Exhibit 4e 
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                                    LOAN AGREEMENT
                                   (1997 SERIES C)


                                       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 C
                       (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 . . . . . . . . . . . . . . . . . 4

                                      ARTICLE II

                            REPRESENTATIONS AND WARRANTIES
               SECTION 2.01.  Representations and Warranties of the
                              Authority . . . . . . . . . . . . . . . . . 4
               SECTION 2.02.  Representations and Warranties of the
                              Company . . . . . . . . . . . . . . . . . . 4

                                     ARTICLE III

                                    THE FACILITIES
               SECTION 3.01.  Facilities; Property of the Company . . . . 5
               SECTION 3.02.  Revision of Plans and Specifications  . . . 5
               SECTION 3.03.  Maintenance of Facilities; Remodeling . . . 5
               SECTION 3.04.  Insurance . . . . . . . . . . . . . . . . . 6
               SECTION 3.05.  Condemnation  . . . . . . . . . . . . . . . 6
               SECTION 3.06.  Termination of Construction . . . . . . . . 6

                                      ARTICLE IV

       ISSUANCE OF THE BONDS; THE LOANS; DISPOSITION OF PROCEEDS OF THE BONDS
               SECTION 4.01.  Issuance of the Bonds . . . . . . . . . . . 6
               SECTION 4.02.  Issuance of Other Obligations.  . . . . . . 6
               SECTION 4.03.  The Loan; Disposition of Bond Proceeds. . . 6
               SECTION 4.04.  Investment of Moneys in Funds and Accounts  6

                                      ARTICLE V

                           LOAN PAYMENTS; OTHER OBLIGATIONS
               SECTION 5.01.  Loan Payments.  . . . . . . . . . . . . . . 6
               SECTION 5.02.  Payments Assigned; Obligation Absolute  . . 7
               SECTION 5.03.  Payment of Expenses . . . . . . . . . . . . 7
               SECTION 5.04.  Indemnification . . . . . . . . . . . . . . 7
               SECTION 5.05.  Payment of Taxes; Discharge of Liens  . . . 8

                                      ARTICLE VI

                                  SPECIAL COVENANTS
               SECTION 6.01.  Maintenance of Corporate Existence  . . . . 8
               SECTION 6.02.  Permits or Licenses . . . . . . . . . . . . 9
               SECTION 6.03.  Authority's Access to Facilities  . . . . . 9
               SECTION 6.04.  Tax-Exempt Status of Interest on Bonds. . . 9


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

          *  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>


               SECTION 6.05.  Use of Facilities . . . . . . . . . . . .  10
               SECTION 6.06.  Financing Statements  . . . . . . . . . .  10

                                     ARTICLE VII

                           ASSIGNMENT, LEASING AND SELLING
               SECTION 7.01.  Conditions  . . . . . . . . . . . . . . .  10
               SECTION 7.02.  Instrument Furnished to the Authority and
                              Trustee . . . . . . . . . . . . . . . . .  12
               SECTION 7.03.  Limitation  . . . . . . . . . . . . . . .  12

                                     ARTICLE VIII

                            EVENTS OF DEFAULT AND REMEDIES
               SECTION 8.01.  Events of Default . . . . . . . . . . . .  12
               SECTION 8.02.  Force Majeure . . . . . . . . . . . . . .  12
               SECTION 8.03.  Remedies  . . . . . . . . . . . . . . . .  13
               SECTION 8.04.  No Remedy Exclusive . . . . . . . . . . .  13
               SECTION 8.05.  Reimbursement of Attorneys' and Agents'
                              Fees  . . . . . . . . . . . . . . . . . .  13
               SECTION 8.06.  Waiver of Breach  . . . . . . . . . . . .  13

                                      ARTICLE IX

                                 REDEMPTION OF BONDS
               SECTION 9.01.  Redemption of Bonds . . . . . . . . . . .  14
               SECTION 9.02.  Compliance with the Indenture . . . . . .  14

                                      ARTICLE X

                                    MISCELLANEOUS
               SECTION 10.01. Term of Agreement . . . . . . . . . . . .  14
               SECTION 10.02. Notices . . . . . . . . . . . . . . . . .  14
               SECTION 10.03. Parties in Interest . . . . . . . . . . .  14
               SECTION 10.04. Amendments  . . . . . . . . . . . . . . .  15
               SECTION 10.05. Counterparts  . . . . . . . . . . . . . .  15
               SECTION 10.06. Severability  . . . . . . . . . . . . . .  15
               SECTION 10.07. Governing Law . . . . . . . . . . . . . .  15
               SECTION 10.08. Notice Regarding Cancellation of
                              Contracts.  . . . . . . . . . . . . . . .  15


          Signatures  . . . . . . . . . . . . . . . . . . . . . . . . .  18
          Exhibit A - Description of the Facilities . . . . . . . . . . A-1


          <PAGE>


                                    LOAN AGREEMENT

               THIS LOAN AGREEMENT (1997 Series C), 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
          $75,000,000 aggregate principal amount of its Industrial
          Development Revenue Bonds, 1983 Series A (Tucson Electric Power
          Company General Project), all of which remain outstanding (the
          "1983 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 facilities for
          the furnishing of electric energy described in Exhibit A hereto
          ("Facilities");

               WHEREAS, the Authority proposes to issue and sell its
          revenue bonds for the purpose of refinancing, by the payment or
          redemption of the 1983 Bonds, or provisions therefor, the portion
          of the cost of the Facilities previously financed from the
          proceeds of the 1983 Bonds;

               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 C (Tucson Electric Power Company
          Project) of the Authority.

          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 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.

          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.

          Loan Payments:

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

          1954 Code:

               "1954 Code" shall mean the Internal Revenue Code of 1954, as
          amended.

          1983 Bonds:

               "1983 Bonds" shall mean the $75,000,000 aggregate principal
          amount of the Authority's Industrial Development Revenue Bonds,
          1983 Series A (Tucson Electric Power Company General 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 all
               other documents hereby 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 the State of New Mexico; and

                    (f)  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
               refinance the Facilities through the payment or redemption
               of the 1983 Bonds, or provisions therefor.


                                     ARTICLE III

                                    THE FACILITIES

               SECTION 3.01.  Facilities; Property of the Company.  An
          undivided interest in the Facilities shall be the property of the
          Company and the Authority shall have no right, title or interest
          in the Facilities.

               SECTION 3.02.  Revision of Plans and Specifications.  The
          Company may consent to one or more revisions 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 3.02 shall
          not constitute an amendment, change or modification of this
          Agreement within the meaning of Article XII of the Indenture.

               SECTION 3.03.  Maintenance of Facilities; Remodeling.  The
          Company shall at all times 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 3.04.  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 3.05.  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 3.06.  Termination of Construction.   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.


                                      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 Loan; Disposition of Bond Proceeds.  The
          Authority and the Company shall enter into escrow arrangements
          with the trustee for the 1983 Bonds and shall cause the proceeds
          of the Bonds, other than accrued interest, if any, paid by the
          initial purchaser or purchasers thereof, to be deposited in
          escrow with such trustee to be applied to the payment of the 1983
          Bonds upon the redemption thereof.

               The Authority shall establish the Bond Fund with the Trustee
          in accordance with Section 4.01 of the Indenture.

               SECTION 4.04.  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
          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 gross negligence or bad faith of the Authority or its
          directors, officers, employees and agents.

               The Company will 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 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 will 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, the 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 all 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 or Section 103 of the 1954 Code and Title XIII
               of the Tax Reform Act of 1986, as applicable, and any
               applicable regulations promulgated thereunder.  To such
               ends, the Authority and the Company will 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 or to Section 103 of the 1954 Code and
               Title XIII of the Tax Reform Act of 1986, as applicable, 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 103(b)(13) of
               the 1954 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 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 refinanced with the
          proceeds of the Industrial Development Revenue Bonds, 1997 Series
          C (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 high voltage transmission facilities and related
          improvements used to transmit energy from Unit No. 2 of the
          Springerville Generating Station located in Apache County,
          Arizona to 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.