EXHIBIT 4c
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                                    LOAN AGREEMENT



                                       BETWEEN



                               COCONINO COUNTY, ARIZONA

                            POLLUTION CONTROL CORPORATION



                                         AND



                            TUCSON ELECTRIC POWER COMPANY




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




                              DATED AS OF APRIL 1, 1997



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



                                     RELATING TO

                           POLLUTION CONTROL REVENUE BONDS,
                                    1997 SERIES A
                    (TUCSON ELECTRIC POWER COMPANY NAVAJO PROJECT)



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     <PAGE> 
                                  TABLE OF CONTENTS

                                                                       Page
								      -----
             LOAN AGREEMENT . . . . . . . . . . . . . . . . . . . . . .   1

                                      ARTICLE I

                                     DEFINITIONS

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

                                      ARTICLE II

                            REPRESENTATIONS AND WARRANTIES

               SECTION 2.01  Representations and Warranties of the
                            Pollution Control Corporation . . . . . . .   5
               SECTION 2.02  Representations and Warranties of the
                             Company  . . . . . . . . . . . . . . . . .   6

                                     ARTICLE III

                                    THE FACILITIES

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

                                      ARTICLE IV

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

               SECTION 4.01  Issuance of the Bonds  . . . . . . . . . .   9
               SECTION 4.02  Issuance of Other Obligations  . . . . . .   9
               SECTION 4.03  The Loans; Disposition of Bond Proceeds  .   9
               SECTION 4.04  Disbursements from Construction Fund . . .   9
               SECTION 4.05  Investment of Moneys in Funds and Accounts.  
                                                                         10

                                      ARTICLE V

                           LOAN PAYMENTS; OTHER OBLIGATIONS
               SECTION 5.01  Loan Payments. . . . . . . . . . . . . . .  11
               SECTION 5.02  Payments Assigned; Obligation Absolute . .  11
               SECTION 5.03  Payment of Expenses  . . . . . . . . . . .  11
               SECTION 5.04  Indemnification  . . . . . . . . . . . . .  11
               SECTION 5.05  Payment of Taxes; Discharge of Liens . . .  12

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

     <PAGE> 

                                      ARTICLE VI

                                  SPECIAL COVENANTS

               SECTION 6.01  Maintenance of Corporate Existence . . . .  12
               SECTION 6.02  Permits or Licenses  . . . . . . . . . . .  13
               SECTION 6.03  Pollution Control Corporation's Access to
                            Facilities  . . . . . . . . . . . . . . . .  13
               SECTION 6.04  Tax-Exempt Status of Interest on Bonds.  .  13
               SECTION 6.05  Use of Facilities  . . . . . . . . . . . .  14
               SECTION 6.06  Financing Statements . . . . . . . . . . .  14
               SECTION 7.01  Conditions . . . . . . . . . . . . . . . .  14
               SECTION 7.02  Instrument Furnished to the Pollution
                           Control Corporation and Trustee  . . . . . .  16
               SECTION 7.03  Limitation . . . . . . . . . . . . . . . .  16

                                     ARTICLE VIII

                            EVENTS OF DEFAULT AND REMEDIES
 
              SECTION 8.01  Events of Default  . . . . . . . . . . . .  16
               SECTION 8.02  Force Majeure  . . . . . . . . . . . . . .  17
               SECTION 8.03  Remedies . . . . . . . . . . . . . . . . .  17
               SECTION 8.04  No Remedy Exclusive  . . . . . . . . . . .  18
               SECTION 8.05  Reimbursement of Attorneys' and Agents'
                             Fees . . . . . . . . . . . . . . . . . . .  18
               SECTION 8.06  Waiver of Breach . . . . . . . . . . . . .  18

                                      ARTICLE IX

                                 REDEMPTION OF BONDS

               SECTION 9.01  Redemption of Bonds  . . . . . . . . . . .  18
               SECTION 9.02  Compliance with the Indenture  . . . . . .  18

                                      ARTICLE X

                                    MISCELLANEOUS

               SECTION 10.01  Term of Agreement . . . . . . . . . . . .  19
               SECTION 10.02  Notices . . . . . . . . . . . . . . . . .  19
               SECTION 10.03  Parties in Interest . . . . . . . . . . .  19
               SECTION 10.04  Amendments  . . . . . . . . . . . . . . .  19
               SECTION 10.05  Counterparts  . . . . . . . . . . . . . .  19
               SECTION 10.06  Severability  . . . . . . . . . . . . . .  19
               SECTION 10.07  Governing Law . . . . . . . . . . . . . .  20


          Signatures  . . . . . . . . . . . . . . . . . . . . . . . . .  21
          Exhibit A - Description of the Facilities . . . . . . . . .   A-1

     <PAGE> 
                                   LOAN AGREEMENT 

             THIS LOAN AGREEMENT, dated as of April 1, 1997 (this
          "Agreement"), between COCONINO COUNTY, ARIZONA POLLUTION CONTROL
          CORPORATION, an Arizona nonprofit corporation and a political
          subdivision of the State of Arizona (hereinafter called the
          "Pollution Control Corporation"), and TUCSON ELECTRIC POWER
          COMPANY, a corporation organized and existing under the laws of
          the State of Arizona formerly known as Tucson Gas & Electric
          Company (hereinafter called the "Company"),

                                W I T N E S S E T H :

             WHEREAS, the Pollution Control Corporation is authorized and
          empowered under Title 35, Chapter 6, 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 pollution control facilities
          consisting of real and personal properties, including but not
          limited to machinery and equipment whether or not now in
          existence or under construction, which are used in whole or in
          part to control, prevent, abate, alter, dispose or store, solid
          waste, thermal, noise, atmospheric or water pollutants,
          contaminants or products therefrom, whether such facilities serve
          one or more purposes or functions in addition to controlling,
          preventing, abating, altering, disposing or storing such
          pollutants, contaminants or the products therefrom, 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 Pollution Control Corporation and any agreements made in
          connection therewith, whenever the Board of Directors of the
          Pollution Control Corporation finds such loans to be in
          furtherance of the purposes of the Pollution Control Corporation;


             WHEREAS, the Pollution Control Corporation has heretofore
          issued and sold $16,700,000 aggregate principal amount of its
          Pollution Control Revenue Bonds, 1996 Series A (Tucson Electric
          Power Company Project), all of which remain outstanding (the
          "1996 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 a portion of the
          pollution control facilities described in Exhibit A hereto (the
          "Facilities");

             WHEREAS, the Pollution Control Corporation proposes to issue
          and sell its revenue bonds for the purpose of financing a portion
          of the costs of the acquisition, construction, improvement and
          equipping of an additional portion of the Facilities and for the
          purpose of refinancing, by the payment or redemption of the 1996
          Bonds, or provision therefor, the portion of the costs of the
          acquisition, construction, improvement and equipping of the
          Facilities previously financed with the proceeds of the 1996
          Bonds; and

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


                                      ARTICLE I

                                     DEFINITIONS

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

          Act:
             "Act" shall mean Title 35, Chapter 6, Arizona Revised
          Statutes, and all acts supplemental thereto or amendatory
          thereof.  

          Administration Expenses:

             "Administration Expenses" shall mean the reasonable expenses
          incurred by the Pollution Control Corporation 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.  

          Agreement:

             "Agreement" shall mean this Loan Agreement, dated as of April
          1, 1997, between the Pollution Control Corporation and the
          Company, and any and all modifications, alterations, amendments
          and supplements hereto.

          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 Pollution Control Corporation 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
          Pollution Control Corporation.  
          Bond Fund:

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

          Bonds:

             "Bond" or "Bonds" shall mean the Pollution Control Revenue
          Bonds, 1997 Series A (Tucson Electric Power Company Navajo
          Project) of the Pollution Control Corporation.  

          Capital Account:

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

          Code:

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

          Company:

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

          Completion Date:

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

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

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

          Construction Fund:

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

          Cost of Construction:

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

          Facilities:

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

          Indenture:

             "Indenture" shall mean the Indenture of Trust, dated as of
          April 1, 1997, between the Pollution Control Corporation and the
          Trustee relating to the Bonds, and any and all modifications,
          alterations, amendments and supplements thereto.  

          Investment Account:

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

          Loan Payments:

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

          1954 Code:

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

          1996 Bonds:

             "1996 Bonds" shall mean the $16,700,000 aggregate principal
          amount of the Pollution Control Corporation's Pollution Control
          Revenue Bonds, 1996 Series A (Tucson Electric Power Company
          Project).

          Outstanding:

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

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

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

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

          Person:

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

          Plant:

             "Plant" shall mean the Navajo Generating Station, an electric
          power generating plant near Page, Arizona, in Coconino County,
          Arizona, and any additions or improvements thereto or
          replacements thereof.

          Plant Agreements:

             "Plant Agreements" shall mean all contracts relating to the
          ownership, construction and operation of the Plant, including the
          Facilities, as from time to time amended or supplemented.

          Pollution Control Corporation:

             "Pollution Control Corporation" shall mean Coconino County,
          Arizona Pollution Control Corporation, an Arizona nonprofit
          corporation and a political subdivision of the State of Arizona
          incorporated for and with the approval of the County of Coconino,
          Arizona, pursuant to the provisions of the Constitution of the
          State of Arizona and the Act, its successors and their assigns.

          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 Pollution Control Corporation 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 Pollution
          Control Corporation.  The Pollution Control Corporation makes the
          following representations and warranties as the basis for the
          undertakings on the part of the Company contained herein:

               (a)  The Pollution Control Corporation is an Arizona
             nonprofit corporation and a political subdivision of the State
             of Arizona created and existing under the Constitution and
             laws of the State of Arizona; 

               (b)   The Pollution Control Corporation 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;

               (c)  The execution and delivery of this Agreement and the
             Indenture by the Pollution Control Corporation do not, and
             consummation of the transactions contemplated hereby and
             fulfillment of the terms hereof and thereof by the Pollution
             Control Corporation 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 Pollution Control Corporation is now a
             party or by which it is now bound, or any order, rule or
             regulation applicable to the Pollution Control Corporation of
             any court or of any regulatory body or administrative agency
             or other governmental body having jurisdiction over the
             Pollution Control Corporation or over any of its properties,
             or the Constitution or laws of the State of Arizona;

               (d)  No consent, approval, authorization or other order of
             any regulatory body or administrative agency or other
             governmental body is legally required for the Pollution
             Control Corporation's participation in the transactions
             contemplated by this Agreement, except such as may have been
             obtained or may be required under the securities laws of any
             jurisdiction; and

               (e)  The Pollution Control Corporation has found and
             determined that all requirements of the Act with respect to
             the issuance of the Bonds and the execution and delivery of
             the Indenture and this Agreement have been complied with and
             that the financing and refinancing of the Cost of Construction
             of the Facilities by issuing the Bonds and entering into the
             Indenture and this Agreement will be in furtherance of the
             purposes of the Act.

             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 Pollution
          Control Corporation 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; 

               (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 to be financed and refinanced shall
             constitute "pollution control facilities" as such term is
             defined in the Act; and

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

                                     ARTICLE III

                                    THE FACILITIES

             SECTION 3.01  Construction of the Facilities.  The Company
          shall exercise all of its rights, powers, elections and options
          under the Plant Agreements to cause the Facilities to be
          constructed with all reasonable dispatch in order to effectuate
          the purposes of the Act.  The Company shall have the sole
          responsibility under this Agreement for the construction of the
          Facilities and may perform the same itself or through its agents,
          and may make or issue such contracts, orders, receipts and
          instructions, and in general do or cause to be done all such
          other things as it may in its sole discretion consider requisite
          or advisable for the construction of the Facilities and for
          fulfilling its obligations under this Article III.  The Company
          shall have full authority and the sole right under this Agreement
          to supervise and control, directly or indirectly, all aspects of
          the construction of the Facilities.  The Pollution Control
          Corporation shall have no right, title or interest in the
          Facilities.  

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

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

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

             SECTION 3.03  Revision of Plans and Specifications.  The
          Company may 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 Pollution Control Corporation and the Trustee (a)
          a revised Exhibit A containing a description of the Facilities as
          revised, the accuracy of which shall have been certified by an
          Authorized Company Representative, and (b) an opinion of Bond
          Counsel to the effect that the Facilities as described in the
          revised Exhibit A are such that the expenditure of the proceeds
          of the Bonds pursuant to this Agreement will not, in and of
          itself, impair the validity of the Bonds under the Act or the
          exclusion from gross income for federal tax purposes of interest
          on the Bonds.  A revision of Exhibit A hereto pursuant to this
          Section 3.03 shall not constitute an amendment, change or
          modification of this Agreement within the meaning of Article XII
          of the Indenture.

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

             SECTION 3.05  Maintenance of Facilities; Remodeling.  The
          Company shall at all times exercise all of its rights, powers,
          elections and options under the Plant Agreements to cause the
          Facilities, and every element and unit thereof, to be maintained,
          preserved and kept in thorough repair, working order and
          condition and to cause all needful and proper repairs and
          renewals thereto to be made; provided, however, that the Company
          may exercise all of its rights, powers, elections and options
          under the Plant Agreements to 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 consent to
          the remodeling of the Facilities or to the making of such
          substitutions, modifications and improvements to the Facilities
          from time to time as it, in its discretion, may deem to be
          desirable for its uses and purposes, which remodeling,
          substitutions, modifications and improvements shall be included
          under the terms of this Agreement as part of the Facilities.  

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

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

             SECTION 3.08  Termination of Construction.   (a)  Anything in
          this Agreement to the contrary notwithstanding, the Company shall
          have the right at any time to exercise all of its rights, powers,
          elections and options under the Plant Agreements to terminate the
          construction of the Facilities, in whole, if the Company shall
          have determined that the continued construction or operation of
          the Facilities, in whole, is impracticable, uneconomical or
          undesirable for any reason.

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


                                      ARTICLE IV

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

             SECTION 4.01  Issuance of the Bonds.  The Pollution Control
          Corporation shall issue the Bonds under and in accordance with
          the Indenture, subject to the provisions of the bond purchase
          agreement among the Pollution Control Corporation, 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 Pollution
          Control Corporation 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 Pollution
          Control Corporation, under an indenture or indentures other than
          the Indenture, of obligations to provide additional funds to pay
          the Cost of Construction of the Facilities or obligations to
          refund all or any principal amount of the Bonds, or any
          combination thereof.  

             SECTION 4.03  The Loans; Disposition of Bond Proceeds.  The
          Pollution Control Corporation and the Company shall enter into
          escrow arrangements with the trustee for the 1996 Bonds and shall
          cause $16,700,000 of the proceeds of the Bonds to be deposited in
          escrow with such trustee to be applied to the payment of the 1996
          Bonds upon the redemption thereof.  The Pollution Control
          Corporation shall from time to time lend to the Company the
          remaining proceeds of the issuance and sale of the Bonds, other
          than accrued interest, if any, paid by the initial purchaser or
          purchasers thereof, for the purposes specified in this Agreement,
          such proceeds to be applied as hereinafter and in the Indenture
          provided.

             The Pollution Control Corporation shall establish the Bond
          Fund and the Construction Fund with the Trustee in accordance
          with Sections 4.01 and 5.01 of the Indenture.  The proceeds of
          the issuance and sale of the Bonds, other than the $16,700,000
          deposited in escrow with the trustee for the 1996 Bonds as
          hereinabove provided and accrued interest, if any, paid by the
          initial purchaser or purchasers thereof, shall be deposited into
          the Construction Fund, and any such accrued interest shall be
          deposited into the Bond Fund, all in accordance with the
          provisions of the Indenture.  

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

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

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

             (c)  The Company shall not submit requisitions for Costs of
          Construction which, on a cumulative aggregate basis, if paid,
          would result in less than 97% of the sum of the total amount of
          the proceeds of the Bonds expended, for any purpose, being used
          to provide air or water pollution control or sewage or solid
          waste disposal facilities or other exempt facilities, including
          facilities functionally related or subordinate thereto, within
          the meaning of Section 141 of the Code or Section 103(b)(4) of
          the 1954 Code, as applicable; provided, however, that the moneys
          paid from the Investment Account within the Construction Fund
          shall be disregarded for purposes of the foregoing covenant and
          all computations made in accordance therewith if the Company
          shall have furnished to the Pollution Control Corporation and the
          Trustee an opinion of Bond Counsel to the effect that such moneys
          may be so disregarded without impairing the exclusion from gross
          income for federal tax purposes of interest on the Bonds.

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


             SECTION 4.05  Investment of Moneys in Funds and Accounts. The
          Company and the Pollution Control Corporation 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 Pollution
          Control Corporation 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 Pollution Control
          Corporation 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
          Pollution Control Corporation 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 Pollution Control Corporation to
          the Trustee, and that all rights and interest of the Pollution
          Control Corporation hereunder (except for the Pollution Control
          Corporation's rights under Sections 5.03, 5.04, 6.03 and 8.05
          hereof and any rights of the Pollution Control Corporation 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
          Pollution Control Corporation 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
          Pollution Control Corporation, the Trustee or any other party,
          and, further, that the Loan Payments and the other payments due
          hereunder shall continue to be payable at the times and in the
          amounts herein and therein specified, whether or not the
          Facilities, or any portion thereof, shall have been completed or
          shall have been destroyed by fire or other casualty, or title
          thereto, or the use thereof, shall have been taken by the
          exercise of the power of eminent domain, and that there shall be
          no abatement of or diminution in any such payments by reason
          thereof, whether or not the Facilities shall be used or useful,
          whether or not any applicable laws, regulations or standards
          shall prevent or prohibit the use of the Facilities, or for any
          other reason, all of the foregoing being subject, however, to the
          provisions of Sections 6.01 and 7.01 hereof.

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

             SECTION 5.04  Indemnification.  The Company releases the
          Pollution Control Corporation and the Trustee and their
          directors, officers, employees and agents from, agrees that the
          Pollution Control Corporation and the Trustee shall not be liable
          for, and agrees to indemnify and hold the Pollution Control
          Corporation, the Trustee and any predecessor 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 in any case as a result of the negligence or bad faith or
          willful misconduct of the party otherwise to be indemnified.  

             The Company will indemnify and hold the Pollution Control
          Corporation, the Trustee and any predecessor 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 in any case as a result of the negligence or bad faith or
          willful misconduct of the party otherwise to be indemnified.  

             The Company will indemnify and hold the Pollution Control
          Corporation 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 statements 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 Pollution Control Corporation 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
          Pollution Control Corporation 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 Pollution Control Corporation 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 Pollution Control
          Corporation of an instrument in writing satisfactory in form to
          the Trustee, all the obligations of the Company under this
          Agreement, including, without limitation, obligations of the
          Company under Section 5.01 hereof. Upon such an assumption
          following any such sale, transfer or other disposition of assets,
          the Company shall be released and discharged from all liability
          in respect of all obligations under this Agreement. 
          Notwithstanding the foregoing, in the case of any such sale,
          transfer or other disposition of assets, which do not include the
          Facilities, the Company shall remain liable in respect of
          obligations under this Agreement other than the obligations under
          Section 5.01 hereof, and the transferee shall not be required to
          assume any obligations hereunder other than the obligations under
          Section 5.01 hereof; provided, however, that the transferee shall
          be required to assume all such other obligations unless the
          Company shall have delivered to the Pollution Control Corporation
          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 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 Pollution Control Corporation 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 Pollution Control Corporation, the
          Company and the Pollution Control Corporation each shall, upon
          the request of either, execute such application or applications. 


             SECTION 6.03  Pollution Control Corporation's Access to
          Facilities.  The Pollution Control Corporation 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 Pollution Control Corporation 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 Pollution Control
          Corporation 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 Pollution Control
          Corporation 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 Pollution Control Corporation 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 Pollution Control Corporation or the Company shall so notify
          the Trustee in writing.

               Without limiting the generality of the foregoing, the
          Company and the Pollution Control Corporation 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 Pollution Control Corporation certifies and
          represents that it has not taken, and the Pollution Control
          Corporation 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 Pollution Control Corporation 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 Pollution Control Corporation 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 Pollution Control Corporation 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 Pollution Control
          Corporation 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 exercise all of its rights,
          powers, elections and options under the Plant Agreements to 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 Pollution
          Control Corporation, 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 Pollution Control Corporation
          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 Pollution Control Corporation 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 Pollution Control Corporation 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 701:

               (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 Expert certifying the same.

             SECTION 7.02  Instrument Furnished to the Pollution Control
          Corporation and Trustee.  The Company shall, within fifteen (15)
          days after the delivery thereof, furnish to the Pollution Control
          Corporation 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 Pollution Control Corporation or
             the Trustee, unless the Pollution Control Corporation and the
             Trustee shall agree in writing to an extension of such period
             prior to its expiration; provided, however, that the Pollution
             Control Corporation 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 Pollution Control Corporation, or the Trustee with
          respect to the rights of the Pollution Control Corporation
          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 Pollution Control Corporation 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 Pollution Control Corporation
          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 Pollution Control Corporation 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 Pollution Control Corporation 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 Pollution Control
          Corporation's rights and interest hereunder to the Trustee, the
          Pollution Control Corporation 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 the rights of the Pollution Control Corporation
          hereunder.  


                                      ARTICLE IX

                                 REDEMPTION OF BONDS

             SECTION 9.01  Redemption of Bonds.  The Pollution Control
          Corporation 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 Pollution Control
          Corporation 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 Pollution Control Corporation in connection with any of
          the foregoing purposes.  

             SECTION 9.02  Compliance with the Indenture.  Anything in this
          Agreement to the contrary notwithstanding, the Pollution Control
          Corporation 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
          Pollution Control Corporation, c/o Mangum, Wall, Stoops & Warden,
          222 East Birch Avenue, Flagstaff, Arizona 86001, Attention:
          President; and 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 Pollution Control
          Corporation, the Company, or the Trustee shall also be given to
          the others.  The Pollution Control Corporation, 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 Pollution
          Control Corporation, the Company and their respective successors
          and assigns, and no other person, firm or corporation shall have
          any right, remedy or claim under or by reason of this Agreement;
          provided, however, that the lien and security interest granted to
          the Trustee in Section 4.03 hereof, as well as the rights and
          remedies granted to the Pollution Control Corporation 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 Pollution Control Corporation; and provided,
          further, that neither the County of Coconino, 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 Pollution Control Corporation
          shall be construed to constitute an indebtedness of the County of
          Coconino, Arizona or the State of Arizona within the meaning of
          any constitutional or statutory provisions whatsoever, but shall
          be limited obligations of the Pollution Control Corporation
          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 Pollution Control Corporation 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 Issuer within three (3) years from the execution
          hereof, unless a waiver is provided by the Pollution Control
          Corporation.

     <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.


                                             COCONINO COUNTY, ARIZONA
                                             POLLUTION CONTROL CORPORATION


          ATTEST:                          By /s/ Bruce J. Nordstrom
                                             -----------------------------
                                                President
          /s/ Terrence J. Rice
          ----------------------
                   Secretary

                                             TUCSON ELECTRIC POWER COMPANY


          ATTEST:                       By  /s/ Kevin Larson
                                           ----------------------------
                                                Vice President
          /s/ Vincent J. Nitido
          -------------------------
                Assistant Secretary

     <PAGE> 

                                                                  EXHIBIT A

             A portion of the costs of the construction, improvement or
          equipping of the following Facilities will be financed or
          refinanced with the proceeds of the Pollution Control Revenue
          Bonds, 1997 Series A (Tucson Electric Power Company Navajo
          Project) issued by Coconino County, Arizona Pollution Control
          Corporation and referred to in the foregoing Loan Agreement.
                                 ____________________



             Sulphur dioxide abatement and related facilities more
          particularly described in the Tax Certificate and Agreement,
          dated as of April 29, 1997, between the Coconino County, Arizona
          Pollution Control Corporation and Tucson Electric Power Company.