Exhibit 4a
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                                    LOAN AGREEMENT
                                   (1997 SERIES A)


                                       BETWEEN



                         THE INDUSTRIAL DEVELOPMENT AUTHORITY
                                OF THE COUNTY OF PIMA




                                         AND



                            TUCSON ELECTRIC POWER COMPANY




                                       --------




                            DATED AS OF SEPTEMBER 15, 1997



                                       --------



                                     Relating To

                        Industrial Development Revenue Bonds,
                                    1997 Series A
                       (Tucson Electric Power Company Project)



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          <PAGE>

                                  TABLE OF CONTENTS*

                                                                       Page
                                                                       ----

             LOAN AGREEMENT . . . . . . . . . . . . . . . . . . . . . .   1

                                      ARTICLE I

                                     DEFINITIONS
               SECTION 1.01   Definitions . . . . . . . . . . . . . . .   1
               SECTION 1.02   Incorporation of Certain Definitions by
                              Reference . . . . . . . . . . . . . . . .   5

                                      ARTICLE II

                            REPRESENTATIONS AND WARRANTIES
               SECTION 2.01   Representations and Warranties of the
                              Authority . . . . . . . . . . . . . . . .   5
               SECTION 2.02   Representations and Warranties of the
                              Company . . . . . . . . . . . . . . . . .   5

                                     ARTICLE III

                                    THE FACILITIES
               SECTION 3.01   Construction of the Facilities  . . . . . . 6
               SECTION 3.02   Insufficient Moneys in Construction Fund  . 6
               SECTION 3.03   Revision of Plans and Specifications  . . . 7
               SECTION 3.04   Certification of Completion Date  . . . . . 7
               SECTION 3.05   Maintenance of Facilities; Remodeling . . . 7
               SECTION 3.06   Insurance . . . . . . . . . . . . . . . . . 7
               SECTION 3.07   Condemnation  . . . . . . . . . . . . . . . 7
               SECTION 3.08   Termination of Construction . . . . . . . . 8

                                      ARTICLE IV

              ISSUANCE OF THE BONDS; THE LOANS; DISPOSITION OF PROCEEDS
                                     OF THE BONDS
               SECTION 4.01   Issuance of the Bonds . . . . . . . . . . . 8
               SECTION 4.02   Issuance of Other Obligations . . . . . . . 8
               SECTION 4.03   The Loans; Disposition of Bond Proceeds . . 8
               SECTION 4.04   Disbursements from Construction Fund  . . . 9
               SECTION 4.05   Investment of Moneys in Funds and
                              Accounts. . . . . . . . . . . . . . . . .  10

                                      ARTICLE V

                           LOAN PAYMENTS; OTHER OBLIGATIONS
               SECTION 5.01   Loan Payments.  . . . . . . . . . . . . .  10
               SECTION 5.02   Payments Assigned; Obligation Absolute  .  10
               SECTION 5.03   Payment of Expenses . . . . . . . . . . .  10
               SECTION 5.04   Indemnification . . . . . . . . . . . . .  11
               SECTION 5.05   Payment of Taxes; Discharge of Liens  . .  11

          ____________________

          *  This table of contents is not part of the Loan Agreement, and
             is for convenience only.  The captions herein are of no legal
             effect and do not vary the meaning or legal effect of any part
             of the Loan Agreement.


          <PAGE>

                                      ARTICLE VI

                                  SPECIAL COVENANTS
               SECTION 6.01   Maintenance of Corporate Existence  . . .  11
               SECTION 6.02   Permits or Licenses . . . . . . . . . . .  12
               SECTION 6.03   Authority's Access to Facilities  . . . .  12
               SECTION 6.04   Tax-Exempt Status of Interest on Bonds. .  12
               SECTION 6.05   Use of Facilities . . . . . . . . . . . .  13
               SECTION 6.06   Financing Statements  . . . . . . . . . .  13

                                     ARTICLE VII

                           ASSIGNMENT, LEASING AND SELLING
               SECTION 7.01   Conditions  . . . . . . . . . . . . . . .  14
               SECTION 7.02   Instrument Furnished to the Authority and
                              Trustee . . . . . . . . . . . . . . . . .  15
               SECTION 7.03   Limitation  . . . . . . . . . . . . . . .  15

                                     ARTICLE VIII

                            EVENTS OF DEFAULT AND REMEDIES
               SECTION 8.01   Events of Default . . . . . . . . . . . .  16
               SECTION 8.02   Force Majeure . . . . . . . . . . . . . .  16
               SECTION 8.03   Remedies  . . . . . . . . . . . . . . . .  16
               SECTION 8.04   No Remedy Exclusive . . . . . . . . . . .  17
               SECTION 8.05   Reimbursement of Attorneys' and Agents'
                              Fees  . . . . . . . . . . . . . . . . . .  17
               SECTION 8.06   Waiver of Breach  . . . . . . . . . . . .  17

                                      ARTICLE IX

                                 REDEMPTION OF BONDS
               SECTION 9.01   Redemption of Bonds . . . . . . . . . . .  17
               SECTION 9.02   Compliance with the Indenture . . . . . .  18

                                      ARTICLE X

                                    MISCELLANEOUS
               SECTION 10.01  Term of Agreement . . . . . . . . . . . .  18
               SECTION 10.02  Notices . . . . . . . . . . . . . . . . .  18
               SECTION 10.03  Parties in Interest . . . . . . . . . . .  18
               SECTION 10.04  Amendments  . . . . . . . . . . . . . . .  18
               SECTION 10.05  Counterparts  . . . . . . . . . . . . . .  19
               SECTION 10.06  Severability  . . . . . . . . . . . . . .  19
               SECTION 10.07  Governing Law . . . . . . . . . . . . . .  19


          Signatures  . . . . . . . . . . . . . . . . . . . . . . . . .  20
          Exhibit A - Description of the Facilities . . . . . . . . .   A-1


          <PAGE>


                                    LOAN AGREEMENT

               THIS LOAN AGREEMENT (1997 Series A), dated as of September
          15, 1997 (this "Agreement"), between THE INDUSTRIAL DEVELOPMENT
          AUTHORITY OF THE COUNTY OF PIMA, an Arizona nonprofit corporation
          designated by law as a political subdivision of the State of
          Arizona (hereinafter called the "Authority"), and TUCSON ELECTRIC
          POWER COMPANY, a corporation organized and existing under the
          laws of the State of Arizona (hereinafter called the "Company"),

                                W I T N E S S E T H :

               WHEREAS, the Authority is authorized and empowered under
          Title 35, Chapter 5, Arizona Revised Statutes, as amended (the
          "Act"), to issue its bonds in accordance with the Act and to make
          secured or unsecured loans for the purpose of financing or
          refinancing the acquisition, construction, improvement or
          equipping of projects consisting of land, any building or other
          improvement, and all real and personal properties, including but
          not limited to machinery and equipment, whether or not now in
          existence or under construction, whether located within or
          without Pima County, which shall be suitable for, among other
          things, facilities for the furnishing of electric energy, gas or
          water, air and water pollution control facilities and sewage and
          solid waste disposal facilities, and to charge and collect
          interest on such loans and pledge the proceeds of loan agreements
          as security for the payment of the principal of and interest on
          bonds, or designated issues of bonds, issued by the Authority and
          any agreements made in connection therewith, whenever the Board
          of Directors of the Authority finds such loans to be in
          furtherance of the purposes of the Authority or in the public
          interest;

               WHEREAS, the Authority has heretofore issued and sold
          $20,000,000 aggregate principal amount of its Industrial
          Development Revenue Bonds, 1990 Series A (Tucson Electric Power
          Company Project), all of which remain outstanding (the "1990
          Bonds"), the proceeds of which were loaned to the Company to
          finance a portion of the costs of the acquisition, construction,
          improvement and equipping of certain of the facilities for
          furnishing electric energy described in Exhibit A hereto (the
          "Facilities");

               WHEREAS, the Authority proposes to issue and sell its
          revenue bonds for the purpose of financing a portion of the costs
          of the acquisition, construction, improvement and equipping of
          certain additional items of the Facilities and for the purpose of
          refinancing, by the payment or redemption of the 1990 Bonds, or
          provision therefor, the portion of the costs of the acquisition,
          construction, improvement and equipping of the Facilities
          previously financed with the proceeds of the 1990 Bonds; and

               NOW, THEREFORE, the parties hereto, intending to be legally
          bound hereby and in consideration of the premises, DO HEREBY
          AGREE as follows:


                                      ARTICLE I

                                     DEFINITIONS

               SECTION 1.01  Definitions.  The terms defined in this
          Article I shall for all purposes of this Agreement have the
          meanings herein specified, unless the context clearly requires
          otherwise:

          Act:
               "Act" shall mean Title 35, Chapter 5, Arizona Revised
          Statutes, and all acts supplemental thereto or amendatory
          thereof.

          Administration Expenses:

               "Administration Expenses" shall mean the reasonable expenses
          incurred by the Authority with respect to this Agreement, the
          Indenture and any transaction or event contemplated by this
          Agreement or the Indenture, including the compensation and
          reimbursement of expenses and advances payable to the Trustee, to
          the paying agent, any co-paying agent and the registrar under the
          Indenture and a pro rata share of the Authority's annual
          operating expenses in accordance with the provisions of paragraph
          XII.D. of the Authority's Procedural Pamphlet.

          Agreement:

               "Agreement" shall mean this Loan Agreement, dated as of
          September 15, 1997, between the Authority and the Company, and
          any and all modifications, alterations, amendments and
          supplements hereto.

          Authority:

               "Authority" shall mean The Industrial Development Authority
          of the County of Pima, an Arizona nonprofit corporation
          designated by law as a political subdivision of the State of
          Arizona incorporated for and with the approval of Pima County,
          Arizona, pursuant to the provisions of the Constitution of the
          State of Arizona and the Act, its successors and their assigns.

          Authorized Company Representative:

               "Authorized Company Representative" shall mean each person
          at the time designated to act on behalf of the Company by written
          certificate furnished to the Authority and the Trustee containing
          the specimen signature of such person and signed on behalf of the
          Company by its President, any Vice President or its Treasurer,
          together with its Secretary or any Assistant Secretary.

          Bond Counsel:

               "Bond Counsel" shall mean any firm or firms of nationally
          recognized bond counsel experienced in matters pertaining to the
          validity of, and exclusion from gross income for federal tax
          purposes of interest on bonds issued by states and political
          subdivisions, selected by the Company and acceptable to the
          Authority.

          Bond Fund:

               "Bond Fund" shall mean the fund created by Section 4.01 of
          the Indenture.

          Bonds:

               "Bond" or "Bonds" shall mean the Industrial Development
          Revenue Bonds, 1997 Series A (Tucson Electric Power Company
          Project) of the Authority.

          Capital Account:

               "Capital Account" shall mean any of the accounts so named
          established under Sections 4.01 and 5.01 of the Indenture.

          Code:

               "Code" shall mean the Internal Revenue Code of 1986 or any
          successor statute thereto.  Each reference to a section of the
          Code herein shall be deemed to include the United States Treasury
          Regulations proposed or in effect thereunder and applicable to
          the Bonds or the use of the proceeds thereof, unless the context
          clearly requires otherwise.  Reference to any particular Code
          section shall, in the event of a successor Code, be deemed to be
          a reference to the successor to such Code section.

          Company:

               "Company" shall mean Tucson Electric Power Company, a
          corporation organized and existing under the laws of the State of
          Arizona, its successors and their assigns, including, without
          limitation, any successor obligor under Section 6.01 or 7.01 to
          the extent of the obligations assumed thereunder.

          Completion Date:

               "Completion Date" shall mean the date specified in Section
          3.04 hereof.

          Construction (and other forms of the word "construct"):

               "Construction" (and other forms of the word "construct")
          shall mean, when used with respect to the Facilities, the
          construction of the Facilities and shall include, without
          limitation, the acquisition, construction, improvement and
          equipping of the Facilities, all as contemplated by the Act.

          Construction Fund:

               "Construction Fund" shall mean the fund created by Section
          5.01 of the Indenture.

          Cost of Construction:

               "Cost of Construction" shall embrace all costs paid or
          incurred by the Company with respect to the Facilities and the
          financing thereof for the payment of which the Authority is
          authorized to issue bonds under the Act, and shall include
          without limitation (a) obligations paid or incurred by the
          Company for labor, materials and other expenses and to
          contractors, builders and materialmen in connection with the
          construction of the Facilities; (b) the costs paid or incurred by
          the Company for contract bonds and for insurance of all kinds
          that may be deemed by the Company to be desirable or necessary
          during the course of construction of the Facilities; (c) the
          expenses paid or incurred by the Company for test borings,
          surveys, estimates, plans and specifications, and preliminary
          investigations therefor, with respect to the Facilities and for
          supervising construction, as well as for the performance of all
          other duties required by or reasonably necessary for the proper
          construction, of the Facilities; (d) Administration Expenses paid
          or incurred prior to the Completion Date and legal, accounting,
          financial, underwriting, advertising, recording and printing
          expenses and all other fees and expenses paid or incurred by the
          Company in connection with the issuance and sale of the Bonds;
          (e) amounts in respect of interest (exclusive of accrued interest
          paid by the initial purchasers upon delivery thereof) accruing
          upon the Bonds until the Completion Date; (f) all other costs
          that the Company shall be required to pay under the terms of any
          contract or contracts for the construction of the Facilities; (g)
          any other costs or expenses paid or incurred by the Company, and
          any sums required to reimburse the Company for work done by it,
          with respect to the Facilities which are properly chargeable to
          the capital account of the Company with respect to the Facilities
          or would be so chargeable for federal income tax purposes either
          with a proper election or but for a proper election to deduct the
          same; and (h) amounts required to be paid to the United States by
          the Company (on behalf of the Authority) in respect of the Bonds
          pursuant to Section 148 of the Code.  For purposes of the
          application of the proceeds of the Bonds, the Cost of
          Construction shall be deemed to include the payment or
          redemption, or provision therefor, of any obligations, other than
          the Bonds, issued to finance or refinance any of the costs listed
          above.  The Cost of Construction shall also be deemed to include
          all costs paid or incurred with respect to the Facilities by any
          Person to whom the Facilities have been leased or sold as a whole
          or in part, provided that such costs, had they been paid or
          incurred by the Company, would otherwise constitute a portion of
          the Cost of Construction.

          Facilities:

               "Facilities" shall mean the real and personal properties,
          machinery and equipment currently existing, under construction
          and to be constructed which are described in Exhibit A hereto, as
          revised from time to time to reflect any changes therein,
          additions thereto, substitutions therefor and deletions therefrom
          permitted by the terms hereof, subject, however, to the
          provisions of Section 7.01 hereof.

          Indenture:

               "Indenture" shall mean the Indenture of Trust, dated as of
          September 15, 1997, between the Authority and the Trustee
          relating to the Bonds, and any and all modifications,
          alterations, amendments and supplements thereto.

          Investment Account:

               "Investment Account" shall mean any of the accounts so named
          established under Sections 4.01 and 5.01 of the Indenture.

          Loan Payments:

               "Loan Payments" shall mean the payments required to be made
          by the Company pursuant to Section 5.01 hereof.

          1990 Bonds:

               "1990 Bonds" shall mean the $20,000,000 aggregate principal
          amount of the Authority's Industrial Development Revenue Bonds,
          1990 Series A (Tucson Electric Power Company Project).

          Outstanding:

               "Outstanding", when used in reference to the Bonds, shall
          mean, as at any particular date, the aggregate of all Bonds
          authenticated and delivered under the Indenture except:

                    (a)  those canceled by the Trustee at or prior to such
               date or delivered to or acquired by the Trustee at or prior
               to such date for cancellation;

                    (b)  those deemed to be paid in accordance with Article
               VIII of the Indenture; and

                    (c)  those in lieu of or in exchange or substitution
               for which other Bonds shall have been authenticated and
               delivered pursuant to the Indenture, unless proof
               satisfactory to the Trustee and the Company is presented
               that such Bonds are held by a bona fide holder in due
               course.

          Person:

               "Person" means (i) any corporation, limited liability
          company, partnership, joint venture, association, joint-stock
          company, business trust or unincorporated organization, in each
          case formed or organized under the laws of the United States of
          America, any state thereof or the District of Columbia, or (ii)
          the United States of America or any state thereof, or any
          political subdivision of either thereof, or any agency, authority
          or other instrumentality of any of the foregoing.

          Tax Agreement:

               "Tax Agreement" shall mean that tax certificate and
          agreement, dated the date of the initial authentication and
          delivery of the Bonds, between the Authority and the Company,
          relating to the requirements of the Code, and any and all
          modifications, alterations, amendments and supplements thereto.

          Trustee:

               "Trustee" shall mean First Trust of New York, National
          Association, as trustee under the Indenture, its successors in
          trust and their assigns.

               SECTION 1.02  Incorporation of Certain Definitions by
          Reference.  Each capitalized term used herein and not otherwise
          defined herein shall have the meaning set forth in the Indenture.


                                      ARTICLE II

                            REPRESENTATIONS AND WARRANTIES

               SECTION 2.01  Representations and Warranties of the
          Authority.  The Authority makes the following representations and
          warranties as the basis for the undertakings on the part of the
          Company contained herein:

                    (a)  The Authority is an Arizona nonprofit corporation
               designated by law as a political subdivision of the State of
               Arizona created and existing under the Constitution and laws
               of the State of Arizona;

                    (b)   The Authority has the power to enter into this
               Agreement and the Indenture and to perform and observe the
               agreements and covenants on its part contained herein and
               therein, including without limitation the power to issue and
               sell the Bonds as contemplated herein and in the Indenture,
               and by proper action has duly authorized the execution and
               delivery hereof and thereof; and

                    (c)  The execution and delivery of this Agreement and
               the Indenture by the Authority do not, and consummation of
               the transactions contemplated hereby and fulfillment of the
               terms hereof and thereof by the Authority will not, result
               in a breach of any of the terms or provisions of, or
               constitute a default under, any indenture, mortgage, deed of
               trust or other agreement or instrument to which the
               Authority is now a party or by which it is now bound, or, to
               the best knowledge of the Authority, any order, rule or
               regulation applicable to the Authority of any court or of
               any regulatory body or administrative agency or other
               governmental body having jurisdiction over the Authority or
               over any of its properties, or the Constitution or laws of
               the State of Arizona.

               SECTION 2.02  Representations and Warranties of the Company. 
          The Company makes the following representations and warranties as
          the basis for the undertakings on the part of the Authority
          contained herein:

                    (a)  The Company is a corporation duly organized and
               existing in good standing under the laws of the State of
               Arizona and duly qualified as a foreign corporation in the
               State of New Mexico;

                    (b)  The Company has power to enter into this Agreement
               and to perform and observe the agreements and covenants on
               its part contained herein and by proper corporate action has
               duly authorized the execution and delivery hereof and of all
               other documents required hereby to be executed by the
               Company;

                    (c)  The execution and delivery of this Agreement by
               the Company do not, and consummation of transactions
               contemplated hereby and fulfillment of the terms hereof by
               the Company will not, result in a breach of any of the terms
               or provisions of, or constitute a default under, any
               indenture, mortgage, deed of trust or other agreement or
               instrument to which the Company is a party or by which it is
               now bound, or the Restated Articles of Incorporation or
               by-laws of the Company, or any order, rule or regulation
               applicable to the Company of any court or of any regulatory
               body or administrative agency or other governmental body
               having jurisdiction over the Company or over any of its
               properties, or any statute of any jurisdiction applicable to
               the Company;

                    (d)  The Arizona Corporation Commission has approved
               all matters relating to the Company's participation in the
               transactions contemplated by this Agreement which require
               said approval, and no other consent, approval, authorization
               or other order of any regulatory body or administrative
               agency or other governmental body is legally required for
               the Company's participation therein, except such as may have
               been obtained or may be required under the securities laws
               of any jurisdiction;

                    (e)  The Facilities are to be used solely for purposes
               contemplated by the Act and are located or are to be located
               within the State of Arizona; and

                    (f)  The Company estimates that all of the proceeds of
               the Bonds (exclusive of accrued interest, if any, paid by
               the initial purchasers of such Bonds upon delivery thereof)
               will be expended to pay the Cost of Construction.


                                     ARTICLE III

                                    THE FACILITIES

               SECTION 3.01  Construction of the Facilities.  The Company
          shall cause the Facilities to be constructed with all reasonable
          dispatch in order to effectuate the purposes of the Act.  The
          Company shall have the sole responsibility under this Agreement
          for the construction of the Facilities and may perform the same
          itself or through its agents, and may make or issue such
          contracts, orders, receipts and instructions, and in general do
          or cause to be done all such other things as it may in its sole
          discretion consider requisite or advisable for the construction
          of the Facilities and for fulfilling its obligations under this
          Article III.  The Company shall have full authority and the sole
          right under this Agreement to supervise and control, directly or
          indirectly, all aspects of the construction of the Facilities. 
          The Authority shall have no right, title or interest in the
          Facilities, nor any obligation regarding the facilities.

               SECTION 3.02  Insufficient Moneys in Construction Fund.  If
          the moneys in the Construction Fund, together with any other
          moneys made available to pay the Cost of Construction, shall not
          be sufficient to pay the Cost of Construction in full, then the
          Company shall pay all that portion of the Cost of Construction in
          excess of the moneys available therefor.

               The Authority does not make any warranty, either express or
          implied, that the moneys which will be paid into the Construction
          Fund will be sufficient to pay the Cost of Construction in full.

               If the Company makes any payments pursuant to this Section
          3.02, it shall not be entitled to any reimbursement therefor from
          the Authority (except from the proceeds of any obligations
          subsequently issued by the Authority in respect of the
          Facilities), the Trustee or the Owners of the Bonds, nor shall it
          be entitled to any diminution in or postponement of the payment
          of the Loan Payments or the payment of any other amounts payable
          under this Agreement.

               SECTION 3.03  Revision of Plans and Specifications.  The
          Company may cause one or more revisions to be made to the plans
          and specifications for the Facilities (including without
          limitation any changes therein, additions thereto, substitutions
          therefor and deletions therefrom), at any time and from time to
          time prior to the Completion Date in any respect; provided,
          however, that, if any such revision shall render inaccurate the
          description of the Facilities contained in Exhibit A hereto, the
          Company shall deliver to the Authority and the Trustee (a) a
          revised Exhibit A containing a description of the Facilities as
          revised, the accuracy of which shall have been certified by an
          Authorized Company Representative, and (b) an opinion of Bond
          Counsel to the effect that the Facilities as described in the
          revised Exhibit A are such that the expenditure of the proceeds
          of the Bonds pursuant to this Agreement will not, in and of
          itself, impair the validity of the Bonds under the Act or the
          exclusion from gross income for federal tax purposes of interest
          on the Bonds.  A revision of Exhibit A hereto pursuant to this
          Section 3.03 shall not constitute an amendment, change or
          modification of this Agreement within the meaning of Article XII
          of the Indenture.

               SECTION 3.04  Certification of Completion Date.  The
          Completion Date shall be the date on which the Facilities are
          completed in their entirety and ready to be placed in service and
          operated, all as determined by the Company.  Promptly after the
          Completion Date, the Company shall submit to the Authority and
          the Trustee a certificate, executed by an Authorized Company
          Representative, which shall specify the Completion Date and shall
          state that (a) construction of the Facilities has been completed
          and the Cost of Construction has been paid, except for any
          portion thereof which has been incurred but is not then due and
          payable, or the liability for the payment of which is being
          contested or disputed by the Company, and for the payment of
          which the Trustee is directed to retain specified amounts of
          moneys in specified accounts within the Construction Fund, and
          (b) the Facilities are suitable for operation for the purposes
          for which they were designed.  Notwithstanding the foregoing,
          such certificate may state that it is given without prejudice to
          any rights against third parties which exist at the date thereof
          or which may subsequently come into being.

               SECTION 3.05  Maintenance of Facilities; Remodeling.  The
          Company shall at all times to cause the Facilities, and every
          element and unit thereof, to be maintained, preserved and kept in
          thorough repair, working order and condition and cause all
          needful and proper repairs and renewals thereto to be made;
          provided, however, that the Company may cause the operation of
          the Facilities, or any element or unit thereof, to be
          discontinued if, in the judgment of the Company, it is no longer
          advisable to operate the same, or if the Company intends to sell
          or dispose of the same and within a reasonable time shall
          endeavor to effectuate such sale or disposition.

               After the Completion Date, the Company may, subject to the
          provisions of Section 6.05 hereof, at its own expense remodel the
          Facilities or make such substitutions, modifications and
          improvements to the Facilities from time to time as it, in its
          discretion, may deem to be desirable for its uses and purposes,
          which remodeling, substitutions, modifications and improvements
          shall be included under the terms of this Agreement as part of
          the Facilities.

               SECTION 3.06  Insurance.  The Company shall keep the
          Facilities insured against fire and other risks to the extent
          usually insured against by companies owning and operating similar
          property, by reputable insurance companies or, at the Company's
          election, with respect to all or any element or unit of the
          Facilities, by means of an adequate insurance fund set aside and
          maintained by it out of its own earnings or in conjunction with
          other companies through an insurance fund, trust or other
          agreement or, by means of unfunded self-insurance as may be
          reasonable and customary by companies owning and operating
          similar property.  All proceeds of such insurance shall be for
          the account of the Company.

               SECTION 3.07  Condemnation.  The Company shall be entitled
          to the entire proceeds of any condemnation award or portion
          thereof made for damages to or takings of the Facilities or other
          property of the Company.

               SECTION 3.08  Termination of Construction.   (a)  Anything
          in this Agreement to the contrary notwithstanding, the Company
          shall have the right at any time to terminate the construction of
          the Facilities, in whole, if the Company shall have determined
          that the continued construction or operation of the Facilities,
          in whole, is impracticable, uneconomical or undesirable for any
          reason.

               (b)  Promptly after the termination of the construction of
          the Facilities, the Company shall submit to the Authority and the
          Trustee a certificate, executed by an Authorized Company
          Representative, which shall state the reasons for such
          termination and shall state that the Cost of Construction, to the
          extent of the construction of the Facilities as of the date of
          such termination, has been paid, except for any Costs of
          Construction which have been incurred but are not then due and
          payable, or the liability for the payment of which is being
          contested or disputed by the Company, and for the payment of
          which the Trustee is directed to retain specified amounts of
          moneys in specified accounts within the Construction Fund. 
          Notwithstanding the foregoing, such certificate may state that it
          is given without prejudice to any rights against third parties
          which exist at the date thereof or which may subsequently come
          into being.


                                      ARTICLE IV

              ISSUANCE OF THE BONDS; THE LOANS; DISPOSITION OF PROCEEDS
                                     OF THE BONDS

               SECTION 4.01  Issuance of the Bonds.  The Authority shall
          issue the Bonds under and in accordance with the Indenture,
          subject to the provisions of the bond purchase agreement among
          the Authority, the initial purchaser or purchasers of the Bonds
          and the Company.  The Company hereby approves the issuance of the
          Bonds and all terms and conditions thereof.

               SECTION 4.02  Issuance of Other Obligations.  The Authority
          and the Company expressly reserve the right to enter into, to the
          extent permitted by law, but shall not be obligated to enter
          into, an agreement or agreements other than this Agreement with
          respect to the issuance by the Authority, under an indenture or
          indentures other than the Indenture, of obligations to provide
          additional funds to pay the Cost of Construction of the
          Facilities or obligations to refund all or any principal amount
          of the Bonds, or any combination thereof.

               SECTION 4.03  The Loans; Disposition of Bond Proceeds.  The
          Authority and the Company shall enter into escrow arrangements
          with the trustee for the 1990 Bonds and shall cause $20,000,000
          of the proceeds of the Bonds to be deposited in escrow with such
          trustee to be applied to the payment of the 1990 Bonds upon the
          redemption thereof.  The Authority shall from time to time lend
          to the Company the remaining proceeds of the issuance and sale of
          the Bonds, other than accrued interest, if any, paid by the
          initial purchaser or purchasers thereof, for the purposes
          specified in this Agreement, such proceeds to be applied as
          hereinafter and in the Indenture provided.

               The Authority shall establish the Bond Fund and the
          Construction Fund with the Trustee in accordance with Sections
          4.01 and 5.01 of the Indenture.  The proceeds of the issuance and
          sale of the Bonds, other than the $20,000,000 deposited in escrow
          with the trustee for the 1990 Bonds as hereinabove provided and
          accrued interest, if any, paid by the initial purchaser or
          purchasers thereof, shall be deposited into the Construction
          Fund, and any such accrued interest shall be deposited into the
          Bond Fund, all in accordance with the provisions of the
          Indenture.

               The moneys on deposit in the Construction Fund shall be
          applied by the Trustee as provided in Section 4.04 hereof and as
          otherwise provided in Article V of the Indenture.  Until the
          moneys on deposit in the Construction Fund are so applied, such
          moneys shall be and remain the property of the Authority, subject
          to the lien of the Indenture, and the Company shall have no
          right, title or interest therein except as expressly provided in
          this Agreement and the Indenture.  However, in order to secure
          the payment by the Company of the Loan Payments, and the payment
          by the Authority of the principal of and premium, if any, and
          interest on the Bonds, and the performance and observance by the
          Company and the Authority of all covenants and conditions
          expressed herein and in the Indenture and contained in the Bonds,
          the Company hereby mortgages, pledges, assigns, creates and
          grants a security interest in and confirms to the Trustee such
          right, title and interest as the Company may be deemed to have or
          hereafter acquire in the proceeds of the issuance and sale of the
          Bonds to be deposited into the Construction Fund and the proceeds
          from the investment and reinvestment thereof, upon terms and
          conditions co-extensive with those set forth in the Indenture
          with respect to the lien and security interest of the Trustee in
          the Trust Estate (as defined in the Indenture).

               SECTION 4.04  Disbursements from Construction Fund.  (a)  To
          the extent that moneys on deposit in the Construction Fund shall
          not otherwise have been applied in accordance with the provisions
          of Article V of the Indenture, such moneys shall be loaned to the
          Company from time to time to reimburse the Company for portions
          of the Cost of Construction paid by it or to make payments to
          persons designated by the Company in respect of portions of the
          Cost of Construction, upon receipt by the Trustee of requisitions
          executed by, or communications by telegram, telex or facsimile
          transmission from, an Authorized Company Representative, which
          requisitions or communications shall state with respect to each
          payment to be made: (i) the requisition number, (ii) the name and
          address of the person, firm or corporation to whom payment is due
          or has been made (or, in the case of payments to the Bond Fund,
          instructions to make such payments thereto), (iii) the amount
          paid or to be paid, (iv) the account or accounts within the
          Construction Fund from which payment of such requisition, or any
          portion thereof, shall be made, (v) (A) that each obligation,
          item of cost or expense with respect to which such requisition is
          being made has been properly incurred and has been paid or is
          then due and payable as an item of the Cost of Construction, is a
          proper charge against the Construction Fund, and has not been the
          basis of any previous final payment therefrom or from the
          proceeds of any other obligations issued by the Authority or (B)
          in the event that a portion of the Bonds shall have been paid,
          redeemed or deemed to have been paid within the meaning of
          Article VIII of the Indenture by reason of the application of the
          proceeds of the sale of any obligations issued under an indenture
          other than the Indenture and if the payment of such requisition
          is to be made into the construction, acquisition or other similar
          fund created under such other indenture, that upon disbursement
          from such construction, acquisition or other similar fund, each
          obligation, item of cost or expense mentioned in the requisition
          for such disbursement will have been properly incurred and will
          have been paid or will then be due and payable as an item of the
          Cost of Construction, will be a proper charge against the
          construction, acquisition or other similar fund under such
          indenture, and will not have been the basis of any previous final
          payment therefrom or from the proceeds of any other revenue bonds
          issued by the Authority, (vi) that the payment of such
          requisition will not result in a breach of any of the covenants
          of the Company contained in subsection (c) or (d) of this Section
          4.04 and (vii) that, to the best of the knowledge of such
          Authorized Company Representative, there shall not have occurred
          and be continuing any Event of Default described in Section 8.01
          hereof.  Any such communication by telegram, telex or facsimile
          transmission shall be promptly confirmed by a requisition
          executed by an Authorized Company Representative.  The Company
          shall furnish to the Authority a copy of each requisition
          delivered to the Trustee promptly upon request therefor.

               (b)  In paying any requisition under this Section 4.04, the
          Trustee shall be entitled to conclusively rely as to the
          completeness and accuracy of all statements in such requisition
          upon the approval of such requisition by an Authorized Company
          Representative, execution thereof to be conclusive evidence of
          such approval, and the Company shall indemnify and save harmless
          the Authority and the Trustee from any liability incurred in
          connection with any requisition so executed by an Authorized
          Company Representative.

               (c)  The Company shall submit requisitions for Costs of
          Construction in compliance with the requirements therefor
          contained in the Tax Agreement, which on a cumulative aggregate
          basis, if paid, would result in less than 97% of the sum of the
          total amount of the proceeds of the Bonds expended, for any
          purpose, being used to provide facilities for the local
          furnishing of electric energy or other exempt facilities,
          including facilities functionally related or subordinate thereto,
          within the meaning of Section 142 of the Code; provided, however,
          that the moneys paid from the Investment Account within the
          Construction Fund shall be disregarded for purposes of the
          foregoing covenant and all computations made in accordance
          therewith if the Company shall have furnished to the Authority
          and the Trustee an opinion of Bond Counsel to the effect that
          such moneys may be so disregarded without impairing the exclusion
          from gross income for federal tax purposes of interest on the
          Bonds.

                    (d)  The Company shall not submit or cause to be
          submitted to the Trustee any requisition pursuant to this Section
          4.04, and shall have no claim upon any moneys in the Construction
          Fund, so long as there shall have occurred and be continuing any
          Event of Default described in Section 8.01 hereof.

               SECTION 4.05  Investment of Moneys in Funds and Accounts.
          The Company and the Authority agree that any moneys held in any
          fund or account created by the Indenture shall be invested as
          provided in the Indenture.

                                      ARTICLE V

                           LOAN PAYMENTS; OTHER OBLIGATIONS

               SECTION 5.01  Loan Payments.  In consideration of the
          issuance of the Bonds and the disposition of the proceeds thereof
          as contemplated in Section 4.03 hereof, the Company shall pay, or
          cause to be paid, to the Trustee for the account of the Authority
          an amount equal to the aggregate principal amount of the Bonds
          from time to time Outstanding and, as interest on its obligation
          to pay such amount, an amount equal to premium, if any, and
          interest on such Bonds, such amounts to be paid in installments
          due on the dates, in the amounts and in the manner provided in
          the Indenture for the Authority to cause amounts to be deposited
          in the Bond Fund for the payment of the principal of and premium,
          if any, and interest on the Bonds whether at stated maturity,
          upon redemption or acceleration or otherwise; provided, however,
          that the obligation of the Company to make any such payment
          hereunder shall be reduced by the amount of any reduction under
          the Indenture of the amount of the corresponding payment required
          to be made by the Authority thereunder.

               SECTION 5.02  Payments Assigned; Obligation Absolute.  It is
          understood and agreed that all Loan Payments are, by the
          Indenture, to be pledged by the Authority to the Trustee, and
          that all rights and interest of the Authority hereunder (except
          for the Authority's rights under Sections 5.03, 5.04, 6.03 and
          8.05 hereof and any rights of the Authority to receive notices,
          certificates, requests, requisitions and other communications
          hereunder) are to be pledged and assigned to the Trustee.  The
          Company assents to such pledge and assignment and agrees that the
          obligation of the Company to make the Loan Payments shall be
          absolute, irrevocable and unconditional and shall not be subject
          to cancellation, termination or abatement, or to any defense
          other than payment or to any right of set-off, counterclaim or
          recoupment arising out of any breach by the Authority or the
          Trustee or any other party under this Agreement, the Indenture or
          otherwise, or out of any obligation or liability at any time
          owing to the Company by the Authority, the Trustee or any other
          party, and, further, that the Loan Payments and the other
          payments due hereunder shall continue to be payable at the times
          and in the amounts herein and therein specified, whether or not
          the Facilities, or any portion thereof, shall have been completed
          or shall have been destroyed by fire or other casualty, or title
          thereto, or the use thereof, shall have been taken by the
          exercise of the power of eminent domain, and that there shall be
          no abatement of or diminution in any such payments by reason
          thereof, whether or not the Facilities shall be used or useful,
          whether or not any applicable laws, regulations or standards
          shall prevent or prohibit the use of the Facilities, or for any
          other reason, all of the foregoing being subject, however, to the
          provisions of Sections 6.01 and 7.01 hereof.

               SECTION 5.03  Payment of Expenses.  The Company shall pay,
          or, to the extent permitted by this Agreement, cause to be paid
          out of the Construction Fund, all Administration Expenses,
          including, without limitation, Administration Expenses incurred
          at and subsequent to the time the Bonds are deemed to have been
          paid in accordance with Article VIII of the Indenture.  The
          payment of the compensation and the reimbursement of expenses and
          advances of the Trustee, of the paying agent, any co-paying agent
          and the registrar under the Indenture shall be made directly to
          such entities.

               SECTION 5.04  Indemnification.  The Company releases the
          Authority, the Trustee and their directors, officers, employees
          and agents from, agrees that the Authority and the Trustee shall
          not be liable for, and agrees to indemnify and hold the
          Authority, the Trustee and their directors, officers, employees
          and agents free and harmless from, any liability (including,
          without limitation, attorneys' and other agents' fees and
          expenses) for any loss or damage to property or any injury to or
          death of any person that may be occasioned by any cause
          whatsoever pertaining to the Facilities, except (i) in the case
          of the Trustee, as a result of the negligence or bad faith or
          willful misconduct of the Trustee or its directors, officers,
          employees and agents;  and (ii) in the case of the Authority, as
          a result of the gross negligence or bad faith of the Authority or
          its directors, officers, employees and agents.

               The Company shall indemnify and hold the Authority and the
          Trustee, free and harmless from any loss, claim, damage, tax,
          penalty, liability, disbursement, litigation expenses, attorneys'
          and other agents' fees and expenses or court costs arising out
          of, or in any way relating to, the execution or performance of
          this Agreement, the issuance or sale of the Bonds, actions taken
          under the Indenture or any other cause whatsoever pertaining to
          the Facilities, except (i) in the case of the Trustee, as a
          result of the negligence or bad faith or willful misconduct of
          the Trustee;  and (ii) in the case of the Authority, as a result
          of the gross negligence or bad faith of the Authority.

               The Company shall indemnify and hold the Authority and its
          directors, officers, employees and agents free and harmless from
          any loss, claim, damage, tax, penalty, liability, disbursement,
          litigation expenses, attorney's fees and expenses or court costs
          arising out of or in any way relating to any untrue statement or
          alleged untrue statement of any material fact or omission or
          alleged omission to state a material fact necessary to make the
          statements made, in light of the circumstances under which they
          were made, not misleading in any official statement or other
          offering material utilized in connection with the sale of any
          Bonds.

               SECTION 5.05  Payment of Taxes; Discharge of Liens.  The
          Company shall: (a) pay, or make provision for payment of, all
          lawful taxes and assessments, including income, profits, property
          or excise taxes, if any, or other municipal or governmental
          charges, levied or assessed by any federal, state or municipal
          government or political body upon the Facilities or any part
          thereof or upon the Authority with respect to the Loan Payments,
          when the same shall become due; and (b) pay or cause to be
          satisfied and discharged or make adequate provision to satisfy
          and discharge, within sixty (60) days after the same shall
          accrue, any lien or charge upon the Loan Payments, and all lawful
          claims or demands for labor, materials, supplies or other charges
          which, if unpaid, might be or become a lien upon such amounts;
          provided, that, if the Company shall first notify the Authority
          and the Trustee of its intention so to do, the Company may in
          good faith contest any such lien or charge or claims or demands
          in appropriate legal proceedings, and in such event may permit
          the items so contested and identified as such by the Company to
          remain undischarged and unsatisfied during the period of such
          contest and any appeal therefrom, unless the Trustee shall notify
          the Company in writing that, in the opinion of counsel to the
          Trustee based upon material facts disclosed to the Trustee
          without any duty of investigation, by nonpayment of any such
          items the lien of the Indenture as to the Loan Payments will be
          materially endangered, in which event the Company shall promptly
          pay and cause to be satisfied and discharged all such unpaid
          items.  The Authority shall cooperate fully with the Company in
          any such contest.


                                      ARTICLE VI

                                  SPECIAL COVENANTS

               SECTION 6.01  Maintenance of Corporate Existence.  Except as
          permitted in this Section 6.01, the Company shall maintain its
          corporate existence, shall not sell, transfer or otherwise
          dispose of all of its assets, as or substantially as an entirety,
          and shall not consolidate with or merge with or into another
          corporation.  The Company may consolidate with or merge into
          another corporation incorporated under the laws of the United
          States of America, any state thereof or the District of Columbia,
          or sell, transfer or otherwise dispose of all of its assets, as
          or substantially as an entirety, to any Person, if the surviving
          or resulting corporation (if other than the Company) or the
          transferee Person, as the case may be, prior to or simultaneously
          with such merger, consolidation, sale, transfer or disposition,
          assumes, by delivery to the Trustee and the Authority of an
          instrument in writing satisfactory in form to the Trustee, all
          the obligations of the Company under this Agreement, including,
          without limitation, obligations of the Company under Section 5.01
          hereof. Upon such an assumption following any such sale, transfer
          or other disposition of assets, the Company shall be released and
          discharged from all liability in respect of all obligations under
          this Agreement.  Notwithstanding the foregoing, in the case of
          any such sale, transfer or other disposition of assets, which do
          not include the Facilities, the Company shall remain liable in
          respect of obligations under this Agreement other than the
          obligations under Section 5.01 hereof, and the transferee shall
          not be required to assume any obligations hereunder other than
          the obligations under Section 5.01 hereof; provided, however,
          that the transferee shall be required to assume all such other
          obligations unless the Company shall have delivered to the
          Authority and the Trustee an opinion of Bond Counsel to the
          effect that the non-assumption by the transferee of such other
          obligations will not impair the validity under the Act of the
          Bonds and will not adversely affect the exclusion from gross
          income for federal tax purposes of interest on the Bonds.

               If consolidation, merger or sale, transfer or other
          disposition is made as permitted by this Section 6.01, the
          provisions of this Section 6.01 shall continue in full force and
          effect and no further consolidation, merger or sale or other
          transfer shall be made except in compliance with the provisions
          of this Section 6.01.

               Anything in this Agreement to the contrary notwithstanding,
          the sale, transfer or other disposition by the Company of all of
          its facilities (a) for the generation of electric energy, (b) for
          the transmission of electric energy or (c) for the distribution
          of electric energy, in each case considered alone, or all of its
          facilities described in clauses (a) and (b), considered together,
          or all of its facilities described in clauses (b) and (c),
          considered together, shall in no event be deemed to constitute a
          sale, transfer or other disposition of all the properties of the
          Company, as or substantially as an entirety, unless, immediately
          following such sale, transfer or other disposition, the Company
          shall own no properties in the other such categories of property
          not so sold, transferred or otherwise disposed of.  The character
          of particular facilities shall be determined by reference to the
          Uniform System of Accounts prescribed for public utilities and
          licensees subject to the Federal Power Act, as amended, to the
          extent applicable.

               SECTION 6.02  Permits or Licenses.  In the event that it may
          be necessary for the proper performance of this Agreement on the
          part of the Company or the Authority that any application or
          applications for any permit or license to do or to perform
          certain things be made to any governmental or other agency by the
          Company or the Authority, the Company and the Authority each
          shall, upon the request of either, execute such application or
          applications.

               SECTION 6.03  Authority's Access to Facilities.  The
          Authority shall have the right, upon appropriate prior notice to
          the Company, to have reasonable access to the Facilities during
          normal business hours for the purpose of making examinations and
          inspections of the same.

               SECTION 6.04  Tax-Exempt Status of Interest on Bonds.  (a) 
          It is the intention of the parties hereto that interest on the
          Bonds shall be and remain tax-exempt, and to that end the
          covenants and agreements of the Authority and the Company in this
          Section 6.04 and the Tax Agreement are for the benefit of the
          Owners from time to time of the Bonds.

                    (b)  Each of the Company and the Authority covenants
          and agrees for the benefit of the Owners from time to time of the
          Bonds that it will not directly or indirectly use or permit the
          use of (to the extent within its control) the proceeds of any of
          the Bonds or any other funds, or take or omit to take any action,
          if and to the extent such use, or the taking or omission to take
          such action, would cause any of the Bonds to be "arbitrage bonds"
          within the meaning of Section 148 of the Code or otherwise
          subject to federal income taxation by reason of Section 103 and
          141 through 150 of the Code and any applicable regulations
          promulgated thereunder.  To such ends, the Authority and the
          Company shall comply with all requirements of such Section 148 to
          the extent applicable to the Bonds.  In the event that at any
          time the Authority or the Company is of the opinion that for
          purposes of this Section 6.04(b) it is necessary to restrict or
          limit the yield on the investment of any moneys held by the
          Trustee under the Indenture, the Authority or the Company shall
          so notify the Trustee in writing.

                    Without limiting the generality of the foregoing, the
          Company and the Authority agree that there shall be paid from
          time to time all amounts required to be rebated to the United
          States of America pursuant to Section 148(f) of the Code and any
          applicable Treasury Regulations.  This covenant shall survive
          payment in full or defeasance of the Bonds and the satisfaction
          and discharge of the Indenture.  The Company specifically
          covenants to pay or cause to be paid, the Rebate Requirement as
          defined and described in the Tax Agreement.

                    (c)  The Authority certifies and represents that it has
          not taken, and the Authority covenants and agrees that it will
          not take, any action which results in interest paid on the Bonds
          being included in gross income of the Owners of the Bonds for
          federal tax purposes pursuant to Sections 103 and 141 of the Code
          and any regulations thereunder; and the Company certifies and
          represents that it has not taken or (to the extent within its
          control) permitted to be taken, and the Company covenants and
          agrees that it will not take or (to the extent within its
          control) permit to be taken any action which will cause the
          interest on the Bonds to become includable in gross income for
          federal income tax purposes; provided, however, that neither the
          Company nor the Authority shall be deemed to have violated these
          covenants if the interest on any of the Bonds becomes taxable to
          a person solely because such person is a "substantial user" of
          the Facilities or a "related person" within the meaning of
          Section 147(a) of the Code; and provided, further, that none of
          the covenants and agreements herein contained shall require
          either the Company or the Authority to enter an appearance or
          intervene in any administrative, legislative or judicial
          proceeding in connection with any changes in applicable laws,
          rules or regulations or in connection with any decisions of any
          court or administrative agency or other governmental body
          affecting the taxation of interest on the Bonds.  The Company
          acknowledges having read Section 7.08 of the Indenture and agrees
          to perform all duties imposed on it by such Section 7.08, by this
          Section and by the Tax Agreement.  Insofar as Section 7.08 of the
          Indenture and the Tax Agreement impose duties and
          responsibilities on the Company, they are specifically
          incorporated herein by reference.

                    (d)  Notwithstanding any provision of this Section 6.04
          and Section 7.08 of the Indenture, if the Company shall provide
          to the Authority and the Trustee an opinion of Bond Counsel to
          the effect that any specified action required under this Section
          6.04 and Section 7.08 of the Indenture is no longer required or
          that some further or different action is required to maintain the
          tax-exempt status of interest on the Bonds, the Company, the
          Trustee and the Authority may conclusively rely upon such opinion
          in complying with the requirements of this Section 6.04, and the
          covenants hereunder shall be deemed to be modified to that
          extent.

               SECTION 6.05  Use of Facilities.  So long as any Bonds are
          Outstanding and the Facilities are operated by or for the benefit
          of the Company, the Company shall cause the Facilities to be used
          for purposes contemplated by the Act and in the Tax Agreement.

               SECTION 6.06  Financing Statements.  The Company shall file
          and record, or cause to be filed and recorded, all financing
          statements and continuation statements referred to in Section
          7.07 of the Indenture.


                                     ARTICLE VII

                           ASSIGNMENT, LEASING AND SELLING

               SECTION 7.01  Conditions. The Company's interest in this
          Agreement may be assigned as a whole or in part, and its interest
          in the Facilities may be leased, sold, transferred or otherwise
          disposed of by the Company as a whole or in part (whether an
          interest in a specific element or unit or an undivided interest),
          to any Person; provided, however, that no such assignment, lease,
          sale, transfer or other disposition (a) shall relieve the Company
          from its primary liability for its obligations under Section 5.01
          hereof or (b) shall be made unless the assignee, lessee,
          purchaser or other transferee, as the case may be, prior to or
          simultaneously with such assignment, lease, sale, transfer or
          other disposition, assumes, by delivery of an instrument in
          writing satisfactory in form to the Trustee and the Authority,
          all other obligations of the Company hereunder to the extent of
          the interest assigned, leased, sold, transferred or otherwise
          disposed of, and the Company shall be released of and discharged
          from such obligations to the extent so assumed.  Notwithstanding
          the foregoing, (a) if (i) the Company's interest in this
          Agreement shall be assigned as a whole or in undivided part, (ii)
          the Company's interest in the Facilities shall be leased as a
          whole or in undivided part and the term of such leasehold or the
          term of any extension or extensions thereof at the option of the
          Company shall extend beyond the maturity date of the Bonds or
          (iii) the Company's interest in the Facilities shall be sold,
          transferred or otherwise disposed of as a whole or in undivided
          part, and (b) in the event that the assignee, lessee, purchaser
          or other transferee shall assume the obligations of the Company
          under Section 5.01 hereof for the remaining term of this
          Agreement, to the extent of such assignment, lease, sale,
          transfer or other disposition, the Company shall be released from
          and discharged of all liability in respect of such obligations to
          the extent so assumed (but only to such extent); provided,
          however, that the release and discharge of the Company pursuant
          to clause (b) shall be conditioned upon the delivery by the
          Company to the Authority and the Trustee of a certificate of an
          Independent Expert (as hereinafter defined) describing the
          interests so assigned, leased, sold, transferred or otherwise
          disposed of, together with all other rights, interests, assets
          and/or properties assigned, leased, sold, transferred or
          otherwise disposed of by the Company to the same Person in the
          same or a related transaction, stating that such rights,
          interests, assets and/or properties so described constitute
          facilities for the generation, transmission  and/or distribution
          of electric energy and stating that, in the opinion of such
          Independent Expert, the Fair Value (as hereinafter defined) of
          such rights, interests, assets and/or properties to the Person
          acquiring the same is not less than an amount equal to 10/7 of
          the sum of (x) the aggregate principal amount of the Bonds then
          Outstanding and (y) the outstanding principal amount of all other
          obligations of the Company representing indebtedness for borrowed
          money or for the deferred purchase price of property which are
          being assumed by such Person; provided, further, that after any
          such assumption, release and discharge as aforesaid, the Company
          may again assume such obligations under Section 5.01 hereof, in
          whole or in part, at any time and from time to time, and, to the
          extent of any such assumption by the Company (but only to such
          extent), the aforesaid assignee, lessee, purchaser or other
          transferee shall be released from and discharged of all liability
          in respect of such obligations.

               Anything herein to the contrary notwithstanding, the Company
          shall not make any assignment, lease or sale as provided in the
          immediately preceding paragraph unless it shall have furnished to
          the Authority and the Trustee an opinion of Bond Counsel to the
          effect that the proposed assignment, lease or sale will not
          impair the validity under the Act of the Bonds and will not
          adversely affect the exclusion of interest on the Bonds from
          gross income for federal tax purposes.

               After any lease, sale, transfer or other disposition of any
          element or unit of the Facilities, or any interest therein, the
          Company may, at its option, cause such element or unit, or
          interest therein, to no longer be deemed to be part of the
          Facilities for the purposes of this Agreement by delivering to
          the Authority and the Trustee the agreements or other documents
          required pursuant to Section 7.02 hereof together with an
          instrument signed by an Authorized Company Representative stating
          that such element or unit, or interest therein, shall no longer
          be deemed to be part of the Facilities for the purposes of this
          Agreement.

               For purposes of this Section 7.01:

                    (a)  "Independent Expert" means a Person which (i) is
               an engineer, appraiser or other expert and which, with
               respect to any certificate to be delivered pursuant to this
               Section, is qualified to pass upon the matter set forth in
               such certificate and (ii)(A) is in fact independent, (B)
               does not have any direct material financial interest in the
               transferee or in any obligor upon the Bonds or under this
               Agreement or in any affiliate of the transferee or any such
               obligor, (C) is not connected with the transferee or any
               such obligor as an officer, employee, promoter, underwriter,
               trustee, partner, director or any person performing similar
               functions and (D) is approved by the Trustee in the exercise
               of reasonable care; for purposes of this definition
               "engineer" means a Person engaged in the engineering
               profession or otherwise qualified to pass upon engineering
               matters (including, but not limited to, a Person licensed as
               a professional engineer, whether or not then engaged in the
               engineering profession); and for purposes of this definition
               "appraiser" means a Person engaged in the business of
               appraising property or otherwise qualified to pass upon the
               Fair Value or fair market value of property.

                    (b)  "Fair Value" means the fair value of the
               interests, rights, assets and/or properties assigned,
               leased, sold, transferred or otherwise disposed of (but, in
               the case of a lease, only to the extent of such lease) as
               may be determined by reference to (i) except in the case of
               a lease, the amount which would be likely to be obtained in
               an arm's-length transaction with respect to such interests,
               rights, assets and/or properties between an informed and
               willing buyer and an informed and willing seller, under no
               compulsion, respectively, to buy or sell, (ii) in the case
               of a lease, the amount (discounted to present value at a
               rate not lower than the taxable equivalent of the yield to
               maturity of the Bonds based on prevailing market prices
               immediately prior to the first public announcement of the
               proposed transaction) which would be likely to be obtained
               in an arm's-length transaction with respect to such
               interests, rights, assets and/or properties between an
               informed and willing lessee and an informed and willing
               lessor, neither under any compulsion to lease; (iii) the
               amount of investment with respect to such interests, rights,
               assets and/or properties which, together with a reasonable
               return thereon, would be likely to be recovered through
               ordinary business operations or otherwise, (iv) the cost,
               accumulated depreciation and replacement cost with respect
               to such interests, rights, assets and/or properties and/or
               (v) any other relevant factors; provided, however, that (x)
               Fair Value shall be determined without deduction for any
               mortgage, deed of trust, pledge, security interest,
               encumbrance, lease, reservation, restriction, servitude,
               charge or similar right or any other lien of any kind and
               (y) the Fair Value to the transferee of any property shall
               not reflect any reduction relating to the fact that such
               property may be of less value to a Person which is not the
               owner, lessee or operator of the property or any portion
               thereof than to a Person which is such owner, lessee or
               operator.  Fair Value may be determined, without physical
               inspection, by the use of accounting and engineering records
               and other data maintained by the Company or the transferee
               or otherwise available to the Independent Expert certifying
               the same.

               SECTION 7.02  Instrument Furnished to the Authority and
          Trustee.  The Company shall, within fifteen (15) days after the
          delivery thereof, furnish to the Authority and the Trustee a true
          and complete copy of the agreements or other documents
          effectuating any such assignment, lease, sale, transfer or other
          disposition.

               SECTION 7.03  Limitation.  This Agreement shall not be
          assigned nor shall the Facilities be leased, sold, transferred or
          otherwise disposed of, in whole or in part, except as provided in
          this Article VII or in Section 6.01 or 5.02 hereof.  This Article
          VII shall not apply to any sale, transfer or other disposition by
          the Company of all of its assets, as or substantially as an
          entirety, as contemplated in Section 6.01.


                                     ARTICLE VIII

                            EVENTS OF DEFAULT AND REMEDIES

               SECTION 8.01  Events of Default.  Each of the following
          events shall constitute and is referred to in this Agreement as
          an "Event of Default":

                    (a)  a failure by the Company to make any Loan Payment,
               which failure shall have resulted in an "Event of Default"
               under clause (a) or (b) of Section 9.01 of the Indenture;

                    (b)  a failure by the Company to pay when due any
               amount required to be paid under this Agreement or to
               observe and perform any covenant, condition or agreement on
               its part to be observed or performed (other than a failure
               described in clause (a) above), which failure shall continue
               for a period of sixty (60) days after written notice,
               specifying such failure and requesting that it be remedied,
               shall have been given to the Company by the Authority or the
               Trustee, unless the Authority and the Trustee shall agree in
               writing to an extension of such period prior to its
               expiration; provided, however, that the Authority and the
               Trustee shall be deemed to have agreed to an extension of
               such period if corrective action is initiated by the Company
               within such period and is being diligently pursued; or

                    (c)  the dissolution or liquidation of the Company, or
               failure by the Company promptly to lift any execution,
               garnishment or attachment of such consequence as will impair
               its ability to make any payments under this Agreement, or
               the entry of an order for relief by a court of competent
               jurisdiction in any proceeding for its liquidation or
               reorganization under the provisions of any bankruptcy act or
               under any similar act which may be hereafter enacted, or an
               assignment by the Company for the benefit of its creditors,
               or the entry by the Company into an agreement of composition
               with its creditors (the term "dissolution or liquidation of
               the Company," as used in this clause, shall not be construed
               to include the cessation of the corporate existence of the
               Company resulting either from a merger or consolidation of
               the Company into or with another corporation or a
               dissolution or liquidation of the Company following a
               transfer of all or substantially all its assets as an
               entirety, under the conditions permitting such actions
               contained in Section 6.01 hereof).

               SECTION 8.02  Force Majeure.  The provisions of Section 8.01
          hereof are subject to the following limitations: if by reason of
          acts of God; strikes, lockouts or other industrial disturbances;
          acts of public enemies; orders of any kind of the government of
          the United States or of the State of Arizona, or any department,
          agency, political subdivision, court or official of any of them,
          or any civil or military authority; insurrections; riots;
          epidemics; landslides; lightning; earthquakes; volcanoes; fires;
          hurricanes; tornadoes; storms; floods; washouts; droughts;
          arrests; restraint of government and people; civil disturbances;
          explosions; breakage or accident to machinery; partial or entire
          failure of utilities; or any cause or event not reasonably within
          the control of the Company, the Company is unable in whole or in
          part to carry out any one or more of its agreements or
          obligations contained herein, other than its obligations under
          Sections 5.01, 5.03, 5.05 and 6.01 hereof, the Company shall not
          be deemed in default by reason of not carrying out said agreement
          or agreements or performing said obligation or obligations during
          the continuance of such inability.  The Company shall make
          reasonable effort to remedy with all reasonable dispatch the
          cause or causes preventing it from carrying out its agreements;
          provided, that the settlement of strikes, lockouts and other
          industrial disturbances shall be entirely within the discretion
          of the Company, and the Company shall not be required to make
          settlement of strikes, lockouts and other industrial disturbances
          by acceding to the demands of the opposing party or parties when
          such course is in the judgment of the Company unfavorable to the
          Company.

               SECTION 8.03  Remedies.  (a)  Upon the occurrence and
          continuance of any Event of Default described in clause (a) of
          Section 8.01 hereof, and further upon the condition that, in
          accordance with the terms of the Indenture, the Bonds shall have
          been declared to be immediately due and payable pursuant to any
          provision of the Indenture, the Loan Payments shall, without
          further action, become and be immediately due and payable.

               Any waiver of any "Event of Default" under the Indenture and
          a rescission and annulment of its consequences shall constitute a
          waiver of the corresponding Event or Events of Default under this
          Agreement and a rescission and annulment of the consequences
          thereof.

               (b)  Upon the occurrence and continuance of any Event of
          Default, the Authority, or the Trustee with respect to the rights
          of the Authority assigned to the Trustee by the Indenture, may
          take any action at law or in equity to collect any payments then
          due and thereafter to become due, or to enforce performance and
          observance of any obligation, agreement or covenant of the
          Company hereunder.

               (c)  Any amounts collected by the Trustee from the Company
          pursuant to this Section 8.03 shall be applied in accordance with
          the Indenture.

               SECTION 8.04  No Remedy Exclusive.  No remedy conferred upon
          or reserved to the Authority hereby is intended to be exclusive
          of any other available remedy or remedies, but each and every
          such remedy shall be cumulative and shall be in addition to every
          other remedy given hereunder or now or hereafter existing at law
          or in equity or by statute.  No delay or omission to exercise any
          right or power accruing upon any default shall impair any such
          right or power or shall be construed to be a waiver thereof, but
          any such right or power may be exercised from time to time and as
          often as may be deemed expedient.  In order to entitle the
          Authority to exercise any remedy reserved to it in this Article
          VIII, it shall not be necessary to give any notice, other than
          such notice as may be herein expressly required.

               SECTION 8.05  Reimbursement of Attorneys' and Agents' Fees. 
          If the Company shall default under any of the provisions hereof
          and the Authority or the Trustee shall employ attorneys or agents
          or incur other reasonable expenses for the collection of payments
          due hereunder or for the enforcement of performance or observance
          of any obligation or agreement on the part of the Company
          contained herein, the Company will on demand therefor reimburse
          the Authority or the Trustee and any predecessor Trustee, as the
          case may be, for the reasonable fees of such attorneys and such
          other reasonable expenses so incurred.

               SECTION 8.06  Waiver of Breach.  In the event any obligation
          created hereby shall be breached by either of the parties and
          such breach shall thereafter be waived by the other party, such
          waiver shall be limited to the particular breach so waived and
          shall not be deemed to waive any other breach hereunder.  In view
          of the assignment of certain of the Authority's rights and
          interest hereunder to the Trustee, the Authority shall have no
          power to waive any breach hereunder by the Company in respect of
          such rights and interest without the consent of the Trustee, and
          the Trustee may exercise any of such rights of the Authority
          hereunder.


                                      ARTICLE IX

                                 REDEMPTION OF BONDS

               SECTION 9.01  Redemption of Bonds.  The Authority shall
          take, or cause to be taken, the actions required by the Indenture
          to discharge the lien created thereby through the redemption, or
          provision for payment or redemption, of all Bonds then
          Outstanding, or to effect the redemption, or provision for
          payment or redemption, of less than all the Bonds then
          Outstanding, upon receipt by the Authority and the Trustee from
          the Company of a notice designating the principal amount of the
          Bonds to be redeemed, or for the payment or redemption of which
          provision is to be made, and, in the case of redemption of Bonds,
          or provision therefor, specifying the date of redemption and the
          applicable redemption provision of the Indenture.  Such
          redemption date shall not be less than 45 days from the date such
          notice is given (unless a shorter notice is satisfactory to the
          Trustee).  Unless otherwise stated therein, such notice shall be
          revocable by the Company at any time prior to the time at which
          the Bonds to be redeemed, or for the payment or redemption of
          which provision is to be made, are first deemed to be paid in
          accordance with Article VIII of the Indenture.  The Company shall
          furnish any moneys or Government Obligations (as defined in the
          Indenture) required by the Indenture to be deposited with the
          Trustee or otherwise paid by the Authority in connection with any
          of the foregoing purposes.

               SECTION 9.02  Compliance with the Indenture.  Anything in
          this Agreement to the contrary notwithstanding, the Authority and
          the Company shall take all actions required by this Agreement and
          the Indenture in order to comply with any provisions of the
          Indenture requiring the mandatory redemption of Bonds.


                                      ARTICLE X

                                    MISCELLANEOUS

               SECTION 10.01  Term of Agreement.  This Agreement shall
          remain in full force and effect from the date hereof until the
          right, title and interest of the Trustee in and to the Trust
          Estate (as defined in the Indenture) shall have ceased,
          terminated and become void in accordance with Article VIII of the
          Indenture and until all payments required under this Agreement
          shall have been made.  Notwithstanding the foregoing, the
          covenants contained in Section 5.03, 5.04, Section 6.04 and 8.05
          hereof shall survive the termination of this Agreement.

               SECTION 10.02  Notices.  Except as otherwise provided in
          this Agreement, all notices, certificates, requests, requisitions
          and other communications hereunder shall be in writing and shall
          be sufficiently given and shall be deemed given when mailed by
          registered mail, postage prepaid, addressed as follows: if to the
          Authority, c/o Russo, Cox & Russo, P.C., 1820 East River Road,
          Suite 230, Tucson, Arizona 85718; if to the Company, at 220 West
          Sixth Street, Tucson, Arizona 85702, Attention: Treasurer; and if
          to the Trustee, at such address as shall be designated by it in
          the Indenture.  A copy of each notice, certificate, request or
          other communication given hereunder to the Authority, the
          Company, or the Trustee shall also be given to the others.  The
          Authority, the Company, and the Trustee may, by notice given
          hereunder, designate any further or different addresses to which
          subsequent notices, certificates, requests or other
          communications shall be sent.

               SECTION 10.03  Parties in Interest.  This Agreement shall
          inure to the benefit of and shall be binding upon the Authority,
          the Company and their respective successors and assigns, and no
          other person, firm or corporation shall have any right, remedy or
          claim under or by reason of this Agreement; provided, however,
          that the lien and security interest granted to the Trustee in
          Section 4.03 hereof, as well as the rights and remedies granted
          to the Authority in Article VIII hereof, shall inure to the
          benefit of the Trustee, on behalf of the Owners from time to time
          of the Bonds, and shall be enforceable by the Trustee as a third
          party beneficiary or as assignee of the Authority; and provided,
          further, that neither Pima County, Arizona nor the State of
          Arizona shall in any event be liable for the payment of the
          principal of or premium, if any, or interest on the Bonds or for
          the performance of any pledge, mortgage, obligation or agreement
          created by or arising out of this Agreement or the issuance of
          the Bonds, and further that neither the Bonds nor any such
          obligation or agreement of the Authority shall be construed to
          constitute an indebtedness of Pima County, Arizona or the State
          of Arizona within the meaning of any constitutional or statutory
          provisions whatsoever, but shall be limited obligations of the
          Authority payable solely out of the revenues derived from this
          Agreement, or from the sale of the Bonds, or from the investment
          or reinvestment of any of the foregoing, as provided herein and
          in the Indenture.

               SECTION 10.04  Amendments.  This Agreement may be amended
          only by written agreement of the parties hereto, subject to the
          limitations set forth herein and in the Indenture.

               SECTION 10.05  Counterparts.  This Agreement may be executed
          in any number of counterparts, each of which, when so executed
          and delivered, shall be an original; but such counterparts shall
          together constitute but one and the same Agreement.

               SECTION 10.06  Severability.  If any clause, provision or
          section of this Agreement shall, for any reason, be held illegal
          or invalid by any court, the illegality or invalidity of such
          clause, provision or section shall not affect any of the
          remaining clauses, provisions or sections hereof, and this
          Agreement shall be construed and enforced as if such illegal or
          invalid clause, provision or section had not been contained
          herein.  In case any agreement or obligation contained in this
          Agreement be held to be in violation of law, then such agreement
          or obligation shall be deemed to be the agreement or obligation
          of the Authority or the Company, as the case may be, to the full
          extent permitted by law.

               SECTION 10.07  Governing Law.  The laws of the State of
          Arizona shall govern the construction and enforcement of this
          Agreement, except that the provisions of Section 13.09 of the
          Indenture, construed as provided in Section 13.07 of the
          Indenture, shall apply to this Agreement as if contained herein.

               SECTION 10.08  Notice Regarding Cancellation of Contracts. 
          As required by the provisions of Section 38-511, Arizona Revised
          Statutes, as amended, notice is hereby given that political
          subdivisions of the State of Arizona or any of their departments
          or agencies may, within three (3) years of its execution, cancel
          any contract, without penalty or further obligation, made by the
          political subdivisions or any of their departments or agencies on
          or after September 30, 1988, if any person significantly involved
          in initiating, negotiating, securing, drafting or creating the
          contract on behalf of the political subdivisions or any of their
          departments or agencies is, at any time while the contract or any
          extension of the contract is in effect, an employee or agent of
          any other party to the contract in any capacity or a consultant
          to any other party of the contract with respect to the subject
          matter of the contract.  The cancellation shall be effective when
          written notice from the chief executive officer or governing body
          of the political subdivision is received by all other parties to
          the contract unless the notice specifies a later time.

               The Company covenants and agrees not to employ as an
          employee, agent or, with respect to the subject matter of this
          Agreement, a consultant, any person significantly involved in
          initiating, negotiating, securing, drafting or creating such
          Agreement on behalf of the Authority within three (3) years from
          the execution hereof, unless a waiver is provided by the
          Authority.


          <PAGE>


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


                                   THE INDUSTRIAL DEVELOPMENT AUTHORITY
                                     OF THE COUNTY OF PIMA



                                   By:  /s/ Stanley Lehman
                                      ----------------------------------
                                        President



                                   TUCSON ELECTRIC POWER COMPANY


                                   By:  /s/ Kevin Larson
                                      -----------------------------------
                                        Vice President

          <PAGE>


                                                                  EXHIBIT A

               A portion of the costs of the construction, improvement or
          equipping of the following Facilities will be financed or
          refinanced with the proceeds of the Industrial Development
          Revenue Bonds, 1997 Series A (Tucson Electric Power Company
          Project) issued by The Industrial Development Authority of the
          County of Pima and referred to in the foregoing Loan Agreement.

                                    _____________


               Certain additions and improvements to the Company's lower
          voltage electric transmission and distribution system of the City
          of Tucson and environs in Pima County and to Fort Huachuca in
          adjacent Cochise County, Arizona and additions and improvements
          to the Irvington Generating Station located in the City of
          Tucson, more particularly described in the Tax Certificate and
          Agreement, dated as of October 1, 1997, between The Industrial
          Development Authority of the County of Pima and Tucson Electric
          Power Company.