When recorded, return to: Greg A. Nielsen
                          Snell & Wilmer
                          3100 Valley Bank Center
                          Phoenix, Arizona


===============================================================================




                             ASSIGNMENT, ASSUMPTION

                                       AND

                                FURTHER AGREEMENT

                            dated as of July 31, 1986

                                     between

                      PUBLIC SERVICE COMPANY OF NEW MEXICO,

                                       and

                       THE FIRST NATIONAL BANK OF DBOSTON,
        not in its individual capacity, but solely as Owner Trustee under
            a Trust Agreement, dated as of July 31, 1986, with Chase
                      Manhattan Realty Leasing Corporation






================================================================================

              Sale and Leaseback of a 1.133333% Undivided Interest
                 in Palo Verde Nuclear Generating Station Unit 1
               and a .377777% Undivided Interest in Certain Common
                                   Facilities

================================================================================


6091.5O.2831.56:l


<PAGE>


                  ASSIGNMENT, ASSUMPTION AND FURTHER AGREEMENT, dated as of July
31, 1986, between PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation
(PNM),  and TEE FIRST NATIONAL BANK OF BOSTON,  not in its individual  capacity,
but solely as Owner Trustee (the Owner Trustee), under a Trust Agreement,  dated
as of July 31, 1986, with Chase Manhattan Realty Leasing Corporation.


                              W I T N E S S E T H:

                WHEREAS,  PNM and the other ANPP Participants are parties to the
ANPP  Participation  Agreement  (such  terms and all other  terms  used in these
recitals without definition having the respective definitions to which reference
is made in Article I below); and

                WHEREAS, PNM has sold, and the Owner Trustee has purchased,  the
Undivided  Interest and the Real Property  Interest for and in  consideration of
the payment to PNM by the Owner  Trustee of the  Purchase  Price,  the  purchase
price of the Real Property  Interest and the assignments and assumptions  herein
set forth;

                NOW,  THEREFORE,  in  consideration of the premises and of other
good and valuable  consideration,  receipt and  sufficiency  of which are hereby
acknowledged, the parties hereto agree as follows:


                                    ARTICLE I

                                   DEFINITIONS

                For purposes hereof, capitalized terms used herein which are not
otherwise  defined  herein  shall have the  meanings  assigned  to such terms in
Appendix A hereto.  References  in this  Agreement  to  articles,  sections  and
clauses are to articles, sections and clauses in this Agreement unless otherwise
indicated.











609l.50.2831.56:1


<PAGE>


                                   ARTICLE II

                                NONPARTITIONMENT

                SECTION 2.01. Nonpartitionment.  The Owner Trustee hereby waives
any rights it may have to partition Unit 1 or the Common Facilities1  whether by
partitionment  in kind or by sale and division of proceeds,  and further  agrees
that it will not resort to any action at law or in equity to partition Unit 1 or
the Common  Facilities,  and it waives the  benefits of all laws that may now or
hereafter  authorize  such  partition for a term (i) which shall be  coterminous
with the term of the ANPP  Participation  Agreement  or (ii) which  shall be for
such lesser period as may be required under Applicable Law.


                                   ARTICLE III

                         ASSIGNMENTS; EXERCISE OF RIGHTS

                SECTION 3.01.  Assignment of  Warranties.  PNM hereby ASSIGNS to
the Owner Trustee an undivided  interest,  equal to the applicable Share, in, to
and  under  any  and  all  warranties  of  and  other  claims  against  dealers,
manufacturers,  vendors,  contractors and subcontractors  relating to Unit 1 and
the Common Facilities.

                SECTION 3.02.  Assignment of the ANPP  Participation  Agreement.
(a) PNM hereby  ASSIGNS to the Owner Trustee an undivided  interest,  in, to and
under all of PNM's  rights  under  the ANPP  Participation  Agreement,  equal to
1.133333%  to the  extent  that such  rights  relate to Unit 1  (including,  but
without  limitation,  a percentage  entitlement  equal to 1.133333%,  of the Net
Energy  Generation  and Available  Generating  Capability  (as each such term is
defined in the ANPP Participation Agreement) of Unit 1) and equal to .377777% to
the extent such rights relate to the Common Facilities.

                (b) The Owner Trustee hereby ASSIGNS to PNM the rights  assigned
under paragraph (a) until the Lease Termination Date.





                                       -2-
6091.50.2831.56:1


<PAGE>
                  SECTION 3.03. Exercise of Rights as Participant under the ANPP
Participation  Agreement.(a)  Except as provided in Sections 15.2.2,  15.6.4 and
Section 15.10 of the ANPP Participation  Agreement (or any comparable  successor
provision)  PNM shall be and remain the sole  "Participant"  for all purposes of
the ANPP  Participation  Agreement  and the sole  representative  (with power to
bind) in all  dealings  with the other  ANPP  Participants  in  relation  to the
Undivided  Interest,  the Real Property  Interest and the rights assigned to the
Owner Trustee pursuant to this Agreement;  provided, however, that the foregoing
shall not limit in any way the effect of Sections 15 or 16 of the Facility Lease
or any  liability or  obligation  that PNM may incur to the Owner Trustee or the
Owner Participant under any Transaction Document as a result thereof (including,
but without limitation, any liability that PNM may incur under Section 16 of the
Facility Lease as the result of an Event of Default).

                  (b) Unless the ANPP  Participation  Agreement  shall otherwise
permit,  any right  conferred on the Owner Trustee by section 15.2.2 of the ANPP
Participation  Agreement  shall be exercised as required by Section  15.6.3.3 of
said Agreement.

                  (c) The  provisions  of this Section 3.03 shall remain in full
force and effect  until such time as the ANPP  Administrative  Committee  or the
ANPP Participants shall otherwise consent.


                                   ARTICLE IV

                               ASSUMPTION; RELEASE

                SUCTION   4.01.   Assumption   by  Owner   Trustee.   Except  as
contemplated  by Section 5(a) of the Facility  Lease,  the Owner Trustee  agrees
that,  effective on and as of the Lease Termination Date (unless a transferee of
the Undivided Interest and the Real Property Interest (an ANPP transferee) shall
have qualified  under Section 15.10 of the ANPP  Participation  Agreement or any
comparable successor provision),  unless (i) a Default or Event of Default shall



                                       -3-

6091.50.2831.56:1


<PAGE>

have  occurred and be  continuing or an Event of Loss or Deemed Lass Event shall
have occurred or (ii) such Lease  Termination Date shall have occurred by reason
of a termination of the Facility Lease pursuant to Section 16 thereof, the Owner
Trustee shall assume and agree to pay, perform and discharge the Owner Trustee's
share of all  liabilities  and obligations of PNM under, or with respect to, the
ANPP Project Agreements, attributable to Unit 1 and the Common Facilities, other
than any and all costs  relating  to,  allocable  to, or incurred in  connection
with,  the  decommissioning  and retirement of Unit 1 from  commercial  service,
including, but without limitation, (x) the cost of removal,  decontamination and
disposition  of  equipment  and  fixtures,  the cost of safe  storage  for later
remova1,.decontamination  and disposal and the cost of  entombment  of equipment
and fixtures, and (y) the cost of (i) the razing of Unit 1, (ii) the removal and
disposition of debris from the PVNGS Site, and (iii) the restoration of relevant
portions of the PVNGS Site.

                SECTION 4.02.  Release.  Upon the assumption and agreement by an
ANPP Transferee  pursuant to Section 4.01 (whether at the Lease Termination Date
or thereafter),  the Owner Trustee shall therewith and thereupon be released and
discharged  from its  obligations  under  Section  4.01 arising on or after such
assumption and agreement.


                                    ARTICLE V

                        NO RELEASE OF PNM; REIMBURSEMENT

                SECITON 5.01. No Release of PNM.  Notwithstanding the provisions
of  Article  IV or  any  other  provision  hereof  or of any  other  Transaction
Document,  and  except  to the  extent  provided  in  Section  15.10 of the ANPP
Participation  Agreement (or any comparable successor provision),  PNM shall not
be released from any liability or obligation under the ANPP Project  Agreements,
or otherwise, with respect to PVNGS, and PNM shall remain liable for the payment
and performance of all such liabilities and obligations,  including, but without
limitation,  any and all  liabilities  and  obligations not assumed by the Owner
Trustee or an ANPP Transferee pursuant to Section 4.01.

                                       -4-

6091.50.2831.56:1


<PAGE>


                SECTION  5.02.  Reimbursement.  Unless a Default  or an Event of
Default shall have occurred and be continuing or an Event of Loss or Deemed Loss
Event shall have occurred,  from and after the Lease  Termination Date (except a
Lease  Termination  occurring by reason of a termination  of the Facility  Lease
pursuant to Section 16 thereof),  upon the payment or  performance by PNM of any
liability or  obligation  in respect of which the Owner  Trustee shall also have
become  obligated  in  consequence  of  Article  XV or  the  ANPP  Participation
Agreement, and for so long as the Owner Trustee shall be so liable, PNM shall be
entitled to prompt  reimbursement by the Owner Trustee from the Trust Estate for
all amounts expended in connection with such payment or performance.


                                   ARTICLE VI

                        FURTHER AGREEMENTS OF PNM AND THE
                                  OWNER TRUSTEE

                SECTION 8.01. Agreement to Sell or Lease Unit 1 Retained Assets.
Upon a transfer to an ANPP  Transferee,  PMM agrees in respect of the  Undivided
Interest  and the Real  Property  Interest,  (i) if such  ANPP  Transferee  is a
purchaser of the Undivided Interest and the Real Property  Interest,  to sell to
such ANPP  Transferee,  at a price  equal to the then Fair  Market  sales  value
(determined  on the basis of the then  actual  condition  of the Unit 1 Retained
Assets)  thereof,  an  undivided  interest,  equal to  1.133333%,  to the extent
related  to Unit 1 and  .377777%,  to the  extent  related  to the PVNGS  common
facilities,  in and to the  Unit  1  Retained  Assets,  or  (ii)  if  such  ANPP
Transferee is a lessee of the Undivided interest and the Real Property Interest,
to lease or otherwise make available to such ANPP Transferee, at a rent equal to



                                       -5-

6091.50.2831.56:1


<PAGE>

the then Fair Market  Rental  Value  thereof,  an undivided  interest,  equal to
1.133333%, to the extent related to Unit 1 and .377777% to the extent related to
the PVNGS common facilities, in and to the Unit 1 Retained Assets. Any such sale
or lease by PNM shall be accomplished by an appropriate bill of sale or lease.

                SECTION 6.02. Agreement to Assign or Make Available ANPP Project
Agreements.  Upon a transfer to an ANPP Transferee, PNM agrees in respect of the
Undivided Interest and the Real Property  Interest,  (i) if such ANPP Transferee
is a purchaser of the  Undivided  interest and the Real  Property  Interest,  to
assign to such ANPP Transferee an undivided interest, equal to 1.133333%, to the
extent  related  to Unit 1, and  .377777%,  to the  extent  related to the PVNGS
common facilities,  of the Project Agreements (other than the ANPP Participation
Agreement)  and  (ii) if such  ANPP  Transferee  is a  lessee  of the  Undivided
Interest and the Real Property Interest, to assign for the term of such lease to
such ANPP Transferee an undivided  interest,  equal to 1.133333%,  to the extent
related  to Unit 1, and  .37777777%  to the extent  related to the PVNGS  common
facilities,  of the  Project  Agreements  (other  than  the  ANPP  Participation
Agreement).  Any assignment  pursuant to this Section 6.02 shall be accomplished
by an appropriate instrument of assignment.

                SECTION  6.03.   Agreements  to  Seek  Amendments  to  the  ANPP
Participation  Agreement and the License.  PNM agrees to use its best efforts to
obtain any  required  amendments  to the ANPP  Participation  Agreement  and the
License  to  permit  Inn to act as  Agent of the  Owner  Trustee  in the  manner
contemplated  by Section 7.01  hereof,  if (a) (i) PNM shall not have elected to
purchase the Undivided  Interest and the Real  Property  Interest as provided in
Section  13(b)  of the  Facility  Lease  and  (ii)  there  shall  not be an ANPP
Transferee in respect of the Undivided  Interest and the Real Property  Interest
or (b)  PNM,.  shall be  obligated  to  surrender  possession  of the  Undivided
Interest and the Real Property Interest pursuant to Section 5(a) of the Facility
Lease.  PNM acknowledges and agrees that neither the Owner Trustee nor the Owner
Participant shall have any obligation  whatsoever to assist PNM in obtaining any
such amendments.

                                       -6-

609l.50.2831.56:l


<PAGE>


                SECTION  6.04.  Owner  Trustee's   Agreement.   If  PNM  becomes
obligated to sell, lease,  otherwise make available or assign in accordance with
Sections 6.01 and 6.02 hereof,  the Owner Trustee shall (at the direction of the
Owner  Participant)  require or cause the AMP?  Transferee  to purchase,  lease,
accept or assume, as the case may be, the property or rights being sold, leased,
made available or assigned by PNM.


                                   ARTICLE VII

                           INTERIM AGENCY ARRANGEMENTS

                SECTION 7.01.  Designation of Agent. From and after surrender of
possession to the Owner  Trustee (or its assigns) of the Undivided  Interest and
the Real Property  Interest  pursuant to Section 5(a) of the Facility  Lease (or
during such period on or after the Lease Termination Date that the Owner Trustee
shall have waived any Default or Event of Default with respect to the  inability
of PNM to effectively surrender possession as required by such Section 5(a)) and
until a transfer to an ANPP Transferee in respect of the Undivided  Interest and
the Real Property Interest (such period being referred to as the Agency Period),
PNM shall be, and the Owner  Trustee  hereby  designates  PNM, the initial agent
(the Agent) of the Owner  Trustee in the exercise of all rights  assigned to the
Owner Trustee hereunder.

                SECTION 7.02. Operation of Unit 1. During the Agency Period, the
Agent shall  administer  the  operation of the  Undivided  Interest and the Real
Property Interest in.  accordance with this Agreement and all  instructions.  of
the Owner Trustee in accordance  with  Applicable  Law. If,  however,  the Owner
Trustee and any User shall,  prior to, or at any time during, the Agency Period,
enter into any joint ownership and operating agreement with other Persons having



                                       -7-

6091.50.2831.56:1


<PAGE>

a legal right to, or right to use, any other  undivided  interest in Unit 1, the
Agent  agrees to join in,  and be bound by, the terms of such  agreement  if the
Agent's  performance  thereunder shall not violate, or result in a violation of,
any  Applicable  Law or the License.  The Owner Trustee agrees to give the Agent
reasonable  prior written notice of the  commencement  of the negotiation of any
such agreement.

                SECTION 7.03. ANPP Participation  Agreement. PNM agrees that, at
all times  during  the  Agency  Period,  it will  perform  all  obligations  and
discharge all liabilities  for which it is responsible as a "participant"  under
the ANPP  Participation  Agreement in respect of the Undivided  Interest and the
Real Property Interest. In the performance of the foregoing agreement, PNM shall
not exercise its rights as an ANPP Participant to cause Capital  Improvements to
be made to Unit 1 and the Common  Facilities unless the Owner Trustee shall have
agreed to provide funds for the payment of the Owner Trustee's Share of the cost
of such  Capital  Improvements  to PNM prior to the date on which  such  amounts
shall be due with respect thereto under the ANPP Participation Agreement.

                SECTION  7.04.  Support.  Except  with  respect  to  the  Unit 1
Retained  Assets for which  provision is made in Section 7.06, PNM covenants and
agrees that, at all times during the Agency  Period,  it will  provide,  or make
available, to the Owner Trustee all PNM's rights in and to other assets owned by
PNM and the ANPP  Project  Agreements  to the extent  relating to the  Undivided
interest and the Real Property Interest.

                SECTION 7.05. Compensation.  As compensation for its obligations
under  Sections  7.02,  7.03 and 7.04,  if no Event of Default  based upon PNM's
failure to perform  obligations  under  Section 5(a) of the  Facility  Lease has
occurred  and is  continuing,  PNM shall be entitled  to receive,  and the Owner
Trustee  hereby agrees to pay, an amount equal to the Owner  Trustee's  Share of
the  aggregate  of (i) amounts  paid by PNM as  provided in Section  7.03 to the
extent  reasonably  allocable to the  Undivided  Interest and the Real  Property



                                       -8-

6091.50.2831.56:l


<PAGE>

Interest and (ii)  reasonable  compensation  for the Unit 1 Retained  Assets and
(iii)  out-of-pocket  expenses incurred by PNN or the Agent, as the case may be,
in  connection  with the  performance  of its  agreements  in this  Article III.
Compensation under this Section 7.05 shall be paid promptly in cash upon receipt
of an invoice from PNM.

                SECTION 7.06.  Transmission;  Transmission  Agreement.  (a) ?PNM
covenants  and agrees  that,  at all times during the Agency  Period,  the Owner
Trustee  shall  have the right to wheel,  under  normal  transmission  operating
conditions,  the Owner  Trustee's  Share of the then rated  capacity  of Unit 1,
under normal transmission  operating conditions,  over transmission equipment in
which PNM now owns or may hereafter acquire an ownership interest,  between Unit
1 and the ANPP Switchyard.

                (b) Based upon the respective rights,  duties and obligations of
the Owner  Trustee  and PNM set forth in Section  7.06(a),  if PNM shall fail or
decline to give the notice of renewal of the  facility  Lease or purchase of the
Undivided  Interest,  in each case as provided in Section  13(a) of the Facility
Lease,  PNM and the Owner Trustee shall  forthwith  commence the  negotiation in
good faith of a definitive  transmission  agreement,  not inconsistent  with the
terms and provisions of Section 7.06(a),  but containing  sufficient  detail for
the proper  wheeling of power and energy,  under normal  transmission  operating
conditions,  over the equipment of PNM referred to in such Section 7.06(a) under
then existing  circumstances,  for the exercise or stipulation,  as the case may
be, of the respective  rights,  duties and  obligations of the Owner Trustee and
PNM set forth in Section 7.06(a).  PNM and the Owner Trustee shall complete such
negotiations  and execute such  definitive  transmission  agreement prior to the
Lease Termination Date and such definitive  transmission agreement shall provide
for  compensation to PNM for the  transmission  services so provided at the Fair
Market Sales Value thereof.





                                       -9-
6091.50.2831.56:1


<PAGE>


                                  ARTICLE VIII

                                  MISCELLANEOUS

                  SECTION 8.01.  Successors and Assigns. This Agreement shall be
binding upon the successors and assigns of each of PNM and the Owner Trustee.

                  SECTION  8.02.  Governing  Law.  The  interpretation  of  this
Agreement and the rights and obligations of the parties hereto shall be governed
by and  construed  and enforced in  accordance  with the law of the State of New
York.

                  SECTION 8.03.  Counterpart  Execution.  This  Agreement may be
executed  in any number of  counterparts  and by each of the  parties  hereto on
separate  counterparts1 all such counterparts  together constituting but one and
the same instrument.

                  SECTION 8.04.  Amendments.  The terms of this Agreement  shall
not be waived,  altered,  modified,  amended,  supplemented or terminated in any
manner  whatsoever,  except by  written  instrument  signed by Inn and the Owner
Trustee.

                SECTION 8.05.  Survival.  All agreements and covenants contained
in this Agreement or any agreement,  document or certificate  delivered pursuant
hereto or in  connection  herewith  shall  survive the execution and delivery of
this Agreement.

                  SECTION 8.06.  Severability  of  Provisions.  Any provision of
this Agreement  which may be determined by competent  authority to be prohibited
or  unenforceable  in  any  jurisdiction  shall,  as to  such  jurisdiction,  be
ineffective  to the  extent  of such  prohibition  or  unenforceability  without
invalidating  the  remaining  provisions  hereof,  and no  such  prohibition  or
unenforceability  in any jurisdiction  shall invalidate or render  unenforceable
such provisions in any other jurisdiction. To the extent permitted by Applicable




                                      -10-

6091.50.2831.56:1


<PAGE>

Law, PNM hereby waives any  provision of law which renders any provision  hereof
prohibited or unenforceable in any respect.

                SECTION  8.07.  Headings.  The division of this  Agreement  into
sections, the provision of a table of contents and the insertion of headings are
for  convenience  of  reference  only and shall not affect the  construction  or
interpretation of this Agreement.

                  SECTION 8.08.  Disclosure of Beneficiary.  Pursuant to Arizona
Revised  Statutes  S33-40l,  the  beneficiary  of the Trust  Agreement  is Chase
Manhattan Realty Leasing Corporation,  a New York corporation,  whose address is
One Chase  Manhattan  Plaza (20th Floor) New York, New York 10081,  Attention of
Leasing Administrator. A copy of the Trust Agreement is available for inspection
at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts
02110, Attention of Corporate Trust Division.


























                                      -11-

6091.50.2831.55:1


<PAGE>


                IN WITNESS  WHEREOF,  the  parties  hereto have each caused this
Agreement to be duly executed in New York, New York by their respective officers
thereunto duly authorized.

                                       PUBLIC SERVICE COMPAMY OF NEW MEXICO



                                       By
                                           --------------------------------
                                                Senior Vice President and
                                                 Chief Financial Officer


                                       THE FIRST NATIONAL BANK OF BOSTON, not in
                                         its individual capacity,  but solely as
                                         Owner Trustee under a Trust  Agreement,
                                         dated as of July 31, 1986,  with Chase.
                                         Manhattan Realty Leasing Corporation


                                       By:
                                            -------------------------------
                                               Assistant Vice President














                                      -12-
6091.50.2831.56:1


<PAGE>


STATE OF NEW YORK   )
                    ) ss.:
COUNTY OF NEW YORK  )

                  The foregoing  instrument was acknowledged before me this 30th
day of July,  1986, by A.J.  Robison,  Senior Vice President and Chief Financial
Officer of PUBLIC SERVICE COMPANY OF NEW MEXICO,  a New Mexico  corporation,  on
behalf of the corporation.

                                                         /s/ Delia T. Santiago
                                                        ----------------------
                                                             Notary Public

                                                   DELIA T SANTIAGO
                                            Notary Public, State of New York
                                                     No. 41-3451l60
                                               Qualified In Queens County
                                            Commission Expire, March 30,1987


STATE OF NEW YORK   )
                    ) SS.:
COUNTY OF NEW YORK  )



                  The foregoing  instrument was acknowledged before me this 30th
day of July,  1986, by __________ M P. HENRY,  , an Assistant  Vice President of
THE FIRST NATIONAL BANK OF BOSTON, a national banking association,  on behalf of
the banking  association under that certain Trust Agreement dated as of July 31,
1986 with Chase Manhattan Realty Leasing Corporation.



                                                         /s/ David A. Spivak
                                                        ----------------------
                                                             Notary Public


                                           Notary Public, State of New York
                                                      No.31-4693488
                                              Qualified in New York County
                                           Commission Expires March 30. 1987







                                      -13-

6091.50.2831.56:1