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                                 EXHIBIT 10.19
                            BUSINESS LOAN AGREEMENT
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BORROWER:  NEW MEXICO UTILITIES, INC.    LENDER:  FIRST SECURITY BANK OF NEW
           4700 IRVING BLVD., SUITE #201          MEXICO, NA
           ALBUQUERQUE, NEW MEXICO 87114          EAST CENTRAL BFC
                                                  5301 CENTRAL NE, SUITE #101
                                                  ALBUQUERQUE, NEW MEXICO  87108

THIS BUSINESS LOAN AGREEMENT BETWEEN NEW MEXICO UTILITIES ("BORROWER") AND FIRST
SECURITY BANK OF NEW MEXICO, N.A. ("LENDER") IS MADE AND EXECUTED ON THE
FOLLOWING TERMS AND CONDITIONS.  BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS
FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER
FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT
OR SCHEDULE ATTACHED TO THIS AGREEMENT.  ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS."  BORROWER UNDERSTANDS AND AGREES THAT:  (A) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT;
(B) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES
SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND  (C) ALL SUCH
LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF
THIS AGREEMENT.

TERM.  This Agreement shall be effective as of DECEMBER 10, 1997, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this  Agreement in writing.

DEFINITIONS.  The following words shall have the following meanings when used in
this Agreement.  Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code.  All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.

     AGREEMENT.  The word "Agreement" means this Business Loan Agreement, as
     this Business Loan Agreement may be amended or modified from time to time,
     together with all exhibits and schedules attached to this Business Loan
     Agreement from time to time.

     BORROWER.  The word "Borrower" means New Mexico Utilities, Inc..  The word
     "Borrower" also includes, as applicable, all subsidiaries and affiliates of
     Borrower as provided below in the paragraph titled "Subsidiaries and
     Affiliates."

     CERCLA.    The word "CERCLA" means the Comprehensive Environmental
     Response, Compensation, and Liability Act of 1989, as amended.

     COLLATERAL:  The word "Collateral" means and includes without limitation
     all property and assets granted as collateral security for a Loan, whether
     real or personal property, whether granted directly or indirectly, whether
     granted now or in the future, and whether granted in the form of a security
     interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
     chattel trust, factor's lien, equipment trust, conditional sale, trust
     receipt, lien, charge, lien or title retention contract, lease or
     consignment intended as a security device, or any other security or lien
     interest whatsoever, whether created by law, contract, or otherwise.

     ERISA.   The word "ERISA" means the Employee Retirement Income Security Act
     of 1974, as amended.

     EVENT OF DEFAULT.  The words "Event of Default" means and include without
     limitation any of the Events of Default set forth below in the section
     titled "EVENTS OF DEFAULT."

     GRANTOR.  The word "Grantor" means and includes without limitation each and
     all of the persons or entities granting a Security Interest in any
     Collateral for the Indebtedness, including without limitation all Borrowers
     granting such a Security Interest.

     GUARANTOR:  The word "Guarantor" means and includes without limitation each
     and all of the guarantors, sureties, and accommodation parties in
     connection with any Indebtedness.

     INDEBTEDNESS:  The word "Indebtedness" means and includes without
     limitation all Loans, together with all other obligations, debts and
     liabilities of Borrower to Lender, or any one or more of them; whether now
     or hereafter existing, voluntary or involuntary, due or not due, absolute
     or contingent, liquidate or unliquidate; whether Borrower may be liable
     individually or jointly with others; whether Borrower may be obligated as a
     guarantor, surety, or otherwise; whether recovery upon such Indebtedness
     may be or hereafter may become barred by any statute of limitations; and
     whether such Indebtedness may be or hereafter may become otherwise
     unenforceable.

     LENDER.  The word "Lender" means First Security Bank of New Mexico, N.A.,
     its successors and assigns.

     LOAN.  The word "Loan" or "Loans" means and includes without limitation any
     and all commercial loans and financial accommodations from Lender to
     Borrower, whether now or hereafter existing, and however evidenced,
     including without limitation those loans and financial accommodations
     described herein or described on any exhibit or schedule attached to this
     Agreement from time to time.

     NOTE.  The word "Note" means and includes without limitation Borrower's
     promissory note or notes, if any, evidencing Borrower's Loan obligations in
     favor of Lender, as well as any substitute, replacement or refinancing note
     or notes therefor.

     PERMITTED LIENS.  The words "Permitted Liens" means:  (a) liens and
     security interests securing Indebtedness owed by Borrower to Lender;  (b)
     liens for taxes, assessments, or similar charges either not yet due or
     being contested in good faith;  (c) liens of materialmen, mechanics,
     warehousemen, or carriers, or other like liens arising in the ordinary
     course of business and securing obligations which are not yet delinquent;
     (d) purchase money liens or purchase money security interests upon or in
     any property acquired or held by Borrower in the ordinary course of
     business to secure indebtedness outstanding on the date of this Agreement
     or permitted to be incurred under the paragraph of this Agreement titled
     "Indebtedness and Liens";  (e) liens and security interests which, as of
     the date of this Agreement, have been disclosed to and approved by the
     Lender in writing; and  (f) those liens and security interests which in the
     aggregate constitute an immaterial and insignificant monetary amount with
     respect to the net value of Borrower's assets.

     RELATED DOCUMENTS.  The words "Related Documents" mean and include without
     limitation all promissory notes, credit agreements, loan agreements,
     environmental agreements, guaranties, security agreements, mortgages, deeds
     of trust, and all other instruments, agreements and documents, whether now
     or hereafter existing, executed in connection with the Indebtedness.

     SECURITY AGREEMENT.  The words "Security Agreement" mean and include
     without limitation any agreements, promises, covenants, arrangements,
     understandings or other agreements, whether created by law, contract, or
     otherwise, evidencing, governing, representing, or creating a Security
     Interest.

     SECURITY INTEREST.  The words "Security Interest" mean and include without
     limitation any type of collateral security, whether in the form of a lien,
     charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
     chattel trust, factor's lien, equipment trust, conditional sale, trust
     receipt, lien or title retention contract, lease or consignment intended as
     a security device, or any other security or lien interest whatsoever,
     whether created by law, contract, or otherwise.

     SARA.  The word "SARA" means the Superfund Amendments and Reauthorization
     Act of 1986 as now or hereafter amended.
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CONDITIONS PRECEDENT TO EACH ADVANCE.  Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.

     LOAN DOCUMENTS.  Borrower shall provide to Lender in form satisfactory to
     Lender the following documents for the Loan:  (a) the Note,  (b) Security
     Agreements granting to Lender security interests in the Collateral,  (c)
     Financing Statements perfecting Lender's Security Interests;  (d) evidence
     of insurance as required below; and  (e) any other documents required under
     this Agreement or by Lender or its counsel, including without limitation
     any guaranties described below.

     BORROWER'S AUTHORIZATION.  Borrower shall have provided in form and
     substance satisfactory to Lender properly certified resolutions, duly
     authorizing the execution and delivery of this Agreement, the Note and the
     Related Documents, and such other authorizations and other documents and
     instruments as Lender or its counsel, in their sole discretion, may
     require.

     PAYMENT OF FEES AND EXPENSES.  Borrower shall have paid to Lender all fees,
     charges, and other expenses which are then due and payable as specified in
     this Agreement or any Related Document.

     REPRESENTATION AND WARRANTIES.  The representations and warranties set
     forth in this Agreement, in the Related Documents, and in any document or
     certificate delivered to Lender under this Agreement are true and correct.

     NO EVENT OF DEFAULT.  There shall not exist at the time of any advance a
     condition which would constitute an Event of Default under this Agreement.

REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:

     ORGANIZATION.  Borrower is a corporation which is duly organized, validly
     existing, and in good standing under the laws of the State of New Mexico
     and is validly existing and in good standing in all states in which
     Borrower is doing business.  Borrower has the full power and authority to
     own its properties and to transact the businesses in which it is presently
     engaged or presently proposes to engage.  Borrower also is duly qualified
     as a foreign corporation and is in good standing in all states in which the
     failure to so qualify would have a material adverse effect on its
     businesses or financial condition.

     AUTHORIZATION.  The execution, delivery, and performance of this Agreement
     and all Related Documents by Borrower, to the extent to be executed,
     delivered or performed by Borrower, have been duly authorized by all
     necessary action by Borrower; do not require the consent or approval of any
     other person, regulatory authority or governmental body; and do not
     conflict with, result in a violation of, or constitute a default under  (a)
     any provision or its articles of incorporation or organization, or bylaws,
     or any agreement or other instrument binding upon Borrower or  (b) any law,
     governmental regulation, court decree, or order applicable to Borrower.

     FINANCIAL INFORMATION.  Each financial statement of  Borrower supplied to
     Lender truly and completely disclosed Borrower's financial condition as of
     the date of the statement, and there has been no material adverse change in
     Borrower's financial condition subsequent to the date of the most recent
     financial statement supplied to Lender.  Borrower has no material
     contingent obligations except as disclosed in such financial statements.

     LEGAL EFFECT.  This Agreement constitutes, and any instrument or agreement
     required hereunder to be given by Borrower when delivered will constitute,
     legal, valid and binding obligations of Borrower enforceable against
     Borrower in accordance with their respective terms.

     PROPERTIES.  Except as contemplated by this Agreement or as previously
     disclosed in Borrower's financial statements or in writing to Lender and as
     accepted by Lender, and except for property tax liens for taxes not
     presently due and payable, Borrower owns and has good title to all of
     Borrower's properties free and clear of all Security Interests, and has not
     executed any security documents or financing statements relating to such
     properties.  All of Borrower's properties are titled in Borrower's legal
     name, and Borrower has not used, or filed a financing statement under, any
     other name for at least the last five (5) years.

     HAZARDOUS SUBSTANCES.  The terms "hazardous waste," "disposal," "release,"
     and "threatened release," as used in this Agreement, shall have the same
     meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials
     Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
     Conservation and Recovery Act, 42  U.S.C. Section 6901, et seq., or other
     applicable state or Federal laws, rules, or regulations adopted pursuant to
     any of the foregoing.  Except as disclosed to and acknowledged by Lender in
     writing, Borrower represents and warrants that:  (a) During the period of
     Borrower's ownership of the properties, there has been no use, generation,
     manufacture, storage, treatment, disposal, release, or threatened release
     of any hazardous waste or substance on, under, about or from the properties
     by any prior owners or occupants of any of the properties, or  (ii)  any
     actual or threatened litigation or claims of any kind by an person relating
     to such matters.  (c)  Neither Borrower nor any tenant, contractor, agent
     or other authorized user of any of the properties shall sue, generate,
     manufacture, store, treat, dispose of , or release any hazardous waste or
     substance on, under, about or from any of the properties; and any such
     activity shall be conducted in compliance with all applicable federal,
     state, and local laws, regulations, and ordinances, including without
     limitation those laws, regulations and ordinances described above.
     Borrower authorizes Lender and its agents to enter upon the properties to
     make such inspections and tests as Lender may deem appropriate to determine
     compliance of the properties with this section of the Agreement.  Any
     inspections or tests made by Lender shall be at Borrower's expense and for
     Lender's purposes only and shall not be construed to create any
     responsibility or liability on the part of Lender to Borrower or to any
     other person.  The representations and warranties contained herein are
     based on Borrower'' due diligence in investigating the properties for
     hazardous waste and hazardous substances.  Borrower hereby  (a) releases
     and waives any future claims against Lender for indemnity or contribution
     in the event Borrower becomes liable for cleanup or other costs under any
     such laws, and  (b) agrees to indemnify and hold harmless Lender against
     any and all claims, losses, liabilities, damages, penalties, and expenses
     which Lender may directly or indirectly sustain or suffer resulting from a
     breach of this section of the Agreement or as a consequence of any use,
     generation, manufacture, storage, disposal, release or threatened release
     occurring prior to Borrower's ownership or interest in the properties,
     whether or not the same was or should have been known to Borrower.  The
     provisions of this section of the Agreement, including the obligation to
     indemnify, shall survive the payment of the Indebtedness and the
     termination or expiration of this Agreement and shall not be affected by
     Lender's acquisition of any interest in any of the properties, whether by
     foreclosure or otherwise.

     LITIGATION AND CLAIMS.  No litigation, claim, investigation, administrative
     proceeding or similar action (including those for unpaid taxes) against
     Borrower is pending or threatened, and no other event has occurred which
     may materially adversely affect Borrower's financial condition or
     properties, other than litigation, claims, or other events, if any, that
     have been disclosed to and acknowledged by Lender in writing.

     TAXES.  To the best of  Borrower's knowledge, all tax returns and reports
     of Borrower that are or were required to be filed, have been filed, and all
     taxes, assessments and other governmental charges have been paid in full,
     except those presently being or to be contested by Borrower in good faith
     in the ordinary course of business and for which adequate reserves have
     been provided.

     LIEN PRIORITY.  Unless otherwise previously disclosed to Lender in writing,
     Borrower has not entered into or granted any Security Agreements, or
     permitted the filing or attachment of any Security Interests on or
     affecting any of the Collateral directly or indirectly securing repayment
     of Borrower's Loan and Note, that would be prior or that may in any way be
     superior to Lender's Security Interests and rights in and to such
     Collateral.

                                       2
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     BINDING EFFECT.  This Agreement, the Note, all Security Agreements directly
     or indirectly securing repayment of Borrower's Loan and Note and all of the
     Related Documents are binding upon Borrower as well as upon Borrower's
     successors, representatives and assigns, and are legally enforceable in
     accordance with their respective terms.

     COMMERCIAL PURPOSES.  Borrower intends to use the Loan proceeds solely for
     business or commercial related purposes.

     EMPLOYEE BENEFIT PLANS.  Each employee benefit plan as to which Borrower
     may have any liability complies in all material respects with all
     applicable requirements of law and regulations, and  (i) no Reportable
     Event nor Prohibited Transaction (as defined in ERISA) has occurred with
     respect to any such plan,  (ii) Borrower has not withdrawn from any such
     plan or initiated steps to do so,  (iii) no steps have been taken to
     terminate any such plan, and  (iv) there are no unfunded liabilities other
     than those previously disclosed to Lender in writing.

     LOCATION OF BORROWER'S OFFICES AND  RECORDS.  Borrower's place of business,
     or Borrower's Chief executive office, if Borrower has more than one place
     of business, is located at 4700 Irving Blvd., Suite 201, Albuquerque, NM
     87114.  Unless Borrower has designated otherwise in writing this location
     is also the offices where Borrower keeps its records concerning the
     Collateral.

     INFORMATION.  All information heretofore or contemporaneously herewith
     furnished by Borrower to Lender for the purposes of or in connection with
     this Agreement or any transaction contemplated hereby is, and all
     information is dated or certified; and none of such information is or will
     be incomplete by omitting to state any material fact necessary to make such
     information not misleading.

     SURVIVAL OF REPRESENTATIONS AND WARRANTIES.  Borrower understands and
     agrees that Lender, without independent investigation, is relying upon the
     above representations and warranties in extending Loan Advances to
     Borrower.  Borrower further agrees that the foregoing representations and
     warranties shall be continuing in nature and shall remain in full force and
     effect until such time as Borrower's Indebtedness shall be paid in full, or
     until this Agreement shall be terminated in the manner provided above,
     whichever is the last to occur.

AFFIRMATIVE COVENANTS.  Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:

     LITIGATION.  Promptly inform Lender in writing of  (a) all material adverse
     changes in Borrower's financial condition, and  (b) all existing and all
     threatened litigation, claims, investigations, administrative proceedings
     or similar actions affecting Borrower or any Guarantor which could
     materially affect the financial condition of Borrower or the financial
     condition of any Guarantor.

     FINANCIAL RECORD.  Maintain its books and records in accordance with
     generally accepted accounting principles, applied on a consistent basis,
     and permit Lender to examine and audit Borrower's books and records at all
     reasonable times.

     ADDITIONAL INFORMATION.  Furnish such additional information and
     statements, lists of assets and liabilities, agings of receivables and
     payables, inventory schedules, budgets, forecasts, tax returns, and other
     reports with respect to Borrower's financial condition and business
     operations as Lender may request from time to time.

     INSURANCE.  Maintain fire and other risk insurance, public liability
     insurance, and such other insurance as Lender may require with respect to
     Borrower's properties and operations, in form, amounts, coverages and with
     insurance companies reasonably acceptable to Lender.  Borrower, upon
     request of Lender, will deliver to Lender from time to time the policies or
     certificates of insurance in form satisfactory to Lender, including
     stipulations that coverages will not be cancelled or diminished without at
     least ten (10) days' prior written notice to Lender.  Each insurance policy
     also shall include an endorsement providing that coverage in favor of
     Lender will not be impaired in any way by any act, omission or default of
     Borrower or any other person.  In connection with all policies covering
     assets in which Lender holds or is offered a security interest for the
     Loans, Borrower will provide Lender with such loss  payable or other
     endorsements as Lender may require.

     INSURANCE REPORTS.  Furnish to Lender, upon request of Lender, reports on
     each existing insurance policy showing such information as Lender may
     reasonably request,  including without limitation the following:  (a) the
     name of the insurer;  (b) the risks insured;  (c) the amount of the policy;
     (d) the properties insured;  (e)  the then current property values on the
     basis of which insurance has been obtained, and the manner of determining
     those values; and  (f) the expiration date of the policy.  In addition,
     upon request of Lender (however not more often than annually), Borrower
     will have an independent appraiser satisfactory to Lender determine, as
     applicable, the actual cash value or replacement cost of any Collateral.
     The cost of such appraisal shall be paid by Borrower.

     GUARANTIES.  Prior to disbursement of any Loan proceeds, furnish executed
     guaranties of the Loans in favor of Lender, executed by the guarantor named
     below, on Lender's forms, and in the amount and under the conditions
     spelled out in those guaranties.

                  Guarantor                    AMOUNT
                  ---------                    ------

                  SOUTHWEST WATER COMPANY      $4,100,000.00

     OTHER AGREEMENTS.  Comply with all terms and conditions of all other
     agreements, whether now or hereafter existing, between Borrower and any
     other party and notify Lender immediately in writing of any default in
     connection with any other such agreements.

     LOAN FEES AND CHARGES.  In addition to all other agreed upon fees and
     charges, pay the following:  $100.00 MONTHLY SWEEP FEE CHARGED ON DEPOSIT
     SYSTEM; $400.00 MONTHLY SWEEP FEE CHARGED ON LOAN SYSTEM.

     LOAN PROCEEDS.  Use all Loan proceeds solely for Borrower's business
     operations, unless specifically consented to the contrary by Lender in
     writing.

     TAXES, CHARGES AND LIENS.  Pay and discharge when due all of its
     indebtedness and obligations, including without limitation all assessments,
     taxes, governmental charges, levies and liens, of every kind and nature,
     imposed upon Borrower or its properties, income, or profits, prior to the
     date on which penalties would attach, and all lawful claims that, if
     unpaid, might become a lien or charge, levy, lien or claim so long as  (a)
     the legality of the same shall be contested in good faith by appropriate
     proceedings, and  (b) Borrower shall have established on its books adequate
     reserves with respect to such contested assessment, tax, charge, levy,
     lien, or claim in accordance with generally accepted accounting practices.
     Borrower, upon demand of Lender, will furnish to Lender evidence of payment
     of the assessments, taxes, charges, levies, liens and claims and will
     authorize the appropriate governmental official to deliver to Lender at any
     time a written statement of any assessments, taxes, charges, levies, liens
     and claims against Borrower's properties, income, or profits.

     PERFORMANCE.  Perform and comply with all terms, conditions, and provisions
     set forth in this Agreement and in the Related Documents in a timely
     manner, and promptly notify Lender if Borrower learns of the occurrence of
     any event which constitutes an Event of Default under this Agreement or
     under any of the Related Documents.

     OPERATIONS.  Maintain executive and management personnel with substantially
     the same qualifications and experience s the present executive and
     management personnel; provide written notice to Lender of any change in
     executive and management personnel; conduct its business affairs in a
     reasonable and prudent manner and in compliance with all applicable
     federal, state and municipal laws, ordinances, rules and regulations
     respecting its properties, charters, businesses and operations, including
     without limitation, compliance with the Americans With Disabilities Act and
     with all minimum funding standards and other requirements of ERISA and
     other laws applicable to Borrower's employee benefit plans.

                                       3
<PAGE>
 
     INSPECTION.  Permit employees or agents of Lender at any reasonable time to
     inspect any and all Collateral for the Loan or Loans and Borrower's other
     properties and to examine or audit Borrower's books, accounts, and records
     and to make copies and memoranda of Borrower's books, accounts, and
     records.  If Borrower now or at any time hereafter maintains any records
     (including without limitation computer generated records and computer
     software programs for the generation of such records) in the possession of
     a third party, Borrower, upon request of Lender, shall notify such party to
     permit Lender free access to such records at all reasonable times and to
     provide Lender with copies of any records it may request, all at Borrower's
     expense.

     COMPLIANCE CERTIFICATE.  Unless waived in writing by Lender, provide Lender
     at least annually and at the time of each disbursement of Loan proceeds
     with a certificate executed by Borrower's chief financial officer, or other
     officer or person acceptable to Lender, certifying that the representations
     and warranties set forth in this Agreement are true and correct as of the
     date of the certificate and further certifying that, as of the date of the
     certificate, no Event of Default exists under this Agreement.

     ENVIRONMENTAL COMPLIANCE AND REPORTS.  Borrower shall comply in all
     respects with all environmental protection federal, state and local laws,
     statutes, regulations and ordinances; not cause or permit to exist, as a
     result of an intentional or unintentional action or omission on its part or
     on the part of any third party, on property owned and/or occupied by
     Borrower, any environmental activity where damage may result to the
     environment, unless such environmental activity is pursuant to and in
     compliance with the conditions of a permit issued by the appropriate
     federal, state or local governmental authorities; shall furnish to Lender
     promptly and in any event within thirty (30) days after receipt thereof a
     copy of any notice, summons, lien, citation, directive, letter or other
     communication from any governmental agency or instrumentality concerning
     any intentional or unintentional action or omission on  Borrower's part in
     connection with any environmental activity whether or not there is damage
     to the environment and/or other natural resources.

     ADDITIONAL ASSURANCES.  Make, execute and deliver to Lender such promissory
     notes, mortgages, deeds of trust, security agreements, financing
     statements, instruments, documents and other agreements as Lender or its
     attorneys may reasonably request to evidence and secure the Loans and to
     perfect all Security Interests.

NEGATIVE COVENANTS.  Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender.

     INDEBTEDNESS AND LIEN.  (a) Except for trade debt incurred in the normal
     course of business and indebtedness to Lender contemplated by this
     Agreement, create, incur or assume indebtedness for borrowed money,
     including capital leases,  (b) except as allowed as a Permitted Lien, sell,
     transfer, mortgage, assign, pledge, lease, grant a security interest in, or
     encumber any of Borrower's assets, or  (c) sell with recourse any of
     Borrower's accounts, except to Lender.

     CONTINUITY OF OPERATIONS.  (a) Engage in any business activities
     substantially different than those in which Borrower is presently engaged,
     (b) cease operations, liquidate, merge, transfer, acquire or consolidate
     with any other entity, change ownership, change its name, dissolve or
     transfer or sell Collateral out of the ordinary course of business,  (c)
     pay any dividends on Borrower's stock (other than dividends payable in its
     stock), provided, however that notwithstanding the foregoing, but only so
     long as no Event of Default has occurred and is continuing or would result
     from the payment of dividends on its stock to its shareholders from time to
     time in amounts necessary to enable the shareholders to pay income taxes
     and make estimated income tax payments to satisfy their liabilities under
     federal and state law which arise solely from their status as Shareholders
     of a Subchapter S Corporation because of their ownership of shares of stock
     of Borrower, or  (d) purchase or retire any of Borrower's outstanding
     shares or alter or amend Borrower's capital structure.

     LOANS, ACQUISITIONS AND GUARANTIES.  (a) Loan, invest in or advance money
     or assets,  (b) purchase, create or acquire any interest in any other
     enterprise or entity, or (c) incur any obligation as surety or guarantor
     other than in the ordinary course of business.

CESSATION OF ADVANCES.  If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender;  (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt;  (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan;  (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or  (e) Lender in good faith deems itself insecure, even
through no Event of Default shall have occurred.

LOAN COVENANTS FOR NEW MEXICO UTILITIES, INC.

Annual CPA audited financial statements for New Mexico Utilities, Inc. shall be
submitted to Lender within 120 days of Borrower's fiscal year end.

Quarterly company prepared financial statements for New Mexico Utilities, Inc.
shall be submitted to Lender within 45 days of company's quarter end.

New Mexico Utilities, Inc. shall maintain a Debt to Tangible Net Worth Ratio of
4.0 to 1.0.  The Debt to Net Worth Ratio will be calculated excluding accounts
on the Borrower's Balance Sheet entitled "Contributions in Aid of Construction",
and "Deferred Revenue" regardless of how such amounts may be titled on future
Balance Sheets.

New Mexico Utilities, Inc. shall maintain a minimum EBITDA Coverage Ratio of
1.25 to 1.00 on a fiscal year-end basis, with "EBITDA" defined as net profit
before tax, plus interest expense, depreciation expense, and amortization
expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the
aggregate of total interest expense plus the prior year current maturity of each
long-term debt, subordinated debt, and advances for construction, plus
dividends.

New Mexico Utilities, Inc. will not, unless approved in writing by the Bank, pay
any dividend which would cause the company's EBITDA Coverage Ratio to fall below
1.25 to 1.00 on a fiscal year end basis.

New Mexico Utility Company will not further encumber any of it's property, real
or personal, without prior written approval of the Bank.

LOAN COVENANTS FOR SOUTHWEST WATER COMPANY.

Annual CPA audited, consolidated financial statements and annual internally
prepared consolidating financial statements for Southwest Water Company shall by
submitted to Lender within 120 days of company's fiscal year end.

Quarterly company prepared consolidating financial statements for Southwest
Water Company and subsidiaries shall be submitted to Lender within 45 days of
company's quarter end.

Annual 10K and quarterly 10Q reports for Southwest Water Company shall be
submitted to Lender within 120 days and 60 days of period end, respectively.

Southwest Water Company to maintain a minimum Tangible Net Worth of
$27,000,000.00 on a consolidated basis.

                                       4
<PAGE>
 
Southwest Water Company to maintain a maximum Debt to Tangible Net Worth Ratio
of 2.30 to 1.00 on a consolidated basis.  Debt is defined as total liabilities,
less deferred taxes, contributions in aid of construction, and unamortized
investment tax credit.

Southwest Water Company to maintain a minimum EBITDA Coverage Ratio of 1.25 to
1.00 on a consolidated fiscal year end basis, with "EBITDA" defined as net
profit before tax, plus interest expense (net of capitalized interest expense),
depreciation expense, and amortization expense, and with "EBITDA Coverage Ratio"
defined as EBITDA divided by the aggregate of total interest expense, plus the
prior period current maturity of each of long-term debt, subordinated debt, and
advances for construction, plus dividends.

Southwest Water Company to remain profitable on a fiscal year end, consolidated
basis.

Southwest Water Company not have any unsecured debt outstanding in excess of
$16,000,000.00 on a consolidated basis.

Southwest Water Company (and any subsidiary) will not further encumber any of
it's property, real or personal, without prior written approval of the Bank.

Maximum aggregate acquisitions by Southwest Water Company of $5,000,000.00, on a
consolidated basis without prior Bank approval.

Cross Default to all other indebtedness of Southwest Water Company.

EVENTS OF DEFAULT.  Each of the following shall constitute an Event of Default
under this Agreement.

     DEFAULT OF INDEBTEDNESS.  Failure of Borrower to make any payment when due
     on the Loans.

     OTHER DEFAULTS.  Failure of Borrower or any Grantor to comply with or to
     perform when due any other term, obligation, covenant or condition
     contained in this Agreement or in any of the Related Documents, or failure
     of Borrower to comply with or to perform any other term, obligation,
     covenant or condition contained in any other agreement between Lender and
     Borrower.

     DEFAULT IN FAVOR OF THIRD PARTIES.  Should Borrower or any Grantor default
     under any loan, extension of credit, security agreement, purchase or sales
     agreement, or any other agreement, in favor of any other creditor or person
     that may materially affect any of Borrower's property or Borrower's or any
     Grantor's ability to repay the Loans or perform their respective
     obligations under this Agreement or any of the Related Documents.

     FALSE STATEMENTS.  Any warranty, representation or statement made or
     furnished to Lender by or on behalf of Borrower or any Grantor under this
     Agreement or the Related Documents is false or misleading in any material
     respect at the time made or furnished, or becomes false or misleading at
     any time thereafter.

     DEFECTIVE COLLATERALIZATION.   This Agreement or any of the Related
     Documents ceases to be in full force and effect (including failure of any
     Security Agreement to create a valid and perfected Security Interest) at
     any time and for any reason.

     INSOLVENCY.  The dissolution or termination of Borrower's existence as a
     going business, the insolvency of Borrower, the appointment of a receiver
     for any part of Borrower's property, any assignment for the benefit of
     creditors, any type of creditor workout, or the commencement of any
     proceeding under any bankruptcy or insolvency laws by or against Borrower.

     CREDITOR OR FORFEITURE PROCEEDINGS.  Commencement of foreclosure or
     forfeiture proceedings, whether by judicial proceedings, self-help,
     repossession or any other method, by an creditor of Borrower, any creditor
     of any Grantor against any collateral securing the Indebtedness, or by any
     governmental agency.  This includes a garnishment, attachment, or levy on
     or of any of Borrower's deposit accounts with Lender.  However, this Event
     of Default shall not apply if there is a good faith dispute by Borrower or
     Grantor, as the case may be, as to the validity or reasonableness of the
     claim which is the basis of the creditor or forfeiture proceeding, and if
     Borrower or Grantor gives Lender written notice of the creditor or
     forfeiture proceeding and furnishes reserves or a surety bond for the
     creditor or forfeiture proceeding satisfactory to Lender.

     EVENTS AFFECTING GUARANTOR.  Any of the preceding events occurs with
     respect to any Guarantor of any of the Indebtedness or any Guarantor dies
     or becomes incompetent, or revokes or disputes the validity of, or
     liability under, any Guaranty of Indebtedness.  Lender, at its option, may,
     but shall not be required to, permit the Guarantor's estate to assume
     unconditionally the obligations arising under the guaranty in a manner
     satisfactory to Lender, and, in doing so, cure the Event of Default.

     CHANGE IN OWNERSHIP.  Any change in ownership of twenty-five percent (25%)
     or more of the common stock of Borrower.

     ADVERSE CHANGE.  A material adverse change occurs in Borrower's financial
     condition, or Lender believes the prospect of payment or performance of the
     Indebtedness is impaired.

     INSECURITY.  Lender, in good faith, deems itself insecure.

     RIGHT TO CURE.  If any default, other than a  Default on Indebtedness, is
     curable and if Borrower or Grantor, as the case may be, has not been given
     a notice of a similar default within the preceding twelve (12) months, it
     may be cured (and no Event of Default will have occurred) if Borrower or
     Grantor, as the case may be, after receiving written notice from Lender
     demanding cure of such default:  (a) cures the default within twenty (20)
     days; or  (b) if the cure requires more than twenty (20) days, immediately
     initiates steps which Lender deems in Lender's sole discretion to be
     sufficient to cure the default and thereafter continues and completes all
     reasonable and necessary steps sufficient to produce compliance as soon as
     reasonably practical.

EFFECT OF AN EVENT OF DEFAULT.  If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional.  In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise.  Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently.   Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take
action to perform an obligation of Borrower or of any Grantor shall not affect
Lender's right to declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of
this Agreement.

     AMENDMENTS.  This Agreement, together with any Related Documents,
     constitutes the entire understanding and agreement of the parties as to the
     matters set forth in this Agreement.  No alteration of or amendment to this
     Agreement shall be effective unless given in writing and signed by the
     party or parties sought to be charged or bound by the alteration or
     amendment.

     APPLICABLE LAW.  THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
     BY LENDER IN THE STATE OF NEW MEXICO.  IF THERE IS A LAWSUIT, BORROWER
     AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
     BERNALILLO COUNTY, THE STATE OF NEW MEXICO.  THIS AGREEMENT SHALL BE
     GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
     MEXICO.

     CAPTION HEADINGS.  Caption headings in this Agreement are for convenience
     purposes only and are not to be used to interpret or define the provisions
     of this Agreement.

                                       5
<PAGE>
 
     CONSENT TO LOAN PARTICIPATION.  Borrower agrees and consents to Lender's
     sale or transfer, whether now or later, of one or more participation
     interests in the Loans to one or more purchasers, whether related or
     unrelated to Lender.  Lender may provide, without limitation whatsoever, to
     any one or more purchasers, or potential purchasers, any information or
     knowledge Lender may have about Borrower or about any other matter relating
     to the Loan, and Borrower hereby waives any rights to privacy it may have
     with respect to such matters.  Borrower additionally waives any and all
     notices of sale of participation interests, as well as all notices of any
     repurchase of such participation interests.  Borrower also agrees that the
     purchasers of any such participation interests will be considered as the
     absolute owners of such interests in the Loans and will have all the rights
     granted under the participation agreement or agreements governing the sale
     of such participation interests.  Borrower further waives all rights of
     offset or counterclaim that it may have now or later against Lender or
     against any purchaser of such a participation interest and unconditionally
     agrees that either Lender or such purchaser may enforce Borrower's
     obligation under the Loans irrespective of the failure or insolvency of any
     holder of any interest in the Loans.  Borrower further agrees that the
     purchaser of any such participation interests may enforce its interests
     irrespective of any personal claims or defenses that Borrower may have
     against Lender.

     COSTS AND EXPENSES.  Borrower agrees to pay upon demand all of Lender's
     expenses, including without limitation attorneys' fees, incurred in
     connection with the preparation, execution, enforcement, modification and
     collection of this Agreement or in connection with the Loans made pursuant
     to this Agreement.  Lender may pay someone else to help collect the Loans
     and to enforce this Agreement, and Borrower will pay that amount.  This
     includes, subject to any limits under applicable law, Lender's attorneys'
     fees and Lender's legal expenses, whether or not there is a lawsuit,
     including attorneys' fees for bankruptcy proceedings (including efforts to
     modify or vacate any automatic stay or injunction), appeals, and any
     anticipated post-judgement collection services.  Borrower also will pay any
     court costs, in addition to all other sums provided by law.

     NOTICES.  All notices required to be given under this Agreement shall be
     given in writing, may be sent by telefacsimile (unless otherwise required
     by law), and shall be effective when actually delivered or when deposited
     with a nationally recognized overnight courier or deposited in the United
     States mail, first class, postage prepaid, addressed to the party to whom
     the notice is to be given at the address shown above.  Any party may change
     its address for notices under this Agreement by giving formal written
     notice to the other parties, specifying that the purpose of the notice is
     to change the party's address.  To the extent permitted by applicable law,
     if there is more than one Borrower, notice to any Borrower will constitute
     notice to all Borrowers.  For notice purposes, Borrower will keep Lender
     informed at all times of Borrower's current address(es).

     All notices required to be given under this Agreement shall be given in
     writing, may be sent by telefacsimile (unless otherwise required by law),
     and shall be effective when actually delivered or when deposited with a
     nationally recognized overnight courier or deposited in the United States
     mail, first class, postage prepaid, addressed to the party to whom the
     notice is to be given at the address shown above.  Any party may change its
     address for notices under this Agreement by giving formal written notice to
     the other parties, specifying that the purpose of the notice is to change
     the party's address.  To the extent permitted by applicable law, if there
     is more than one Borrower, notice to any Borrower will constitute notice to
     all Borrowers.  For notice purposes, Borrower will keep Lender informed at
     all times of Borrower's current address(es).

     SEVERABILITY.  If a court of competent jurisdiction finds any provision of
     this Agreement to be invalid or unenforceable as to any person or
     circumstance, such finding shall not render that provision invalid or
     unenforceable as to any other persons or circumstances.  If feasible, any
     such offending provision shall be deemed to be modified to be within the
     limits of enforceability or validity; however, if the offending provision
     cannot be so modified, it shall stricken and all other provisions of this
     Agreement in all other respects shall remain valid and enforceable.

     SUBSIDIARIES AND AFFILIATES OF BORROWER.  To the extent the context of any
     provisions of this Agreement makes it appropriate, including without
     limitation any representation, warranty or covenant, the word "Borrower" as
     used herein shall include all subsidiaries and affiliates of Borrower.
     Notwithstanding the foregoing however, under no circumstances shall this
     Agreement be construed to require Lender to make any Loan or other
     financial accommodation to any subsidiary or affiliate of Borrower.

     SUCCESSORS AND ASSIGNS.  All covenants and agreements contained by or on
     behalf of Borrower shall bind its successors and assigns and shall inure to
     benefit of Lender, its successors and assigns.  Borrower shall not,
     however, have the right to assign its rights under this Agreement or any
     interests therein, without the prior written consent of Lender.

     SURVIVAL.  All warranties, representations, and covenants made by Borrower
     in this Agreement or in any certificate or other instrument delivered by
     Borrower to Lender under this Agreement shall be considered to have been
     relied upon by Lender and will survive the making of the Loan and delivery
     to Lender of the Related Documents, regardless of any investigation made by
     Lender or on Lender's behalf.

     TIME IS OF THE  ESSENCE.  Time is of the essence in the performance of this
     Agreement.

     WAIVER.  Lender shall not be deemed to have waived any rights under this
     Agreement unless such waiver is given in writing and signed by Lender.  No
     delay or omission on the part of Lender in exercising any right shall
     operate as a waiver of such right or any other right.  A waiver by Lender
     of a provision of this Agreement shall not prejudice or constitute a waiver
     of Lender's right otherwise to demand strict compliance with that provision
     or any other provision of this Agreement.  No prior waiver by Lender, not
     any course of dealing between Lender and Borrower, or between Lender and
     any Grantor, shall constitute a waiver of any of Lender's rights or of any
     obligations of Borrower or of any Grantor as to any future transactions.
     Whenever the consent of Lender is required under this Agreement, the
     granting of such consent by Lender in any instance shall not constitute
     continuing consent in subsequent instances where such consent is required,
     and in all cases such consent may be granted or withheld in the sole
     discretion of Lender.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS.  THIS AGREEMENT IS DATED AS OF
DECEMBER 18, 1997.

BORROWER:

NEW MEXICO UTILITIES, INC.              SOUTHWEST WATER COMPANY



BY: /s/  ROBERT L. SWARTWOUT               BY: /s/  PETER J. MOERBEEK
   -------------------------                  -----------------------
   ROBERT L. SWARTWOUT, PRESIDENT             PETER J. MOERBEEK, VICE PRESIDENT



LENDER:

FIRST SECURITY BANK OF NEW MEXICO, N.A.



BY: /s/  MICHAEL R. HARTMAN
   ------------------------
   AUTHORIZED OFFICER
   MICHAEL R. HARTMAN, VICE PRESIDENT

                                       6