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                                                                     Exhibit 4.3

                                                                  EXECUTION COPY
                                                                  --------------

                    INDENTURE ESCROW AND SECURITY AGREEMENT

     THIS INDENTURE ESCROW AND SECURITY AGREEMENT (this "Agreement"), dated as
of July 2, 2001, is by and among MISSION ENERGY HOLDING COMPANY, a Delaware
corporation (the "Company"), WILMINGTON TRUST COMPANY, as the Trustee under the
Indenture (as defined below) (the "Trustee"), and WILMINGTON TRUST COMPANY, as
Indenture Escrow Agent (in such capacity, together with its successors in such
capacity, the "Indenture Escrow Agent"). Capitalized terms used herein and not
otherwise defined have the meanings assigned to them in the Indenture.

                                  WITNESSETH:

     WHEREAS, the Company and Trustee have entered into an Indenture dated as of
the date hereof (as amended and supplemented from time to time, the "Indenture")
pursuant to which the Company may issue up to $900,000,000 of its 13.50% Senior
Secured Notes due 2008 (as amended, supplemented and exchanged from time to
time, collectively, the "Securities");

     WHEREAS, the Company has agreed to grant to the Trustee on behalf of itself
and on behalf of the Holders of the Securities, the Paying Agent and the
Indenture Escrow Agent (the "Indenture Secured Parties") a security interest in
the Account (as defined below) and all funds and securities contained therein;

     WHEREAS, the Company has agreed to place in escrow the Initial Escrow
Amount (as defined below), to be held pursuant to the terms of this Agreement
and the Indenture;

     WHEREAS, the Indenture Escrow Agent has established an escrow account with
the Indenture Escrow Agent in the State of New York, number 55562-0, in the name
of the Company (the "Account"); and

     WHEREAS, the Company and the Indenture Escrow Agent are entering into this
Agreement to provide for the control of the Account and to perfect the security
interest of the Trustee, for the benefit of the Indenture Secured Parties, in
the Account and all funds and securities contained therein as more fully
described in this Agreement.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follow for the
express benefit of the Trustee on behalf of the Indenture Secured Parties:

     1.   Initial Escrow Amount; Interest; Investment of Funds
          ----------------------------------------------------

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          (a)  Deposit of Initial Escrow Amount by the Company. On the date
               -----------------------------------------------
     hereof, the Company shall deliver to the Indenture Escrow Agent, from a
     portion of the net proceeds from the sale of the Securities, cash in an
     amount so as to be, together with any interest thereon, sufficient to pay
     the first four scheduled cash interest payments on the Securities. As of
     the date hereof, the parties agree that such amount shall be equal to
     $210,938,232.11 (the "Initial Escrow Amount"). Following the investment of
     the Initial Escrow Amount, (A) if the Trustee (as defined in the Indenture)
     receives a written calculation from a representative of the Initial
     Purchasers that the actual rate of return is such that there are excess
     funds in the Account, the Trustee shall instruct the Indenture Escrow Agent
     no later than two business days after its receipt of such determination to
     transfer such excess funds to the Company, and (B) if the Trustee receives
     a written calculation from a representative of the Initial Purchasers that
     the actual rate of return is such that there are insufficient funds in the
     Account, the Trustee shall notify the Company no later than two business
     days after its receipt of such determination and the Company shall deposit
     such additional funds to the Account. The computations of the
     representative of the Initial Purchasers pursuant hereto shall be binding
     on the Company, absent manifest error.

          (b)  Investment of Funds in Account.  Funds deposited in the Account
               ------------------------------
     shall be invested and reinvested only upon the following terms and
     conditions:

          (i)       Acceptable Investments. All funds deposited or held in the
                    ----------------------
                    Account at any time shall be invested by the Indenture
                    Escrow Agent in U.S. Government Securities (as defined
                    below) in accordance with the Company's written instructions
                    from time to time to the Indenture Escrow Agent; provided,
                                                                     --------
                    however, that the Company shall only designate investment of
                    -------
                    funds in U.S. Government Securities maturing in an amount
                    sufficient to and/or generating interest income sufficient
                    to, when added to the balance of funds held in the Account,
                    provide for the payment of interest on the outstanding
                    Securities on the Interest Payment Date beginning on and
                    including January 15, 2002 and through and including the
                    Interest Payment Date on July 15, 2003; provided, further,
                                                            --------  -------
                    however, that any such written instruction shall specify the
                    -------
                    particular investment to be made, shall state that such
                    investment is authorized to be made hereby and in particular
                    satisfies the requirements of the preceding proviso, shall
                    contain the certification referred to in Section 1(b)(ii),
                    and shall be executed by any officer of the Company;
                    provided, further, however, that the Company may from time
                    --------  -------  -------
                    to time substitute additional funds consisting of cash or
                    Cash Equivalents for some or all of the U.S. Government
                    Securities then contained in the Account provided that (i)
                    the cash or Cash Equivalents have a fair market value equal
                    to or greater than the U.S. Government Securities so
                    replaced, (ii) the Company provides the certification
                    required by Section 1(b)(ii) and certifies that the
                    foregoing clause (i) has been complied with and provides an
                    Opinion of Counsel, dated the date of the replacement, which
                    opinion shall meet the requirements of Section 314(b) of the
                    Trust Indenture Act of

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                    1939, as amended, and shall otherwise comply with the
                    Indenture and (iii) the cash and Cash Equivalents are
                    promptly invested in U.S. Government Securities in
                    accordance with this Section 1(b)(i). All U.S. Government
                    Securities shall be assigned to and held in the possession
                    of, or, in the case of U.S. Government Securities maintained
                    in book-entry form with the Federal Reserve Bank,
                    transferred to a book-entry account in the name of the
                    Indenture Escrow Agent, for the benefit of the Trustee and
                    the ratable benefit of the Indenture Secured Parties, except
                    that U.S. Government Securities maintained in book-entry
                    form with the Federal Reserve Bank shall be transferred to a
                    book-entry account in the name of the Indenture Escrow Agent
                    at the Federal Reserve Bank that includes only U.S.
                    Government Securities held by the Indenture Escrow Agent for
                    its customers and segregated by separate recordation in the
                    books and records of the Indenture Escrow Agent. As used
                    herein, U.S. Government Securities shall mean securities
                    that are (a) direct obligations (or certificates
                    representing an ownership interest in such obligations) of
                    the United States of America (including any agency or
                    instrumentality thereof) the payment of which the full faith
                    and credit of the United States of America is pledged, (b)
                    obligations of a Person controlled or supervised by and
                    acting as an agency or instrumentality of the United States
                    of America the payment of which is unconditionally
                    guaranteed as a full faith and credit obligation by the
                    United States of America or (c) obligations of a Person the
                    payment of which is unconditionally guaranteed as a full
                    faith and credit obligation by the United States of America,
                    which, in each case, are not callable or redeemable at the
                    issuer's option, and shall also include a depository receipt
                    issued by a bank (as defined in Section 3(a)(2) of the
                    Securities Act), as custodian with respect to any such U.S.
                    Government Securities or a specific payment of principal of
                    or interest on any such U.S. Government Securities held by
                    such custodian for the account of the holder of such
                    depository receipt; provided that (except as required by
                    law) such custodian is not authorized to make any deduction
                    from the amount payable to the holder of such depository
                    receipt from any amount received by the custodian in respect
                    of the U.S. Government Securities or the specific payment of
                    principal of or interest on the U.S. Government Securities
                    evidenced by such depository receipt.

          (ii)      Security Interest in Investments. No investment of funds
                    --------------------------------
                    in the Account shall be made unless the Company has
                    certified to the Indenture Escrow Agent and the Trustee
                    that, upon such investment, the Trustee will have a first
                    priority perfected security interest in the applicable
                    investment for the benefit of the Indenture Secured Parties.
                    On the date of this Agreement, and on each anniversary
                    thereof unless the balance of the Available Funds (as
                    defined below) shall have been reduced to zero, each of the
                    Trustee and the Indenture Escrow Agent

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                    shall receive an Opinion of Counsel, dated each such date as
                    applicable, which opinion shall meet the requirements of
                    Section 314(b) of the Trust Indenture Act of 1939, as
                    amended, and shall otherwise comply with the Indenture. As
                    used herein, "Available Funds" shall mean (A) the sum of (i)
                    the Initial Escrow Amount and any funds deposited pursuant
                    to Section 1(a)(B) and (ii) interest earned on the funds in
                    the Account (including holdings of U.S. Government
                    Securities), less (B) the aggregate disbursements previously
                                 ----
                    made pursuant to this Agreement.

          (iii)     Principal and Interest. All principal and interest earned on
                    ----------------------
                    funds invested in U.S. Government Securities shall be
                    deposited in the Account as additional Collateral (as
                    defined below) for the benefit of the Trustee and the
                    ratable benefit of the Indenture Secured Parties and shall
                    be reinvested in accordance with Section 1(b)(i) hereof.

          (iv)      Limitation on Indenture Escrow Agent's Responsibilities. The
                    -------------------------------------------------------
                    Indenture Escrow Agent's sole responsibilities under this
                    Section 1(b) shall be (A) to retain possession of
                    certificated U.S. Government Securities and to be the
                    registered or designated owner of U.S. Government Securities
                    which are not certificated, if any, (B) to follow the
                    Company's written instructions given in accordance with
                    Section 1(b)(i), (C) to invest and reinvest funds pursuant
                    to this Section 1(b), (D) to maintain possession of, and
                    dominion and control over, the Account and the funds and
                    U.S. Government Securities therein, unless and until such
                    funds are permitted to be released or disbursed in
                    accordance with the terms of this Agreement and (E) to use
                    reasonable efforts to reduce to cash such U.S. Government
                    Securities as may be required to fund any disbursement or
                    payment in accordance with Section 1(a)(A) or Section 10. In
                    connection with clause (A) above, the Indenture Escrow Agent
                    will maintain continuous possession in the State of New York
                    of certificated U.S. Government Securities and cash included
                    in the Collateral and will cause uncertificated U.S.
                    Government Securities, if any, to be registered in the book-
                    entry system of, and transferred to an account of the
                    Indenture Escrow Agent or a sub-agent of the Indenture
                    Escrow Agent at, the Federal Reserve Bank of New York.
                    Except as provided in Section 6, the Indenture Escrow Agent
                    shall have no other responsibilities with respect to
                    perfecting or maintaining the perfection of the Indenture
                    Escrow Agent's security interest in the Collateral and shall
                    not be required to file any instrument, document or notice
                    in any public office at any time or times. In connection
                    with clause (E) above, and subject to the following sentence
                    and except as otherwise provided in Section 10, the
                    Indenture Escrow Agent shall not be required to reduce to
                    cash any U.S. Government Securities to fund any disbursement
                    or payment in accordance with Section 1(a)(A) or Section 10
                    in the absence of written instructions signed by an officer


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                    of the Company specifying the particular investment to
                    liquidate. If no such written instructions are received, the
                    Indenture Escrow Agent shall liquidate those U.S. Government
                    Securities having the lowest interest rate per annum or if
                    none such exist, those having the nearest maturity.

          (v)       Manner of Investment. Funds deposited in the Account shall
                    --------------------
                    be invested in a manner such that there will be sufficient
                    funds available without any further investment by the
                    Company to cover all interest due on the outstanding
                    Securities, as such interest becomes due, for each Interest
                    Payment Date occurring from the date of this Agreement and
                    ending on (and including) July 15, 2003, provided that such
                    investments shall have such maturities and/or interest
                    payment dates such that funds will be available with respect
                    to each such Interest Payment Date no later than the time
                    the Indenture Escrow Agent is required to distribute such
                    funds to the Trustee pursuant to Section 10(a). The
                    Indenture Escrow Agent shall have no responsibility for
                    determining whether funds held in the Account shall have
                    been invested in such a manner so as to comply with the
                    requirements of this clause (v).

     2.   Release of Amounts in Account. The Indenture Escrow Agent shall hold
          -----------------------------
all amounts in the Account in escrow pursuant to this Agreement until authorized
hereunder to deliver any or all of such amounts to the Company in accordance
with the requirements of Section 1(a)(A) or Section 10 hereof or to the Trustee
in accordance with Section 6 hereof.

     3.   Certain Additional Agreements. The Company and the Trustee shall, upon
          -----------------------------
request by the Indenture Escrow Agent, execute and deliver to the Indenture
Escrow Agent such additional written instructions and certificates hereunder as
may be reasonably required by the Indenture Escrow Agent to give effect to the
provisions of Sections 1 and 2 hereof.

     4.   The Account.
          -----------

          (a)  THE PARTIES AGREE AND REPRESENT THAT (A) THE ACCOUNT HAS BEEN
     ESTABLISHED IN THE NAME OF THE COMPANY AS RECITED ABOVE, (B) THE ACCOUNT IS
     AN ACCOUNT AS TO WHICH FINANCIAL ASSETS ARE OR MAY BE CREDITED AND THE
     ACCOUNT IS A SECURITIES ACCOUNT, (C) THE ACCOUNT HAS NO FINANCIAL ASSETS
     WHICH ARE REGISTERED IN THE NAME OF THE COMPANY, PAYABLE TO ITS ORDER, OR
     SPECIALLY ENDORSED TO IT, WHICH HAVE NOT BEEN ENDORSED TO THE INDENTURE
     ESCROW AGENT OR IN BLANK.

          (b)  THE INDENTURE ESCROW AGENT AGREES AND REPRESENTS THAT (A) THIS
     AGREEMENT IS THE VALID AND LEGALLY BINDING OBLIGATION OF THE INDENTURE
     ESCROW AGENT, (B) EXCEPT FOR THE CLAIMS AND INTERESTS OF THE TRUSTEE FOR
     THE BENEFIT OF THE INDENTURE SECURED PARTIES AND THE CLAIMS AND INTERESTS
     OF THE

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     COMPANY IN THE ACCOUNT, THE INDENTURE ESCROW AGENT DOES NOT KNOW OF ANY
     CLAIM TO OR INTEREST IN THE ACCOUNT OR IN ANY FINANCIAL ASSET CONTAINED
     THEREIN, (C) THE INDENTURE ESCROW AGENT SHALL, SUBJECT TO THE TERMS OF THIS
     AGREEMENT, TREAT THE COMPANY AS ENTITLED TO EXERCISE THE RIGHTS THAT
     COMPRISE ANY FINANCIAL ASSET CREDITED TO THE ACCOUNT AND (D) ALL PROPERTY
     DELIVERED TO THE INDENTURE ESCROW AGENT FOR DEPOSIT TO THE ACCOUNT WILL
     PROMPTLY BE CREDITED TO THE ACCOUNT. THE INDENTURE ESCROW AGENT WILL TREAT
     ALL PROPERTY HELD BY IT IN THE ACCOUNT AS FINANCIAL ASSETS UNDER ARTICLE 8
     OF THE UNIFORM COMMERCIAL CODE OF THE STATE OF NEW YORK (THE "CODE"),
     PROVIDED, HOWEVER, IN THE EVENT THAT, BY REASON OF MANDATORY PROVISIONS OF
     LAW, ANY OR ALL OF THE PERFECTION OR PRIORITY OF THE SECURITY INTEREST IN
     ANY COLLATERAL IS GOVERNED BY THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN A
     JURISDICTION OTHER THAN THE STATE OF NEW YORK, THE TERM "CODE" SHALL MEAN
     THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN SUCH OTHER JURISDICTION FOR
     PURPOSES OF THE PROVISIONS HEREOF RELATING TO SUCH PERFECTION OR PRIORITY
     AND FOR PURPOSES OF DEFINITIONS RELATED TO SUCH PROVISIONS, AND ANY
     REFERENCE TO ANY SECTION OF THE CODE HEREIN SHALL BE A REFERENCE TO SUCH
     SECTION AS IT IS MODIFIED AND AMENDED FROM TIME TO TIME AND TO ANY
     SUCCESSOR SECTION.

     5.   No Withdrawals. The Indenture Escrow Agent shall neither accept nor
          --------------
comply with any order from the Company withdrawing any assets from the Account
nor deliver any such assets to the Company, except in the circumstances
described in Section 10(b), 10(c) or 10(d) hereof, as applicable, and only if
the requirements to such transfer set forth in Section 10(b), 10(c) or 10(d), as
applicable, have been satisfied.

     6.   Grant of Security Interest; Priority of Security Interest.
          ---------------------------------------------------------

          (a)  The Company hereby grants to the Trustee for the benefit of the
     Indenture Secured Parties, to secure all obligations and indebtedness of
     the Company under the Securities, a first priority security interest in the
     Account and all funds and securities contained therein and any and all
     proceeds of the foregoing (the "Collateral"). The Indenture Escrow Agent
     consents to such security interest. The Indenture Escrow Agent hereby
     waives and releases all liens, encumbrances, claims and rights of setoff
     the Indenture Escrow Agent may have against the Account or any and all
     funds and securities contained in the Account and agrees that it will not
     assert any such lien, encumbrance, claim or right or the priority thereof
     against the Account or any funds or securities contained in the Account.
     The Indenture Escrow Agent will not agree with any third party that the
     Indenture Escrow Agent will comply with orders concerning the Account
     originated by such third party without the prior written consent of the
     Trustee and the Company. The Company represents and warrants that, except
     for the security interest granted to the Trustee for the benefit of the
     Indenture Secured Parties hereby, the

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     Company owns the Collateral free and clear of any and all liens,
     encumbrances and claims of others.

          (b)  The Company and the Trustee hereby irrevocably instruct the
     Indenture Escrow Agent to, and the Indenture Escrow Agent shall, (i) (A)
     maintain sole dominion and control over funds and U.S. Government
     Securities in the Account for the benefit of the Trustee for the benefit of
     the Indenture Secured Parties to the extent specifically required herein,
     (B) maintain, or cause its agent within the State of New York to maintain,
     possession of all certificated U.S. Government Securities purchased
     hereunder that are physically possessed by the Indenture Escrow Agent in
     order for the Trustee for the benefit of the Indenture Secured Parties to
     enjoy a continuous perfected first priority security interest therein under
     the law of the State of New York (the Company hereby agreeing that in the
     event any certificated U.S. Government Securities are in the possession of
     the Company or a third party, the Company shall undertake to deliver all
     such certificates to the Indenture Escrow Agent), (C) take all steps
     specified by the Company pursuant to paragraph (a) above to cause the
     Trustee for the benefit of the Indenture Secured Parties to enjoy a
     continuous perfected first priority security interest under the New York
     Uniform Commercial Code and any applicable law of the State of New York in
     all Collateral consisting of securities entitlements including, as
     applicable, all U.S. Government Securities purchased hereunder that are not
     certificated, if any, and (D) maintain the Collateral free and clear of all
     liens, encumbrances and claims against the Indenture Escrow Agent of any
     nature now or hereafter existing in favor of anyone other than the Trustee
     for the benefit of the Indenture Secured Parties; (ii) promptly notify the
     Trustee if the Indenture Escrow Agent receives written notice that any
     person other than the Trustee has a lien, encumbrance or claim upon any
     portion of the Collateral; and (iii) in addition to disbursing amounts held
     in escrow pursuant to any order given to it by the Trustee pursuant to
     Section 1(a)(A) or Section 10, upon receipt of written notice from the
     Trustee of the acceleration of the maturity of the Securities, and
     direction from the Trustee to disburse all Available Funds to the Trustee,
     as promptly as practicable, disburse all funds held in the Account to the
     Trustee and transfer title to all U.S. Government Securities held by the
     Indenture Escrow Agent hereunder to the Trustee.  The lien and security
     interest provided for by this Section 6 shall automatically terminate and
     cease to exist, and shall not extend or apply to, and the Trustee shall
     have no security interest in, any funds disbursed by the Indenture Escrow
     Agent to the Company pursuant to this Agreement to the extent not
     inconsistent with the terms hereof.  Notwithstanding any other provisions
     contained in this Agreement, the Indenture Escrow Agent shall act solely as
     the Trustee's agent in connection with its duties under this Section 6.
     The Indenture Escrow Agent shall not have any right to receive compensation
     from the Trustee and shall have no authority to obligate the Trustee or to
     subordinate, compromise or pledge its security interest hereunder.
     Accordingly, the Indenture Escrow Agent is hereby directed to cooperate
     with the Trustee in the exercise of its rights in the Collateral provided
     for herein.

          (c)  Any money and U.S. Government Securities collected by the Trustee
     pursuant to Section 6(b)(iii) shall be applied as provided in Section 1307
     of the Indenture.  Any surplus of such cash or cash proceeds held by the
     Trustee and remaining after the

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     91st day after payment in full of all the obligations under the Indenture
     shall be paid over as provided in Section 10(d).

          (d)  The Company hereby appoints the Trustee as its attorney-in-fact
     with full power of substitution , upon an Event of Default as defined in
     the Indenture, to do any act which the Company is obligated hereto to do,
     and the Trustee may exercise such rights as the Company might exercise with
     respect to the Collateral and take any action in the Company's name to
     protect the Trustee's security interest hereunder.  In addition to the
     rights provided under Section 6(b)(iii) hereof, upon an Event of Default
     and for so long as such Event of Default continues, the Trustee may
     exercise in respect of the Collateral, in addition to other rights and
     remedies provided for herein or otherwise available to it, all the rights
     and remedies of a secured party under the Code or other applicable law, and
     the Trustee may also upon obtaining possession of the Collateral as set
     forth herein, without notice to the Company except as specified below, sell
     the Collateral or any part thereof in one or more parcels at public or
     private sale, at any exchange, broker's board or at any of the Trustee's
     offices or elsewhere, for cash, on credit or for future delivery, and upon
     such other terms as the Trustee may deem commercially reasonable.  The
     Company acknowledges and agrees that any such private sale may result in
     prices and other terms less favorable to the seller than if such sale were
     a public sale.  The Company agrees that, to the extent notice of sale shall
     be required by law, at least ten (10) days' notice to the Company 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 Trustee shall
     not be obligated to make any sale regardless of notice of sale having been
     given.  The Trustee 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.

     7.   Statements, Confirmations and Notices of Adverse Claims. The Indenture
          -------------------------------------------------------
Escrow Agent will send copies of all statements, confirmations and other
correspondence concerning the Account simultaneously to the Company and the
Trustee at the addresses set forth in Section 11(f) of this Agreement. If any
person asserts in writing any lien, encumbrance or adverse claim against the
Account or in any financial asset carried therein, the Indenture Escrow Agent
will promptly notify the Company and Trustee thereof.

     8.   Indenture Escrow Agent.
          ----------------------

          (a)  The Indenture Escrow Agent, in its capacity as such, shall have
     no duties or responsibilities, including, without limitation, a duty to
     review or interpret the Indenture, except those expressly set forth herein.
     Except for this Agreement, the Indenture Escrow Agent, in its capacity as
     such, is not a party to, or bound by, any agreement that may be required
     under, evidenced by, or arise out of the Indenture.

          (b)  If the Indenture Escrow Agent shall be uncertain as to its duties
     or rights hereunder or shall receive instructions from any of the
     undersigned with respect to the Account, which, in its opinion, are in
     conflict with any of the provisions of this Agreement, it shall be entitled
     to refrain from taking any action until it shall be directed otherwise in
     writing by a joint written instruction of the Company and the Trustee or by

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     order of a court of competent jurisdiction. The Indenture Escrow Agent
     shall be protected in acting upon any notice, request, waiver, consent,
     receipt or other document reasonably believed by the Indenture Escrow Agent
     to be signed by the proper party or parties and shall not be liable with
     respect to any action taken or omitted to be taken by it in accordance with
     any instruction received by it hereunder.

          (c)  The Indenture Escrow Agent, in its capacity as such, shall not be
     liable for any error or judgment or for any act done or step taken or
     omitted by it in good faith or for any mistake of fact or law, or for
     anything that it may do or refrain from doing in connection herewith,
     except for its own gross negligence or willful misconduct, and the
     Indenture Escrow Agent shall have no duties to anyone except the Company
     and the Trustee and their respective successors and permitted assigns.

          (d)  The Indenture Escrow Agent may consult legal counsel in the event
     of any dispute or question as to the construction of this Agreement, or the
     Indenture Escrow Agent's duties hereunder, and the Indenture Escrow Agent
     shall incur no liability and shall be fully protected with respect to any
     action taken or omitted in good faith in accordance with the opinion and
     instructions of counsel.

          (e)  In the event of any disagreement between the undersigned or any
     of them, and/or any other person, resulting in adverse claims and demands
     being made in connection with or for the Account, the Indenture Escrow
     Agent shall be entitled at its option to refuse to comply with any such
     claim or demand, so long as such disagreement shall continue, and in so
     doing the Indenture Escrow Agent shall not be or become liable for damages
     or interest to the undersigned or any of them or to any person named herein
     for its failure or refusal to comply with such conflicting or adverse
     demands. The Indenture Escrow Agent shall be entitled to continue so to
     refrain and refuse so to act until all differences shall have been resolved
     by agreement and the Indenture Escrow Agent shall have been notified
     thereof in writing signed by the Company and the Trustee. In the event of
     such disagreement which continues for ninety (90) days or more, the
     Indenture Escrow Agent in its discretion may, but shall be under no
     obligation to, file a suit in interpleader for the purpose of having the
     respective rights of the claimants adjudicated and may deposit with the
     court all documents and property held hereunder. The Company agrees to pay
     all reasonable out-of-pocket costs and expenses incurred by the Indenture
     Escrow Agent in such action, including reasonable attorneys' fees and
     disbursements.

          (f)  The Indenture Escrow Agent is hereby indemnified by the Company
     from all losses, costs and expenses of any nature incurred by the Indenture
     Escrow Agent arising out of or in connection with this Agreement or with
     the administration of its duties hereunder, unless such losses, costs or
     expenses shall have been caused by the Indenture Escrow Agent's willful
     misconduct or gross negligence. Such indemnification shall survive the
     resignation or removal of the Indenture Escrow Agent and the termination of
     this Agreement until extinguished by any applicable statute of limitations.

          (g)  The Indenture Escrow Agent, in its capacity as such, does not
     have any interest in the Account or any funds or securities deposited
     hereunder but is serving as

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     escrow holder only and having only possession thereof. This paragraph shall
     survive notwithstanding any termination of this Agreement or the
     resignation of the Indenture Escrow Agent.

          (h)  The Indenture Escrow Agent (and any successor Indenture Escrow
     Agent) may at any time resign as such by giving written notice of its
     resignation to the parties hereto at least thirty (30) days prior to the
     date specified for such resignation to take effect.  The Indenture Escrow
     Agent may be removed at any time by act of the Trustee.  Upon the effective
     date of such resignation or removal of the Indenture Escrow Agent, all
     funds and securities in the Account shall be delivered by it to such
     successor Indenture Escrow Agent or as otherwise shall be instructed in
     writing by the Company and the Trustee, whereupon the Indenture Escrow
     Agent shall be discharged of and from any and all further obligations
     arising in connection with this Agreement. If at that time the Indenture
     Escrow Agent has not received such instruction, the Indenture Escrow
     Agent's sole responsibility after that time shall be to safekeep the
     Account and all funds and securities contained therein until receipt of a
     designation of successor Indenture Escrow Agent, or a joint written
     instruction as to disposition of the Account and all funds and securities
     contained therein by the Company and the Trustee or a final order of a
     court of competent jurisdiction mandating disposition of the Account and
     all funds and securities contained therein.  If the Indenture Escrow Agent
     is removed or resigns, the Company, by a Board Resolution, shall promptly
     appoint a successor Indenture Escrow Agent.

          (i)  The Indenture Escrow Agent hereby accepts its appointment and
     agrees to act as Indenture Escrow Agent under the terms and conditions of
     this Agreement and acknowledges receipt of the Initial Escrow Amount. The
     Company agrees to pay to the Indenture Escrow Agent as payment in full for
     its services hereunder the Indenture Escrow Agent's compensation as
     mutually agreed by the parties hereto. The Company further agrees to
     reimburse the Indenture Escrow Agent for all reasonable out-of-pocket
     expenses, disbursements and advances incurred or made by the Indenture
     Escrow Agent in the performance of its duties hereunder (including
     reasonable fees, and out-of-pocket expenses and disbursements, of its
     counsel).  The obligations of the Company under the preceding two sentences
     shall survive the resignation or removal of the Indenture Escrow Agent and
     the termination of this Agreement until extinguished by any applicable
     statute of limitations.

     9.   Tax Reporting. The Company shall be responsible for reporting all
          -------------
items of income, gain, expense and loss recognized in the Account.

     10.  Interest Payments; Partial Release; Termination; Remedies.
          ---------------------------------------------------------

          (a)  Immediately prior to or on each of the first four scheduled
     Interest Payment Dates for the Securities, the Company shall either (i)
     deposit with the Trustee cash from funds other than those contained in the
     Account in an amount that is sufficient to pay the interest then due or
     (ii) direct the Trustee to issue a release order to the Indenture Escrow
     Agent providing for the release from the Account of cash sufficient to pay
     the interest on the Securities then due as directed; provided, however,
                                                          --------  -------
     that if the Company fails to effect either of options (i) or (ii) in this
     Section 10(a) by 10:00 A.M.

                                       10
<PAGE>

     New York time on the applicable Interest Payment Date, the Trustee shall
     direct the Indenture Escrow Agent to liquidate investments (to the extent
     required), and disburse to the Trustee the amounts required to be paid on
     the Securities as interest with respect to such applicable Interest Payment
     Date. The Trustee shall incur no liability arising out of its choice of
     investments to be liquidated pursuant to this Section 10(a).

          (b)  If the Company has exercised the option set forth in clause (i)
     of Section 10(a), the Trustee promptly shall direct the Indenture Escrow
     Agent to transfer, and the Indenture Escrow Agent promptly shall transfer,
     an amount equal to such amount deposited with the Trustee (the "Release
     Amount") to the Company to an account in the name of the Company or its
     designee as designated by the Company or its authorized representative.
     Concurrent with such transfer of the Release Amount, the security interest
     in the amounts so transferred shall be released and terminated without
     further notice, agreement or other action by any party hereto.

          (c)  If at any time, provided that at such time an Event of Default is
     not continuing, the amount of funds and securities in the Account exceeds
     the amount sufficient, in the opinion of a nationally recognized firm of
     independent public accountants selected by the Company, to pay in full the
     first four scheduled interest payments on the Securities not theretofore
     paid (the amount of such excess referred to as the "Excess Amount"), and
     upon receipt of such public accountant's opinion and written direction from
     the Company, the Trustee promptly shall direct the Indenture Escrow Agent
     to transfer, and the Indenture Escrow Agent promptly shall transfer, an
     amount equal to the Excess Amount to the Company to an account in the name
     of the Company or its designee as designated by the Company or its
     authorized representative. Concurrent with such transfer of the Excess
     Amount, the security interest in the amount so transferred shall be
     released and terminated without further notice, agreement or other action
     by any party hereto.

          (d)  After such time as the first four scheduled interest payments on
     the Securities have been made in a timely manner, the Trustee promptly
     shall direct the Indenture Escrow Agent to transfer, and the Indenture
     Escrow Agent promptly shall transfer, any and all remaining funds and
     securities in the Account and any proceeds thereof to the Company to an
     account in the name of the Company or its designee as designated by the
     Company or its authorized representative and to take such other steps as
     the Company may request to vest full ownership and control of the Account
     in the Company. Concurrent with such transfer, the security interest in the
     Account and the amount so transferred shall be released and terminated
     without further notice, agreement or other action by any party hereto.

          (e)  THE RIGHTS AND POWERS GRANTED HEREIN TO TRUSTEE HAVE BEEN GRANTED
     IN ORDER TO PERFECT ITS SECURITY INTEREST IN THE ACCOUNT, ARE POWERS
     COUPLED WITH AN INTEREST AND WILL NEITHER BE AFFECTED BY THE BANKRUPTCY OR
     INSOLVENCY OF THE COMPANY NOR BY THE LAPSE OF TIME. THE OBLIGATIONS OF THE
     INDENTURE ESCROW AGENT UNDER SECTIONS 4, 5, 6 AND 7 ABOVE SHALL CONTINUE IN
     EFFECT UNTIL THE SECURITY INTEREST OF THE TRUSTEE IN

                                       11
<PAGE>

     THE ACCOUNT HAS BEEN TERMINATED PURSUANT TO THE TERMS OF THIS AGREEMENT AND
     THE TRUSTEE HAS NOTIFIED THE INDENTURE ESCROW AGENT OF SUCH TERMINATION IN
     WRITING. UPON RECEIPT OF SUCH NOTICE, (I) THE OBLIGATIONS OF THE INDENTURE
     ESCROW AGENT UNDER SECTIONS 4, 5, 6 AND 7 ABOVE WITH RESPECT TO THE
     OPERATION AND MAINTENANCE OF THE ACCOUNT AFTER THE RECEIPT OF SUCH NOTICE
     SHALL TERMINATE, (II) THE TRUSTEE SHALL HAVE NO FURTHER RIGHT TO ORIGINATE
     ORDERS CONCERNING THE ACCOUNT AND (III) THE INDENTURE ESCROW AGENT SHALL
     PROMPTLY TAKE SUCH STEPS AS THE COMPANY MAY REQUEST TO VEST FULL OWNERSHIP
     AND CONTROL OF THE ACCOUNT IN THE COMPANY, INCLUDING, BUT NOT LIMITED TO,
     TRANSFERRING ALL OF THE FUNDS AND SECURITIES AND ALL PROCEEDS THEREOF TO
     ANOTHER ACCOUNT IN THE NAME OF THE COMPANY OR ITS DESIGNEE AS DESIGNATED BY
     THE COMPANY OR ITS AUTHORIZED REPRESENTATIVE.

     11.  Miscellaneous.
          -------------

          (a)  Entirety. This Agreement represents the entire agreement of the
               --------
     parties hereto with respect to the subject matter herein, and supersedes
     all prior agreements and understandings, oral or written, if any, including
     any correspondence relating thereto or the transactions contemplated
     herein.

          (b)  Waivers, Amendments, Etc. Except as expressly, provided hereby,
               -------------------------
     the terms of this Agreement may be waived, altered, amended, modified,
     changed, discharged or terminated only by an instrument in writing duly
     executed by each of the parties hereto, subject to compliance with the
     provisions of the Indenture.

          (c)  Severability. If any provision hereof is illegal, invalid or
               ------------
     unenforceable in any jurisdiction, then, to the fullest extent permitted by
     law, (i) the other provisions hereof shall remain in full force and effect
     in such jurisdiction and shall be liberally construed in order to carry out
     the intentions of the parties hereto as nearly as may be possible and (ii)
     the illegality, invalidity or unenforceability of any provision in any
     jurisdiction shall not affect the illegality, validity or enforceability of
     such provision in any other jurisdiction.

          (d)  Successors. This Agreement shall be binding upon the Company, its
               ----------
     successors and assigns and shall inure, together with the rights and
     remedies hereunder, to the benefit of the Indenture Escrow Agent and its
     successors and assigns and to the Trustee and its successors and assigns
     for the benefit of the Indenture Secured Parties; provided, however, that
                                                       --------  -------
     the Company may not assign its rights or delegate its duties hereunder
     without first filing with the Indenture Escrow Agent a certificate of the
     Company that such assignment or transfer is permitted by the Indenture.

          (e)  Rules of Construction. In this Agreement, words in the singular
               ---------------------
     number include the plural, and in the plural include the singular; words of
     the masculine gender include the feminine and the neuter, and when the
     sense so indicates words of the neuter

                                       12
<PAGE>

     gender may refer to any gender and the word "or" is disjunctive but not
     exclusive. The captions and section numbers appearing in this Agreement are
     inserted only as a matter of convenience. They do not define, limit or
     describe the scope or intent of the provisions of this Agreement. Except as
     otherwise defined or capitalized herein, all terms herein shall have the
     meanings ascribed thereto in Article 8 of the Code.

          (f)  Notices. All notices, requests, consents and other communications
               -------
     provided for herein (including, without limitation, any modifications of,
     or waivers or consents under, this Agreement) shall be given or made in
     writing (including, without limitation, by facsimile) delivered to the
     intended recipient at the address below or, as to any party, at such other
     address as shall be designated by such party in a notice to the other
     party.  Except as otherwise provided in this Agreement, all such
     communications shall be deemed to have been duly given when transmitted by
     facsimile or personally delivered or, in the case of a mailed notice, upon
     receipt, in each case given or addressed as aforesaid.

     If to the Company:

               Mission Energy Holding Company
               955 Overland Court
               San Dimas, California 91773
               Attention: Chief Financial Officer
               Facsimile: (909) 599-4850

     With a copy to:

               Latham & Watkins
               633 West Fifth Street, Suite 4000
               Los Angeles, CA 90071
               Attention: David B. Rogers
               Facsimile: (213) 891-8763

     If to the Trustee:

               Wilmington Trust Company
               Rodney Square North
               1100 North Market Street
               Wilmington, DE 19890
               Attention: Corporate Trust Administration
               Facsimile: (302) 651-8882

     If to the Indenture Escrow Agent:

               Wilmington Trust Company
               Rodney Square North
               1100 North Market Street
               Wilmington, DE 19890
               Attention: Corporate Trust Administration

                                       13
<PAGE>

               Facsimile: (302) 651-8882

The Company, the Trustee or the Indenture Escrow Agent by notice to the others
may designate additional or different addresses for subsequent notices or
communications.

          (g)  Further Assurances. At any time and from time to time, upon the
               ------------------
     request of the Trustee or the Indenture Escrow Agent and at the sole
     expense of the Company, the Company will promptly and duly execute and
     deliver such further instruments and documents and take such further
     actions as the Trustee or the Indenture Escrow Agent may reasonably request
     for the purpose of obtaining or preserving the full benefits of this
     Agreement and of the rights and powers herein granted, including without
     limitation, the filing of any financing statements under the Code (or
     similar laws) in effect with respect to the security interests granted
     hereby.

          (h)  Counterparts. This Agreement may be executed in any number of
               ------------
     counterparts, all of which taken together shall constitute one and the same
     instrument and any of the parties hereto may execute this Agreement by
     signing any such counterpart.  It shall not be necessary in making proof of
     this Agreement to produce or account for more than one such counterpart.

          (i)  Governing Law; Submission to Jurisdiction; Venue. (a) THIS
               ------------------------------------------------
     AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
     GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
     THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
     LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT
     TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER
     THAN NEW YORK ARE GOVERNED BY THE LAWS OF SUCH JURISDICTION.  Any legal
     action or proceeding with respect to this Agreement or transactions
     contemplated hereby may be brought in the courts of the State of New York,
     or of the United States for the Southern District of New York, and, by
     execution and delivery of this Agreement, the Company hereby irrevocably
     submits, for itself and in respect of its property, generally and
     unconditionally, to the non-exclusive jurisdiction of such courts.  The
     Company further irrevocably consents to the service of process out of any
     of the aforementioned courts in any such action or proceeding by the
     mailing of copies thereof by registered or certified mail, postage prepaid,
     to it at the address above pursuant to Section 11(f) hereof, such service
     to become effective thirty (30) days after such mailing.  Nothing herein
     shall affect the right of the Indenture Escrow Agent to serve process in
     any other manner permitted by law or to commence legal proceedings or to
     otherwise proceed against the Company in any other jurisdiction.

          (j)  Headings.  The headings of sections and subsections hereof are
               --------
     provided for convenience only and shall not in any way affect the meaning
     or construction of any provision of this Agreement.

                                       14
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Indenture Escrow
and Security Agreement to be duly executed as of the day and year first above
written.
                                        MISSION ENERGY HOLDING COMPANY

                                        By:/s/ THEODORE F. CRAVER, JR.
                                           _________________________________
                                           Name: Theodore F. Craver, Jr.
                                           Title: Chief Executive Officer


                                        WILMINGTON TRUST COMPANY
                                        as Indenture Escrow Agent

                                        By:/s/ JAMES D. NESCI
                                           _________________________________
                                           Name: James D. Nesci
                                           Title: Authorized Signer


                                        WILMINGTON TRUST COMPANY
                                        As Trustee

                                        By:/s/ JAMES D. NESCI
                                           _________________________________
                                           Name: James D. Nesci
                                           Title: Authorized Signer


                   (Indenture Escrow and Security Agreement)

                                      S-1