EXECUTION COPY


THIS  INSTRUMENT   GRANTS  A  SECURITY   INTEREST  BY  A  UTILITY  AND  CONTAINS
AFTER-ACQUIRED  PROPERTY  PROVISIONS  PURSUANT  TO  SUBCHAPTER  35A OF THE TEXAS
BUSINESS AND COMMERCE CODE


         BOND  AGREEMENT,  dated as of September 10, 1996,  by TEXAS-NEW  MEXICO
POWER COMPANY,  a Texas  corporation  ("TNP" or the "Pledgor"),  in favor of THE
FIRST  NATIONAL BANK OF CHICAGO,  as  collateral  agent for the lenders (in such
capacity,  the "Collateral  Agent") party to the Credit  Agreement,  dated as of
September 10, 1996 (as amended,  modified or supplemented from time to time, the
"Credit Agreement"),  among TNP, the lenders named therein (the "Lenders"),  The
First National Bank of Chicago, as administrative agent and collateral agent for
the  Lenders,  and  The  First  National  Bank  of  Chicago  and  Union  Bank of
California, N.A., as co-agents (the "Co-Agents").



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         The  Lenders  have  agreed to make Loans (such term and each other term
used but not  defined  herein  having the  meaning  assigned to it in the Credit
Agreement) to the Borrower  pursuant to, and subject to the terms of, the Credit
Agreement.  The  obligations  of the Lenders to make the Loans are  conditioned,
among other  things,  upon the  execution  and delivery by the Pledgor of a bond
pledge  agreement in the form hereof to secure the due and  punctual  payment by
the Borrower of (a) the principal of and interest on the Loans, when and as due,
whether at maturity, by acceleration,  upon one or more dates set for prepayment
or otherwise,  (b) all other monetary  obligations of the Borrower to the Agents
and the Lenders under the Loan Documents and (c) all  obligations of the Pledgor
or any Subsidiary under any Interest Rate Protection Agreement entered into with
a  Lender  to  protect  against  interest  rate  fluctuations  with  respect  to
Indebtedness under the Credit Agreement (the foregoing  obligations described in
clauses (a), (b) and (c) being  collectively  called the  "Obligations").  It is
understood  that TNP is the  issuer  of the New  First  Mortgage  Bonds  pledged
hereunder  and  that,  accordingly,  the New  First  Mortgage  Bonds  constitute
obligations,  and not property, of TNP, the purpose of the arrangements provided
for herein  being to provide for the  payment  of, and the  benefits of security
for,  the  Obligations  through the  issuance  and  delivery of the Bonds to the
Collateral Agent as contemplated by Section 4.02 of the Credit Agreement.


         Accordingly,  the  Pledgor and the  Collateral  Agent  hereby  agree as
follows:

         SECTION 1. Pledge and  Delivery of Bonds.  To provide for the  payment,
and the benefit of security  for the payment  and  performance  in full,  of the
Obligations,  the Pledgor hereby transfers,  grants,  bargains,  sells, conveys,
hypothecates, pledges, sets over and delivers unto the Collateral Agent, for the
benefit of the Lenders and the Agents,  and grants to the Collateral  Agent, for
the  benefit  of the  Lenders  and the  Agents,  a  security  interest  in,  the
following:

                  (a) the New  First  Mortgage  Bonds,  and the  certificate  or
         certificates  representing  or evidencing the New First Mortgage Bonds,
         that may be  delivered  to the  Administrative  Agent from time to time
         pursuant  to Section  4.02(a) of the Credit  Agreement  and held by the
         Collateral  Agent  pursuant  to the terms  hereof and the  Supplemental
         Indenture;

                  (b)      all  other  property  which may be  delivered  to and
         held by the Collateral  Agent pursuant to the terms hereof  (whether or
         not described herein);

                  (c) all payments of principal, interest and other amounts, and
         all cash,  instruments and other property,  from time to time received,
         receivable or otherwise  distributed  in respect of, in exchange for or
         upon the  conversion of the  securities  referred to in clauses (a) and
         (b) above;

                  (d)      all  rights  and   privileges  of  the  Pledgor  with
         respect  to  the  securities   and  other   property   referred  to  in
         clauses (a) and (b) above; and

                  (e)      all proceeds of any of the foregoing

(the items  referred to in clauses  (a)  through  (e) above  being  collectively
called the  "Collateral").  Upon delivery to the Collateral  Agent,  (x) the New
First  Mortgage  Bonds  and  any  certificates,   instruments,  notes  or  other
securities now or hereafter  included in the Collateral  shall be accompanied by
duly  executed  instruments  of  transfer  or  assignment  satisfactory  to  the
Collateral  Agent and by such other  instruments and documents as the Collateral
Agent  may  reasonably  request  and  (y) all  other  property  included  in the
Collateral  shall be  accompanied  by  proper  instruments  of  assignment  duly
executed  by  the  Pledgor  and  such  other  instruments  or  documents  as the
Collateral Agent may reasonably request.

         SECTION 2.  Representations,  Warranties  and  Covenants.  The  Pledgor
hereby  represents,  warrants  and  covenants to and with the  Collateral  Agent
that:

                  (a) At the time of their  delivery  hereunder,  the New  First
         Mortgage   Bonds   will  have  been   authorized,   executed,   issued,
         authenticated  and  delivered,  and registered as provided in Section 3
         below,  in accordance  with applicable law and the terms and provisions
         of the TNP Bond  Indenture  and will  constitute  the legal,  valid and
         binding  obligations of the Borrower,  enforceable  in accordance  with
         their terms and entitled to the benefits of the TNP Bond  Indenture and
         the  Liens  created  thereby  to the same  extent  as the  other  First
         Mortgage Bonds issued thereunder.

                  (b) The New First Mortgage Bonds  delivered to and held by the
         Collateral  Agent  hereunder will at all times be  outstanding  for all
         purposes of the TNP Bond  Indenture  and the  Collateral  Agent and its
         successors,  as  holders  thereof,  will  be  entitled  to all  voting,
         consensual and other rights accruing to holders of First Mortgage Bonds
         issued under the TNP Bond Indenture.

                  (c)  The  Pledgor  will  make  no  sale,  assignment,  pledge,
         hypothecation  or other  transfer  of,  or create  any  other  security
         interest in, the New First Mortgage Bonds or other Collateral.

                  (d) The  Pledgor  (i) has good  right and legal  authority  to
         issue,  pledge and deliver the New First  Mortgage  Bonds and the other
         Collateral  to the  Collateral  Agent  in the  manner  hereby  done  or
         contemplated,  (ii) will defend the interest of the Collateral Agent in
         the New First Mortgage Bonds and the other  Collateral  against any and
         all attachments,  liens,  claims,  encumbrances,  security interests or
         other  impediments of any nature,  however arising,  of all persons and
         (iii) will  promptly turn over to the  Collateral  Agent in the form in
         which  received  any  Collateral  which shall at any time come into its
         possession.

                  (e) No consent or approval of any Governmental Authority,  the
         Trustee under the TNP Bond Indenture or any securities  exchange was or
         is necessary for the valid  issuance of the New First Mortgage Bonds or
         the  pledge  and  delivery  effected  hereby  except  such as have been
         obtained and are in full force and effect.

                  (f) By virtue of the  execution and delivery by the Pledgor of
         this Agreement and the Supplemental  Indenture,  when the certificates,
         instruments or other documents representing or evidencing the New First
         Mortgage Bonds are delivered to the Collateral Agent in accordance with
         this Agreement and the  Supplemental  Indenture,  the Collateral  Agent
         will obtain a valid and perfected first lien upon and security interest
         in such New First Mortgage  Bonds and the other  Collateral as security
         for the payment and performance of the Obligations,  prior to all other
         liens and encumbrances thereon and security interests therein.

                  (g) The pledge  effected  hereby is  effective  to vest in the
         Collateral  Agent, on behalf of the Lenders and the Agents,  the rights
         of the  Collateral  Agent in the New  First  Mortgage  Bonds  and other
         Collateral as set forth herein.

         SECTION 3. Registration of New First Mortgage Bonds; Denominations. The
New First Mortgage  Bonds shall be registered on the register  maintained by the
Trustee under the TNP Bond Indenture in the name of the Collateral  Agent or its
nominee.  The Collateral Agent shall have the right to exchange the certificates
representing  the New First Mortgage Bonds for certificates of smaller or larger
denominations to facilitate the exercise of its rights hereunder.

         SECTION 4. Voting and Consensual Rights,  Etc. (a) Until the Collateral
shall have been released as provided in Section 13, the  Collateral  Agent shall
have and may exercise,  to the exclusion of the Pledgor, all voting,  consensual
and other rights  accruing to a holder of New First Mortgage  Bonds,  including,
without  limitation,  (i) the right to demand and receive  payments of principal
and interest on the New First Mortgage Bonds in accordance with the terms of the
New First Mortgage Bonds and the TNP Bond Indenture, (ii) the right to attend or
be  represented  by proxy  at any  meeting  of  bondholders  under  the TNP Bond
Indenture,  (iii) the right to vote the New First  Mortgage  Bonds in accordance
with the terms of the TNP Bond  Indenture,  (iv) the right to issue consents and
waivers  with  respect  to the New First  Mortgage  Bonds,  as a holder of First
Mortgage  Bonds,  under or in connection  with the TNP Bond  Indenture,  (v) the
right to issue any and all  instructions  and requests for action to the Trustee
under the TNP Bond  Indenture  that are permitted to a bondholder  under the TNP
Bond  Indenture and (vi) the right to exercise all remedies  provided in the TNP
Bond  Indenture  for the benefit of the  holders of First  Mortgage  Bonds.  The
Pledgor  shall not amend,  supplement  or  otherwise  modify,  or consent to any
amendment,  supplement  or other  modification  to,  the  terms of the New First
Mortgage  Bonds or the TNP Bond  Indenture in any manner that could  directly or
indirectly  affect the  Collateral,  the Lien of the TNP Bond  Indenture  or the
rights or interests of the Lenders (other than issuances of First Mortgage Bonds
permitted under Section 6.01(d) of the Credit Agreement pursuant to supplemental
bond  indentures),  in each case  except with the prior  written  consent of the
Collateral Agent.

         (b) The  Pledgor  shall not  consent  to any  voluntary  prepayment  or
redemption of the New First Mortgage Bonds without the prior written  consent of
the  Collateral  Agent,  and any  amounts  received by or for the account of the
Pledgor  in  respect  of any such  prepayment  or  redemption  shall  constitute
Collateral  hereunder and shall be held by the Collateral  Agent for application
as provided herein.

         SECTION 5. No  Disposition.  Without the prior  written  consent of the
Collateral  Agent, the Pledgor agrees that it will not sell,  assign,  transfer,
exchange,  or  otherwise  dispose of, or grant any option  with  respect to, the
Collateral,  nor will it  create,  incur or permit to exist  any  pledge,  lien,
mortgage,  hypothecation,   security  interest,  charge,  option  or  any  other
encumbrance with respect to any of the Collateral,  or any interest therein,  or
any proceeds thereof,  except for the lien and security interest provided for by
this Agreement.

         SECTION  6.  Amendment,  Modifications  and  Waivers  with  Respect  to
Obligations. The Pledgor hereby agrees that, without notice to or further assent
by the  Pledgor,  any demand for payment of any of the  Obligations  made by the
Collateral  Agent or the Lenders may be rescinded by the Collateral Agent or the
Lenders  and  any of the  Obligations  continued,  and the  Obligations,  or the
liability of the Pledgor or any other party upon or for any part thereof, or any
collateral  security  or  guarantee  therefor  or right of setoff  with  respect
thereto,  may,  from time to time,  in whole or in part,  be renewed,  refunded,
extended, amended, modified, accelerated,  compromised,  waived, surrendered, or
released by the Collateral  Agent or any Lender and the Credit Agreement and any
other Loan Document or any other documents delivered in connection therewith may
be amended,  modified,  supplemented  or  terminated in whole or in part, as the
Lenders may deem advisable from time to time, and any collateral security at any
time  held by the  Lenders  for the  payment  of the  Obligations  may be  sold,
exchanged,  waived,  surrendered  or  released  on terms  that in the good faith
judgement of the  Collateral  Agent are  commercially  reasonable in view of the
applicable circumstances and in view of the limitations described in Section 12,
all without  notice to or the consent of the  Pledgor,  which will remain  bound
hereunder,   notwithstanding   any  such   renewal,   extension,   modification,
acceleration,  compromise,  amendment, supplement,  termination, sale, exchange,
waiver, surrender or release. Neither the Collateral Agent nor the Lenders shall
have any obligation to protect,  secure,  perfect or insure any other collateral
security  document or property  subject thereto at any time held as security for
the Obligations. The Pledgor waives any and all notice of the creation, renewal,
extension  or  accrual  of any of the  Obligations  and  notice  of or  proof of
reliance  by the  Collateral  Agent or any Lender upon this  Agreement,  and the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred in reliance upon this Agreement, and all dealings between
the  Pledgor  and  the  Collateral  Agent  and the  Lenders  shall  likewise  be
conclusively  presumed to have been had or  consummated  in  reliance  upon this
Agreement.  The  Pledgor  waives  diligence,  presentment,  protest,  demand for
payment and notice of default or  nonpayment to or upon the Pledgor with respect
to the Obligations.

         SECTION 7.  Remedies.  (a) If a Default or Event of Default  shall have
occurred and be continuing,  the Collateral Agent, without demand of performance
or other  demand,  advertisement  or  notice  of any  kind  (except  the  notice
specified  below of time and  place of public  or  private  sale) to or upon the
Pledgor  or any  other  person  (all and each of which  demands,  advertisements
and/or notices are hereby expressly  waived),  may forthwith  collect,  receive,
appropriate  and realize upon the  Collateral,  or any part thereof,  and/or may
forthwith sell, assign, give option or options to purchase,  contract to sell or
otherwise dispose of and deliver said Collateral, or any part thereof, in one or
more parcels at public or private sale or sales, at any exchange, broker's board
or at any of the  Collateral  Agent's  offices or elsewhere  upon such terms and
conditions as it may deem  advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without  assumption of any credit risk,
and the Collateral Agent or any Lender shall have the right,  upon any such sale
or  sales,  public  or  private,  to  purchase  the  whole  or any  part of said
Collateral  so sold,  free of any right or equity of  redemption in the Pledgor,
which right or equity is hereby expressly waived or released. In addition to the
rights and remedies  granted to it in this Agreement and in any other instrument
or agreement  securing,  evidencing or relating to any of the  Obligations,  the
Collateral Agent shall have all the rights and remedies of a secured party under
the Uniform Commercial Code in effect in the State of Illinois at that time (the
"Code"), whether or not the Code applies to the affected Collateral. The Pledgor
shall  be  liable  for the  deficiency  if the  proceeds  of any  sale or  other
disposition of the  Collateral  are  insufficient  to pay the  Obligations.  The
Pledgor  agrees that,  to the extent notice of sale of any  Collateral  shall be
required by law, at least ten days'  notice to the Pledgor of the time and place
of any public sale or the time after which any private  sale is to be made shall
constitute reasonable notification.  The Collateral Agent shall not be obligated
to make any sale of  Collateral  regardless of notice of sale having been given.
The Collateral Agent may adjourn any public or private sale from time to time by
announcement  at the time and place fixed therefor,  and such sale may,  without
further notice, be made at the time and place to which it was so adjourned.  Any
cash held by the Collateral  Agent as Collateral and all cash proceeds  received
by the  Collateral  Agent in respect of any sale of,  collection  from, or other
realization upon all or any part of the Collateral may, in the discretion of the
Collateral Agent, be held by the Collateral Agent as collateral for, and/or then
or at any time  thereafter  applied (after payment of any amounts payable to the
Collateral  Agent pursuant to paragraph  FIRST of Section 8) in whole or in part
by the  Collateral  Agent  against,  all or any part of the  Obligations in such
order as the Administrative  Agent shall elect. Any surplus of such cash or cash
proceeds held by the Collateral Agent and remaining after payment in full of all
the  Obligations  shall  be paid  over to the  Pledgor  or to  whosoever  may be
lawfully entitled to receive such surplus.

         (b) If an Event of Default  shall have occurred and be  continuing,  in
addition to its other  rights and  remedies  hereunder  and under the other Loan
Documents,   the   Collateral   Agent  shall,   upon  the   instruction  of  the
Administrative Agent pursuant to Article VII of the Credit Agreement, furnish to
the  Trustee  written  notice of such Event of Default and direct the Trustee to
cause a redemption of the New First Mortgage  Bonds by the Borrower  pursuant to
the terms of the Supplemental Indenture.

         (c) Neither  the  Collateral  Agent nor any Lender  shall be liable for
failure to collect or realize upon the Obligations or any collateral security or
guarantee therefor,  or any part thereof, or for any delay in so doing nor shall
any of them be under any  obligation to take any action  whatsoever  with regard
thereto.  Although  the  Collateral  Agent or its  nominee  may  without  notice
exercise any and all rights,  privileges or options pertaining to any of the New
First Mortgage  Bonds as if it were the absolute  owner thereof,  the Collateral
Agent shall have no duty to exercise any of the aforesaid rights,  privileges or
options,  shall not be responsible for any failure to do so or delay in so doing
and, in any event, may do so without liability.

         SECTION 8.  Application  of Proceeds.  The cash proceeds of any sale of
Collateral  received by the  Collateral  Agent pursuant to Section 7, as well as
any cash Collateral  received by the Collateral  Agent,  shall be applied by the
Collateral  Agent as follows (the timing of such  application  to be in the sole
discretion of the Collateral Agent):

                  FIRST,  to the payment of all costs and  expenses  incurred by
         the Collateral  Agent in connection  with any such sale or otherwise in
         connection  with this Agreement or any of the  Obligations,  including,
         but not  limited  to,  all  court  costs  and the  reasonable  fees and
         expenses  of its  agents  and  legal  counsel  and any  other  costs or
         expenses  incurred  in  connection  with the  exercise  of any right or
         remedy hereunder;

                  SECOND,  to the  payment  in full of the  Obligations  due but
         unpaid at the time of such  receipt,  pro rata among the holders of the
         Obligations in accordance with the amounts of the  Obligations  held by
         them on the date of any  distribution;  provided,  that in the event no
         such Obligations are due and payable at such time, or to the extent the
         Collateral  Agent receives  noncash  Proceeds,  all cash Collateral and
         Proceeds  shall be retained  by the  Collateral  Agent for  application
         against the Obligations as they become due and payable; and

                  THIRD,  to the Pledgor,  its  successors  or assigns,  or as a
         court of competent jurisdiction may otherwise direct.

         SECTION 9.  Reimbursement  of the Collateral  Agent. The Pledgor hereby
agrees  to  reimburse  the  Collateral  Agent,  on  demand,  for all  reasonable
out-of-pocket  expenses  incurred by the Collateral Agent in connection with the
administration  and enforcement of this  Agreement,  and agrees to indemnify the
Collateral Agent and hold the Collateral Agent harmless from and against any and
all  liability  incurred by the  Collateral  Agent  hereunder,  or in connection
herewith,  unless  such  liability  shall be due to wilful  misconduct  or gross
negligence on the part of the Collateral Agent.

         SECTION  10.  The  Collateral  Agent  Appointed  Attorney-in-Fact.  The
Pledgor hereby appoints the Collateral Agent as  attorney-in-fact of the Pledgor
for the purpose of carrying out the  provisions of this Agreement and taking any
action  and  executing  any  instrument  which  the  Collateral  Agent  may deem
necessary or advisable to accomplish the purposes hereof,  which  appointment is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing,  the  Collateral  Agent  shall  have the right and power to  receive,
endorse and  collect  all checks and other  orders for the payment of money made
payable  to  the  Pledgor   representing   any  payment  of  interest  or  other
distribution  payable in respect of the  Collateral  or any part  thereof and to
give full discharge for the same.

         SECTION 11. No Waiver.  No failure on the part of the Collateral  Agent
to exercise,  and no delay in exercising,  any right,  power or remedy hereunder
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such right,  power or remedy by the  Collateral  Agent preclude any other or
further  exercise  thereof or the exercise of any other right,  power or remedy.
All  remedies  hereunder  are  cumulative  and are not  exclusive  of any  other
remedies provided by law.

         SECTION  12.   Securities  Act,  etc.  The  Pledgor   understands  that
compliance  with the Securities  Act of 1933, as now or hereafter in effect,  or
any similar statute  hereafter  enacted analogous in purpose or effect (such Act
and any such  similar  statute as from time to time in effect  being  called the
"Federal  Securities  Laws") might very strictly  limit the course of conduct of
the Collateral  Agent if the Collateral  Agent were to attempt to dispose of all
or any part of the  Collateral  pursuant  to Section 7, and might also limit the
extent  to which  or the  manner  in  which  any  subsequent  transferee  of any
Collateral  could  dispose  of the same.  Similarly,  there  may be other  legal
restrictions  or limitations  affecting the  Collateral  Agent in any attempt to
dispose of all or part of the Collateral  pursuant to Section 7 under applicable
Blue Sky or other state  securities laws or similar laws analogous in purpose or
effect.  Under  applicable  law, in the absence of an agreement to the contrary,
the  Collateral  Agent  might  be  held  to  have  certain  general  duties  and
obligations to the Pledgor and to make some effort toward obtaining a fair price
even though the  Obligations  may be  discharged or reduced by the proceeds of a
sale at a lesser price.  The Pledgor  clearly  understands  that the  Collateral
Agent is not to have any such general duty or obligation to the Pledgor, and the
Pledgor  will not in any way  whatsoever  attempt to hold the  Collateral  Agent
responsible for selling all or any part of the Collateral at an inadequate price
even if the  Collateral  Agent shall accept the first offer received or does not
approach more than one possible purchaser.

         SECTION 13.  Termination;  Redelivery of New First Mortgage Bonds. This
Agreement shall terminate upon the earlier to occur of (a) the date on which all
of the Obligations have been fully and indefeasibly paid and the Lenders have no
further  commitment to extend credit under the Credit Agreement and (b) the date
on which the  conditions to the release of the  Collateral  set forth in Section
9.17 of the Credit  Agreement shall have been  satisfied.  At the request of the
Pledgor  following  such  termination,  the  Collateral  Agent  shall  reconvey,
reassign and deliver to the Pledgor, or to such person or persons as the Pledgor
shall designate,  against receipt,  such of the Collateral (if any) as shall not
have been applied by the Collateral Agent pursuant to the terms hereof and shall
still  be  held  by it  hereunder,  together  with  appropriate  instruments  of
reconveyance,  reassignment and release.  Any such reconveyance and reassignment
shall be without  recourse to or  representation  or warranty by the  Collateral
Agent and at the expense of the Pledgor.

         SECTION 14. Notices.  All  communications  and notices  hereunder shall
be in writing and given as provided in Section 9.01 of the Credit Agreement.

         SECTION 15. Further  Assurances.  The Pledgor agrees to do such further
acts and  things,  and to  execute  and  deliver  such  additional  conveyances,
assignments, agreements and instruments, as the Collateral Agent may at any time
reasonably request in connection with the administration and enforcement of this
Agreement  or with  respect to the  Collateral  or any part  thereof or in order
better to assure and confirm unto the  Collateral  Agent its rights and remedies
hereunder and under the Supplemental Indenture.

         SECTION 16. Binding  Agreement;  Assignments.  This Agreement,  and the
terms,  covenants and conditions hereof,  shall be binding upon and inure to the
benefit  of the  parties  hereto and their  respective  successors  and  assigns
(including  any future Lender  becoming a party to the Credit  Agreement and any
purchaser of a participation in any of the Obligations), except that the Pledgor
shall not be permitted to assign this Agreement or any interest herein or in the
Collateral,  or any part thereof, or otherwise convey, pledge, encumber or grant
any option with respect to the Collateral,  or any part thereof,  or any cash or
property held by the Collateral  Agent as Collateral under this Agreement except
as contemplated by this Agreement.

         SECTION 17. Survival of Agreement. All covenants and agreements made by
the Pledgor  herein and in the  certificates  or other  instruments  prepared or
delivered in  connection  with this  Agreement  shall be considered to have been
relied upon by the Collateral Agent and the Lenders, shall survive the making by
the Lenders of the Loans and shall  continue in full force and effect as long as
the principal of or any accrued  interest on any Loan or any other fee or amount
payable under this Agreement or, without duplication of the foregoing, under any
of the other Loan Documents, or any of the other Obligations, is outstanding and
unpaid and so long as this Agreement has not terminated. The representations and
warranties  contained in Section 2 of this Agreement shall be considered to have
been relied  upon by the  Lenders and shall  survive the making of the Loans and
shall remain in full force and effect after the termination of this Agreement.

         SECTION 18. Provisions Severable.  The provisions of this Agreement are
severable,   and  if  any  clause  or  provision   shall  be  held  invalid  and
unenforceable  in whole or in part,  then such  invalidity  or  unenforceability
shall affect only such clause or provision,  or part  thereof,  and shall not in
any manner affect any other clause or provision of this Agreement.

         SECTION 19.  GOVERNING  LAW. THIS  AGREEMENT  SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE  WITH,  THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS)
OF THE STATE OF ILLINOIS.

         SECTION  20.   Counterparts.   This   Agreement   may  be  executed  in
multiple  counterparts,  each of which shall constitute an original,  but all of
which, when taken together, shall constitute but one instrument.

         SECTION   21.   Headings.   Section   headings   used  herein  are  for
convenience  only and are not to affect  the  construction  of, or be taken into
consideration in interpreting, this Agreement.


<PAGE>



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


                                    TEXAS-NEW MEXICO POWER COMPANY



                                    By
                                         Name:
                                         Title:


                                    THE FIRST NATIONAL BANK OF CHICAGO,
                                       as Collateral Agent,



                                    By
                                         Name:
                                         Title:


<PAGE>













THE STATE OF TEXAS                  )
                                    )
COUNTY OF TARRANT                   )


         This   instrument   was   acknowledged   before   me  on  the   day  of
September,                     1996,                     by                    ,
                            of   TEXAS-NEW   MEXICO  POWER   COMPANY,   a  Texas
corporation, on behalf of said corporation.


                           ----------------------------------------
                           NOTARY PUBLIC in and for the State of TEXAS


My Commission Expires:

------------------------------             ------------------------------
                                                     Typed  or  Printed  Name of
                                            Notary





<PAGE>













THE STATE OF ILLINOIS               )
                                    )
COUNTY OF COOK                      )

         This   instrument   was   acknowledged   before   me  on  the   day  of
September,                     1996,                     by                    ,
                            of THE FIRST  NATIONAL  BANK OF  CHICAGO,  on behalf
of said financial institution.






                           NOTARY PUBLIC in and for the State of ILLINOIS


My Commission Expires:



                                                              Typed  or  Printed
Name of Notary




34\43834\011\BONDAGMT
November 1, 1996 11:19AM