Exhibit 4c
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                                    LOAN AGREEMENT
                                   (1997 Series B)


                                       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 B
                       (Tucson Electric Power Company Project)


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          <PAGE>

                               TABLE OF CONTENTS*

                                                                       Page
                                                                       ----

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

                                      ARTICLE I

                                     DEFINITIONS
                  SECTION 1.01.  Definitions  . . . . . . . . . . . . .   2
                  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  . . . . . . . . . . . .   5

                                     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    6
                  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 . . . . . . . . . . . . . .   7
           
                                      ARTICLE V

                           LOAN PAYMENTS; OTHER OBLIGATIONS
                  SECTION 5.01.  Loan Payments. . . . . . . . . . . . .   7
                  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


     -------------------- 
     *     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 6.03.  Authority's Access to Facilities . . .   9
                  SECTION 6.04.  Tax-Exempt Status of Interest on Bonds.  9
                  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 B), 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, 1982 Series A  (Tucson Electric Power
          Company General  Project), all  of which remain  outstanding (the
          "1982  Bonds  due June  15, 2022"),  the  proceeds of  which were
          loaned to the  Company to finance and refinance 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 ("Facilities"); 

             WHEREAS,  the Authority  has also  heretofore issued  and sold
          $75,000,000   aggregate  principal   amount  of   its  Industrial
          Development Revenue  Bonds, 1982 Series A  (Tucson Electric Power
          Company General  Project), all  of which remain  outstanding (the
          "1982  Bonds due July 1, 2022", and, together with the 1982 Bonds
          due June  15, 2022, hereinafter  collectively referred to  as the
          "1982 Bonds"), the proceeds  of which were loaned to  the Company
          to  finance  and  refinance   certain  additional  costs  of  the
          Facilities; and

             WHEREAS, the Authority proposes  to issue and sell its revenue
          bonds  for   the  purpose  of  refinancing,  by  the  payment  or
          redemption of the 1982 Bonds, or provisions therefor, the portion
          of  the  costs  of  the  Facilities  previously  financed  and/or
          refinanced from the proceeds of the 1982 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  B  (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.

          1982 Bonds:

             "1982  Bonds" shall mean the  $75,000,000 aggregate  principal
          amount of  the Authority's Industrial  Development Revenue Bonds,
          1982 Series A (Tucson Electric Power Company General Project) due
          June 15, 2022 and  $75,000,000 aggregate principal amount of  the
          Authority's Industrial Development  Revenue Bonds, 1982 Series  A
          (Tucson Electric Power Company General Project) due July 1, 2022.

          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

               (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  1982
             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 1982 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 1982
          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
          B  (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  low-
          voltage transmission  and distribution facilities in  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.