**EXHIBIT
      10.119**





**AMENDED
      AND RESTATED**




**SAN
      JUAN PROJECT PARTICIPATION AGREEMENT**




**AMONG**




**PUBLIC
      SERVICE COMPANY OF NEW MEXICO**




**TUCSON
      ELECTRIC POWER COMPANY**




**THE
      CITY OF FARMINGTON, NEW MEXICO**




**M-S-R
      PUBLIC POWER AGENCY**




**THE
      INCORPORATED COUNTY OF LOS ALAMOS, NEW MEXICO**




**SOUTHERN
      CALIFORNIA PUBLIC POWER AUTHORITY**




**CITY
      OF ANAHEIM**




**UTAH
      ASSOCIATED MUNICIPAL POWER SYSTEMS**




**TRI-STATE
      GENERATION AND TRANSMISSION ASSOCIATION, INC.**











March
      23,
      2006











**TABLE
      OF CONTENTS**





SECTION
            **I.
                PARTIES AND INTRODUCTORY MATTERS**
            PAGE1
            PARTIES
            12
            RECITALS
            23
            AGREEMENT
            84
            EFFECTIVE
                DATE AND TERMINATION
            95
            DEFINITIONS
            11**II.
                OWNERSHIP OF SAN JUAN PROJECT**6
            OWNERSHIPS
                AND TITLES
            217
            CAPITAL
                IMPROVEMENTS AND RETIREMENTS OF SAN JUAN PROJECT AND PARTICIPANTS’ SOLELY
                OWNED FACILITIES
            258
            WAIVER
                OF RIGHT TO PARTITION
            299
            BINDING
                COVENANTS
            3010
            MORTGAGE
                AND TRANSFER OF PARTICIPANTS’ INTERESTS
            3211
            RIGHTS
                OF FIRST REFUSAL
            3512
            RIGHTS
                OF PNM AND TEP IN WATER AND COAL
            4013
            SEVERANCE
                OF IMPROVEMENTS
            41**III.
                ENTITLEMENTS TO OUTPUT OF SAN JUAN PROJECT**14
            ENTITLEMENT
                TO CAPACITY AND ENERGY
            4215
            CAPACITY
                ALLOCATION OF SWITCHYARD FACILITIES
            4416
            USE
                OF FACILITIES DURING CURTAILMENTS
            46






i


17
            START-UP
                AND AUXILIARY POWER AND ENERGY REQUIREMENTS
            48**IV.
                ADMINISTRATION**18
            COORDINATION
                COMMITTEE
            4919
            ENGINEERING
                AND OPERATING COMMITTEE
            5420
            FUELS
                COMMITTEE
            5921
            AUDITING
                COMMITTEE
            66**V.
                BUDGETS AND OPERATING EXPENSES**22
            OPERATION
                AND MAINTENANCE EXPENSES
            7023
            FUEL
                COSTS
            7824
            ANNUAL
                BUDGETS
            8925
            PAYMENT
                OF TAXES
            9026
            MATERIALS
                AND SUPPLIES
            9127
            EMERGENCY
                SPARE PARTS
            93**VI.
                OPERATING AGENT**28
            OPERATION
                AND MAINTENANCE
            9429
            OPERATING
                EMERGENCY
            10030
            PAYMENT
                OF EXPENSES BY PARTICIPANTS
            10231
            OPERATING
                INSURANCE
            10532
            SURPLUS
                OR RETIRED PROPERTY
            10933
            REMOVAL
                OF OPERATING AGENT
            11034
            DEFAULTS
                BY OPERATING AGENT
            112






ii








**VII.
                DEFAULTS, LIABILITY AND ARBITRATION**35
            DEFAULTS
            11436
            LIABILITY
            12037
            ARBITRATION
            125**VIII.
                RETIREMENT AND RECONSTRUCTION**38
            DESTRUCTION,
                DAMAGE OR CONDEMNATION OF A UNIT
            12839
            RIGHTS
                OF PARTICIPANTS UPON TERMINATION
            13040
            DECOMMISSIONING
                OF THE PROJECT
            131**IX.
                MISCELLANEOUS PROVISIONS**41
            RELATIONSHIP
                OF PARTICIPANTS
            13242
            NOTICES
            13343
            OTHER
                PROVISIONS
            13744
            EXECUTION
                IN COUNTERPARTS
            13845
            AMENDMENTS
            139





EXHIBIT
                  I
              Real
                  PropertyEXHIBIT
                  II
              Annual
                  Minimum CoalEXHIBIT
                  III
              Switchyard
                  FacilitiesEXHIBIT
                  IV
              Ownership
                  of EquipmentEXHIBIT
                  V
              O&M
                  of EquipmentEXHIBIT
                  VI
              A&G
                  ExpensesEXHIBIT
                  VII
              Coal
                  Allocation and BillingEXHIBIT
                  VIII
              Adjustment
                  of Voting RequirementsEXHIBIT
                  IX
              Fixed
                  Fuel ExpenseEXHIBIT
                  X
              Variable
                  Fuel Expense





iii





**PART
      I**


**PARTIES
      AND INTRODUCTORY MATTERS**


1.0  PARTIES:


The
      parties to this Amended and Restated San Juan Project Participation Agreement
      (“Agreement”) are: PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico
      corporation (“PNM”); TUCSON ELECTRIC POWER COMPANY, an Arizona corporation
      (“TEP”); THE CITY OF FARMINGTON, NEW MEXICO, an incorporated municipality and a
      body politic and corporate, existing as a political subdivision under the
      constitution and laws of the State of New Mexico (“Farmington”); M-S-R PUBLIC
      POWER AGENCY, a joint exercise of powers agency organized under the laws of
      the
      State of California (“M-S-R”); THE INCORPORATED COUNTY OF LOS ALAMOS, NEW
      MEXICO, a body politic and corporate, existing as a political subdivision under
      the constitution and laws of the State of New Mexico (“LAC”); SOUTHERN
      CALIFORNIA PUBLIC POWER AUTHORITY, a joint exercise of powers agency organized
      under the laws of the State of California (“SCPPA”); THE CITY OF ANAHEIM, a
      municipal corporation organized under the laws of the State of California
      (“Anaheim”); UTAH ASSOCIATED MUNICIPAL POWER SYSTEMS, a political subdivision of
      the State of Utah (“UAMPS”); and TRI-STATE GENERATION AND TRANSMISSION
      ASSOCIATION, INC., a Colorado cooperative corporation (“Tri-State”). These
      parties are the participants in the San Juan Project, and are hereinafter
      sometimes referred to individually as a “Participant” and collectively as
“Participants.”





1





2.0  RECITALS:
      This Agreement is made with reference to the following facts, among others:


2.1  PNM
      is an
      electric utility engaged in the generation, transmission and distribution of
      electric power and energy in a part of the State of New Mexico.


2.2  TEP
      is an
      electric utility engaged in the generation, transmission and distribution of
      electric power and energy in a part of the State of Arizona.


2.3  Farmington
      operates a municipal electric utility engaged in the generation, transmission
      and distribution of electric power and energy in a part of the State of New
      Mexico.


2.4  M-S-R
      is
      a public entity engaged in the generation, transmission, purchase and sale
      of
      electric power and energy in the western United States for the benefit of its
      member public agencies.


2.5  LAC
      operates a municipal electric utility engaged in the generation, transmission
      and distribution of electric power and energy in a part of the State of New
      Mexico.


2.6  SCPPA
      is
      a public entity created to acquire, construct, finance, operate and maintain
      generation and transmission projects on behalf of its members.


2.7  Anaheim
      operates a municipal utility in the State of California engaged in the
      generation, transmission and distribution of electric power.


2.8  UAMPS
      is
      a public entity created to plan, finance, develop, acquire, construct, improve,
      better, operate and maintain projects, or ownership interests or capacity rights
      therein, for the generation, transmission and distribution of electric energy
      for the benefit of its members.




2


2.9  Tri-State
      is a cooperative corporation created pursuant to the laws of the State of
      Colorado. Tri-State’s primary functions involve the generation, transmission,
      transformation and sale of electricity to its member distribution cooperatives.


2.10  PNM
      and
      TEP each has an undivided one-half (1/2) ownership interest in the real property
      associated with the San Juan Project, which real property is described in
      Exhibit I, attached hereto and incorporated herein, and is identified
      therein as Parcels A through F.


2.11  PNM
      and
      TEP entered into the Coal Sales Agreement with San Juan Coal Company (“SJCC”),
      pursuant to which SJCC agreed to supply the San Juan Project with coal. PNM
      and
      TEP also entered into the Transportation Agreement with San Juan Transportation
      Company (“SJTC”) dated April 30, 1984, under which coal was transported from the
      La Plata Mine. Subsequently, PNM and TEP entered into the Underground Coal
      Sales
      Agreement with SJCC, pursuant to which SJCC agreed to supply coal to the San
      Juan Project beginning January 1, 2003. The Underground Coal Sales Agreement
      superseded and replaced the Coal Sales Agreement, except for certain
      provisions of the Coal Sales Agreement which survived through the provisions
      of
      the Coal Sales Agreement Buy Out Agreement. The
      Transportation Agreement was terminated effective December 31, 2002, except
      for
      certain provisions which survived through provisions of the Transportation
      Agreement Buy Out Agreement.




3


2.12  PNM
      contracted with the United States Department of the Interior, Bureau of
      Reclamation, under the Colorado River Storage Project Act to purchase 20,200
      acre feet of water per year from Navajo Reservoir under Contract 14-06-400-4821
      dated April 11, 1968. Said contract was amended by an amendatory contract
      dated September 29, 1977, wherein the United States Department of the
      Interior, Bureau of Reclamation (i) acknowledged PNM’s assignment to TEP of
      an undivided one-half (1/2) interest in PNM’s rights and obligations imposed
      under the April 11, 1968, contract; and (ii) revised the amount of
      water available for consumptive use by the San Juan Project from the Navajo
      Reservoir from 20,200 acre feet per year to 16,200 acre feet per year. Upon
      expiration of the above-referenced contract with the United States Department
      of
      the Interior, Bureau of Reclamation, on December 31, 2005, water from the Navajo
      Reservoir is delivered to the San Juan Project under contractual arrangements
      with the Jicarilla Apache Nation. From time-to-time, contracts for surplus
      water
      supply may also be entered into by the Operating Agent for supply to the San
      Juan Project. Additional water for use at the San Juan Project is based on
      a
      Grant of Authority for 8,000 acre-feet of water, dated August 18, 1980, from
      Utah International (predecessor in interest to SJCC) to PNM and
      TEP.


2.13  The San
      Juan Project Co-Tenancy Agreement was executed as of February 15, 1972,
      effective as of July 1, 1969. The original Co-Tenancy Agreement was modified
      by
      joint action of PNM and TEP, as follows: Modification No. 1 on May 16, 1979,
      Modification No. 2 on December 31, 1983, Modification No. 3 on July 17, 1984,
      Modification No. 4 on October 25, 1984, Modification No. 5 on July 1, 1985,
      Modification No. 6 on April 1, 1993, Modification No. 7 on April 1, 1993,
      Modification No. 8 on September 15, 1993, Modification No. 9 on January 12,
      1994
      and Modification No. 10 on November 30, 1995 (the original of such Co-Tenancy
      Agreement, as amended by Modifications 1 through 10, is referred to herein
      as
      the “Co-Tenancy Agreement”).




4


2.14  The
      San
      Juan Project Operating Agreement was executed as of December 21, 1973, effective
      as of July 1, 1969. The original Operating Agreement was modified by joint
      action of PNM and TEP, as follows: Modification No. 1 on May 16, 1979,
      Modification No. 2 on December 31, 1983, Modification No. 3, on July 17, 1984,
      Modification No. 4 on October 25, 1984, Modification No. 5 on July 1, 1985,
      Modification No. 6 on April 1, 1993, Modification No. 7 on April 1, 1993,
      Modification No. 8 on September 15, 1993, Modification No. 9 on January 12,
      1994
      and Modification No. 10 on November 30, 1995 (the original of such Operating
      Agreement, as amended by Modifications 1 through 10, is referred to herein
      as
      the “Operating Agreement”).


2.15  A
      San
      Juan Project Construction Agreement was executed as of December 21, 1973,
      effective as of July 1, 1969, to govern the construction of the San Juan
      Project; this agreement was thereafter modified from time to time and was
      terminated in 1995 by action of PNM and TEP.


2.16  On
      May
      16, 1979, TEP and PNM entered into an agreement whereby on that date TEP
      conveyed to PNM TEP’s 50 percent undivided ownership interest in Unit
      4.


2.17  On
      November 17, 1981, PNM transferred an 8.475 percent undivided ownership interest
      in Unit 4 to Farmington.


2.18  On
      December 31, 1983, PNM transferred a 28.8 percent undivided ownership interest
      in Unit 4 to M-S-R.




5


2.19  On
      October 31, 1984, TEP transferred its 50 percent undivided ownership interest
      in
      Unit 3 to Alamito Company, which later changed its name to Century Power Company
      (“Century”).


2.20  On
      July
      1, 1985, PNM transferred a 7.2 percent undivided ownership interest in Unit
      4 to
      LAC.


2.21  On
      July
      1, 1993, Century transferred a 41.8 percent undivided ownership interest in
      Unit
      3 to SCPPA.


2.22  On
      August
      12, 1993, PNM transferred a 10.04 percent undivided ownership interest in Unit
      4
      to Anaheim.


2.23  On
      June
      2, 1994, PNM transferred a 7.028 percent undivided ownership interest in Unit
      4
      to UAMPS.


2.24  On
      January 2, 1996, Century transferred an 8.2 percent undivided ownership interest
      in Unit 3 to Tri-State.


2.25  Farmington, M-S-R, LAC, SCPPA, Anaheim, UAMPS and Tri-State were classified
      as
“Unit Participants” in the San Juan Project, pursuant to the Co-Tenancy
      Agreement.


2.26  As
      of
      April 29, 1994, PNM, TEP, Century, SCPPA, Farmington, M-S-R, LAC and Anaheim
      executed the San Juan Project Designated Representative Agreement (the “DR
      Agreement”) to implement the requirements of the federal Clean Air Act
      Amendments of 1990; the DR Agreement was thereafter accepted by UAMPS and
      Tri-State at the time of their respective purchases of ownership interests
      in
      the San Juan Project.




6


2.27  As
      of
      October 27, 1999, the Participants entered into the San Juan Project
      Participation Agreement (“Original San Juan PPA”). The purpose of the Original
      San Juan PPA was to amend and restate, and to replace in their entirety, the
      Co-Tenancy Agreement and the Operating Agreement and to set out in one
      instrument all of the matters previously included in the Co-Tenancy Agreement
      and the Operating Agreement.


2.28  The
      Participants desire, in this Agreement, to amend and restate the Original San
      Juan PPA to reflect certain amendments agreed to by the Participants including,
      but not limited to, changes to the provisions of the Original San Juan PPA
      pertaining to fuel supply.





7





3.0  AGREEMENT:
      The Participants, for and in consideration of the mutual covenants to be by
      them
      kept and performed, agree as follows.





8





4.0  EFFECTIVE
      DATE AND TERMINATION:


4.1  Except
      as
      otherwise provided in Section 4.3, this Agreement shall become effective upon
      the later of the following dates: (a) the date upon which the FERC accepts
      for
      filing this Agreement; provided that, if the FERC orders a hearing to determine
      whether this Agreement is just and reasonable, this Agreement shall not become
      effective until the date when an order, no longer subject to judicial review,
      has been issued by the FERC determining this Agreement to be just and reasonable
      without changes or modifications unacceptable to the Participants; or (b) the
      date upon which the Rural Utilities Service (“RUS”) approves this Agreement on
      behalf of Tri-State or is deemed to have approved this Agreement on behalf
      of
      Tri-State by virtue of its failure to object to this Agreement within the time
      prescribed in the Tri-State loan contract with RUS, if such approval is
      required.


4.2  Following
      execution by all Participants, PNM shall file a copy of this Agreement with
      the
      FERC in a timely manner. In such filing, PNM shall request waiver of applicable
      FERC notice requirements in order to allow this Agreement to become effective
      as
      of the earliest feasible date. All other Participants shall support PNM’s filing
      by the prompt filing of a certificate or letter of concurrence or intervention
      in support of the filing.


4.3  Following
      (a) an order by the FERC or any other regulatory agency having jurisdiction,
      or
      (b) a letter or other communication from the RUS, if any, the Participants
      shall
      each review such order, letter or communication to determine if the FERC, RUS
      or
      any agency having jurisdiction has changed or modified a condition or
      conditions, deleted a condition or conditions, or imposed a new condition or
      conditions with regard to this Agreement; or has conditioned its approval of
      this Agreement upon changes or




9


modifications to a condition or conditions, deletion of a condition or
      conditions or imposition of a new condition or conditions. The Participant
      receiving such order, letter or communication shall promptly provide a copy
      of
      such order, letter or communication to the other Participants. Within fifteen
      (15) business days after receipt by the other Participants of the copy of the
      order, letter or communication, the Participants shall indicate to each other
      in
      writing their acceptance or rejection of this Agreement based upon any changes,
      modifications, deletions or new conditions required by the FERC, RUS or any
      agency having jurisdiction. A failure to notify within said fifteen (15) day
      period shall be the equivalent to a notification of acceptance. If any
      Participant rejects this Agreement because the FERC, RUS or any agency having
      jurisdiction has modified a condition, deleted a condition or imposed a new
      condition in this Agreement, or has conditioned its approval on such a change,
      modification, deletion or new condition, the Participants will be deemed to
      have
      rejected this Agreement and they shall attempt, in good faith, to renegotiate
      the terms and conditions of this Agreement to resolve such changed, modified,
      deleted or new condition to the satisfaction of the Participants within one
      hundred twenty (120) days after the date of such order, letter or communication
      and thereafter to obtain requisite regulatory approval of such renegotiated
      agreement.


4.4  This
      Agreement shall continue in force and effect until July 1, 2022, unless
      otherwise agreed in writing by the Participants.








10





5.0  DEFINITIONS:
      The following terms, when used herein with initial capitalization, and whether
      in the singular or the plural, shall have the meaning specified:


5.1  ACCOUNTING
      PRACTICE: Generally accepted accounting principles in accordance with FERC
      Accounts applicable to electric utility operations.


5.2  AGREEMENT:
      This Amended and Restated San Juan Project Participation Agreement, including
      all exhibits and attachments hereto, and as may be modified or amended from
      time
      to time.


5.3  AUDITING
      COMMITTEE: A committee which is described in Section 21.


5.4  AVAILABLE
      OPERATING CAPACITY: The maximum net electrical capacity of each installed and
      operating Unit which is available at any given time to the Participants at
      the
      345 kV buses.


5.5  CAPACITY:
      Electrical rating expressed in megawatts (“MW”).


5.6  CAPITAL
      IMPROVEMENTS: Any property, land or land rights added to the San Juan Project
      or
      the substitution, replacement, enlargement or improvement of any Units of
      Property, structures, facilities, equipment, property, land or land rights
      constituting a part of the San Juan Project, which in accordance with Accounting
      Practice would be capitalized, and also including the costs of removal, salvage
      or disposal of any Units of Property being replaced or substituted.


5.7  COAL
      SALES AGREEMENT: Agreement between PNM, TEP and SJCC executed on August 18,
      1980, as amended or modified from time to time and which was replaced by the
      Underground Coal Sales Agreement. However, certain provisions of the Coal Sales
      Agreement survive through the provisions of the Coal Sales Agreement Buy Out
      Agreement dated August 31, 2001.




11


5.8  COAL
      SALES AGREEMENT BUY OUT AGREEMENT: Agreement between PNM, TEP and SJCC executed
      on August 31, 2001, as may be amended or modified from time to
      time.


5.9  COMMON
      PARTICPATION SHARE: Each Participant’s percentage ownership interest as set
      forth in Section 6.2.6.


5.10  CONTROL
      AREA: An area comprised of an electric system or systems bounded by
      interconnection metering and telemetry, capable of controlling generation to
      maintain its interchange schedules with other control areas while maintaining
      frequency regulation of the interconnection.


5.11  COORDINATION
      COMMITTEE: A committee which is described in Section 18.


5.12  CO-TENANCY
      AGREEMENT: The agreement described in Section 2.13.


5.13  DR
      AGREEMENT: The agreement described in Section 2.26, as amended from time to
      time.


5.14  EMERGENCY
      COAL STORAGE PILE: The coal storage pile for the San Juan Project, sometimes
      referred to as the “minimum coal storage pile,” or as the “force majeure pile,”
which is to be drawn upon when fuel deliveries are interrupted.


5.15  EMERGENCY
      SPARE PARTS: Spare parts or auxiliary equipment, the cost of which is
      capitalized, which are stocked for emergency use for the San Juan Project and
      which are not scheduled for periodic replacement.




12


5.16  ENERGY:
      The accumulated amount of power produced over a stated time interval, expressed
      in kilowatt hours (“kWh”) or megawatt hours (“MWh”).


5.17  ENGINEERING
      AND OPERATING COMMITTEE: A committee which is described in Section 19.


5.18  FC
      LINE:  That
      345
      kV transmission line between the San Juan generating station and the Four
      Corners generating plant.


5.19  FIXED
      FUEL EXPENSE: Those expenses itemized on Exhibit IX, attached hereto and
      incorporated herein.


5.20  FERC:  The
      Federal Energy Regulatory Commission or any successor thereto.


5.21  FERC
      ACCOUNTS: The FERC Uniform System of Accounts prescribed for Public Utilities
      and Licensees (Class A and Class B). References in this Agreement to a
      specific FERC account number shall mean the number in effect as of the date
      of
      this Agreement and any successor account number.


5.22  FUELS
      COMMITTEE: A committee which is described in Section 20.


5.23  MATERIALS
      AND SUPPLIES: Those materials and supplies, the cost of which is charged to
      FERC
      Account 154, which are stocked for use in the operation and maintenance of
      the San Juan Project.


5.24  MINIMUM
      ANNUAL TONS: The quantities of coal, also defined as Minimum Annual Tons (“MAT”)
      in Section 8.2(F)7 of the Underground Coal Sales Agreement, and set forth in
      Exhibit H to the Underground Coal Sales Agreement, which amounts are shown
      on
      Exhibit II, attached hereto and incorporated herein.




13


5.25  MINIMUM
      NET GENERATION: The lowest net load at which each Unit can be reliably
      maintained in service on a continuous basis on coal fuel.


5.26  MONTHLY
      MINIMUM TONS : Monthly Minimum Tons (“MMT”) as also defined in Section 8.2(F)8
      of the Underground Coal Sales Agreement, shall be allocated each year to each
      Participant pursuant to a monthly schedule approved annually by the Fuels
      Committee as provided in Section 20.3.3, such that the annual sum of each
      Participant’s Monthly Minimum Tons equals its Common Participation Share of MAT
      as defined in Section 8.2(F)7 of the Underground Coal Sales Agreement. In the
      event that a monthly allocation of MMT has not been approved by the Fuels
      Committee, MMT shall be allocated to each Participant based on Common
      Participation Share.


5.27  NET
      EFFECTIVE GENERATING CAPACITY: The maximum continuous ability of each Unit
      to
      produce power, less auxiliary power requirements.


5.28  NET
      ENERGY GENERATION: The Energy generated by each Unit which is available to
      the
      respective Participants at the 345 kV bus.


5.29  OPERATING
      ACCOUNT:  The
      bank
      account(s) in the names of the Participants established by the Operating Agent
      pursuant to Section 28.


5.30  OPERATING
      AGENT: The Participant or other entity which has been selected by the
      Participants as the entity responsible for the operation and maintenance of
      the
      San Juan Project pursuant to this Agreement.


5.31  OPERATING
      AGREEMENT: The agreement described in Section 2.14.




14


5.32  OPERATING
      EMERGENCY: An unplanned event or circumstance at the San Juan Project which
      reduces or may reduce the availability of Capacity or Energy from a
      Unit.


5.33  OPERATING
      FUNDS: Monies advanced to, and disbursed by, the Operating Agent on behalf
      of
      the Participants in accordance with this Agreement.


5.34  OPERATING
      INSURANCE: Policies of insurance secured or to be secured and maintained in
      accordance with Section 31.


5.35  OPERATING
      WORK: Engineering, contract preparation and administration, purchasing, repair,
      supervision, training, expediting, inspection, testing, protection, operation,
      use, management, replacement, retirement, reconstruction and maintenance of
      and
      for the benefit of the San Juan Project pursuant to this Agreement, including
      the administration of this Agreement and of any other Project Agreements,
      environmental compliance activities and the procurement of fuel and water and
      other necessary materials and supplies.


5.36  ORIGINAL
      SAN JUAN PPA: The San Juan Project Participation Agreement dated October 27,
      1999.


5.37  PARTICIPANT:
      PNM, TEP, Farmington, M-S-R, LAC, SCPPA, Anaheim, UAMPS or
      Tri-State.


5.38  PARTICIPANT
      COAL CONSUMPTION:  Each
      Participant’s total San Juan Project coal consumption in tons as determined by
      the Operating Agent. In principle, a Participant’s Coal Consumption is comprised
      of its share of coal consumed in its Unit(s) plus its share of coal consumed
      for
      common loads, auxiliary loads and start-up for all Units.




15


5.39  PARTICIPATION
      SHARE: Each Participant’s percentage ownership interest in the various elements
      of the San Juan Project as set forth in Section 6.


5.40  PROJECT
      AGREEMENTS: This Agreement and such other agreements as are determined by the
      Coordination Committee to be necessary to define the rights and duties of the
      Participants with respect to the San Juan Project.


5.41  PROJECT
      COAL INVENTORY:  The
      sum
      of coal in the Emergency Coal Storage Pile, silos, conveying systems, hoppers,
      and all other coal stored at the San Juan Project as accounted in FERC Account
      No. 151.


5.42  PRUDENT
      UTILITY PRACTICE: Any of the practices, methods and acts engaged in or approved
      by a significant portion of the electric utility industry during the relevant
      time period, or any of the practices, methods and acts which, in the exercise
      of
      reasonable judgment in the light of the facts known at the time the decision
      was
      made, could have been expected to accomplish the desired result at a reasonable
      cost consistent with good business practices, reliability, safety and
      expedition. Prudent Utility Practice is intended to be acceptable practices,
      methods or acts generally accepted in the industry, as such practices may be
      affected by special operational design characteristics of the San Juan Project,
      the quality and quantity of fuel delivered in accordance with the Underground
      Coal Sales Agreement or successor agreement, the rights and obligations of
      the
      Participants in accordance with this Agreement and any other special
      circumstances affecting the Operating Work.




16


5.43  SAN
      JUAN
      PROJECT: The four unit, coal-fired electric generation plant located in San
      Juan
      County, New Mexico, near Farmington, New Mexico. The San Juan Project includes
      all facilities, structures, transmission and distribution lines incident to
      the
      four-unit electric generating plant. The San Juan Project does not include
      distribution lines, transmission lines, equipment in the Switchyard Facilities
      or other facilities owned exclusively by a Participant.


5.44  SWITCHYARD
      FACILITIES: The switchyard facilities required for the San Juan Project as
      shown
      by materials listed in Exhibit III, attached hereto and incorporated
      herein.


5.45  TOTAL
      MONTHLY COAL COST: The amount charged the Operating Agent each month in
      accordance with the Underground Coal Sales Agreement, the Coal Sales Agreement
      Buy Out Agreement and the Transportation Agreement Buy Out
      Agreement.


5.46  TRANSPORTATION
      AGREEMENT BUY OUT AGREEMENT: Agreement between PNM, TEP and San Juan
      Transportation Company (“SJTC”) executed on August 31, 2001, as may be
      amended or modified from time to time, terminated the Transportation Agreement
      with SJTC dated April 30, 1984.


5.47  UNDERGROUND
      COAL SALES AGREEMENT: Agreement between PNM, TEP and SJCC executed on August
      31,
      2001, as amended or modified and as may be amended or modified from time to
      time.


5.48  UNIT:
      Unit 1, Unit 2, Unit 3 or Unit 4.


5.49  UNIT
      1:
      The second operating unit of the San Juan Project, which was placed in
      commercial service on December 31, 1976 and which presently has a net capacity
      rating of 327 MW.




17


5.50  UNIT
      2:
      The first operating unit of the San Juan Project, which was placed in commercial
      service on November 30, 1973 and which presently has a net capacity rating
      of
      316 MW.


5.51  UNIT
      3:
      The third operating unit of the San Juan Project, which was placed in commercial
      service on December 31, 1979 and which presently has a net capacity rating
      of
      497 MW.


5.52  UNIT
      4:
      The fourth operating unit of the San Juan Project, which was placed in
      commercial service on April 27, 1982 and which presently has a net capacity
      rating of 507 MW.


5.53  UNITS
      OF
      PROPERTY: Property as described in the FERC’s list of units of property for use
      in connection with the Uniform System of Accounts Prescribed for Public
      Utilities and Licensees Subject to the Provisions of the Federal Power Act,
      contained in 18 CFR Part 116, in effect on the effective date of this Agreement,
      as thereafter modified or amended.


5.54  UTILITY
      PAYMENT STREAM (“UPS”): Those payments defined in Section 8.5(C) of the
      Underground Coal Sales Agreement


5.55  VARIABLE
      FUEL EXPENSE: Those expenses itemized on Exhibit X, attached hereto and
      incorporated herein.


5.56  WATER
      CONTRACT(S): The applicable contract or contracts under which water is delivered
      to the San Juan Project, as more fully described in Section 2.12.


5.57  WILLFUL
      ACTION:




18


5.57.1  Action
      taken or not taken by a Participant (or the Operating Agent), at the direction
      of its directors, members of its governing body, officers or employees having
      management or administrative responsibility affecting its performance under
      a
      Project Agreement, which action is knowingly or intentionally taken or not
      taken
      with conscious indifference to the consequences thereof or with intent that
      injury or damage would probably result therefrom; or


5.57.2  Action
      taken or not taken by a Participant (or the Operating Agent) at the direction
      of
      its directors, members of its governing body, officers or employees having
      management or administrative responsibility affecting its performance under
      a
      Project Agreement, which action has been determined by final arbitration award
      or final judgment or judicial decree to be a material default under a Project
      Agreement and which action occurs or continues beyond the time specified in
      such
      arbitration award or judgment or judicial decree for curing such default, or
      if
      no time to cure is specified therein, occurs or continues beyond a reasonable
      time to cure such default; or


5.57.3  Action
      taken or not taken by a Participant (or the Operating Agent), at the direction
      of its directors, members of its governing body, officers or employees having
      management or administrative responsibility affecting its performance under
      a
      Project Agreement, which action is knowingly or intentionally taken or not
      taken
      with the knowledge that such action taken or not taken is a material default
      under a Project Agreement.




19


5.57.4  The
      phrase “employees having management or administrative responsibility,” as used
      in this Section 5.57, means employees of a Participant who are responsible
      for
      one or more of the executive functions of planning, organizing, coordinating,
      directing, controlling and supervising such Participant’s performance under a
      Project Agreement; provided however, that, with respect to employees of the
      Operating Agent acting in its capacity as such and not in its capacity as a
      Participant, such phrase shall refer only to (i) the senior employee of the
      Operating Agent on duty at the San Juan Project who is responsible for the
      operation of the Units, and (ii) anyone in the organizational structure of
      the
      Operating Agent between such senior employee and an officer.


5.57.5  Willful
      Action does not include any act or failure to act which is merely involuntary,
      accidental or negligent.





20





**PART
      II**


**OWNERSHIP
      OF SAN JUAN PROJECT**


6.0  OWNERSHIPS
      AND TITLES:


6.1  PNM
      and
      TEP, respectively, each has an undivided one-half (1/2) ownership interest
      in
      the real property interests described in Exhibit I as Parcels A through F.


6.2  Unless
      otherwise provided in Exhibit IV, the Units and other facilities of the San
      Juan
      Project and Capital Improvements shall be owned and title held by the
      Participants, in the following percentages:


6.2.1  For
      Units 1 and 2 and for all equipment and facilities directly related to
      Units 1 and 2 only, in accordance with the following percentages:


6.2.1.1   PNM:
      50
      percent


6.2.1.2   TEP:
      50
      percent


6.2.1.3   M-S-R:
      0
      percent


6.2.1.4   Farmington:
      0 percent


6.2.1.5   Tri-State:
      0 percent


6.2.1.6   LAC:
      0
      percent


6.2.1.7   SCPPA:
      0
      percent


6.2.1.8   Anaheim:
      0 percent


6.2.1.9   UAMPS:
      0
      percent





6.2.2  For
      Unit
      3 and for all equipment and facilities directly related to Unit 3 only, in
      accordance with the following percentages:


6.2.2.1   PNM:
      50
      percent


6.2.2.2   TEP:
      0
      percent


6.2.2.3   M-S-R:
      0
      percent


6.2.2.4   Farmington:
      0 percent


6.2.2.5   Tri-State:
      8.2 percent


6.2.2.6   LAC:
      0
      percent


6.2.2.7   SCPPA:
      41.8 percent


6.2.2.8   Anaheim:
      0 percent


6.2.2.9   UAMPS:
      0
      percent





21


6.2.3  For
      Unit
      4 and for all equipment and facilities directly related to Unit 4 only, in
      accordance with the following percentages:


6.2.3.1   PNM:
      38.457 percent


6.2.3.2   TEP:
      0
      percent


6.2.3.3   M-S-R:
      28.8 percent


6.2.3.4   Farmington:
      8.475 percent


6.2.3.5   Tri-State:
      0 percent


6.2.3.6   LAC:
      7.20
      percent


6.2.3.7   SCPPA:
      0
      percent


6.2.3.8   Anaheim:
      10.04 percent


6.2.3.9   UAMPS:
      7.028 percent





6.2.4  For
      equipment and facilities common to Units 1 and 2 only, in accordance with
      the following percentages:


6.2.4.1   PNM:
      50
      percent


6.2.4.2   TEP:
      50
      percent


6.2.4.3   M-S-R:
      0
      percent


6.2.4.4   Farmington:
      0 percent


6.2.4.5   Tri-State:
      0 percent


6.2.4.6   LAC:
      0
      percent


6.2.4.7   SCPPA:
      0
      percent


6.2.4.8   Anaheim:
      0 percent


6.2.4.9   UAMPS:
      0
      percent





6.2.5  For
      equipment and facilities common to Units 3 and 4 only, in accordance with
      the following percentages:


6.2.5.1   PNM:
      44.119 percent


6.2.5.2   TEP:
      0
      percent


6.2.5.3   M-S-R:
      14.4 percent


6.2.5.4   Farmington:
      4.249 percent


6.2.5.5   Tri-State:
      4.1 percent


6.2.5.6   LAC:
      3.612 percent


6.2.5.7   SCPPA:
      20.9 percent


6.2.5.8   Anaheim:
      5.07 percent


6.2.5.9   UAMPS:
      3.55 percent





22


6.2.6  For
      equipment and facilities common to all of the Units in accordance with the
      following percentages:


6.2.6.1   PNM:
      46.297 percent


6.2.6.2   TEP:
      19.8
      percent


6.2.6.3   M-S-R:
      8.7 percent


6.2.6.4   Farmington:
      2.559 percent


6.2.6.5   Tri-State:
      2.49 percent


6.2.6.6   LAC:
      2.175 percent


6.2.6.7   SCPPA:
      12.71 percent


6.2.6.8   Anaheim:
      3.10 percent


6.2.6.9   UAMPS:
      2.169 percent





6.2.7  San
      Juan
      Project equipment and facilities not included in Sections 6.2.1 through
      6.2.6 which were in service as of May 16, 1979, remain in individual one-half
      (1/2) ownership, with each of PNM and TEP retaining title to an equal undivided
      one-half (1/2) interest therein; provided, however, that subsequent to the
      in-service date of Unit 4, PNM, on behalf of itself and the Participants to
      which PNM conveyed ownership interests and generation entitlements in the San
      Juan Project, shall have the right to use sixty-five percent (65%), and
      TEP, on behalf of itself and the Participants which succeeded to TEP-conveyed
      ownership interests and generation entitlements in the San Juan Project, shall
      have the right to use thirty-five percent (35%) of the real property
      associated with the San Juan Project, the water, the coal inventory, the then
      existing oil for ignition and flame stabilization, and the use of the
      345 kV switchyard capacity up to the combined installed capacity of
      Units 1, 2, 3 and 4, except as otherwise provided in Section 7, and
      except that, subject to Section 15.2.3, PNM and TEP shall each be entitled
      to
      use 50 percent (50%) of switchyard capacity in excess of the combined
      installed capacity of Units 1, 2, 3 and 4 for the San Juan
      Project.




23


6.2.8  Exhibit IV
      (a through h), attached hereto and incorporated herein, is a partial list of
      equipment and facilities of the San Juan Project and reflects the Participants’
ownership interests therein. This exhibit is to provide the Engineering and
      Operating Committee, the Auditing Committee, the Fuels Committee and the
      Coordination Committee with guidelines for carrying out their duties under
      this
      Agreement.


6.2.9  In
      areas
      where ownership of equipment and facilities is not clearly defined by
      Sections 6.2.1 to 6.2.7, the Engineering and Operating Committee shall make
      a determination of such ownership in accordance with Section 19. Disputes
      arising from such determination shall be resolved by the Coordination Committee
      in accordance with Section 18.


6.2.10  Materials
      and Supplies shall be owned by the Participants in proportion to their
      respective current investments in the Materials and Supplies.


6.3  The
      Emergency Coal Storage Pile shall be owned by the Participants in accordance
      with Common Participation Shares.


6.4  In
      the
      event that a Participant transfers or assigns any of its rights, titles or
      interests in and to the San Juan Project in accordance with the terms and
      conditions of this Agreement, the Participants (including the transferee or
      assignee of a Participant) shall jointly make, execute and deliver a supplement
      to this Agreement in recordable form which shall describe with particularity
      and
      in detail the rights, titles and interests of each Participant following such
      transfer or assignment.




24


6.5  PNM
      and
      TEP own as tenants in common the Switchyard Facilities described in
      Exhibit III in equal, undivided one-half (1/2) interests.





25





7.0  CAPITAL
      IMPROVEMENTS AND RETIREMENTS OF SAN JUAN PROJECT AND PARTICIPANTS’ SOLELY OWNED
      FACILITIES:


7.1  The
      Participants recognize that from time to time it may be necessary or desirable
      to make Capital Improvements to and retirements of facilities comprising the
      San
      Juan Project.


7.2  Any
      such
      Capital Improvements and retirements shall be noted by an appropriate revision
      in or supplement to the appropriate exhibits hereto attached.


7.3  The
      rights, titles and interests, including Participation Shares, of a Participant
      in and to any Capital Improvements shall be as provided for the respective
      classes of property described in Section 6. The Participants shall be
      obligated for the costs of such Capital Improvements in the same percentages
      as
      their Participation Shares.


7.4  All
      Capital Improvements, and a contingency allowance for capital expenditures
      necessitated by an Operating Emergency or otherwise deemed justifiable by the
      Operating Agent, shall be included in the annual capital expenditures budget.
      The Engineering and Operating Committee may authorize Capital Improvements
      not
      included in the annual capital expenditures budget; provided, that such Capital
      Improvements shall not exceed the sum of five hundred thousand dollars
      ($500,000) for each such Capital Improvement, unless also authorized by the
      Coordination Committee.


7.5  The
      Operating Agent shall submit to the Participants a forecast of cash requirements
      by months for Capital Improvements. Said forecast will be submitted on a yearly
      basis after final budget approvals have been made. A revised forecast shall
      be
      submitted when the capital expenditures budget is revised, or when significant
      changes in




26


monthly
      expenditures from those previously forecast are anticipated. The Operating
      Agent
      shall be authorized to make additional expenditures related to Capital
      Improvements; provided, however, that such additional expenditures for Capital
      Improvements shall not exceed the sum of one hundred thousand dollars ($100,000)
      or cause the total expenditure limit contained in the capital expenditures
      budget to be exceeded, unless also authorized by the Engineering and Operating
      Committee, or by the Coordination Committee if the total expenditure for such
      Capital Improvement exceeds five hundred thousand dollars ($500,000).


7.6  In
      the
      event of the removal or retirement of any facilities comprising part of the
      San
      Juan Project, any proceeds realized from the salvage of such facilities shall
      be
      distributed to the Participants in accordance with their Participation Shares
      therein, or shall be applied on account of the Participant’s obligations to pay
      for Capital Improvements replacing facilities removed or retired. Units of
      Property retired from service shall be disposed of by the Operating Agent on
      the
      best available terms as soon as practicable.


7.7  Each Participant shall have the right, at its own expense, to add facilities to
      the
      Switchyard Facilities ,
      provided the Engineering and Operating Committee approves the design of such additional facilities
      and determines
      that space is available therefor, and **** that such committee
      also determines that such additional facilities will not
      (i) infringe upon the rights
      of
      another Participant in the Switchyard Facilities, (ii) unreasonably
      interfere with future expansion plans at the San Juan Project, (iii) impair
      or interfere with the contractual
      rights of another Participant, or (iv) jeopardize the reliability
      of another Participant’s system. The Engineering
      and Operating Committee shall have authority
      to impose




27


conditions
      on a Participant allowed to make such additions in order
      to
      protect the other Participants consistent with applicable rules and regulations
      of the FERC. Such facilities
      shall be and remain the sole and exclusive property of the Participant
      installing same until and unless the Coordination Committee determines that
      such
      facilities are necessary and beneficial for operation of the San Juan Project
      as
      a whole. In the event of such determination, the facilities shall be acquired
      as
      a part of the San Juan Project by the Participants and compensation shall be
      paid to the selling Participant by the Participants acquiring such interest
      based on the net book value of such facilities.


7.8  Each
      Participant shall have the right, at its own expense, to add protective relay
      or
      communication equipment to facilities solely owned by it, if the Participant
      determines the protective relay or communication equipment is needed for the
      protection of its electric system, provided the Engineering and Operating
      Committee approves the design of such additional equipment and determines that
      space is available therefor, and that such committee also determines that such
      additional facilities will not (i) infringe upon the rights of another
      Participant in the facilities, (ii) unreasonably interfere with future
      expansion plans at the San Juan Project, (iii) impair or interfere with the
      contractual rights of another Participant, or (iv) jeopardize the
      reliability of another Participant’s system.


7.9  Transportation
      and motorized equipment which is to be utilized by the Operating Agent for
      Operating Work may be purchased or leased by the Operating Agent upon receipt
      of
      the approval referred to in Section 19.3.4. Ownership of such purchased
      equipment and the purchase price thereof shall be allocated between and paid
      by
      the Participants in proportion to the percentages established in Section 6.
      Lease payments made







by
      the
      Operating Agent for such leased equipment shall be apportioned between and
      paid
      by the Participants in accordance with Section 22.1. No allowance to the
      Operating Agent for administrative and general expense shall be included in
      or
      added to such lease payments for transportation and motorized equipment which,
      in lieu of acquiring such equipment by purchase, has been leased on a long-term
      basis.


7.10  Upon
      retirement of leased transportation and motorized equipment utilized for
      Operating Work, an amount, which shall be treated as a charge (or credit),
      shall
      be determined by multiplying the difference between the salvage value and the
      unamortized balance owing to the leasing company for each piece of such
      equipment by a fraction, the numerator of which is the sum of the monthly lease
      payments for such equipment charged to Operating Work and the denominator of
      which is the sum of all monthly lease payments made by the Operating Agent
      for
      such equipment. Such charge or credit shall be allocated among the Participants
      in accordance with the applicable percentages set forth in Section 22.


7.11  Administrative
      and general expenses which have been incurred by the Operating Agent which
      are
      applicable to authorized Capital Improvements, shall be applied monthly to
      construction costs incurred during the preceding month. A rate will be developed
      by the Operating Agent every three (3) years in conjunction with the
      administrative and general (“A&G”) expenses study referenced in Attachment A
      to Exhibit VI. The current methodology for calculating the A&G Ratio for
      Capital Improvements is set forth in Exhibit VI, Attachment E. If any
      Participant believes that the method used in determining the A&G Ratio for
      Capital Improvements results in an unreasonable burden on




29


such
      Participant(s), such Participant(s) may request that said method used in
      determining said ratio be submitted to the Auditing Committee for review in
      accordance with the procedures set out in Sections 22.6.1 through 22.6.4.


7.12  Excluded
      from the charges in Section 7.11 are expenses incurred under
      Section 36.2.





30





8.0  WAIVER
      OF
      RIGHT TO PARTITION:


8.1  The
      Participants accept title to their respective interests in the San Juan Project,
      water rights, lands, land rights and improvements thereon as tenants in common,
      and agree that their interests therein shall be held in such tenancy in common
      for the duration of the term of this Agreement, including any extensions
      thereof. While this Agreement, including any extensions thereof, remains in
      force and effect, each Participant agrees as follows:


8.1.1  That
      it
      hereby waives the right to partition the San Juan Project, water rights, lands,
      land rights or the improvements built thereon (whether by partitionment in
      kind
      or by sale and division of the proceeds thereof), and


8.1.2  That
      it
      will not resort to any action at law or in equity to partition (in either such
      manner) the San Juan Project, water rights, lands, land rights or the
      improvements built thereon and waives the benefits of all laws that may now
      or
      hereafter authorize such partition.





31





9.0  BINDING
      COVENANTS:


9.1  Except
      as
      otherwise provided in Section 9.3, all of the respective covenants and
      obligations of each of the Participants set forth and contained in the Project
      Agreements shall bind and shall be and become the respective obligations of:


9.1.1  Each
      Participant;


9.1.2  All
      mortgagees, trustees and secured parties under all present and future mortgages,
      indentures and deeds of trust, and security agreements which are or may become
      a
      lien upon any of the properties of each Participant;


9.1.3  All
      receivers, assignees for the benefit of creditors, bankruptcy trustees and
      referees of a Participant;


9.1.4  All
      other
      persons, firms, partnerships or corporations claiming through or under any
      of
      the foregoing; and


9.1.5  Any
      successors or assigns of any of those mentioned in Sections 9.1.1 to 9.1.4,
      inclusive,


and
                shall be obligations running with the Participants’ rights, titles and
                interests in the San Juan Project, with all of the rights, titles
                and
                interests (if any) of each Participant in, to and under this Agreement
                and
                with their rights, titles and interests in the water rights, lands,
                land
                rights and the improvements thereon. It is the specific intention
                of this
                provision that all of such covenants and obligations shall be binding
                upon
                any party which acquires any of the rights, titles and interests
                of any of
                the Participants in the San Juan Project, in, to and under this Agreement,
                and/or in the water rights, lands, land rights or the improvements
                thereon, and that all of the above-described persons and groups shall
                be
                obligated to use such Participant’s rights, titles and interests in the
                San Juan Project, in, to and under this Agreement, and in the water
                rights, lands, land rights and the improvements thereon, for the
                purpose
                of discharging its covenants and obligations under this Agreement.





32


9.2  The
      rights, titles and interests of each Participant in the San Juan Project, its
      rights, titles and interests in, to and under this Agreement and its rights,
      titles and interests in and to the water rights, lands, land rights and
      improvements thereon, shall inure to the benefit of its successors and assigns.


9.3  Any
      mortgagee, trustee or secured party, or any receiver or trustee appointed
      pursuant to the provisions of any present or future mortgage, deed of trust,
      indenture or security agreement creating a lien upon or encumbering the rights,
      titles or interests of any Participant in the San Juan Project, in, to and
      under
      this Agreement and/or in the water rights, lands, land rights or the
      improvements thereon, and any successor thereof by action of law or otherwise,
      and any purchaser, transferee or assignee of any thereof, shall not be obligated
      to pay any monies accruing on account of any of the obligations or duties of
      such Participant under this Agreement incurred prior to the taking of possession
      or the initiation of foreclosure or other remedial proceedings by such
      mortgagee, trustee or secured party.


9.4  In
      the
      event that any or all of the provisions of this Section 9 shall not be
      legally effective as to any Participant, or its mortgagees, trustees, secured
      parties, receivers, successors or assigns, then such Participant shall not
      be
      deemed in violation of this Section 9 by reason thereof.




33


9.5  Nothing
      in this Section 9 or in this Agreement shall be deemed to change any rights,
      titles or interests to water rights, lands, land rights and the improvements
      thereon.





34





10.0  MORTGAGE
      AND TRANSFER OF PARTICIPANTS’ INTERESTS:


10.1  The
      Participants shall have the right at any time and from time to time to mortgage,
      create or provide for a security interest in or convey in trust their respective
      rights, titles and interests in the San Juan Project, their respective rights,
      titles and interests in, to and under a Project Agreement and/or their rights,
      titles and interests in the water rights, lands, land rights or the improvements
      to be built thereon to a trustee or trustees under deeds of trust, mortgages
      or
      indentures, or to secured parties under a security agreement, as security for
      their present or future bonds or other obligations or securities, and to any
      successors or assigns thereof without need for the prior consent of the other
      Participants, and without such mortgagee, trustee or secured party assuming
      or
      becoming in any respect obligated to perform any of the obligations of the
      Participants.


10.2  Any
      mortgagee, trustee or secured party under present or future deeds of trust,
      mortgages, indentures or security agreements of any of the Participants and
      any
      successor or assign thereof, and any receiver, referee, or trustee in bankruptcy
      or reorganization of any of the Participants, and any successor by action of
      law
      or otherwise, and any purchaser, transferee or assignee of any thereof may,
      without need for the prior consent of the other Participants, succeed to and
      acquire all the rights, titles and interests of such Participant in the San
      Juan
      Project, in, to and under the Project Agreements and/or the rights, titles
      and
      interests of such Participant in the water rights, lands, land rights and
      improvements thereon, and may take over possession of or foreclose upon said
      property, rights, titles and interests of such Participant.




35


10.3  Except
      as
      otherwise provided in Sections 10.1, 10.2 or 10.4 or, with respect to a transfer
      or assignment by a Participant to another Participant as provided in Section
      11,
      no Participant shall transfer or assign its respective rights, titles and
      interests in the San Juan Project, in, to and under this Agreement and/or in
      the
      water rights, land, land rights and the improvements thereon, without the prior
      written consent of the other Participants, which consent shall not be
      unreasonably withheld.


10.4  Each
      Participant shall have the right to transfer or assign its respective rights,
      titles and interests in the San Juan Project, in, to and under this Agreement
      and/or in the water rights, land, land rights and the improvements thereon,
      without the need for prior consent of the other Participants, at any time to
      any
      of the following:


10.4.1  To
      any
      corporation or other entity acquiring all or substantially all of the property
      of such Participant; or


10.4.2  To
      any
      corporation or entity into which or with which such Participant may be merged
      or
      consolidated; or


10.4.3  To
      any
      corporation or entity the stock or ownership of which is wholly owned by a
      Participant; or


10.4.4  To
      any
      corporation or other entity which owns all of the outstanding common stock
      or
      other ownership interest of a Participant (its “Parent”); or


10.4.5  To
      any
      corporation or other entity the common stock or other ownership interest of
      which is wholly owned by the Parent of a Participant.




36


10.5  Except
      as
      otherwise provided in Sections 10.1, 10.2 and 9.3, any successor to the
      rights, titles and interests of a Participant in the San Juan Project, to the
      rights, titles and interests of a Participant in, to and under the Project
      Agreements and/or in the water rights, lands, land rights or improvements
      thereon shall assume and agree to fully perform and discharge all of the
      obligations hereunder of such Participant, and such successor shall notify
      the
      other Participants in writing of such transfer, assignment or merger, and shall
      furnish to the other Participants evidence of such transfer, assignment or
      merger. Any such successor shall specifically agree in writing with the
      remaining Participants at the time of such transfer, assignment or merger that
      it will not transfer or assign any rights, titles and interests acquired from
      the assigning Participant without complying with the terms and conditions of
      Section 11.


10.6  No
      Participant shall be relieved of any of its obligations and duties to the other
      Participants by a transfer, assignment or merger under this Section 10
      without the express prior written consent of the remaining Participants, which
      consent shall not be unreasonably withheld.


10.7  Except
      as
      otherwise provided in Section 10.5, any transfer, assignment or merger made
      pursuant to the provisions of this Section 10 shall not be subject to the
      terms and conditions set forth and contained in Section 11.





37





11.0  RIGHTS
      OF
      FIRST REFUSAL:


11.1  The
      purpose of this Section 11 is to set forth the manner in which all existing
      or
      future rights of first refusal, pertaining to the transfer of interests in
      the
      San Juan Project, shall be exercised. Except as provided in Section 10, PNM
      has
      a right of first refusal with respect to the proposed transfer of any ownership
      interest in the San Juan Project by any Participant and TEP has a right of
      first
      refusal with respect to PNM’s proposed transfer of an interest in Unit 1 or Unit
      2 and associated common property. The existence of other rights of first refusal
      shall be as provided in other instruments to which Participants are parties.
      Nothing in this Section 11 shall be construed to limit or expand the rights
      of
      first refusal of any Participant.


11.2  Except
      as
      provided in Section 10, should a Participant desire to assign, transfer,
      convey or otherwise dispose of (hereinafter collectively referred to as
“Assign”) its rights, titles and interests in the San Juan Project, or its
      rights, titles and interests in, to and under the Project Agreements, or its
      rights, titles and interests in the water rights, lands, land rights or the
      improvements thereon or any part thereof or interest therein (hereinafter
      referred to as “Transfer Interest”), to any person, company, corporation or
      governmental agency (hereinafter referred to as “Outside Party”), the
      Participant desiring to Assign shall first make an offer to sell the Transfer
      Interest to a Participant(s) having a right of first refusal, on the basis
      of
      the applicable amount as set out in either Section 11.2.1 or Section
      11.2.2:




38


11.2.1  Where
      the
      Outside Party proposes to purchase for a specified monetary amount, from the
      Participant desiring to Assign, an interest only in the San Juan Project and/or
      in contract rights, water rights, lands, land rights and improvements associated
      therewith, the amount of (i) a bona fide written offer from an Outside Party
      ready, willing and able (subject to obtaining any required regulatory approvals)
      to purchase the Transfer Interest; or, in the absence of a bona fide written
      offer, (ii) a purchase price set out in a bona fide purchase and sale agreement
      between the Participant desiring to Assign and an Outside Party ready, willing
      and able (subject to obtaining any required regulatory approvals) to purchase
      the Transfer Interest; or


11.2.2  Where
      the
      Outside Party proposes to purchase from the Participant desiring to Assign,
      (i)
      as part of a non-monetary offer (such as in the case of an asset swap) or (ii)
      when a segregated value for the Transfer Interest is not available (such as
      in
      the case of a bundled or packaged sale of assets), or (iii) where the Outside
      Party proposes to purchase an interest not only in the San Juan Project and/or
      in contract rights, water rights, lands, land rights and improvements associated
      therewith, but also in other property of the Participant desiring to Assign,
      the
      fair market value of the Transfer Interest. As used herein, the term “fair
      market value” means the amount of money which a purchaser, willing but not
      obligated to buy the property, will pay to an owner, willing but not obligated
      to sell it, taking into consideration all of the uses to which the Transfer
      Interest is adapted and might in reason be applied.




39


11.3  At
      least
      three (3) months prior to its intended date to Assign, and after its receipt
      of
      a bona fide written offer, or execution of a bona fide purchase and sale
      agreement, of the type described in Section 11.2, the Participant desiring
      to Assign its Transfer Interest shall serve written notice of its intention
      to
      do so upon the Participant(s) having a right of first refusal, in accordance
      with Section 42. Such notice shall: (i) have attached as an exhibit a copy
      of the bona fide offer of an Outside Party or of the bona fide purchase and
      sale
      agreement between the Outside Party and the Participant desiring to Assign
      (an
“Outside Offer”); and (ii) shall contain a statement of the approximate proposed
      date to Assign.


11.4  The
      Participant(s) having the right of first refusal shall signify its (their)
      desire to purchase the entire Transfer Interest, or not purchase the entire
      Transfer Interest, by serving written notice of its (their) intention upon
      the
      Participant desiring to Assign pursuant to Section 42 within sixty
      (60) days after such service pursuant to Section 11.3 of the written
      notice of intention to Assign. Failure by a Participant to serve notice as
      provided hereunder within the time period specified shall be conclusively deemed
      to be notice of its intention not to purchase the Transfer Interest.


11.5  When
      intention to purchase the entire Transfer Interest has been indicated by notices
      duly given hereunder by the Participant(s) desiring to purchase the Transfer
      Interest, the affected Participants shall thereby incur the following
      obligations:


11.5.1  The
      Participant desiring to Assign and a Participant desiring to purchase the
      Transfer Interest shall be obligated to proceed in good faith and with diligence
      to obtain all required authorizations and approvals to Assign;




40


11.5.2  The
      Participant desiring to Assign shall be obligated to obtain the release of
      any
      liens imposed by or through it upon any part of the Transfer Interest and to
      Assign the Transfer Interest at the earliest practicable date thereafter; and


11.5.3  A
      Participant desiring to purchase the Transfer Interest shall be obligated to
      perform all terms and conditions required of it to complete the purchase of
      the
      Transfer Interest.


The
                purchase of the Transfer Interest shall be fully consummated within
                six
                (6) months following the date upon which all notices required to
                be given
                under this Section 11 have been duly served, unless the Participant
                is then diligently pursuing applications to appropriate regulatory
                bodies
                (if any) for required authorizations to effect such assignment or
                is then
                diligently prosecuting or defending appeals from orders entered or
                authorizations issued in connection with such
                applications.


11.6  If
      the
      intention to purchase the entire Transfer Interest has not been indicated by
      notices given within the time periods specified in this Section 11 by a
      Participant desiring to purchase the Transfer Interest, the Participant desiring
      to Assign shall be free to Assign all, but not less than all, of its Transfer
      Interest to the Outside Party that made the Outside Offer, upon the terms and
      conditions set forth in the Outside Offer. If such assignment of the entire
      Transfer Interest to the Outside Party is not completed within three (3) years
      after the approximate proposed date to Assign specified in the notice given
      pursuant to Section 11.3, the Participant desiring to Assign its Transfer
      Interest must, unless it is then diligently pursuing its applications to
      appropriate regulatory bodies (if any) for required authorizations to effect
      such assignment, or is then diligently prosecuting or




41


defending
      appeals from orders entered or authorizations issued in connection with such
      applications, give another complete new right of first refusal to the
      Participant(s) desiring to purchase pursuant to the provisions of this
      Section 11, before such Participant shall be free to Assign a Transfer
      Interest to said Outside Party.


11.7  No
      assignment of a Transfer Interest, whether to another Participant or to an
      Outside Party, shall relieve the assigning Participant from full liability
      and
      financial responsibility for performance after any such assignment: (i) of
      all
      obligations and duties incurred by such Participant prior to such assignment
      under the terms and conditions of the Project Agreements; and/or (ii) of all
      obligations and duties provided and imposed after such assignment upon such
      assigning Participant under the terms and conditions of the Project Agreements,
      unless and until the assignee shall agree in writing with the remaining
      Participants to assume the obligations and duties of a Participant hereunder;
      provided further, however, that such assignor shall not be relieved of any
      of
      its obligations and duties by an assignment under this Section 11, without
      the express prior written consent of the remaining Participants, which consent
      shall not be unreasonably withheld.


11.8  Any
      transferee, successor or assignee, or any party who may succeed to the Transfer
      Interest pursuant to this Section 11, shall specifically agree in writing
      with the remaining Participants at the time of such transfer or assignment
      that
      it will not transfer or assign all or any portion of the Transfer Interest
      so
      acquired without complying with the terms and conditions of this
      Section 11.




42


11.9  The
      provisions of Section 11.8 shall not be applicable to any assignment of a
      Transfer Interest by one Participant to another Participant, provided that
      payment in full of such Transfer Interest, as defined in Section 11, has
      been made by the Participant who is the assignee thereof.


11.10  A
      Participant may, for the purpose of financing its interest in pollution control
      systems and facilities at the San Juan Project, sell, transfer or convey such
      interests pursuant to the New Mexico Pollution Control Revenue Bond Act, and
      any
      such sale, transfer or conveyance shall not be deemed as an assignment,
      transfer, conveyance or other disposal within the meaning of this
      Section 11.





43





12.0  RIGHTS
      OF
      PNM AND TEP IN WATER AND COAL:


12.1  If,
      pursuant to the terms and conditions of the Underground Coal Sales Agreement,
      or
      the sublease dated August 18, 1980 (as amended to date and as such sublease
      may be amended from time to time), between Western Coal Company and Utah
      International, Inc. or their successors (“Sublease”), PNM and TEP succeed to any
      interest in coal lands, coal leases, water rights, or other property, the
      rights, titles and interests of PNM and TEP therein shall be held as tenants
      in
      common, with each of PNM and TEP having an equal undivided one-half (1/2)
      interest therein, and such rights, titles and interests shall be subject to
      all
      the terms and conditions set forth and contained in this Agreement.





44





13.0  SEVERANCE
      OF IMPROVEMENTS:


13.1  All
      facilities, structures, improvements, equipment and property of whatever kind
      and nature constructed, placed or affixed on the rights-of-way, easements,
      patented lands, fee lands and leased lands as part of, or as Capital
      Improvements, to the San Juan Project, as against all parties and persons
      whomsoever (including, without limitation, any party acquiring any interest
      in
      the rights-of-way, easements, patented, fee or leased lands or any interest
      in
      or lien, claim or encumbrance against any of such facilities, structures,
      improvements, equipment and property of whatever kind and nature) shall be
      deemed to be and remain personal property of the Participants, not affixed
      to
      the realty.





45





**PART
      III**


**ENTITLEMENTS
      TO OUTPUT OF SAN JUAN PROJECT**




14.0  ENTITLEMENT
      TO CAPACITY AND ENERGY:


14.1  Subject
      to the provisions of Section 16, the Participants shall be entitled to the
      Net
      Effective Generating Capacity of each of Unit 1, Unit 2, Unit 3 and Unit 4
      in
      proportion to their respective Participation Shares. Each Participant shall
      be
      entitled to schedule its Energy up to the Available Operating Capacity.


14.2  The
      Operating Agent shall keep the system dispatcher of each Participant advised
      of
      the Available Operating Capacity.


14.3  When
      a
      Participant’s request for its share of the Available Operating Capacity
      necessitates the operation of a Unit, each Participant shall schedule for its
      account not less than its share of Minimum Net Generation. If, however, a
      Participant has scheduled an amount of Energy in excess of its share of the
      Minimum Net Generation, the other Participants shall be allowed to reduce their
      scheduled Energy to an amount that will maintain the Unit at the Minimum Net
      Generation level.


14.4  The
      delivery of Energy from the San Juan Project shall be scheduled by each
      Participant in advance with the Operating Agent and accounted for on the basis
      of integrated hourly actual generation, all in accordance with any operating
      procedures which may be established or approved by the Engineering and Operating
      Committee. Such operating procedures shall provide for modifying such schedules
      to meet the needs of day-to-day and hour-by-hour operation, including
      emergencies on a Participant’s system.




46


14.5  The
      Operating Agent shall, to the extent possible, generate Energy at the San Juan
      Project in accordance with schedules submitted by each Participant, as such
      schedules may be revised from time to time, as long as such schedules do not
      jeopardize the operation of the San Juan Project.


14.6  The
      Participants shall revise their schedules in the event of an Operating Emergency
      or other incident beyond the control of the Operating Agent to reflect the
      actual Energy available from the San Juan Project during the period of the
      Operating Emergency or incident.


14.7  The
      Energy generated at the San Juan Project shall be controlled within PNM’s
      Control Area; provided, that such control shall not diminish the rights of
      any
      Participant to receive its entitlement of Energy from the San Juan Project.





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15.0  CAPACITY
      ALLOCATION OF SWITCHYARD FACILITIES:


15.1  The
      electrical capacity in the Switchyard Facilities shall be made available to
      PNM
      and TEP in the manner and in the amounts as set forth in Section 6.2.7. For
      the
      purposes of this Agreement, the FC Line shall be considered a part of the
      Switchyard Facilities.


15.1.1  The
      transmission capacity of the FC Line shall measured at the Four Corners
      terminal. PNM and TEP each shall be entitled to fifty percent (50%) of the
      designated FC Line Capacity.


15.1.2  The
      transmission capacity of the FC Line termination and other contract matters
      concerning the Four Corners Project shall be handled individually by PNM and
      TEP.


15.2  The
      points of attachment to the San Juan 345 kV Switchyard Facilities for the
      purposes of this Section 15 are:


No.
                1:
            TEP/PNM
                No. 1 345 kV transmission line;


No.
                2:
            TEP/PNM
                No. 2 345 kV transmission line;


No.
                3:
            PNM/TEP
                Four Corners Generating Plant 345 kV switchyard (through the FC Line);


No.
                4:
            PNM’s
                WW 345 kV transmission line;


No.
                5:
            PNM’s
                OJ 345 kV transmission line;


No.
      6:  Colorado
      Public Service Company/Western Area Power Administration/Tri-State Rifle 345
      kV
      transmission line;




48


No.
      7:  Western
      Area Power Administration-Shiprock 345 kV transmission line.


15.2.1
      The Participants collectively shall not schedule more Power and Energy through
      any of the foregoing individual points of attachment than the established rating
      of that facility.


15.2.2  The
      Participants’ individual transmission capacity rights into or out of the
      Switchyard Facilities attachment points shall be the same as the ownership
      or
      contract rights of the Participant(s) in the attached facility up to the limits
      specified in this Section 15.


15.2.3  Any
      transmission capacity in the Switchyard Facilities specified to be available
      in
      Section 15.2.1 or otherwise determined to be available by the Engineering
      and Operating Committee, but not allocated to the individual Participants under
      Section 15.2.2, shall be declared “excess capacity” by the Engineering and
      Operating Committee. The Engineering and Operating Committee shall allocate
      such
      excess transmission capacity to PNM or TEP or such Participants having an
      ownership interest in the Switchyard Facilities, upon request in the amount
      requested for specified periods of time to the extent and for such time as
      the
      Engineering and Operating Committee finds such excess capacity to be
      available.





49





16.0  USE
      OF
      FACILITIES DURING CURTAILMENTS:


16.1  If
      the
      Net Effective Generating Capacity of all Units is reduced because of factors
      (including, but not limited to, equipment failures, scheduled or unscheduled
      outages, fuel or fuel deliveries, water supply, air quality limitations) which
      commonly influence the total output of all Units, each Participant’s entitlement
      to Capacity during such period shall be reduced in proportion to the percentages
      specified in Section 6.2.6 during each hour of such curtailment unless otherwise
      specified in a separate agreement.


16.2  If
      factors which influence the operation of a Unit cause a curtailment of that
      Unit, then the capacity entitlement from that Unit for each Participant in
      that
      Unit shall be in proportion to the Participant’s Participation Share of that
      Unit.


16.3  If,
      because of factors which influence the operation solely of Units 1 and 2, or
      solely of Units 3 and 4, there shall be a curtailment of Units 1 and 2, or
      of
      Units 3 and 4, as the case may be, the curtailment for each Participant in
      Units
      1 and 2, or Units 3 and 4, shall be allocated in proportion to the percentages
      specified in Sections 6.2.4 and 6.2.5, respectively.


16.4  To
      the
      extent that a curtailment results from scarcity of resources and not from
      mechanical or legal limitations, Participants may agree in writing to modify
      their schedules to allocate the use of such resources to such Unit(s) or to
      such
      times as to make the most efficient use thereof, consistent with Prudent Utility
      Practice, during the pendency of such curtailment. Notwithstanding the
      provisions of Section 23.2, the Operating Agent shall, during such curtailments,
      account for coal inventory on a Participant by Participant basis. Upon the
      conclusion of such curtailment, the provisions of Section 23.2 shall apply
      to
      any remaining coal inventory.




50


16.5  Curtailment
      of the transmission capacity in the Switchyard Facilities shall be allocated
      to
      the Participants in the manner and in the amounts as set forth in Section
      6.2.7.


16.6  No
      Participant shall exercise its rights relating to the San Juan Project so as
      to
      endanger or unreasonably interfere with the operation of the San Juan Project
      or
      the right of any other Participant to use its share of Capacity and Energy
      from
      the San Juan Project.





51





17.0  START-UP
      AND AUXILIARY POWER AND ENERGY REQUIREMENTS:


17.1  Each
      Participant shall be obligated to provide its Participation Share of the Energy
      requirements to start up and operate each Unit, and such requirements shall
      be
      provided by the Participants based upon the Participant’s percentage of
      operating costs in accordance with Section 22.1. Appropriate metering facilities
      shall be installed to assure measurement of such Energy. Such requirements
      for
      Energy shall be scheduled in advance by the Operating Agent in accordance with
      operating procedures approved by the Engineering and Operating
      Committee.





52





**PART
      IV**


**ADMINISTRATION**




18.0  COORDINATION
      COMMITTEE:


18.1  As
      a
      means of securing effective cooperation and interchange of information and
      of
      providing consultation on a prompt and orderly basis among the Participants
      in
      connection with various administrative and technical problems which may arise
      from time to time under this Agreement, the Coordination Committee shall remain
      in existence during the term of this Agreement. Except as otherwise expressly
      provided in this Agreement, the Coordination Committee shall have no authority
      to modify any of the provisions of this Agreement.


18.2  The
      Coordination Committee shall consist of one representative from each Participant
      who shall be an officer or other duly authorized representative of a
      Participant. Any of the Participants may designate an alternate or substitute
      to
      act as its representative on the Coordination Committee in the absence of the
      regular representative on the Coordination Committee or to act on specified
      occasions or with respect to specified matters. Each Participant shall notify
      the other Participants promptly, in writing, of the designation of its
      representative and alternate representative on the Coordination Committee and
      of
      any subsequent changes in such designations. The chairperson of the Coordination
      Committee shall be a representative employed by the Operating
      Agent.


18.3  The
      Coordination Committee shall have the following functions and
      responsibilities:


18.3.1  Provide
      liaison between and among the Participants.




53


18.3.2  Exercise
      general supervision over the Engineering and Operating Committee, the Fuels
      Committee and the Auditing Committee.


18.3.3  Consider
      and act upon all matters referred to the Coordination Committee by the
      Engineering and Operating Committee, the Fuels Committee and the Auditing
      Committee.


18.4  Any
      action or determination of the Coordination Committee shall require a vote
      of
      the Participants in accordance with Sections 18.4.1, 18.4.2 or 18.4.3. A
      Participant’s Coordination Committee representative shall be entitled to vote on
      all matters except those actions or determinations which relate solely to a
      Unit
      or to common property in which such Participant does not have a Participation
      Share or as provided in Section 35.4.1. If a Participant’s right to vote has
      been suspended pursuant to Section 35.4.1, the requisite majorities for actions
      or determinations specified in Sections 18.4.1, 18.4.2 and 18.4.3 shall be
      adjusted in proportion to the number of Participants whose right to vote has
      not
      been suspended. An example of such an adjustment is provided in Exhibit VIII,
      attached hereto and incorporated herein. Maintenance scheduling and operation
      during periods of curtailment of the total San Juan Project are not matters
      which relate solely to a Unit, but are deemed to be matters affecting all
      Units.


18.4.1  Except
      as
      provided in Sections 18.4.2 and 18.4.3, any actions or determinations brought
      before the Coordination Committee shall require the following vote:




54


(a)  More
      than
      a sixty-six and two thirds percent (66 2/3%) majority of the Participation
      Shares of the Participants in a Unit or common property as defined in Section
      6.2; and


(b)  More
      than
      a sixty-six and two thirds percent (66 2/3%) majority of the number of
      individual Participants having a Participation Share in a Unit or common
      property as defined in Section 6.2.


18.4.2  Any
      action or determination of the Coordination Committee related to common property
      as set forth in Section 6.2.6 and involving an expenditure greater than five
      million dollars ($5,000,000) shall require the following vote:


(a)  More
      than
      an eighty-two percent (82%) majority of the Common Participation Shares of
      the
      Participants; and


(b)  A
      minimum
      of sixty-six and two thirds percent (66 2/3%) majority of the number of the
      individual Participants.


18.4.3  Any
      action or determination of the Coordination Committee regarding any amendment
      of
      the Underground Coal Sales Agreement, replacement of the Underground Coal Sales
      Agreement with a new agreement or any interim coal pricing agreement related
      to
      the Underground Coal Sales Agreement (or its successor) shall require the
      following vote:


(a)  More
      than
      an eighty-two percent (82%) majority of the Common Participation Shares of
      the
      Participants; and


(b)  A
      minimum
      of sixty-six and two thirds percent (66 2/3%) majority of the number of
      individual Participants.




55


18.5  The
      Coordination Committee shall keep written minutes and records of all meetings.
      Any action or determination made by the Coordination Committee shall be reduced
      to writing and shall become effective when signed by the representatives of
      the
      Participants entitled to vote thereon, representing a voting majority of the
      members of the Coordination Committee, as defined in Section 18.4; provided,
      however, in the event of an Operating Emergency, actions or determinations
      may
      be made on the basis of oral agreements among duly authorized representatives
      of
      the respective Participants entitled to vote thereon, and such action or
      determination subsequently shall be reduced to writing. Coordination Committee
      representatives may, by prior arrangement with the chairperson of the
      Coordination Committee, attend a meeting of the Coordination Committee by
      conference call or video conferencing. A Coordination Committee representative
      who is unable to attend a meeting of the Coordination Committee may vote in
      absentia by delivering to the chairperson of the Coordination Committee, at
      least twenty-four (24) hours prior to the scheduled commencement of the meeting,
      a written statement, including by e-mail or facsimile, identifying the matter
      to
      be voted on and how the representative desires to vote.


18.6  Except
      for matters subject to the voting requirements of Section 18.4.3, in the event
      the Coordination Committee fails to reach agreement on any matter, which such
      committee is authorized to determine, approve or otherwise act upon after a
      reasonable opportunity to do so, then the Operating Agent shall be authorized
      and obligated to take such reasonable and prudent action, consistent with
      Prudent Utility Practice, as is necessary to the successful and proper operation
      and maintenance of the San Juan Project, pending the resolution, by arbitration
      or otherwise, of any such inability or failure to agree.




56


18.7  In
      the
      event the Coordination Committee fails to reach agreement on a matter subject
      to
      the voting requirements of Section 18.4.3, then an impasse shall be deemed
      to
      exist and the Participants which are signatories to the Underground Coal Sales
      Agreement then in effect shall have the obligation and the responsibility,
      consistent with Prudent Utility Practice, to maintain a supply of coal to the
      San Juan Project.




57


19.0  ENGINEERING
      AND OPERATING COMMITTEE:


19.1  The
      Engineering and Operating Committee shall remain in existence during the term
      of
      this Agreement. Except as expressly provided in this Agreement, the Engineering
      and Operating Committee shall have no authority to modify any of the provisions
      of this Agreement.


19.2  The
      Engineering and Operating Committee shall consist of up to two representatives
      from each Participant who shall collectively have one vote. Any of the
      Participants may designate an alternate or substitute to act as its
      representative on the Engineering and Operating Committee in the absence of
      a
      regular representative on the Engineering and Operating Committee or to act
      on
      specified occasions or with respect to specified matters. Each Participant
      shall
      notify the other Participants promptly, in writing, of the designation of its
      representatives and alternate representative on the Engineering and Operating
      Committee and of any subsequent change in the designation. The chairperson
      of
      the Engineering and Operating Committee shall be a representative employed
      by
      the Operating Agent.


19.3  The
      Engineering and Operating Committee shall have the following functions and
      responsibilities:


19.3.1  Review
      and approve the following items related to the performance of Operating
      Work.


19.3.1.1  Capital
      Improvements and the annual Capital Improvements budget.


19.3.1.2  The
      annual staffing table.




58


19.3.1.3  The
      annual operation and maintenance budget.


19.3.1.4  Such
      written statements of operating or maintenance procedures as may be submitted
      to
      the Engineering and Operating Committee.


19.3.1.5  The
      planned annual maintenance schedule.


19.3.1.6  The
      policies for establishing the Emergency Spare Parts inventory.


19.3.1.7  The
      policies for establishing the inventory for Materials and Supplies.


19.3.1.8  The
      statistical and administrative reports, budgets and information and other
      similar records, and the form thereof, to be kept and furnished by the Operating
      Agent, in accordance with Section 28.3.15 (excluding accounting records
      used internally by the Operating Agent for the purpose of accumulating financial
      and statistical data, such as books of original entry, ledgers, work papers
      and
      source documents).


19.3.1.9  The
      determination of Net Effective Generating Capacity, Minimum Net Generation
      and
      Net Energy Generation of the San Juan Project, based upon recommendations of
      the
      Operating Agent.


19.3.1.10  The
      principles and procedures for establishing communication channels among
      Participants.


19.3.1.11  The
      operating procedures for performance and efficiency testing.




59


19.3.1.12  The
      operating procedures for maintaining complete and accurate Capacity and Energy
      accounting.


19.3.1.13  The
      Operating Agent’s estimate and analysis of the total expenditures resulting from
      an Operating Emergency, as provided in Section 29.7.


19.3.1.14  The
      results and expenditures of programs and contracts on environmental control
      and
      data collection for which the Operating Agent has contracted.


19.3.2  Establish
      procedures for the operation of the San Juan Project during any period of
      curtailed operations which reduces or may reduce the Net Effective Generating
      Capacity.


19.3.3  Except
      for an Operating Emergency, as provided in Section 29, designate a
      construction agent responsible for the design, construction and acquisition
      of
      Capital Improvements.


19.3.4  Approve
      the list of transportation and motorized equipment to be purchased or leased
      by
      the Operating Agent for use in the performance of Operating Work.


19.3.5  Perform
      such other functions and responsibilities as may be assigned to it from time
      to
      time by the Coordination Committee.




60


19.4
      Any
      action or determination of the Engineering and Operating Committee shall require
      a vote of the Participants, in the manner provided for in Sections 18.4.1 and
      18.4.2. A Participant’s Engineering and Operating Committee voting
      representative shall be entitled to vote on all matters except those actions
      or
      determinations which relate solely to a Unit or to common property in which
      such
      Participant does not have a Participation Share or as provided in Section
      35.4.1. If a Participant’s right to vote has been suspended pursuant to Section
      35.4.1, the requisite majorities for actions or determinations specified in
      Sections 18.4.1 and 18.4.2 shall be adjusted in proportion to the number of
      Participants whose right to vote has not been suspended. An example of such
      an
      adjustment is provided in Exhibit VIII. Maintenance scheduling and operation
      during periods of curtailment of the total San Juan Project are not matters
      which relate solely to a Unit, but are deemed to be matters affecting all
      Units.


19.5  The
      Engineering and Operating Committee shall keep written minutes and records
      of
      all meetings. Any action or determination made by the Engineering and Operating
      Committee shall be reduced to writing and shall become effective when signed
      by
      the representatives of the Participants entitled to vote thereon, representing
      a
      voting majority of the members of the Engineering and Operating Committee,
      as
      defined in Section 19.4; provided, however, in the event of an Operating
      Emergency, actions or determinations may be made on the basis of oral agreements
      among duly authorized representatives of the respective Participants entitled
      to
      vote thereon, and such action or determination subsequently shall be reduced
      to
      writing. Engineering and Operating Committee representatives may, by prior
      arrangement with the chairperson of the Engineering and Operating Committee,
      attend a meeting of the Engineering and Operating Committee by conference call
      or video conferencing. An Engineering and Operating Committee representative
      who
      is unable to attend a meeting of the Engineering and Operating Committee may
      vote in absentia by delivering to the chairperson of the Engineering and
      Operating Committee, at least twenty-four (24) hours prior to the scheduled
      commencement of the meeting, a written statement, including by e-mail or
      facsimile, identifying the matter to be voted on and how the representative
      desires to vote.




61


19.6  In
      the
      event that less than a requisite majority of the Engineering and Operating
      Committee is obtained, the matter shall be referred to the Coordination
      Committee for decision upon the request of any Participant’s Engineering and
      Operating Committee representative.


19.7  In
      the
      event the Engineering and Operating Committee fails to reach agreement on any
      matter which such committee is authorized to determine, approve or otherwise
      act
      upon after a reasonable opportunity to do so, then the Operating Agent shall
      be
      authorized and obligated to take such reasonable and prudent action, consistent
      with Prudent Utility Practice, as is necessary to the successful and proper
      operation and maintenance of the San Juan Project, pending the resolution,
      by
      arbitration or otherwise, of any such inability or failure to agree.





62





20.0  FUELS
      COMMITTEE:


20.1  As
      a
      means of establishing a centralized forum to facilitate the timely and candid
      consideration and discussion between all Participants of policies and issues
      associated with the procurement of coal for the San Juan Project, there is
      hereby established a Fuels Committee, which shall remain in existence during
      the
      term of this Agreement. The
      Participants do not intend that the operation of the Fuels Committee shall
      affect the day-to-day fuels-related operational responsibilities of the
      Operating Agent, except as otherwise specifically provided in this Section
      20.
      The **** Fuels
      Committee shall have no authority to modify any of the provisions of this
      Agreement.


20.2  The
      Fuels
      Committee shall consist of one representative from each Participant. Any of
      the
      Participants may, by written notice to the other Participants, designate an
      alternate or substitute to act as its representative on the Fuels Committee
      in
      the absence of the regular representative on the Fuels Committee or to act
      on
      specified occasions or with respect to specified matters. Each Participant
      shall
      notify the other Participants promptly in writing of the designation of its
      representative on the Fuels Committee and of any subsequent change in such
      designation. The
      chairperson of the Fuels Committee shall be a representative employed by a
      Participant that is a signatory to the Underground Coal Sales Agreement. The
      Fuels Committee shall meet regularly, but in no event less than semiannually.
      Special meetings shall be called by the chairperson if requested in writing
      by
      any three (3) Participants.


20.3  The
      Fuels
      Committee shall have the following functions and responsibilities:




63


20.3.1  To
      conduct studies, or cause studies to be conducted, regarding criteria pertaining
      to the acquisition of coal supplies and the negotiation and approval of coal
      agreements. Such studies and recommendations may include, but are not limited
      to:


20.3.1.1  Annual
      fuel supply budgets


20.3.1.2  Coal
      cost


20.3.1.3  Coal
      delivery rates and minimum take obligations


20.3.1.4  Coal
      quality


20.3.1.5  Contract
      terms


20.3.1.6  Economic
      requirements


20.3.1.7  Negotiation
      strategies


20.3.1.8  Potential
      coal suppliers


provided,
                however, that prior to any such study being conducted, the Participant(s)
                desiring that the study be performed shall have made suitable arrangements
                therefor, including payment arrangements with the provider of
                the****study.
                Nothing in this Section 20.3 shall be construed to require the Operating
                Agent or any Participant which is a signatory to the Underground
                Coal
                Sales Agreement to undertake any uncompensated or unfunded study
                which it
                would not otherwise perform.


20.3.2  To
      obtain
      input from all Participants regarding individual criteria and economic
      requirements necessary to vote on matters entrusted to the Fuels Committee
      or to
      make collective recommendations to the Coordination Committee.




64


20.3.3  To
      approve Participant Monthly Minimum Tons delivery schedules and pricing pursuant
      to Annual Interim Invoicing Agreements as defined in Section 8.7 of the
      Underground Coal Sales Agreement.


20.3.4  To
      receive progress reports from and provide recommendations to negotiators acting
      on behalf of Participants in the negotiation and administration of coal supply
      and related agreements.


20.3.5  To
      provide regular progress reports to the Engineering and Operating and to the
      Coordination Committees, as requested by such committees.


20.3.6  To
      establish the amount of coal to be maintained in the Emergency Coal Storage
      Pile.


20.3.7  To
      establish operating procedures for delivery of coal to the Emergency Coal
      Storage Pile.


20.3.8
      To
      establish procedures for the determination of Participant Coal
      Consumption.


20.3.9  To
      perform such other functions and responsibilities as are identified in Sections
      23.4.2.8, and 23.4.2.10.


20.3.10
      To perform such other functions and responsibilities as may be assigned to
      it
      from time to time by the Coordination Committee.




65


20.4  The
      following special procedures shall apply to all negotiations or discussions
      with
      SJCC regarding amendment, interim pricing agreements, termination or succession
      of the Underground Coal Sales Agreement, related agreements, or with any other
      coal supplier or potential supplier. No Fuels Committee representative or
      Participant shall engage in bilateral negotiations or discussions concerning
      coal supply or related matters for the San Juan Project with SJCC or any other
      coal supplier or potential supplier; provided, however, that nothing herein
      shall be construed to prevent the Operating Agent or the Participants which
      are
      signatories to the Underground Coal Sales Agreement, in the conduct of its
      or
      their day-to-day operational responsibilities, from performing Operating Work,
      engaging in business contacts and communications with SJCC or other coal
      suppliers or potential **** suppliers
      to the San Juan Project or in the administration of the Underground Coal Sales
      Agreement and related agreements.


20.4.1  Each
      Participant which is a signatory to the Underground Coal Sales Agreement shall
      be entitled to have at least two (2) representatives present at any such
      negotiations or discussions. Participants not signatories to the Underground
      Coal Sales Agreement or its successors (for purposes of this Section 20.4.1,
      the
“Remaining Participants”) shall have the collective right to have two (2)
      representatives present at any such negotiations or discussions. The Remaining
      Participants may jointly or separately designate representatives, but in no
      case
      may the total number of representatives so designated by all of the Remaining
      Participants exceed two (2). Any dispute among the Remaining Participants
      regarding the naming of representatives shall be subject to resolution pursuant
      to Section 37 and shall not restrict the rights of any other representatives
      to
      engage in any ongoing negotiations or discussions. Representatives shall be




66


designated
      in writing by the Participants which are signatories to the Underground Coal
      Sales Agreement and Remaining Participants. If such representatives are not
      employees of a Participant or a Remaining Participant, such fact shall be
      disclosed in writing to all Participants and Remaining Participants.
      Representatives shall agree in writing to: (i) avoid any conflict of interest
      that would be detrimental to the operation of the San Juan Project; and (ii)
      maintain all proprietary information obtained through such negotiations and
      discussions in confidence. The form of such confidentiality agreements shall
      be
      prepared by the Fuels Committee, and shall be subject to the approval of the
      Participants which are signatories to the Underground Coal Sales Agreement,
      such
      approval not to be unreasonably withheld. Such confidentiality agreements shall
      be executed by a Participant’s Coordination Committee representative or, as
      appropriate, the person authorized by such Participant or Representative to
      execute such documents. Representatives may be changed by Participants or
      Remaining Participants by the giving of written notice to all other Participants
      and Remaining Participants.


20.4.2  Representatives
      shall make regular reports to, coordinate with, and obtain the recommendations
      of the Fuels Committee regarding the progress of and issues involved in such
      coal negotiations or discussions.


20.5  Any
      proposed action or determination regarding any amendment of the Underground
      Coal
      Sales Agreement, replacement of the Underground Coal Sales Agreement with a
      new
      agreement or any interim or other annual coal pricing agreement related to
      the
      Underground Coal Sales Agreement (or its successor) or any other action or




67


determination
      of the Fuels Committee shall be submitted to the vote of the representatives
      of
      the Participants on the Fuels Committee. Any such action or determination shall
      require the affirmative vote as established in Section 18.4.3, except that
      if a
      Participant’s right to vote has been suspended pursuant to Section 35.4.1, the
      requisite majority for actions or determinations specified in Section 18.4.3
      shall be adjusted in proportion to the number of Participants whose right to
      vote has not been suspended. An example of such an adjustment is provided in
      Exhibit VIII.


20.5.1  If,
      upon
      such vote, the requisite votes are obtained, the Participants which are
      signatories to the Underground Coal Sales Agreement then in effect or the
      Operating Agent, as applicable, shall proceed in accordance with the affirmative
      vote of the Fuels Committee without further action of any other San Juan Project
      committee.


20.5.2  If,
      upon
      such vote, the requisite votes are not obtained, the matter giving rise to
      the
      vote shall, not later than thirty (30) days after the negative vote of the
      Fuels
      Committee, be submitted to the Coordination Committee for its vote in accordance
      with Section 18. If the requisite majorities are obtained in the Coordination
      Committee vote, the Participants which are signatories to the Underground Coal
      Sales Agreement then in effect or the Operating Agent, as applicable, shall
      proceed in accordance with the affirmative vote of the Coordination Committee.




68


20.5.3  If
      the
      requisite votes are not obtained in the Coordination Committee vote, then
      consistent with Section 18.7, the Participants which are signatories to the
      Underground Coal Sales Agreement then in effect or the Operating Agent, as
      applicable, shall have the obligation and the responsibility, consistent with
      Prudent Utility Practice, to maintain a supply of coal to the San Juan Project.


20.6  The
      Fuels
      Committee shall keep written minutes and records of all meetings. Any action
      or
      determination made by the Fuels Committee shall be reduced to writing and shall
      become effective when signed by the representatives of the Participants
      representing a voting majority. Fuels Committee representatives may, by prior
      arrangement with the chairperson of the Fuels Committee, attend a meeting of
      the
      Fuels Committee by conference call or video. A
      Fuels
      Committee representative who is unable to attend a meeting of the Fuels
      Committee may vote in absentia by delivering to the chairperson of the Fuels
      Committee, at least twenty-four (24) hours prior to the scheduled commencement
      of the meeting, a written statement, including by e-mail or facsimile,
      identifying the matter to be voted on and how the representative desires to
      vote.







69





21.0  AUDITING
      COMMITTEE:


21.1  The
      Auditing Committee shall remain in existence during the term of this Agreement.
      The Auditing Committee shall have no authority to modify any of the provisions
      of this Agreement.


21.2  The
      Auditing Committee shall consist of one representative from each Participant.
      Any of the Participants may designate an alternate or substitute to act as
      its
      representative on the Auditing Committee in the absence of the regular
      representative on the Auditing Committee or to act on specified occasions or
      with respect to specified matters. Each Participant shall notify the other
      Participants promptly, in writing, of the designation of its representative
      and
      alternate representative on the Auditing Committee and of any subsequent changes
      in such designation.


21.3  The
      Auditing Committee shall have the following functions and responsibilities
      under
      this Agreement:


21.3.1  Review
      accounting, financial and internal control aspects of Operating Work and Capital
      Improvements, and implementation of procedures established pursuant to Section
      20.3.8, and, not less than every two years, audit the records maintained by
      the
      Operating Agent in its performance of Operating Work, Capital Improvements
      and
      any other records maintained by the Operating Agent in support of its billings
      to the Participants.


21.3.2  Review
      and approve the format and content of the Operating Agent’s accounting records
      and reports for Operating Work and Capital Improvements.




70


21.3.3  Certify
      to the Participants, for management purposes and for the use of the Participants
      only, that the Operating Agent’s results of operations and accounting methods
      and records, including any allocations for Operating Work and Capital
      Improvements, are in accordance with the Project Agreements and Accounting
      Practice.


21.3.4  Review
      and make recommendations to the Coordination Committee regarding a Participant’s
      administrative and general expense allowance and other normal loadings when
      such
      Participant acts as construction agent for Capital Improvements.


21.3.5  Review
      and approve the Operating Agent’s cost and expense allocations between
      (i) electric generation and related functions and (ii) unrelated
      functions.


21.3.6  Advise
      and make recommendations to the Coordination Committee and Operating Agent
      on
      matters involving auditing and financial transactions.


21.3.7  Develop
      procedures for proper accounting and financial liaison between Participants
      in
      connection with the Operating Work and Capital Improvements.


21.3.8  Perform
      such functions and responsibilities as may be assigned to it from time to time
      by the Coordination Committee or as otherwise provided in this Agreement.




71


21.4  Any
      action or determination of the Auditing Committee shall require a vote of the
      voting Participants in accordance with Section 18.4.1. A Participant’s Auditing
      Committee representative shall be entitled to vote on all matters except those
      actions or determinations which relate solely to a Unit or common property
      in
      which such Participant does not have a Participation Share except
      that if a Participant’s right to vote has been suspended pursuant to Section
      35.4.1, the requisite majority for actions or determinations specified in
      Section 18.4.1 shall be adjusted in proportion to the number of Participants
      whose right to vote has not been suspended .
      An
      example of such an adjustment is provided in Exhibit VIII.


21.5  The
      Auditing Committee shall keep written minutes and records of all meetings,
      and
      any action or determination by the Auditing Committee shall be reduced to
      writing and shall become effective when signed by the representatives of the
      Participants entitled to vote thereon, representing a voting majority of the
      members of the Auditing Committee. Auditing Committee representatives may,
      by
      prior arrangement with the chairperson of the Auditing Committee, attend a
      meeting of the Auditing Committee by conference call or video conferencing.
      An
      Audit Committee representative who is unable to attend a meeting of the Audit
      Committee may vote in absentia by delivering to the chairperson of the Audit
      Committee, at least twenty-four (24) hours prior to the scheduled commencement
      of the meeting, a written statement, including by e-mail or facsimile,
      identifying the matter to be voted on and how the representative desires to
      vote.


21.6  In
      the
      event less than a requisite majority of the Auditing Committee is obtained,
      the
      matter shall be referred to the Coordination Committee for decision upon the
      request of any Participant’s Auditing Committee representative.




72


21.7  In
      the
      event the Auditing Committee fails to reach agreement on a matter which such
      committee is authorized to determine, approve or otherwise act upon after a
      reasonable opportunity to do so, then the Operating Agent shall be authorized
      and obligated to take such reasonable and prudent action, consistent with
      Prudent Utility Practice, as is necessary to the successful and proper operation
      and maintenance of the San Juan Project, pending the resolution, by arbitration
      or otherwise, of any such inability or failure to agree.





73





**PART
      V**




**BUDGETS
      AND OPERATING EXPENSES**




22.0  OPERATION
      AND MAINTENANCE EXPENSES:


22.1  The
      expenses for the operation and maintenance of the San Juan Project in the
      performance of Operating Work (which, for purposes of this Section 22, and
      as
      defined more particularly herein, are referred to as the “O&M Expenses”)
      shall be apportioned among the Participants, in accordance with the following
      percentages:


22.1.1  For
      Units 1 and 2 and for all equipment and facilities directly related to
      Units 1 and 2 only, in accordance with the following percentages:


22.1.1.1  PNM
      - 50
      percent


22.1.1.2  TEP
      - 50
      percent


22.1.1.3  M-S-R
      - 0
      percent


22.1.1.4  Farmington
      - 0 percent


22.1.1.5  Tri-State
      - 0 percent


22.1.1.6  LAC
      - 0
      percent


22.1.1.7  SCPPA
      - 0
      percent


22.1.1.8  Anaheim
      -
      0 percent


22.1.1.9  UAMPS
      - 0
      percent





22.1.2  For
      Unit 3 and all equipment and facilities directly related to Unit 3
      only, in accordance with the following percentages:


22.1.2.1  PNM
      - 50
      percent


22.1.2.2  TEP
      - 0
      percent


22.1.2.3  M-S-R
      - 0
      percent


22.1.2.4  Farmington
      - 0 percent


22.1.2.5
            Tri-State
                - 8.2 percent


22.1.2.6  LAC
      - 0
      percent


22.1.2.7  SCPPA
      -
      41.8 percent


22.1.2.8  Anaheim
      -
      0 percent


22.1.2.9  UAMPS
      - 0
      percent





74


22.1.3  For
      Unit 4 and for all equipment and facilities directly related to Unit 4
      only, in accordance with the following percentages:


22.1.3.1  PNM
      -
      38.457 percent


22.1.3.2  TEP
      - 0
      percent


22.1.3.3  M-S-R
      -
      28.8 percent


22.1.3.4  Farmington
      - 8.475 percent


22.1.3.5
            Tri-State
                - 0 percent


22.1.3.6  LAC
      -
      7.20 percent


22.1.3.7  SCPPA
      - 0
      percent


22.1.3.8  Anaheim
      -
      10.04 percent


22.1.3.9  UAMPS
      -
      7.028 percent





22.1.4  For
      equipment and facilities common to Units 1 and 2 only, in accordance with
      the following percentages:


22.1.4.1  PNM
      - 50
      percent


22.1.4.2  TEP
      - 50
      percent


22.1.4.3  M-S-R
      - 0
      percent


22.1.4.4  Farmington
      - 0 percent


22.1.4.5
            Tri-State
                - 0 percent


22.1.4.6  LAC
      - 0
      percent


22.1.4.7  SCPPA
      - 0
      percent


22.1.4.8  Anaheim
      -
      0 percent


22.1.4.9  UAMPS
      - 0
      percent





22.1.5  For
      equipment and facilities common to Units 3 and 4 only, in accordance with
      the following percentages:


22.1.5.1  PNM
      -
      44.119 percent


22.1.5.2  TEP
      - 0
      percent


22.1.5.3  M-S-R
      -
      14.4 percent


22.1.5.4  Farmington
      - 4.249 percent


22.1.5.5
            Tri-State
                - 4.1 percent


22.1.5.6  LAC
      -
      3.612 percent


22.1.5.7  SCPPA
      -
      20.9 percent


22.1.5.8  Anaheim
      -
      5.07 percent


22.1.5.9  UAMPS
      -
      3.55 percent





75


22.1.6  For
      the
      Switchyard Facilities except as otherwise provided in Section 15, in
      accordance with the following percentages:


22.1.6.1  PNM
      - 65
      percent


22.1.6.2  TEP
      - 35
      percent


22.1.6.3  M-S-R
      - 0
      percent


22.1.6.4  Farmington
      - 0 percent


22.1.6.5
            Tri-State
                - 0 percent


22.1.6.6  LAC
      - 0
      percent


22.1.6.7  SCPPA
      - 0
      percent


22.1.6.8  Anaheim
      -
      0 percent


22.1.6.9  UAMPS
      - 0
      percent





22.1.7  Except
      as
      provided in Exhibit V(g), attached hereto and incorporated herein, for
      equipment and facilities common to all of the Units, and all San Juan Project
      expenses not identifiable by Unit and not otherwise listed above, in accordance
      with the following percentages:


22.1.7.1  PNM
      -
      46.297 percent


22.1.7.2  TEP
      -
      19.8 percent


22.1.7.3  M-S-R
      -
      8.7 percent


22.1.7.4  Farmington
      - 2.559 percent


22.1.7.5
            Tri-State
                - 2.49 percent


22.1.7.6  LAC
      -
      2.175 percent


22.1.7.7  SCPPA
      -
      12.71 percent


22.1.7.8  Anaheim
      -
      3.10 percent


22.1.7.9  UAMPS
      -
      2.169 percent





22.1.8  In
      the
      event of a permanent shutdown of either of Unit 1 or Unit 2, the expenses
      incurred in connection with the shutdown (which may include removal, salvage,
      cleanup and protection service) shall be allocated as set forth in
      Section 22.1.1. In the event of a permanent shutdown of Unit 3, said
      expenses shall be allocated as set forth in Section 22.1.2. In the event of
      a permanent shutdown of Unit 4, said expenses shall be allocated as set
      forth in Section 22.1.3. Expenses which are attributable to equipment and
      facilities common to more than one Unit shall be apportioned in accordance
      with
      Section 22.1, as applicable.




76


22.1.9  Exhibit
      V, attached hereto and incorporated herein, is a partial list of equipment
      and
      facilities of the San Juan Project for use by the Engineering and Operating
      Committee as a guideline in determining the allocation of operation and
      maintenance costs among the Participants.


22.1.10
      In areas where the allocation of costs of operation and maintenance of equipment
      and facilities among the Participants is not clearly defined by Sections 22.1.1
      to 22.1.8, the Engineering and Operating Committee shall make a determination
      of
      such allocation of costs.


22.1.11
      The following shall apply in the event of a declaration of default against
      a
      Participant and a suspension of that Participant’s right to receive all or any
      part of its proportionate share of the Net Effective Generating Capacity, as
      provided for in Section 35.4.1: those non-defaulting Participant(s) having
      a
      Participation Share in each affected Unit, who are entitled to schedule and
      receive for their accounts proportionate shares of the Net Effective Generating
      Capacity of the defaulting Participant, shall bear proportionate shares of
      the
      defaulting Participant’s responsibility for expenses of the operation and
      maintenance of the San Juan Project, as provided in Section 35.5.


22.2  O&M
      Expenses chargeable to the following FERC Accounts shall be apportioned among
      the Participants in accordance with Sections 22.1.1, 22.1.2, 22.1.3, 22.1.4,
      22.1.5 and 22.1.7, as applicable:




77


22.2.1  Power
      Production/Steam Power Generation:  FERC
      Accounts 500, 502, 505, 506, 507, 509 and 510 through 514 (charged by on-site
      San Juan Project employees and operations-related departments located off-site);
      provided, however, that limestone costs (chemicals) chargeable to FERC Account
      502 shall be apportioned among the Participants in accordance with Section
      23.5.


22.2.2  Administrative
      and General Expenses directly chargeable to FERC Accounts 920, 921, 923, 926,
      930.2, 931 and 935, by on-site San Juan Project employees and by A&G related
      departments located off-site as set forth in Exhibit VI, Attachment A, which
      have not been included as a part of the A&G Ratio or charged to FERC Account
      935, in accordance with Section 22.4. Such direct A&G charges must be
      supported by the Operating Agent and are subject to audit and approval by the
      Auditing Committee. If the Auditing Committee is unable to agree on the
      appropriateness of direct A&G charges, the Auditing Committee shall submit
      the entire matter to the Coordination Committee.


22.2.3  O&M
      Expenses chargeable to FERC Account 501 shall be apportioned among the
      Participants in accordance with Section 23.


22.2.4  The
      cost
      of the property insurance for the San Juan Project chargeable to FERC Account
      924 and any uninsured loss or expense thereunder and the cost of general
      liability or workers’ compensation insurance for the San Juan Project chargeable
      to FERC Account 925 shall be apportioned among the Participants according to
      Section 22.1.


22.2.5
      Costs or revenues chargeable to the following FERC Operating and Non-Operating
      Accounts: 411.8, 411.9, 412, 421 and 426.




78


22.3  Power
      Production Expense chargeable to FERC Account 500 (for employees of PNM’s fuels
      management department), Non San Juan Project Specific, shall be allocated among
      all of PNM’s fossil-fueled power plants, including the San Juan Project, based
      on the percentage of labor charged to each fossil-fueled power plant as a
      percentage of labor charged to all of PNM’s fossil-fueled power
      plants.


22.4  The
      O&M Expenses for the Switchyard Facilities chargeable to FERC
      Accounts 560 through 573 and FERC Account 935 shall be apportioned among
      the Participants in accordance with Section 22.1.6.


22.5  The
      O&M Expenses for the portion of system control and load dispatching expenses
      (allocated between PNM and the San Juan Project based on the number of megawatts
      of San Juan Project capacity as a percentage of PNM’s total generating capacity)
      chargeable to FERC Accounts 556, 560 and 561 shall be apportioned among the
      Participants in accordance with Section 22.1.7.


22.6  Payroll
      loads for administrative and general expenses, payroll taxes, injuries and
      damages and pension and benefits, shall be added to the monthly billings in
      proportion to the dollars of direct labor billed and apportioned among the
      Participants in accordance with Sections 22 and 23. The current methodologies
      for calculating the A&G Ratio, Payroll Tax Ratio, Injuries and Damages Ratio
      and Pension and Benefits Ratio are set forth in Exhibit VI (Attachments A,
      B, C
      and D thereto), attached hereto and incorporated herein.




79


22.6.1  If
      any
      Participant believes that the method used in determining A&G Ratio, Payroll
      Tax Ratio, Injuries and Damages Ratio and Pension and Benefits Ratio, in
      accordance with Exhibit VI (Attachments A, B, C and D thereto), results in
      an
      unreasonable burden on such Participant(s), such Participant(s) may request
      that
      said method used in determining said ratios be submitted to the Auditing
      Committee for review. After any such request, the Auditing Committee shall
      review said method and shall endeavor to agree upon whether or not said
      unreasonable burden does actually exist. If, after such review, the Auditing
      Committee determines that the application of said method does result in an
      unreasonable burden on the Participant, the Auditing Committee shall determine
      and recommend a modified method to the Coordination Committee to eliminate
      such
      unreasonable burden. If, after such review, the Auditing Committee is unable
      to
      agree upon whether or not such unreasonable burden does exist or is unable
      to
      agree on a modified method for eliminating said unreasonable burden, the
      Auditing Committee shall submit the entire matter to the Coordination Committee.


22.6.2  The
      Coordination Committee shall review the recommendation of the Auditing Committee
      pursuant to Section 22.6.1. If, as a result of such review, the
      Coordination Committee agrees that such unreasonable burden does exist and
      that
      a modified method eliminates such unreasonable burden, the Coordination
      Committee shall adopt said modified method.


22.6.3  If
      the
      Auditing Committee has not submitted a recommended modified method and the
      Coordination Committee agrees that such unreasonable burden does exist, the
      Coordination Committee shall endeavor to agree on a modified method. If, after
      such review, the Coordination Committee is unable to agree that such
      unreasonable burden does exist or on a modified method which will eliminate
      such
      unreasonable burden, upon request of a Participant, either matter may be
      submitted to arbitration pursuant to Section 37.




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22.6.4  Any
      modified method adopted by the Coordination Committee or determined through
      arbitration shall be retroactive for the length of the period of inequity up
      to
      a maximum period of three (3) years and shall become effective on the first
      day
      following such date of adoption.


22.7  As
      soon
      as possible after the end of each calendar year, the Operating Agent shall
      calculate the actual ratios for: A&G, payroll tax, injuries and damages, and
      pension and benefits for such year in accordance with the methodologies
      described in Exhibit VI (Attachments A, B, C and D thereto). To the extent
      such
      expenses are more or less than those already paid by the Participants during
      said year, the Operating Agent shall bill or credit the Participants for the
      amount of such difference.


22.8  At
      the
      start of each calendar year, the Operating Agent shall calculate new ratios
      for:
      A&G, payroll tax, injuries and damages and pension and benefits. Such ratios
      shall be calculated in accordance with the methodologies described in Exhibit
      VI
      (Attachments A, B, C and D thereto). Such ratios may be adjusted to more nearly
      reflect the anticipated expenses of the current year because of tax legislation,
      labor contract negotiations or other factors not reflected in the prior year’s
      costs.


22.9  The
      Operating Agent shall bill to the requesting Participant(s) the costs and
      expenses, including A&G expenses, incurred by the Operating Agent
      (including, but not limited to, fees of outside legal counsel or consultants,
      time of in-house legal counsel and other employees and agents of the Operating
      Agent) in performing tasks requested by




81


a
      Participant in relation to (i) the offering or sale of bonds or other type
      of
      security by a Participant in connection with the acquisition or ownership of
      an
      interest in the San Juan Project; and (ii) the attempted or contemplated sale
      by
      a Participant of any portion of its ownership interest in the San Juan Project.
      The Operating Agent shall establish and maintain appropriate accounting
      procedures to identify such costs and expenses incurred by the Operating Agent.





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23.0  FUEL
      COSTS:


23.1  The
      quantity of coal delivered to the San Juan Project shall be determined by the
      belt scales, in accordance with the Underground Coal Sales
      Agreement.


23.2  The
      Operating Agent shall maintain the Project Coal Inventory wherein ownership
      shall be apportioned among the Participants based on Common Participation Share.
      Coal inventory shall be accounted for in FERC Account 151.


23.3  All
      Participants acknowledge and recognize the terms and conditions of the
      Underground Coal Sales Agreement which was entered into by PNM and TEP on behalf
      of the Participants. Exhibit VII, attached hereto and incorporated herein,
      contains example “Interim Invoices”, “UG-CSA Invoices”, and “UPS Invoices”
prepared and defined pursuant to Section 8 of the Underground Coal Sales
      Agreement.


23.4  Monthly
      costs of the Project Coal Inventory and fuel expense shall be apportioned among
      and paid for by the Participants on the following basis:


23.4.1  UG-CSA
      Invoicing Allocations


In
                the event that UG-CSA Invoices are rendered and payable pursuant
                to
                Section 8.7 (A) of the Underground Coal Sales Agreement, amounts
                due
                thereunder shall be allocated and paid for by the Participants as
                Fixed
                Fuel Expense and Variable Fuel Expense as described in: Exhibit IX,
                Fixed
                Fuel Expense; and Exhibit X, Variable Fuel Expense and as provided
                below:


23.4.1.1  Costs
      that are classified as Fixed Fuel Expense shall be charged to FERC
      Account 501, or to such FERC Account number as may be applicable in the
      future if fuel deliveries terminate, and shall be apportioned among and paid
      for
      by the Participants in accordance with Common Participation Share.




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23.4.1.2  Costs
      that are classified as Variable Fuel Expense shall be charged to FERC Account
      151 and such costs shall be apportioned among and paid for by the Participants
      on the basis of Common Participation Share. Monthly cost for coal withdrawn
      from
      Project Coal Inventory (equivalent to total monthly Participant Coal
      Consumption) shall be credited to FERC Account 151 and charged to FERC Account
      501 on an average price basis as determined by dividing the total number of
      tons
      of coal in Project Coal Inventory at the beginning of the month, plus the coal
      delivered during the month, into the total recorded cost in FERC Account 151
      and
      multiplying the cost per ton so derived by the number of tons withdrawn. The
      cost for coal withdrawn charged to FERC Account 501 shall be apportioned among
      and paid for by the Participants on the basis of the percentage that each
      Participant’s monthly Participant Coal Consumption bears to the total monthly
      Participant Coal Consumption of all Units. The cost for coal withdrawn thusly
      credited to FERC Account 151 shall be apportioned among the Participants on
      the
      basis of Common Participation Share.


23.4.1.3  Any
      other
      Total Monthly Coal Cost not currently classified in Exhibits IX or X as Fixed
      Fuel Expense or Variable Fuel Expense shall be deemed to be Fixed Expense until
      reclassified by the Coordination Committee.




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23.4.2   Interim
      Invoicing Allocations


In
      the
      event that Interim Invoices are rendered and payable pursuant to Section 8.7
      (B)
      of the Underground Coal Sales Agreement, such costs shall be allocated and
      invoiced to the Participants as described below.


23.4.2.1  The
      Base
      Price (“Base Price”) band shall be based on the Minimum
      Annual Tons .
      The
      annual allocation of the coal tonnage in the Base Price band shall be made
      among
      the Participants on the basis of Common Participation Share. The monthly
      allocation of the coal tonnage in the Base Price band shall be made among the
      Participants on the basis of each Participant’s share of Monthly Minimum Tons.
      The cost of the monthly Base Price band will be allocated among and paid for
      by
      the Participants by multiplying each Participant’s share of Monthly Minimum Tons
      by the Base Price.


23.4.2.2  The
      Incremental Price (“Incremental Price”) band(s) shall be based on (an)
      annualized band(s) of tons of coal delivered in excess of Minimum
      Annual Tons .
      The
      cost of the monthly Incremental Price band(s) will be allocated among and paid
      for by the Participants by multiplying each Participant’s consumption of
      Incremental Price band coal(s) by the Incremental Price for such band(s).
      Participants shall only be eligible for allocation of Incremental Price band
      coal pricing if their monthly Participant Coal Consumption exceeds their share
      of Monthly Minimum Tons.




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23.4.2.3  At
      the
      end of each year, the Operating Agent shall reconcile the sum of each
      Participant’s monthly Interim Invoice-related payments to a properly allocable
      share of Base Price band tons, Incremental Price band or bands tons, and cost
      associated with any change in Project Coal
      Inventory and invoice or refund any such reconciliation amounts to each
      Participant. This reconciliation will be exclusive of any year-end true up
      required pursuant to Section 23.4.2.6.


23.4.2.4  In
      the
      year-end reconciliation process of Section 23.4.2.3, any
      amount credited by SJCC for tons invoiced but not delivered shall be credited
      to
      FERC Account 501 and apportioned to the Participants on the basis of the
      percentage that each Participant’s annual Incremental Price Band(s) consumption
      bears to the total annual Incremental Price Band(s) consumption for all
      Units. A ny
      net
      consumption of Project Coal Inventory tons shall be charged to FERC Account
      501
      and apportioned among and paid for by the Participants on the basis of the
      percentage that each Participant’s annual Incremental Price Band(s) consumption
      bears to the total annual Incremental Price Band(s) consumption for all
      Units. The
      price for such tons shall be determined by
      dividing the total recorded cost in FERC Account 151 by the total number of
      tons
      of coal in Project Coal Inventory, both as recorded on January 1 of said year.
      The total amount of any such payment for consumed Project Coal Inventory tons
      shall subsequently be credited to FERC Account 151 and apportioned to the
      Participants based on Common Participation Share.




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In
                the year-end reconciliation process of Section 23.4.2.3, the
                costs of any
                net addition to Project Coal Inventory tons, as invoiced by SJCC,
                shall be
                charged to FERC Account 151 and apportioned to and paid for by the
                Participants based on Common Participation
                Share.




23.4.2.5  If,
      at
      the end of any year, the Operating Agent has collected amounts in excess of
      those due SJCC pursuant to Section 8.7(B) of the Underground Coal Sales
      Agreement, but not including any year-end true up required pursuant to Section
      23.4.2.6, such over-collection shall be refunded to the Participants. The refund
      to each Participant shall be an amount equal to the total amount of the
      over-collection multiplied by the tons each Participant’s Coal Consumption was
      less than its total annual Monthly Minimum Tons divided by the total amount
      by
      which all such Participants’ Coal Consumption was less than their shares of
      Minimum Annual Tons.


23.4.2.6  The
      Interim Invoices shall be annually reconciled to invoices prepared pursuant
      to
      Section 8.7(A) of the Underground Coal Sales Agreement. Any adjustment required
      by this reconciliation, in accordance with Section 8.7(B) of the Underground
      Coal Sales Agreement, will be passed through to the Participants as correcting
      invoices and will be apportioned
      among and paid for by, or credited to, the
      Participants on the basis of Common Participation Share.




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23.4.2.7  Monthly
      UPS payments shall be apportioned
      among and paid for by the
      Participants on the basis of Common Participation Share


23.4.2.8  Any
      other
      component of Total Monthly Coal Cost which is not classified as Base Price
      or
      Incremental Price shall be apportioned
      among and paid for by the
      Participants on the basis of Common Participation Share unless otherwise
      annually approved by the Fuels Committee.


23.4.2.9  If
      during
      any year, payable Interim Invoices cease to be rendered by SJCC pursuant to
      Section 8.7(B) of the Underground Coal Sales Agreement, the Participants
      acknowledge and recognize that Interim Invoicing cannot be in effect for a
      partial year, and that all allocations of Total Monthly Coal Costs for the
      year
      shall then be made pursuant to Section 23.4.1. Amounts previously allocated
      to
      the Participants pursuant to Section 23.4.2 in the effected year shall be
      reallocated pursuant to the provisions of Section 23.4.1.


23.4.2.10  The
      Fuels
      Committee may terminate allocation of costs to the Participants pursuant to
      Section 23.4.2 despite the continued receipt of payable Interim Invoices from
      SJCC, if the Fuels Committee determines that coal cost allocation pursuant
      to
      Section 23.4.1 better serves




88


the
      interests of the San Juan Project. Such termination may only be made upon action
      of the Fuels Committee pursuant to Section 20.5. In the event of such
      termination, costs shall continue to be apportioned to and paid for by the
      Participants pursuant to Section 23.4.2. However, for information purposes,
      the
      Operating Agent shall also provide cost allocations to the Participants pursuant
      to Section 23.4.1. At the end of such year, the amounts paid by the Participants
      shall be reconciled to those amounts allocated pursuant to Section 23.4.1 for
      each month of the affected year (Section 23.4.1 allocations being determinative)
      and the Operating Agent shall invoice or refund any such reconciliation amounts
      to each Participant.


23.5  Limestone
      costs (chemicals) chargeable to FERC Account 502 shall be apportioned among
      and
      paid for by the Participants on the basis of the percentage that each
      Participant’s monthly Participant Coal Consumption bears to the total monthly
      Participant Coal Consumption of all Units.


23.6  All
      other
      fuel-related expenses which are chargeable to FERC Account 501 shall be
      apportioned among and paid for by the Participants on the following
      basis:


23.6.1  Variable
      fuel-related expenses (including, but not limited to ash and gypsum disposal)
      on
      the basis of the percentage that each Participant’s monthly Participant Coal
      Consumption bears to the total monthly Participant Coal Consumption of all
      Units.


23.6.2  Fixed
      fuel-related expenses (including, but not limited to fuel handling) on the
      basis
      of Common Participation Share.





89




23.6.3  Fuel
      oil
      purchased for use at the San Juan Project is first delivered into one of two
      storage tanks. Tank 1 and 2 storage tank feeds Units 1 and 2 and Tank 3 and
      4
      storage tank feeds Units 3 and 4. When oil is withdrawn from a storage tank
      for
      consumption, it is metered by Unit. Costs for fuel oil usage shall be separately
      accounted for by these two storage tanks as follows:


23.6.3.1  Costs
      for
      fuel oil purchases to Tank 1 and 2 shall be charged to FERC Account 151 and
      such
      costs shall be apportioned among and paid for by the Units 1 and 2 Participants
      on the basis of Section 6.2.4. Monthly cost for fuel oil withdrawn from Tank
      1
      and 2 shall be credited to FERC Account 151 and charged to FERC Account 501
      on
      an average price basis as determined by dividing the total number of gallons
      of
      fuel oil in Tank 1 and 2 at the beginning of the month, plus the fuel oil
      delivered during the month, into the total recorded cost in FERC Account 151
      and
      multiplying the cost per gallon so derived by the number of gallons withdrawn
      from Tank 1 and 2. The cost for fuel oil withdrawn from Tank 1 and 2 charged
      to
      FERC Account 501 shall be apportioned among and paid for by the Units 1 and
      2
      Participants first on the basis of the individual Unit metered consumption
      and
      then on the basis of Section 6.2.1. The cost for fuel oil withdrawn from Tank
      1
      and 2 thusly credited to FERC Account 151 shall be apportioned among the Units
      1
      and 2 Participants on the basis of Section 6.2.4.




90


23.6.3.2  Costs
      for
      fuel oil purchases to Tank 3 and 4 shall be charged to FERC Account 151 and
      such
      costs shall be apportioned among and paid for by the Units 3 and 4 Participants
      on the basis of Section 6.2.5. Monthly cost for fuel oil withdrawn from Tank
      3
      and 4 shall be credited to FERC Account 151 and charged to FERC Account 501
      on
      an average price basis as determined by dividing the total number of gallons
      of
      fuel oil in Tank 3 and 4 at the beginning of the month, plus the fuel oil
      delivered during the month, into the total recorded cost in FERC Account 151
      and
      multiplying the cost per gallon so derived by the number of gallons withdrawn
      from Tank 3 and 4. The cost for fuel oil withdrawn from Tank 3 and 4 charged
      to
      FERC Account 501 shall be apportioned among and paid for by the Units 3 and
      4
      Participants first on the basis of the individual Unit metered consumption
      and
      then on the basis of Section 6.2.2 or Section 6.2.3, as applicable. The cost
      for
      fuel oil withdrawn from Tank 3 and 4 thusly credited to FERC Account 151 shall
      be apportioned among the Units 3 and 4 Participants on the basis of Section
      6.2.5.


23.7  The
      Operating Agent shall provide the Participants a monthly written report on
      the
      following items related to coal deliveries at the San Juan Project:


23.7.1  Minimum
      Annual Tons for the year.




91


23.7.2  Minimum
      Annual Tons allocated among the Participants.


23.7.3  Total
      actual coal deliveries by SJCC to the San Juan Project for each month and for
      the year to date.


23.7.4  Total
      actual coal deliveries to the San Juan Project for each month and for the year
      to date, allocated to the Participants.


23.7.5  Total
      cost and tonnage of inventory allocated to the Participants.


23.7.6  Fixed
      Fuel Expense and Variable Fuel Expense totals as allocated to each Participant
      for each month and for the year to date if UG-CSA Invoicing is, or will be,
      required for said year pursuant to Section 23.4.1.


23.8  The
      Operating Agent shall work diligently with SJCC under the terms of the
      Underground Coal Sales Agreement to manage Project Coal Inventory so as to
      maintain the Emergency Coal Storage Pile at target levels pursuant to Section
      20.3.6 and to maintain appropriate working levels of Project Coal Inventory
      to
      facilitate San Juan Project Operations.


23.9  In
      the
      event that SJCC defaults in its obligations under the Underground Coal Sales
      Agreement or otherwise fails to maintain deliveries of coal, the Operating
      Agent
      may assume or make such arrangements for the assumption of such of SJCC’s
      operations as permitted by the Underground Coal Sales Agreement or may procure,
      subject to the Underground Coal Sales Agreement, an alternate coal supply.
      Costs
      associated with such assumed coal operations or the procurement and supply
      of
      alternate coal shall be deemed a part of Total Monthly Coal Cost and, with
      the
      costs and expenses of fuel and emission residuals (gypsum) and ash disposal,
      shall be apportioned between and paid for by the Participants in accordance
      with: (i) Section 23.4.1 with regard to coal costs; and (ii) Section 23.6.1
      with regard to fuel-related costs.




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23.10  The
      monthly costs of fuel allocated among the Participants in accordance with this
      Section 23 shall be estimated by the Operating Agent as soon as practicable
      after the end of each month and a preliminary bill shall be presented and paid
      in the manner set forth in Section 30.3.3. Adjustments and corrections to the
      estimated preliminary bill shall be made in the next succeeding month or on
      the
      earliest possible billing thereafter.


23.11  In
      the
      event of a catastrophic occurrence which results in a sustained outage of a
      Unit
      and a determination that an “Uncontrollable Force” exists under the Underground
      Coal Sales Agreement, then in such event, FERC Account 151 will be allocated
      to
      the operable and non-operable Units. The portion of FERC Account 151 allocated
      to the non-operable Unit(s) shall remain frozen until such time as such Unit(s)
      is restored to operable condition. New costs of coal chargeable to FERC Account
      151 will be apportioned among the Participants on the basis of the Participants’
Participation Shares in the generating capacity of the operable Units. At such
      time as a damaged Unit is restored to operable condition, the frozen portion
      of
      Account 151 will be merged into the operable unit(s) portion of Account 151
      and
      to the extent that a Participant is adversely impacted by an incremental
      increase in the average unit cost of coal an allocation of such incremental
      cost
      will be made and the net difference paid by the Participant having a credit
      balance.


23.12  The
      accounting practices and billing and accounting principles as stated in this
      Section 23 are applicable at the present time. If, however, at a later time
      these practices or principles are proven to be inadequate or other practices
      or
      principles later prove to be more equitable in the opinion of the Auditing
      Committee, the Coordination Committee, upon the recommendation of the Auditing
      Committee, may authorize changes and revisions to such practices and principles.




93


23.13  Any
      other
      fuel-related costs not currently classified in this Section 23 shall be
      apportioned among and paid for by the Participants on the basis of the
      percentage that each Participant’s monthly Participant Coal Consumption bears to
      the total monthly Participant Coal Consumption of all Units until classified
      by
      the Coordination Committee.





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24.0  ANNUAL
      BUDGETS:


24.1  Not
      less
      than ninety (90) days prior to the beginning of each calendar year, the
      Operating Agent shall prepare and submit to the Engineering and Operating
      Committee for its review and approval the proposed capital budget, manpower
      budget and a budget for the performance of Operating Work for such calendar
      year.


24.2  The
      Engineering and Operating Committee shall approve the budgets described in
      Section 24.1 in final form not less than thirty (30) days prior to their
      effective date. In the event that any such budget is not so approved, the
      Operating Agent will nevertheless continue to perform Operating Work in a manner
      consistent with Prudent Utility Practice until such time as a budget has been
      approved.


24.3  Any
      information required from the Participants by the Operating Agent in preparing
      such proposed budgets will be supplied by the Participants, if possible, within
      thirty (30) days following a request by the Operating Agent.


24.4  The
      Engineering and Operating Committee may at any time during the year approve
      revisions to the approved capital expenditures budget, manpower budget and
      a
      budget for the performance of Operating Work.





95





25.0  PAYMENT
      OF TAXES:


25.1  The
      Participants shall use their best efforts to have any taxing authority imposing
      any taxes or assessments on the San Juan Project, assess and levy such taxes
      or
      assessments directly against each Participant in accordance with its respective
      Participation Share in the property taxed.


25.2  All
      taxes
      or assessments levied against each Participant’s ownership interest in the San
      Juan Project, excepting those taxes or assessments levied against an individual
      Participant on behalf of other Participants, shall be the sole responsibility
      of
      the Participant upon whom said taxes and assessments are levied.


25.3  If
      any
      property taxes and other taxes and assessments are levied and assessed in a
      manner other than specified in Section 25.1, it shall be the responsibility
      of
      the Coordination Committee to establish equitable standard practices and
      procedures for the apportionment among the Participants of such taxes and
      assessments and the payment thereof.





96





26.0  MATERIALS
      AND SUPPLIES:


26.1  The
      Operating Agent from time to time may increase or reduce the inventory of
      Materials and Supplies by changing the maximum or the minimum quantities to
      be
      maintained in inventory in accordance with the procedures established by the
      Engineering and Operating Committee.


26.2  The
      Operating Agent shall prepare a list of the items for inclusion in Materials
      and
      Supplies for the operation and maintenance of each Unit. The list shall include
      the estimated cost of each individual item of such Materials and Supplies and
      specify the maximum and minimum quantity of each such individual item to be
      maintained in inventory. The list shall be submitted to the Engineering and
      Operating Committee by the Operating Agent for review and approval.


26.3  The
      Operating Agent shall purchase and take control of Materials and Supplies for
      inventory, so that the total inventory of Materials and Supplies on hand remains
      in accordance with the policies established by the Engineering and Operating
      Committee.


26.4  Materials
      and Supplies withdrawn from inventory and used in the operation and maintenance
      of the San Juan Project shall be accounted for as a component of operation
      and
      maintenance expense and allocated among the Participants in accordance with
      Section 22.


26.5  Materials
      and Supplies withdrawn from inventory and used in connection with Capital
      Improvements shall be accounted for as a capital expenditure and allocated
      among
      the Participants in accordance with Section 7.




97


26.6  Materials
      and Supplies removed from service shall be returned to inventory if reusable,
      or
      if junk or obsolete, shall be disposed of by the Operating Agent under the
      best
      available terms. The proceeds, if any, received shall be credited or distributed
      to the Participants in the same proportion as their Participation Shares
      therein.


26.7  A
      separate Materials and Supplies account and undistributed stores expense account
      will be established by the Operating Agent in accordance with FERC Accounts.
      Such charges and credits so allocated to Materials and Supplies shall be
      allocated to the Participants as a component of operation and maintenance
      expense in accordance with Section 22, or as a Capital Improvement in accordance
      with Section 7, as the case may be.


26.8  The
      inventory value of any item withdrawn from or returned to Materials and Supplies
      shall be the average cost of like items in inventory.





98





27.0  EMERGENCY
      SPARE PARTS:


27.1  The
      Operating Agent shall prepare a list of the Emergency Spare Parts for each
      Unit
      and common facilities. Such list shall include the estimated costs for each
      individual item of such Emergency Spare Parts and shall specify the quantity
      of
      each such individual item to be maintained in inventory. Such list shall be
      submitted to the Engineering and Operating Committee by the Operating Agent
      for
      review and approval.


27.2  The
      Operating Agent shall purchase Emergency Spare Parts from time to time as
      replacements for those withdrawn from inventory in accordance with the policies
      established by the Engineering and Operating Committee.


27.3  Emergency
      Spare Parts shall be owned by and the costs thereof shall be allocated between
      the Participants in accordance with their respective Participation Shares.


27.4  The
      Operating Agent shall notify the Participants promptly after Emergency Spare
      Parts are withdrawn from inventory and shall also notify the Participants of
      the
      value of such parts so withdrawn and of the accounting treatment with respect
      thereto.





99





**PART
      VI**




**OPERATING
      AGENT**




28.0  OPERATION
      AND MAINTENANCE:


28.1  PNM
      is
      the Operating Agent, unless replaced in accordance with Section 33.


28.2  All
      Participants hereby appoint PNM as their agent, and PNM agrees to undertake,
      as
      the agent of the Participants and as principal on its own behalf, the
      responsibility for the performance of Operating Work in accordance with this
      Agreement.


28.3  Subject
      to the provisions, conditions, limitations and restrictions of this Agreement,
      the Operating Agent shall:


28.3.1  Perform
      the Operating Work in accordance with the Project Agreements and Prudent Utility
      Practice.


28.3.2  Contract
      for, furnish or obtain the services and studies necessary for performance of
      Operating Work.


28.3.3  Arrange
      for the placement and maintenance of Operating Insurance.


28.3.4  Execute
      all contracts in the name of the Operating Agent, acting as principal on its
      own
      behalf and as agent for the Participants, in connection with the performance
      of
      Operating Work.


28.3.5  Furnish
      and train the necessary personnel for performance of Operating Work.


28.3.6  Have
      the
      coal replaced which has been removed from the Emergency Coal Storage Pile at
      the
      earliest practical time following resumption of normal coal deliveries.




100


28.3.7  Enforce
      and comply with all contracts entered into for the performance of Operating
      Work.


28.3.8  Comply
      with any and all laws and regulations applicable to the performance of Operating
      Work.


28.3.9  Maintain
      the Operating Account and expend the Operating Funds only in accordance with
      this Agreement.


28.3.10
      Keep and maintain records of monies expended and received, obligations incurred,
      credits accrued and contracts entered into in the performance of this Agreement,
      and make such records available for inspection by the Participants at reasonable
      times and places.


28.3.11
      Not suffer any liens to remain in effect unsatisfied against the San Juan
      Project (other than the liens permitted under Section 10.1, for taxes or
      assessments not yet delinquent, for labor and material not yet delinquent or
      undetermined charges or liens incidental to the performance of Operating Work);
      provided, that the Operating Agent shall not be required to pay or discharge
      any
      such lien as long as a proceeding shall be pending in which the lawfulness
      or
      validity of such lien shall be contested in good faith and which shall operate
      during the pendency thereof to prevent the collection or enforcement of such
      lien so contested.


28.3.12
      Recommend minimum notification times and lead times for changing scheduled
      Energy required for the Participants to the Engineering and Operating Committee
      for its approval.




101


28.3.13
      Act as operating representative or agent in connection with the administration
      and enforcement of the Underground Coal Sales Agreement.


28.3.14
      Recommend programs to the Engineering and Operating Committee to make
      environmental studies and, upon approval of the Engineering and Operating
      Committee, supervise the performance of such programs.


28.3.15
      Provide the Engineering and Operating Committee with all written statistical
      and
      administrative reports, written budgets, information and other records relating
      to Operating Work which may be necessary to permit such committee to perform
      its
      responsibilities under this Agreement.


28.3.16
      Provide the Fuels Committee with all written reports, written budgets,
      information and other records relating to Operating Work which may be necessary
      to permit such committee to perform its responsibilities under this Agreement.


28.3.17
      Provide the Auditing Committee with all accounting records, information, reports
      and other records relating to Operating Work, which may be necessary to permit
      such committee to perform its responsibilities under this Agreement.


28.3.18
      Perform Operating Work so as to comply with the Water Contract(s) and make
      such
      tests and measurements and keep such records as are required by applicable
      agreements, regulations and statutes.


28.3.19
      Keep the Participants fully and promptly advised of material changes in
      conditions or other material developments affecting the performance of Operating
      Work and furnish the Participants with copies of any notices given or received
      pursuant to the Project Agreements.




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28.3.20
      Present claims to any insurer for losses and damages covered by valid and
      collectible Operating Insurance procured by the Operating Agent directly from
      the insurer. Investigate, adjust, settle, decline and defend claims against
      the
      Participants arising out of the performance of Operating Work when said claims
      or portions thereof are not covered by valid and collectible Operating
      Insurance; provided that the Operating Agent shall obtain the agreement of
      the
      Participants, acting through the Coordination Committee, prior to disposing
      of
      any claims or combination of claims arising out of the same occurrence which
      exceeds one hundred thousand dollars ($100,000).


28.3.21
      Assist, as requested, other Participants and their insurers in the
      investigation, adjustment and settlement of any loss or claim arising out of
      Operating Work for which payment may be made on account of valid and collectible
      additional insurance applicable thereto procured by any such Participant;
      provided, that the Operating Agent may agree (by separate agreement) that a
      Participant procuring any policy or policies of additional insurance shall
      have
      the authority and the responsibility to (i) present, investigate, adjust,
      settle, decline and defend claims or potential claims covered by said policies
      in favor of the Participants and against any one or more of said insurers;
      and
      (ii) present, investigate, adjust, settle, decline and defend claims
      against the Participants arising out of the performance of Operating Work when
      said claims or portions thereof are not covered by said policies; and provided
      further, that such Participant shall obtain the agreement of the Participants,
      acting through the Coordination Committee, prior to the settlement of any claim
      or combination of claims arising out of the same occurrence which exceeds one
      hundred thousand dollars ($100,000).




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28.3.22
      Notwithstanding anything in Section 28.3.20 and 28.3.21 to the contrary, any
      Participant may at any time, at its own expense, employ its own counsel to
      assist in investigating, adjusting, settling, declining and defending claims
      of
      the types referred to in Sections 28.3.20 and 28.3.21 and the Operating Agent
      and its employees and counsel shall cooperate fully with such counsel and permit
      such counsel to participate fully in all of the foregoing activities.


28.3.23
      Keep the Participants fully and promptly informed of any known default under
      the
      Project Agreements.


28.3.24
      Determine switching and clearance procedures to be followed by the Participants
      at the San Juan Project.


28.3.25
      Determine Available Operating Capacity from time to time and make
      recommendations to the Engineering and Operating Committee regarding items
      referenced in Section 19.3.1.9.


28.3.26
      Upon the request of a Participant, provide such Participant, in reasonable
      quantity without direct charge therefor, a copy or copies of any report, record,
      list, budget, manual, accounting or billing summary, classification of accounts,
      or other documents or revisions of any of the foregoing items, all as prepared
      in accordance with this Agreement.




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28.3.27
      In the event of the failure of the Participants which are signatories to the
      Underground Coal Sales Agreement then in effect to reach agreement on a matter
      described in Sections 18.7 and 20.5.3, maintain a supply of coal to the San
      Juan
      Project, consistent with Prudent Utility Practice.


28.3.28   Manage
      the activities of the “designated representative” pursuant to the DR
      Agreement.


28.3.29   Perform
      all of the duties and obligations set out in this Agreement as duties and
      obligations of the Operating Agent.


28.4  The
      Participants shall lend and be properly reimbursed for all necessary and
      available assistance as may be requested by the Operating Agent in the
      performance of Operating Work.


28.5  The
      Operating Agent shall be the agent of the Participants and shall exercise only
      such authority as is conferred upon it by this Agreement. The Operating Agent
      shall not receive any fee or profit hereunder, unless otherwise agreed
      unanimously by the Participants.





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29.0  OPERATING
      EMERGENCY:


29.1  In
      the
      event of an Operating Emergency, the Operating Agent shall take any and all
      steps reasonably necessary and required to terminate the Operating Emergency,
      subject to the provisions of this Section 29.


29.2  As
      soon
      as practicable after the commencement of an Operating Emergency, the Operating
      Agent shall advise the Participants of the occurrence of the Operating
      Emergency, its nature and the steps taken or to be taken to terminate the
      Operating Emergency, including a preliminary estimate of the expenditures
      required to terminate the Operating Emergency.


29.3  In
      the
      event that the estimated cost to cure an Operating Emergency with respect to
      any
      Unit or to any equipment and facilities common to any of the Units does not
      exceed two hundred and fifty thousand dollars ($250,000), the Operating Agent
      shall have the authority to expend, in its discretion, no more than two hundred
      and fifty thousand dollars ($250,000) to terminate such Operating
      Emergency.


29.4  In
      the
      event the Operating Agent determines that the estimated amount required to
      terminate the Operating Emergency exceeds the amount which it is authorized
      to
      expend, the Operating Agent shall immediately notify the affected Participants
      following such determination. The Operating Agent shall provide the following
      information:


29.4.1
      The estimated date when the Operating Emergency can be terminated.


29.4.2  The
      person or persons who would perform the work and furnish the materials required
      to terminate the Operating Emergency.




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29.4.3  The
      estimated amount of overtime, if any, which would be necessary in order to
      expedite the termination of the Operating Emergency.


29.4.4  The
      costs
      that are proposed to be capitalized, and salvage realized.


29.4.5  The
      costs
      that are proposed to be charged as maintenance expense.


29.4.6  The
      proposed administrative and general expense allowance applicable to such repair
      or reconstruction.


29.4.7  Such
      other information as may be necessary and required by the Engineering and
      Operating Committee to determine the manner in which the Operating Emergency
      is
      to be terminated.


29.5  The
      Engineering and Operating Committee shall review and approve the proposed repair
      or reconstruction, including the estimated cost thereof or shall agree upon
      an
      alternative.


29.6  Costs
      incurred in terminating an Operating Emergency may be billed to the Participants
      by the Operating Agent on the basis of its estimate of such costs with
      adjustment to be made in accordance with Section 29.8 when final cost
      determination has been made.


29.7  Following
      the termination of the Operating Emergency, the Operating Agent shall submit
      to
      the Participants a report containing a summary of the costs incurred and
      expenditures made in connection with the repair or reconstruction and such
      other
      information as may be required by the Engineering and Operating Committee.




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29.8  The
      Operating Agent shall allocate to the Participants the costs incurred or
      expenditures made in such repair or reconstruction, as follows: (i) costs
      charged as maintenance expense, in accordance with Section 22; and (ii) any
      other such repair or reconstruction costs, in accordance with Section 7.





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30.0  PAYMENT
      OF EXPENSES BY PARTICIPANTS:


30.1  All
      amounts required to be advanced by the Participants in accordance with this
      Agreement shall be made payable to the Operating Account established by the
      Operating Agent. The Operating Funds shall be owned by the Participants in
      proportion to their respective balances therein at any given time, and the
      Operating Agent in its capacity as such shall not have any right or title
      therein except to maintain custody of and to disburse the Operating Funds as
      a
      conduit between the Participants and those to whom such disbursements shall
      be
      made.


30.2  The
      Engineering and Operating Committee shall establish a minimum amount for the
      Operating Funds which will be available to pay for expenditures or obligations
      incurred by or on behalf of the Participants in accordance with this Agreement.
      Such minimum amount of Operating Funds may be revised by the Engineering and
      Operating Committee at any time. The minimum amount of the Operating Funds
      and
      any increases therein shall be advanced by the Participants in accordance with
      the percentages set forth in Section 22, and shall be due and payable
      within fifteen (15) business days following notification of the establishment
      of
      the minimum amount to be kept in Operating Funds or the date on which any
      increase in such amount authorized by the Engineering and Operating Committee
      shall become effective. In the event the Engineering and Operating Committee
      decreases such minimum amount, then each Participant shall receive a credit
      which shall be equal to the product of its percentage, as set forth in
      Section 22, and the amount of any such decrease.




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30.3  Each
      Participant shall advance Operating Funds on the basis of notices (hereinafter
      called bills) submitted by the Operating Agent reflecting such Participant’s
      share of costs and expenses in accordance with this Agreement, as follows:


30.3.1  Expenses
      described in Sections 30 and 22 shall be billed in writing as follows:


30.3.1.1  The
      payroll costs to be paid to the Operating Agent’s employees for each pay period.


30.3.1.2  On
      the
      20th day of each month, the total expenses incurred the previous month and
      described in Section 22 less those expenses billed under
      Section 30.3.1.1.


30.3.2  Bills
      submitted under Section 30.3.1 shall be due and payable within seven (7)
      business days following receipt of the bill.


30.3.3  Expenses
      described in Sections 31 and 23 shall be billed in writing at least ten
      (10) business days prior to their due date, and funds therefor shall be
      deposited with the Operating Agent not less than three (3) business days prior
      to their due date. If such bills do not have a specific due date, they shall
      be
      billed within a reasonable time following their incurrence.


30.3.4  Expenses
      described in Sections 7, 26, 27 and 29 shall be billed monthly, except when
      such expenses exceed the minimum amount in the Operating Funds in which case
      billing will be made immediately and payable within seven (7) business days
      following receipt of the bill.




110


30.4  Except
      as
      expressly provided herein, nothing in this Agreement shall be deemed to require
      the Operating Agent to advance its own monies on any other basis than in its
      role, if any, as a Participant.





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31.0  OPERATING
      INSURANCE:


31.1  Unless
      otherwise specified by the Coordination Committee, during the performance of
      Operating Work, the Operating Agent shall procure and maintain in force, or
      cause to be procured and maintained in force, policies of Operating Insurance
      providing coverage against the following risks, hazards and perils:


31.1.1  Risks
      covered by the standard form of commercial liability insurance, including bodily
      injury, personal injury and property damage risk, hazards of automobiles
      liability, contractual liability, contractor’s protective liability and
      liability for products and completed operations, in an amount not less than
      twenty-five million dollars ($25,000,000).


31.1.2  Risks
      covered by the standard form of “all risk” property insurance providing coverage
      against all risk of loss, except those risks excluded in the standard form
      of
“all risk” property insurance. Such insurance shall provide boiler and pressure
      vessel coverage, including reasonable expediting expense.


31.1.3  Risks
      covered by the standard form of workers’ compensation and employers liability
      insurance, covering employees of the Operating Agent engaged in the performance
      of Operating Work, or other compliance by the Operating Agent with requirements
      of the laws of the State of New Mexico as to such coverage.


31.1.4  Risks
      covered by the standard form of employee dishonesty bond covering loss of
      property or funds due to dishonest or fraudulent acts committed by an officer
      or
      employee of the Operating Agent.




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31.2  Except
      for Operating Insurance described in Sections 31.1.3 and 31.1.4, each
      Participant shall be a named insured individually and jointly and in accordance
      with its Participation Share as established in Section 6. Operating
      Insurance referred to in Section 31.1.1 shall carry cross-liability
      coverage.


31.3  In
      the
      event that another Participant’s insurance program affords equal or better
      coverage on a more favorable cost basis than that available to the Operating
      Agent, the Participants may agree (by separate agreement) that such insurance
      program may be utilized to afford all or part of the insurance coverage required
      by Section 31.1.


31.4  The
      insurance company used, the insurable values, limits, deductibles, retentions
      and other special terms, covenants and conditions of the Operating Insurance
      shall be agreed upon by the Coordination Committee.


31.4.1  Any
      deductibles shall be shared by the Participants in accordance with the
      percentages established in Section 22.1.


31.5  The
      Operating Agent shall furnish each of the Participants with either a certified
      copy of each of the policies of Operating Insurance or a certified copy of
      each
      of the policy forms of Operating Insurance, together with a line sheet therefor
      (and any subsequent amendments) naming the insurers and underwriters and the
      extent of their participation. When the policies or policy forms of Operating
      Insurance have been approved in writing by all of the Participants, said
      policies or policy forms shall not be modified or changed by any Participant
      without the prior written consent of all of the Participants, except for minor
      and insubstantial changes or modifications, as to which notification shall
      be
      given by the Operating Agent to the Participants.




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31.6  Each
      of
      the Operating Insurance policies shall be endorsed so as to provide that all
      named insureds shall be given thirty (30) days notice of cancellation or
      material change.


31.7  Operating
      Insurance policies shall be primary insurance for all purposes and shall be
      so
      endorsed. Any insurance carried by a Participant individually shall not
      participate with the Operating Insurance as respects any loss or claim for
      which
      valid and collectible Operating Insurance shall apply. Such other insurance
      shall apply solely as respects the individual interest of the Participant
      carrying such other insurance.


31.8  Nothing
      herein shall prohibit the Operating Agent or any Participant from furnishing
      a
      policy of Operating Insurance which combines the coverage required by this
      Agreement with coverage outside the scope of that required by this Agreement.
      If
      the Operating Agent or any Participant furnishes a policy of Operating Insurance
      which combines the coverage required by this Agreement with coverage outside
      the
      scope of that required by this Agreement, the Coordination Committee shall
      agree
      on the portion of the total premium cost which is allocable to Operating
      Insurance. If the Participants are unable to agree on such allocation, the
      Operating Agent may make an estimated allocation and bill the Participants
      on
      the basis thereof, with adjustment to be made when the dispute is resolved.


31.9  If
      a
      Participant desires changes in any Operating Insurance policy, such Participant
      shall notify the Operating Agent and the other Participants in writing of the
      desired changes. Upon agreement of the Coordination Committee to such change,
      the Operating Agent shall obtain the insurance within sixty (60) days from
      the
      date of agreement. If the Operating Agent is unable to obtain the type of policy
      or coverage required herein or believed by the Operating Agent to be adequate,
      then the Operating Agent shall immediately notify the Participants.




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31.10  In
      the
      event the Coordination Committee is unable to agree upon any matters relating
      to
      the Operating Insurance, the Operating Agent, pending the resolution of such
      disagreement, shall procure or cause to be procured such policies of insurance,
      consistent with Prudent Utility Practice, as are necessary to protect the
      Participants against the insurable risks for which Operating Insurance is
      required. During any period of negotiations with an insurer, or other
      negotiations which are pending at the expiration of the period of coverage
      of an
      Operating Insurance policy, or in the event an Operating Insurance policy is
      canceled, the Operating Agent shall renew or bind policies as an emergency
      measure, or may procure policies of insurance which are identical to those
      which
      were canceled, or may to the extent possible secure replacement policies which
      will provide substantially the same coverage as the policy expiring or canceled.


31.11  Each
      Participant shall have the right to request that any mortgagee, trustee or
      secured party be named on all or any of the Operating Insurance policies as
      loss
      payees or additional assureds as their interests may appear. Such request shall
      be submitted to the Operating Agent specifying the name or names of such
      mortgagee, trustee or secured party and such additional information as may
      be
      necessary or required to permit it to be included on the policies of Operating
      Insurance.




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31.12  On
      an
      annual basis, the Operating Agent shall advise the Participants on the status
      of
      insurance coverage for the San Juan Project and shall make appropriate
      recommendations concerning insurance issues to the Coordination Committee.





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32.0  SURPLUS
      OR RETIRED PROPERTY:


The
      Operating Agent shall dispose of surplus property or property no longer used
      or
      useful in the operation of the San Juan Project and report such disposal to
      the
      Participants, both in accordance with practices and procedures established
      by
      the Engineering and Operating Committee. The proceeds from such disposition
      shall be credited to the Participants in accordance with their Participation
      Shares.








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33.0  REMOVAL
      OF OPERATING AGENT:


33.1  The
      Operating Agent shall serve as such during the term of this Agreement unless
      it
      resigns as Operating Agent by giving notice to the Participants at least one
      (1)
      year in advance of the date of resignation or until receipt by the Operating
      Agent of notice of its removal as provided in Section 33.2.


33.2  The
      Operating Agent may be removed as Operating Agent for any one of the following
      reasons:


33.2.1  The
      Operating Agent may be removed by action of the Coordination Committee if,
      in
      the judgment of the Coordination Committee (voting as provided for in Section
      18.4), the best interests of the San Juan Project require that a new Operating
      Agent be selected. Any Participant seeking a Coordination Committee
      determination to remove the Operating Agent shall provide to the Operating
      Agent
      and to all of the Participants a written statement, detailing the reasons why,
      in the judgment of the initiating Participant, the Operating Agent should be
      removed. Within thirty (30) days after receipt by the Operating Agent of this
      written statement, the Operating Agent shall prepare and serve upon all of
      the
      Participants its response which shall contain a detailed rebuttal of the
      allegations made in the initiating statement. Within the same thirty (30) day
      period, any other Participant may also prepare and serve upon the Operating
      Agent and the Participants a statement responding to the allegations in the
      initiating statement. Within twenty (20) days after service of all such response
      statements, the Coordination Committee shall meet to consider what action,
      if
      any, to take with regard to the removal of the




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Operating
      Agent. If, pursuant to this Section 33.2.1, the Coordination Committee removes
      the Operating Agent, such removal shall be effective upon the date established
      by the Coordination Committee. If the Operating Agent or any Participant is
      dissatisfied with the action of the Coordination Committee, it shall have the
      right to seek arbitration under Section 37, but no demand for arbitration shall
      stay the decision of the Coordination Committee to remove the Operating
      Agent.


33.2.2  If,
      pursuant to the provisions of Section 34, it is determined that the Operating
      Agent is in default of its obligations under this Agreement, the Operating
      Agent
      may be removed by written notice given by any Participant under Section 34.1.2,
      which notice shall state the effective date of the removal of the Operating
      Agent.


33.2.3  Notwithstanding
      the pendency of any actions to remove the Operating Agent, the Operating Agent
      shall continue in good faith to exercise its obligations as Operating
      Agent.


33.3  Prior
      to
      the effective date of a resignation of the Operating Agent, or prior to the
      date
      of removal of the Operating Agent in accordance with Section 33.2, the
      Coordination Committee shall by written agreement designate a new Operating
      Agent, which may, but need not, be a Participant. The Coordination Committee
      may
      designate an interim Operating Agent pending selection of a permanent Operating
      Agent. Acceptance by the new Operating Agent of its appointment as such shall
      constitute its agreement to perform the obligations of the Operating Agent
      under
      this Agreement.





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34.0  DEFAULTS
      BY OPERATING AGENT:


34.1  The
      following provisions shall apply solely in regard to violations or allegations
      of violations of this Agreement by the Operating Agent on the basis of which
      removal of the Operating Agent is sought:


34.1.1  In
      the
      event any Participant shall be of the opinion that an action taken or failed
      to
      be taken by the Operating Agent constitutes a violation of this Agreement,
      it
      may give written notice thereof to the Operating Agent and the other
      Participants, together with a statement of the basis for its opinion. Thereupon,
      the Operating Agent may prepare a statement of the reasons justifying its action
      or failure to take action. If agreement in settling the dispute is not reached
      between the Operating Agent and such Participant which gave such notice, then
      the matter shall be submitted to arbitration in the manner provided in Section
      37. During the continuance of the arbitration proceedings, the Operating Agent
      may continue such action taken or failed to be taken in the manner it deems
      most
      advisable and consistent with this Agreement.


34.1.2  If
      it is
      determined that the Operating Agent is violating this Agreement, then the
      Operating Agent shall act with due diligence to end such violation and shall,
      within thirty (30) days or within such lesser time following the determination
      as may be prescribed in the determination, take action or commence action in
      good faith to terminate such violation. In the event that the complaining
      Participant is of the opinion that the Operating Agent has not taken such action
      to correct, or to commence action to correct, the violation within such allowed
      period,




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the
      complaining Participant shall be entitled to submit the question of the
      Operating Agent’s good faith action to terminate such violation to arbitration
      as provided in Section 37. If it is determined that the Operating Agent has
      not acted with due diligence or good faith to terminate such violation, it
      shall
      be deemed to be in default and shall be subject to removal, after the
      arbitration determination, within fifteen (15) days after receipt of notice
      executed by the complaining Participant in accordance with Section 42.


34.1.3  The
      provisions of Section 35, excepting Sections 35.8 and 35.9, shall not apply
      to
      disputes as to whether or not an action or non-action of the Operating Agent,
      in
      its capacity as Operating Agent, is a violation or default under this Agreement.





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**PART
      VII**




**DEFAULTS,
      LIABILITY AND ARBITRATION**




35.  DEFAULTS:


35.1  Each
      Participant shall pay all monies and carry out all other performances, duties
      and obligations agreed to be paid or performed by it pursuant to all of the
      terms and conditions set forth and contained in the Project Agreements, and
      a
      default by any Participant in the covenants and obligations to be by it kept
      and
      performed pursuant to the terms and conditions set forth and contained in any
      of
      the Project Agreements shall be an act of default under this Agreement.


35.2  In
      the
      event of a default by a Participant in any of the terms and conditions of this
      Agreement to be performed by that Participant, the following shall
      apply:


35.2.1  The
      Operating Agent shall give a written notice of the default to the defaulting
      Participant and the other Participants in accordance with Section
      35.2.2.


35.2.2  The
      notice of default shall specify the existence, nature and extent of the default.
      Upon receipt of the notice of default, the defaulting Participant shall
      immediately take all steps necessary to cure the default as promptly and
      completely as possible.


35.3  In
      the
      event that any Participant shall dispute an asserted default by it, then such
      Participant shall pay the disputed payment or perform the disputed obligation,
      but may do so under protest. The protest shall be in writing, shall accompany
      the disputed payment or precede the performance of the disputed obligation(s),
      and shall specify the reason upon which the protest is based. Copies of such
      protest shall be mailed by such Participant to all




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other
      Participants and to the Operating Agent. Payments not made under protest shall
      be deemed correct, except to the extent that periodic or annual audits may
      reveal over or under payment by a Participant or may necessitate adjustments.
      In
      the event it is determined by arbitration, pursuant to the provisions of this
      Agreement or otherwise, that the protesting Participant is entitled to a refund
      of all or any portion of a disputed payment or payments, or is entitled to
      the
      reasonable equivalent in money of non-monetary performance of a disputed
      obligation theretofore made, then, upon such determination, the non-protesting
      Participant(s) shall reimburse such amount to the protesting Participant,
      together with interest thereon at the rate of ten percent (10%) per annum,
      or
      the maximum legal rate of interest, whichever is lesser, from the date of
      payment or of the performance of a disputed obligation to the date of
      reimbursement.


35.4  In
      the
      event a default shall continue for a period of ten (10) days or more after
      the
      notice given by the Operating Agent in accordance with Section 35.2 without
      having been cured by the defaulting Participant, or without such defaulting
      Participant having commenced or continued action in good faith to cure such
      default, the following shall apply:


35.4.1  If
      the
      defaulting Participant has failed to cure such default or to commence such
      good
      faith action during said ten (10) day period, the Operating Agent shall make
      a
      written report to the Engineering and Operating Committee concerning the status
      of the default and shall, on the next working day after such ten (10) day
      period, notify the defaulting Participant in writing that the Operating Agent
      intends to declare the defaulting Participant in default under the Project
      Agreements




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unless
      there is a prompt cure of the default. Seven (7) days after the giving of such
      notice to the defaulting Participant, the Operating Agent shall make a second
      written report to the Engineering and Operating Committee concerning the status
      of the default and the efforts, if any, of the defaulting Participant to cure
      the default. If, within seven (7) additional days, the defaulting Participant
      has neither cured nor reasonably commenced to cure the default, the Operating
      Agent shall declare the defaulting Participant in default under the Project
      Agreements and shall provide written notification of the declaration of default
      to the defaulting Participant and to the Engineering and Operating Committee.
      Thereafter, and for so long as the default is not remedied and the declaration
      of default is not revoked by the Operating Agent, all rights of the defaulting
      Participant under the Project Agreements shall be suspended, including the
      right
      to vote on all committees and to receive all or any part of its proportionate
      share of the Net Effective Generating Capacity.


35.4.2  Within
      seventeen (17) days after the notice by the Operating Agent, as provided for
      in
      Section 35.2, the Operating Agent shall prepare special operating procedures
      for
      approval by the Engineering and Operating Committee that will apply during
      the
      period of suspension under Section 35.4.1. Upon approval by the Engineering
      and
      Operating Committee, the Operating Agent shall provide notice to each
      Participant of such special procedures. These special procedures shall
      include:




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35.4.2.1  A
      tabulation in form similar to Section 6.2 of the percentages of costs to be
      borne by the non-defaulting Participants pursuant to Section 35.5;


35.4.2.2  Billing
      and accounting of such costs;


35.4.2.3  Dispatch
      and scheduling of the defaulting Participant’s proportionate share of Net
      Effective Generating Capacity; and


35.4.2.4  Any
      other
      items required for the optimal use of the San Juan Project and the mitigation
      of
      damages by the non-defaulting Participants.


35.4.2.5  If
      the
      Operating Agent proposes to broker all or a portion of the defaulting
      Participant’s proportionate share of Net Effective Generating Capacity on behalf
      of one or more non-defaulting Participants, the form of such an agreement shall
      be incorporated in such procedures.


35.4.3  Within
      twenty (20) days after the declaration of a default, as provided for in Section
      35.4.1, the defaulting Participant and the non-defaulting Participants shall
      convene a meeting to address the defaulting Participant’s situation and its
      intentions with regard to curing its default. The defaulting Participant shall
      promptly prepare a cure plan for approval by the members of the Coordination
      Committee entitled to vote thereon. The cure plan shall address the defaulting
      Participant’s plan to cure the default and restore itself to full participation
      as an owner of the San Juan Project. The Coordination Committee, by vote of
      the
      members of the Coordination Committee entitled to vote thereon, will monitor
      the
      defaulting Participant’s compliance with the terms and conditions of the cure
      plan




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and
      if it
      appears to the Coordination Committee that the defaulting Participant is or
      will
      be unable to comply with the terms of an approved cure plan, the Coordination
      Committee shall consider what actions may be required to address such inability,
      including, but not limited to, directing the Operating Agent to take such
      actions as may be appropriate. It is the intent of the Participants that any
      defaults shall be cured on as expeditious a basis as reasonably possible.


35.4.4  A
      demand
      for arbitration of an asserted default pursuant to Section 37 shall not stay
      the
      suspension of the rights of the defaulting Participant, but in the event that
      the board of arbitrators shall determine that the asserted default did not
      in
      fact exist or occur, the arbitrators shall specify a method of fully and fairly
      compensating the Participant which, under Section 35.4.1, was denied the right
      to vote on committee actions and to receive all or any part of its proportionate
      share of the Net Effective Generating Capacity.


35.5  During
      any period when the suspension provided for in Section 35.4.1 is in effect,
      the
      non-defaulting Participant(s) having a Participation Share in the affected
      Unit
      or Units: (i) shall bear a proportionate share of all expenses, including but
      not limited to, the operation and maintenance costs, insurance costs, fuel
      costs, capital expenditures and other expenses otherwise payable by the
      defaulting Participant under the Project Agreements, including any obligations
      related to common equipment and facilities, based upon the relation of the
      Participation Share of each such non-defaulting Participant(s) to the
      Participation Shares of all non-defaulting Participants in the specific Unit
      or
      Units; and (ii) shall be entitled to schedule and receive for their accounts
      their proportionate share of the Net Effective Generating Capacity of the
      defaulting Participant.




126


35.6  In
      connection with its cure of the default, the defaulting Participant shall pay
      promptly upon demand to the non-defaulting Participant(s) the total amount
      of
      money (and/or the reasonable equivalent in money of non-monetary performance)
      paid and/or made by such non-defaulting Participant(s) pursuant to Section
      35.5
      in order to cure any default by the defaulting Participant, together with
      interest thereon at the rate of ten percent (10%) per annum, or the maximum
      legal rate of interest, whichever is the lesser, from the date of the
      expenditure of such money (or the making of such other performance) by the
      non-defaulting Participant(s), to the date of such reimbursement by the
      defaulting Participant, or such greater amount as may be otherwise provided
      in
      the Project Agreements. Any payment obligation of the defaulting Participant
      shall be reduced by mitigation measures undertaken by the non-defaulting
      Participants; provided, however, that the payment obligations of the defaulting
      Participant shall not be reduced by any profits or gains achieved by the
      non-defaulting Participants as the result of taking a proportionate share of
      the
      Net Effective Generating Capacity due to the default of the defaulting
      Participant.


35.7  The
      suspension of a defaulting Participant shall be terminated and its full rights
      under the Project Agreements restored when the default(s) have been cured and
      all compensable costs incurred by the non-defaulting Participant(s) hereunder
      have been paid by the defaulting Participant or other arrangements acceptable
      to
      the non-defaulting Participant(s) have been made.




127


35.8  No
      waiver
      by a non-defaulting Participant of its rights with respect to a default under
      this Agreement, or with respect to any other matter arising in connection with
      this Agreement, shall be effective unless the non-defaulting Participant(s)
      waive in writing their respective rights and any such waiver shall not be deemed
      to be a waiver with respect to any subsequent default or matter. No delay short
      of the statutory period of limitations in asserting or enforcing any right
      hereunder shall be deemed a waiver of such right.


35.9  The
      rights and remedies provided in this Agreement shall be in addition to the
      rights and remedies of the Participants as set forth and contained in any other
      Project Agreement or any rights and remedies the Participants have in law or
      equity.





128





36.0  LIABILITY:


36.1  Except
      for any judgment debt for damage resulting from Willful Action and except to
      the
      extent any judgment debt is collectible from valid insurance, and subject to
      the
      provisions of Sections 36.1.1, 36.4, 36.5, 36.6 and Section 37, each Participant
      hereby extends to all other Participants, their directors, members of their
      governing bodies, officers and employees, its covenant not to execute, levy
      or
      otherwise enforce a judgment obtained against any of them, including recording
      or effecting a judgment lien, for any direct, indirect, or consequential loss,
      damage, claim, cost, charge or expense, whether or not resulting from the
      negligence of such Participant, its directors, members of its governing body,
      officers, employees or any person or entity whose negligence would be imputed
      to
      such Participant from (i) Operating Work, the design and construction of Capital
      Improvements or the use or ownership of the San Juan Project or (ii) the
      performance or nonperformance of the obligations of any Participant under any
      of
      the Project Agreements, other than the obligation to pay any monies becoming
      due.


36.1.1  In
      the
      event any insurer providing insurance refuses to pay any judgment obtained
      by a
      Participant against any other Parti-cipant, its directors, members of its
      governing body, officers or employees on account of liability referred to in
      Section 36.1, the Participant, its directors, members of its governing
      body, officers or employees against whom the judgment is obtained shall, at
      the
      request of the prevailing Participant and in con-sideration for the covenant
      granted in Section 36.1, execute such documents as may be necessary to
      effect an assignment of its contractual rights against the nonpaying insurer
      and
      thereby give the prevailing




129


Participant
      the opportunity to enforce its judgment directly against such insurer. In no
      event when a judgment debt is collectible from valid insurance shall the
      Participant obtaining the judgment execute, levy or otherwise enforce the
      judgment (including recording or effecting a judgment lien) against the
      Participant, its directors, members of its governing body, officers or employees
      against whom the judgment was obtained.


36.1.2  To
      the
      extent that Section 41-3-5, New Mexico Statutes Annotated, 1978 compilation
      (as such section may be amended), shall be applicable and for the purpose of
      relieving each Participant, its directors, members of its governing body,
      officers and employees of any liability to make contribution to other
      non-Participant tortfeasors, the foregoing covenant not to execute hereby
      effects a reduction of all injured Participants’ damages recoverable against all
      other non-Participant tortfeasors to the extent of the pro rata share (as
      referred to in Section 41-3-5, New Mexico Statutes Annotated, 1978
      compilation, as such section may be amended) of the other Participants, their
      directors, members of their governing bodies, officers and
      employees.


36.1.3  Each
      Participant agrees, upon request by any other Participant, to make, execute
      and
      deliver any and all documents or take such other action as may reasonably be
      required to effectuate the intent of this Section 36.1.


36.2  Except
      as
      provided in Sections 36.4, 36.5 and 36.6, the costs and expenses of discharging
      all work liability imposed upon one or more of the Participants, for which
      payment is not made by insurance, shall be allocated among the Participants
      in
      proportion to




130


their
      respective Participation Shares in the property giving rise to the work
      liability. Work liability is defined as liability of one or more Participants
      for any loss, damage, claim, cost, charge or expense of any kind or nature
      (including direct, indirect or consequential) suffered or incurred by any party
      other than a Participant, whether or not resulting or to result in the future
      from the negligence of any Participant, its directors, members of its governing
      body, officers, employees or any other person or entity whose negligence would
      be imputed to such Parti-cipant, that has resulted or may result in the future
      from (i) performance or nonperformance of the work herein described, (ii)
      operation, maintenance, use or ownership of the San Juan Project, and (iii)
      past
      or future performance or nonperformance of the obligations of any Participant
      under any of the Project Agree-ments.


36.3  If
      it
      cannot be determined which property gave rise to work liability, the allocation
      for discharging costs and expenses associated therewith shall be as specified
      in
      Section 22.1.7.


36.4  Except
      for liability resulting from Willful Action (which subject to the provisions
      of
      Section 36.6 shall be the responsibility of the willfully acting
      Participant), any Participant whose electric customer shall have a claim or
      bring an action against any other Participant for any death, injury, loss or
      damage arising out of or in connection with electric service to such customer
      caused by the operation or failure of operation of the San Juan Project or
      any
      portion thereof shall indemnify and hold harm-less such other Participant,
      its
      directors, members of its governing body, officers and employees from and
      against any liability for such death, injury, loss or damage.




131


36.5  Each
      Participant shall be responsible for any damage, loss, claim, cost, charge
      or
      expense that is not covered by insurance and results from its own Willful Action
      as defined in Section 5.57.2 and shall indemnify and hold harmless the
      other Participants, their directors, members of their governing bodies, officers
      and employees, from any such damage, loss, claim, cost, charge or
      expense.


36.6  Except
      as
      provided in Section 36.5, the aggregate liability of any Participant to all
      other Participants for Willful Action not covered by insurance shall be
      determined as follows:


36.6.1  All
      such
      liability for damages, losses, claims, costs, charges or expenses of such
      Participant shall not exceed ten million dollars ($10,000,000) per occurrence.
      Each Participant extends to each other Participant, its directors, members
      of
      its governing body, officers and employees its covenant not to execute, levy
      or
      otherwise enforce a judgment against any of them for any such aggregate
      liability in excess of ten million dollars ($10,000,000) per
      occurrence.


36.6.2  A
      claim
      based on Willful Action must be perfected by filing suit in a court of competent
      jurisdiction within three (3) years after the Willful Action occurs. All claims
      made thereafter relating to the same Willful Action shall be barred by this
      Section 36.6.2. The award to each nonwillfully acting Participant from each
      Participant determined to have committed Willful Action shall be determined
      as
      follows:  (i) Each Participant who successfully files suit for
      remuneration shall receive the lesser of (a) its final judgment awarded (or
      settlement made) or (b) its pro rata Participation Share of the ten million
      dollar ($10,000,000)




132


maximum
      recovery established in Section 36.6.1; (ii) When all pending suits are
      resolved, those Participants who were awarded judgments or reached settlements
      but whose claims were not fully satisfied pursuant to Sec-tion 36.6.2(i) shall
      be entitled to participate in any remaining portion of the ten million dollar
      ($10,000,000) maximum recovery limit, based upon the ratio of the unsatisfied
      portion of such Participant’s judgment or settlement to the total unsatisfied
      portion of all such judgments and settlements. Such participation shall be
      limited to the Parti-cipants’ unsatisfied judgments or settlements.


36.7  The
      provisions of this Section 36 shall not be construed so as to relieve any
      insurer of its obligation to pay any insurance proceeds in accordance with
      the
      terms and conditions of valid and collectible insurance policies.


36.8  If
      a
      court of competent jurisdiction determines upon a challenge by a Participant
      or
      third party that the provisions of Section 56-7-1, New Mexico Statutes
      Annotated, 1978 Compilation, as amended, are applicable to this Agreement,
      the
      Participants agree that any agreement to indemnify contained in this Agreement
      shall be enforced only to the extent it requires the indemnitor to indemnify
      or
      hold harmless the indemnitee, including its officers, employees or agents,
      against liability, claims, damages, losses or expenses, including attorney’s
      fees, only to the extent that the liability, damages, losses or costs are caused
      by, or arise out of, the acts or omissions of the indemnitor or its officers,
      employees or agents.




133


36.9  The
      Participants agree that the aggregate liability limit of ten million dollars
      ($10,000,000) referenced in Sections 36.6.1 and 36.6.2 may be determined in
      the future to be inappropriate and shall, at the request of any Participant,
      make a good faith effort to evaluate and, if appropriate, revise said limit.





134





37.0  ARBITRATION:


37.1  If
      a
      dispute between or among any of the Participants (which term, for purposes
      of
      this Section 37, shall be deemed to include the Operating Agent) should arise
      in
      relation to any aspect of the San Juan Project, any Participant(s) may call
      for
      submission of the dispute to arbitration, which call shall be binding upon
      all
      of the other affected Participant(s).


37.2  The
      Participant(s) calling for arbitration shall give written notice to all other
      Participants, setting forth in such notice in adequate detail the entity(ies)
      against whom relief is sought, the nature of the dispute, the amount or amounts,
      if any, involved in such dispute, and the remedy sought by such arbitration
      proceedings. Within twenty (20) days after receipt of such notice, any other
      Participant(s) involved may, by written response to the first Participant(s),
      as
      well as the other Participant(s), submit its or their own statement of the
      matter at issue and set forth in adequate detail additional related matters
      or
      issues to be arbitrated. Thereafter, the Participant(s) first submitting its
      or
      their notice of the matter at issue shall have ten (10) days in which to submit
      a written rebuttal statement, copies of which shall be provided to all other
      Participants.


37.3  Within
      ten (10) days following delivery of the last written submittal pursuant to
      Section 37.2, the affected Participant(s), acting through their respective
      representatives, shall meet for the purpose of selecting arbitrators. Each
      affected Participant, or group of Participants, representing one side of the
      dispute, shall designate an arbitrator. The arbitrators so selected shall meet
      within twenty (20) days following their selection and shall select additional
      arbitrator(s), the number of which additional arbitrators shall be one (1)




135


less
      than
      the total number of arbitrators selected by the affected Participants. If the
      arbitrators selected by the affected Participants, as herein provided, shall
      fail to select such additional arbitrator(s) within said twenty (20) day period,
      then the arbitrators shall request from the American Arbitration Association
      (or
      similar organization if the American Arbitration Association should not exist
      at
      the time) a list of arbitrators who are qualified and eligible to serve as
      hereinafter provided. The arbitrators selected by the affected Participants
      shall take turns striking names from the list of arbitrators furnished by the
      American Arbitration Association, and the last name(s) remaining on said list
      shall be the additional arbitrator(s). All arbitrators shall be persons skilled
      and experienced in the field which gives rise to the dispute, and no person
      shall be eligible for appointment as an arbitrator who is an officer or employee
      of any of the Participants to the dispute or is otherwise interested in the
      matter to be arbitrated.


37.4  Except
      as
      otherwise provided in this Section 37 or otherwise agreed by the Participants
      to
      the dispute, the arbitration shall be governed by the rules and practices of
      the
      American Arbitration Association (or rules and practices of a similar
      organization if the American Arbitration Association should not exist at that
      time) from time to time in force, except that if such rules and practices,
      as
      modified herein, shall conflict with New Mexico Rules of Civil Procedure or
      any
      other provisions of New Mexico law then in force which are specifically
      applicable to arbitration proceedings, such New Mexico laws shall
      govern.


37.5  Included
      in the issues which may be submitted to arbitration pursuant to this Section
      37
      is the issue of whether the right to arbitrate a particular dispute is permitted
      under the Project Agreements.




136


37.6  The
      arbitrators shall hear evidence submitted by the respective Participants or
      group or groups of Participants and may call for additional information, which
      additional information shall be furnished by the party having such information.
      The decision of a majority of the arbitrators shall be binding upon all the
      Participants and shall be based on the provisions of the Project Agreements
      and
      New Mexico law.


37.7  This
      agreement to arbitrate shall be specifically enforceable and the award of the
      arbitrators shall be final and binding upon the Participants to the extent
      provided by the laws of the State of New Mexico. Any award may be filed with
      the
      clerk of any court having jurisdiction over the Participants or any of them
      against whom the award is rendered, and, upon such filing, such award, to the
      extent permitted by the laws of the jurisdiction in which said award is filed,
      shall be specifically enforceable or shall form the basis of a declaratory
      judgment or other similar relief.


37.8  Each
      Participant or group of Participants shall be responsible for the fees and
      expenses of the arbitrator selected by that Participant or group of
      Participants, unless the decision of the arbitrators shall specify some other
      apportionment of such fees and expenses. The fees and expenses of the neutral
      arbitrators shall be shared among the affected Participants equally, unless
      the
      decision of the arbitrators shall specify some other apportionment of such
      fees
      and expenses. All other expenses and costs of the arbitration, including
      attorney fees, shall be borne by the Participant incurring the
      same.




137


37.9  In
      the
      event that any Participant(s) shall attempt to institute or to carry out the
      provisions herein set forth in regard to arbitration, and such Participant(s)
      shall not be able to obtain a valid and enforceable arbitration decree, such
      Participant(s) shall be entitled to seek legal remedies in a court having
      jurisdiction in the premises, and the provisions in this Section 37 referring
      to
      arbitration decisions shall then be deemed applicable to final decisions of
      such
      court.





138





**PART
      VIII**




**RETIREMENT
      AND RECONSTRUCTION**




38.0  DESTRUCTION,
      DAMAGE OR CONDEMNATION OF A UNIT:


38.1  If
      all,
      or substantially all, of a Unit is destroyed, damaged or condemned, then the
      Participants with Participation Shares in that Unit by unanimous agreement
      may
      elect to repair or reconstruct the damaged, destroyed or condemned Unit in
      such
      a manner as to restore the Unit to substantially the same general character
      or
      use as the original, or to such other character or use as the Participants
      may
      then mutually agree. In the event of such election, it shall be the obligation
      of the Participants to pay for the costs of such repair or reconstruction in
      accordance with the Participation Shares of the respective Participants in
      such
      Unit, and, upon completion thereof, the Participants’ rights, titles and
      interests therein shall be as provided in this Agreement.


38.2  Failure
      to reach unanimous agreement as provided in Section 38.1 shall be deemed to
      be an election not to repair or reconstruct the damaged, destroyed or condemned
      Unit, in which event the proceeds from any insurance or from any award shall
      be
      distributed to the Participants in accordance with their respective
      Participation Shares in such Unit. The facilities not destroyed, damaged or
      condemned shall be disposed of by the Participants in a manner to be mutually
      agreed upon, and the proceeds from such disposition shall be distributed in
      accordance with the Participation Shares of the respective Participants in
      such
      Unit. Nothing in this section shall be deemed to preclude any Participant or
      group of Participants in the Unit from agreeing to repair, reconstruct or
      replace the damaged, destroyed or condemned Unit.




139


38.3  In the
      event that less than substantially all of a Unit is destroyed, damaged or
      condemned, then it shall be the obligation of the Participants having a
      Participation Share in such Unit to repair or reconstruct such Unit. Each
      Participant shall be obligated to pay its proportionate share of the costs
      of
      such repair or reconstruction in accordance with Section 6.2.


38.4  In
      the
      event that any common equipment and/or facility is destroyed, damaged or
      condemned, then it shall be the obligation of the Participants having a
      Participation Share in such common equipment and/or facilities to repair or
      reconstruct such damaged, destroyed or condemned equipment and/or facilities.
      Each Participant shall be obligated to pay its proportionate share of the costs
      of such repair or reconstruction in accordance with Section 6.2.





140





39.0  RIGHTS
      OF
      PARTICIPANTS UPON TERMINATION:


39.1  In the
      event the Participants by unanimous agreement abandon, retire or otherwise
      terminate or suspend operation of the San Juan Project prior to the termination
      of this Agreement, the facilities forming the San Juan Project shall be disposed
      of by the Participants in a manner to be unanimously agreed upon and the
      proceeds from such disposition shall be distributed to the Participants in
      accordance with their respective Participation Shares.





141





40.0  DECOMMISSIONING
      OF THE PROJECT:


The
      Participants acknowledge the appropriateness of incorporating in a future
      amendment to this Agreement, or in another appropriate contractual instrument,
      provisions which address the decommissioning of the San Juan Project and/or
      of
      one or more Units. It is recognized, however, that the resolution of issues
      associated with San Juan Project decommissioning will require protracted study.
      The Participants therefore agree to establish a task force or other forum for
      the careful and deliberate consideration of decommissioning issues so that
      these
      issues may be addressed and resolved in a timely manner. The Operating Agent
      shall propose to the Participants a methodology and a schedule for addressing
      decommissioning issues.





142





**PART
      IX**




**MISCELLANEOUS
      PROVISIONS**




41.0  RELATIONSHIP
      OF PARTICIPANTS:


41.1  The
      covenants, obligations and liabilities of the Participants are intended to
      be
      several and not joint or collective, and nothing herein contained shall ever
      be
      construed to create an association, joint venture, trust or partnership, or
      to
      impose a trust or partnership covenant, obligation or liability on or with
      regard to any one or more of the Par-ticipants. Each Participant shall be
      individually responsible for its own covenants, obligations and liabilities
      as
      herein provided. No Participant or group of Participants shall be under the
      control of or shall be deemed to control any other Participant or the
      Participants as a group. No Participant shall be the agent of or have a right
      or
      power to bind any other Participant with-out its express written consent, except
      as expressly provided herein.


41.2  The
      Participants hereby elect to be excluded from the application of Subchapter
“K”
of Chapter 1 of Subtitle “A” of the Internal Revenue Code of 1986, or such
      portion or portions thereof as may be permitted or authorized by the Secretary
      of the Treasury or its delegate insofar as such subchapter, or any portion
      or
      portions thereof, may be applicable to the Parti-cipants hereunder.





143





42.0  NOTICES:


42.1  Any
      notice, demand or request provided for in this Agreement, or served, given
      or
      made in connection with it, shall be deemed properly served, given or made
      (i)
      when delivered personally or by prepaid overnight courier, with a record of
      receipt, (ii) the fourth day if mailed by certified mail, return receipt
      requested, or (iii) the day of transmission, if sent by facsimile or telecopy
      during regular business hours or the day after transmission, if sent after
      regular business hours (provided however, that such facsimile or telecopy shall
      be followed on the same day or next business day with the sending of a duplicate
      notice, demand or request by a nationally recognized prepaid overnight courier
      with record of receipt), to the persons specified below:


42.1.1  Public
      Service Company of New Mexico


c/o
      Secretary


Alvarado
      Square


Albuquerque,
      New Mexico 87158





42.1.2  Tucson
      Electric Power Company


c/o
      Secretary


Post
      Office Box 711


Tucson,
      Arizona 85702





42.1.3  City
      of
      Farmington


c/o
      City
      Clerk


800
      Municipal Drive


Farmington,
      NM 87401





42.1.4  M-S-R
      Public Power Agency


c/o
      General Manager


P.
      O. Box
      4060


Modesto,
      CA 95352





42.1.5  Southern
      California Public Power Authority


c/o
      Executive Director


225
      South
      Lake Ave, Suite 1250


Pasadena,
      CA 91101





144


42.1.6  City
      of
      Anaheim


c/o
      City
      Clerk


200
      South
      Anaheim Boulevard


Anaheim,
      CA 92805





with
      a
      copy to:





Public
      Utilities General Manager


201
      South
      Anaheim Boulevard


Suite
      1101


Anaheim,
      CA 92805





42.1.7  Incorporated
      County of


Los
      Alamos, New Mexico


c/o
      Utilities Manager


P.O.
      Drawer 1030


901
      Trinity Drive


Los
      Alamos, NM 87544





42.1.8  Utah
      Associated Municipal Power Systems


c/o
      General Manager


2825
      E.
      Cottonwood Parkway


Suite
      200


Salt
      Lake
      City, UT 84121




42.1.9  Tri-State
      Generation and Transmission


Association,
      Inc.


c/o
      Executive Vice President and General Manager


1100
      West
      116 th Avenue


Westminster,
      CO 80234


Or
      P. O.
      Box 33695


Denver,
      CO 80233





42.2  A
      Participant may, at any time or from time to time, by written notice to the
      other Participants, change the designation or address of the person so specified
      as the one to receive notices pursuant to this Agreement.


42.3  The
      Operating Agent shall provide to each Participant a copy of any material notice,
      demand or request given or received by it in connection with the San Juan
      Project.




145





43.0  OTHER
      PROVISIONS:


43.1  Each
      Participant agrees, upon request by another Participant, to make, execute and
      deliver any and all documents reasonably required to implement the terms of
      this
      Agreement.


43.2  No
      Participant shall be considered to be in default in the performance of any
      of
      the obligations hereunder (other than obligations of a Participant to pay costs
      and expenses) if failure of performance shall be due to uncontrollable forces.
      The term “uncontrollable forces” shall mean any cause beyond the control of the
      Participant affected, including but not limited to failure of facilities, flood,
      earthquake, storm, fire, lightning, epidemic, war, riot, civil disturbance,
      labor dispute, sabotage, restraint by court order or public authority, or
      failure to obtain approval from a necessary governmental authority which by
      exercise of due diligence and foresight such Participant could not reasonably
      have been expected to avoid and which by exercise of due diligence it shall
      be
      unable to overcome. Nothing contained herein shall be construed so as to require
      a Participant to settle any strike or labor dispute in which it may be involved.
      Any Participant rendered unable to fulfill any obligation by reason of
      uncontrollable forces shall exercise due diligence to remove such inability
      with
      all reasonable dispatch.


43.3  The
      captions and headings appearing in this Agreement are inserted merely to
      facilitate reference and shall have no bearing upon the interpretation of the
      provisions hereof.


43.4  This
      Agreement is made under and shall be governed by the laws of the State of New
      Mexico, without regard to conflicts of law principles.




146


43.5  The
      covenants and obligations set forth and contained in this Agreement are to
      be
      deemed to be independent covenants, not dependent covenants, and the obligation
      of a Participant to perform all of the obligations and covenants to be by it
      kept and performed is not conditioned on the performance by another Participant
      of all of the covenants and obligations to be kept and performed by it.


43.6  In
      the
      event that any of the terms or conditions of this Agreement, or the application
      of any such term or condition to any person or circumstance, shall be held
      invalid by any court having jurisdiction in the premises, the remainder of
      this
      Agreement, and the application of such terms or conditions to persons or
      circumstances other than those as to which it is held invalid, shall not be
      affected thereby.


43.7  All
      costs
      or expenses, including all taxes that the Operating Agent is required to pay
      (but not specifically referred to in other sections of this Agreement), which
      are incurred by the Operating Agent in connection with the performance of its
      obligations under this Agreement and which are not specifically allocated to
      the
      Participants in accordance with this Agreement shall be equitably allocated
      among the Participants in a manner to be established by the Coordination
      Committee.


43.8  Should
      a
      change in circumstances, economic factors, or basic technology occur which
      results or may result in a substantial increase or decrease in the benefits
      to
      or expenses incurred by a Participant, including the Operating Agent, which
      such
      change was not within the reasonable contemplation of the Participants at the
      time of the execution of this Agreement, the Participants, including the
      Operating Agent, shall negotiate in good faith in order that an appropriate
      and
      equitable adjustment shall be made in the reimbursement of the Operating Agent
      and in the allocation of expenses among the Participants. Such adjustment shall
      be fair and equitable as to both the Operating Agent and the other Participants.




147


43.9  This
      Agreement shall be subject to filing with, and to such changes or modifications
      as may from time to time be directed by, competent regulatory authority, if
      any,
      in the exercise of its jurisdiction.


43.10  It
      is the
      intent of the Participants in executing this Agreement to set out in one
      instrument the entire agreement of the Participants with respect to the subject
      matter hereof, and on the effective date hereof to explicitly amend and restate,
      and to replace in their entirely, the Original San Juan PPA, the Co-Tenancy
      Agreement, the Operating Agreement and all modifications thereto. Accordingly,
      on the effective date hereof, the Original San Juan PPA, the Co-Tenancy
      Agreement and the Operating Agreement are no longer in force and effect except
      as incorporated herein; provided, however, that the interim coal billing
      arrangements reflected in side agreements shall continue in effect through
      their
      stated term.


43.11  The
      execution of this Agreement shall not affect any rights or obligations of the
      Participants which shall have accrued prior to the effective date of this
      Agreement, including any obligation to pay money or take other actions in
      accordance with the Original San Juan PPA, the Co-Tenancy Agreement, the
      Operating Agreement or any other agreement.





148





44.0
            EXECUTION
                IN COUNTERPARTS:


44.1  This
      Agreement may be executed in any number of counterparts, and each executed
      counterpart shall have the same force and effect as an original instrument
      as if
      all the Participants to the aggregated counterparts had signed the same
      instrument. Any signature page of this Agreement may be detached from any
      counterpart thereof without impairing the legal effect of any signatures thereon
      and may be attached to any other counterpart of this Agreement identical in
      form
      thereto but having attached to it one or more additional pages.








149





45.0  AMENDMENTS:


45.1  Except
      as
      provided in Section 45.2, this Agreement may be amended only by written
      instrument executed by all of the Participants with the same formality as this
      Agreement.


45.2  The
      Coordination Committee, by unanimous vote, may amend any one or more of the
      exhibits attached to this Agreement. In the event of any such action by the
      Coordination Committee, a copy of the new exhibit shall be attached to this
      Agreement to replace the old or superseded exhibit, without the necessity of
      formally amending this Agreement. Any such action shall not affect other
      provisions of this Agreement, including other exhibits thereto.





150





**IN
      WITNESS WHEREOF** ,
      the
      Participants, by their duly authorized representatives, have caused this
      Agreement to be made as of this 23rd day of March, 2006.


**PUBLIC
      SERVICE COMPANY**


**OF
      NEW MEXICO**







By___ /s/
      Hugh W. Smith ________________


Its
      Senior Vice President Energy Resources








**TUCSON
      ELECTRIC POWER COMPANY**






By___ /s/
      Michael J. DeConcini ___________


Its
      SR.
      V.P. Energy Resources











**THE
      CITY OF FARMINGTON, NEW MEXICO**








By___ /s/
      Maude Grantham-Richards ___________


Its
      Electric Utility Director








**M-S-R
      PUBLIC POWER AGENCY**











By___ /s/
      G.
      Fraser ________________________


Its
      General Manager








**THE
      INCORPORATED COUNTY OF LOS ALAMOS,**


**NEW
      MEXICO**








By___ /s/
      Robert J. Monday _________________


Its
      Utilities Manager







151





**SOUTHERN
      CALIFORNIA PUBLIC POWER**


**AUTHORITY**








By__ /s/
      Phyllis E. Currie __________________


Its
      President








**CITY
      OF ANAHEIM**








By___ /s/
      Marcie L. Edwards ________________


Its
      Public Utilities General Manager





Approved
      as to Form:





Jack
      L.
      White, City Attorney


By___ /s/
      Lucina Lea Moses ________________


Assistant
      City Attorney








**UTAH
      ASSOCIATED MUNICIPAL POWER SYSTEMS**








By___ /s/
      Douglas Hunter ___________________


Its
      General Manager








**TRI-STATE
      GENERATION AND TRANSMISSION**


**ASSOCIATION,
      INC.**








By___ /s/
      J.
      M. Shafer ______________________


Its
      Executive VP/General Manager








152





STATE
      OF
      NEW MEXICO    )


)ss.


COUNTY
      OF
      BERNALILLO  )








The
      foregoing instrument was acknowledged before me on this 23 day of March, 2006,
      by Hugh W. Smith, Senior VP of Public Service Company of New Mexico, a New
      Mexico corporation, on behalf of the corporation.








/s/
      Joni Hardy


Notary
      Public








My
      commission expires:





1-26-10







STATE
      OF
      ARIZONA  )


)ss.


COUNTY
      OF  PIMA  )








The
      foregoing instrument was acknowledged before me on this 31st day of January,
      2006, by Michael J. DeConcini, SR. V.P., Energy Resources of Tucson Electric
      Power Company, an Arizona corporation, on behalf of the corporation.








/s/
      Melissa R. Martinez__


Notary
      Public








My
      commission expires:





7-31-07







153





STATE
      OF
      NEW MEXICO  )


)ss.


COUNTY
      OF
      SAN JUAN )








The
      foregoing instrument was acknowledged before me on this 9th day of February,
      2006, by Maude-Grantham-Richards, Electric Utility Director of The City of
      Farmington, New Mexico, a New Mexico municipal corporation, on behalf of the
      municipal corporation.








/s/
      Nancy A. Krase


Notary
      Public








My
      commission expires:





10/25/08





STATE
      OF
      CALIFORNIA  )


)ss.


COUNTY
      OF
      SACRAMENTO)








The
      foregoing instrument was acknowledged before me on this 18th day of January,
      2006, by George Fraser, General Manager of M-S-R Public Power Agency, a
      California joint powers agency, on behalf of said joint powers agency.








/s/
      Kathleen Grindstaff


Notary
      Public








My
      commission expires:





July
      18, 2008







154





STATE
      OF
      NEW MEXICO  )


)ss.


COUNTY
      OF  LOS
      ALAMOS  )








The
      foregoing instrument was acknowledged before me on this 3rd day of February,
      2006, by Robert J. Monday, Utilities Mgr of The Incorporated County of Los
      Alamos, New Mexico, a New Mexico Class H County, on behalf of said county.








/s/
      Lisa D. Ramos


Notary
      Public








My
      commission expires:





5/21/2007







STATE
      OF
      CALIFORNIA  )


)ss.


COUNTY
      OF  LOS
      ANGELES  )








The
      foregoing instrument was acknowledged before me on this 19 th day of
      January, 2006, by Phyllis E. Currie, President of Southern California Public
      Power Authority, a California joint powers agency, on behalf of said joint
      powers agency.








/s/
      Manuel A. Robledo


Notary
      Public








My
      commission expires:





1/2/07




155





STATE
      OF
      CALIFORNIA  )


)ss.


COUNTY
      OF
      ORANGE  )











The
      foregoing instrument was acknowledged before me on this 1st day of February,
      2006, by Marcie L. Edwards, Public Utilities General Manager of the City of
      Anaheim, a California municipal corporation, on behalf of the said municipal
      corporation.








/s/
      Eugena M. Molina


Notary
      Public








My
      commission expires:





November
      26, 2006








STATE
      OF
      UTAH   )


)ss.


COUNTY
      OF
      SALT LAKE  )








The
      foregoing instrument was acknowledged before me on this 7th day of Feb., 2006,
      by Douglas Hunter, General Manager of Utah Associated Municipal Power Systems,
      a
      political subdivision of the State of Utah, on behalf of said entity.








/s/
      Pamela Beckstead_


Notary
      Public








My
      commission expires:





July
      8, 2009







156





STATE
      OF
      COLORADO  )


)ss.


COUNTY
      OF  ADAMS )








The
      foregoing instrument was acknowledged before me on this 31st day of January,
      2006, by J. M. Shafer, Executive Vice President and General Manager of Tri-State
      Generation and Transmission Association, Inc., a Colorado cooperative
      corporation, on behalf of the said cooperative corporation.








/s/
      Marylin Shaw


Notary
      Public








My
      commission expires:





9/4/09





157





**REFERENCES
      TO EXHIBITS IN**




**PARTICIPATION
      AGREEMENT**




Exhibit
                  No.
              
              References
                  in Agreement
              
              Subject
                  MatterI
              
              §§
                  2.10, 6.1
              
              Real
                  PropertyII
              
              §
                  5.24
              
              Annual
                  Minimum CoalIII
              
              §§
                  5.44, 6.5
              
              Switchyard
                  FacilitiesIV
              
              §§
                  6.2, 6.2.8
              
              Ownership
                  of EquipmentV
              
              §§
                  22.1.7, 22.1.9
              
              O&M
                  of EquipmentVI
              
              §§
                  7.11, 22.2.2, 22.6, 22.6.1, 22.7, 22.8A&G
                  ExpensesVII
              
              §
                  23.3
              
              Coal
                  Allocation and BillingVIII
              
              §§
                  18.4, 19.4, 20.5, 21.4
              
              Adjustment
                  of VotingIX
              
              §§
                  5.19, 23.4.1, 23.4.1.3
              
              Fixed
                  Fuel ExpenseX
              
              §§
                  5.55, 23.4.1, 23.4.1.3
              
              Variable
                  Fuel Expense







**EXHIBIT
      I**











**EXHIBIT
      I TO PARTICIPATION AGREEMENT**








This
      Exhibit I to the Amended and Restated San Juan Project Participation Agreement
      contains a map of the San Juan Project Generating Station site and the River
      Weir site, showing Parcels A, B, C, C-1 D, E and F, the parcels of real property
      underlying the San Juan Project and River Weir sites. Also included in the
      Exhibit are property descriptions and separate maps showing Parcels A through
      F.
      PNM and TEP each has a one-half undivided ownership interest in the parcels
      described as Parcels A, B, C, D, E and F; and PNM and TEP each has a one-half
      leasehold interest in Parcel C-1.





Exh.
            I - 1





**PARCEL
      A**





The
      following portions of Township 30 North, Range 15 West, N.M.P.M., San Juan
      County, New Mexico:





Section
      16:  SW
      1/4


Section
      20:  NW
      1/4, N
      1/2 SE 1/4, SW 1/4SE 1/4


Section
      21:  NW
      1/4 NW
      1/4


Section
      29:  NE
      1/4








**PARCEL
      B**





The
      following portions of Township 30 North, Range 15 West, N.M.P.M., San Juan
      County, New Mexico:





Section
      19:  SE
      1/4 SW
      1/4, SW 1/4 SE 1/4


Section
      20:  E
      1/2 NW
      1/4, NE 1/4 SW 1/4


Section
      29:  NW
      1/4, N
      1/2 SW 1/4


Section
      30:  NE
      1/4, E
      1/2 NW 1/4 , N 1/2 SE 1/4








**PARCEL
      C**





That
      part
      of Lot 6 in Section 4 and of Lot 5 in Section 3, Township 29 North, Range 15
      West, N.M.P.M., San Juan County, New Mexico, described as follows:





Beginning
      at a point which is 772.69 feet, South 88o12’03” East from Northwest Corner of
      Lot 6:





Thence,
      S. 55o50’29” E., 205.55 feet; thence, N. 78o21’34” E., 457.06 feet; thence N.
      88o29’07” E., 746.61 feet; thence, S. 25o38’00” W., 1,177.50 feet; thence, N.
      54o32’00” W., 1,291.70 feet; thence, N. 32o1’00” E., 372.20 feet to the point of
      beginning. Containing 21.039 acres, more or less.








**PARCEL
      C-1**








A
      tract
      of land situated adjacent to the southerly side of the San Juan River in
      Sections 3, 4, 9 and 10, Township 29 North, Range 15 West, N.M.P.M., San Juan
      County, New Mexico, and more particularly described as follows:





Exh.
          I - 2


Beginning
      at point A, from which the corner common to Sections 33 and 34, T.30 N., R.
      15
      W., and Sections 4 and 3, T. 29 N., R 15 W., bears N. 06o09’45” E., 4,966.7
      feet; thence N. 49o00’00” E., 351.95 feet to point B located on the approximate
      centerline of the San Juan River; thence along the centerline of the River
      S.
      50o44’26” E., 268.63 feet to point C; thence continuing along the centerline of
      the River, S. 41o18’31” E., 263.59 feet to point D; thence S. 21o12’40” E., 678
      feet to point E; thence S. 51o00’00” W., 209 feet to point F; thence N.
      39o00’00” W., 1,160.00 feet to the point of beginning; containing 9.376 acres,
      more or less.





**PARCEL
      D**





The
      following portions of Township 30 North, Range 15 West, N.M.P.M., San Juan
      County, New Mexico:





Section
      17:  SE
      1/4 SW
      1/4, S1/2 SE 1/4





**PARCEL
      E**





The
      following portions of Township 30 North, Range 15 West, N.M.P.M., San Juan
      County, New Mexico:





Section
      19:  SE
      1/4 SE
      1/4


NE
      1/4 SE
      1/4


E
      1/2 NW
      1/4 SE 1/4


S
      1/2 S
      1/2 SE 1/4 NE 1/4





Section
      20:  SE
      1/4 SW
      1/4


SW
      1/4 SW
      1/4


NW
      1/4 SW
      1/4


S
      1/2 SW
      1/4 SW 1/4 NW 1/4





Containing
      235 acres, more or less.





**PARCEL
      F**





The
      following portions of Township 30 North, Range 15 West, N.M.P.M., San Juan
      County, New Mexico:





Section
      20:  SE
      1/4 SE
      1/4





Exh.
            I - 3





[Graphic
      omitted]


San
      Juan
      Plant Properties


Overview
      of Parcel Location





Exh.
            I - 4





[Graphic
      omitted]


San
      Juan
      Plant Properties


Parcel
      A


Parcel
      A
      as described in Warranty Deed 718/193





Exh.
            I - 5





[Graphic
      omitted]


San
      Juan
      Plant Properties


Parcel
      B


Parcel
      B
      as described in


Warranty
      Deed Bk 706/P409





Exh.
            I - 6





[Graphic
      omitted]


San
      Juan
      Plant Properties


Parcel
      C
      and C-1


Parcel
      C
      as described in Warranty Deeds 706/407 and 919/398


Parcel
      C-1 - Navajo Lease dated 7-09-71








Exh.
            I - 7





[Graphic
      omitted]


San
      Juan
      Plant Properties


Parcel
      D


Parcel
      D
      as described in US Patent 30-81-0006














Exh.
            I - 8





[Graphic
      omitted]


San
      Juan
      Plant Properties


Parcel
      E


Parcel
      E
      as described in


Warranty
      Deed 1022/328








Exh.
            I - 9





[Graphic
      omitted]


San
      Juan
      Plant Properties


Parcel
      F


Parcel
      F
      as described in


Warranty
      Deed 717/293














Exh.
            I - 10




**EXHIBIT
      II**










**EXHIBIT
      II**


EXHIBIT
      H
      TO UNDERGROUND COAL SALES AGREEMENT


SAN
      JUAN STATION MINIMUM DELIVERIES


2003-2017





**Column
                1**
            **Column
                2**
            **Column
                3****Year**
            **Minimum
                Annual Tons**
            **Annual
                Processing Tons**2003
            5,600,000
            5,480,5002004
            5,600,000
            5,480,5002005
            5,600,000
            5,126,0002006
            5,600,000
            5,126,0002007
            5,600,000
            5,126,0002008
            5,600,000
            5,118,0002009
            5,600,000
            4,810,0002010
            5,600,000
            4,810,0002011
            5,600,000
            4,810,0002012
            5,600,000
            4,810,0002013
            5,600,000
            4,500,0002014
            5,600,000
            4,500,0002015
            5,600,000
            3,860,0002016
            5,600,000
            3,860,0002017
            5,600,000
            1,086,50084,000,000
            68,503,500











Exh.
            II -
            1




**EXHIBIT
      III**










**EXHIBIT
      III** ****





**SAN
      JUAN PROJECT SWITCHYARD FACILITIES**





**Material
      List**





**Phase
                I - Project****(DWG, ED-54, ED-55)*****QUANTITY***
            ***DESCRIPTION*****5**
            **345
                kV Circuit Breakers - (G.E. A.T.B.’s)****16**
            **345
                kV Motor Operated Disconnect Switches with
                Stands****2**
            **345
                kV S&C Circuit Switches with Stands****Lot**
            **Strain
                Bus and Fittings****Lot**
            **Rigid
                Bus and Fittings****4**
            **Line
                Deadend Towers****5**
            **Intermediate
                Bus Towers****1**
            **Start-Up
                Transformers 345/12.47/4.16 kV, 24/32/40 MVA****1**
            **Set
                of 4.16 kV Switchgear****1**
            **4.16
                kV Start-Up Cable Run into Plant****2**
            **4.16
                kV Station Service Transformers****1**
            **Set
                of 12.45 kV Switchgear****3**
            **12.47
                kV Zig-Zag Grounding Transformer****6**
            **345
                kV PCM Potential Transformers with Stands (Bus #1, Bus
                #2)****6**
            **345
                kV Bus Lightning Arresters with Stands****1**
            **Control
                House 40’ x 72’****2**
            **Sets
                of Batteries & Chargers, 125 v and 48 v****1**
            **Microwave
                Tower****Lot**
            **Cable
                Troughs, Equipment Controls, Breaker Failure Relaying, Fault
                Recorder****Lot**
            **Metering
                - Indication, Billing and Telemetry
                Transducers****Lot**
            **Switchyard
                Foundations, Fencing, Grading, Grounding****1**
            **Line
                Trap (FC Line)****1**
            **345
                kV PCM Potential Transformer/Coupling Capacitor with
                Stand****3**
            **345
                kV Line Lightning Arresters with Stands****Lot**
            **Line
                Relaying, Carrier, Microwave****1**
            **345-69-12470
                Transformer****1**
            **345/230-12470
                Transformer, 230 yard****1**
            **Reactor
                - 12.47 kV, 345 yard**





Exh.
            III -
            1








**Phase
                2 - Project****(DWG.
                SK-135)*****QUANTITY***
            ***DESCRIPTION*****4**
            **345
                kV Circuit Breakers****3**
            **345
                kV Motor Operated Disconnect Switches with
                Stands****Lot**
            **Strain
                Bus and Fittings****Lot**
            **Rigid
                Bus and Fittings****1**
            **Intermediate
                Bus Tower****Lot**
            **Cable
                Troughs, Equipment Controls, Breaker Failure
                Relaying****Lot**
            **Metering
                - Indication, Billing and Telemetry
                Transducers****Lot**
            **Switchyard
                Foundations, Grounding****Phase
                3 - Project****(DWG. SK-316)****3**
            **345
                kV Circuit Breakers****6**
            **345
                kV Motor Operated Disconnect Switches with
                Stands****Lot**
            **Strain
                Bus and Fittings****Lot**
            **Rigid
                Bus and Fittings****1**
            **Line
                Deadend Tower****2**
            **Intermediate
                Bus Towers****Lot**
            **Cable
                Troughs, Equipment Controls, Breaker Failure
                Relaying****Lot**
            **Metering
                - Indication, Billing and Telemetry
                Transducers****Lot**
            **Switchyard
                Foundations and Grounding****Phase
                3 - Project****(DWG. SK-317)****2**
            **345
                kV Circuit Breakers****4**
            **345
                kV Motor Operated Disconnect Switches with
                Stands****Lot**
            **Strain
                Bus and Fittings****Lot**
            **Rigid
                Bus and Fittings****1**
            **Intermediate
                Bus Tower****Lot**
            **Switchyard
                Foundations, Grounding**











Exh.
            III -
            2




**EXHIBIT
      IV**










EXHIBIT
      IV(a)








FACILITIES
      AND EQUIPMENT SPECIFIC


TO
      SAN
      JUAN UNIT NO. 1





**Ownership**





PNM
                -
            50%
            TEP
                -
            50%M-S-R
                -
            0%
            Farmington
                -
            0%Tri-State
                -
            0%
            LAC-
            0%SCPPA
                -
            0%
            Anaheim
                -
            0%UAMPS**-**
            0%





1.
            Turbine
                Generator





2.
            Condenser





3.
            Condensate
                and Feedwater System





a.
            Condensate
                Pumps


b.
            Feedwater
                Heaters


c.
            Boiler
                Feed Pumps


d.
            Storage
                Tanks





4.
            Boiler
                including: Air Heaters, Pulverizers, Bunkers, Feeders and Blowdown
                Tanks





5.
            Forced
                Draft Fans and Primary Air Fans





6.
            Precipitator





7.
            Stack
                and Stack Monitoring System





8.
            Cooling
                Tower





9.
            Circulating
                Water Pumps





10.
            Main,
                Start-Up, Unit Auxiliary, and SO2 Scrubber
                Transformers





11.
            Bottom
                Ash System (Up to but not including Dewatering Tank or Ash Water
                Pump
                building and equipment.)





12.
            Fly
                Ash System





Exh.
            IV - 1





EXHIBIT
      IV(a)


(continued)








13.
            Building
                HVAC System





14.
            SO2
                Absorbers, Scrubbers, Transfer Pumps, Booster Fans, and Flue Gas
                Reheat
                System including the 650-pound Reheat Steam Line and Desuperheater
                from
                the Plant Main Steam Line but not including the 165-pound Control
                Valve
                and Branch Line to the Chemical
                Plant





15.
            Emergency
                Diesel Generator





16.
            Electrical
                and Control Systems





17.
            SSR
                Protection System





18.
            Unit
                Specific Piping for all Air Systems, Chemical Feed Systems, and
                Hydrogen








Exh.
            IV - 2





EXHIBIT
      IV(b)








FACILITIES
      AND EQUIPMENT SPECIFIC


TO
      SAN
      JUAN UNIT NO. 2





**Ownership**





PNM
                -
            50%
            TEP
                -
            50%M-S-R
                -
            0%
            Farmington
                -
            0%Tri-State
                -
            0%
            LAC
                -
            0%SCPPA
                -
            0%
            Anaheim
                -
            0%UAMPS**-**
            0%








1.
            Turbine
                Generator





2.
            Condenser





3.
            Condensate
                and Feedwater System





a.
            Condensate
                Pumps


b.
            Feedwater
                Heaters


c.
            Boiler
                Feed Pumps


d.
            Storage
                Tanks





4.
            Boiler
                including: Air Heaters, Pulverizers, Bunkers, Feeders and Blowdown
                Tanks





5.
            Forced
                Draft Fans and Primary Air Fans





6.
            Precipitator





7.
            Stack
                and Stack Monitoring System





8.
            Cooling
                Tower





9.
            Circulating
                Water Pumps





10.
            Main,
                Start-Up, Unit Auxiliary, and SO2 Scrubber
                Transformers





11.
            Bottom
                Ash System (Up to but not including Dewatering Tank or Ash Water
                Pump
                building and equipment.)





12.
            Fly
                Ash System





Exh.
            IV - 3





EXHIBIT
      IV(b)


(continued)








13.
            Building
                HVAC System





14.
            SO2
                Absorbers, Scrubbers, Transfer Pumps, Booster Fans, and Flue Gas
                Reheat
                System including the 650-pound Reheat Steam Line and Desuperheater
                from
                the Plant Main Steam Line but not including the 165-pound Control
                Valve
                and Branch Line to the Chemical
                Plant





15.
            Emergency
                Diesel Generator





16.
            Electrical
                and Control Systems





17.
            Unit
                Specific Piping for all Air Systems, Chemical Feed Systems, and
                Hydrogen








Exh.
            IV - 4





EXHIBIT
      IV(c)








FACILITIES
      AND EQUIPMENT SPECIFIC


TO
      SAN
      JUAN UNIT NO. 3





**Ownership**





PNM
                -
            50%
            TEP
                -
            0%M-S-R
                -
            0%
            Farmington
                -
            0%Tri-State
                -
            8.2%
            LAC
                -
            0%SCPPA
                -
            41.8%
            Anaheim
                -
            0%UAMPS**-**
            0%





1.
            Turbine
                Generator





2.
            Condenser





3.
            Condensate
                and Feedwater System





a.
            Condensate
                Pumps


b.
            Feedwater
                Heaters


c.
            Boiler
                Feed Pumps


d.
            Storage
                Tanks





4.
            Boiler
                including: Air Heaters, Pulverizers, Bunkers, Feeders and Blowdown
                Tanks





5.
            Forced
                Draft Fans and Primary Air Fans





6.
            Precipitator





7.
            Stack
                and Stack Monitoring System





8.
            Cooling
                Tower





9.
            Circulating
                Water Pumps





10.
            Main,
                Unit Auxiliary 3A and 3B
                Transformers*





11.
            Bottom
                Ash System including: Hopper, Dewatering Tank, Setting Tank, Surge
                Tank,
                Storage Tank, and Pump House





12.
            Fly
                Ash System





Exh.
            IV - 5





EXHIBIT
      IV(c)


(continued)








13.
            Building
                HVAC System





14.
            SO2
                Absorbers, Scrubbers, Transfer Pumps, Booster Fans, and Flue Gas
                Reheat
                System





15.
            Emergency
                Diesel Generator





16.
            Electrical
                and Control Systems





17.
            Fuel
                Oil Ignitor Heaters and Unit Specific
                Piping





18.
            Unit
                Specific Piping for all Air Systems, Chemical Feed Systems, and
                Hydrogen





19.
            Coal
                Reclaim Hoppers, Feeders, Feeder Belts, Belt Scales, Fire Protection
                System, and 3C Conveyor to the Secondary Crusher
                Building





20.
            SSR
                Protection System





21.
            Auxiliary
                Steam Header Piping System:





a.
            Including
                the Unit Specific Branch Line to the Reheat
                System


b.
            Not
                included is the Branch Line to the Chemical
                Plant











*
            PNM
                and TEP each owns a 50% interest in the main unit
                transformer





Exh.
            IV - 6





EXHIBIT
      IV(d)








FACILITIES
      AND EQUIPMENT SPECIFIC


TO
      SAN
      JUAN UNIT NO. 4





**Ownership**





PNM
                -
            38.457%
            TEP
                -
            0%M-S-R
                -
            28.8%
            Farmington
                -
            8.475%Tri-State
                -
            0%
            LAC
                -
            7.2%SCPPA
                -
            0%
            Anaheim
                -
            10.04%UAMPS**-**
            7.028%





1.
            Turbine
                Generator





2.
            Condenser





3.
            Condensate
                and Feedwater System





a.
            Condensate
                Pumps


b.
            Feedwater
                Heaters


c.
            Boiler
                Feed Pumps


d.
            Storage
                Tanks





4.
            Boiler
                including: Air Heaters, Pulverizers, Bunkers, Feeders and Blowdown
                Tanks





5.
            Forced
                Draft Fans and Primary Air Fans





6.
            Precipitator





7.
            Stack
                and Stack Monitoring System





8.
            Cooling
                Tower





9.
            Circulating
                Water Pumps





10.
            Main,
                Unit Auxiliary 4A and 4B
                Transformers





11.
            Bottom
                Ash System including: Hopper, Dewatering Tank, Setting Tank, Surge
                Tank,
                Storage Tank, and Pump House





12.
            Fly
                Ash System





Exh.
            IV - 7





EXHIBIT
      IV(d)


(continued)








13.
            Building
                HVAC System





14.
            SO2
                Absorbers, Scrubbers, Transfer Pumps, Booster Fans, and Flue Gas
                Reheat
                System





15.
            Emergency
                Diesel Generator





16.
            Electrical
                and Control Systems





17.
            Fuel
                Oil Ignitor Heaters and Unit Specific
                Piping





18.
            Unit
                Specific Piping for all Air Systems, Chemical Feed Systems, and
                Hydrogen





19.
            Coal
                Reclaim Hoppers, Feeders, Feeder Belts, Belt Scales, Fire Protection
                System, and 3D Conveyor to the Secondary Crusher
                Building





20.
            Auxiliary
                Steam Header Piping System:





a.
            Including
                the Unit Specific Branch Line to the Reheat
                System


b.
            Not
                included is the Branch Line to the Chemical
                Plant










Exh.
            IV - 8





EXHIBIT
      IV(e)








FACILITIES
      AND EQUIPMENT SPECIFIC


TO
      SAN
      JUAN UNITS NO. 1 AND 2





**Ownership**





PNM
                -
            50%
            TEP
                -
            50%M-S-R
                -
            0%
            Farmington
                -
            0%Tri-State
                -
            0%
            LAC
                -
            0%SCPPA
                -
            0%
            Anaheim
                -
            0%UAMPS**-**
            0%








1.
            Bearing
                Cooling Water System





2.
            Bottom
                Ash Dewatering Facility including: Dewatering Tank, Settling Tank,
                Surge
                Tank, Storage Tank, and Pump House





3.
            Demineralizer
                System including: Clarifier, Storage Tanks, and Sump Pump





4.
            Fuel
                Oil System (Fuel Oil for Ignition and Flame
                Stabilization)





5.
            Premix
                Tank Facility (This was the wastewater neutralizer facility and is
                now
                operated as part of the Water Management
                System.)





6.
            Instrument
                Air system, except Unit Piping





7.
            Chemical
                Feed System, except Unit Piping





a.
            Condensate
                and Feedwater System


b.
            Boiler


c.
            Bearing
                Cooling Water System


d.
            Cooling
                Tower Systems


e.
            Chlorination
                System





8.
            Plant
                Air System, except Unit Piping





9.
            Sootblowing
                Air System, except Unit Piping





10.
            Hydrogen
                Storage System, except Unit Piping








Exh.
            IV - 9





EXHIBIT
      IV(e)


(continued)








11.
            Coal
                Handling Reclaim Systems A and B including: Hoppers, Feeders, Reclaim
                Conveyors, Belt Scales, and Sprinkler
                System





12.
            Coal
                Tripper System south of column, Line 12 including Dust Collection
                System





13.
            Turbine
                Lube Oil Storage and Transfer
                System





14.
            Control
                Room, Equipment Rooms, and Associated HVAC
                System





15.
            Turbine
                Crane south of column, Line 12





16.
            Fuel
                Oil, Ash, and Water Pipe Racks





17.
            Boiler
                Fill System for Units 1 and 2





18.
            All
                spare parts common to either unit





19.
            SO2
                Backup Scrubber-Absorber
                Transformer





20.
            SAR
                Multiplexer Control System








Exh.
            IV - 10





EXHIBIT
      IV(f)








FACILITIES
      AND EQUIPMENT SPECIFIC


TO
      SAN
      JUAN UNITS NO. 3 AND 4





**Ownership**





PNM
                -
            44.119%
            TEP
                -
            0%M-S-R
                -
            14.4%
            Farmington
                -
            4.249%Tri-State
                -
            4.1%
            LAC
                -
            3.612%SCPPA
                -
            20.9%
            Anaheim
                -
            5.07%UAMPS**-**
            3.55%




1.
              Bearing
                  Cooling Water System
 
 2.
              Demineralizer
                  System: including Sump Pumps, Filter Beds, and Storage
                  Tanks


3.
            Fuel
                Oil System (Fuel Oil for Ignition and Flame Stabilization except
                Ignitor
                Heaters and Unit Specific Piping)





4.
            Wastewater
                Neutralizer Facility (This facility is operated as part of Water
                Management System.)




5.
              Instrument
                  Air System except Unit Piping
 
 6.
              Chemical
                  Feed System except Unit
                  Piping


a.
            Condensate
                and Feedwater System


b.
            Boiler


c.
            Bearing
                Cooling Water System


d.
            Cooling
                Tower Systems


e.
            Chlorination
                System




7.
              Plant
                  Air System except Unit Piping
 
 8.
              Sootblowing
                  Air System except Unit Piping
 
 9.
              Start-Up
                  Transformers and Nonseg Bus to Units 3 and 4
                  Switchgear
 
 10.
              Hydrogen
                  Storage System except Unit Piping
 
 11.
              Coal
                  Tripper System Serving Units 3 and 4 including Dust Collection
                  Systems






Exh.
            IV - 11





EXHIBIT
      IV(f)


(continued)






12.
              Turbine
                  Lube Oil Storage and Transfer
                  System
 
 13.
              Control
                  Room, Equipment Rooms, and Associated HVAC
                  System
 
 14.
              Boiler
                  Fill System for Units 3 and 4


15.
            Auxiliary
                Cooling Systems including Auxiliary Cooling Tower No. 1 and Pumps,
                but
                excepting No. 4 Tower Pumps and Piping which is Unit
                Specific




16.
              CO2
                  Storage System
 
 17.
              Start-Up
                  Boiler Feed Pump
 
 18.
              Turbine
                  Bay Crane north of column, Line 12
 
 19.
              Fuel
                  Oil, Ash, and Water Pipe Racks
 
 20.
              Fire
                  Water Booster and Jockey Pumps
 
 21.
              Halon
                  Fire Protection System
 
 22.
              Cooling
                  Tower Multiplex Control System
 
 23.
              All
                  spare parts common to either unit








Exh.
            IV - 12





EXHIBIT
      IV(g)








FACILITIES
      AND EQUIPMENT


COMMON
      TO
      ALL FOUR SAN JUAN UNITS





**Ownership**





PNM
                -
            46.29%
            TEP
                -
            19.8%M-S-R
                -
            8.7%
            Farmington
                -
            2.559%Tri-State
                -
            2.49%
            LAC
                -
            2.175%SCPPA
                -
            12.71%
            Anaheim
                -
            3.10%UAMPS**-**
            2.169%








1.
            River
                and Raw Water System including:





a.
            Diversion
                and intake structures, including all equipment and pump building.


b.
            Raw
                Water line to reservoir.


c.
            Reservoir,
                pump buildings, and all equipment.


d.
            Raw
                water lines to plant yard.


e.
            All
                above and underground fire protection system to each vendor supplied
                or
                unit specific fire protection
                system.




2.
              Auxiliary
                  Boiler
 
 3.
              SO2
                  Removal System except
                  Absorbers





NOTE:
      The
      new SO2 Absorber Feed System is being placed in-service to replace the SO2
      Chemical Plant previously used by the Project. The SO2 Chemical Plant facilities
      will be retired in place and will be salvaged or decommissioned at a later
      date.
      Section 3.1 describes the new SO2 Absorber Feed System while Section 3.2
      describes the old SO2 Chemical Plant.





3.1  SO2
      Absorber Feed System





a.
            Limestone
                Handling System


b.
            Limestone
                Preparation System


c.
            Dewatering
                System


d.
            Gypsum
                Stack Out System








Exh.
            IV - 13





EXHIBIT
      IV(g)


(continued)








3.2  SO2
      Chemical Plant





a.
            Double
                effect evaporator train systems.


b.
            Fly
                ash filter system.


c.
            Absorber
                product and feed tanks.


d.
            Condensate
                collection, storage, and transfer
                systems.


e.
            Soda
                ash storage, mixing, and distribution
                systems.


f.
            Sulfate
                purge system including: crystallizers, centrifuges, evaporators,
                and salt
                cake system.


g.
            Sulfuric
                acid plant system including storage tanks and load out system.


h.
            Auxiliary.
                No. 2 cooling tower, pumps, and
                systems.





4.
              Spare-Main
                  Transformer 345/24 kV for all
                  units.
 
 5.
              Maintenance,
                  Office, and Warehousing Facilities
 
 6.
              Chemical
                  Laboratory
 
 7.
              Coal
                  and Ash Handling Control Facilities
 
 8.
              Roads
                  and grounds such as fencing, yard lighting, guard facilities, drainage,
                  and dikes.
 
 9.
              Potable
                  Water System
 
 10.
              Environmental
                  Monitoring systems including Air, Water, and Ground. Excludes Stack
                  Monitoring Systems which are unit
                  specific.
 
 11.
              Transportation
                  such as trucks, cars, and dozers (not otherwise
                  charged).
 
 12.
              Water
                  Management System





a.
            Wastewater
                Recovery System -- Northside





1.
            Reverse
                osmosis system including lime/soda softening clarifier system.


2.
            Brine
                concentrator Nos. 4 and 5.


3.
            Process
                pond No. 3 and pump system


4.
            North
                evaporation ponds 1, 2, and 3.








Exh.
            IV - 14





EXHIBIT
      IV(g)


(continued)








b.
            SO2
                Waste Treatment System -- Southside





1.
            Process
                ponds 1A, 1 B, 2 and pumping
                system.


2.
            Premix
                tank and clarifier system.


3.
            Oxidation
                towers.


4.
            Brine
                concentrator Nos. 2 and 3.


5.
            South
                evaporation ponds Nos. 1, 2, 3, 4, and
                5.





c.
            Data
                Acquisition System


d.
            Solid
                Waste Disposal Pit


e.
            Coal
                pile runoff pond





13.
            Coal
                Transfer Facilities from the Reclaim Conveyors to the Head-End of
                Plat
                Belts 4A and 4B and Dust Suppression
                Systems





14.
            Maintenance
                Bay Facilities including: Bay Bridge Crane, all Offices, and Support
                Facilities




15.
              Sewage
                  Treatment Facilities





16.
            On
                each of Units 1 and 2, the Chemical Plant 165-pound Control Valve,
                and
                Branch Line from the Unit Specific 650-pound Rehear Steam
                Line





17.
            On
                each of Units 3 and 4, the Chemical Plant Branch Steam Line from
                the Unit
                Specific Auxiliary Steam Header
                System











Exh.
            IV - 15





EXHIBIT
      IV(h)








SAN
      JUAN
      PROJECT


SWITCHYARD
      FACILITIES





Cost
      Allocation (%)




Installed
                  Cost
              Replacements/Improvements
                BettermentsPNM
              TEP
              PNM
              TEP345
                  kV Bus 1 & 3 (East Bus)
              50
              50
              50
              50Bus
                  2 (West Bus)
              50
              50
              50
              50Circuit
                  Breakers06582
                  (345/230)
              50
              50
              50
              5005482
              50
              50
              50
              5004382
                  (OJO)
              50
              50
              50
              5012982
                  (McKinley)
              50
              50
              50
              5011882
              50
              50
              50
              5010782
                  (Unit 4)
              50
              50
              50
              5009882
                  (McKinley)
              58.33
              41.67
              62.5
              37.508782
              54.16
              45.84
              56.25
              43.7507682
                  (Unit 3)
              50
              50
              50
              5015282
                  (Four Comers)
              50
              50
              50
              5014182
              50
              50
              50
              5013082
                  (Unit 2)
              50
              50
              50
              5018582
                  (West Mesa)
              50
              50
              50
              5017482
              50
              50
              50
              5016382
                  (Unit 1)
              50
              50
              50
              5020782
              50
              50
              50
              50Shunt
                  ReactorsOjo
              100
              0
              100
              0McKinley
                  1
              5.36
              94.64
              5.36
              94.64McKinley
                  2
              16.67
              83.33
              25
              75WW
                  (BA)
              100
              0
              100
              0


Exh.
          IV - 16


EXHIBIT
      IV(h)


(continued)





Installed
                  Cost
              Replacements/Improvements
                BettermentsPNM
              TEP
              PNM
              TEPTransformersStation
                  Aux. No. 2
                400
                  MVA, 345/230-12.5
              100
              0
              100
              0Station
                  Aux. No. 1
                345/4.16-12.5
              50
              50
              50
              50Station
                  Aux. No. 3
                90
                  MVA, 345/69-12.5
              50
              50
              50
              50Future
                  Facilities
                
                345/69/12
                  kV
              66.67
              33.33
              66.67
              33.332-345
                  kV Bkrs (Durango)
              50
              50
              50
              50Lower
                  Voltage
                
                230
                  kV Control Hse
              83.33
              16.67
              83.33
              16.67230/69
                  kV Trf
              66.67
              33.33
              66.67
              33.33Shiprock
                  230 kV line
              100
              0
              100
              0





Exh.
            IV - 17







**EXHIBIT
      V**













EXHIBIT
      V(a)








FACILITIES
      AND EQUIPMENT


SPECIFIC
      TO SAN JUAN UNIT NO. 1





Operation
      and Maintenance Costs





PNM
                -
            50%
            TEP
                -
            50%M-S-R
                -
            0%
            Farmington
                -
            0%Tri-State
                -
            0%
            LAC
                -
            0%SCPPA
                -
            0%
            Anaheim
                -
            0%UAMPS**-**
            0%





1.
            Turbine
                Generator





2.
            Condenser





3.
            Condensate
                and Feedwater System





a.
            Condensate
                Pumps


b.
            Feedwater
                Heaters


c.
            Boiler
                Feed Pumps


d.
            Storage
                Tanks





4.
            Boiler
                including: Air Heaters, Pulverizers, Bunkers, Feeders and Blowdown
                Tanks





5.
            Forced
                Draft Fans and Primary Air Fans





6.
            Precipitator





7.
            Stack
                and Stack Monitoring System





8.
            Cooling
                Tower





9.
            Circulating
                Water Pumps





10.
            Main,
                Start-Up, Unit Auxiliary, and SO2 Scrubber
                Transformers





11.
            Bottom
                Ash System (Up to but not including Dewatering Tank or Ash Water
                Pump
                building and equipment)





12.
            Fly
                Ash System








Exh.
            V - 1





EXHIBIT
      V(a)


(continued)








13.
            Building
                HVAC System





14.
            SO2
                Absorbers, Scrubbers, Transfer Pumps, Booster Fans, and Flue Gas
                Reheat
                System including the 650-pound Reheat Steam Line and Desuperheater
                from
                the Plant Main Steam Line but not including the 165-pound Control
                Valve
                and Branch Line to the Chemical
                Plant





15.
            Emergency
                Diesel Generator





16.
            Electrical
                and Control Systems





17.
            SSR
                Protection System





18.
            Unit
                Specific Piping for all Air Systems, Chemical Feed Systems, and
                Hydrogen








Exh.
            V - 2





EXHIBIT
      V(b)








FACILITIES
      AND EQUIPMENT


SPECIFIC
      TO SAN JUAN UNIT NO. 2





Operation
      and Maintenance Costs





PNM
                -
            50%
            TEP
                -
            50%M-S-R
                -
            0%
            Farmington
                -
            0%Tri-State
                -
            0%
            LAC
                -
            0%SCPPA
                -
            0%
            Anaheim
                -
            0%UAMPS**-**
            0%








1.
            Turbine
                Generator





2.
            Condenser





3.
            Condensate
                and Feedwater System





a.
            Condensate
                Pumps


b.
            Feedwater
                Heaters


c.
            Boiler
                Feed Pumps


d.
            Storage
                Tanks





4.
            Boiler
                including: Air Heaters, Pulverizers, Bunkers, Feeders and Blowdown
                Tanks





5.
            Forced
                Draft Fans and Primary Air Fans





6.
            Precipitator





7.
            Stack
                and Stack Monitoring System





8.
            Cooling
                Tower





9.
            Circulating
                Water Pumps





10.
            Main,
                Start-Up, Unit Auxiliary, and SO2 Scrubber
                Transformers





11.
            Bottom
                Ash System (Up to but not including Dewatering Tank or Ash Water
                Pump
                building and equipment)





12.
            Fly
                Ash System





Exh.
            V - 3





EXHIBIT
      V(b)


(continued)








13.
            Building
                HVAC System





14.
            SO2
                Absorbers, Scrubbers, Transfer Pumps, Booster Fans, and Flue Gas
                Reheat
                System including the 650-pound Reheat Steam Line and Desuperheater
                from
                the Plant Main Steam Line but not including the 165-pound Control
                Valve
                and Branch Line to the Chemical
                Plant





15.
            Emergency
                Diesel Generator





16.
            Electrical
                and Control Systems





17.
            Unit
                Specific Piping for all Air Systems, Chemical Feed Systems, and
                Hydrogen








Exh.
            V - 4





EXHIBIT
      V(c)








FACILITIES
      AND EQUIPMENT


SPECIFIC
      TO SAN JUAN UNIT NO. 3





Operation
      and Maintenance Costs





PNM
                -
            50%
            TEP
                -
            0%M-S-R
                -
            0%
            Farmington
                -
            0%Tri-State
                -
            8.2%
            LAC
                -
            0%SCPPA
                -
            41.8%
            Anaheim
                -
            0%UAMPS**-**
            0%








1.
            Turbine
                Generator





2.
            Condenser





3.
            Condensate
                and Feedwater System





a.
            Condensate
                Pumps


b.
            Feedwater
                Heaters


c.
            Boiler
                Feed Pumps


d.
            Storage
                Tanks





4.
            Boiler
                including: Air Heaters, Pulverizers, Bunkers, Feeders and Blowdown
                Tanks





5.
            Forced
                Draft Fans and Primary Air Fans





6.
            Precipitator





7.
            Stack
                and Stack Monitoring System





8.
            Cooling
                Tower





9.
            Circulating
                Water Pumps





10.
            Main,
                Unit Auxiliary 3A and 3B
                Transformers





11.
            Bottom
                Ash System including: Hopper, Dewatering Tank, Setting Tank, Surge
                Tank,
                and Pump House





12.
            Fly
                Ash System





Exh.
            V - 5





EXHIBIT
      V(c)


(continued)








13.
            Building
                HVAC System





14.
            SO2
                Absorbers, Scrubbers, Transfer Pumps, Booster Fans, and Flue Gas
                Reheat
                System including the Reheat Steam Line from the Auxiliary Steam
                Header





15.
            Emergency
                Diesel Generator





16.
            Electrical
                and Control Systems





17.
            Fuel
                Oil Ignitor Heaters and Unit Specific
                Piping





18.
            Unit
                Specific Piping for all Air Systems, Chemical Feed Systems, and
                Hydrogen





19.
            SSR
                Protection System





20.
            Auxiliary
                Steam Header Piping System:





a.
            Including
                the Unit Specific Branch Line to the Reheat
                System


b.
            Not
                included is the Branch Line to the Chemical
                Plant

















Exh.
            V - 6





EXHIBIT
      V(d)








FACILITIES
      AND EQUIPMENT


SPECIFIC
      TO SAN JUAN UNIT NO. 4





Operation
      and Maintenance Costs





PNM
                -
            38.457%
            TEP
                -
            0%M-S-R
                -
            28.8%
            Farmington
                -
            8.475%Tri-State
                -
            0%
            LAC
                -
            7.2%SCPPA
                -
            0%
            Anaheim
                -
            10.04%UAMPS**-**
            7.028%








1.
            Turbine
                Generator





2.
            Condenser





3.
            Condensate
                and Feedwater System





a.
            Condensate
                Pumps


b.
            Feedwater
                Heaters


c.
            Boiler
                Feed Pumps


d.
            Storage
                Tanks





4.
            Boiler
                including: Air Heaters, Pulverizers, Bunkers, Feeders and Blowdown
                Tanks





5.
            Forced
                Draft Fans and Primary Air Fans





6.
            Precipitator





7.
            Stack
                and Stack Monitoring System





8.
            Cooling
                Tower





9.
            Circulating
                Water Pumps





10.
            Main,
                Unit Auxiliary 4A and 4B
                Transformers





11.
            Bottom
                Ash System including: Hopper, Dewatering Tank, Setting Tank, Surge
                Tank,
                and Pump House





12.
            Fly
                Ash System





Exh.
            V - 7





EXHIBIT
      V(d)


(continued)








13.
            Building
                HVAC System





14.
            SO2
                Absorbers, Scrubbers, Transfer Pumps, Booster Fans, and Flue Gas
                Reheat
                System including the Reheat Steam Line from the Auxiliary Steam Header





15.
            Emergency
                Diesel Generator





16.
            Electrical
                and Control Systems





17.
            Fuel
                Oil Ignitor Heaters and Unit Specific
                Piping





18.
            Unit
                Specific Piping for all Air Systems, Chemical Feed Systems, and
                Hydrogen





19.
            Auxiliary
                Steam Header Piping System:





a.
            Including
                the Unit Specific Branch Line to the Reheat
                System


b.
            Not
                included is the Branch Line to the Chemical
                Plant














Exh.
            V - 8





EXHIBIT
      V(e)








FACILITIES
      AND EQUIPMENT


COMMON
      TO
      SAN JUAN UNITS NO. 1 AND 2





Operation
      and Maintenance Costs





PNM
                -
            50%
            TEP
                -
            50%M-S-R
                -
            0%
            Farmington
                -
            0%Tri-State
                -
            0%
            LAC
                -
            0%SCPPA
                -
            0%
            Anaheim
                -
            0%UAMPS**-**
            0%








1.
            Bearing
                Cooling Water System except Unit
                Piping





2.
            Bottom
                Ash Dewatering Facility including: Dewatering Tank, Settling Tank,
                Surge
                Tank, Storage Tank, and Pump House





3.
            Fuel
                Oil System (Fuel Oil for Ignition and Flame
                Stabilization)





4.
            Instrument
                Air System, except Unit Piping





5.
            Chemical
                Feed System, except Unit Piping





a.
            Condensate
                and Feedwater System


b.
            Boiler


c.
            Bearing
                Cooling Water System


d.
            Cooling
                Tower Systems


e.
            Chlorination
                System





6.
            Plant
                Air System, except Unit Piping





7.
            Sootblowing
                Air System, except Unit Piping





8.
            Hydrogen
                Storage System, except Unit Piping





9.
            Coal
                Tripper System including Dust Collection
                System





10.
            Turbine
                Lube Oil Storage and Transfer
                System





11.
            Control
                Room, Equipment Rooms, and Associated HVAC
                System





Exh.
            V - 9





EXHIBIT
      V(e)


(continued)








12.
            SO2
                Backup Scrubber-Absorber
                Transformer





13.
            Turbine
                Crane south of column, Line 12





14.
            Fuel
                Oil, Ash, and Water Pipe Racks





15.
            Boiler
                Fill System





16.
            SAR
                Multiplexer Control System








Exh.
            V - 10





EXHIBIT
      V(f)








FACILITIES
      AND EQUIPMENT


COMMON
      TO
      SAN JUAN UNITS NO. 3 AND 4





Operation
      and Maintenance Costs





PNM
                -
            44.119%
            TEP
                -
            0%M-S-R
                -
            14.4%
            Farmington
                -
            4.249%Tri-State
                -
            4.1%
            LAC-
            3.612%SCPPA
                -
            20.9%
            Anaheim
                -
            5.07%UAMPS**-**
            3.55%




1.
              Bearing
                  Cooling Water System except Unit
                  Piping
 
 2.
              Fuel
                  Oil System (Fuel Oil for Ignition and Flame Stabilization except
                  Ignitor
                  Heaters and Unit Specific Piping)
 
 3.
              Instrument
                  Air System except Unit Piping
 
 4.
              Chemical
                  Feed System except Unit Piping


a.
            Condensate
                and Feedwater System


b.
            Boiler


c.
            Bearing
                Cooling Water System


d.
            Cooling
                Tower Systems


e.
            Chlorination
                System




5.
              Plant
                  Air System except Unit Piping
 
 6.
              Sootblowing
                  Air System except Unit Piping
 
 7.
              Start-Up
                  Transformers and Nonseg Bus to Units 3 and 4
                  Switchgear
 
 8.
              Hydrogen
                  Storage System except Unit Piping
 
 9.
              Coal
                  Tripper System including Dust Collection
                  Systems
 
 10.
              Turbine
                  Lube Oil Storage and Transfer
                  System
 
 11.
              Control
                  Room, Equipment Rooms, and Associated HVAC
                  System









Exh.
            V - 11





EXHIBIT
      V(f)


(continued)




12.
              Boiler
                  Fill System
 
 13.
              Auxiliary
                  Cooling Systems including Auxiliary Cooling Tower No. 1 and Pumps,
                  but
                  excepting No. 4 Tower Pumps and Piping which is Unit
                  Specific
 
 14.
              CO2
                  Storage System except Unit Piping
 
 15.
              Start-Up
                  Boiler Feed Pump except Unit Piping
 
 16.
              Turbine
                  Bay Crane north of column, Line 12
 
 17.
              Fuel
                  Oil, Ash, and Water Pipe Racks
 
 18.
              Fire
                  Water Booster and Jockey Pumps
 
 19.
              Halon
                  Fire Protection System
 
 20.
              Cooling
                  Tower Multiplex Control System





Exh.
            V - 12





EXHIBIT
      V(g)








FACILITIES
      AND EQUIPMENT


COMMON
      TO
      ALL FOUR SAN JUAN UNITS





Operation
      and Maintenance Costs





PNM
                -
            46.297%
            TEP
                -
            19.8%M-S-R
                -
            8.7%
            Farmington
                -
            2.559%Tri-State
                -
            2.49%
            LAC
                -
            2.175%SCPPA
                -
            12.71%
            Anaheim
                -
            3.10%UAMPS**-**
            2.169%






1.
            River
                and Raw Water System including:





a.
            Diversion
                and intake structures, including all equipment and pump building.


b.
            Raw
                Water line to reservoir.


c.
            Reservoir,
                pump buildings, and all equipment.


d.
            Raw
                water lines to plant yard.


e.
            All
                above and underground fire protection system to each vendor supplied
                or
                unit specific fire protection
                system.




2.
              Auxiliary
                  Boiler
 
 3.
              SO2
                  Removal System except Absorbers


NOTE:
      In
      April 1998 the new SO2 Absorber Feed System went in-service and replaced the
      SO2
      Chemical Plant previously used by the Project. The SO2 Chemical Plant facilities
      are retired in place and will be salvaged or decommissioned at a later date.
      Section 3.1 describes the new SO2 Absorber Feed System while Section 3.2
      describes the old SO2 Chemical Plant.





3.1  SO2
      Absorber Feed System





a.
            Limestone
                Handling System


b.
            Limestone
                Preparation System


c.
            Dewatering
                System


d.
            Gypsum
                Stack Out System








Exh.
            V - 13





EXHIBIT
      V(g)


(continued)








3.2  SO2
      Chemical Plant





a.  Double
      effect evaporator train systems.


b.  Fly
      ash
      filter system.


c.  Absorber
      product and feed tanks.


d.  Condensate
      collection, storage, and transfer systems.


e.  Soda
      ash
      storage, mixing, and distribution systems.


f.
            Sulfate
                purge system including: crystallizers, centrifuges, evaporators,
                and salt
                cake system.


g.  Sulfuric
      acid plant system including storage tanks and load out system.


h.  Auxiliary
      No. 2 cooling tower, pumps, and systems.




4.
              Spare-Main
                  Transformer 345/24 kV for all
                  units.
 
 5.
              Maintenance,
                  Office, and Warehousing Facilities
 
 6.
              Chemical
                  Laboratory
 
 7.*
              Coal
                  and Ash Handling Control Facilities
 
 8.
              Roads
                  and grounds such as fencing, yard lighting, guard facilities, drainage,
                  and dikes.
 
 9.
              Potable
                  Water System


10.
              Environmental
                  Monitoring systems including Air, Water, and Ground. Excludes Stack
                  Monitoring Systems which are unit
                  specific.
 
 11.
              Transportation
                  such as trucks, cars, and dozers (not otherwise
                  charged).
 
 12.
              Water
                  Management System




a.
            Wastewater
                Recovery System -- Northside





1.
            Neutralization
                system including premix tank, neutralization tank, clarifier/thickener,
                and pumps.


2.
            Reverse
                osmosis system including lime/soda softening clarifier system.


3.
            Brine
                concentrator Nos. 4 and 5.


4.
            Process
                pond No. 3 and pump system.


5.
            North
                evaporation ponds 1, 2, and 3.





Exh.
            V - 14





EXHIBIT
      V(g)


(continued)








b.
            SO2
                Waste Treatment System -- Southside





1.
            Process
                ponds 1A, 1B, 2 and pumping system.


2.
            Premix
                tank and clarifier system.


3.
            Oxidation
                towers.


4.
            Brine
                concentrator Nos. 2 and 3.


5.
            South
                evaporation ponds Nos. 1, 2, 3, 4, and 5.





c.
            Data
                Acquisition System


d.
            Solid
                Waste Disposal Pit


e.
            Coal
                pile runoff pond





13.*
            Coal
                Handling Equipment -- all equipment from all reclaim hoppers ending
                at the
                chutes to the tripper conveyors. This includes: hoppers. feeders.
                feeder
                belts, reclaim conveyors, plant conveyors, belt scales, fire protection
                systems, dust suppression systems, magnetic separators, all electrical
                and
                controls, and heating and ventilation
                systems.





14.
            Maintenance
                Bay Facilities including: Bay Bridge Crane, all Offices, and Support
                Facilities




15.
              Sewage
                  Treatment Facilities


16.
            All
                Demineralizer Systems including: Clarifier, Storage Tanks, Sump Pumps,
                Filter Beds, and Control Systems.





17.
            The
                Chemical Plant 165-pound Control Valve and Branch Line from each
                of Units
                1 and 2 Unit Specific 650-pound Reheat Steam
                Line.





18.
            The
                Chemical Plant Branch Steam Line from (but not including) the Unit
                Specific Auxiliary, Steam Header System on each of Units 3 and
                4.











*Maintenance
      Only





Exh.
            V - 15





EXHIBIT
      V(h)








FACILITIES
      AND EQUIPMENT


COMMON
      TO
      ALL FOUR SAN JUAN UNITS





Operation
      Costs Only








PNMM-S-RTEP
            Variable split based on generation by unitFarmingtonTri-StateLACSCPPAAnaheimUAMPS




1.
              Coal
                  and Ash Handling Control Facilities
 
 2.
              Coal
                  Handling Equipment





All
      equipment from all reclaim hoppers ending at the chutes to the tripper
      conveyors. This includes: hoppers, feeders, feeder belts, reclaim conveyors,
      plant conveyors, belt scales, fire protection systems, dust suppression systems,
      magnetic separators, all electrical and control, and heating and ventilation
      systems.








Exh.
            V - 16





EXHIBIT
      V(i)








SWITCHYARD
      FACILITIES AND EQUIPMENT





OPERATION
      AND MAINTENANCE COSTS








PNM
                - 65%
            TEP
                - 35%
































Exh.
            V - 17





**EXHIBIT
      VI**












San
      Juan
      Operating Agreement


Exhibit
      VI-Attachment A











A&G
      RATIO APPLICABLE TO OPERATION AND MAINTENANCE FOR THE SAN JUAN GENERATING
      STATION (“SJGS”)





The
      Operating Agent determines, in accordance with Accounting Practice, the
      appropriate A&G expense incurred for the benefit of the SJGS and to be
      billed to the SJGS as follows:





1.  A&G
      expenses directly chargeable by on-site San Juan Project employees as set forth
      in Section 22.2.2;





2.  A&G
      expenses directly chargeable by A&G related departments located off-site as
      set forth in Section 22.2.2; and





3.  Indirect
      A&G expenses included in the development of the A&G ratio.





Except
      as
      set forth in Section 22.0, individuals located off-site must either charge
      their
      time and expenses direct to the SJGS or be included in the A&G pool in the
      development of the A&G Ratio. Costs incurred for the same purpose must be
      either all charged direct to the SJGS or all be included in the A&G pool,
      e.g., all staff persons within the same department must either charge direct
      to
      the SJGS or to the A&G pool.





**A.**
            The
                Operating Agent conducts an A&G study every three years. However,
                periodic reviews will be performed to determine if significant
                organizational changes have occurred that may require the Operating
                Agent
                to conduct an A&G study on a basis more frequently than three years.
                This study determines the appropriate amount of indirect A&G expense
                to utilize in the development of the A&G Ratio described below.





The
      FERC
      A&G accounts included in the A&G study are: 920, 921, 923, 930.2, 931
      and 935.





Background





The
      responsibility for the SJGS resides in the Operating Agent’s Bulk Power Business
      Unit. The A&G expenses charged to this Business Unit are derived from two
      areas. The first component is an allocation of A&G expenses from the
      Operating Agent’s Corporate Office to the Bulk Power Business Unit. These
      allocations are based on pre-determined methodologies. The second component
      of
      costs are A&G expenses that are directly charged to the Bulk Power Business
      Unit. Note: Any A&G expenses charged directly to the SJGS are excluded from
      the determination of the A&G Ratio and are not subject to the A&G
      Ratio.





Exh.
          VI - 1


A
      questionnaire is sent to all managers that have A&G charges to the Bulk
      Power Business Unit to determine what percentage of their A&G expenses
      should be included in the development of the A&G Ratio.





The
      percentages derived from the questionnaires are then applied to the actual
      A&G amounts charged to the Bulk Power Business Unit for the study year.
      Amounts are split between labor and other.





**B.**
            Labor
                Ratios for Payroll Taxes (FERC Account 408), Injuries and Damages
                (FERC
                Account 925) and Pension and Benefits (FERC Account 926)(See
                Exhibit VI Attachments B, C and D)are applied to the labor portion of the A&G determined above.





**C.**
            Other
                costs included in the development of the A&G Ratio are Depreciation of
                General Plant (FERC Account 403), Property Insurance (FERC Account
                924)
                and Property Taxes (FERC Account 408) for the Operating Agent’s
                headquarters buildings and energy management facility and Amortization
                of
                Computer Software (FERC Account 404) for certain software applications
                that provide benefit to the SJGS.





The
                portion of the costs related to the Operating Agent’s headquarters
                buildings included in the development of the A&G Ratio are derived by
                applying certain ratios obtained from the A&G study questionnaires.
                The costs included in the A&G Ratio for the Operating Agent’s energy
                management facility are based on the number of MW of SJGS capacity
                as a
                percentage of the Operating Agent’s total generating capacity. In
                addition, ratios for determining the amount of software costs to
                include
                in the A&G Ratio are based on the specific software application. For
                example, if the Operating Agent installed a new payroll system, the
                amount
                of costs for this system that would be included in the A&G Ratio
                calculation would be based on the number of employees at the SJGS
                as a
                percent of the Operating Agent’s total employees. The Operating Agent
                reviews each specific software application to determine the method
                for
                assigning the appropriate amount of costs to be included in the A&G
                Ratio calculation.





The
      A&G ratio shall be applied to the following SJGS costs:





1)
            Labor
                charged to the operation and maintenance expenses included in Sections
                22.2.1, 22.3, 22.4, 22.5 and 23.3.3 of the San Juan Project Participation
                Agreement. Such labor dollars are utilized as the denominator in
                the
                calculation of the A&G Ratio described
                below.





The
      A&G Ratio shall be derived annually based on the preceding year’s
      experience, as set forth herein unless otherwise agreed to by the participants.
      The A&G Ratio will be adjusted to actuals at year-end and the adjustment
      will be used in the computation of the A&G Ratio for the following
      year.


A&G
      Ratio = A/B





Exh.
          VI - 2


Where
      A =
      Administrative and general expense chargeable to FERC Accounts 920,
      921,


923,
      930.2, 931 and 935, including Labor Ratios for Payroll Taxes (FERC Account
      408),
      Injuries and Damages (FERC Account 925) and Pension and Benefits (FERC Account
      926) plus other related costs for the Operating Agent’s headquarters buildings
      and energy management facility for Property Taxes FERC Account (408),
      Depreciation of General Plant FERC Account (403), and Property Insurance FERC
      Account (924) plus amortization of certain Computer Software costs charged
      to
      FERC Account (404).





B
      = Total
      SJGS operation and maintenance labor paid and accrued excluding labor expenses
      chargeable to FERC accounts 920 through 935 inclusive.





Note:     
      Any modifications to the methodology utilized for calculating the A&G Ratio
      described above shall be developed by the San Juan Auditing Committee and
      approved by the San Juan Coordination Committee.





Exh.
            VI - 3





San
      Juan
      Operating Agreement


Exhibit
      VI-Attachment B








PAYROLL
      TAX RATIO FOR THE SAN JUAN GENERATING STATION (“SJGS”)








The
      Payroll Tax Ratio shall be applied to the following SJGS costs:





1)
            Labor
                charged to operation and maintenance expenses included in Sections
                22.2.1,
                22.2.2, 22.2.4, 22.2.5 22.3, 22.4, 22.5 and 23.3.3 of the San Juan
                Project
                Participation Agreement.


2)
            Labor
                charged to other primary accounts including, but not limited to,
                FERC
                Accounts 107, 108, 163, 183, 186 and
                188.





The
      Payroll Tax Ratio shall be determined annually on the basis of the Operating
      Agent’s preceding years experience adjusted for known changes to comply with
      regulations applicable to Social Security and Unemployment Compensation as
      set
      forth herein unless otherwise agreed to by the participants. The Payroll Tax
      Ratio will be adjusted to actuals at year-end and the adjustment will be used
      in
      the computation of the ratio for the following year.





Payroll
      Tax Ratio = T/P





Where
      T =
      The Operating Agent’s total payroll tax expense chargeable to FERC Account
      408.





P
      = The
      Operating Agent’s total base labor paid and accrued, less wages paid for
      time-off allowances plus accruals for time-off allowances.








Notes:
                (1)
            Base
                labor is defined as an employee’s hourly rate times the number of hours
                worked plus an accrual for time-off allowances. In addition, base
                labor
                also includes overtime pay and special
                pay.





(2)
            Time-off
                allowances are defined as vacation, illness and holiday
                time.





(3)  Special
      pay is defined as any other compensation an employee receives that is not part
      of his/her regular base pay. Examples include employee recognition awards as
      well as results based pay, the Operating Agent’s bonus pay plan.





(4)  Any
      modifications to the methodology utilized for calculating the Payroll Tax Ratio
      described above shall be developed by the San Juan Auditing Committee and
      approved by the San Juan Coordinating Committee.





Exh.
            VI - 4





San
      Juan
      Operating Agreement


Exhibit
      VI-Attachment C








INJURIES
      AND DAMAGES RATIO FOR THE


SAN
      JUAN GENERATING STATION (“SJGS”)





The
      Injuries and Damages Ratio shall be applied to the following SJGS
      costs:





1)
            Labor
                charged to operation and maintenance expenses included in Sections
                22.2.1,
                22.2.2, 22.2.4, 22.2.5 22.3, 22.4, 22.5 and 23.3.3 of the San Juan
                Project
                Participation Agreement.


2)
            Labor
                charged to other primary accounts including, but not limited to,
                FERC
                Accounts 107, 108, 163, 183, 186 and
                188.





The
      Injuries and Damages Ratio shall be determined annually on the basis of the
      Operating Agent’s preceding year’s experience as set forth herein unless
      otherwise agreed to by the participants. The Injuries and Damages Ratio will
      be
      adjusted to actuals at year-end and the adjustment will be used in the
      computation of the ratio for the following year.





Injuries
      and Damages Ratio = I/P





Where
      I =
      The Operating Agent’s total injuries and damages expense chargeable to FERC
      Account 925, including payroll taxes, and pension and benefits on labor
      chargeable to FERC Account 925. The amount of payroll taxes and pension and
      benefits to be added are based on the ratios included in Exhibit VI, Attachments
      B and D, respectively. Note: Any injuries and damages expense charged direct
      to
      the SJGS are excluded from the determination of the Injuries and Damages
      Ratio.





P
      = The
      Operating Agent’s total base labor paid and accrued, less wages paid for
      time-off allowances plus accruals for time-off allowances less special pay
      and
      wages charged direct to FERC Account 925.




Notes:       
      (1) Special
      pay is defined as any other compensation an employee receives that is not part
      of his/her regular base pay. Examples  include employee recognition awards
      as well as results based pay, the Operating Agent’s bonus pay plan.





(2)
            Any
                modifications to the methodology utilized for calculating the Injuries
                and
                Damages Ratio described above shall be developed by the San Juan
                Auditing
                Committee and approved by the San Juan Coordination
                Committee.








Exh.
            VI - 5





San
      Juan
      Operating Agreement


Exhibit
      VI-Attachment D








PENSION
      AND BENEFITS RATIO FOR THE


SAN
      JUAN GENERATING STATION (“SJGS”)








The
      Pension and Benefits Ratio shall be applied to the following SJGS
      costs:





1)
            Labor
                charged to operation and maintenance expenses included in Sections
                22.2.1,
                22.2.2, 22.2.4, 22.2.5 22.3, 22.4, 22.5 and 23.3.3 of the San Juan
                Project
                Participation Agreement.


2)
            Labor
                charged to other primary accounts including, but not limited to,
                FERC
                Accounts 107, 108, 163, 183, 186 and
                188.





The
      Pension and Benefits Ratio shall be determined annually on the basis of the
      Operating Agent’s preceding year’s experience as set forth herein unless
      otherwise agreed to by the participants. The Pension and Benefits Ratio will
      be
      adjusted to actuals at year-end and the adjustment will be used in the
      computation of the ratio for the following year.





Pension
      and Benefits Ratio = B/P





Where
      B =
      The Operating Agent’s total pension and benefits expense chargeable to FERC
      Account 926, including payroll taxes, and injuries and damages on labor
      chargeable to FERC Account 926. The amount of payroll taxes and injuries and
      damages to be added are based on the ratios included in Exhibit VI, Attachments
      B and C, respectively.





P
      = The
      Operating Agent’s total base labor paid and accrued, less wages paid for
      time-off allowances plus accruals for time-off allowances, less overtime,
      part-time, special pay not eligible for pension and benefits and wages charged
      direct to FERC Account 926.





Notes:        (1)  Special
      pay is defined as any other compensation an employee receives that is not part
      of his/her regular base pay. Examples include employee recognition awards as
      well as results based pay, the Operating Agent’s bonus pay plan. Employee
      recognition awards are not eligible for pension and benefit
      loadings.


(2)
            Any
                modifications to the methodology utilized for calculating the Pension
                and
                Benefits Ratio described above shall be developed by the San Juan
                Auditing
                Committee and approved by the San Juan Coordination
                Committee.














Exh.
            VI - 6





San
      Juan
      Operating Agreement


Exhibit
      VI - Attachment
      E








CAPITALIZED
      A&G RATIO APPLICABLE TO CAPITAL PROJECTS FOR THE SAN JUAN GENERATING STATION
      (“SJGS”)





The
      Operating Agent determines the appropriate A&G expense incurred for the
      benefit of the SJGS and to be billed to the SJGS as follows:





**A.**
            The
                Operating Agent conducts an A&G study every three years. However,
                periodic reviews will be performed to determine if significant
                organizational changes have occurred that may require the Operating
                Agent
                to conduct an A&G study on a basis more frequently than three years.
                This study determines the appropriate amount of indirect A&G expense
                to utilize in the development of the Capitalized A&G Ratio described
                below.





The
      FERC
      A&G accounts included in the A&G study are: 920, 921, 923, 930.2, 931
      and 935.





Background





The
      responsibility for the SJGS resides in the Operating Agent’s Bulk Power Business
      Unit. The A&G expenses charged to this Business Unit are derived from two
      areas. The first component is an allocation of A&G expenses from the
      Operating Agent’s Corporate Office to the Bulk Power Business Unit. These
      allocations are based on pre-determined methodologies. The second component
      of
      costs are A&G expenses that are directly charged to the Bulk Power Business
      Unit. Note: Any A&G expenses charged directly to the SJGS are excluded from
      the determination of the Capitalized A&G Ratio. Two Capitalized A&G
      Ratios are calculated, one for major construction projects (Projects greater
      than $10,000,000) and one for minor construction projects (Projects less than
      $10,000,000).





A
      questionnaire is sent to all managers that have A&G charges to the Bulk
      Power Business Unit to determine what percentage of their A&G expenses are
      capital-related and should be included in the development of the Capitalized
      A&G Ratios. Amounts are split between labor and other.





**B.**
            Labor
                Ratios for Payroll Taxes (FERC Account 408), Injuries and Damages
                (FERC
                Account 925) and Pension and Benefits (FERC Account 926) (see Exhibit
                VI
                Attachments B, C and D) are applied to the labor portion of the A&G
                determined above.





The
      Capitalized A&G Ratios, shall be applied to all SJGS construction costs
      except for long-term leased transportation and motorized equipment. The total
      amount of these construction dollars are utilized as the denominator in the
      calculation of the A&G Ratio described below.





Exh.
          VI - 7


Capitalized
      A&G Ratio = A/B





Where
      A =
      Administrative and general expense chargeable to FERC Accounts 920, 921, 923,
      930.2, 931 and 935, including Labor Ratios for Payroll Taxes (FERC Account
      408),
      Injuries and Damages (FERC Account 925) and Pension and Benefits (FERC Account
      926) as categorized separately in the A&G questionnaire for major and minor
      construction expenditures for the study period.





B
      = Total
      SJGS capital project amounts for the Bulk Power Business Unit as categorized
      between major and minor construction projects for the study period chargeable
      to
      FERC Accounts 107 and 108.








Note:
      Any
      modifications to the methodology utilized for calculating the A&G Ratio
      described above shall be developed by the San Juan Auditing Committee and
      approved by the San Juan Coordination Committee.








Exh.
            VI - 8




**EXHIBIT
      VII**










**Example** **“Interim
      Invoice”**











**Example** **“UG-CSA
      Invoice”** ****










**Example
      “UPS Invoice”**













**EXHIBIT
      VIII**











**EXHIBIT
      VIII**








Proportional
      Adjustment of Voting Requirements


in
      Case of a Default and Suspension of the Rights of a Participant


to
      Vote Pursuant to Section 35.4.1.





Example
      Calculation Based on Hypothetical Ownership Percentages:








In
      the
      following table, Participant D with Participation Shares in Units 3 and 4 is
      assumed to be the defaulting Participant. Participation Shares for Voting and
      Number of Participants for Voting are shown under original or pre-default
      conditions and are then adjusted as provided in Sections 18.4, 19.4, 20.5,
      and
      21.4 after the right of Participant D to vote is suspended pursuant to Section
      35.4.1.





Participation
      Shares for voting pursuant to Sections 18.4.1(a), 18.4.2(a), and 18.4.3(a)
      are
      adjusted as follows:




For
      Units:





The
      Adjusted Participation Share for a Participant = (That Participant’s
      Participation Share)/(The sum of the Participation Shares of all non-defaulting
      Participants in the affected Unit)





For
      Common Facilities:





Adjustments
      related to common facilities shall be proportional to any differing
      Participation Shares between Units. The above formula would be applied to each
      Unit and then summed and normalized over the applicable common facilities.
      Because San Juan Units are of unequal ratings, the normalization will be in
      proportion to each Unit’s rating rather than the even fractions in the example
      below where equally sized units were used for simplicity.





The
      numbers of Participants used for voting purposes pursuant to the requirements
      of
      Sections 18.4.1(b), 18.4.2(b), and 18.4.3(b) are adjusted by subtracting the
      number of defaulting Participants from the total number of Participants voting
      under those Sections.

















**Unit
                or Facility**
            **Original
                Participation Shares for Voting: §18.4.1(a), §18.4.2(a), and
                §18.4.3(a)**
            **Original
                Number of Participants for Voting Purposes: §18.4.1(b), §18.4.2(b), and
                §18.4.3(b)**
            **Adjusted
                Participation Shares for Voting - §18.4.1(a), §18.4.2(a), and
                §18.4.3(a)**
            **Adjusted
                Number of Participants for Voting Purposes - §18.4.1(b), §18.4.2(b), and
                §18.4.3(b)****Unit
                1**
            
            2
            
            2Participant
                A
            50.00%
            
            50.00%Participant
                B
            50.00%
            
            50.00%**Unit
                2**
            
            2
            
            2Participant
                A
            50.00%
            
            50.00%Participant
                B
            50.00%
            
            50.00%**Unit
                3**
            
            4
            
            3Participant
                A
            20.00%
            
            28.57%1Participant
                B
            20.00%
            
            28.57%Participant
                C
            30.00%
            
            42.86%Participant
                D
            30.00%
            
            0.00%**Unit
                4**
            
            5
            
            4Participant
                A
            10.00%
            
            12.50%2Participant
                B
            10.00%
            
            12.50%Participant
                C
            20.00%
            
            25.00%Participant
                D
            20.00%
            
            0.00%Participant
                E
            40.00%
            
            50.00%**Unit
                1 & 2 Common**
            
            2
            
            2Participant
                A
            50.00%
            
            50.00%Participant
                B
            50.00%
            
            50.00%





1Computed
            on Unit 3 Participation Shares as follows: (Participant A) / (Participant
            A +
            Participant B + Participant C) = 20%/(20%+20%+30%) = 28.57% 2 Computed
                on Unit 4 Participation Shares as follows: (Participant A) / (Participant
                A +
                Participant B + Participant C + Participant E) = 10%/(10%+10%+20%+40%)
                =
                12.50%
 Exh
            VIII -2








**Unit
                3 & 4 Common**
            
            5
            
            4Participant
                A
            15.00%
            
            20.536%3Participant
                B
            15.00%
            
            20.536%%Participant
                C
            25.00%
            
            33.928%Participant
                D
            25.00%
            
            0.00%Participant
                E
            20.00%
            
            25.000%**Plant
                Common**
            
            5
            
            4Participant
                A
            32.50%
            
            35.268%4Participant
                B
            32.50%
            
            35.268%Participant
                C
            12.50%
            
            16.964%Participant
                D
            12.50%
            
            0.00%Participant
                E
            10.00%
            
            12.500%





3 Computed
        on Unit 3 and 4 Common Participation Shares as follows: Unit 3 Contribution
        =
        (Participant A) / (Participant A + Participant B + Participant C) =
        20%/(20%+20%+30%) = 28.571%; Unit 4 Contribution = (Participant A) /
        (Participant A + Participant B + Participant C + Participant E) =
        10%/(10%+10%+20%+40%) = 12.500%.
 Unit
          3
& 4 Common = (Unit 3 Rating)/(Sum of Unit 3 and 4 Ratings) * (Unit 3
          Contribution) + (Unit 4 Rating)/(Sum of Unit 3 and 4 Ratings) * (Unit 4
          Contribution) = 1⁄2 (28.571%) + 1⁄2 (12.500%) = 20.536%
 4 Computed
          on Plant Common Participation Shares as follows: Unit 1 Contribution =
          (Participant A) / (Participant A + Participant B) = 50%/(50%+50%) = 50.000%;
          Unit 2 Contribution = (Participant A) / (Participant A + Participant B)
          =
          50%/(50%+50%) = 50.000%. Unit 3 Contribution = (Participant A) / (Participant
          A
          + Participant B + Participant C) = 20%/(20%+20%+30%) = 28.571%; Unit 4
          Contribution = (Participant A) / (Participant A + Participant B + Participant
          C
          + Participant E) = 10%/(10%+10%+20%+40%) = 12.500%. Plant Common = (Unit
          1
          Rating)/(Plant Rating) * (Unit 1 Contribution) + (Unit 2 Rating)/(Plant
          Rating)
          * (Unit 2 Contribution) + (Unit 3 Rating)/(Plant Rating) * (Unit 3 Contribution)
          + (Unit 4 Rating)/(Plant Rating) * (Unit 4 Contribution) = 1/4 (50.000%)
          + 1/4
          (50.000%) + 1/4 (28.571%) + 1/4 (12.500%) = 35.268%


Exh
            VIII -3





**EXHIBIT
      IX**










**EXHIBIT
      IX**


**FIXED
      FUEL EXPENSE**





**SAN
      JUAN UNDERGROUND COAL SALES AGREEMENT (As Amended)**





SECTION
      7.3


Reclamation.
      (Any applicable post-expiration or post-termination reclamation costs described
      in said section.)





SECTION
      8.2(A)


Base
      CIE
      Amount





SECTION
      8.2(C)


Reimbursable
      Operating Costs enumerated in Exhibit “F” Paragraph I(1)





SECTION
      8.2(D)


Administration
      Element





SECTION
      8.2(E)


That
      part
      of CIE Reconciliation Amount associated with Base CIE or Non-SJCC Base
      CIE





SECTION
      8.3(A)


Processing
      CIE Amount





SECTION
      8.3(C)


Processing
      Administration Element





SECTION
      8.3(D)


Processing
      CIE Reconciliation Amount





SECTION
      8.5(A):


Other
      Reclamation (These are reclamation costs associated with former activities
      to
      supply surface-mined coal.)





SECTION
      8.5(B)


Substitute
      REI





SECTION
      8.5(C)


Payment
      of the Utility Payment Stream





SECTION
      8.5(D)


Payments
      under the Ute ROW





SECTION
      8.5(E)




Exh
          IX - 1


Other
      Miscellaneous Costs




SECTION
      8.5(F)


Dispute
      Costs





**COAL
      SALES AGREEMENT BUY OUT AGREEMENT**





SECTION
      4.4:


Payment
      of SJCC Costs







**TRANSPORTATION
      AGREEMENT BUYOUT AGREEMENT**





SECTION
      3.4:


Payment
      of SJTC Costs





Any
      costs
      allocated as Fixed Fuel Expense pursuant to Section 23.4.1.3 of this
      Agreement.





Applicable
      taxes and royalties on the above items shall be deemed Fixed Fuel
      Expense.





Capitalized
      Terms used in this Exhibit, not otherwise defined in this Agreement, are as
      defined in the above captioned agreements.





Exh
            IX - 2




**EXHIBIT
      X**











**EXHIBIT
      X**


**VARIABLE
      FUEL EXPENSE**














**SAN
      JUAN UNDERGROUND COAL SALES AGREEMENT (As Amended)**





SECTION
      8.2(B)


Incremental
      CIE Amount





SECTION
      8.2(C)


Reimbursable
      Operating Costs except those enumerated in Exhibit “F” Paragraph I(1) and only
      those reclamation costs directly associated with disturbance attributable to
      the
      underground mine.





SECTION
      8.2(E)


That
                part of CIE Reconciliation Amount associated with Incremental CIE
                or
                Non-SJCC Incremental CIE





SECTION
      8.3(B)


Reimbursable
      Processing Costs





SECTION
                8.4


Non-SJCC
      Coal and Alternate Coal Costs








Capitalized
      Terms used in this Exhibit, not otherwise defined in this Agreement, are as
      defined in the above captioned agreements.