                             solely as Cotrustee under the Trust
                                             Agreement, as Lessor
Witness:

_______________________

                                        5
<PAGE>

     Receipt of this original counterpart of the foregoing Amendment No. 3 to
Lease Agreement is hereby acknowledged on this        day of June, 2003.

                              THE BANK OF NEW YORK,
                              as Indenture Trustee


                              By:__________________________
                                   Name:
                                   Title:

                                        6
<PAGE>

                       ACKNOWLEDGEMENTS TO LEASE AMENDMENT



STATE OF ARIZONA           )
                           ) ss.:
COUNTY OF PIMA             )

     The foregoing instrument was acknowledged before me this ____ day of June,
2003, by _________________, _________________ of TUCSON ELECTRIC POWER COMPANY,
an Arizona corporation, on behalf of said corporation.

                                           _______________________
                                                Notary Public


My Commission Expires:


_____________________





STATE OF ARIZONA           )
                           ) ss.:
COUNTY OF PIMA             )

     The foregoing instrument was acknowledged before me this _____ day of June,
2003, by _________________, _____________________ of SAN CARLOS RESOURCES INC.,
an Arizona corporation, on behalf of said corporation.

                                           _______________________
                                                Notary Public


My Commission Expires:


_____________________

                                        7
<PAGE>

STATE OF DELAWARE          )
                           ) ss.:
COUNTY OF NEW CASTLE       )

     The foregoing instrument was acknowledged before me this _____ day of June,
2003, by __________________, __________________ of WILMINGTON TRUST COMPANY, a
Delaware banking corporation, on behalf of said corporation.

                                           _______________________
                                                Notary Public


My Commission Expires:


_____________________





STATE OF DELAWARE          )
                           ) ss.:
COUNTY OF NEW CASTLE       )

     The foregoing instrument was acknowledged before me this _____ day of June,
2003, by WILLIAM J. WADE, an individual.

                                           _______________________
                                                Notary Public


My Commission Expires:


_____________________

                                        8