[Conformed]1
                                                               [Confirms]1
                                                          October 25, 1994
                                                          October 25, 1994

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

                           COLLATERAL TRUST INDENTURE

                          dated as of December 16, 1985


                                      Among


                          FIRST PV FUNDING CORPORATION,

                      PUBLIC SERVICE COMPANY OF NEW MEXICO


                                       and


                                 CHEMICAL BANK,

                                   as Trustee



                 Providing for the Issuance from Time to Time of
                           Securities To Be Issued in
                               One or More Series



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

                      PALO VERDE NUCLEAR GENERATING STATION

----------
     1 Exhibits B through F are not part of the  Collateral  Trust  Indenture as
originally executed.

#30122041.1

<PAGE>




                          FIRST PV FUNDING CORPORATION

                      PUBLIC SERVICE COMPANY OF NEW MEXICO

                    Reconciliation and tie between Indenture
                          dated as of December 16, 1985

                                       and

                           Trust Indenture Act of 1939


                                                              Section of
Section of Act                                                Indenture
--------------                                                ---------

310  (a) (1)                                                  9.09
         (2)                                                  9.09
         (3)                                                  Inapplicable
         (4)                                                  Inapplicable
     (b)                                                        9.08, 9.10(a),
                                                                9.10(d),
                                                                9.10(e), 9.11
     (c)     Inapplicable

311(a)(b)                                                     9.13
     (c)                                                      Inapplicable

312  (a)                                                      10.01
                                                              10.02(a)
     (b)                                                      10.02(b)
     (c)                                                      10.02(c)

313  (a)                                                      10.03(a)
313  (b) (1)                                                  10.03(b)(1)
         (2)                                                  10.03(b)
     (c)                                                      10.03(a) & (b)
     (d)                                                      10.03(c)

314  (a)                                                      10.04
     (b)                                                        5.06
     (c) (1)                                                    1.02
         (2)                                                    1.02
         (3)                                                  Inapplicable
     (d) (1)                                                  Inapplicable
         (2)                                                  Inapplicable
         (3)                                                  Inapplicable
     (e)                                                        1.02

315  (a) (1)                                                  9.01(a)(1)
         (2)                                                  9.01(a)(2)



#30122041.1

<PAGE>


                                                              Section of
Section of Act                                                Indenture
--------------                                                ---------


315  (a) (last clause)                                        9.01(a)(2)
     (b)                                                      9.02
     (c)                                                      9.01(b)
     (d) (1)                                                  9.01(c)(1)
         (2)                                                  9.01(c)(2)
         (3) 9.01(c)(3)
     (e)                                                      8.10

316  (a) (1) (A)                                              8.07
             (B)                                              8.08
         (2)                                                  Inapplicable
     (a) (last sentence)                                      1.01
                                                                ("Outstanding")
     (b)                                                      8.11

317  (a) (1)                                                  8.05(a)
         (2)                                                  8.05(d)
     (b)                                                      5.03
                                                              9.14(c)(2)

318  (a)                                                      1.07



     NOTE: This  reconciliation and tie shall not, for any purpose, be deemed to
constitute a part of the Indenture.

#30122041.1

<PAGE>


                  COLLATERAL  TRUST  INDENTURE,  dated as of December  16, 1985,
among FIRST PV FUNDING CORPORATION,  a Delaware corporation  (hereinafter called
the Company),  having its principal  office and mailing  address at  Corporation
Trust Center,  1209 Orange Street,  Wilmington,  Delaware 19801,  PUBLIC SERVICE
COMPANY OF NEW MEXICO, a New Mexico corporation, having its principal office and
mailing address at Alvarado Square,  Albuquerque,  New Mexico 87158 (hereinafter
called PNM),  and CHEMICAL  BANK,  a New York  banking  corporation,  as Trustee
(hereinafter called the Trustee),  having its corporate trust office at 55 Water
Street, New York, New York 10041, Attention: Corporate Trustee Administration.

                                    RECITALS

                  WHEREAS,  the Company has duly  authorized  the creation of an
issue of its  debentures,  notes or other evidences of indebtedness to be issued
in one or more series (the Securities) up to such principal amount or amounts as
may  from  time to time be  authorized  in  accordance  with  the  terms of this
Indenture;  and to secure the Securities  and to provide for the  authentication
and  delivery  thereof by the  Trustee,  the  Company  has duly  authorized  the
execution and delivery of this Indenture; and

                  WHEREAS,  all acts  necessary  to make this  Indenture a valid
instrument for the security of the Securities,  in accordance with its and their
terms, have been done;

                  NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, to secure the
payment of theprincipal  of, premium (if any) and interest on all the Securities
authenticated and delivered hereunder and issued by the Company and outstanding,
and the  performance  of the  covenants  therein  and herein  contained,  and in
consideration  of the premises and of the covenants  herein contained and of the
purchase of the Securities by the holders thereof,  and of the sum of one dollar
($1.00) paid to the Company by the Trustee at or before the delivery hereof, the
receipt  whereof is hereby  acknowledged,  the  Company by these  presents  does
grant, bargain,  sell, release,  convey,  assign,  pledge,  transfer,  mortgage,
hypothecate,  and confirm unto the Trustee all and singular the following (which
collectively are hereinafter  called the Pledged  Property),  excluding,  in any
event, any moneys which are specifically stated herein not to constitute part of
the Pledged Property, to wit:
                                  CLAUSE FIRST

                  All Pledged Lessor Notes (as hereinafter  defined) as shall be
actually  pledged and assigned by the Company to the Trustee,  together with the
interest  of the  Company  (if  any) in the  Lease  Indentures  (as  hereinafter
defined)  securing  said  Lessor  Notes,  pursuant  to the  Series  Supplemental
Indentures  or other  supplemental  indentures  to be executed and  delivered as
provided in this Indenture.

                                  CLAUSE SECOND

                  All right,  title and interest of the Company in, to and under
any agreements  with respect to commitment  fees or other amounts payable by PNM
entered  into  between PNM and the Company in  connection  with the issuance and
sale of any series of  Securities,  if  actually  assigned by the Company to the
Trustee  pursuant  to a Series  Supplemental  Indenture  or  other  supplemental
indentures to be executed and delivered as provided in this Indenture.

                                  CLAUSE THIRD

                  All the proceeds  received by the Company from the sale of the
Securities, all the tolls, rents, issues, profits, products,  revenues and other
income of the property subjected or required to be subjected to the lien of this
Indenture,  and all the  estate,  right,  title  and  interest  of every  nature
whatsoever of the Company in and to the same and every part thereof.


#30122041.1
                                        1

<PAGE>
                                  CLAUSE FOURTH

                  Any  property,  including  cash,  that may,  from time to time
hereafter be subjected to the lien and/or  pledge hereof by the Company or which
pursuant to any provision of this Indenture or any Series Supplemental Indenture
or other  supplemental  indentures  to be executed and  delivered as provided in
this Indenture may become  subjected to the lien and/or pledge  hereof;  and the
Trustee  is hereby  authorized  to  receive  the same at any time as  additional
security  hereunder.  Such subjection to the lien hereof of any such property as
additional  security may be made  subject to any  reservations,  limitations  or
conditions  which  shall be set forth in a written  instrument  executed  by the
Company  and/or by the  Trustee  respecting  the scope or  priority of such lien
and/or  pledge  or the use and  disposition  of such  property  or the  proceeds
thereof.

                  TO HAVE AND TO HOLD the Pledged  Property unto the Trustee and
its  successors  and  assigns  forever  subject to the terms of this  Indenture,
including, without limitation, Section 12.01.

                  BUT IN TRUST,  NEVERTHELESS,  for the equal and  proportionate
benefit  and  security of the  holders  from time to time of all the  Securities
authenticated and delivered hereunder and issued by the Company and outstanding,
without any priority of any one Security over any other.

                  AND  UPON  THE  TRUSTS  and  subject  to  the   covenants  and
conditions hereinafter set forth.


                                   ARTICLE I.

                  DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.

                  SECTION 1.011.  Definitions.

                  For  all  purposes  of this  Indenture,  except  as  otherwise
expressly provided or unless the context otherwise requires:

                  (1) the  terms  defined  in this  Article  have  the  meanings
         assigned to them in this Article, and include the plural as well as the
         singular;  

                  (2) all other  terms used  herein  which are  defined in the
         Trust  Indenture Act (as  hereinafter  defined),  either directly or by
         reference therein, have the meanings assigned to them therein;

                  (3) all accounting terms not otherwise defined herein have the
         meanings  assigned  to  them  in  accordance  with  generally  accepted
         accounting principles;

                  (4) all reference in this Indenture to designated  "Articles",
         "Sections"  and  other  subdivisions  are to the  designated  Articles,
         Sections and other subdivisions of this Indenture; and

                  (5) the words  "herein",  "hereof" and  "hereunder"  and other
         words of similar  import refer to this  Indenture as a whole and not to
         any particular Article, Section or other subdivision.

                  Certain terms,  used  principally in Article Nine, are defined
in that Article.

                  "Act" when used with  respect  to any  Holder has the  meaning
specified in Section 1.04.


#30122041.1
                                        2

<PAGE>

                  "Affiliate"  of any  specified  Person  means any other Person
directly or indirectly  controlling or controlled by or under direct or indirect
common control with such specified Person.  For the purposes of this definition,
"control,"  when used with respect to any specified  Person,  means the power to
direct the  management  and  policies of such  Person,  directly or  indirectly,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling" and "controlled"  have meanings  correlative to the
foregoing.

                 "Authorized Agent"means any Paying Agent or Security Registrar.

                  "Board  of  Directors"  means the  board of  directors  of the
Company,  when  used  with  respect  to the  Company,  and  either  the board of
directors,  or any  committee  of  that  board  duly  authorized  to act  for it
hereunder, when used with respect to PNM.

                  "Board  Resolution" means a copy of a resolution  certified by
the  Secretary or an Assistant  Secretary of the Company or PNM, as the case may
be, to have been duly adopted by the Board of Directors of such entity and to be
in full force and effect on the date of such certification, and delivered to the
Trustee.

                  "Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking  institutions  in The City of New
York, New York, the City of Boston,  Massachusetts  or the City of  Albuquerque,
New Mexico are authorized by law to remain closed.

                  "Change"  with  respect to any  instrument  means any consent,
amendment,  waiver,  approval,  notice or direction or the  execution,  grant or
giving of any thereof.

                  "Commission" means the Securities and Exchange Commission,  as
from time to time  constituted,  created  under the  Securities  Exchange Act of
1934, or if at any time after the execution of this  instrument  such Commission
is not  existing  and  performing  the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties on such date.

                  "Company" means the Person named as the "Company" in the first
paragraph of this  instrument  until a successor  corporation  shall have become
such pursuant to the  applicable  provisions of this  Indenture,  and thereafter
"Company" shall mean such successor corporation.

                  "Company  Request" and "Company Order" mean,  respectively,  a
written  request or order signed in the name of the Company by its  President or
one of its  Vice  Presidents,  and by its  Treasurer,  Secretary,  or one of its
Assistant Treasurers or Assistant Secretaries, and delivered to the Trustee.

                  "Corporate  Trust Office"  means the  principal  office of the
Trustee at which at any particular  time corporate trust business of the Trustee
shall be  administered,  which at the date of this Indenture is 55 Water Street,
New York, N.Y. 10041, Attention: Corporate Trustee Administration.

                  "Equity  Investor" means any Equity  Investor  identified in a
Schedule to a Series  Supplemental  Indenture,  until a successor  or  assignees
thereof  shall have become such  pursuant to the  applicable  provisions  of the
Participation Agreement to which such Equity Investor is a party, and thereafter
"Equity  Investor" means such successor or assignees;  "Equity  Investors" means
each and every Equity Investor.

                  "Event of Default" has the meaning specified in Section 8.01.

                  "Extension Letter" means the Extension Letter, to be dated the
date of issue of a Pledged  Lessor  Note and  addressed  to the  Trustee  by the
parties  to  the   Participation   Agreement,   extending  to  the  Trustee  the
representations,  warranties  and  covenants  of such  parties  set forth in the
Participation Agreement.


#30122041.1
                                        3

<PAGE>

                  "Holder"  or  "Securityholder"  means a Person in whose name a
Security is registered in the Security Register.

                  "Indenture"  means this instrument as originally  executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.

                  "Initial   Interest  Date"  with  respect  to  any  series  of
Securities means the date of the Stated Maturity for the initial  installment of
interest on Securities of such series.

                  "Lease  Indenture"  means  any Lease  Indenture  and any Lease
Indenture  Supplement   identified  in  a  Schedule  to  a  Series  Supplemental
Indenture, as such Lease Indenture and Lease Indenture Supplement may be amended
or supplemented from time to time pursuant to the applicable  provisions thereof
and of this Indenture; "Lease Indentures" means each and every Lease Indenture.

                  "Leases" means any Lease and any Lease  Supplement  identified
in a  Schedule  to a Series  Supplemental  Indenture,  as such  Lease  and Lease
Supplement  may be  amended  from  time  to  time  pursuant  to  the  applicable
provisions thereof and of this Indenture; "Leases" means each and every Lease.

                  "Lease  Indenture  Trustee" means the Lease Indenture  Trustee
identified in Schedule 1 to a Series Supplemental  Indenture,  until a successor
Lease  Indenture  Trustee  shall have  become such  pursuant  to the  applicable
provisions  of the Lease  Indenture to which such Lease  Indenture  Trustee is a
party,  and  thereafter  "Lease  Indenture  Trustee"  means the successor  Lease
Indenture  Trustee;  "Lease  Indenture  Trustees"  means  each and  every  Lease
Indenture Trustee.

                  "Lease  Payments" with respect to any Lease shall mean amounts
payable by PNM under such lease in respect of (i)  interim  rent (if any),  (ii)
basic rent,  (iii) casualty value,  (iv) special casualty value, (v) termination
value or (vi) any other amounts  payable in connection  with  termination of the
Lease,  in each case as more fully  described  in and  assigned  pursuant to the
related Lease  Indenture;  "Lease Payments" with respect to all Leases means the
aggregate of Lease Payments under any and all Leases.

                  "Lessee  Request"  and "Lessee  Order" mean,  respectively,  a
written  request and a written  order signed in the name of PNM by its President
or one of its Vice  Presidents or Assistant Vice Presidents and by its Treasurer
or Secretary or one of its Assistant Treasurers or Assistant Secretaries,  or by
any authorized agent of PNM, and delivered to the Trustee.

                  "Lessor" or "Owner  Trustee" means any Lessor or Owner Trustee
identified in a Schedule to a Series Supplemental  Indenture,  until a successor
shall have become  such  pursuant to the  applicable  provisions  of the related
Trust Agreement  identified in said Schedule,  and thereafter "Lessor" or "Owner
Trustee"  means such  successor;  "Lessors" or "Owner  Trustees"  means each and
every Lessor or Owner Trustee.

                  "Lien of this  Indenture"  or  "lien  hereof"  means  the lien
created by these presents, or created by any concurrent or subsequent conveyance
to the  Trustee  (whether  made by the  Company or any other  Person and whether
pursuant to a Series Supplemental Indenture or otherwise), or otherwise created,
constituting any property a part of the Pledged Property held by the Trustee for
the benefit of the Securities Outstanding hereunder.

                  "Obligor",  when used with reference to the Securities or this
Indenture,  means PNM and any successor to the obligations of PNM under a Lease,
and does not include the Trustee,  the Lease Indenture Trustee, an Owner Trustee
or an  Equity  Investor  so long as they  have  not  assumed  such  obligations;
provided,  however,  that no  reference  to PNM as an  Obligor  herein  shall be
construed as implying any guaranty by PNM of the Securities.


#30122041.1
                                        4

<PAGE>

                  "Officers'  Certificate"  means a  certificate  signed  by the
President or a Vice President,  and by the Treasurer,  the Secretary,  or one of
the  Assistant  Treasurers or Assistant  Secretaries,  of PNM, any Lessor or the
Company, as the case may be, and delivered to the Trustee.

                  "Opinion  of Counsel"  means a written  opinion of counsel for
any Person either expressly referred to herein or otherwise  satisfactory to the
Trustee  which may include,  without  limitation,  counsel to the  Company,  any
Lessor, the Lease Indenture Trustee,  any Equity Investor or PNM, whether or not
such counsel is an employee of any of them.

                  "Outstanding"  when used with respect to Securities  means, as
of the date of  determination,  all  Securities  theretofore  authenticated  and
delivered under this Indenture, except:

                           (i) Securities  theretofore  cancelled by the Trustee
                  or delivered to the Trustee for cancellation;

                           (ii) Securities for whose payment or redemption money
                  in the necessary  amount has been  theretofore  deposited with
                  the  Trustee in trust for the  Holders of such  Securities  as
                  provided in Section 12.01,  provided that, if such  Securities
                  are to be redeemed  (otherwise  than through the  operation of
                  the Sinking  Fund),  notice of such  redemption  has been duly
                  given  pursuant  to  this  Indenture  or  provision   therefor
                  satisfactory to the Trustee has been made; and

                           (iii)  Securities  paid in full or in exchange for or
                  in lieu of which other Securities have been  authenticated and
                  delivered  pursuant to this Indenture  unless held by a Holder
                  in whose hands such Securities constitute valid obligations of
                  the Company;

provided,  however,  that in  determining  whether the Holders of the  requisite
principal  amount of  Securities  Outstanding  have given any  request,  demand,
authorization,  direction, notice, consent or waiver hereunder, Securities owned
by the  Company  or owned by PNM,  any  Lessor or any  Equity  Investor,  or any
Affiliate of PNM, of any Lessor or of any Equity Investor,  shall be disregarded
and deemed not to be Outstanding, unless such Persons own 100% of the Securities
owned by all Persons,  except that, in determining  whether the Trustee shall be
protected in relying upon any such request,  demand,  authorization,  direction,
notice,  consent or waiver,  only  Securities  which the Trustee  knows to be so
owned shall be so  disregarded.  Securities  so owned which have been pledged in
good faith may be regarded as  Outstanding  if the  pledgee  establishes  to the
satisfaction  of the Trustee the pledgee's  right so to act with respect to such
Securities  and that the  pledgee is not the  Company or PNM,  any Lessor or any
Equity Investor or any Affiliate of the Company, of PNM, of any Lessor or of any
Equity Investor.

                  "Participation Agreement" means any Participation Agreement or
other  similar  Lessor  Note  purchase  document to which the Company is a party
identified  in  a  Schedule  to  a  Series  Supplemental   Indenture,   as  such
Participation  Agreement or other purchase  document may be amended from time to
time  pursuant  to the  applicable  provisions  thereof  and of this  Indenture;
"Participation Agreements" means each and every Participation Agreement.

                  "Paying  Agent"  means  any  Person  acting  as  Paying  Agent
hereunder pursuant to Section 9.14.

                  "Permitted  Investment"  means (i) direct  obligations  of the
United States of America,  or (ii)  obligations  fully  guaranteed by the United
States of  America,  or (iii)  certificates  of deposit  issued by, or  bankers'
acceptances  of, or time  deposits  with,  any bank,  trust  company or national
banking association  incorporated or doing business under the laws of the United
States of America or one of the States thereof (but not exceeding $15,000,000 in
principal  amount of all  certificates of deposit and time deposits at any given
time for any one bank, trust company or national banking  association)  having a
combined  capital and surplus of at least  $300,000,000  (including the Trustee,
any Lease Indenture Trustee,  any Lessor and any Paying Agent if such conditions
are met), or (iv) commercial  paper of companies  incorporated or doing business
under the laws of the United States of America or one of the States thereof (but


#30122041.1
                                        5

<PAGE>



not  exceeding  $15,000,000  in  principal  amount at any given time for any one
company) and in each case having a rating assigned to such  commercial  paper by
Standard & Poor's Corporation or Moody's Investors Service, Inc. (or, if neither
such  organization  shall  rate  such  commercial  paper  at  any  time,  by any
nationally recognized rating organization in the United States of America) equal
to  the  highest  rating  assigned  by  such  organization,  or  (v)  repurchase
agreements fully collateralized by an obligation of the type described in clause
(i) or (iv) above,  pursuant to which a bank,  trust company or national banking
association  referred to in clause (iii) above or another financial  institution
having a net worth of at least  $200,000,000 is obligated to repurchase any such
obligation not later than 90 days after the purchase of any such obligation.

                  "Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

                  "Place of Payment",  when used with respect to the  Securities
of any series,  means the  corporate  trust office of the Trustee and such other
place or  places,  if any,  where the  principal  of (and  premium,  if any) and
interest on the Securities of that series are payable as specified in the Series
Supplemental Indenture setting forth the terms of the Securities of such series.

                  "Pledged  Lessor Note" means any Lessor Note  identified  in a
Schedule to a Series Supplemental  Indenture, as such Lessor Note may be amended
or supplemented from time to time pursuant to the applicable provisions thereof,
of the related Lease  Indenture and of this  Indenture;  "Pledged  Lessor Notes"
means each and every Pledged Lessor Note.

                    "Pledged Property" has the meaning set forth in the Granting
Clauses.

                  "PNM" means Public Service Company of New Mexico, a New Mexico
corporation, and, subject to the provisions hereof, its successors and assigns.

                  "Predecessor  Securities"  of any  particular  Security  means
every  previous  Security  evidencing  all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this definition,
any Security  authenticated  and delivered under Section 2.09 in lieu of a lost,
destroyed  or stolen  Security  shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.

                  "Principal Instruments" means the Pledged Lessor Notes, the 
Lease Indentures, the Participation Agreements and the Leases.

                  "Redemption Date" when used with respect to any Security to be
redeemed  means  the date  fixed  for such  redemption  by or  pursuant  to this
Indenture.

                  "Redemption  Price" when used with  respect to any Security to
be redeemed means the price (inclusive of accrued interest) at which it is to be
redeemed pursuant to this Indenture and the terms of such Security.

                  "Regular   Record  Date"  for  the  Stated   Maturity  of  any
installment  of interest means the 15th day (whether or not a Business Day) next
preceding such Stated Maturity.

                  "Responsible  Officer"  when used with  respect to the Trustee
means  any  officer  of  the  Trustee  customarily  performing  corporate  trust
functions.

                  "Security Register" has the meaning specified in Section 2.08.

                  "Security Registrar" means any Person acting as Security 
Registrar hereunder pursuant to Section 9.14.


#30122041.1    
                                        6

<PAGE>

                  "Series    Supplemental    Indenture"   means   an   indenture
supplemental  to this  Indenture,  for the purpose of specifying,  in accordance
with Article Two hereof,  the form of the  Securities of any series,  and/or for
the purpose of subjecting to the Lien of this Indenture the Pledged Lessor Notes
related to such series;  "Series  Supplemental  Indentures" means each and every
Series Supplemental Indenture.

                  "Sinking Fund" has the meaning specified in Section 7.01.

                  "Special  Record  Date"  for  the  payment  of  any  defaulted
interest means a date fixed by the Trustee pursuant to Section 2.10.

                  "Stated  Maturity"  when used with  respect to any Security or
any installment of interest thereon means the date specified in such Security as
the fixed date on which the  principal of such Security or such  installment  of
interest is due and payable.

                  "Trust  Indenture Act" or "TIA" means the Trust  Indenture Act
of 1939 as in force at the date as of which this instrument was executed, except
as provided in Section 11.06.

                  "Trustee" means the Person named as the "Trustee" in the first
paragraph of this  instrument  until a successor  Trustee shall have become such
pursuant  to  the  applicable  provisions  of  this  Indenture,  and  thereafter
"Trustee" shall mean such successor Trustee.

                  SECTION 1.012.  Compliance Certificates and Opinions.

                  Upon any application or request by the Company,  any Lessor or
PNM to the Trustee to take any action under any provision of this Indenture, the
Company, such Lessor or PNM, as the case may be, shall furnish to the Trustee an
Officers'  Certificate stating that all conditions  precedent,  if any, provided
for in this  Indenture  relating to the proposed  action have been complied with
and an Opinion of Counsel  stating  that in the opinion of such counsel all such
conditions  precedent,  if any, have been complied with, except that in the case
of any such  application or request as to which the furnishing of such documents
is  specifically  required by any provision of this  Indenture  relating to such
particular  application or request, no additional certificate or opinion need be
furnished;  provided  that any action which may be taken under any  provision of
this Indenture by a Lessor may be taken by PNM on behalf of such Lessor pursuant
to the agency granted to PNM pursuant to the Participation  Agreement unless and
until the Trustee has been notified of the revocation of such agency.

                  Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include

                  (1) a statement that each individual  signing such certificate
         or opinion has read such  covenant  or  condition  and the  definitions
         herein relating thereto;

                  (2) a  brief  statement  as to the  nature  and  scope  of the
         examination  or  investigation  upon which the  statements  or opinions
         contained in such certificate or opinion are based;

                  (3) a statement that, in the opinion of each such  individual,
         he has made such examination or investigation as is necessary to enable
         him to express an informed  opinion as to whether or not such  covenant
         or condition has been complied with; and

                  (4) a  statement  as to  whether,  in the opinion of each such
         individual, such condition or covenant has been complied with.


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<PAGE>

                  SECTION 1.013.  Form of Documents Delivered to Trustee.

                  In any case where several matters are required to be certified
by, or covered by an opinion of, any specified  Person, it is not necessary that
all such  matters be  certified  by, or covered by the opinion of, only one such
Person,  or that they be so certified or covered by only one  document,  but one
such Person may certify or give an opinion  with respect to some matters and one
or more other such Persons as to other matters,  and any such Person may certify
or give an opinion as to such matters in one or several documents.

                  Any  certificate  or opinion of an officer of the Company,  of
any Lessor or of PNM may be based,  in so far as it  relates  to legal  matters,
upon a certificate or opinion of, or  representations  by, counsel,  unless such
officer knows that the certificate or opinion or representations with respect to
the matters upon which his  certificate or opinion is based are  erroneous.  Any
such  certificate or Opinion of Counsel may be based, in so far as it relates to
factual  matters,  upon a certificate or opinion of, or  representations  by, an
officer or officers of the Company, of any Lessor or of PNM, as the case may be,
stating that the  information  with  respect to such  factual  matters is in the
possession of the Company, such Lessor or PNM, respectively, unless such counsel
knows that the  certificate or opinion or  representations  with respect to such
matters are erroneous.

                  Any  Opinion of Counsel  stated to be based on the  opinion of
other counsel shall be accompanied by a copy of such other opinion.

                  Where any Person is required  to make,  give or execute two or
more applications,  requests, consents,  certificates,  statements,  opinions or
other instruments under this Indenture,  they may, but need not, be consolidated
and form one instrument.

                  SECTION 1.014.  Acts of Holders.

                  (a) Any request,  demand,  authorization,  direction,  notice,
consent,  waiver or other action provided by this Indenture to be given or taken
by Holders  may be  embodied  in and  evidenced  by one or more  instruments  of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing;  and, except as herein otherwise expressly provided,  such
action shall become  effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company and to
PNM.  Such  instrument  or  instruments  (and the action  embodied  therein  and
evidenced  thereby) are herein sometimes referred to as the "Act" of the Holders
signing  such  instrument  or  instruments.  Proof  of  execution  of  any  such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this  Indenture and (subject to Section 9.01)  conclusive in favor of
the  Trustee,  the  Company  and PNM,  if made in the  manner  provided  in this
Section.

                  (b) The fact and date of the  execution  by any  Person of any
such instrument or writing may be proved by the certificate of any notary public
or other officer of any jurisdiction authorized to take acknowledgments of deeds
or administer  oaths that the Person  executing such instrument  acknowledged to
him the  execution  thereof,  or by an affidavit of a witness to such  execution
sworn to before any such notary or other such  officer and where such  execution
is by an officer of a corporation  or  association or a member of a partnership,
on behalf of such corporation,  association or partnership,  such certificate or
affidavit shall also constitute sufficient proof of his authority.  The fact and
date of the execution of any such instrument or writing, or the authority of the
Person  executing  the same,  may also be proved in any other  manner  which the
Trustee deems sufficient.

                  (c) The  ownership  of  Securities  shall  be  proved  by  the
Security Register.

                  (d) Any request,  demand,  authorization,  direction,  notice,
consent,  waiver or other  action by the Holder of any  Security  shall bind the
Holder  of every  Security  issued  upon the  transfer  thereof  or in  exchange
therefor or in lieu thereof, whether or not notation of such action is made upon
such Security.


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<PAGE>

                  SECTION 1.015.  Notices, etc., to Trustee, PNM and Company.

                  Any  request,  demand,   authorization,   direction,   notice,
consent,  waiver or Act of Holders or other  document  provided or  permitted by
this Indenture to be made upon, given or furnished to, or filed with,

                  (1) the Trustee by any Holder, by the Company, by PNM or by an
         Authorized  Agent shall be sufficient  for every  purpose  hereunder if
         made,  given,  furnished  or filed in writing to or with the Trustee at
         its Corporate Trust Office, or

                  (2) the Company by the Trustee, by any Holder, by PNM or by an
         Authorized Agent shall be sufficient for every purpose  hereunder if in
         writing  and  mailed,  first-class  postage  prepaid,  to  the  Company
         addressed to it at the address of its principal office specified in the
         first paragraph of this  instrument or at any other address  previously
         furnished  in writing to the  Trustee  and PNM by the  Company for such
         purpose, or

                  (3) PNM by the Trustee, by any Holder, by the Company or by an
         Authorized Agent shall be sufficient for every purpose  hereunder if in
         writing and mailed, first-class postage prepaid, to PNM addressed to it
         at the address of its principal office specified in the first paragraph
         of this  instrument  or at any other  address  previously  furnished in
         writing to the Trustee and the Company by PNM for such purpose.

                  SECTION 1.016.  Notices to Holders; Waiver.

                  Where  this  Indenture  provides  for notice to Holders of any
event,  such  notice  shall  be  sufficiently  given  (unless  otherwise  herein
expressly  provided) if in writing and mailed,  first-class  postage prepaid, to
each Holder,  at his address as it appears in the Security  Register,  not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice.  Where this Indenture  provides for notice in any manner,
such  notice may be waived in writing by the  Person  entitled  to receive  such
notice,  either  before  or  after  the  event,  and  such  waiver  shall be the
equivalent of such notice.  Waivers of notice by Holders shall be filed with the
Trustee,  but such filing shall not be a condition  precedent to the validity of
any action  taken in  reliance  upon such  waiver.  In any case where  notice to
Holders  is given by mail,  neither  the  failure to mail such  notice,  nor any
defect in any  notice so  mailed,  to any  particular  Holder  shall  affect the
sufficiency of such notice with respect to other  Holders,  and any notice which
is mailed in the manner herein provided shall be  conclusively  presumed to have
been duly given.

                  SECTION 1.017.  Conflict with Trust Indenture Act.

                  If any provision  hereof  limits,  qualifies or conflicts with
another  provision  hereof which is required to be included in this Indenture by
any of the  provisions  of the  TIA,  such  required  provision  shall  control.
Notwithstanding  the foregoing,  the provisions of the TIA contained in Sections
9.08, 9.13 and 10.03 shall not become  operative under this Indenture until this
Indenture shall have been qualified under the TIA.

                  SECTION 1.018.  Effect of Heading and Table of Contents.

                  The  Article  and  Section  headings  herein  and the Table of
Contents are for convenience only and shall not affect the construction hereof.

                  SECTION 1.019.  Successors and Assigns.

                  All covenants,  agreements,  representations and warranties in
this Indenture by the Trustee, PNM and the Company shall bind and, to the extent
permitted  hereby,  shall  inure to the benefit of and be  enforceable  by their
respective successors and assigns, whether so expressed or not.


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<PAGE>
                  SECTION 1.10.  Separability Clause.

                  In case any provision in this  Indenture or in the  Securities
shall  be  invalid,  illegal  or  unenforceable,   the  validity,  legality  and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired thereby.

                  SECTION 1.11.  Benefits of Indenture.

                  Nothing in this Indenture or in the  Securities,  expressed or
implied,  shall  give to any  Person,  other than the  parties  hereto and their
successors hereunder, the Holders of Securities,  and the Lessors and the Equity
Investors as expressly  provided  herein,  any benefit or any legal or equitable
right, remedy or claim under this Indenture.

                  SECTION 1.12.  Governing Law.

                  This  Indenture  and each  Security  are  being  executed  and
delivered in the State of New York, shall be deemed to be contracts made in such
State and for all purposes shall be construed in accordance with and governed by
the laws of the State of New York.

                  SECTION 1.13.  Legal Holidays.

                  In any case where the Redemption  Date or the Stated  Maturity
of any  Security or of any  installment  of  interest,  or any date on which any
defaulted  interest is proposed to be paid,  shall not be a Business  Day,  then
(notwithstanding  any other  provision  of this  Indenture)  payment of interest
and/or principal (and premium, if any) need not be made on such date, but may be
made on the next  succeeding  Business  Day with the same force and effect as if
made on the Redemption Date or at the Stated  Maturity,  or on the date on which
the defaulted  interest is proposed to be paid, and no interest shall accrue for
the period from and after such Redemption Date or Stated  Maturity,  or date for
the payment of defaulted interest, as the case may be.

                                   ARTICLE II.

                                 THE SECURITIES

                  SECTION 1.001.  Forms Generally.

                  The  Securities  of each  series  shall  be in the  form  (not
inconsistent  with this Indenture) as shall be established in one or more Series
Supplemental  Indentures,   in  each  case  with  such  appropriate  insertions,
omissions,  substitutions  and  other  variations  in and to  such  form  as are
required or  permitted  by this  Indenture  and may have  imprinted or otherwise
reproduced thereon such legend or legends,  not inconsistent with the provisions
of this  Indenture,  as may be required to comply with any law or with any rules
or regulations pursuant thereto, or with any rules of any securities exchange or
to conform to general usage, all as may be determined by the officers  executing
such Securities, as evidenced by their execution thereof.

                  SECTION 1.002.  Form of Trustee's Authentication.

                  The Trustee's  certificate of authentication on all Securities
shall be in substantially the following form:

                  This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.


                                  CHEMICAL BANK
                                   as Trustee

                                  By
                                  ------------------  
                                  Authorized Officer

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<PAGE>

                  SECTION  1.003.   Amount   Unlimited;   Issuable   in  Series;
                  Limitations on Issuance.

                  The  aggregate  principal  amount of  Securities  which may be
authenticated and delivered under this Indenture is unlimited. Securities may be
issued  hereunder up to the aggregate  principal  amount which may be authorized
from time to time by the Board of Directors of the Company.

                  The terms of any series of  Securities  relative to payment of
principal  thereof,  and  premium  (if  any)  and  interest  thereon,  need  not
correspond  exactly to the schedule for such payments under the related  Pledged
Lessor Notes.

                  The  Securities  may be  issued in one or more  series.  There
shall be established in one or more Series Supplemental Indentures, prior to the
issuance of Securities of any series,

                  (1) the title of the  Securities  of the series  (which  shall
         distinguish the Securities of the series from all other Securities) and
         the form or forms of Securities of such series;

                  (2) any  limit  upon the  aggregate  principal  amount  of the
         Securities of such series that may be authenticated and delivered under
         this Indenture (except for Securities  authenticated and delivered upon
         registration  of, transfer of, or in exchange for, or in lieu of, other
         Securities of such series pursuant to Section 2.07, 2.08, 2.09, 6.06 or
         11.07);

                  (3) the date or dates on which the principal of the Securities
         of such series is payable;

                  (4) the rate or rates at which the  Securities  of such series
         shall  bear  interest,  or the  method  by  which  such  rate  shall be
         determined,  the date or dates from which such  interest  shall accrue,
         the interest  payment dates on which such interest shall be payable and
         the record dates for the  determination  of Holders to whom interest is
         payable;

                  (5)      the place or places where the principal and interest 
         on Securities of such series shall be payable (if other than as
         provided in Section 5.02);

                  (6) the price or prices at which, the period or periods within
         which and the terms and conditions upon which Securities of such series
         may be  redeemed,  in whole or in part,  at the option of the  Company,
         pursuant to any sinking fund or otherwise;

                  (7) the obligation, if any, of the Company to redeem, purchase
         or repay  Securities  of such series  pursuant  to any sinking  fund or
         analogous provisions or at the option of a Holder thereof and the price
         or prices at which and the period or periods within which and the terms
         and conditions  upon which  Securities of the series shall be redeemed,
         purchased or repaid, in whole or in part, pursuant to such obligation;

                  (8) if other than  denominations  of $1,000  and any  multiple
         thereof,  the denominations in which Securities of such series shall be
         issuable;

                  (9) any other terms of such series  (which  terms shall not be
         inconsistent with the provisions of this Indenture); and


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<PAGE>



                  (10) any trustees, authenticating or paying agents, warrant 
         agents, transfer agents or registrars with respect to the Securities of
         such series;

provided,  however, that, after giving effect to the issuance of a new series of
the  Securities  and the subjection to the Lien of this Indenture of the related
Pledged Lessor Notes,  the average of the daily balance of Excess Funds for each
fiscal year of the Company  shall not exceed 10% of the average of the aggregate
principal amount of Securities  Outstanding on each day in such fiscal year. For
purposes of the  foregoing  proviso,  "Excess  Funds"  shall mean,  for any day,
amounts actually paid to the Trustee under the Pledged Lessor Notes in excess of
amounts then due and payable in respect of Securities.

                  SECTION 1.004.  Authentication and Delivery of Securities.

                  At any time and from  time to time  after  the  execution  and
delivery of this  Indenture,  the Company may deliver  Securities  of any series
executed  by the  Company to the Trustee  for  authentication,  together  with a
Company Order for the  authentication  and delivery of such Securities,  and the
Trustee shall thereupon  authenticate  and deliver such Securities in accordance
with  such  Company  Order,  without  any  further  action  by the  Company.  In
authenticating  such  Securities and accepting the  additional  responsibilities
under this  Indenture  in  relation  to such  Securities  the  Trustee  shall be
entitled to receive,  and (subject to Section 9.01) shall be fully  protected in
relying upon:

                  (1)      an executed Series Supplemental Indenture;

                  (2) an Officers'  Certificate of the Company (a) certifying as
         to  resolutions of the Board of Directors of the Company by or pursuant
         to which the terms of the  Securities of such series were  established,
         (b) certifying  that all conditions  precedent  under this Indenture to
         the Trustee's  authentication and delivery of such Securities have been
         complied  with and (c)  certifying  that (x) the terms of the documents
         referred to in clauses (3) and (4) below are not inconsistent  with the
         terms of this Indenture as then and  theretofore  supplemented  and (y)
         such documents comply with Exhibit A hereto (if applicable);

                  (3) fully executed counterparts (but not the original thereof)
         of (a) the Lease  Indentures under which were issued the Pledged Lessor
         Notes relating to such series of Securities and (b) the Leases relating
         to such Pledged Lessor Notes;

                  (4)  the original of the Pledged Lessor Notes relating to such
         series of Securities;

                  (5)  signed  copies,   either  addressed  to  the  Trustee  or
         accompanied by statements  that the Trustee may rely on such documents,
         of all certificates and opinions of counsel delivered to the Company in
         connection with its purchase  pursuant to the applicable  participation
         Agreements  of the  Pledged  Lessor  Notes  relating  to such series of
         Securities and, to the extent not covered by such opinions, Opinions of
         Counsel (x) to the effect that:  (a) the form or forms and the terms of
         such  Securities  have  been  established  by  a  Series   Supplemental
         Indenture as permitted by Sections 2.01 and 2.03 in conformity with the
         provisions of this Indenture;  (b) such Securities,  when authenticated
         and  delivered  by the  Trustee and issued by the Company in the manner
         and subject to any  conditions  specified  in such  Opinion of Counsel,
         will constitute valid and binding  obligations of the Company;  and (c)
         all laws and  requirements  in respect of the execution and delivery by
         the Company of the Securities have been complied with; and (y) covering
         such other matters as the Trustee may reasonably request; and

                  (6) duly executed Extension Letters relating to the Pledged 
         Lessor Notes;

provided,  however, that if a series of Securities is to be authenticated by the
Trustee in advance of the actual  delivery to the Trustee of the Pledged  Lessor
Notes relating  thereto,  (X) the documents  described in the foregoing  clauses
(2)(c),  (3), (4), (5) (other than the opinion  described in subclauses  (x) and
(y)) and (6) need not be delivered in connection with

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<PAGE>
 
such  authentication,  but shall be delivered in connection  with the release of
the  proceeds  of the sale of such  series  of  Securities  in  accordance  with
Sections  2.15 and  13.01  hereof  and (Y) the form of the  Series  Supplemental
Indenture  shall be  appropriately  modified to reflect the later  delivery  and
pledge of the related Pledged Lessor Notes.

                  Receipt by the Trustee of the Officer's  Certificate  referred
to in clause (2) above shall be  conclusively  presumed for all purposes of this
Indenture to  establish  that the Lease  Indentures,  the Leases and the Pledged
Lessor Notes referred to in such  certification  comply with the requirements of
Exhibit A hereto.

                  The  Trustee  shall have the right to decline to  authenticate
and deliver any Securities  under this Section if the Trustee,  being advised by
counsel, determines that such action may not lawfully be taken by the Company or
if the  Trustee in good faith by its board of  directors  or board of  trustees,
executive  committee,  or a trust  committee  of  directors  or trustees  and/or
responsible  officers shall  determine that such action would expose the Trustee
to personal liability.

                  SECTION 1.005.  Form and Denominations.

                  The Securities of each series shall be in registered  form and
may have such letters, numbers or other marks of identification and such legends
or endorsements printed, lithographed or engraved thereon, as may be required to
comply with the rules of any  securities  exchange or to conform to any usage in
respect thereof, or as may, consistently herewith, be prescribed by the Board of
Directors  of the Company or by the officers  executing  such  Securities,  such
determination by said officers to be evidenced by their signing the Securities.

                  The definitive  Securities  shall be printed,  lithographed or
engraved or  produced  by any  combination  of these  methods on steel  engraved
borders or may be produced  in any other  manner  permitted  by the rules of any
securities   exchange,   all  as  determined  by  the  officers  executing  such
Securities, as evidenced by their execution of such Securities.

                  All  Securities  of any  one  series  shall  be  substantially
identical  except as to  denomination  and  Stated  Maturity  and  except as may
otherwise be provided  herein or in the Series  Supplemental  Indenture  setting
forth the terms of the Securities of such series.

                  SECTION 1.006.  Execution of Securities.

                  The  Securities  shall be executed on behalf of the Company by
its President or one of its Vice Presidents  under its corporate seal reproduced
thereon and attested by its Secretary or one of its Assistant  Secretaries.  The
signature of any such officers on the Securities may be manual or facsimile.

                  Securities  bearing  the  manual or  facsimile  signatures  of
individuals  who  were at the time  such  signatures  were  affixed  the  proper
officers  of the  Company  shall  bind the  Company,  notwithstanding  that such
individuals  or any of them  have  ceased  to hold  such  offices  prior  to the
authentication  and delivery of such  Securities or did not hold such offices at
the date of such Securities.

                  SECTION 1.007.  Temporary Securities.

                  Pending  the  preparation  of  definitive  Securities  of  any
series,  the Company  may  execute,  and upon  Company  Order the Trustee  shall
authenticate and deliver, temporary Securities of such series which are printed,
lithographed,   typewritten,   photocopied   or  otherwise   produced,   in  any
denomination, substantially of the tenor of the definitive Securities in lieu of
which  they  are  issued  and  with  such  appropriate  insertions,   omissions,
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities.

         If  temporary  Securities  of any series are issued,  the Company  will
cause definitive  Securities of such series to be prepared without  unreasonable
delay.  After the  preparation  of  definitive  Securities  of such series,  the
temporary  Securities  of such  series  shall  be  exchangeable  for  definitive
Securities of such series upon surrender of the temporary Securities  of such

#30122041.1
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<PAGE>

series at the office or agency of the Company, for such purpose, in the Place of
Payment,  without charge to the Holder.  Upon surrender for  cancellation of any
one or more temporary Securities of any series the Company shall execute and the
Trustee shall  authenticate  and deliver in exchange  therefor a like  aggregate
principal  amount  of  definitive   Securities  of  such  series  of  authorized
denominations.  Until so exchanged such temporary Securities of any series shall
in all  respects  be  entitled  to the same  benefits  under this  Indenture  as
definitive Securities of such series.

                  SECTION 1.008.  Registration, Transfer and Exchange.

                  The  Trustee  shall  cause to be kept at the  Corporate  Trust
Office a  register  in which,  subject  to such  reasonable  regulations  as the
Company  may  prescribe,  the Company  shall  provide  for the  registration  of
Securities and of  registration  of transfers and exchanges of Securities.  This
register and, if there shall be more than one Security  Registrar,  the combined
registers  maintained  by all such  Security  Registrars,  are herein  sometimes
referred to as the "Security Register".

                  Upon surrender for registration of transfer of any Security of
any series at the Corporate Trust Office,  or at any office or agency maintained
for such purpose pursuant to Section 9.14(a), the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or  transferees,  one or more new  Securities of the same series and of the same
Stated  Maturity for  principal and interest and of a like  aggregate  principal
amount.

                  At the option of the Holders,  Securities of any series may be
exchanged  for an equal  aggregate  principal  amount of  Securities of the same
series and of the same Stated  Maturity  for  principal  and interest and of any
authorized  denominations,  upon  surrender of the Securities to be exchanged at
the  Corporate  Trust  Office,  or at any office or agency  maintained  for such
purpose pursuant to Section 9.14(a).  Whenever any Securities are so surrendered
for  exchange,  the  Company  shall  execute,  and  the  Trustee  or  any  other
Authenticating  Agent shall  authenticate and deliver,  the Securities which the
Securityholder making the exchange is entitled to receive.

                  All  Securities  issued  upon  any  transfer  or  exchange  of
Securities  shall be the valid  obligations of the Company,  evidencing the same
debt,  and entitled to the same security and benefits under this  Indenture,  as
the Securities surrendered upon such transfer or exchange.

                  Every Security  presented or surrendered  for  registration of
transfer or exchange  shall be duly  endorsed,  or be  accompanied  by a written
instrument  of transfer in form  satisfactory  to the Security  Registrar,  duly
executed by the Holder thereof or his attorney duly authorized in writing.

                  No service  charge  shall be required  of any  Securityholders
participating  in any  transfer  or exchange  of  Securities  in respect of such
transfer or exchange,  but the Security  Registrar may require  payment of a sum
sufficient to cover any tax or other governmental  charge that may be imposed in
connection  with any transfer or exchange of  Securities,  other than  exchanges
pursuant to Sections 2.07, 6.06 or 11.07 not involving any transfer.

                  The  Security  Registrar  shall not be required  (i) to issue,
transfer or exchange any Security of any series during a period beginning at the
opening  of  business  15 days  before  the day of the  mailing  of a notice  of
redemption of Securities of such series  selected for  redemption  under Section
6.02 or 7.02 and ending at the close of business on the day of such mailing,  or
(ii) to transfer or exchange any Security so selected for redemption in whole or
in part except the unredeemed portion of any Security selected for redemption in
part.

                  SECTION   1.009. Mutilated,   Destroyed,   Lost   and   Stolen
                  Securities.

                  If (i) any mutilated  Security is  surrendered to the Trustee,
or the Company, the Security Registrar and the Trustee receive evidence to their
satisfaction of the destruction,  loss or theft of any Security,  and (ii) there
is  delivered  to the  Company,  to the  Security  Registrar  and to the Trustee
evidence to their  satisfaction of the ownership and authenticity  thereof,  and
such  security  or  indemnity  as may be  required  by them to save each of them
harmless,  then,  in the  absence  of notice  to the  Company,  to the  Security
Registrar or to the Trustee that such Security has been acquired by a bona fide

#30122041.1
                                       14

<PAGE>

purchaser,  the Company  shall  execute  and upon its request the Trustee  shall
authenticate  and  deliver,  in exchange  for or in lieu of any such  mutilated,
destroyed,  lost or stolen Security,  a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.

                  In case any such mutilated, destroyed, lost or stolen Security
has  become  or is about to  become  due and  payable,  the  Company  may,  upon
satisfaction  of the  conditions  set  forth  in  clauses  (i)  and  (ii) of the
preceding paragraph, instead of issuing a new Security, pay such Security.

                  Upon the issuance of any new Security under this Section,  the
Security  Registrar may require the payment of a sum sufficient to cover any tax
or other  governmental  charge that may be imposed in  relation  thereto and any
other expenses connected therewith.

                  Every new Security  issued pursuant to this Section in lieu of
any destroyed,  lost or stolen Security shall constitute an original  additional
contractual  obligation of the Company,  whether or not the  destroyed,  lost or
stolen  Security  shall be at any  time  enforceable  by  anyone,  and  shall be
entitled  to all the  security  and  benefits  of  this  Indenture  equally  and
proportionately with any and all other Securities duly issued hereunder.

                  The  provisions  of  this  Section  are  exclusive  and  shall
preclude (to the extent  lawful) all other  rights and remedies  with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.

                  SECTION 1.10.  Payment of Interest; Interest Rights Preserved.

                  Interest on any Security  which is payable,  and is punctually
paid or duly provided for, at any Stated  Maturity of an installment of interest
shall  be paid  to the  Person  in  whose  name  that  Security  (or one or more
Predecessor  Securities)  is  registered at the close of business on the Regular
Record Date for such interest. At the option of the Company, payment of interest
on any  Security  may be made by  check  mailed  to the  address  of the  Person
entitled thereto as such address shall appear in the Security Register.

                  Any  interest on any  Security of any series which is payable,
but is not  punctually  paid or duly provided for, at any Stated  Maturity of an
installment of interest shall forthwith cease to be payable to the Holder on the
relevant  Regular  Record  Date by virtue of having been such  Holder;  and such
defaulted interest may be paid by the Company,  at its election in each case, as
provided in paragraph (1) or paragraph (2) below:

                  (1) The  Company  may elect,  which  election  shall be at the
         direction  of any Lessor  whose  Pledged  Lessor  Note is in default in
         respect of the payment of interest and who is proposing to make payment
         of all or part of  such  defaulted  interest,  to make  payment  of any
         defaulted interest to the Persons in whose names the Securities of such
         series in respect of which interest is in default (or their  respective
         Predecessor  Securities)  are  registered at the close of business on a
         Special Record Date for the payment of such defaulted  interest,  which
         shall be fixed in the  following  manner.  Such Lessor shall notify the
         Trustee  and the Paying  Agent in  writing  of the amount of  defaulted
         interest  proposed to be paid on each such Security and the date of the
         proposed  payment,  and at the same time there shall be deposited  with
         the Trustee an amount of money equal to the aggregate  amount  proposed
         to be paid in respect of such defaulted interest or there shall be made
         arrangements  satisfactory to the Trustee for such deposit prior to the
         date of the proposed  payment,  such money when deposited to be held in
         trust  for the  benefit  of the  Persons  entitled  to  such  defaulted
         interest as in this paragraph provided. Thereupon the Trustee shall fix
         a Special Record Date for the payment of such defaulted  interest which
         shall be not more  than 15 nor less  than 10 days  prior to the date of
         the proposed payment and not less than 10 days after the receipt by the
         Trustee  of the  notice of the  proposed  payment.  The  Trustee  shall
         promptly notify the Company and the Security  Registrar of such Special
         Record Date and, in the name and at the expense of the  Company,  shall
         cause notice of the proposed payment of such defaulted interest and the
         Special Record Date therefor to be mailed, first class postage prepaid,
         to each  holder  of a  Security  of such  series at his  address  as it
         appears in the Security  Register,  not less than 10 days prior to such
         Special Record Date.  Notice of the proposed  payment of such defaulted
         interest and the

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         Special  Record Date  therefor  having been mailed as  aforesaid,  such
         defaulted  interest  shall be paid to the  Persons  in whose  names the
         Securities of such series (or their respective Predecessor  Securities)
         are  registered  on such  Special  Record  Date and  shall no longer be
         payable pursuant to the following paragraph (2).

                  (2) The Company may make, or cause to be made,  payment of any
         defaulted interest in any other lawful manner not inconsistent with the
         requirements  of any  securities  exchange on which the  Securities  in
         respect of which  interest is in default  may be listed,  and upon such
         notice as may be required by such  exchange,  if, after notice given by
         the Company to the  Trustee of the  proposed  payment  pursuant to this
         paragraph, such payment shall be deemed practicable by the Trustee.

                  Subject to the  foregoing  provisions  of this  Section,  each
Security  delivered  under this Indenture upon transfer of or in exchange for or
in lieu of any other  Security  shall carry the rights to  interest  accrued and
unpaid, and to accrue, which were carried by such other Security,  and each such
Security  shall bear  interest  from  whatever  date shall be  necessary so that
neither gain nor loss in interest shall result from such  transfer,  exchange or
replacement.

                  SECTION 1.11.  Persons Deemed Owners.

                  Prior to due  presentment for  registration  of transfer,  the
Person in whose name any Security is registered  shall be deemed to be the owner
of such  Security  for the purpose of  receiving  payment of  principal  of (and
premium,  if any),  and (subject to Section 2.10) interest on, such Security and
for all other  purposes  whatsoever,  whether or not such  Security  be overdue,
regardless of any notice to anyone to the contrary.

                  SECTION 1.12.  Cancellation.

                  All Securities  surrendered  for payment,  redemption,  credit
against any Sinking Fund  payment or  redemption  payment,  transfer or exchange
shall, if surrendered to any Person other than the Trustee,  be delivered to the
Trustee for cancellation. The Company may at any time deliver to the Trustee for
cancellation any Securities  previously  authenticated  and delivered  hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall be promptly cancelled by the Trustee.  No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture.  All cancelled
Securities  held by the Trustee  shall be destroyed and  certification  of their
destruction  delivered to the Company unless,  by Company  Request,  the Company
otherwise directs.

                  SECTION 1.13.  Dating of Securities; Authentication.

                  Each  Security  of any  series  shall be dated the date of the
original  issuance of the  Securities of such series by the Company,  which date
shall be specified by the Company in the Company Order  delivered to the Trustee
pursuant to Section  2.04 in  connection  with the original  authentication  and
delivery of the  Securities of such series.  No Security  shall be secured by or
entitled to any benefit under this  Indenture or be valid or obligatory  for any
purpose unless there appears on such Security a certificate  of  authentication,
in the form provided for herein, executed by the Trustee by the manual signature
of one of its Responsible Officers, and such certificate upon any Security shall
be conclusive evidence, and the only evidence,  that such Security has been duly
authenticated and delivered hereunder.

                  SECTION 1.14.  Source of Payments;  Rights and  Liabilities of
                  Lessors and Equity Investors.

                  All payments of principal and premium (if any) and interest to
be made under the  Securities  and this  Indenture  (other than payments made in
connection  with an  optional  redemption  by a Lessor)  shall be made only from
assets subject to the lien of this Indenture or the income and proceeds received
by the Trustee therefrom.  Each Holder, by its acceptance of a Security,  agrees
that (x) it will look solely to the assets subject to the lien of this Indenture
or the income and  proceeds  received  by the  Trustee  therefrom  to the extent
available for distribution to such Holder as herein provided and (y) none of any
Equity  Investor,  any  Lessor,  any Lease  Indenture  Trustee or the Trustee is
liable to any Holder or, in the case of any  Equity  Investor,  Lessor and Lease
Indenture Trustee, to the Trustee for any amounts payable under any Security or,

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<PAGE>
except as provided  herein with respect to the Trustee,  for any liability under
this Indenture. An Equity Investor,  Lessor or Lease Indenture Trustee shall not
have any duty or  responsibility  under this  Indenture or the Securities to any
Holder or to the Trustee.

                  SECTION 1.15. Sale of Securities;  and Application of Proceeds
from the Sale of Securities.

                  (a) Promptly  upon receipt by the Company of the proceeds from
any sale of a series of the Securities,  the Company shall deposit such proceeds
with the  Trustee.  The funds so  deposited  shall be held by the  Trustee  in a
separate account as part of the Pledged Property and shall be invested,  applied
and distributed by the Trustee as provided herein.

                  (b)  Subject  to the  provisions  of Section  13.01,  upon the
issuance of the Pledged Lessor Notes related to any series of Securities and the
delivery  thereof to the Trustee to be subjected  to the Lien of this  Indenture
pursuant to a Series Supplemental Indenture, the Trustee shall pay to the Lessor
obligated in respect of any such Pledged  Lessor Note,  out of funds held by the
Trustee in such  separate  account as Pledged  Property,  an amount equal to the
principal  amount of such Pledged Lessor Note in respect of which such Lessor is
obligated. All payments to be made by the Trustee to any Lessor shall be made in
immediately available funds at the respective offices designated by such Lessor.

                                   ARTICLE II.

                        PROVISIONS AS TO PLEDGED PROPERTY

                  SECTION 1.001.  Holding of Pledged Securities.

                  The Trustee is  authorized  in its  discretion  to cause to be
registered in its name, as Trustee,  or in the name of its nominee,  any and all
coupon  bonds which it may receive as part of the  Pledged  Property,  or it may
cause the same to be  exchanged  for  registered  bonds  without  coupons of any
denomination. The Trustee may cause to be transferred into its name, as Trustee,
or into the  name of its  nominee,  any and all  registered  bonds  which it may
receive as part of the Pledged  Property,  or may cause such registered bonds to
be exchanged for coupon bonds.  All Pledged Lessor Notes assigned to and pledged
with the  Trustee  pursuant to any  provision  of this  Indenture  or any Series
Supplemental Indenture shall be endorsed in blank for transfer or be accompanied
by proper instruments of assignment  satisfactory to the Trustee,  duly executed
by the Company. The Company will deliver promptly to the Trustee such documents,
certificates  and opinions as the Trustee may  reasonably  request in connection
with  subjection of any  securities to the Lien of this  Indenture to the extent
contemplated hereby.

                  SECTION 1.002.  Disposition of Payments on Pledged Property.

                  Unless and until all Outstanding  Securities have been paid in
full or provision for the payment of such Securities has been made in accordance
with this  Indenture,  the Trustee  shall be entitled to receive all  principal,
premium (if any) and  interest  paid in respect of any Pledged  Lessor Notes and
interest paid on bonds or other obligations or indebtedness which may be subject
to the lien of this  Indenture  and shall  apply the same to the  payment of the
principal of, and premium (if any) and interest on, the  Securities  when and as
they become due and payable pursuant to, and in accordance with, this Indenture.
The Trustee  shall duly note on the  Schedules  attached  to the Pledged  Lessor
Notes or by other appropriate means all payments of principal,  premium, if any,
and interest made on the Pledged Lessor Notes.

                  SECTION 1.003.  Exercise of Rights and Powers Under Pledged 
Lessor Notes and Lease Indentures.

                  The  Trustee  shall not take any  action as the  holder of the
Pledged Lessor Notes to direct any Lease Indenture  Trustee in any respect or to
vote any Pledged Lessor Note or any portion  thereof except as specified in this
Section.  The Trustee shall give notice to the Securityholders of the occurrence
of any Indenture Event of Default or Indenture Default under any Lease Indenture

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<PAGE>

(as defined therein),  and of every Event of Loss, Deemed Loss Event, or Special
Loss  Event  occurring  under a Lease,  but only to the  extent  the same  shall
actually  be  known  by an  officer  in  the  corporate  trustee  administration
department  of the Trustee.  The Trustee may, at any time,  and shall,  upon the
request of any Lease Indenture Trustee made to the Trustee to give any direction
or  to  vote  its   interest  in  the  Pledged   Lessor   Notes,   request  from
Securityholders  directions  as to  (i)  whether  or not to  direct  such  Lease
Indenture  Trustee to take or refrain from taking any action which  holders of a
Pledged  Lessor  Note have the option to direct and (ii) how to vote any Pledged
Lessor Note if a vote has been called for with respect thereto. In addition, any
Securityholder  may at any time request the Trustee to direct, or to participate
in the direction of, any action under any Lease Indenture to the extent that the
Trustee may do so under such Lease Indenture. In directing any action or casting
any vote as the holder of a Pledged  Lessor Note,  the Trustee  shall specify to
the Lease  Indenture  Trustee the  principal  amount of the Pledged  Lessor Note
which is in favor of the action or vote,  the  principal  amount of the  Pledged
Lessor Note which is opposed to the action or vote, and the principal  amount of
the Pledged Lessor Note which is not taking any position for the action or vote.
Such  principal  amounts shall be determined by allocating  the total  principal
amount of the Pledged Lessor Note with respect to which  direction was requested
in accordance  with the  principal  amount of  Securities  taking  corresponding
positions or not taking any position. In addition,  the Trustee shall certify to
the Lease Indenture Trustee that the principal amounts of Securities taking such
corresponding  positions or not taking any position was determined in accordance
with the provisions of this Indenture.

                  SECTION 1.004.Certain Actions in Case of Judicial Proceedings.

                  In case all or any part of the  property  of any Lessor or any
other  Person  which may be deemed an obligor in respect of the  Pledged  Lessor
Notes shall be sold at any judicial or other involuntary sale, the Trustee shall
receive  any  portion  of the  proceeds  of such sale  accruing  on the  Pledged
Property held hereunder,  and such proceeds shall be held as provided in Section
3.05.

                  SECTION 1.005.  Cash Held by Trustee Treated as a Deposit.

                  Any and all cash held by the Trustee  under any  provision  of
this  Indenture  may be treated by the  Trustee,  until  required to be paid out
hereunder, as a deposit, in trust, without any liability for interest.

                                   ARTICLE I.

                            WITHDRAWAL OF COLLATERAL.

                  SECTION 1.011.  Withdrawal of Collateral.

                  Except as provided in Section 4.02 and Article Thirteen,  none
of the  Pledged  Property  shall be subject to  withdrawal  unless and until all
Outstanding  Securities have been paid in full or provision for such payment has
been made in accordance  with the terms of this  Indenture and the Trustee shall
have received the documents and opinions required by Article Twelve.

                  SECTION 1.012.  Reassignment  of  Pledged  Lessor  Notes  upon
Payment.

                  Upon  receipt  of  payment  in full of the  principal  of, and
premium (if any) and interest  on, any Pledged  Lessor Note held by the Trustee,
the  Trustee  shall  deliver to the  Company  said  Pledged  Lessor Note and any
instrument of transfer or  assignment  necessary to reassign to the Company said
Pledged  Lessor  Note and the  interest  of the  Company  (if any) in the  Lease
Indenture relating thereto; provided that nothing herein contained shall prevent
the Trustee from presenting any Pledged Lessor Note to a Lease Indenture Trustee
for final payment in accordance  with the  applicable  provisions of the related
Lease Indenture.

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<PAGE>
                                   ARTICLE II.

                                    COVENANTS

                  SECTION  1.021.  Payment of  Principal,  Premium  (if any) and
Interest.
                  The Company will duly and punctually pay, or cause to be paid,
the  principal  of, and premium,  if any, and  interest  on, the  Securities  in
accordance with the terms of the Securities and this Indenture.

                  SECTION 1.022.  Maintenance of Office or Agency.

                  The Company  will  maintain in the Borough of  Manhattan,  The
City of New York,  an office or agency  where  Securities  may be  presented  or
surrendered  for payment,  where  Securities may be surrendered  for transfer or
exchange  and where  notices  and  demands to or upon the  Company in respect of
Securities and this Indenture may be served. PNM will give prompt written notice
to the Trustee of the location,  and of any change in the location, of each such
office or agency.  If at any time the Company  shall fail to  maintain  any such
office or agency or the Company or PNM shall fail to furnish  the  Trustee  with
the address thereof, such presentations,  surrenders, notices and demands may be
made or served at the  Corporate  Trust Office of the  Trustee,  and the Company
hereby  appoints  the  Trustee  its  agent to  receive  all such  presentations,
surrenders, notices and demands.

                  SECTION  1.023.  Money  for  Security  Payments  to be Held in
Trust.
                  All moneys deposited with the Trustee or with any Paying Agent
for the purpose of paying the  principal  of or premium,  if any, or interest on
Securities  shall be deposited  and held in trust for the benefit of the Holders
of the  Securities  entitled to such  principal,  premium,  if any, or interest,
subject to the provisions of this Section. Moneys so deposited and held in trust
shall not be a part of the  Pledged  Property  but shall  constitute  a separate
trust fund for the benefit of the Holders of the relevant Securities.

                  The Company may at any time,  for the purpose of obtaining the
satisfaction  and discharge of this Indenture or for any other purpose,  pay, or
direct any Paying  Agent to pay,  to the  Trustee all sums held in trust by such
Paying Agent,  such sums to be held by the Trustee upon the same trusts as those
upon which such sums were held by such Paying  Agent;  and, upon such payment by
any Paying  Agent to the Trustee,  such Paying Agent shall be released  from all
further liability with respect to such money.

                  Any money  deposited  with the Trustee or any Paying  Agent in
trust for the payment of the principal of or premium, if any, or interest on any
Security and  remaining  unclaimed for three years (or such lesser period as may
be  required  by law to give  effect to this  provision)  after such  principal,
premium or interest  has become due and payable  shall be paid to the Company on
Company  Request  (to the extent such monies  shall have been  deposited  by the
Company) or to any other  Person on its request (to the extent such monies shall
have been deposited by such other Person); and the Holder of such Security shall
thereafter,  as an unsecured general creditor,  look only to the Company or such
other  Person,  to the extent such monies shall have been paid to the Company or
such other Person, as the case may be, for payment thereof, and all liability of
the  Trustee or such  Paying  Agent  with  respect  to such  trust  money  shall
thereupon  cease;  provided,  however,  that the Trustee or such  Paying  Agent,
before  being  required  to make any such  repayment,  may at the expense of the
Company  or, to the extent such  monies are to be paid to another  Person,  such
other  Person  cause to be mailed to each such  Holder  notice  that such  money
remains unclaimed and that, after a date specified  therein,  which shall not be
less than 30 days from the date of such mailing,  any unclaimed  balance of such
money then remaining will be repaid to the Company or such other Person.

                  SECTION 1.024.  Maintenance of Corporate Existence.

                  The Company, at its own cost and expense,  will do or cause to
be done all things  necessary  to preserve and keep in full force and effect its
corporate  existence,  rights and franchises,  except as otherwise  specifically


#30122041.1
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<PAGE>

permitted in this Indenture;  provided,  however,  that the Company shall not be
required to preserve  any right or  franchise  if the Board of  Directors of the
Company shall determine that the preservation  thereof is no longer desirable in
the conduct of the  business  of the  Company  and that the loss  thereof is not
disadvantageous in any material respect to the Securityholders.

                  SECTION 1.025.  Protection of Pledged Property.

                  The Company and PNM will from time to time execute and deliver
all such  supplements and amendments  hereto and all such financing  statements,
continuation statements, instruments of further assurance, and other instruments
necessary to

                           (i) grant more  effectively all or any portion of the
                  Pledged Property,

                           (ii) maintain or preserve the lien of this  Indenture
                  or carry out more effectively the purposes hereof,

                           (iii)  perfect,  publish  notice of, or  protect  the
                  validity of, any grant made or to be made by this Indenture,

                           (iv)  enforce any of the Securities, or

                           (v) preserve and defend  title to any  Securities  or
                  other  instrument  included  in the Pledged  Property  and the
                  rights of the  Trustee,  and of the  Securityholders,  in such
                  Securities  or other  instrument  against  the  claims  of all
                  persons and parties.

The Company  hereby  designates  the Trustee its agent and  attorney-in-fact  to
execute any  financing  statement,  continuation  statement or other  instrument
required pursuant to this Section.

                  SECTION 1.026.  Opinions as to Pledged Property.

                  Promptly  after the execution  and delivery of this  Indenture
and of each Series  Supplemental  Indenture or other  supplemental  indenture or
other instrument of further assurance,  the Company shall furnish to the Trustee
an  Opinion of Counsel  stating  that,  in the  opinion  of such  Counsel,  this
Indenture  and all  such  Series  Supplemental  Indentures,  other  supplemental
indentures  and other  instruments  of  further  assurance  have  been  properly
recorded,  registered  and filed to the extent  necessary to make  effective the
lien intended to be created by this Indenture,  and reciting the details of such
action or  referring  to prior  Opinions  of Counsel in which such  details  are
given,  and stating that all financing  statements and  continuation  statements
have been  executed and filed that are  necessary  fully to preserve and protect
the rights of the  Securityholders  and the  Trustee,  or stating  that,  in the
opinion  of such  Counsel,  no such  action  is  necessary  to  make  such  lien
effective.

                  On or before May 1, in each calendar year,  beginning with the
first  calendar  year  commencing  more  than  three  months  after  the date of
authentication and delivery of any Securities,  the Company shall furnish to the
Trustee an  Opinion  of Counsel  either  stating  that,  in the  opinion of such
counsel,  such  action  has been taken with  respect to the  recording,  filing,
re-recording and re-filing of this Indenture,  any Series Supplemental Indenture
and any other  requisite  documents and with respect to the execution and filing
of any  financing  statements  and  continuation  statements  as is necessary to
maintain the lien and security  interest  created by this Indenture with respect
to the Pledged  Property and reciting the details of such action or stating that
in the opinion of such counsel no such action is necessary to maintain such lien
and  security  interest.  Such  Opinion  of  Counsel  shall  also  describe  the
recording,  filing,  re-recording  and re-filing of this  Indenture,  any Series
Supplemental  Indenture and any other requisite  documents and the execution and
filing of any financing statements and continuation statements that will, in the
opinion of such counsel,  be required to maintain the lien and security interest
of this  Indenture  with  respect  to the  Pledged  Property  until May 1 in the
following calendar year.



#30122041.1
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<PAGE>

                  SECTION 1.027.  Performance of Obligations

                  (a) Neither the Company nor PNM will take any action or permit
any action to be taken by others which would release any Person from any of such
Person's  covenants or obligations under any instrument  included in the Pledged
Property, or which would result in the amendment, hypothecation,  subordination,
termination  or discharge  of, or impair the validity or  effectiveness  of, any
such instrument, except as expressly provided in this Indenture.

                  (b) PNM will fully  perform all of its  obligations  under the
Leases.

                  SECTION 1.028.  Negative Covenants

                  During  such  time  as  any  Security   issued   hereunder  is
Outstanding, the Company will not:

                           (i) sell, transfer,  exchange or otherwise dispose of
                  any  portion  of the  Pledged  Property  except  as  expressly
                  permitted by this Indenture;

                           (ii) engage in any business or activity other than in
                  connection  with,  or relating to, the issuance of  Securities
                  pursuant to this Indenture or amend Article  Third,  Fourth or
                  Sixth of its Certificate of  Incorporation as in effect on the
                  date of execution and delivery of this Indenture,  without, in
                  each case, the consent of the Holders of not less than 66 2/3%
                  of the  aggregate  principal  amount  of the  Securities  then
                  Outstanding;   notwithstanding  the  foregoing,  however,  the
                  Company may,  with respect to one or more series of Securities
                  (or one or more Stated  Maturities  within any series),  enter
                  into credit or liquidity support  facilities  (including,  but
                  without  limitation,  bank  letters of  credit,  bank lines of
                  credit and bonds of insurance) and may engage in interest rate
                  swaps;

                           (iii)  issue  bonds,  notes  or  other  evidences  of
                  indebtedness  other than (i)  Securities  issued  hereunder or
                  (ii) bonds,  notes or other evidences of indebtedness  secured
                  by a pledge  of  Securities  issued  hereunder  or  evidencing
                  indebtedness permitted by clause (ii) above;

                           (iv) incur,  assume or guaranty any  indebtedness  of
                  any Person;

                           (v)  dissolve or liquidate in whole or in part;

                           (vi)  take any  action  which  would (1)  permit  the
                  validity or  effectiveness  of this  Indenture or any grant of
                  any of the Pledged Property to be impaired, or permit the Lien
                  of this Indenture to be amended,  hypothecated,  subordinated,
                  terminated or discharged,  or permit any Person to be released
                  from any  covenant or  obligation  under this  Indenture,  (2)
                  permit  any  Lien,   charge,   security,   mortgage  or  other
                  encumbrance  (other  than  the lien of this  Indenture)  to be
                  created on or extend to or otherwise  arise upon or burden the
                  Pledged  Property or any part thereof or any interest  therein
                  or the  proceeds  thereof,  or (3)  permit  the  Lien  of this
                  Indenture  not to constitute a valid first  priority  security
                  interest in the Pledged Property; or

                           (vii)  institute any  proceedings to be adjudicated a
                  bankrupt  or  insolvent,  or  consent  to the  institution  of
                  bankruptcy  or  insolvency  proceedings  against it, or file a
                  petition or answer or consent seeking reorganization or relief
                  under  the  Federal  Bankruptcy  Act or any  other  applicable
                  Federal or state law or law of the  District of  Columbia,  or
                  consent  to  the  filing  of  any  such  petition  or  to  the
                  appointment  of a  receiver,  liquidator,  assignee,  trustee,
                  sequestrator (or other similar official) of the Company or any
                  substantial part of its property, or make an assignment for 

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<PAGE>
                  the  benefit  of  its  creditors,  or  admit  in  writing  its
                  inability  to pay its debts  generally  as they become due, or
                  take any corporate action in furtherance of the foregoing.

                  SECTION 1.029.  Administration of Principal Instruments.

                   (a)  Without  the  consent of the  Holders  of a majority  in
principal  amount of  Outstanding  Securities  (or,  in the case of Changes to a
Support  Facility,  the series (or the Stated Maturity Dates within a series) of
outstanding Securities benefiting from such Support Facility), the Trustee shall
not consent to any Change in any Principal Instrument;  provided,  however, that
the Trustee may consent to any Change in any Principal Instrument if such Change
is permitted by subsection (b) of this Section 5.09.

                  (b)  Subject  to the  provisions  of  subsection  (c) of  this
Section 5.09, the Trustee may consent to any Change in any Principal  Instrument
if such Change is:

                  (1) to cure  any  ambiguity,  to  correct  or  supplement  any
         provision  in such  Principal  Instrument  which  may be  defective  or
         inconsistent  with any other provision in such Principal  Instrument or
         any related Principal Instrument,  or to make any other provisions with
         respect  to  matters  arising  under  any  such  Principal  Instrument,
         provided,  in each  instance,  that such  action  shall not  materially
         adversely affect the interests of Holders of Securities; or

                  (2) to add to the covenants  and  agreements of the parties to
         such Principal  Instrument other covenants and agreements  hereafter to
         be  observed  by any such  party,  or to  surrender  any right or power
         therein reserved to or conferred upon the Company; or

                  (3) to amend or supplement  such Principal  Instrument,  or to
         give any consent or grant any waiver thereunder,  so long as thereafter
         such Principal Instrument will comply with the requirements (if any) of
         Exhibit  A  hereto;  provided  that  such  action  does not  materially
         adversely affect the interests of Holders of Securities; or

                  (4) in any  other  manner  not  inconsistent  with  Exhibit  A
         hereto;  provided that such action does not materially adversely affect
         the interests of Holders of Securities; or

                  (5) Change in the Lease permitted by applicable  provisions of
         the related Lease Indenture; or

                  (6) to  describe  more fully and to  amplify  or  correct  the
         description  of any  property  or rights  assigned  or  pledged by such
         Principal  Instrument  or  intended  so to be,  or to  assign,  pledge,
         mortgage  or grant a  security  interest  in any  additional  property,
         rights and  interests,  subject to such  liens,  restrictions  or other
         encumbrances, if any, as shall be therein specifically described; or

                  (7) in the case of a Lease  Indenture,  to  enable  the  Lease
         Indenture  Trustee  thereunder to confer upon holders of Pledged Lessor
         Notes any additional rights,  remedies,  powers or authorities that may
         lawfully be granted or conferred upon such holders; or

                  (8) to  evidence  the  appointment  of a separate  or co-Lease
         Indenture  Trustee or the succession of a new Lease Indenture  Trustee;
         or

                  (9) to evidence the succession of or assumption by a successor
         or assignee Lessee under the Leases and the Participation Agreements or
         to evidence the  succession  of a new Lessor or Owner Trustee under any
         Principal Document to which it is a party; or


#30122041.1
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<PAGE>

                  (10) permitted by the terms of such Principal Instrument to be
         made  without  the  consent of or notice to the  holders of the related
         Pledged Lessor Notes; or

                  (11) to provide for the  issuance of Lessor  Notes in addition
         to the Pledged Lessor Notes  relating to such Principal  Instruments in
         accordance  with the  applicable  provisions  of the related  Principal
         Instruments.

                  (c) No Change with respect to a Principal Instrument,  whether
effected  pursuant  to  subsection  (a) or pursuant  to  subsection  (b) of this
Section 5.09, and anything in such subsections or elsewhere in this Indenture to
the contrary  notwithstanding,  shall, without the consent of the Holder of each
Outstanding Security affected thereby:

                  (1) except as provided in any Lease, change such Lease in such
         a way as to  change  the  timing  or  reduce  the  amount  of any Lease
         Payment, or otherwise to release, except as provided in such Lease, PNM
         from its  obligation  under  such  Lease in respect of payment of Lease
         Payments; or

                  (2) modify,  amend or supplement the Participation  Agreements
         in such a way as to,  or give any  consent,  waiver,  authorization  or
         approval  which  would,  release any Equity  Investor  from its payment
         obligations contained in said Participation Agreements.

                  (d)  Except  during  the  continuance  of an Event of  Default
hereunder,  upon request of the Company or PNM, the Trustee shall consent to any
Change  described  in this  Section  5.09,  and  shall  execute  any  instrument
requested  by the  Company  or PNM,  as the  case  may be,  for the  purpose  of
confirming  such  consent,  but only upon receipt by the Trustee of an Officers'
Certificate and an Opinion of Counsel of the Company or PNM, as the case may be,
each stating that such Change is authorized by this Indenture and that execution
of such  instrument is appropriate  to confirm such consent,  unless such Change
adversely  affects  the  Trustee's  rights,  duties  or  immunities  under  this
Indenture or otherwise,  in which case the Trustee may, in its  discretion,  but
shall not be  obligated  to, give such  consent  and the Trustee  shall be fully
protected in relying on such Officers' Certificate and Opinion of Counsel.

                  SECTION 1.10.  Annual Statement as to Compliance.

                  (a) PNM and the Company each will  deliver to the Trustee,  on
or  before  120  days  after  the end of each of its  fiscal  years,  a  written
statement  (which need not comply with Section  1.02) signed by its President or
one of  its  Vice  Presidents  and by  its  Treasurer  or one of its  Assistance
Treasurers or its Comptroller or one of its Assistant Comptrollers,  stating, as
to each signer thereof, that

                  (1) a review of the  activities of PNM or the Company,  as the
         case may be,  required  during such year of PNM or the Company,  as the
         case may be, under this Indenture has been made under his  supervision;
         and

                  (2) to the best of his knowledge, based on such review, PNM or
         the  Company,  as the case may be, has  fulfilled  all its  obligations
         under this  Indenture  throughout  such  year,  or, if there has been a
         default in the fulfillment of any such obligation, specifying each such
         default known to such officer and the nature and status thereof.

                  (b) PNM and the  Company  each will  deliver  to the  Trustee,
promptly after having  obtained  knowledge  thereof,  but in no event later than
five days  thereafter,  written  notice of any event  which  with the  giving of
notice or lapse of time, or both, would become an Event of Default under Section
8.01.


#30122041.1
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<PAGE>
                                   ARTICLE II.

                            REDEMPTION OF SECURITIES

                  The  provisions of this Article Six shall be applicable to the
Securities of any series which are  redeemable  before their Stated  Maturity of
principal  except  as  otherwise  provided  in  such  Securities  or the  Series
Supplemental Indenture with respect thereto as contemplated by Section 2.03.

                  SECTION 1.001.  Notice to Trustee of Redemption.

                  In case of any  redemption  of any  Securities  of any  series
otherwise than through the operation of an applicable  Sinking Fund, the Company
shall, at least 45 days prior to the scheduled Redemption Date (unless a shorter
notice shall be satisfactory  to the Trustee),  notify the Trustee in writing of
such Redemption Date and of the principal amount of Securities of such series to
be redeemed.

                  SECTION  1.002.  Selection  by  Trustee  of  Securities  to be
Redeemed.

                  If  fewer  than all the  Securities  of any  series  are to be
redeemed,  other than through the operation of an applicable  Sinking Fund,  the
particular  Securities of such series to be redeemed shall be selected following
receipt by the Trustee of the notice required by Section 6.01, but not more than
60 days prior to the  Redemption  Date,  by the  Trustee,  from the  Outstanding
Securities of such series not previously  called for redemption,  by such method
as the  Trustee  shall deem fair and  appropriate  and which may provide for the
selection  for  redemption  of portions of the  principal of  Securities  of any
denomination  larger  than  $1,000;  provided,  however,  that for  purposes  of
selecting  Securities  of any series for  redemption  pursuant to this  Section,
Securities  of such  series  shall be  redeemed  from each  Stated  Maturity  of
principal  of  Securities  of  such  series  as  nearly  as  practicable  in the
proportion that the aggregate  principal  amount of Securities of such series of
such  Stated  Maturity  of  principal  Outstanding   immediately  prior  to  the
Redemption  Date shall bear to the aggregate  principal  amount of Securities of
such series of all Stated Maturities of principal then Outstanding, in each case
taking  into  account  in  the  determination  of  Securities   Outstanding  the
Securities of such series subject to such redemption; provided further, however,
that when  Securities  are being redeemed  pursuant to any  applicable  optional
(rather than  mandatory)  redemption  provisions,  the Securities to be redeemed
shall be  selected  solely from the  Securities  of the series and of the Stated
Maturity of principal in respect of which a Company Order has been received.  If
Securities are to be selected for any redemption  pursuant to this Section,  the
Trustee  may make  such  adjustments  as it  shall  deem  necessary  so that the
principal amount of Securities  redeemed shall be $1,000 or an integral multiple
thereof,  such  adjustments  to be made by the  Trustee  in such  manner  as the
Trustee in its sole discretion deems appropriate.

                  The  Trustee  shall  promptly  notify the  Company,  PNM,  the
Security  Registrar and the Paying Agent in writing of the  Securities  selected
for redemption and, in the case of any Security selected for partial redemption,
the principal amount thereof to be redeemed.

                  For  all  purposes  of  this  Indenture,  unless  the  context
otherwise  requires,  all  provisions  relating to the  redemption of Securities
shall  relate,  in the case of any Security  redeemed or to be redeemed  only in
part, to the portion of the  principal of such Security  which has been or is to
be redeemed.

                  SECTION 1.003.  Notice of Redemption.

                  Notice  of  redemption   (including   redemption  through  the
operation of any applicable  Sinking Fund) shall be given by  first-class  mail,
postage  prepaid,  mailed  not less than 20 nor more  than 60 days  prior to the
Redemption  Date, to each Holder of  Securities  to be redeemed,  at his address
appearing in the Security Register. All notices of redemption shall state:


#30122041.1
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<PAGE>

                  (1) the Redemption Date,

                  (2) the Redemption Price,

                  (3) if fewer than all Outstanding Securities of any series are
         to be  redeemed,  the  identification  (and,  in the  case  of  partial
         redemption,   the  respective  principal  amounts)  of  the  particular
         Securities,  including the series and the Stated  Maturity of principal
         of such Securities, to be redeemed,

                  (4) that on the  Redemption  Date the  Redemption  Price  will
         become  due and  payable  upon each such  Security,  and that  interest
         thereon shall cease to accrue from and after said date,

                  (5) the place where such  Securities are to be surrendered for
         payment of the Redemption Price, and

                  (6) that the  redemption is through the operation of a Sinking
         Fund, if such is the case.

                  Notice of redemption  of  Securities  to be redeemed  shall be
given by the Trustee in the name of the Company.

                  SECTION 1.004.  Deposit of Redemption Price.

                  Prior to any Redemption  Date,  the Company shall deposit,  or
cause to be  deposited,  with the Paying Agent an amount of money  sufficient to
pay the Redemption  Price of all the Securities which are to be redeemed on that
date.

                  SECTION 1.005.  Securities Payable on Redemption Date.

                  Notice of  redemption  having  been  given as  aforesaid,  the
Securities  so to be redeemed  shall,  on the  Redemption  Date,  become due and
payable at the corporate trust office of the Paying Agent (or, if such office is
not in the Borough of Manhattan,  the City of New York, at either such office or
an office to be  maintained  in such  Borough) at the  Redemption  Price therein
specified  and from and after such date (unless  there shall be a default in the
payment of the Redemption  Price) such Securities  shall cease to bear interest.
Upon surrender of such Securities for redemption in accordance with said notice,
such Securities shall be paid at the Redemption Price,  exclusive,  however,  of
installments of interest maturing on or prior to the Redemption Date, payment of
which  shall  have  been  made  or  duly  provided  for to the  Holders  of such
Securities  registered  as such on the  relevant  Record  Dates,  or  otherwise,
according to their terms and the provisions of Section 2.10.

                  If any  Security  called for  redemption  shall not be so paid
upon  surrender  thereof for  redemption,  the principal  (and premium,  if any)
shall,  until paid,  continue to bear interest from the  Redemption  Date at the
rate borne by the Security in respect of overdue payments.

                  SECTION 1.006.  Securities Redeemed in Part.

                  Any  Security  which is to be  redeemed  only in part shall be
surrendered  at the  corporate  trust  office of the Paying  Agent (or,  if such
office is not in the Borough of Manhattan,  the City of New York, at either such
office or an office to be maintained in such Borough) (with due  endorsement by,
or a  written  instrument  of  transfer  in form  satisfactory  to the  Security
Registrar duly executed by, the Holder  thereof or his attorney duly  authorized
in writing) and the Company shall execute and the Trustee shall authenticate and
deliver to the Paying  Agent for  delivery to the Holder of such  Security a new
Security  or  Securities  of the same  series and the same  Stated  Maturity  of
principal,  of any  authorized  denomination  as  requested  by such  Holder  in
aggregate  principal amount equal to and in exchange for the unredeemed  portion
of the principal of the Security so surrendered.

#30122041.1
                                       25

<PAGE>

                                   ARTICLE I.

                                  SINKING FUNDS

                  SECTION 1.011.  Sinking Funds for Securities.

                  [(a)] The amount of any sinking fund  payment  provided for by
the terms of  Securities  of any series (and any Stated  Maturity  of  principal
within a series)  is herein  referred  to as a "Sinking  Fund",  and the date on
which a Sinking Fund  payment is to be made is herein  referred to as a "Sinking
Fund Date." Each such Sinking Fund payment shall be applied to the redemption of
Securities of the  appropriate  series and the  appropriate  Stated  Maturity of
principal on the appropriate Sinking Fund Date.

                  [(b)] In the event  that  there  shall  have been any  partial
redemption  of a series of  Securities  (other than  pursuant  to an  applicable
Sinking  Fund),  the  amount  of  each  applicable  Sinking  Fund  payment  of a
particular  Stated Maturity of principal  within such series  subsequent to such
redemption  shall be reduced by an amount  equal to the amount  obtained  by (i)
multiplying  the amount of such Sinking Fund payment with respect to such Stated
Maturity of  principal as in effect  prior to such  redemption  by a fraction of
which the  numerator  shall be the aggregate  principal  amount of Securities of
such  Stated  Maturity  of  such  series  redeemed   pursuant  to  such  partial
redemption,  and the  denominator  shall be the  aggregate  principal  amount of
Securities of such Stated Maturity of such series Outstanding  immediately prior
to such redemption, and (ii) rounding the amount indicated in (i) to the nearest
$1,000,  subject  to  necessary  adjustment  so that the  total  amount  of such
reduction is equal to the total principal amount of Securities redeemed pursuant
to such partial  redemption,  such  adjustment to be made by the Trustee in such
manner as the Trustee in its sole discretion deems appropriate.

                  [(c)]  Pursuant  to  the  Series  1986A  Series   Supplemental
Indenture dated as of July 15, 1986 (the Series 1986A  Supplement),  the Company
issued a series of Securities  designated  "Lease Obligation Bonds Series 1986A"
(the  Series A  Bonds),  of  which,  on June 1, 1994 two  Stated  Maturities  of
principal remain outstanding:  July 15, 1996 and January 15, 2014. Paragraph (b)
of Section 7.01 of the Original  Indenture to the contrary  notwithstanding,  in
the event that there shall have been any partial redemption of Series A Bonds of
a particular  Stated  Maturity of principal  (other than pursuant to the Sinking
Fund),  the Sinking  Fund  payments  thereafter  to be made with respect to such
Series A Bonds shall be adjusted as follows.  The Company  shall first  identify
all  related  Pledged  Lessor  Notes (as  defined in Article II of Series  1986A
Supplement and identified in Schedule 2 thereto) having the same maturity as the
Series A Bonds of such particular Stated Maturity of principal redeemed, if any,
which are outstanding  following such redemption;  provided,  however,  that for
purposes of this Section 7.01(c),  any such Pledged Lessor Notes with a maturity
subsequent to January 15, 2010 shall be deemed to have a maturity of January 15,
2014.  Having  identified  all  such  outstanding   Pledged  Lessor  Notes  (the
Outstanding Notes), the Company shall determine the dates on which the principal
of such Outstanding Notes is to be amortized (the Scheduled Amortization Dates).
The amount of the Sinking Fund payment scheduled to be made on each Sinking Fund
Date subsequent to the date of such partial redemption shall then be adjusted to
equal the aggregate  principal  amount of all Outstanding  Notes scheduled to be
amortized on the Scheduled  Amortization Date corresponding to such Sinking Fund
Date. All such adjustments in respect of Sinking Fund payments on a Sinking Fund
Date shall be rounded to the nearest  $1,000,  and shall be subject to necessary
further  adjustment so that the total amount of such reduction is at least equal
to the  total  principal  amount  of Series A Bonds  redeemed  pursuant  to such
partial redemption.  Having made the calculations  required by the preceding two
sentences,  the Company shall deliver to the Trustee a Company Request not later
than 30 days  following  any partial  redemption  of Series A Bonds  (other than
pursuant to the Sinking  Fund),  setting  forth (x) the  schedules  of principal
amortization  of all related  Outstanding  Notes having the same maturity as the
Stated  Maturity of principal  of the Series A Bonds  redeemed and (y) a revised
schedule of Sinking Fund  payments  applicable to Series A Bonds having the same
Stated  Maturity of  principal as the Series A Bonds  redeemed.  The Trustee may
rely on such  Company  Request  and  shall  have no  duty  with  respect  to the
adjustments  set forth therein other than to make them  available for inspection
by a Holder  of  Series A Bonds at the  Corporate  Trust  Office  uponreasonable
notice.]2

#30122041.1
                                       26

<PAGE>
                  SECTION  1.012.  Selection  by  Trustee  of  Securities  to be
Redeemed Through Operation of Sinking Fund.

                  In the case of Securities to be redeemed through  operation of
the Sinking Fund, the particular  Securities to be redeemed shall be selected no
more  than 60 days nor less  than 30 days  prior to the  Redemption  Date by the
Trustee  from the  outstanding  Securities  of the same  series  and of the same
Stated Maturity of principal not previously  called for redemption by prorating,
as nearly as may be, the principal amount of Securities to be redeemed among the
Holders of  Securities  of the same  series and of the same  Stated  Maturity of
principal  registered in their  respective  names. In any proration  pursuant to
this  Section,  the  Trustee  shall  make such  adjustments,  reallocations  and
eliminations as it shall deem proper so that the principal  amount of Securities
so prorated shall be $1,000 or an integral  multiple  thereof,  by increasing or
decreasing or  eliminating  the amount which would be allocable to any Holder on
the basis of exact proportion by an amount not exceeding $1,000.  The Trustee in
its discretion may determine the particular  Securities of a Stated  Maturity of
principal  registered  in the name of any Holder  which are to be  redeemed,  in
whole or in part.

                  Notwithstanding the provisions of the preceding paragraph, if,
at the time of any such  selection,  there  shall be any  Holders  of less  than
$1,000,000  aggregate  principal amount of Outstanding  Securities of the series
and of the Stated Maturity of principal to be so redeemed,  the selection of the
particular Securities to be so redeemed shall be made in the following manner:

                  (a) the Trustee shall first  prorate the  principal  amount of
Securities of such series and of such Stated Maturity to be so redeemed  between
(i) Holders of Securities in aggregate  principal  amounts of $1,000,000 or more
and (ii)  Holders of  Securities  in  aggregate  principal  amounts of less than
$1,000,000;  such  proration to be effected in  accordance  with the  respective
aggregate  principal  amounts of such Securities held by the Holders referred to
in the foregoing items (i) and (ii), respectively;

                  (b) the Trustee shall then select for redemption in the manner
hereinabove  in the first  paragraph  of this Section  7.02  provided,  from the
Securities of such series and Stated Maturity held by the Holders referred to in
item (i) of clause (a) above, particular Securities (or portions thereof) in the
principal amount prorated to such Holders pursuant to said clause (a); and

                  (c) the Trustee shall then select for redemption in the manner
provided in Section 6.02 hereof,  from the  Securities of such series and Stated
Maturity  held by the  Holders  referred  to in item  (ii) of said  clause  (a),
particular  Securities (or portions thereof) in the principal amount prorated to
such Holders pursuant to said clause (a);

provided,  however, in any such prorating pursuant to this paragraph the Trustee
may,  according to such method as it shall deem proper in its  discretion,  make
such  adjustments by increasing or decreasing by not more than $1,000 the amount
which  would  be  allocable  on the  basis  of an  exact  proportion,  as may be
necessary  to the end that the  principal  amount so  prorated  shall be in each
instance an integral multiple of $1,000.

--------
     2  Bracketed language added by 1994 Supplemental Indenture.  See Exhibit F.
                                                                  

#30122041.1
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<PAGE>

                                   ARTICLE II.

                           EVENTS OF DEFAULT; REMEDIES

                  SECTION 1.021.  Events of Default.

                   "Events of Default",  wherever used herein,  means any one of
the following  events (whatever the reason for such Event of Default and whether
it shall be  voluntary  or  involuntary  or be effected by  operation  of law or
pursuant  to a  judgment,  decree  or order of any court or any  order,  rule or
regulation of any administrative or governmental body):

                  (1) default in the payment of any  interest  upon any Security
         when it becomes due and payable,  and continuance of such default for a
         period of ten (10) days; or

                  (2) default in the payment of the principal of (or premium, if
         any,  on)  any  Security  at its  Stated  Maturity,  or upon  call  for
         redemption or otherwise,  and  continuance of such default for a period
         of ten (10) days; or

                  (3) default in the making of any  Sinking  Fund  payment,  and
         continuance of such default for a period of ten (10) days; or

                  (4) default in the performance,  or breach, of any covenant of
         PNM or the Company  contained herein and continuance of such default or
         breach  for a  period  of 30  days  after  there  has  been  given,  by
         registered or certified mail, to PNM and the Company by the Trustee, or
         to PNM,  the  Company and the Trustee by the Holders of at least 25% in
         principal amount of Outstanding Securities, a written notice specifying
         such  failure and  requiring  it to be remedied  and stating  that such
         notice is a "Notice of Default" hereunder; or

                  (5) the  occurrence of an "Indenture  Event of Default"  under
         any Lease  Indenture and the  declaration  as a result thereof that any
         Pledged Lessor Note is due and payable; or

                  (6)  the  entry  of  a  decree  or  order  by a  court  having
         jurisdiction  in the  premises  adjudging  the  Company a  bankrupt  or
         insolvent,   or  approving  as  properly   filed  a  petition   seeking
         reorganization, arrangement, adjustment or composition of or in respect
         of the Company under the Federal Bankruptcy Act or any other applicable
         federal or state law or law of the District of Columbia,  or appointing
         a  receiver,  liquidator,  assignee,  trustee,  sequestrator  (or other
         similar  official)  of the  Company or of any  substantial  part of its
         property, or ordering the winding up or liquidation of its affairs, and
         the  continuance of any such decree or order unstayed and in effect for
         a period of 60 consecutive days; or

                  (7)  the  institution  by the  Company  of  proceedings  to be
         adjudicated  a  bankrupt  or  insolvent,  or the  consent  by it to the
         institution of bankruptcy or insolvency  proceedings against it, or the
         filing by it of a petition or answer or consent seeking  reorganization
         or relief  under the  Federal  Bankruptcy  Act or any other  applicable
         Federal or state law or law of the District of Columbia, or the consent
         by it to the filing of any such  petition  or to the  appointment  of a
         receiver, liquidator, assignee, trustee, sequestrator (or other similar
         official) of the Company or of any substantial part of its property, or
         the making by it of an assignment for the benefit of creditors,  or the
         admission by it in writing of its inability to pay its debts  generally
         as they become due, or the taking of corporate action by the Company in
         furtherance of any such action.


#30122041.1
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<PAGE>
                  SECTION  1.022.  Acceleration  of  Maturity;   Rescission  and
Annulment.

                  Upon the occurrence of an Event of Default,  (i) if such Event
of Default is one  referred  to in clause  (1),  (2),  (3),  (4),  (6) or (7) of
Section 8.01, the Trustee may, and upon the direction of the Holders of not less
than 25% in principal  amount of the Securities  Outstanding  shall, and (ii) if
such  Event of  Default is the one  referred  to in clause  (5) of Section  8.01
(including  without  limitation  an event of default  under any Lease  which has
resulted  in an Event of  Default  referred  to in clause  (1),  (2),  or (3) of
Section 8.01), the Trustee shall, declare the principal of all the Securities to
be due and payable  immediately,  by a notice in writing to PNM and the Company,
and upon any such  declaration  such principal shall become  immediately due and
payable;  provided that no such  declaration  shall be made (and no action under
Section  8.03 or 8.05  shall be taken) in cases in which the Event of Default is
one  referred  to in clause  (1),  (2),  or (3) of Section  8.01 which  resulted
directly from a failure of PNM to make any payment of rent under any Lease until
such time as the  Lessor  under such  Lease has been  given the  opportunity  to
exercise its rights,  if any,  under  provisions of the related Lease  Indenture
analogous to Section 6.8 of the Lease Indentures dated as of December 16, 1985.

                  At any time after such a declaration of acceleration  has been
made and before any sale of the Pledged  Property,  or any part  thereof,  shall
have been made  pursuant to any power of sale as  hereinafter  in this  Article;
provided,  the  Holders  of a majority  in  principal  amount of the  Securities
Outstanding,  by written notice to the Company and the Trustee,  may rescind and
annul such declaration and its consequences if

                  (1)  there  shall  have  been  paid to or  deposited  with the
         Trustee a sum sufficient to pay

                           (A)  all  overdue  installments  of  interest  on all
                  Securities,

                           (B) the  principal of (and  premium,  if any, on) any
                  Securities  which  have  become  due  otherwise  than  by such
                  declaration  of  acceleration  and  interest  thereon  at  the
                  respective  rates provided in the Securities for late payments
                  of principal or premium,

                           (C) to the extent  that  payment of such  interest is
                  lawful,  interest upon overdue installments of interest at the
                  respective  rates provided in the Securities for late payments
                  of interest, and

                           (D)  all  sums  paid  or   advanced  by  the  Trustee
                  hereunder   and   the   reasonable   compensation,   expenses,
                  disbursements  and  advances  of the  Trustee,  its agents and
                  counsel; and

                  (2) all Events of Default,  other than the  non-payment of the
         principal  of   Securities   which  have  become  due  solely  by  such
         acceleration, have been cured or waived as provided in Section 8.08.

No such  rescission  shall  affect  any  subsequent  default or impair any right
consequent  thereon.  [and  no  such  annulment  shall  take  place  unless  all
declarations of acceleration of all Pledged Lessor Notes  theretofore given have
also  been  annulled  in  accordance  with  the  terms of the  applicable  Lease
Indentures.]3

                  [Notwithstanding anything in this Section to the contrary, the
Trustee  shall  rescind any  acceleration  of maturity of the  principal  of and
interest  on the  Securities  as a  consequence  of an  Event of  Default  which
resulted  from an event of  default  under any Lease  and  which  resulted  in a
declaration of acceleration of the Pledged Lessor Notes issued under the related
Lease Indenture, if the declaration of acceleration of such Pledged Lessor Notes
has been rescinded in accordance  with the terms of such Lease Indenture and the
conditions set forth in paragraphs (1) and (2) of this Section have been met.]4
--------
     3  This language was deleted by paragraph (b)(ii) of Article III of the 
1986A Bond Supplemental Indenture. See Exhibit B.

     4  This paragraph was deleted in its entirety by paragraph (b)(i) of  
Artcile III to the 1986A Bond Supplemental Indenture.  See Exhibit B.

#30122041.1
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<PAGE>

                  SECTION 1.023.  Trustee's  Power of Sale of Pledged  Property;
Notice Required; Power to Bring Suit.

                  If an Event of Default shall have occurred and be  continuing,
subject to the provisions of Sections 8.06 and 8.07 and the proviso to the first
paragraph  of Section  8.02,  the  Trustee,  by such  officer or agent as it may
appoint, may:

                  (1) sell, to the extent  permitted by law,  without  recourse,
         for cash,  or credit or for other  property,  for  immediate  or future
         delivery, and for such price or prices and on such terms as the Trustee
         in its discretion may determine,  the Pledged  Property as an entirety,
         or in any such  portions  as the  Holders  of a majority  in  aggregate
         principal amount of the Securities then Outstanding shall request by an
         Act of  Securityholders,  or, in the  absence of such  request,  as the
         Trustee in its  discretion  shall deem expedient in the interest of the
         Securityholders, at public or private sale; and/or

                  (2) proceed by one or more suits,  actions or  proceedings  at
         law or in equity or otherwise or by any other  appropriate  remedy,  to
         enforce  payment of the  Securities  or  Pledged  Lessor  Notes,  or to
         foreclose  this  Indenture  or to sell  the  Pledged  Property  under a
         judgment or decree of a court or courts of competent  jurisdiction,  or
         by the  enforcement  of any such other  appropriate  legal or equitable
         remedy,  as the  Trustee,  being  advised by  counsel,  shall deem most
         effectual  to protect and enforce any of its rights or powers or any of
         the rights or powers of the Securityholders.

                  In the event that the Trustee  shall deem it advisable to sell
any of or all the Pledged  Property in  accordance  with the  provisions of this
Section,  PNM and the Company  agree that if  registration  of any such  Pledged
Property shall be required, in the opinion of counsel for the Trustee, under the
Securities  Act of 1933 or other  applicable  law, and  regulations  promulgated
thereunder,  and  if PNM  shall  not  effect,  or  cause  to be  effected,  such
registration  promptly,  the  Trustee  may sell any such  Pledged  Property at a
private  sale,  and no Person shall attempt to maintain that the prices at which
such Pledged Property is sold are inadequate by reason of the failure to sell at
public sale, or hold the Trustee liable therefor.

                  SECTION 1.024.  Incidents of Sale of Pledged Property.

                  Upon any sale of all or any part of the Pledged  Property made
either under the power of sale given under this  Indenture or under  judgment or
decree  in any  judicial  proceedings  for  foreclosure  or  otherwise  for  the
enforcement of this Indenture, the following shall be applicable:

                  (1) Securities Due and Payable. The principal of, and premium,
         if any, and accrued interest on, the Securities, if not previously due,
         shall immediately become and be due and payable.

                  (2) Trustee Appointed Attorney of Company to Make Conveyances.
         The  Trustee  is  hereby  irrevocably  appointed  the true  and  lawful
         attorney of the Company,  in its name and stead,  to make all necessary
         deeds,  bills  of sale  and  instruments  of  assignment,  transfer  or
         conveyance of the property thus sold;  and for that purpose the Trustee
         may execute all such documents and  instruments  and may substitute one
         or more persons with like power;  and the Company  hereby  ratifies and
         confirms  all  that  its  said   attorneys,   or  such   substitute  or
         substitutes, shall lawfully do by virtue hereof.



#30122041.1
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<PAGE>

                  (3) Company to Confirm Sales and Conveyances.  If so requested
         by the  Trustee  or by any  purchaser,  the  Company  shall  ratify and
         confirm any such sale or transfer by executing  and  delivering  to the
         Trustee or to such purchaser or purchasers  all proper deeds,  bills of
         sale, instruments of assignment, conveyance or transfer and releases as
         may be designated in any such request.

                  (4) Securityholders and Trustee May Purchase Pledged Property.
         Any  Securityholder  or the Trustee may bid for and purchase any of the
         Pledged Property, and upon compliance with the terms of sale, may hold,
         retain,  possess and dispose of such Pledged Property in his or its own
         absolute right without further accountability.

                  (5) Purchaser at Sale May Apply  Securities to Purchase Price.
         Any  purchaser  at any such sale may,  in paying  the  purchase  price,
         deliver  any of the  Securities  then  Outstanding  in lieu of cash and
         apply to the purchase price the amount which shall,  upon  distribution
         of the net proceeds of such sale, after application to the costs of the
         action  and any other sums which the  Trustee is  authorized  to deduct
         under this  Indenture,  be payable on such  Securities  so delivered in
         respect of principal, premium, if any, and interest. In case the amount
         so  payable  on such  Securities  shall  be less  than the  amount  due
         thereon, duly executed and authenticated  Securities shall be delivered
         in  exchange  therefor  to the Holder  thereof  for the  balance of the
         amount due on such Securities so delivered by such Holder.

                  (6) Receipt of Trustee Shall Discharge Purchaser.  The receipt
         of the  Trustee  or of the  officer  making  such sale  under  judicial
         proceedings  shall be a sufficient  discharge to any  purchaser for his
         purchase  money,  and,  after paying such Purchase  money and receiving
         such receipt, such purchaser or his personal  representative or assigns
         shall not be obliged to see to the  application of such purchase money,
         or  be  in  any  way   answerable  or  any  loss,   misapplication   or
         non-application thereof.

                  (7) Sale To Divest  Rights of Company in  Property  Sold.  Any
         such sale  shall  operate to divest  the  Company of all right,  title,
         interest,  claim  and  demand  whatsoever,  either  at law or in equity
         otherwise,  in and to the  Pledged  Property  so sold,  and  shall be a
         perpetual  bar  both at law and in  equity  or  otherwise  against  the
         Company,  and its  successors  and  assigns,  and  any and all  persons
         claiming or who may claim the Pledged  Property sold or any part hereof
         from, through or under the Company, or its successors and assigns.

                  (8)  Application  of Moneys  Received  upon  Sale.  Any moneys
         collected  by the Trustee  upon any sale made either under the power of
         sale  given  by this  Indenture  or under  judgment  or  decree  in any
         judicial  proceedings  for foreclosure or otherwise for the enforcement
         of this Indenture, shall be applied as provided in Section 8.12.

                  SECTION 1.025.  Judicial Proceedings Instituted by Trustee

                  [ (a) Trustee  May Bring Suit.  If there shall be a failure to
make payment of the  principal  of any  Security at its Stated  Maturity or upon
declaration of acceleration, call for redemption or otherwise, or of any Sinking
Fund payment when due and payable by the terms hereof or of such Security, or if
there shall be a failure to pay the premium, if any, or interest on any Security
when the same  becomes due and payable,  then the  Trustee,  if any such failure
shall continue for 15 days, in its own name, and as trustee of an express trust,
shall be entitled,  and empowered  subject to the proviso to the first paragraph
of Section 8.02 to institute any suits, actions or proceedings at law, in equity
or  otherwise,  for  the  collection  of the  sums  so  due  and  unpaid  on the
Securities,  and may prosecute any such claim or proceeding to judgment or final
decree, and may enforce any such judgment or final decree and collect the moneys
adjudged or decreed to be payable in any manner provided by law,  whether before
or after or during the pendency of any  proceedings  for the  enforcement of the
Lien of this Indenture,  or of any of the Trustee's  rights or the rights of the
Securityholders under this Indenture, and such power of the Trustee shall not be
affected by any sale  hereunder or by the exercise of any other right,  power or
remedy  for the  enforcement  of the  provisions  of this  Indenture  or for the
foreclosure of the lien hereof.


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<PAGE>

                  (b)  Trustee  May Recover  Unpaid  Indebtedness  after Sale of
Pledged  Property.  In the  case of a sale of the  Pledged  Property  and of the
application  of the  proceeds  of such sale to the  payment of the  indebtedness
secured by this  Indenture,  the  Trustee in its own name,  and as trustee of an
express trust, shall be entitled and empowered, by any appropriate means, legal,
equitable or otherwise,  to enforce  payment of, and to receive all amounts then
remaining due and unpaid upon, all or any of the Securities,  for the benefit of
the Holders thereof,  and upon any other portion of the  indebtedness  remaining
unpaid, with interest at the rates specified in the respective Securities on the
overdue  principal  of and  premium,  if any, and (to the extent that payment of
such interest is legally enforceable) on the overdue installments of interest.

                  (c)  Recovery  of  Judgment  Does  Not  Affect  Lien  of  this
Indenture or Other  Rights.  No recovery of any such judgment or final decree by
the Trustee and no levy of any execution under any such judgment upon any of the
Pledged  Property,  or upon any other  property,  shall in any  manner or to any
extent affect the Lien of this  Indenture upon any of the Pledged  Property,  or
any rights,  powers or remedies of the Trustee, or any liens, rights,  powers or
remedies of the Securityholders, but all such liens, rights, powers and remedies
shall continue unimpaired as before.

                  (d) Trustee May File Proofs of Claim;  Appointment  of Trustee
as Attorney-in-Fact in Judicial Proceedings.  The Trustee in its own name, or as
trustee of an express trust, or as attorney-in-fact for the Securityholders,  or
in any one or more of such capacities  (irrespective of whether the principal of
the  Securities  shall  then be due  and  payable  as  therein  expressed  or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand for the payment of overdue principal,  premium (if any) or interest),
shall be entitled and empowered to file such proofs of claim and other papers or
documents  as may be  necessary  or advisable in order to have the claims of the
Trustee  and of the  Securityholders  (whether  such  claims  be based  upon the
provisions  of the  Securities  or of this  Indenture)  allowed  in any  equity,
receivership, insolvency, bankruptcy, liquidation, readjustment,  reorganization
or any other judicial  proceedings relative to the Company or any obligor on the
Securities  (within the meaning of the TIA), the creditors of the Company or any
such obligor,  the Pledged  Property or any other property of the Company or any
such obligor and any receiver, assignee, trustee,  liquidator,  sequestrator (or
other similar official) in any such judicial  proceeding is hereby authorized by
each  Securityholder  to make such payments to the Trustee and in the event that
the  Trustee  shall  consent  to the  making of such  payments  directly  to the
Securityholders,  to pay to the Trustee any amount due to it for the  reasonable
compensation,  expenses,  disbursements and advances of the Trustee,  its agents
and counsel.  The Trustee is hereby  irrevocably  appointed  (and the successive
respective  Holders of the Securities,  by taking and holding the same, shall be
conclusively  deemed  to have so  appointed  the  Trustee)  the true and  lawful
attorney-in-fact of the respective  Securityholders,  with authority to (i) make
and file in the respective  names of the  Securityholders  (subject to deduction
from  any  such  claims  of  the  amounts  of  any  claims  filed  by any of the
Securityholders  themselves),  any claim,  proof of claim or amendment  thereof,
debt, proof of debt or amendment thereof, petition or other document in any such
proceedings  and to receive  payment  of any  amounts  distributable  on account
thereof,  (ii) execute any such other papers and documents and to do and perform
any and all such acts and things for and on behalf of such  Securityholders,  as
may be  necessary or  advisable  in order to have the  respective  claims of the
Trustee and of the Securityholders  against the Company or any such obligor, the
Pledged  Property  or any other  property  of the  Company  or any such  obligor
allowed in any such  proceeding  and (iii)  receive  payment of or on account of
such  claims  and  debt;  provided,  however,  that  nothing  contained  in this
Indenture  shall be deemed to give to the Trustee any right to accept or consent
to any plan of  reorganization  or otherwise  by action of any  character in any
such  proceeding to waive or change in any way any right of any  Securityholder.
Any moneys  collected  by the  Trustee  under this  Section  shall be applied as
provided in Section 8.12.

                  (e) Trustee Need Not Have Possession of Securities. All rights
of action  and of  asserting  claims  under this  Indenture  or under any of the
Securities  enforceable  by the Trustee  may be enforced by the Trustee  without
possession of any of such  Securities or the production  thereof at the trial or
other proceedings relative thereto.

                  (f) Suit To Be Brought for Ratable Benefit of Securityholders.
Any suit,  action or other proceeding at law, in equity or otherwise which shall
be instituted by the Trustee under any of the provisions of this Indenture shall
be for the equal, ratable and common benefit of all the Securityholders, subject
to the provisions of this Indenture.


#30122041.1
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<PAGE>

                  (g) Trustee May Be Restored to Former  Position  and Rights in
Certain  Circumstances.  In case the Trustee shall have proceeded to enforce any
right  under  this  Indenture  by  suit,   foreclosure  or  otherwise  and  such
proceedings  shall have been  discontinued or abandoned for any reason, or shall
have been determined adversely to the Trustee, then in every such case, PNM, the
Company  and  the  Trustee  shall  be  restored  without  further  act to  their
respective former positions and rights hereunder,  and all rights,  remedies and
powers of the  Trustee  shall  continue as though no such  proceedings  had been
taken.
                  SECTION  1.026.  Securityholders  May  Demand  Enforcement  of
Rights by Trustee.

                  If an  Event of  Default  shall  have  occurred  and  shall be
continuing,  the Trustee  shall,  upon the  written  request of the Holders of a
majority in aggregate  principal  amount of the Securities then  Outstanding and
upon the offering of indemnity  as provided in Section  9.03(e),  but subject in
all  cases to the  provisions  of  Section  3.03 and the  proviso  to the  first
paragraph of Section 8.02,  proceed to institute  one or more suits,  actions or
proceedings  at law,  in equity  or  otherwise,  or take any  other  appropriate
remedy, to enforce payment of the principal of, or premium,  if any, or interest
on, the  Securities or Pledged Lessor Notes or to foreclose this Indenture or to
sell the  Pledged  Property  under a judgment  or decree of a court or courts of
competent  jurisdiction or under the power of sale herein granted,  or take such
other  appropriate  legal,  equitable or other  remedy,  as the  Trustee,  being
advised by counsel,  shall deem most effectual to protect and enforce any of the
rights  or  powers  of the  Trustee  or the  Securityholders,  or,  in case such
Securityholders  shall have requested a specific method of enforcement permitted
hereunder,  in the manner  requested,  provided  that such  action  shall not be
otherwise than in accordance with law and the provisions of this Indenture,  and
the  Trustee,  subject  to such  indemnity  provisions,  shall have the right to
decline to follow any such request if the Trustee in good faith shall  determine
that the suit,  proceeding or exercise of the remedy so requested  would involve
the Trustee in personal liability or expense.

                  SECTION 1.027.  Control by Securityholders.

                  The  Holders  of  a  majority  in  principal   amount  of  the
Outstanding Securities shall have the right to direct the time, method and place
of  conducting  any  proceeding  for any  remedy  available  to the  Trustee  or
exercising any trust or power conferred on the Trustee, provided that

                  (1) such  direction  shall not be in conflict with any rule of
         law or with this Indenture, and

                  (2) the Trustee may take any other action deemed proper by the
         Trustee which is not inconsistent with such direction.

                  SECTION 1.028.  Waiver of Past Defaults.

                  The Holders of not less than a majority in principal amount of
the  Outstanding  Securities  may on behalf of the Holders of all the Securities
waive any past  default  hereunder  and its  consequences,  except that only the
Holders of all Securities affected thereby may waive a default

                  (1) in the payment of the principal of (or premium, if any) or
         interest on such Securities,

         or

                  (2) in respect of a covenant or  provision  hereof which under
         Article Eleven cannot be modified or amended without the consent of the
         Holder of each Outstanding Security affected.

                  Upon any such waiver,  such default shall cease to exist,  and
any Event of Default arising  therefrom shall be deemed to have been cured,  for
every  purpose  of  this  Indenture;  but no such  waiver  shall  extend  to any
subsequent or other default or impair any right consequent thereon.


#30122041.1
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<PAGE>

                  SECTION 1.029.  Securityholder May Not Bring Suit Except under
Certain Conditions.

                  A  Securityholder  shall not have the right to  institute  any
suit,  action or proceeding at law or in equity or otherwise for the foreclosure
of this  Indenture,  for the appointment of a receiver or for the enforcement of
any other remedy under or upon this Indenture, unless:

                  (1) such  Securityholder  previously  shall have given written
         notice to the Trustee of a continuing Event of Default;

                  (2) the Holders of at least 25% in aggregate  principal amount
         of the Securities then Outstanding  shall have requested the Trustee in
         writing to institute  such action,  suit or  proceeding  and shall have
         offered to the Trustee indemnity as provided in Section 9.03(e);

                  (3) the Trustee  shall have  refused or neglected to institute
         any such action,  suit or proceeding  for 60 days after receipt of such
         notice, request and offer of indemnity; and

                  (4) no direction  inconsistent  with such written  request has
         been given to the Trustee during such 60-day period by the Holders of a
         majority in principal amount of outstanding Securities.

                  It is  understood  and  intended  that  no one or  more of the
Securityholders  shall have any right in any manner whatever  hereunder or under
the Securities to (i) surrender, impair, waive, affect, disturb or prejudice the
Lien of this  Indenture  on any  property  subject  thereto or the rights of the
Holders  of any other  Securities,  (ii)  obtain or seek to obtain  priority  or
preference  over any other such  Holder or (iii)  enforce  any right  under this
Indenture,  except in the manner herein provided and for the equal,  ratable and
common  benefit of all the  Securityholders  subject to the  provisions  of this
Indenture.

                  SECTION 1.10.  Undertaking To Pay Court Costs.

                  All parties to this Indenture,  and each Securityholder by his
acceptance  of a Security,  shall be deemed to have agreed that any court may in
its discretion require, in any suit, action or proceeding for the enforcement of
any right or remedy under this Indenture,  or in any suit,  action or proceeding
against the Trustee for any action taken or omitted by it as Trustee  hereunder,
the  filing by any party  litigant  in such  suit,  action or  proceeding  of an
undertaking to pay the costs of such suit,  action or proceeding,  and that such
court may, in its discretion,  assess  reasonable  costs,  including  reasonable
attorneys' fees,  against any party litigant in such suit, action or proceeding,
having due regard to the merits and good faith of the claims or defenses made by
such party  litigant;  provided,  however,  that the  provisions of this Section
shall not apply to (a) any suit, action or proceeding instituted by the Trustee,
(b) any suit, action or proceeding  instituted by any Securityholder or group of
Securityholders  holding in the aggregate  more than 10% in aggregate  principal
amount of the Securities then Outstanding or (c) any suit,  action or proceeding
instituted  by any  Securityholder  for the  enforcement  of the  payment of the
principal of, or premium,  if any, or interest on, any of the Securities,  on or
after the respective due dates expressed therein.

                  SECTION 1.11. Right of  Securityholders To Receive Payment Not
To Be Impaired.

                  Anything in this  Indenture to the  contrary  notwithstanding,
the right of any Holder of any Security to receive  payment of the principal of,
and premium, if any, and interest on, such Security,  on or after the respective
due  dates  expressed  in such  Security  (or,  in case  of  redemption,  on the
Redemption  Date  fixed  for  such  Security),  or to  institute  suit  for  the
enforcement of any such payment on or after such respective dates,  shall not be
impaired or affected without the consent of such Holder.

                  SECTION 1.12.  Application of Moneys Collected by Trustee.

                  Any moneys  collected or to be applied by the Trustee pursuant
to this  Article,  together  with any other moneys which may then be held by the
Trustee  under any of the  provisions  of this  Indenture  as  security  for the
Securities

#30122041.1
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<PAGE>

(other than  moneys at the time  required to be held for the payment of specific
Securities  at their  Stated  Maturities  or at a time fixed for the  redemption
thereof) shall be applied in the following  order from time to time, on the date
or dates fixed by the Trustee and, in the case of a distribution  of such moneys
on account of principal,  premium, if any, or interest, upon presentation of the
several  Outstanding  Securities,  and  stamping  thereon  of  payment,  if only
partially paid, and upon surrender thereof, if fully paid:

                  FIRST: to the payment of all taxes, assessments or liens prior
         to the Lien of this  Indenture,  except those subject to which any sale
         shall have been made, all reasonable  costs and expenses of collection,
         including  the  reasonable  costs and  expenses of handling the Pledged
         Property and of any sale  thereof  pursuant to the  provisions  of this
         Article and of the  enforcement of any remedies  hereunder or under any
         Lease  Indenture,  and to the payment of all amounts due the Trustee or
         any  predecessor  Trustee under Section 9.07, or through the Trustee by
         any Securityholder or Securityholders;

                  SECOND: in case the principal of the Securities or any of them
         shall not have become  due, to the payment of any  interest in default,
         in the order of the maturity of the installments of such interest, with
         interest at the rates specified in the respective Securities in respect
         of overdue  payments (to the extent that payment of such interest shall
         be legally enforceable) on the overdue installments thereof;

                  THIRD:  in  case  the  principal  of any of but  not  all  the
         Securities  shall have  become  due at their  Stated  Maturities,  upon
         redemption  or otherwise,  first to the payment of accrued  interest in
         the order of the maturity of the installments  thereof with interest at
         the respective rates specified in the Securities in respect of payments
         on overdue principal,  premium, if any, and (to the extent that payment
         of such interest shall be legally  enforceable) on overdue installments
         of interest, and next to the payment of the principal of all Securities
         then due;

                  FOURTH: in case the principal of all the Securities shall have
         become due at their Stated Maturities, by declaration,  upon redemption
         or  otherwise,  to the payment of the whole  amount then due and unpaid
         upon the Securities then  Outstanding for principal,  premium,  if any,
         and interest,  together with interest at the respective rates specified
         in the Securities in respect of overdue payments on principal, premium,
         if any,  and (to the  extent  that  payment of such  interest  shall be
         legally enforceable) on overdue installments of interest,  and, in case
         such proceeds shall be  insufficient to pay in full the whole amount so
         due and unpaid, then to the payment of such principal, premium, if any,
         and interest ratably, without discrimination or preference; and

                  FIFTH: in case the principal of all the Securities  shall have
         become due at their Stated Maturities, by declaration,  upon redemption
         or otherwise,  and all of such  Securities  shall have been fully paid,
         together with all interest (including any interest on overdue payments)
         and premium, if any, thereon,  any surplus then remaining shall be paid
         to the Company,  its  successors or assigns,  or to  whomsoever  may be
         lawfully  entitled  to  receive  the same,  or as a court of  competent
         jurisdiction may direct;

provided,  however,  that all payments to be made pursuant to this Section shall
be made  ratably to the persons  entitled  thereto,  without  discrimination  or
preference.

                  SECTION 1.13.  Securities Held by Certain Persons Not To Share
in Distribution.

                  Any Securities known to the Trustee to be owned or held by, or
for the account or benefit of, PNM, the Company or any  Affiliate of any thereof
shall not be entitled to share in any payment or  distribution  provided  for in
this Article until all Securities held by other Persons have been paid in full.


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<PAGE>

                  SECTION 1.14. Waiver of Appraisement,  Valuation,  Stay, Right
to Marshalling.

                  To the  extent  it may  lawfully  do so,  each  of PNM and the
Company,  for  itself  and for any  Person  who may claim  through  or under it,
hereby:

                  (1) agrees  that  neither it nor any such  Person will set up,
         plead,  claim  or in any  manner  whatsoever  take  advantage  of,  any
         appraisement,  valuation,  stay,  extension or redemption  laws, now or
         hereafter  in force in any  jurisdiction,  which may delay,  prevent or
         otherwise  hinder (i) the  performance or enforcement or foreclosure of
         this Indenture,  (ii) the sale of any of the Pledged Property, or (iii)
         the putting of the purchaser or purchasers  thereof into  possession of
         such property immediately after the sale thereof;

                  (2)  waives all benefit or advantage of any such laws;

                  (3)  waives  and  releases  all  rights  to have  the  Pledged
         Property marshalled upon any foreclosure,  sale or other enforcement of
         this Indenture; and

                  (4) consents  and agrees that all the Pledged  Property may at
         any such sale be sold by the Trustee as an entirety.

               SECTION 1.15.Remedies Cumulative; Delay or Omission Not a Waiver.

                  Every remedy  given  hereunder to the Trustee or to any of the
Securityholders  shall not be exclusive  of any other  remedy or  remedies,  and
every such remedy  shall be  cumulative  and in  addition to every other  remedy
given hereunder or now or hereafter given by statute,  law, equity or otherwise.
The Trustee may exercise all or any of the powers,  rights or remedies  given to
it hereunder or which may now or hereafter be given by statute, law or equity or
otherwise,  in its absolute discretion.  No course of dealing between PNM or the
Company and the Trustee or the  Securityholders  or any delay or omission of the
Trustee or of any Securityholder to exercise any right, remedy or power accruing
upon any Event of Default shall impair any such right,  remedy or power or shall
be  construed to be a waiver of any such Event of Default or of any right of the
Trustee or of the Securityholders or acquiescence  therein,  and, subject to the
provisions of Section 8.07, every right,  remedy and power given by this Article
to the Trustee or to the  Securityholders may be exercised from time to time and
as often as may be deemed expedient by the Trustee or by the Securityholders.

                                   ARTICLE II.

                                   THE TRUSTEE

                  SECTION 1.001.  Certain Duties and Responsibilities.

                  (a) Except during the continuance of an Event of Default,

                  (1) the  Trustee  undertakes  to perform  such duties and only
         such duties as are  specifically  set forth in this  Indenture,  and no
         implied  covenants  or  obligations  shall be read into this  Indenture
         against the Trustee; and

                  (2) in the  absence of bad faith on its part,  the Trustee may
         conclusively   rely,  as  to  the  truth  of  the  statements  and  the
         correctness of the opinions  expressed  therein,  upon  certificates or
         opinions furnished to the Trustee and conforming to the requirements of
         this  Indenture;  but in the case of any such  certificates or opinions
         which  by  any  provisions  hereof  are  specifically  required  to  be
         furnished to the Trustee,  the Trustee shall be under a duty to examine
         the same to determine  whether or not they conform to the  requirements
         of this Indenture.


#30122041.1
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<PAGE>

                  (b)  In  case  an  Event  of  Default  has   occurred  and  is
continuing,  the Trustee shall  exercise such of the rights and powers vested in
it by this  Indenture,  and use the  same  degree  of care  and  skill  in their
exercise,  as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.

                  (c) No  provision  of this  Indenture  shall be  construed  to
relieve  the  Trustee  from  liability  for its own  negligent  action,  its own
negligent failure to act, or its own willful misconduct, except that

                  (1) this Subsection shall not be construed to limit the effect
         of Subsection (a) of this Section;

                  (2) the Trustee  shall not be liable for any error of judgment
         made in good faith by a Responsible  Officer of the Trustee,  unless it
         shall be proved that the  Trustee was  negligent  in  ascertaining  the
         pertinent facts;

                  (3) the Trustee shall not be liable with respect to any action
         taken or omitted to be taken by it in good faith in accordance with the
         direction  of the  Holders of a  majority  in  principal  amount of the
         Outstanding  Securities  relating  to the  time,  method  and  place of
         conducting any proceeding for any remedy  available to the Trustee,  or
         exercising any trust or power  conferred  upon the Trustee,  under this
         Indenture; and

                  (4) no provision of this  Indenture  shall require the Trustee
         to  expend  or risk its own  funds or  otherwise  incur  any  financial
         liability in the performance of any of its duties hereunder,  or in the
         exercise  of any of its rights or powers,  if it shall have  reasonable
         grounds  for  believing  that  repayment  of  such  funds  or  adequate
         indemnity  against such risk or liability is not reasonably  assured to
         it.

                  (d)  Whether  or  not  herein  expressly  so  provided,  every
provision of this  Indenture  relating to the conduct or affecting the liability
of or affording  protection to the Trustee shall be subject to the provisions of
this Section.

                  SECTION 1.002.  Notice of Defaults.

                  In   addition   to  its   obligation   to   give   notice   to
Securityholders  as provided in Section 3.03, as promptly as practicable  after,
and in any event within 90 days after, the occurrence of any default  hereunder,
the Trustee shall  transmit by mail to all  Securityholders,  as their names and
addresses  appear in the Security  Register,  notice of such  default  hereunder
known to the  Trustee,  unless  such  default  shall  have been cured or waived;
provided,  however,  that, except in the case of a default in the payment of the
principal of (or premium,  if any) or interest on any Security or in the payment
of any Sinking Fund  installment,  the Trustee shall be protected in withholding
such notice if and so long as the board of directors, the executive committee or
a trust  committee of directors  and/or  Responsible  Officers of the Trustee in
good faith  determine that the withholding of such notice is in the interests of
the Securityholders;  and provided,  further, that in the case of any default of
the  character  specified in Section  8.01(4) no such notice to  Securityholders
shall be given  until at least 30 days  after the  occurrence  thereof.  For the
purpose of this Section,  the term "default"  means any event which is, or after
notice or lapse of time or both would become, an Event of Default.

                  SECTION 1.003.  Certain Rights of Trustee.

                  Except as otherwise provided in Section 9.01:

                  (a) the Trustee may rely and shall be  protected  in acting or
refraining from acting in reliance upon any resolution,  certificate, statement,
instrument,  opinion, report, notice, request, direction,  consent, order, bond,
debenture  or other paper or  document  believed by it to be genuine and to have
been signed or presented by the proper party or parties;

                  (b) any request or direction  of PNM or the Company  mentioned
herein shall be sufficiently evidenced  by a PNM or  Company  Request  or Order,

#30122041.1
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<PAGE>



in the case of a request or direction  of PNM,  the Company,  as the case may be
and any  resolution  of the  Board of  Directors  of PNM or the  Company  may be
sufficiently  evidenced by a Board Resolution of PNM or the Company, as the case
may be;

                  (c)  whenever  in the  administration  of this  Indenture  the
Trustee shall deem it desirable that a matter be proved or established  prior to
taking,  suffering or omitting any action  hereunder,  the Trustee (unless other
evidence be herein specifically  prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate of PNM or the Company;

                  (d) the  Trustee may  consult  with  counsel and the advice of
such counsel or any Opinion of Counsel shall be full and complete  authorization
and  protection  in  respect  of any  action  taken,  suffered  or omitted by it
hereunder in good faith and in reliance thereon;

                  (e) the Trustee  shall be under no  obligation to exercise any
of the  rights  or powers  vested  in it by this  Indenture  at the  request  or
direction of any of the Securityholders pursuant to this Indenture,  unless such
Securityholders  shall  have  offered  to the  Trustee  reasonable  security  or
indemnity against the costs, expenses and liabilities which might be incurred by
it in compliance with such request or direction;

                  (f) the Trustee  shall not be bound to make any  investigation
into the facts or  matters  stated in any  resolution,  certificate,  statement,
instrument,  opinion, report, notice, request, direction,  consent, order, bond,
debenture or other paper or document,  but the Trustee,  in its discretion,  may
make such further inquiry or investigation  into such facts or matters as it may
see fit,  and, if the Trustee  shall  determine to make such further  inquiry or
investigation,  it shall be entitled to examine the books,  records and premises
of PNM or the Company, personally or by agent or attorney; and

                  (g) the  Trustee  may  execute  any of the  trusts  or  powers
hereunder  or perform  any duties  hereunder  either  directly  or by or through
agents or attorneys and the Trustee shall not be responsible  for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder.

                  SECTION  1.004.  Not  Responsible  for Recitals or Issuance of
Securities.
                  The recitals  contained  herein and in the Securities,  except
the certificates of authentication,  shall not be taken as the statements of the
Trustee,  and the Trustee assumes no responsibility for their  correctness.  The
Trustee  makes no  representations  as to the  validity or  sufficiency  of this
Indenture,  the  Pledged  Property  or the  Securities,  except that the Trustee
hereby  represents  and  warrants  that this  Indenture  has been  executed  and
delivered by one of its officers who is duly  authorized  to execute and deliver
such document on its behalf. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.

                  SECTION 1.005.  May Hold Securities.

                  The Trustee, any Paying Agent, Security Registrar or any other
agent of PNM or the Company, in its individual or any other capacity, may become
the owner or pledgee of Securities  and,  subject to Sections 9.08 and 9.13, may
otherwise deal with PNM and the Company with the same rights it would have if it
were not Trustee, Paying Agent, Security Registrar or such other agent.

                  SECTION  1.006.  Funds May Be Held by Trustee or Paying Agent;
Investments.
                  (a) Subject to Subsection (b) of this Section 9.06, any monies
held by the  Trustee  or the  Paying  Agent  hereunder  as  part of the  Pledged
Property  may,  until  paid out by the  Trustee  or the  Paying  Agent as herein
provided,  be carried by the Trustee or the Paying Agent on deposit with itself,
and  neither  the Trustee  nor the Paying  Agent  shall have any  liability  for
interest upon any such monies.



#30122041.1
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<PAGE>

                  [(b) At any time and from  time to time  prior to  payment  in
full of any  amounts to be paid by the Trustee  pursuant  to Section  2.15(b) in
respect of any series of  Securities  (or prior to payment in full of any amount
required  to be paid by the  Trustee  in respect  of such  series of  Securities
pursuant to Section  6.07),  if at the time no Event of Default has occurred and
is continuing,  the Trustee shall,  on Company  Request,  invest and reinvest in
Permitted  Investments as specified in such Company  Request any monies from the
sale of the Securities of such series at the time on deposit with the Trustee as
part of the  Pledged  Property,  together  with any  income  and gains  from the
investment and  reinvestment  thereof,  and sell any Permitted  Investments,  in
either case, at such prices,  including  accrued  interest,  as are set forth in
such  Company  Request,  and  such  Permitted  Investments  shall be held by the
Trustee  until so sold in trust as part of the  Pledged  Property.  The  Trustee
shall, on Company Request,  sell such Permitted  Investments as may be specified
therein, and the Trustee shall, without Company Request, in the event monies are
required  for  payment of any  amounts  to be paid by the  Trustee  pursuant  to
Section  2.15(b)  in  respect  of any  series of  Securities  and for any Stated
Maturity of any installment of interest on any series of Securities becoming due
and payable prior to the thirtieth day following the Termination Date applicable
to such series,  sell such  Permitted  Investments as are required to restore to
cash as part of the  Pledged  Property  such  amounts as are needed for any such
payment.  The Trustee shall not be responsible for any losses on any investments
or sales of Permitted  Investments  made pursuant to the procedure  specified in
this subsection (b).]5

                  SECTION 1.007.  Compensation and Reimbursement.

                  The Company agrees

                  (1) to pay,  or cause to be paid,  to each of the  Trustee and
         any Authorized Agent from time to time reasonable  compensation for all
         services  rendered by it  hereunder  (which  compensation  shall not be
         limited  by any  provision  of law in regard to the  compensation  of a
         trustee of an express trust);

                  (2) to  reimburse,  or  cause  to be  reimbursed,  each of the
         Trustee and any  Authorized  Agent upon its  request for all  expenses,
         disbursements  and advances  incurred or made by it in accordance  with
         any provision of this  Indenture  (including the  compensation  and the
         expenses and disbursements of its agents and counsel),  except any such
         expense,  disbursement  or  advance as may be  attributable  to its own
         negligence, willful misconduct or bad faith; and

                  (3) to  indemnify,  or  cause to be  indemnified,  each of the
         Trustee,  any predecessor  Trustee and any Authorized Agent for, and to
         hold it  harmless  against,  any loss,  liability  or expense  incurred
         without  negligence,  willful  misconduct  or bad  faith  on its  part,
         arising out of or in connection  with the acceptance or  administration
         of this trust or the performance of its duties hereunder, including the
         costs and expenses of defending  itself  against any claim or liability
         in connection  with the exercise or performance of any of its powers or
         duties hereunder.

                  As security  for the  performance  of the  obligations  of the
Company under this Section the Trustee shall have a lien prior to the Securities
upon all property  and funds held or  collected  by the Trustee as such,  except
funds held in trust for the payment of  principal  of (and  premium,  if any) or
interest on particular Securities


                  SECTION 1.008.  Disqualification; Conflicting Interests.

                  (a) If  the  Trustee  has or  shall  acquire  any  conflicting
interest,   as  defined  in  this  Section,  it  shall,  within  90  days  after
ascertaining  that it has  such  conflicting  interest,  either  eliminate  such
conflicting  interest  or resign in the manner  and with the effect  hereinafter
specified in this Article.
--------
     5 This  paragraph was replaced in its entirety  pursuant to Section 3.01 of
the 1986B Bond Supplemental Indenture. See p. 9 of Exhibit C for the replacement
text.

#30122041.1
                                       39

<PAGE>

                  (b) In the event that the  Trustee  shall fail to comply  with
the provisions of Subsection  (a) of this Section the Trustee  shall,  within 10
days  after  the  expiration  of such  90-day  period,  transmit  by mail to all
Securityholders,  as their names and addresses appear in the Security  Register,
notice of such failure.

                  (c) For the  purposes of this  Section,  the Trustee  shall be
deemed to have a conflicting interest if

                  (1) the Trustee is trustee under another Indenture under which
         any other  securities,  or certificates of interest or participation in
         any other securities, of any obligor on the Securities are outstanding,
         unless (A) the Securities  are  collateral  trust bonds under which the
         only  Collateral   consists  of  securities  issued  under  such  other
         indenture,  or (B) such other indenture is a collateral trust indenture
         under which the only  collateral  consists of  Securities  issued under
         this  Indenture,  provided  that  there  shall  be  excluded  from  the
         operation of this  paragraph any  indenture or  indentures  under which
         other securities, or certificates of interest or participation in other
         securities, of such obligor are outstanding, if such obligor shall have
         sustained the burden of proving,  on  application to the Commission and
         after  opportunity for hearing  thereon,  that  trusteeship  under this
         Indenture  and such other  indenture or  indentures is not so likely to
         involve a material  conflict of interest as to make it necessary in the
         public  interest or for the  protection of investors to disqualify  the
         Trustee from acting as such under one of such indentures;

                  (2) the Trustee or any of its directors or executive  officers
         is an obligor upon the Securities or an underwriter for such obligor;

                  (3) the Trustee directly or indirectly controls or is directly
         or  indirectly  controlled  by or is under  direct or  indirect  common
         control with any obligor on the Securities or an  underwriter  for such
         obligor;

                  (4) the Trustee or any of its directors or executive  officers
         is a director, officer, partner, employee,  appointee or representative
         of any obligor on the Securities,  or of an underwriter (other than the
         Trustee  itself)  for such  obligor  who is  currently  engaged  in the
         business  of  underwriting,  except  that (i) one  individual  may be a
         director  or an  executive  officer,  or  both,  of the  Trustee  and a
         director  or an  executive  officer,  or  both,  of an  obligor  on the
         Securities but may not be at the same time an executive officer of both
         the  Trustee  and such  obligor;  (ii) if and so long as the  number of
         directors  of the Trustee in office is more than nine,  one  additional
         individual  may be director or an executive  officer,  or both,  of the
         Trustee and a director of an obligor on the  Securities;  and (iii) the
         Trustee may be  designated  by an obligor on the  Securities  or by any
         underwriter  for such obligor to act in the capacity of transfer agent,
         registrar,  custodian,  paying agent,  fiscal agent,  escrow agent,  or
         depositary,  or in any  other  similar  capacity,  or,  subject  to the
         provisions  of  paragraph  (1) of this  Subsection,  to act as trustee,
         whether under an indenture or otherwise;

                  (5) 10% or more of the  voting  securities  of the  Trustee is
         beneficially  owned  either  by any  director,  partner,  or  executive
         officer  thereof,   or  20%  or  more  of  such  voting  securities  is
         beneficially owned,  collectively,  by any two or more of such persons;
         or 10% or more of the voting  securities of the Trustee is beneficially
         owned either by an underwriter  for any obligor on the Securities or by
         any director,  partner or executive officer thereof, or is beneficially
         owned collectively by any two or more such persons;

                  (6) the  Trustee  is the  beneficial  owner  of,  or  holds as
         collateral   security  for  an  obligation  which  is  in  default  (as
         hereinafter in this Subsection  defined),  (i) 5% or more of the voting
         securities,  or 10% or more of any  other  class  of  security,  of any
         obligor on the  Securities  not including the  Securities  issued under
         this Indenture and securities  issued under any other  indenture  under
         which the Trustee is also trustee,  or (ii) 10% or more of any class of
         security of an underwriter for any obligor on the Securities;

#30122041.1
                                       40

<PAGE>

                  (7) the  Trustee  is the  beneficial  owner  of,  or  holds as
         collateral   security  for  an  obligation  which  is  in  default  (as
         hereinafter  in this  Subsection  defined),  5% or  more of the  voting
         securities of any person who, to the knowledge of the Trustee, owns 10%
         or more of the voting securities of, or controls directly or indirectly
         or is under direct or indirect  common control with, any obligor on the
         Securities;

                  (8)  the  Trustee  is  the  beneficial   owner  of,  or  holds
         collateral   security  for  an  obligation  which  is  in  default  (as
         hereinafter in this  Subsection  defined),  10% or more of any class of
         security of any person who, to the  knowledge of the Trustee,  owns 50%
         or more of the voting securities of any obligor on the Securities; or

                  (9) the Trustee owns,  on May 15 in any calendar  year, in the
         capacity  of  executor,  administrator,  testamentary  or  inter  vivos
         trustee,  guardian,  committee or conservator,  or in any other similar
         capacity,  an aggregate of 25% or more of the voting securities,  or of
         any class of security,  of any person,  the  beneficial  ownership of a
         specified  percentage  of which would have  constituted  a  conflicting
         interest under paragraphs (6), (7) or (8) of this Subsection. As to any
         such  securities  of  which  the  Trustee  acquired  ownership  through
         becoming executor,  administrator, or testamentary trustee of an estate
         which included them, the provisions of the preceding sentence shall not
         apply,  for a period of two years from the date of such  acquisition to
         the extent that such  securities  included in such estate do not exceed
         25% of such  voting  securities  or 25% of any such class of  security.
         Promptly  after May 15 in each calendar  year, the Trustee shall make a
         check of its holdings of such  securities in any of the above mentioned
         capacities as of such May 15. If any obligor upon the Securities  fails
         to make payment in full of the principal of, or the premium, if any, or
         interest on, any of the Securities when and as the same becomes due and
         payable, and such failure continues for 30 days thereafter, the Trustee
         shall make a prompt check of its holdings of such  securities in any of
         the above mentioned capacities as of the date of the expiration of such
         30 day  period,  and after such  date,  notwithstanding  the  foregoing
         provisions  of  this  paragraph,  all  such  securities  so held by the
         Trustee,  with sole or joint control over such securities vested in it,
         shall,  but only so long as such failure shall continue,  be considered
         as  though  beneficially  owned  by the  Trustee  for the  purposes  of
         paragraphs (6), (7) and (8) of this Subsection.

                  The  specification  of  percentages  in paragraphs  (5) to (9)
inclusive,  of this  Subsection,  shall not be construed as indicating  that the
ownership  of  such  percentages  of the  securities  of a  person  is or is not
necessary  or  sufficient  to  constitute  direct or  indirect  control  for the
purposes of paragraph (3) or (7) of this Subsection.

                  For the purposes of  paragraphs  (6), (7), (8) and (9) of this
Subsection only, (i) the terms  "security" and  "securities"  shall include only
such  securities as are generally known as corporate  securities,  but shall not
include  any note or other  evidence  of  indebtedness  issued  to  evidence  an
obligation  to repay  moneys  loaned  to a person  by one or more  banks,  trust
companies or banking firms, or any certificate of interest or  participation  in
any such note or evidence or indebtedness; (ii) an obligation shall be deemed to
be "in default" when a default in payment of principal  shall have continued for
30 days or more and shall not have been cured;  and (iii) the Trustee  shall not
be  deemed  to be the  owner or  holder  of (A) any  security  which it holds as
collateral security, as trustee or otherwise,  for an obligation which is not in
default as defined in clause (ii) above,  or (B) any security  which it holds as
collateral security under this Indenture, irrespective of any default hereunder,
or (C) any security  which it holds as agent for  collection,  or as  custodian,
escrow agent, or depositary, or in any similar representative capacity.

                  Except as provided in the next preceding  paragraph,  the word
"security" or "securities" as used in this Indenture shall mean any note, stock,
treasury  stock,  bond,  debenture,  evidence of  indebtedness,  certificate  of
interest or  participation  in any profit sharing  agreement,  collateral  trust
certificate,  preorganization  certificate or subscription,  transferable share,
investment  contract,  voting trust  certificate,  certificate  of deposit for a
security,  fractional  undivided  interest in oil, gas, or other mineral rights,
or, in general,  any interest or instrument  commonly known as a "security",  or
any  certificate  of  interest  or   participation   in,  temporary  or  interim
certificate for,  receipt for,  guarantee of, or warrantor right to subscribe to
purchase, any of the foregoing.

#30122041.1
                                       41

<PAGE>
                  (d)      For the purposes of this Section:

                  (1) The term  "underwriter"  when used with  reference  to any
         obligor on the  Securities  means every person who,  within three years
         prior to the time as of which the  determination is made, has purchased
         from  such  obligor  with a view to,  or has  offered  or sold for such
         obligor in connection  with, the  distribution  of any security of such
         obligor  outstanding  at such time,  or has  participated  or has had a
         direct  or  indirect  participation  in any  such  undertaking,  or has
         participated  or has had a  participation  in the  direct  or  indirect
         underwriting of any such undertaking, but such term shall not include a
         person whose  interest was limited to a commission  from an underwriter
         or dealer  not in excess of the usual and  customary  distributors'  or
         sellers' commission.

                  (2) The term  "director"  means any director of a corporation,
         or any  individual  performing  similar  functions  with respect to any
         organization whether incorporated or incorporated.

                  (3) The term "person"  means an individual,  a corporation,  a
         partnership,  an  association,  a  joint-stock  company,  a  trust,  an
         unincorporated  organization,  or a government or political subdivision
         thereof. As used in this paragraph, the term "trust" shall include only
         a  trust  where  the  interest  or  interests  of  the  beneficiary  or
         beneficiaries are evidenced by a security.

                  (4) The term "voting  security"  means any security  presently
         entitling  the  owner or holder  thereof  to vote in the  direction  or
         management of the affairs of a person,  or any security issued under or
         pursuant to any trust,  agreement or  arrangement  whereby a trustee or
         trustees  or agent or agents  for the owner or holder of such  security
         are  presently  entitled to vote in the  direction or management of the
         affairs of a person.

                  (5) The term  "obligor"  means any obligor upon the Securities
         within the meaning of TIA.

                  (6) The term  "executive  officer" means the president,  every
         vice president,  every trust officer, the cashier,  the secretary,  and
         the  treasurer  of  a  corporation,   and  any  individual  customarily
         performing  similar functions with respect to any organization  whether
         incorporated or  unincorporated,  but shall not include the chairman of
         the board of directors.

                  (e)  The  percentages  of  the  voting  securities  and  other
         securities  specified in this Section shall be calculated in accordance
         with the following provisions:

                  (1) A specified  percentage  of the voting  securities  of the
         Trustee,  any obligor or any other  person  referred to in this Section
         (each of whom is  referred to as a "person"  in this  paragraph)  means
         such  amount of the  outstanding  voting  securities  of such person as
         entitles  the  holder  or  holders   thereof  to  cast  such  specified
         percentage  of the  aggregate  votes  which  the  holders  of  all  the
         outstanding  voting  securities  of such person are entitled to cast in
         the direction or management of the affairs of such person.

                  (2) A  specified  percentage  of a class  of  securities  of a
         person means such  percentage of the aggregate  amount of securities of
         the class outstanding.

                  (3) The term  "amount",  when used in  regard  to  securities,
         means the  principal  amount if relating to evidences of  indebtedness,
         the number of shares if  relating  to capital  shares and the number of
         units if relating to any other kind of Security.


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<PAGE>

                  (4) The term "outstanding" means issued and not held by or for
         the account of the issuer. The following securities shall not be deemed
         outstanding within the meaning of this definition:

                           (i)  securities  of an issuer held in a sinking  fund
                  relating to securities of the issuer of the same class;

                           (ii)  securities  of an issuer held in a sinking fund
                  relating to another class of securities of the issuer,  if the
                  obligation  evidenced by such other class of securities is not
                  in default as to principal or interest or otherwise;

                           (iii)  securities  pledged by the  issuer  thereof as
                  security for an  obligation of the issuer not in default as to
                  principal or interest or otherwise; and

                           (iv) securities held in escrow if placed in escrow by
                  the issuer thereof;

provided,  however,  that any  voting  securities  of an issuer  shall be deemed
outstanding  if any person  other than the issuer is entitled  to  exercise  the
voting rights thereof.

                  (5) A  security  shall be  deemed  to be of the same  class as
         another  security if both securities  confer upon the holder or holders
         substantially the same rights and privileges;  provided,  however, that
         in the case of  secured  evidences  of  indebtedness,  all of which are
         issued under a single  indenture,  differences in the interest rates or
         maturity dates of various series thereof shall not be deemed sufficient
         to constitute such series  different  classes;  and provided,  further,
         that, in the case of unsecured  evidences of indebtedness,  differences
         in the interest  rates or maturity  dates  thereof  shall not be deemed
         sufficient to constitute them securities of different classes,  whether
         or not they are issued under a single indenture.

                  SECTION 1.009.  Corporate Trustee Required; Eligibility.

                  There shall at all times be a Trustee hereunder which shall be
a corporation  organized and doing  business under the laws of the United States
of America or of any State,  authorized  under such laws to  exercise  corporate
trust powers, having a combined capital and surplus of at least $50,000,000, and
subject to supervision or  examination  by Federal or State  authority.  If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid  supervising or examining  authority,  then
for the  purposes  of this  Section,  the  combined  capital and surplus of such
corporation  shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published.  If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.

                  SECTION  1.10.   Resignation   and  Removal;   Appointment  of
Successor.

                  (a)  No   resignation   or  removal  of  the  Trustee  and  no
appointment  of a  successor  Trustee  pursuant  to this  Article  shall  become
effective  until the acceptance of  appointment  by the successor  Trustee under
Section 9.11.

                  (b) The  Trustee  may  resign  at any time by  giving  written
notice  thereof to PNM and the Company.  If an  instrument  of  acceptance  by a
successor  Trustee  shall not have been  delivered  to PNM,  the Company and the
Trustee  within 30 days  after the  giving of such  notice of  resignation,  the
resigning  Trustee may  petition  any court of  competent  jurisdiction  for the
appointment of a successor Trustee.

                  (c)  The  Trustee  may be  removed  at any  time by Act of the
Holders  of a  majority  in  principal  amount  of the  Outstanding  Securities,
delivered to the Trustee, PNM and to the Company.

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<PAGE>

                  (d)  If at any time:

                           (i) the  Trustee  shall fail to comply  with  Section
                  9.08(a) after written request therefor by any Lessor or by any
                  Securityholder  who has been a bona fide  Holder of a Security
                  for at least 6 months, or

                           (ii) the Trustee  shall  cease to be  eligible  under
                  Section  9.09 and shall fail to resign after  written  request
                  therefor by any Lessor or by any such Securityholder, or

                           (iii) the Trustee shall become incapable of acting or
                  shall be adjudged a bankrupt or insolvent or a receiver of the
                  Trustee or of its  property  shall be  appointed or any public
                  officer  shall take charge or control of the Trustee or of its
                  property  or  affairs  for  the  purpose  of   rehabilitation,
                  conservation or liquidation,

then, in any such case, (i) PNM, acting after consultation with the Company, may
remove the Trustee by Board  Resolution  or (ii)  subject to Section  8.10,  any
Securityholder  who has been a bona  fide  Holder of a  Security  for at least 6
months may, on behalf of himself and all others similarly situated, petition any
court  of  competent  jurisdiction  for  the  removal  of the  Trustee  and  the
appointment of a successor Trustee.

                  (e)  If  the  Trustee  shall  resign,  be  removed  or  become
incapable  of acting,  or if a vacancy  shall occur in the office of Trustee for
any cause,  PNM,  acting after  consultation  with the Company,  shall  promptly
appoint by Board  Resolution a successor  Trustee.  If, within 1 year after such
resignation,  removal or  incapability,  or the  occurrence of such  vacancy,  a
successor  Trustee  shall be  appointed  by Act of the  Holders of a majority in
principal amount of the Outstanding Securities delivered to PNM, the Company and
the retiring Trustee,  the successor Trustee so appointed shall,  forthwith upon
its acceptance of such  appointment,  become the successor Trustee and supersede
the successor  Trustee appointed by PNM. If no successor Trustee shall have been
so  appointed  by PNM,  acting after  consultation  with the Company,  or by the
Securityholders,  and accepted  appointment in the manner hereinafter  provided,
any  Securityholder who has been a bona fide Holder of a Security for at least 6
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor Trustee.

                  (f) The Company shall give notice of each resignation and each
removal of the Trustee and each  appointment  of a successor  Trustee by mailing
written  notice of such  event by  first-class  mail,  postage  prepaid,  to the
Holders  of  Securities  as their  names and  addresses  appear in the  Security
Register.  Each notice shall include the name of the  successor  Trustee and the
address of its Corporate Trust Office.

                  SECTION 1.11.  Acceptance of Appointment by Successor.

                  Every  successor  Trustee  appointed  hereunder shall execute,
acknowledge  and  deliver to PNM,  the Company  and to the  retiring  Trustee an
instrument accepting such appointment,  and thereupon the resignation or removal
of the retiring  Trustee  shall become  effective  and such  successor  Trustee,
without any further act,  deed or  conveyance,  shall become vested with all the
rights,  powers,  trusts and duties of the retiring Trustee;  but, on request of
any Lessor, the Company or the successor  Trustee,  such retiring Trustee shall,
upon payment of its charges,  execute and deliver an instrument  transferring to
such  successor  Trustee  all the  rights,  powers  and  trusts of the  retiring
Trustee,  and shall duly assign,  transfer and deliver to such successor Trustee
all  property  and  money  held  by such  retiring  Trustee  hereunder,  subject
nevertheless to its lien, if any,  provided for in Section 9.07. Upon request of
any such  successor  Trustee,  PNM and the  Company  shall  execute  any and all
instruments  for more  fully and  certainly  vesting in and  confirming  to such
successor Trustee all such rights, powers and trusts.

                  No successor  Trustee shall accept its  appointment  unless at
the time of such  acceptance  such  successor  Trustee  shall be  qualified  and
eligible under this Article.


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<PAGE>

                  SECTION 1.12. Merger, Conversion,  Consolidation or Succession
to Business.

                  Any  corporation  into  which  the  Trustee  may be  merged or
converted or with which it may be  consolidated,  or any  corporation  resulting
from any merger,  conversion  or  consolidation  to which the Trustee shall be a
party,  or  any  corporation  succeeding  to  all  or  substantially  all of the
corporate  trust business of the Trustee,  shall be the successor of the Trustee
hereunder,  provided such corporation shall be otherwise  qualified and eligible
under this Article,  without the execution or filing of any paper or any further
act on the part of any of the parties hereto.  In case any Securities shall have
been  authenticated,  but not  delivered,  by the  Trustee  then in office,  any
successor by merger,  conversion or consolidation to such authenticating Trustee
may adopt such  authentication  and deliver the Securities so authenticated with
the same  effect as if such  successor  Trustee  had itself  authenticated  such
Securities.

                  SECTION 1.13.  Preferential  Collection of Claims  against any
Obligor.

                   [(a)  Subject  to  Subsection  (b) of  this  Section,  if the
Trustee shall be or shall become a creditor, directly or indirectly,  secured or
unsecured,  of any obligor on the  Securities  (as defined in Subsection  (c) of
this Section)  within 4 months prior to a default,  as defined in Subsection (c)
of this Section,  or subsequent to such a default,  then,  unless and until such
default  shall be  cured,  the  Trustee  shall  set  apart and hold in a special
account  for  the  benefit  of the  Trustee  individually,  the  Holders  of the
Securities  and the  holders  of  other  indenture  securities  (as  defined  in
Subsection (c) of this Section):

                           (i) an amount equal to any and all  reductions in the
                  amount  due and  owing  upon  any  claim as such  creditor  in
                  respect of principal or interest, effected after the beginning
                  of such 4 month period and valid as against any obligor on the
                  Securities and its other creditors,  except any such reduction
                  resulting  from the  receipt or  disposition  of any  property
                  described in paragraph  (ii) of this  Subsection,  or from the
                  exercise of any right of set-off  which the Trustee could have
                  exercised  if a petition  in  bankruptcy  had been filed by or
                  against any such obligor upon the date of such default; and

                           (ii) all property  received by the Trustee in respect
                  of any claim as such creditor, either as security therefor, or
                  in satisfaction or composition  thereof,  or otherwise,  after
                  the  beginning of such 4 month  period,  or an amount equal to
                  the proceeds of any such  property,  if disposed of,  subject,
                  however,  to  the  rights,  if  any,  of  any  obligor  on the
                  Securities  and its other  creditors in such  property or such
                  proceeds.

Nothing herein contained, however, shall affect the right of the Trustee

                           (A) to retain for its own account (i)  payments  made
                  on  account of any such  claim by any  Person  (other  than an
                  obligor on the Securities) who is liable thereon, and (ii) the
                  proceeds  of the  bona  fide  sale of any  such  claim  by the
                  Trustee to a third  person,  and (iii)  distributions  made in
                  cash,  securities or other property in respect of claims filed
                  against  such  obligor in  bankruptcy  or  receivership  or in
                  proceedings  for   reorganization   pursuant  to  the  Federal
                  Bankruptcy Act or applicable State law;

                           (B)  to  realize,  for  its  own  account,  upon  any
                  property  held by it as security  for any such claim,  if such
                  property  was so held prior to the  beginning  of such 4 month
                  period;

                           (C) to realize,  for its own account, but only to the
                  extent of the claim hereinafter  mentioned,  upon any property
                  held by it as security  for any such claim,  if such claim was
                  created  after the  beginning  of such 4 month period and such
                  property was received as security therefor simultaneously with
                  the creation thereof,

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<PAGE>

                  and if the Trustee shall sustain the burden of proving that at
                  the time such  property  was so  received  the  Trustee had no
                  reasonable  cause to  believe  that a default  as  defined  in
                  Subsection (c) of this Section would occur within 4 months; or

                           (D) to receive  payment on any claim  referred  to in
                  paragraph (B) or (C), against the release of any property held
                  as security  for such claim as provided  in  paragraph  (B) or
                  (C),  as the case may be, to the  extent of the fair  value of
                  such property.

For the purposes of paragraphs (B), (C) and (D), property  substituted after the
beginning of such 4 month  period for  property  held as security at the time of
such  substitution  shall,  to the  extent  of the fair  value  of the  property
released, have the same status as the property released, and, to the extent that
any claim  referred to in any of such  paragraphs is created in renewal of or in
substitution  for or for the purpose of repaying or refunding  any  pre-existing
claim of the Trustee as such creditor,  such claim shall have the same status as
such pre-existing claim.

                  If the Trustee  shall be  required  to account,  the funds and
property  held  in such  special  account  and the  proceeds  thereof  shall  be
apportioned  between the Trustee,  the  Securityholders and the holders of other
indenture  securities in such manner that the Trustee,  the  Securityholders and
the holders of other indenture  securities realize, as a result of payments from
such special  account and  payments of  dividends  on claims  filed  against the
obligor on the Securities in bankruptcy or  receivership  or in proceedings  for
reorganization  pursuant to the Federal  Bankruptcy Act or applicable State law,
the same percentage of their respective claims,  figured before crediting to the
claim of the Trustee  anything on account of the receipt by it from such obligor
of the funds and  property in such special  account and before  crediting to the
respective  claims of the  Trustee  and the  Securityholders  and the holders of
other  indenture  securities  dividends on claims filed  against such obligor in
bankruptcy or receivership or in proceedings for reorganization  pursuant to the
Federal  Bankruptcy  Act or applicable  State law, but after  crediting  thereon
receipts on account of the indebtedness  represented by their respective  claims
from all sources other than from such  dividends and from the funds and property
so held in such special account. As used in this paragraph,  with respect to any
claim, the term "dividends"  shall include any distribution with respect to such
claim, in bankruptcy or receivership or proceedings for reorganization  pursuant
to the Federal Bankruptcy Act or applicable State law, whether such distribution
is made in cash,  securities,  or other property, but shall not include any such
distribution  with respect to the secured  portion,  if any, of such claim.  The
court in which such bankruptcy,  receivership or proceedings for  reorganization
is pending shall have  jurisdiction (i) to apportion between the Trustee and the
Securityholders  and the holders of other  indenture  securities,  in accordance
with the  provisions  of this  paragraph,  the funds and  property  held in such
special account and proceeds thereof, or (ii) in lieu of such apportionment,  in
whole or in part, to give to the provisions of this paragraph due  consideration
in determining the fairness of the  distributions  to be made to the Trustee and
the Securityholders  and the holders of other indenture  securities with respect
to their  respective  claims,  in  which  event it  shall  not be  necessary  to
liquidate or to appraise the value of any  securities or other  property held in
such special  account or as security  for any such claim,  or to make a specific
allocation of such  distributions as between the secured and unsecured  portions
of such  claims,  or otherwise to apply the  provisions  of this  paragraph as a
mathematical formula.

                  Any  Trustee  which has  resigned  or been  removed  after the
beginning  of such 4 month  period  shall be subject to the  provisions  of this
Subsection  as though  such  resignation  or removal  had not  occurred.  If any
Trustee has  resigned or been  removed  prior to the  beginning  of such 4 month
period,  it shall be subject to the provisions of this Subsection if and only if
the following conditions exist:

                  (i) the receipt of property or reduction of claim, which would
         have  given rise to the  obligation  to  account  if such  Trustee  had
         continued  as Trustee,  occurred  after the  beginning  of such 4 month
         period; and

                  (ii) such receipt of property or  reduction of claim  occurred
         within 4 months after such resignation or removal.

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<PAGE>

                  (b) There shall be excluded  from the  operation of Subsection
         (a) of this Section a creditor relationship arising from

                  (1) the ownership or  acquisition  of securities  issued under
         any indenture,  or any security or securities  having a maturity of one
         year or more at the time of acquisition by the Trustee;

                  (2) advances  authorized by a receivership or bankruptcy court
         of competent  jurisdiction,  or by this  Indenture,  for the purpose of
         preserving  any property which shall at any time be subject to the lien
         of this Indenture or of  discharging  tax liens or other prior liens or
         encumbrances   thereon,   if  notice  of  such   advances  and  of  the
         circumstances   surrounding   the  making   thereof  is  given  to  the
         Securityholders  at the  time  and  in  the  manner  provided  in  this
         Indenture;

                  (3)  disbursements  made in the ordinary course of business in
         the capacity of trustee under an indenture,  transfer agent, registrar,
         custodian,  paying agent, fiscal agent or depositary,  or other similar
         capacity;

                  (4) an indebtedness  created as a result of services  rendered
         or premises rented; or an indebtedness  created as a result of goods or
         securities  sold in a cash  transaction as defined in Subsection (c) of
         this Section;

                  (5)  the  ownership  of  stock  or of  other  securities  of a
         corporation  organized  under the  provisions  of Section  25(a) of the
         Federal  Reserve  Act, as amended,  which is directly or  indirectly  a
         creditor of PNM; or

                  (6) the acquisition,  ownership,  acceptance or negotiation of
         any drafts,  bills of exchange,  acceptances or obligations  which fall
         within  the  classification  of  self-liquidating  paper as  defined in
         Subsection (c) of this Section.

                  (c)      For the purposes of this Section only:

                  (1) The term  "default"  means any failure to make  payment in
         full of the  principal of or interest on any of the  Securities or upon
         the other  indenture  securities when and as such principal or interest
         becomes due and payable.

                  (2) The term "other  indenture  securities"  means  securities
         upon which the Person obligated thereunder is an obligor (as defined in
         the Trust  Indenture  Act)  outstanding  under any other  indenture (i)
         under which the Trustee is also trustee, (ii) which contains provisions
         substantially  similar to the  provisions  of this  Section,  and (iii)
         under which a default  exists at the time of the  apportionment  of the
         funds and property held in a special  account as provided in Subsection
         (a) of this Section.

                  (3) The term "cash transaction" means any transaction in which
         full payment for goods or  securities  sold is made within 7 days after
         delivery of the goods or  securities  in currency or in checks or other
         orders drawn upon banks or bankers and payable upon demand.

                  (4) The term "self-liquidating paper" means any draft, bill of
         exchange,  acceptance or obligation which is made, drawn, negotiated or
         incurred by any obligor on the  Securities for the purpose of financing
         the purchase, processing,  manufacturing,  shipment, storage or sale of
         goods,   wares  or  merchandise  and  which  is  secured  by  documents
         evidencing title to, possession of or a lien upon, the goods,  wares or
         merchandise or the receivables or proceeds arising from the sale of the
         goods,  wares or  merchandise  previously  constituting  the  security,
         provided  the security is received by the Trustee  simultaneously  with
         the creation of the  creditor  relationship  with such obligor  arising
         from the making,  drawing,  negotiating or incurring of the draft, bill
         of exchange, acceptance or obligation.

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<PAGE>

                  (5) The term  "obligor"  means any obligor upon the Securities
         within the meaning of the TIA.

                  SECTION 1.14.  Maintenance of Agencies.

                  (a) There shall at all times be  maintained  in the Borough of
Manhattan,  the City of New York,  an office or agency where  Securities  may be
presented  or  surrendered  for  transfer or  exchange  or for the  registration
thereof,  and for payment of principal,  premium (if any) and interest and where
notices and demands to or upon the  Trustee in respect of the  Securities  or of
this  Indenture  may be served.  Such office or agency shall be initially at the
Corporate Trust Office of Chemical Bank.  Written notice of the location of each
such other office or agency and of any change of location thereof shall be given
to the  Company and to the  Trustee.  In the event that no such office or agency
shall be maintained or no such notice of location or of change of location shall
be given, presentations and demands may be made and notices may be served at the
Corporate Trust Office.

                  (b) There  shall at all times be a  Security  Registrar  and a
Paying  Agent  hereunder.  Each such  Authorized  Agent shall be a bank or trust
company,  shall be a corporation  organized and doing business under the laws of
the United States or any State thereof,  with a combined  capital and surplus of
at least  $50,000,000,  and shall be  authorized  under  such  laws to  exercise
corporate trust powers,  subject to supervision by Federal or State authorities.
Chemical  Bank is hereby  appointed  as  Paying  Agent  and  Security  Registrar
hereunder. Each Security Registrar (other than the Trustee) shall furnish to the
Trustee,  at stated intervals of not more than 6 months, and at such other times
as the Trustee may request in writing, a copy of the Security Register.

                  (c) Any Paying  Agent  (other than the  Trustee)  from time to
time appointed  hereunder shall execute and deliver to the Trustee an instrument
in which  said  Paying  Agent  shall  agree  with the  Trustee,  subject  to the
provisions of this Section, that such Paying Agent will

                  (1) hold all sums held by it for the payment of principal  of,
         and  premium  (if any) and  interest  on  Securities  in trust  for the
         benefit of the Persons  entitled  thereto until such sums shall be paid
         to such Persons or otherwise disposed of as herein provided;

                  (2) give the Trustee within five days thereafter notice of any
         default by any obligor  upon the  Securities  in the making of any such
         payment of principal, premium (if any) or interest; and

                  (3) at any time during the  continuance  of any such  default,
         upon the written  request of the Trustee,  forthwith pay to the Trustee
         all sums so held in trust by such Paying Agent.

Notwithstanding  any other provision of this Indenture,  any payment required to
be made to or received or held by the Trustee may, to the extent  authorized  by
written  instructions of the Trustee, be made to or received or held by a Paying
Agent in the Borough of Manhattan,  the City of New York, for the account of the
Trustee.

                  (d) Any  corporation  into which any  Authorized  Agent may be
merged or converted  or with which it may be  consolidated,  or any  corporation
resulting from any merger,  consolidation  or conversion to which any Authorized
Agent shall be a party,  or any  corporation  succeeding to the corporate  trust
business of any  Authorized  Agent,  shall be the  successor of such  Authorized
Agent hereunder,  if such successor corporation is otherwise eligible under this
Section,  without the execution or filing of any paper or any further act on the
part  of  the  parties  hereto  or  such  Authorized  Agent  or  such  successor
corporation.

                  (e) Any  Authorized  Agent  may at any time  resign  by giving
written notice of resignation to the Trustee,  PNM and the Company.  The Company
may,  and at the  request  of the  Trustee  or any  Lessor  shall,  at any time,
terminate  the  agency  of any  Authorized  Agent by  giving  written  notice of
termination to such Authorized Agent and to the Trustee. Upon the resignation or
termination of an Authorized  Agent or in case at any  time any  such Authorized

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<PAGE>

Agent shall cease to be eligible  under this Section  (when,  in either case, no
other  Authorized  Agent performing the functions of such Authorized Agent shall
have been  appointed),  the Company shall promptly appoint one or more qualified
successor  Authorized  Agents approved by the Trustee and each Lessor to perform
the  functions  of the  Authorized  Agent which has resigned or whose agency has
been terminated or who shall have ceased to be eligible under this Section.  The
Company  shall give  written  notice of any such  appointment  to all Holders as
their names and addresses appear on the Security Register.

                                   ARTICLE II.

              SECURITYHOLDERS' LISTS AND REPORTS BY TRUSTEE AND PNM

                  SECTION 1.001.  PNM to Furnish  Trustee Names and Addresses of
Securityholders.

                  PNM  will  furnish  or cause to be  furnished  to the  Trustee
semiannually,  between January 15 and January 30, inclusive, and between July 15
and July 30, inclusive, in each year, and at such other times as the Trustee may
request in writing,  within 30 days after receipt by PNM of any such request,  a
list,  in such form as the  Trustee  may  reasonably  require,  of the names and
addresses of the Holders of Securities,  in each case as of a date not more than
15 days prior to the time such list is  furnished;  provided,  however,  that so
long as the  Trustee  is the  sole  Security  Registrar,  no such  list  need be
furnished for so long as a copy of the Security  Register is being  furnished to
the Trustee pursuant to Section 9.14(b).

                  SECTION 1.002. Preservation of Information;  Communications to
Securityholders.

                  (a) The  Trustee  shall  preserve,  in as current a form as is
reasonably  practicable,  the names  and  addresses  of  Holders  of  Securities
contained  in the most  recent  list  furnished  to the  Trustee as  provided in
Section  9.14(b)  or  Section  10.01,  as the case  may be,  and the  names  and
addresses  of Holders of  Securities  received by the Trustee in its capacity as
Security Registrar,  if so acting. The Trustee may destroy any list furnished to
it as provided  in Section  9.14(b) or Section  10.01,  as the case may be, upon
receipt of a new list so furnished.

                  (b) If  three  or  more  Holders  of  Securities  (hereinafter
referred to as "applicants") apply in writing to the Trustee, and furnish to the
Trustee  reasonable  proof that each such  applicant  has owned a Security for a
period of at least six months preceding the date of such  application,  and such
application  states that the applicants desire to communicate with other Holders
of  Securities  with respect to their  rights under this  Indenture or under the
Securities  and is  accompanied  by a  copy  of  the  form  of  proxy  or  other
communication which such applicants propose to transmit, then the Trustee shall,
within 5 Business Days after the receipt of such  application,  at its election,
either:

                           (i) afford such applicants  access to the information
                  preserved  at the  time  by the  Trustee  in  accordance  with
                  Section 10.02(a), or

                           (ii) inform  such  applicants  as to the  approximate
                  number of  Holders of  Securities  whose  names and  addresses
                  appear in the information preserved at the time by the Trustee
                  in accordance with Section 10.02(a), and as to the approximate
                  cost of mailing to such  Securityholders  the form of proxy or
                  other communication, if any, specified in such application.

                  If the Trustee shall elect to afford such applicants access to
such  information,   the  Trustee  shall,  upon  the  written  request  of  such
applicants,  mail to each  Securityholder  whose name and address  appear in the
information  preserved  at the time by the Trustee in  accordance  with  Section
10.02(a),  a copy of the form of proxy or other communication which is specified
in such request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of  payment,  or  provision  for the  payment,  of the
reasonable  expenses of mailing,  unless within five days after such tender, the
Trustee shall mail to such  applicants  and file with the  Commission,  together
with a copy of the  material  to be mailed,  a written  statement  to the effect
that, in the opinion of the Trustee,  such mailing would be contrary to the best
interests of the Holders of  Securities  or would be in violation of  applicable
law. Such written statement shall specify the basis of such opinions.

#30122041.1
                                       49

<PAGE>


If the Commission, after opportunity for a hearing upon the objections specified
in the written statement so filed,  shall enter an order refusing to sustain any
of such objections or if, after the entry of an order  sustaining one or more of
such  objections,  the Commission  shall find,  after notice and opportunity for
hearing,  that all the  objections so sustained have been met and shall enter an
order so  declaring,  the Trustee shall mail copies of such material to all such
Securityholders with reasonable promptness after the entry of such order and the
renewal  of  such  tender;  otherwise  the  Trustee  shall  be  relieved  of any
obligation or duty to such applicants respecting their application.

                  (c) Every Holder of  Securities,  by receiving and holding the
same,  agrees with PNM and the Trustee that neither PNM nor the Trustee shall be
held  accountable by reason of the disclosure of any such  information as to the
names and  addresses of the Holders of  Securities  in  accordance  with Section
10.02(b),  regardless of the source from which such information was derived, and
that the Trustee shall not be held accountable by reason of mailing any material
pursuant to a request made under Section 10.02(b).

                  SECTION 1.003.  Reports by Trustee.

                  (a)  Within 60 days after May 15 in each year, commencing with
1986, the Trustee shall transmit by mail to all Securityholders,  as their names
and addresses appear in the Security  Register,  a brief report dated as of such
May 15 with respect to:

                  (1) it eligibility  under Section 9.09 and its  qualifications
         under Section 9.08, or in lieu thereof, if to the best of its knowledge
         it has continued to be eligible and qualified  under said  Sections,  a
         written statement to such effect;

                  (2) the  character  and  amount  of any  advances  (and if the
         Trustee elects so to state,  the  circumstances  surrounding the making
         thereof)  made by the Trustee (as such) which remain unpaid on the date
         of such  report,  and for the  reimbursement  of which it claims or may
         claim a lien  or  charge,  prior  to  that  of the  Securities,  on any
         property or funds held or collected  by it as Trustee,  except that the
         Trustee  shall not be required  (but may elect) to report such advances
         if such advances so remaining  unpaid aggregate not more than 1/2 of 1%
         of the principal  amount of the  Securities  Outstanding on the date of
         such report;

                  (3) the amount,  interest  rate and maturity date of all other
         indebtedness  owing by an obligor on the Securities  within the meaning
         of the TIA to the Trustee in its  individual  capacity,  on the date of
         such  report,  with  a  brief  description  of  any  property  held  as
         collateral  security  therefor,  except an  indebtedness  based  upon a
         creditor  relationship  arising  in any  manner  described  in  Section
         9.13(b)(2), (3), (4) or (6);

                  (4)  the  property  and  funds,  if  any,  physically  in  the
         possession of the Trustee as such on the date of such report;

                  (5) any  release,  or release  and  substitution,  of property
         subject to the lien of this Indenture (and the consideration  therefor,
         if any) which the Trustee has not previously reported;

                  (6) any additional  issue of Securities  which the Trustee has
         not previously reported; and

                  (7) any action taken by the Trustee in the  performance of its
         duties hereunder which it has not previously  reported and which in its
         opinion materially affects the Securities,  except action in respect of
         a default, notice of which has been or is to be withheld by the Trustee
         in accordance with Section 9.02.

                  (b) The Trustee shall transmit by mail to all Securityholders,
as their names and  addresses  appear in the Security  Register,  a brief report
with respect to:


#30122041.1
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<PAGE>
                  (1) the  release,  or release  and  substitution,  of property
         subject to the Lien of this Indenture (and the consideration  therefor,
         if any), such report to be transmitted within 90 days of such time; and

                  (2) the  character  and  amount  of any  advances  (and if the
         Trustee elects so to state,  the  circumstances  surrounding the making
         thereof)  made by the  Trustee  (as  such)  since  the date of the last
         report transmitted pursuant to Subsection (a) of this Section (or if no
         such report has yet been so transmitted, since the date of execution of
         this instrument) for the  reimbursement of which it claims or may claim
         a lien or charge, prior to that of the Securities, on property or funds
         held or  collected  by it as Trustee,  and which it has not  previously
         reported pursuant to this Subsection, except that the Trustee shall not
         be required  (but may elect) to report such  advances if such  advances
         remaining  unpaid at any time  aggregate  10% or less of the  principal
         amount of the Securities  Outstanding  at such time,  such report to be
         transmitted within 90 days after such time.

                  (c) A copy of each  such  report  shall,  at the  time of such
transmission  to  Securityholders,  be  filed by the  Trustee  with  each  stock
exchange upon which the Securities are listed, and also with the Commission. PNM
will notify the Trustee when the Securities are listed on any stock exchange.

                  SECTION 1.004.  Reports by PNM.

                  PNM will

                  (1)  file  with  the  Trustee,  within  15 days  after  PNM is
         required  to file the same with the  Commission,  copies of the  annual
         reports and of the information,  documents and other reports (or copies
         of such  portions of any of the  foregoing as the  Commission  may from
         time to time by  rules  and  regulations  prescribe)  which  PNM may be
         required to file with the Commission  pursuant to Section 13 or Section
         15(d)  of the  Securities  Exchange  Act  of  1934:  or,  if PNM is not
         required to file  information,  documents or reports pursuant to either
         of  said  Sections,  then  it  will  file  with  the  Trustee  and  the
         Commission,  in accordance with rules and  regulations  prescribed from
         time to time by the Commission,  such of the supplementary and periodic
         information,  documents and reports  which may be required  pursuant to
         Section  13 of the  Securities  Exchange  Act of 1934 in  respect  of a
         security listed and registered on a national securities exchange as may
         be prescribed from time to time in such rules and regulations;

                  (2) file with the Trustee and the  Commission,  in  accordance
         with  rules  and  regulations  prescribed  from  time  to  time  by the
         Commission,  such  additional  information,  documents and reports with
         respect to compliance by PNM with the  conditions and covenants of this
         Indenture  as may be  required  from  time to time  by such  rules  and
         regulations; and

                  (3)  transmit by mail to all  Securityholders,  as their names
         and addresses appear in the Security Register, within 30 days after the
         filing  thereof with the Trustee,  such  summaries of any  information,
         documents  and  reports  required  to  be  filed  by  PNM  pursuant  to
         paragraphs  (1) and (2) of this Section as may be required by rules and
         regulations prescribed from time to time by the Commission.

#30122041.1
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<PAGE>

                                   ARTICLE I.

                             SUPPLEMENTAL INDENTURES

                  SECTION  1.011.  Supplemental  Indentures  Without  Consent of
Securityholders.

                  Without  the consent of the  Holders of any  Securities,  PNM,
when authorized by a Board Resolution,  the Company and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental hereto
(a  "Series  Supplemental  Indenture"  in the  case  of item 1  below),  in form
satisfactory to the Trustee, for any of the following purposes:

                  (1) to  establish  the form and  terms  of  Securities  of any
         series of Securities permitted by Sections 2.01 and 2.03; or

                  (2) to evidence the succession of another  corporation to PNM,
         and the assumption by any such successor of the covenants of PNM herein
         contained,  or to evidence the succession of another corporation to the
         Company,  and the  assumption by any such successor of the covenants of
         the Company herein and in the Securities contained; or

                  (3) to add to the  covenants  of PNM or the  Company,  for the
         benefit of the Holders of the Securities,  or to surrender any right or
         power herein conferred upon PNM or the Company; or

                  (4) to  convey,  transfer  and assign to the  Trustee,  and to
         subject to the Lien of this  Indenture,  with the same force and effect
         as though included in the Granting Clauses hereof,  additional  Pledged
         Lessor  Notes or  additional  properties  or assets,  and to correct or
         amplify the description of any property at any time subject to the Lien
         of this Indenture or to assure, convey and confirm unto the Trustee any
         property  subject  or  required  to be  subject  to the  Lien  of  this
         Indenture; or

                  (5) to  modify,  eliminate  or add to the  provisions  of this
         Indenture  to such  extent  as  shall  be  necessary  to  continue  the
         qualification of this Indenture (including any supplemental  indenture)
         under the TIA, or under any similar federal statute hereafter  enacted,
         and to add to this Indenture such other  provisions as may be expressly
         permitted by the TIA, excluding, however, the provisions referred to in
         Section  316(a)(2) of the TIA as in effect at the date as of which this
         instrument was executed or any  corresponding  provision in any similar
         federal statute hereafter enacted; or

                  (6) to cure  any  ambiguity,  to  correct  or  supplement  any
         provision herein which may be defective or inconsistent  with any other
         provision  herein,  or to make any other  provisions  with  respect  to
         matters or questions arising under this Indenture, provided such action
         shall  not  adversely  affect  the  interest  of  the  Holders  of  the
         Securities.

                  SECTION   1.012.   Supplemental   Indenture  With  Consent  of
Securityholders.

                  With  the  consent  of (i)  the  Holders  of not  less  than a
majority  in  principal  amount of the  Outstanding  Securities,  by Act of said
Holders delivered to the Company and the Trustee,  and (ii) PNM, when authorized
by a Board Resolution,  and the Company may and the Trustee,  subject to Section
11.03 shall, enter into an indenture or indentures  supplemental  hereto for the
purpose of adding any  provisions  to or  changing  in any manner the rights and
obligations  of the Holders of the  Securities  and of PNM and the Company under
this Indenture;  provided,  however, that no such supplemental  indenture shall,
without the consent of the Holder of each Outstanding Security affected thereby,

                  (1) change the Stated  Maturity  of the  principal  of, or any
         installment of interest on, or the dates or circumstances of payment of
         premium  (if any) on,  any  Security,  or reduce the  principal  amount
         thereof  or the  interest  thereon  or any  premium  payable  upon  the
         redemption thereof, or change

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<PAGE>

         the place of  payment  where,  or the coin or  currency  in which,  any
         Security or the premium (if any) or the interest thereon is payable, or
         impair  the right to  institute  suit for the  enforcement  of any such
         payment  of  principal  or  interest  on or after the  Stated  Maturity
         thereof  (or,  in the case of  redemption,  on or after the  Redemption
         Date) or such  payment  of  premium  (if any) on or after the date such
         premium  becomes  due and payable or change the dates or the amounts of
         payments  to be made  through  the  operation  of the  Sinking  Fund in
         respect of such Securities; or

                  (2) except with  respect to  additional  series of  Securities
         issued in  accordance  with the  terms of this  Indenture,  permit  the
         creation  of any  lien  prior  to or pari  passu  with the Lien of this
         Indenture with respect to any of the Pledged Property, or terminate the
         Lien of this Indenture on any Pledged  Property (except in each case as
         permitted   by,  and  pursuant  to,   Article   Four)  or  deprive  any
         Securityholder  of the security afforded by the Lien of this Indenture;
         or

                  (3)  reduce  the   percentage  in  principal   amount  of  the
         Outstanding  Securities,  the consent of whose  Holders is required for
         any such  supplemental  indenture,  or the consent of whose  Holders is
         required for any waiver (of compliance with certain  provisions of this
         Indenture  or  certain  defaults  hereunder  and  their   consequences)
         provided for in this Indenture; or

                  (4) modify any of the  provisions  of this  Section or Section
         8.08[9]6,  except to increase  any such  percentage  or to provide that
         certain other provisions of this Indenture cannot be modified or waived
         without the consent of the Holder of each Security affected thereby.

                  Upon  receipt by the Trustee of Board  Resolutions  of PNM and
the Company and such other  documentation as the Trustee may reasonably  require
and upon the filing with the Trustee of evidence of the Act of said Holders, the
Trustee  shall join in the  execution  of such  supplemental  indenture or other
instrument,  as the case may be, subject to the provisions of Sections 11.03 and
11.04.

                  It shall not be necessary for any Act of Securityholders under
this  Section  to  approve  the  particular  form of any  proposed  supplemental
indenture,  but it shall be  sufficient  if such Act shall approve the substance
thereof.

                  SECTION 1.013.  Documents Affecting Immunity or Indemnity.

                  If in the opinion of the  Company or the Trustee any  document
required to be executed by it pursuant to the terms of Section 11.02 affects any
interest,  right,  duty,  immunity or  indemnity  in favor of the Company or the
Trustee under this Indenture or any of the Participation Agreements, the Company
or the  Trustee,  as the case may be, may in its  discretion  decline to execute
such document.

                  SECTION 1.014.  Execution of Supplemental Indentures.

                  In executing,  or accepting the additional  trusts created by,
any  supplemental  indenture  permitted  by this  Article  or the  modifications
thereby of the trusts created by this  Indenture,  the Trustee shall be entitled
to receive,  and (subject to Section  9.01) shall be fully  protected in relying
upon,  an Opinion of Counsel  stating that the  execution  of such  supplemental
indenture is authorized or permitted by this Indenture.

                  SECTION 1.015.  Effect of Supplemental Indentures.

                  Upon the execution of any  supplemental  indenture  under this
Article,  this  Indenture  shall be modified in accordance  therewith,  and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
--------
     6  Paragraph  (b) of  Article  III to the Series  1986A  Bond  Supplemental
Indenture corrected the defective reference to Section 8.09. See Exhibit B.

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<PAGE>

                  SECTION 1.016.  Conformity with Trust Indenture Act.

                  Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the TIA as then in effect.

                  SECTION  1.017.   Reference  in  Securities  to   Supplemental
Indentures.

                  Securities  authenticated and delivered after the execution of
any supplemental  indenture  pursuant to this Article may, and shall if required
by any Lessor or the Company,  bear a notation in form  approved by such Lessor,
the Company and the Trustee as to any matter  provided for in such  supplemental
indenture;  and, in such case,  suitable  notation may be made upon  Outstanding
Securities after proper  presentation  and demand.  If any Lessor or the Company
shall so determine,  new Securities so modified as to conform, in the opinion of
such Lessor, the Company and the Trustee, to any such supplemental indenture may
be prepared and executed by the Company and  authenticated  and delivered by the
Trustee in exchange for Outstanding Securities.

                                   ARTICLE II.

                                   DEFEASANCE

                  SECTION  1.021.  Payment  of  Indebtedness;  Satisfaction  and
Discharge of this Indenture.

                  This Indenture  shall cease to be of further effect (except as
to any rights of  registration  of transfer or  exchange  of  Securities  herein
expressly  provided for and the rights of the Trustee,  any predecessor  Trustee
and any Authorized Agent under Section 9.07), and the Trustee,  on demand and at
the expense of the  Company,  shall  execute  proper  instruments  acknowledging
satisfaction and discharge of this Indenture, when

                  (1)      either

                           (A)  all  Securities  theretofore  authenticated  and
         delivered (other than (i) Securities which have been destroyed, lost or
         stolen and which have been  replaced or redeemed as provided in Section
         2.09 and (ii)  Securities  for the payment of which money held in trust
         hereunder has been paid to the Company and discharged  from such trust,
         as provided  in Section  5.03) have been  delivered  to the Trustee for
         cancellation; or

                           (B) all such Securities not theretofore  delivered to
         the Trustee for cancellation

                           (i)  have become due and payable; or

                           (ii) will  become  due and  payable  at their  Stated
                  Maturity of principal within one year; or

                           (iii) are to be called for redemption within one year
                  under arrangements  satisfactory to the Trustee for the giving
                  of notice of  redemption by the Trustee in the name and at the
                  expense of the Company,

                  and the Company,  in the case of (i), (ii) or (iii) above, has
                  deposited or caused to be deposited  with the Trustee in trust
                  (subject to Section 9.06 hereof) for the purpose of paying and
                  discharging  the entire  indebtedness  on such  Securities not
                  theretofore  cancelled  by the  Trustee  or  delivered  to the
                  Trustee for  cancellation,  an amount  sufficient to discharge
                  such indebtedness,  including principal,  premium (if any) and
                  interest  to  the  date  of  such  deposit  (in  the  case  of
                  Securities  which  have  become  due and  payable),  or to the
                  Stated  Maturity of principal or Redemption  Date, as the case
                  may be;

#30122041.1
                                       54

<PAGE>
                  (2) All other sums then due and  payable  hereunder  have been
         paid; and

                  (3)  PNM or the  Company  has  delivered  to  the  Trustee  an
         Officers'  Certificate  and an Opinion of Counsel each stating that all
         conditions  precedent  herein provided for relating to the satisfaction
         and discharge of this Indenture have been complied with.

                  SECTION 1.022.  Application of Deposited Money.

                  All money deposited with the Trustee pursuant to Section 12.01
shall be held in trust and applied by it, in accordance  with the  provisions of
the  Securities  and this  Indenture,  to the  payment to the  Persons  entitled
thereto of the  principal,  premium (if any),  and  interest  for the payment of
which such money has been deposited with the Trustee.

                                  ARTICLE III.

                         RELEASE OF FUNDS BY THE TRUSTEE
                        FOR PAYMENT OF THE PLEDGED LESSOR
             NOTES AND RELEASE AND SUBSTITUTION OF PLEDGED PROPERTY

                  SECTION 1.031. Conditions Precedent to Release of Funds by the
Trustee for Payment of the Pledged Lessor Notes.

                  The  obligation of the Trustee to make payments to the Lessors
pursuant to Section  2.15(b)  hereof is subject to the receipt by the Trustee of
the following:

                  (a)  an  executed  counterpart  of  a  supplemental  indenture
appropriate to subject to the Lien of this Indenture the related  Pledged Lessor
Notes;
                  (b) the documents,  opinions and certificates specified in the
provision to Section 2.04;

                  (c) a written  notice of the Company,  dated as of the closing
date under the applicable  Participation  Agreements  (the Closing Date), of the
Closing Date;

                  (d) a certificate  of each Lessor dated as of the Closing Date
under the related Participation Agreement (i) specifying the principal amount of
the Pledged  Lessor Note to be issued  thereby  and (ii)  stating  that (A) such
Lessor has received the amount of the Equity Investor's  investment  pursuant to
applicable  provisions of such  Participation  Agreement and that such amount is
available  for use by such Lessor  pursuant  to  applicable  provisions  of such
Participation  Agreement  upon  receipt of the amount to be paid by the  Trustee
with respect to such Pledged Lessor Note pursuant to Section 2.15(b) hereof; (B)
to the best  knowledge of such Lessor no event has  occurred  and is  continuing
which  constitutes  an  Indenture  Event  of  Default,  or would  constitute  an
Indenture  Event of  Default  after  notice  or lapse of time or both  under the
related Lease  Indenture and (C) the Pledged Lessor Note of such Lessor has been
duly  authorized,  executed  and  delivered  by such  Lessor  and is a valid and
binding obligation of such Lessor; and

                  (e) such other  documents  and  evidence  with  respect to the
Lessors and the Company as the Trustee may reasonably request.

#30122041.1
                                       55

<PAGE>

                                   ARTICLE IV.

                                SUNDRY PROVISIONS

                  SECTION 1.041.  Execution in Counterparts.

                  This instrument may be executed in any number of counterparts,
each of which when so executed  shall be deemed to be an original,  but all such
counterparts shall together constitute but one and the same instrument.


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<PAGE>

                  IN WITNESS WHEREOF,  the parties have caused this Indenture to
be duly executed,  and their  respective  corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.

                                       FIRST PV FUNDING CORPORATION



                                       By
                                           ------------------------
                                              President
Attest:
---------------------------------
       Assistant Secretary

                                       PUBLIC SERVICE COMPANY OF NEW MEXICO


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

Attest:
--------------------------------
        Assistant Secretary

                                       CHEMICAL BANK



                                       By
                                           -------------------------------
                                                    Vice President

Attest:
--------------------------------
        Assistant Secretary


#30122041.1

<PAGE>
                                                                       EXHIBIT A
                                                                              TO
                                                                COLLATERAL TRUST
                                                                       INDENTURE


                         REQUIREMENTS FOR PLEDGED LESSOR
                           NOTES AND LEASE INDENTURES


                     The Pledged Lessor Notes and the Lease Indentures  relating
to any series of Securities  shall contain the  provisions  summarized  below or
other provisions substantially as protective or more protective of the interests
of Holders of Outstanding  Securities.  Notwithstanding  the foregoing,  (i) the
Principal Instruments in connection with the initial series of Securities issued
under this  Indenture  shall be deemed to satisfy all criteria set forth in this
Exhibit A and (ii) the Principal  Instruments in connection  with any subsequent
series of  Securities,  if  substantially  similar in form and  substance to the
Principal  Instruments  in connection  with such initial  series of  Securities,
shall also be deemed to satisfy all criteria set forth in this Exhibit A.

I.    Each Pledged Lessor Note will:

                           (i) be duly  issued  pursuant  to, and be secured by,
                  the related Lease Indenture;

                           (ii) provide for the payment to the registered holder
                  thereof, not later than when due, of amounts at least equal to
                  that  portion of all  principal  of and  premium,  if any, and
                  interest on the series of Securities issued in connection with
                  and relating to the pledge thereof under the  Indenture,  such
                  payment to be  without  defenses  or  set-offs  and  otherwise
                  unconditional;

                           (iii)  if such  Pledged  Lessor  Note is the  initial
                  series issued under the related Lease Indenture, the principal
                  amount  thereof shall not exceed an amount equal to 90% of sum
                  of  the  aggregate   purchase  price  of  the  property  being
                  purchased  with the  proceeds of the issuance and sale of such
                  Lessor  Note;  and (B) if such  Pledged  Lessor  Note is of an
                  additional  series issued under the related  Lease  Indenture,
                  the sum of the  principal  amount  thereof  and the  principal
                  amount of Pledged Lessor Notes  theretofore  issued under such
                  Lease Indenture shall not exceed an amount equal to 90% of the
                  sum of (1) the  aggregate  purchase  price of  property  being
                  purchased  with the  proceeds of the issuance and sale of such
                  Lessor  Note  and  (2) the  aggregate  purchase  price  of the
                  property  purchased with the proceeds of the issuance and sale
                  of each Pledged Lessor Note theretofore issued; and

                           (iv)  provide  that no Change to the  Pledged  Lessor
                  Note may be made without the consent of the holder thereof.

II.  Each Lease Indenture will:

                           (i) assign to the Lease Indenture Trustee obligations
                  under the  related  Lease to which the Owner  Trustee  then or
                  thereafter  is  entitled  at  least   sufficient  to  pay  the
                  principal  of,  premium,  if any,  and interest on the related
                  Pledged Lessor

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                                        1

<PAGE>

                  Note; and

                           (ii) contain  provisions  no less  protective  of the
                  interests  of  Holders  of   Securities   than  the  following
                  provisions  of the Lease  Indentures  in  connection  with the
                  initial series of Securities:  Article II,  Sections 3.4, 3.5,
                  3.6, 3.8, 3.11, Article V, Article VI and Article VII.

#30122041.1
                                        2

<PAGE>

                                TABLE OF CONTENTS

                                                                           Page


RECITALS..................................................................... 1

GRANTING CLAUSES............................................................  1

ARTICLE I.

              DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION........ 2
SECTION 1.01. Definitions.................................................... 2
SECTION 1.02.  Compliance Certificates and Opinions.........................  7
SECTION 1.03.  Form of Documents Delivered to Trustee.......................  8
SECTION 1.04.  Acts of Holders..............................................  8
SECTION 1.05.  Notices, etc., to Trustee, PNM and Company...................  9
SECTION 1.06.  Notices to Holders; Waiver...................................  9
SECTION 1.07.  Conflict with Trust Indenture Act............................ 10
SECTION 1.08.  Effect of Heading and Table of Contents...................... 10
SECTION 1.09.  Successors and Assigns....................................... 10
SECTION 1.10.  Separability Clause.......................................... 10
SECTION 1.11.  Benefits of Indenture........................................ 10
SECTION 1.12.  Governing Law................................................ 10
SECTION 1.13.  Legal Holidays............................................... 10

ARTICLE II.

               THE SECURITIES............................................... 11
SECTION 2.01.  Forms Generally.............................................. 11
SECTION 2.02.  Form of Trustee's Authentication............................. 11
SECTION 2.03.  Amount Unlimited; Issuable in Series; Limitations 
                 on Issuance................................................ 11
SECTION 2.04.  Authentication and Delivery of Securities.................... 12
SECTION 2.05.  Form and Denominations....................................... 13
SECTION 2.06.  Execution of Securities...................................... 14
SECTION 2.07.  Temporary Securities......................................... 14
SECTION 2.08.  Registration, Transfer and Exchange.......................... 14
SECTION 2.09.  Mutilated, Destroyed, Lost and Stolen Securities............. 15
SECTION 2.10.  Payment of Interest; Interest Rights Preserved............... 16
SECTION 2.11.  Persons Deemed Owners........................................ 17
SECTION 2.12.  Cancellation................................................. 17
SECTION 2.13.  Dating of Securities; Authentication......................... 17
SECTION 2.14.  Source of Payments; Rights and Liabilities of Lessors 
                 and Equity Investors....................................... 17
SECTION 2.15.  Sale of Securities; and Application of Proceeds from 
                 the Sale of Securities..................................... 17

ARTICLE III.

               PROVISIONS AS TO PLEDGED PROPERTY............................ 18
SECTION 3.01.  Holding of Pledged Securities................................ 18
SECTION 3.02.  Disposition of Payments on Pledged Property.................. 18
SECTION 3.03.  Exercise of Rights and Powers Under Pledged Lessor 
                 Notes and Lease Indentures................................. 18
SECTION 3.04.  Certain Actions in Case of Judicial Proceedings.............. 19
SECTION 3.05.  Cash Held by Trustee Treated as a Deposit.................... 19

#30122041.1
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<PAGE>
                          TABLE OF CONTENTS, Continued

                                                                           Page

ARTICLE IV.

               WITHDRAWAL OF COLLATERAL..................................... 19
SECTION 4.01.  Withdrawal of Collateral..................................... 19
SECTION 4.02.  Reassignment of Pledged Lessor Notes upon Payment............ 19

ARTICLE V.

               COVENANTS ................................................... 20
SECTION 5.01.  Payment of Principal, Premium (if any) and Interest.......... 20
SECTION 5.02.  Maintenance of Office or Agency.............................. 20
SECTION 5.03.  Money for Security Payments to be Held in Trust.............. 20
SECTION 5.04.  Maintenance of Corporate Existence........................... 21
SECTION 5.05.  Protection of Pledged Property............................... 21
SECTION 5.06.  Opinions as to Pledged Property.............................. 21
SECTION 5.07.  Performance of Obligations................................... 22
SECTION 5.08.  Negative Covenants........................................... 22
SECTION 5.09.  Administration of Principal Instruments...................... 23
SECTION 5.10.  Annual Statement as to Compliance............................ 24

ARTICLE VI.

               REDEMPTION OF SECURITIES..................................... 25
SECTION 6.01.  Notice to Trustee of Redemption.............................. 25
SECTION 6.02.  Selection by Trustee of Securities to be Redeemed............ 25
SECTION 6.03.  Notice of Redemption......................................... 26
SECTION 6.04.  Deposit of Redemption Price.................................. 26
SECTION 6.05.  Securities Payable on Redemption Date........................ 26
SECTION 6.06.  Securities Redeemed in Part.................................. 27

ARTICLE VII.

               SINKING FUNDS ............................................... 27
SECTION 7.01.  Sinking Funds for Securities................................. 27
SECTION 7.02.  Selection by Trustee of Securities to be Redeemed 
                 Through Operation of Sinking Fund.......................... 28

ARTICLE VIII.

               EVENTS OF DEFAULT; REMEDIES.................................. 29
SECTION 8.01.  Events of Default. .......................................... 29
SECTION 8.02.  Acceleration of Maturity; Rescission and Annulment........... 30
SECTION 8.03.  Trustee's Power of Sale of Pledged Property; Notice 
                 Required; Power to Bring Suit.............................. 31
SECTION 8.04.  Incidents of Sale of Pledged Property........................ 32
SECTION 8.05.  Judicial Proceedings Instituted by Trustee................... 33

#30122041.1
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<PAGE>
                          TABLE OF CONTENTS, Continued

                                                                           Page



SECTION 8.06.  Securityholders May Demand Enforcement of Rights 
                 by Trustee................................................. 34
SECTION 8.07.  Control by Securityholders................................... 35
SECTION 8.08.  Waiver of Past Defaults...................................... 35
SECTION 8.09.  Securityholder May Not Bring Suit Except under 
                 Certain Conditions......................................... 35
SECTION 8.10.  Undertaking To Pay Court Costs............................... 36
SECTION 8.11.  Right of Securityholders To Receive Payment Not 
                 To Be Impaired............................................. 36
SECTION 8.12.  Application of Moneys Collected by Trustee................... 36
SECTION 8.13.  Securities Held by Certain Persons Not To Share 
                 in Distribution............................................ 37
SECTION 8.14.  Waiver of Appraisement, Valuation, Stay, Right 
                 to Marshalling............................................. 37
SECTION 8.15.  Remedies Cumulative; Delay or Omission Not a Waiver.......... 38

ARTICLE IX.

               THE TRUSTEE ................................................. 38
SECTION 9.01.  Certain Duties and Responsibilities. ........................ 38
SECTION 9.02.  Notice of Defaults........................................... 39
SECTION 9.03.  Certain Rights of Trustee.................................... 39
SECTION 9.04.  Not Responsible for Recitals or Issuance of Securities....... 40
SECTION 9.05.  May Hold Securities.......................................... 40
SECTION 9.06.  Funds May Be Held by Trustee or Paying Agent; Investments.... 40
SECTION 9.07.  Compensation and Reimbursement............................... 41
SECTION 9.08.  Disqualification; Conflicting Interests...................... 41
SECTION 9.09.  Corporate Trustee Required; Eligibility...................... 45
SECTION 9.10.  Resignation and Removal; Appointment of Successor............ 46
SECTION 9.11.  Acceptance of Appointment by Successor....................... 47
SECTION 9.12.  Merger, Conversion, Consolidation or Succession to 
                 Business................................................... 47
SECTION 9.13.  Preferential Collection of Claims against any Obligor........ 47
SECTION 9.14.  Maintenance of Agencies...................................... 50

ARTICLE X.

                SECURITYHOLDERS' LISTS AND REPORTS BY TRUSTEE AND PNM....... 51
SECTION 10.01.  PNM to Furnish Trustee Names and Addresses of 
                  Securityholders........................................... 51
SECTION 10.02.  Preservation of Information; Communications to 
                  Securityholders........................................... 52
SECTION 10.03.  Reports by Trustee.......................................... 53
SECTION 10.04.  Reports by PNM.............................................. 54

ARTICLE XI.

                SUPPLEMENTAL INDENTURES..................................... 54
SECTION 11.01.  Supplemental Indentures Without Consent of 
                  Securityholders........................................... 54
SECTION 11.02.  Supplemental Indenture With Consent of 
                  Securityholders........................................... 55
SECTION 11.03.  Documents Affecting Immunity or Indemnity................... 56
SECTION 11.04.  Execution of Supplemental Indentures........................ 56
SECTION 11.05.  Effect of Supplemental Indentures........................... 56
SECTION 11.06.  Conformity with Trust Indenture Act......................... 57
SECTION 11.07.  Reference in Securities to Supplemental Indentures.......... 57

#30122041.1
                                       iii

<PAGE>

                                                                            Page
                                                                            ----

ARTICLE XII.

                DEFEASANCE ................................................. 57
SECTION 12.01.  Payment of Indebtedness; Satisfaction and Discharge 
                  of this Indenture......................................... 57
SECTION 12.02.  Application of Deposited Money.............................. 58

ARTICLE XIII.

                         RELEASE OF FUNDS BY THE TRUSTEE
                        FOR PAYMENT OF THE PLEDGED LESSOR
                NOTES AND RELEASE AND SUBSTITUTION OF PLEDGED PROPERTY ..... 58
SECTION 13.01.  Conditions Precedent to Release of Funds by the Trustee 
                  for Payment of the Pledged Lessor Notes................... 58

ARTICLE XIV.

                SUNDRY PROVISIONS........................................... 59
SECTION 14.01.  Execution in Counterparts................................... 59

PARTIES

EXHIBIT A       Requirements for Pledged Lessor Notes, Lease Indentures, Leases 
                and Participation Agreements

EXHIBIT B       1986A Bond Supplemental Indenture

EXHIBIT C       1986B Bond Supplemental Indenture

EXHIBIT D       Unit 1 Supplemental Indenture of Pledge

EXHIBIT E       Unit 2 Supplemental Indenture of Pledge

EXHIBIT F       1994 Supplemental Indenture (adding to Section 7.01)


#30122041.1
                                       iv

<PAGE>





                                  EXHIBIT B to
                              Conformed Collateral
                                 Trust Indenture
                  =============================================




                          FIRST PV FUNDING CORPORATION,

                      PUBLIC SERVICE COMPANY OF NEW MEXICO


                                       and


                                 CHEMICAL BANK,
                                   as Trustee




                    SERIES 1986A BOND SUPPLEMENTAL INDENTURE

                            Dated as of July 15, 1986

                                       to

                           COLLATERAL TRUST INDENTURE

                          dated as of December 16, 1985



                          Providing for the Issuance of
                          $253,677,000 Aggregate Amount
                     of Lease Obligation Bonds Series 1986A
                  with the Interest Rates and Stated Maturities
                                Set Forth Herein

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



                      PALO VERDE NUCLEAR GENERATING STATION

#30122043.1
                                        v

<PAGE>



                  SERIES 1986A BOND SUPPLEMENTAL INDENTURE, dated as of July 15,
1986 among FIRST PV FUNDING CORPORATION (the Company), Public Service Company of
New Mexico (PNM) and Chemical Bank, as trustee (the Trustee).

                  WHEREAS,  the Company  and PNM have  heretofore  executed  and
delivered  to the  Trustee  an  indenture  dated as of  December  16,  1985 (the
Original  Indenture) to provide for the issue from time to time of the Company's
debentures, notes or other evidences of indebtedness to be issued in one or more
series (the Securities);

                  WHEREAS,  Section  2.03 of the  Original  Indenture  provides,
among  other  things,  that PNM,  the  Company  and the  Trustee  may enter into
indentures  supplemental to the Original  Indenture for, among other things, the
purpose  of  establishing  the form and  terms of  Securities  of any  series as
permitted by Section 2.03 of the Original Indenture;

                  WHEREAS, PNM and the Company heretofore executed and delivered
a Term Note  Supplemental  Indenture,  dated as of December 31, 1985 (the Series
1985 Term Note Supplemental  Indenture),  to the Trustee, and the Company issued
thereunder  a series of  Securities  designated  "Term Lease  Obligation  Notes,
Series 1985" in the aggregate principal amount of $250,250,000;

                  WHEREAS,   Section   1.03  of  the   Series   1985  Term  Note
Supplemental  Indenture  provides,  among  other  things,  that the  Term  Lease
Obligation Notes, Series 1985, shall be redeemed in connection with the issuance
of a series of Securities to effect a refunding of the same;

                  WHEREAS,  PNM and the Company  (i) desire the  issuance by the
Company of a new series of Securities, to be designated as hereinafter provided,
to effect a refunding of the Term Lease Obligation  Notes,  Series 1985, and for
other  purposes  and (ii) have  requested  the Trustee to enter into this Series
1986A Bond Supplemental Indenture for the purpose, among others, of establishing
the form and terms of the Securities of such series;

                  WHEREAS,  all action on the part of the Company  necessary  to
authorize the issuance of $253,677,000  principal amount of its Lease Obligation
Bonds  Series 1986A (the Bonds)  under the  Original  Indenture  and this Series
1986A Bond Supplemental Indenture (said Original Indenture,  as supplemented and
amended by the Series  1985 Term Note  Supplemental  Indenture,  and this Series
1986A Bond Supplemental  Indenture,  being hereinafter called the Indenture) has
been duly taken;

                  WHEREAS,   the  Bonds  to  be  issued   hereunder  are  to  be
substantially in the form annexed as Schedule 1 hereto;

                  WHEREAS,  Section  11.02 of the  Original  Indenture  provides
that,  with the  consent of Holders  of not less than a  majority  in  principal
amount of the  Outstanding  Securities  and PNM, the Company and the Trustee may
enter into an indenture  supplemental to the Original  Indenture for the purpose
of changing the rights and  obligations  of the Holders of Securities and of PNM
and the Company under the Original Indenture;

                  WHEREAS,  the Company desires to make the amendment to Section
8.02 of the Original  Indenture set forth in clause (a) of Article Three of this
Series  1986A Bond  Supplemental  Indenture  and the  Holders of not less than a
majority  in  principal  amount of the  Outstanding  Securities,  by Act of said
holders, and PNM have given their consent to such amendment;

                  WHEREAS, Section 11.01 of the Original Indenture provides that
the  Company  and  the  Trustee  may,  without  consent  of the  Holders  of any
Securities,  enter into an indenture  supplemental to the Original  Indenture to
cure a defective  provision in the Original  Indenture provided such action does
not adversely affect the interest of the Holders of the Securities;


#30122043.1
                                        i

<PAGE>

                  WHEREAS,  the Company desires to make the amendment to Section
11.02(4) of the Original  Indenture  set forth in clause (b) of Article Three of
this Series 1986A Bond Supplemental Indenture; and

                  WHEREAS,  all acts and things necessary to make the Securities
to be issued  hereunder,  when  executed by the Company  and  authenticated  and
delivered  by the  Trustee as  provided in the  Original  Indenture,  the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid and binding  supplemental  indenture and agreement according to its terms,
have been done and  performed,  and the  execution  of this  Series  1986A  Bond
Supplemental  Indenture  and the creation and  issuance  under the  Indenture of
$253,677,000  aggregate  principal amount of the Bonds have in all respects been
duly authorized, and the Company, in the exercise of legal right and power in it
vested,  executes this Series 1986A Bond Supplemental  Indenture and proposes to
create, execute, issue and deliver the Bonds:

                  NOW, THEREFORE, THIS SERIES 1986A BOND SUPPLEMENTAL INDENTURE
WITNESSETH:

                  That in  order  to  establish  the  form  and  terms of and to
authorize  the  authentication  and  delivery  of the  Securities  to be  issued
hereunder,  and in  consideration  of the  acceptance of such  Securities by the
holders  thereof  and of the sum of one dollar  duly paid to the  Company by the
Trustee  at the  execution  of these  presents,  the  receipt  whereof is hereby
acknowledged,  the Company and PNM each covenant and agree with the Trustee, for
the equal and proportionate  benefit of the respective holders from time to time
of the Securities, as follows:

                                  ARTICLE III.

                                    THE BONDS

                  SECTION 1.031. Terms of the Bonds.

                  There is  hereby  created a series  of  Securities  designated
"Lease Obligation Bonds Series 1986A".  Subject to the exceptions referred to in
the Original Indenture,  the aggregate principal amount of the Bonds that may be
authenticated  and  delivered  under the  Indenture is limited to  $253,677,000.
Bonds in the  aggregate  principal  amount  of  $253,677,000  may  forthwith  be
executed by the  Company and  delivered  to the Trustee for  authentication  and
delivery by the Trustee in accordance with the provisions of Section 2.04 of the
Original  Indenture  in the  following  amounts  for the  Stated  Maturities  of
principal and at the interest rates indicated:

         Stated Maturity          Interest        Principal
           of Principal             Rate            Amount
           ------------             ----            ------

         July 15, 1991             8.300%         $25,332,000

         July 15, 1996             9.125%         $40,532,000

         January 15, 2014         10.300%        $187,813,000
                                                 ------------
                                                 $253,677,000

                  The Bonds  shall be  payable,  bear  interest  and have and be
subject to such other terms as provided in the form of Bond attached as Schedule
1 hereto.

                  SECTION 1.032.  Mandatory Redemption of the Bonds.

                  (a)  Termination of Lease. In the event that there shall occur
under Section 14 of any Lease  identified in Schedule 2 hereto a termination  of
such Lease,  Bonds with a Stated Maturity of principal of January 15, 2014 shall
be redeemed,  in part,  in  proportion  to the  principal  amount of the Pledged
Lessor  Notes  related to such  Lease (the  Prepaid  Lessor  Notes),  prepaid in
accordance  with their terms and Section 5.2 of the Lease  Indenture under which


#30122043.1
                                       ii

<PAGE>

such Pledged Lessor Notes are issued.  Any such redemption  shall be on the same
date on which,  and shall be made to the extent that,  the Prepaid  Lessor Notes
are so prepaid.

                  (b)  Selection.  In the event of a redemption  of Bonds with a
Stated  Maturity of principal of January 15, 2014 pursuant to Section 1.02(a) of
this Series 1986A Bond Supplemental Indenture, the Bonds so to be redeemed shall
be selected in accordance with Section 6.02 of the Indenture, but without giving
effect to the first proviso contained in such Section.

                  (c) Redemption  Price. The Redemption Price for any Bond to be
redeemed  pursuant to this  Section 1.02 shall be 100% of the  principal  amount
thereof, together with accrued interest to the Redemption Date.

                  SECTION 1.033. Optional Redemption of Bonds.

                  The Bonds shall be redeemable  prior to maturity at the option
of the Company at the times and redemption  prices set forth in the form of Bond
attached as Schedule 1 hereto.

                  SECTION 1.034. Sinking Fund.

                  (a)  Amounts and Dates.  The Bonds  shall be redeemed  through
operation of a sinking fund. The amount of each Sinking Fund payment (subject to
adjustment as provided in Section 7.01 of the Indenture and paragraph (c) below)
and each Sinking Fund Date  applicable to a Stated  Maturity of principal of the
Bonds are as set forth below:

                                     Stated Maturity
                                     ---------------

         Sinking Fund     July 15,       July 15,       January 15,
             Date           1991           1996            2014
       ----------------   --------       --------       ---------

January 15, 1987          $1,515,000
   July 15, 1987           1,809,000
January 15, 1988           2,375,000
   July 15, 1988           2,475,000
January 15, 1989           2,577,000
   July 15, 1989           2,684,000
January 15, 1990           2,795,000
   July 15, 1990           2,912,000
January 15, 1991           3,032,000
   July 15, 1991           3,158,000
January 15, 1992                         $3,289,000
   July 15, 1992                          3,439,000
January 15, 1993                          3,596,000
   July 15, 1993                          3,759,000
January 15, 1994                          3,931,000
   July 15, 1994                          4,111,000
January 15, 1995                          4,298,000
   July 15, 1995                          4,495,000
January 15, 1996                          4,700,000
   July 15, 1996                          4,914,000
January 15, 1997                                        $5,138,000
   July 15, 1997                                         5,403,000
January 15, 1998                                         5,680,000

#30122043.1
                                       iii

<PAGE>

    July 15, 1998                                        4,078,000
 January 15, 1999                                        4,193,000
    July 15, 1999                                        2,584,000
 January 15, 2000                                        4,417,000




                                    Stated Maturity
                                    ---------------

         Sinking Fund      July 15,      July 15,       January 15,
             Date            1991          1996             2014
       ----------------    --------      --------      ---------

    July 15, 2000                                       $2,726,000
 January 15, 2000                                        4,664,000
    July 15, 2001                                        2,877,000
 January 15, 2002                                        4,924,000
    July 15, 2002                                        3,035,000
 January 15, 2003                                        5,199,000
    July 15, 2003                                        3,203,000
 January 15, 2004                                        5,866,000
    July 15, 2004                                        3,886,000
 January 15, 2005                                        5,287,000
    July 15, 2005                                        4,666,000
 January 15, 2006                                        5,251,000
    July 15, 2006                                        4,666,000
 January 15, 2007                                        5,542,000
    July 15, 2007                                        4,924,000
 January 15, 2008                                        5,849,000
    July 15, 2008                                        5,196,000
 January 15, 2009                                        6,468,000
    July 15, 2009                                        8,450,000
 January 15, 2010                                        9,127,000
    July 15, 2010                                        9,233,000
 January 15, 2011                                       11,495,000
    July 15, 2011                                       12,060,000
 January 15, 2012                                        8,653,000
    July 15, 2012                                        5,827,000
 January 15, 2013                                        3,646,000
    July 15, 2013                                        2,507,000
 January 15, 2014                                        1,093,000

                  (b) Selection of Bonds.  The provisions of Section 7.02 of the
Original  Indenture to the  contrary  notwithstanding,  the Trustee  shall first
select for  redemption  on any Sinking  Fund Date on which Bonds of a particular
Stated  Maturity  of  principal  (other  than  Bonds with a Stated  Maturity  of
principal  of July 15, 1991) are to be redeemed in  accordance  with the Sinking
Fund relating thereto,  such Bonds, if any, of such Stated Maturity of principal
as the Company shall specify (by Bond number) are held by PNM or an Affiliate of
PNM in a Company Request delivered to the Trustee at least 40 (but not more than
90) days prior to such Sinking Fund Date and upon which the Trustee may rely.

                  (c) Certain Adjustments to Sinking Funds. The principal amount
of Bonds of a particular  Stated  Maturity of  principal to be redeemed  through
operation of the Sinking Fund for the Bonds of such Stated Maturity of principal
may be adjusted  (upward or  downward) at the  discretion  of the Company at one
time  (contemporaneously  with similar  adjustments for all Stated Maturities of
principal) prior to July 15, 1988; provided, however, that no such adjustment

#30122043.1
                                       iv

<PAGE>

shall be made by the Company  which will  increase or reduce the average life of
the Bonds of such Stated  Maturity of principal  (calculated in accordance  with
generally accepted financial practice from the date of initial issuance) by more
than 6 months;  provided further,  however,  such adjustment may only be made in
connection  with an  adjustment to basic rent pursuant to Section 3(d) of one or
more of the Leases  identified in Schedule 2 hereto.  If the Company shall elect
to make the foregoing  adjustment,  the Company shall deliver to the Trustee and
PNM at least  60 days  prior to the  first  Sinking  Fund  Date  proposed  to be
affected by such adjustment,  a Company Request (w) stating that the Company has
elected to make such  adjustment in connection  with  adjustments  to basic rent
under  one or more of such  Leases,  (x)  setting  forth a revised  schedule  of
principal amounts of the Sinking Fund applicable to Bonds of the affected Stated
Maturity  of  principal,  (y)  attaching  a copy  of the  revised  schedules  of
principal  amortization  for the related  Pledged  Lessor  Notes  identified  in
Schedule 2 hereto and (z)  attaching  calculations  showing that (i) the average
life of the Bonds of the  affected  Stated  Maturity  of  principal  will not be
reduced  or  increased  except as  permitted  by this  paragraph  (c),  (ii) the
aggregate  principal amount of the Pledged Lessor Notes identified on Schedule 2
hereto  equals  the  aggregate  principal  amount  of the  Bonds  and  (iii) the
aggregate  amortization of the principal  amount of such Pledged Lessor Notes is
sufficient to repay in full, as and when due, the principal  amount of the Bonds
as and when due,  whether upon  redemption  through  operation of the applicable
Sinking Funds or at maturity.  The Trustee may rely on such Company  Request and
shall have no duty with respect to the calculations referred to in the foregoing
clause (z),  other than to make them  available for  inspection by any Holder of
Bonds at the Corporate Trust Office upon reasonable  notice.  The Trustee shall,
at the  expense  of PNM,  send to each  Holder of Bonds of the  affected  Stated
Maturity of principal at least 20 days before the first  Sinking Fund Date to be
affected  thereby,  by first  class  mail,  a copy of such  revised  schedule of
principal amounts of Sinking Fund payments applicable to such Bonds.

                  (d) Redemption  Price. The Redemption Price for any Bond to be
redeemed  pursuant to  paragraph  (a) of this  Section 1.04 shall be 100% of the
principal amount thereof, together with accrued interest to the Redemption Date.

                                   ARTICLE IV.

                             PLEDGE OF LESSOR NOTES


                  To secure the payment of the principal of and premium (if any)
and  interest  on all the  Securities  from time to time  Outstanding  under the
Indenture,  and the performance of the covenants  therein and herein  contained,
the  Company by these  presents  does grant,  bargain,  sell,  release,  convey,
assign, transfer, mortgage,  hypothecate,  pledge, confirm and create a security
interest in, unto the Trustee,  the Lessor Notes identified on Schedule 2 hereto
(herein referred to as the Pledged Lessor Notes).

                  TO HAVE AND TO HOLD the  aforesaid  Pledged  Lessor Notes unto
the Trustee and its  successors and assigns  forever,  in trust and for the uses
and  purposes  and  subject to the  covenants  and  conditions  set forth in the
Indenture.

                                   ARTICLE V.

                        AMENDMENTS TO ORIGINAL INDENTURE


                  (a)  Amendment to Section  8.02.  Section 8.02 of the Original
Indenture is hereby  amended to delete (i) in its  entirety the third  paragraph
thereof and (ii) the words following the phrase "or impair any right  consequent
thereon" in the concluding  sentence of the second paragraph  thereof and insert
in lieu thereof a ".".

                  (b) Amendment to Section 11.02. Clause (4) of Section 11.02 of
the  Original  Indenture is hereby  amended to change the  reference to "Section
8.09" therein to "Section 8.08".



#30122043.1
                                        v

<PAGE>

                                   ARTICLE VI.

                                  MISCELLANEOUS

                  SECTION 1.061. Execution as Supplemental Indenture.

                  This Series 1986A Bond Supplemental  Indenture is executed and
shall be construed as an indenture  supplemental to the Original  Indenture and,
as provided in the  Original  Indenture,  this  Series  1986A Bond  Supplemental
Indenture forms a part thereof.  Except as herein expressly  otherwise  defined,
the use of the terms herein is in accordance with the  definitions  contained in
the Original Indenture.

                  SECTION 1.062. Responsibility for Recitals, Etc.

                  The  recitals  contained  herein and in the Bonds,  except the
Trustee's certificate of authentication, shall be taken as the statements of the
Company and PNM, and the Trustee assumes no  responsibility  for the correctness
of  the  same.  The  Trustee  makes  no  representation  as to the  validity  or
sufficiency of this Series 1986A Bond Supplemental Indenture or the Bonds.

                  SECTION 1.063. Provisions Binding on Successors.

                  All the  covenants,  stipulations,  promises and agreements in
this Series 1986A Bond Supplemental  Indenture  contained by or on behalf of the
Company shall bind its successors and assigns, whether so expressed or not.

                  SECTION 1.064. New York Contract.

                  This Series 1986A Bond  Supplemental  Indenture  and each Bond
shall be deemed to be a  contract  under the laws of the State of New York,  and
for all purposes shall be governed by and construed in accordance  with the laws
of said state.

                  SECTION 1.065. Counterparts.

                  This Series 1986A Bond Supplemental  Indenture may be executed
in any number of  counterparts,  each of which  shall be an  original;  but such
counterparts shall together constitute but one and the same instrument.

                  IN WITNESS  WHEREOF,  the  Company,  PNM and the Trustee  have
caused this Series  1986A Bond  Supplemental  Indenture  to be duly  executed by
their respective  officers  thereunto duly  authorized,  as of the date and year
first above written.

                                    FIRST PV FUNDING CORPORATION

[CORPORATE SEAL]

                                    By      /s/  J.A. Barbara
                                       ----------------------------
                                                President

Attest:

   /s/  R.B. Goldstein
-----------------------
  Assistant Secretary




#30122043.1
                                       vi

<PAGE>
                                   PUBLIC SERVICE COMPANY
                                     OF NEW MEXICO

[CORPORATE SEAL]

                                   By     /s/  B.D. Lackey
                                      -------------------------
                                      Senior Vice President and
                                       Chief Financial Officer

Attest:

   /s/  K.A. Knight
----------------------
  Assistant Secretary

                                   CHEMICAL BANK,
                                     as Trustee

[CORPORATE SEAL]

                                   By      /s/  T.J. Foley
                                      ------------------------
                                           Vice President

Attest:

   /s/  G. Mc Farlane
-------------------------
     Trust Officer


#30122043.1
                                       vii

<PAGE>



                                                            Schedule 1
                                                                 to
                                                          SERIES 1986A BOND
                                                       SUPPLEMENTAL INDENTURE

                             [FORM OF FACE OF BOND]

No. R-                                                                   $
                                                                          ----- 
                          FIRST PV FUNDING CORPORATION

                       LEASE OBLIGATION BOND SERIES 1986A

INTEREST RATE                                                STATED MATURITY


REGISTERED HOLDER:


PRINCIPAL AMOUNT:                                                DOLLARS

                  FIRST  PV  FUNDING   CORPORATION,   a   Delaware   corporation
(hereinafter called the "Company", which term includes any successor corporation
under the  Indenture  referred to on the reverse  hereof),  for value  received,
hereby  promises  to pay to the  Registered  Holder  (named  above)  hereof,  or
registered  assigns,  the Principal Amount (stated above) on the Stated Maturity
(stated  above) and to pay interest  thereon  from the date hereof,  or from the
most  recent  interest  payment  date to which  interest  has been  paid or duly
provided for,  semiannually on July 15 and January 15, in each year,  commencing
January 15, 1987,  at the  Interest  Rate  (stated  above) per annum,  until the
principal hereof is paid in full or made available for payment.  The interest so
payable,  and punctually paid or duly provided for, on any interest payment date
will,  as provided in such  Indenture,  be paid to the person in whose name this
Bond (or one or more  Predecessor  Securities,  as defined in such Indenture) is
registered  at the  close  of  business  on the  Regular  Record  Date  for such
interest, which shall be the June 30 or December 31, as the case may be (whether
or not a Business  Day,  as  defined in such  Indenture),  next  preceding  such
interest payment date. Any such interest not so punctually paid or duly provided
for shall forthwith cease to be payable to the Registered Holder on such Regular
Record  Date,  and may be paid to the  person in whose name this Bond (or one or
more Predecessor Securities) is registered at the close of business on a Special
Record  Date  for the  payment  of such  defaulted  interest  to be fixed by the
Trustee, notice of which shall be given to the Bondholders not less than 10 days
prior to such  Special  Record  Date,  or may be paid at any  time in any  other
lawful manner not inconsistent with the requirements of any securities  exchange
on which the Bonds may be listed,  and upon such  notice as may be  required  by
such  exchange,  all as more fully  provided in such  Indenture.  Payment of the
principal of (and premium, if any) and interest on this Bond will be made at the
corporate trust office of the Paying Agent,  Chemical Bank (or if such office is
not in the Borough of Manhattan,  The City of New York, at either such office or
an office to be  maintained  in such  Borough),  in such coin or currency of the
United  States of America as at the time of payment is legal  tender for payment
of interest  or may be made at the option of the Company by check  mailed to the
address  of the Holder  entitled  thereto as such  address  shall  appear on the
Security Register.

                  Interest on any overdue principal and premium, if any, and (to
the extent  permitted by applicable law) any overdue  interest shall be paid, on
demand, from the due date thereof at the rate of interest per annum (computed on
the  basis of a  360-day  year of twelve  30-day  months)  equal to 1% above the
Interest  Rate (stated  above) on this Bond for the period during which any such
principal, premium or interest shall be overdue.


#30122043.1
                                        1

<PAGE>

                  Reference  is hereby  made to the further  provisions  of this
Bond set forth on the reverse  hereof  which  further  provisions  shall for all
purposes have the same effect as if set forth at this place.

                  Unless  the  certificate  of  authentication  hereon  has been
executed by the Trustee by manual signature,  this Bond shall not be entitled to
any benefit under such Indenture, or be valid or obligatory for any purpose.


                  IN WITNESS WHEREOF,  the Company has caused this instrument to
be duly executed under its corporate seal.

Dated:  July 17, 1986

                                     FIRST PV FUNDING CORPORATION

                                     By
                                        -------------------------
                                               President
Attest:

---------------------
      Secretary


                     [FORM OF CERTIFICATE OF AUTHENTICATION]

       This is one of the Securities of the series designated therein referred 
to in the within-mentioned Indenture.

                                     CHEMICAL BANK
                                       as Trustee

                                     By
                                        -------------------------
                                           Authorized Officer


#30122043.1
                                        2

<PAGE>

                            [FORM OF REVERSE OF BOND]

                          FIRST PV FUNDING CORPORATION

                       LEASE OBLIGATION BOND SERIES 1986A

                  This Bond is one of an  authorized  issue of Securities of the
Company known as its "Lease  Obligation Bonds Series 1986A" (the "Bonds") issued
under,  and all equally and ratably  secured by, a  Collateral  Trust  Indenture
dated as of December 16, 1985 among the Company,  Public Service  Company of New
Mexico, a New Mexico  corporation  (herein called "PNM"),  and Chemical Bank, as
Trustee (herein called the "Trustee",  which term includes any successor Trustee
under the Indenture), as heretofore supplemented and as further supplemented and
amended by the Series  1986A Bond  Supplemental  Indenture  dated as of July 15,
1986 among such  parties  (collectively,  the  "Indenture")  to which  Indenture
reference  is hereby  made for a  description  of the  nature  and extent of the
securities and other property assigned,  pledged and transferred thereunder, the
respective rights of the holders of the Bonds and of the Trustee and the Company
in respect of such  security,  and the terms upon which the Bonds are and are to
be authenticated and delivered.

                  The principal  of, and premium,  if any, and interest on, this
Bond are payable  from,  and  secured by, the assets  subject to the lien of the
Indenture or the income and proceeds received by the Trustee therefrom,  and all
payments of principal, premium (if any) and interest shall be made in accordance
with the terms of the Indenture.

                  The Indenture and each of the  Participation  Agreements among
an Equity Investor (as hereinafter  defined), a Lessor (as hereinafter defined),
the Company,  the Lease Indenture  Trustee (as hereinafter  defined) and certain
other  parties  (each a  "Participation  Agreement")  provide  that, as and when
issued,  certain  Nonrecourse  Promissory Notes (the "Pledged Lessor Notes"), in
aggregate  principal amount of $253,677,000,  to be issued by The First National
Bank of Boston,  as owner trustee under one or more separate  Trust  Agreements,
with the respective  institutional investors named in such Trust Agreements (The
First National Bank of Boston in each of such  capacities as owner trustee being
herein  called a "Lessor"  and each such  institutional  investor  being  herein
called an "Equity Investor"),  will be included within the assets subject to the
lien of the Indenture  pursuant to indenture  supplements.  Such Pledged  Lessor
Notes  are to be issued  under  separate  documents  entitled  Trust  Indenture,
Mortgage,  Security Agreement and Assignment of Rents, each between a Lessor and
Chemical Bank, as trustee (the "Lease  Indenture  Trustee")  (each of such Trust
Indentures,  as it is  executed  and  delivered  and as  thereafter  amended  in
accordance with its terms, being herein called a "Lease  Indenture").  Reference
is made to each Lease  Indenture for a  description  of the nature and extent of
property to be assigned,  pledged,  transferred and mortgaged thereunder and the
rights of the holders of notes issued  thereunder,  including the Pledged Lessor
Notes.  Except as  expressly  provided  in a Lease  Indenture,  all  payments of
principal, premium, if any, and interest to be made on a Pledged Lessor Note and
under such Lease Indenture will be made only from the assets subject to the lien
of such  Lease  Indenture  or the  income  and  proceeds  received  by the Lease
Indenture Trustee therefrom, including, in the case of each Lease Indenture, the
rights of the  Lessor  which is a party  thereto to receive  basic  rentals  and
certain other payments under a Lease with PNM relating to an undivided  interest
in certain assets constituting part of the Palo Verde Nuclear Generating Station
(also known as the Arizona Nuclear Power Project) (each of such Leases, as it is
executed and  delivered and as to be hereafter  amended in  accordance  with its
terms being herein  called a "Lease"),  which basic  rentals and other  payments
will be at least  sufficient  to provide for the payment of the principal of and
premium,  if any,  and  interest on each  Pledged  Lessor Note issued under such
Lease Indenture.  Each Holder hereof, by its acceptance of this Bond, agrees (x)
that  except as  expressly  provided  above,  it will look  solely to the assets
subject to the lien of the Indenture or the income and proceeds  received by the
Trustee therefrom, to the extent available for distribution to the Holder hereof
as provided in the Indenture and (y) that none of an Equity Investor,  a Lessor,
a Lease  Indenture  Trustee or the Trustee is liable to the Holder hereof or, in
the case of an Equity Investor,  a Lessor and a Lease Indenture Trustee,  to the
Trustee for any amounts  payable  under this Bond or,  except as provided in the
Indenture with respect to the Trustee, for any liability under the Indenture. An
Equity Investor shall not have any duty or responsibility under the Indenture or
the Bonds to any Holder or to the Trustee.

                  The  Indenture  permits,  with certain  exceptions  as therein
provided,  the  amendment  thereof  and  the  modification  of  the  rights  and
obligations  of PNM and  the  Company  and  the  rights  of the  Holders  of the
Securities  under  the  Indenture  at any time by PNM and the  Company  with the
consent of the Holders of not less than a majority in aggregate principal amount

#30122043.1
                                        3

<PAGE>
of the  Securities at the time  Outstanding,  as defined in the  Indenture.  The
Indenture  also  contains   provisions   permitting  the  Holders  of  specified
percentages  in  aggregate  principal  amount  of the  Securities  at  the  time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by PNM and the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences.  Any such consent or waiver
by the Holder of this Bond shall be conclusive  and binding upon such Holder and
upon all  future  Holders  of this  Bond  and of any  Security  issued  upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent or waiver is made upon this Bond.

                  As provided in the Indenture,  the aggregate  principal amount
of Securities which may be issued thereunder is unlimited. The Bonds are limited
in aggregate principal amount to $253,677,000, consisting of:

         Stated Maturity           Interest          Principal
           of Principal              Rate              Amount
           ------------              ----              ------

         July 15, 1991              8.3%            $25,332,000

         July 15, 1996              9.125%          $40,532,000

         January 15, 2014          10.3%           $187,813,000
                                                   ------------
                                                   $253,677,000

                  In the event  that one or more  Leases  are  terminated  under
Section 14 thereof,  the Bonds with Stated  Maturity of principal of January 15,
2014 are subject to mandatory  redemption  in part from time to time on not less
than 20 nor more than 60 days' prior notice  given as provided in the  Indenture
at a redemption  price equal to the principal amount of the Bonds to be redeemed
plus  accrued  interest  to the date fixed for  redemption,  on the same date on
which,  and to the same extent that,  the Pledged  Lessor Notes  relating to the
Bonds are prepaid as provided in Section 5.2 of the Lease  Indenture under which
they were issued.

                  The  Bonds  of each  Stated  Maturity  of  principal  are also
subject to mandatory  redemption pursuant to sinking fund installments,  as more
fully provided in the Indenture, at the principal amount thereof,  together with
interest  accrued  to the date  fixed  for  redemption,  on the dates and in the
respective principal amounts set forth in the Indenture.

                  The sinking  fund  installments  for the Bonds of a particular
Stated  Maturity of principal set forth in the Indenture may be adjusted once at
the discretion of the Company prior to July 15, 1988, in connection with certain
adjustments in basic rent pursuant to any of the Leases; provided, however, that
no such  adjustments  shall be made by the Company which will increase or reduce
the average life of such Bonds (calculated in accordance with generally accepted
financial  practice  from the date of initial  issuance  thereof) by more than 6
months.

                  As provided in the Indenture, in connection with any mandatory
sinking fund  redemption of Bonds of a particular  Stated  Maturity or principal
(other  than Bonds of a Stated  Maturity of  principal  of July 15,  1991),  the
Company may cause the Trustee first to select for such redemption  Bonds of such
Stated Maturity of principal held by PNM or any Affiliate of PNM.

                  In  the  event  of  any  partial  redemption  of  Bonds  of  a
particular   Stated   Maturity  of  principal   (other  than   pursuant  to  the
aforementioned  sinking  fund),  the  principal  amount of Bonds of such  Stated
Maturity of  principal  to be redeemed  thereafter  pursuant to the sinking fund
schedule indicated in the Indenture shall be adjusted  proportionately as nearly
as practicable in accordance with Section 7.01 of the Indenture.

                  In  addition,  the  Bonds  (other  than  Bonds  with a  Stated
Maturity of principal of July 15, 1991) are subject to  redemption,  in whole or
in part, at any time, at the option of the Company,  with monies  deposited with
the Trustee, on not less than 20 nor more than 60 days' notice given as provided
in the Indenture,  at the following redemption prices (expressed as a percentage
of  principal  amount),  together  with  interest  accrued to the date fixed for
redemption as follows:

#30122043.1
                                        4

<PAGE>

                  Bonds with a Stated Maturity of principal of July 15, 1996 may
         be redeemed at a price of 109.125%  of the  principal  amount  thereof,
         such  percentage  to decline by 1.304 on July 15,  1987 and each second
         anniversary  thereof  and by  1.303 on July  15,  1988 and each  second
         anniversary thereof,  until such date as such percentage shall be 100%,
         and thereafter 100%; and

                  Bonds with a Stated  Maturity of principal of January 15, 2014
         may be redeemed at a price of 110.3% of the principal  amount  thereof,
         such  percentage  to  decline  by  .412  on  July  15,  1987  and  each
         anniversary thereof,  until such date as such percentage shall be 100%,
         and thereafter 100%;

provided, however, that no such redemption shall be made prior to July 15, 1991,
directly  or  indirectly,  as a part of,  or in  anticipation  of any  refunding
operation  involving the incurrence of indebtedness by the Company,  any Lessor,
PNM or any  Affiliate  of any  thereof  if such  indebtedness  has an  effective
interest cost to the Company,  such Lessor,  PNM or such Affiliate,  as the case
may be (computed in accordance with generally accepted financial  practice),  of
less  than  9.125%  per  annum in the case of Bonds  with a Stated  Maturity  of
principal  of July 15,  1996,  and 10.3%  per annum in the case of Bonds  with a
Stated Maturity of principal of January 15, 2014.

                  In the  case  of any  redemption  of  Bonds,  unpaid  interest
installments whose Stated Maturity, as defined in the Indenture,  is on or prior
to the date fixed for redemption will be payable to the Holders of such Bonds or
one or more  Predecessor  Securities  of record at the close of  business on the
relevant Regular or Special Record Date referred to on the face hereof.

                  The  Indenture  provides that Bonds of a  denomination  larger
than $1,000 may be redeemed in part ($1,000 or an integral multiple thereof) and
that upon any partial  redemption of any such Bond the same shall be surrendered
at the  corporate  trust  office of the Paying Agent in exchange for one or more
new Bonds for the unredeemed portion thereof.

                  Bonds (or portions  thereof as aforesaid) for whose redemption
and payment  provision is made in accordance  with the Indenture shall thereupon
cease  to be  entitled  to the lien of the  Indenture  and  shall  cease to bear
interest from and after the date fixed for redemption.

                  If an Event of  Default,  as defined in the  Indenture,  shall
occur, the principal of this Bond may become or be declared due and payable,  in
the manner and with the effect provided in the Indenture.

                  This Bond is  transferable  by the registered  owner hereof in
person or by attorney  authorized in writing,  at the corporate  trust office of
the Bond  Registrar,  Chemical  Bank (or if such office is not in the Borough of
Manhattan,  The City of New  York,  at  either  such  office  or an office to be
maintained  in such  Borough),  upon  surrender of this Bond,  and upon any such
transfer  a new Bond of the same  Stated  Maturity  of  principal,  for the same
aggregate  principal  amount,  will be  issued  to the  transferee  in  exchange
herefor.

                  The  Bonds  are  issuable  only as  registered  Bonds  without
coupons in  denominations  of $1,000 and/or any integral  multiple  thereof.  As
provided  in,  and  subject to the  provisions  of,  the  Indenture,  Bonds of a
particular Stated Maturity of principal are exchangeable for other Bonds of such
Stated Maturity, but of a different authorized denomination or denominations, as
requested by the Holder surrendering the same.

                  No service  charge will be made to any Holder of Bonds for any
such transfer or exchange,  but the Bond Registrar may require  payment of a sum
sufficient to cover any tax or other  governmental  charge payable in connection
therewith.

                  Prior to due  presentment for  registration  of transfer,  the
person in whose  name this  Bond is  registered  shall be deemed to be the owner
hereof for the purpose of receiving payment as herein provided and for all other
purposes whether or not this Bond be overdue, regardless of any notice to anyone
to the contrary.


#30122043.1
                                        5

<PAGE>

                  As  provided in the  Indenture,  the  Indenture  and the Bonds
shall be construed in  accordance  with and governed by the laws of the State of
New York.
                                                              Schedule 2
                                                                  to
                                                           SERIES 1986A BOND
                                                        SUPPLEMENTAL INDENTURE

A. As used in this Series 1986A Bond Supplemental Indenture, the following terms
   have the following meanings:

                  (1)      Lease Indenture means each of:

                           (i) the Trust Indenture, Mortgage, Security Agreement
                  and  Assignment  of  Rents,  dated as of  December  16,  1985,
                  between  the  Indenture  Trustee  and Owner  Trustee No. 1, as
                  amended by Supplemental  Indenture No. 1 thereto,  dated as of
                  July 15, 1986;

                           (ii)  the   Trust   Indenture,   Mortgage,   Security
                  Agreement and  Assignment  of Rents,  dated as of December 16,
                  1985,  between the Indenture  Trustee and Owner Trustee No. 2,
                  as amended by Supplemental  Indenture No. 1 thereto,  dated as
                  of July 15, 1986; and

                           (iii)  the  Trust   Indenture,   Mortgage,   Security
                  Agreement and  Assignment  of Rents,  dated as of December 16,
                  1985,  between the Indenture  Trustee and Owner Trustee No. 3,
                  as amended by Supplemental  Indenture No. 1 thereto,  dated as
                  of July 15, 1986.

                  (2)      Lessor Note means each of:

                           (i) the  Non-Recourse  Promissory  Note,  Fixed  Rate
                  Series (Due July 15, 1991) in the amount of $13,622,000  dated
                  July 17, 1986, payable by Owner Trustee No. 1 to the Company.

                           (ii) the  Non-Recourse  Promissory  Note,  Fixed Rate
                  Series (Due July 15, 1996) in the amount of $20,851,000  dated
                  July 17, 1986, payable by Owner Trustee No. 1 to the Company;

                           (iii) the  Non-Recourse  Promissory  Note, Fixed Rate
                  Series  (Due  January 15,  2012) in the amount of  $95,177,000
                  dated July 17, 1986, payable by Owner Trustee No. 1;

                           (iv) the  Non-Recourse  Promissory  Note,  Fixed Rate
                  Series (Due July 15, 1991) in the amount of  $7,017,000  dated
                  July 17, 1986, payable by Owner Trustee No. 2 to the Company;

                           (v) the  Non-Recourse  Promissory  Note,  Fixed  Rate
                  Series (Due July 15, 1996) in the amount of $12,496,000  dated
                  July 17, 1986, payable by Owner Trustee No. 2 to the Company;

                           (vi) the  Non-Recourse  Promissory  Note,  Fixed Rate
                  Series  (Due  January 15,  2013) in the amount of  $58,031,000
                  dated July 17,  1986,  payable by Owner  Trustee  No. 2 to the
                  Company;


#30122043.1
                                        1

<PAGE>

                           (vii) the  Non-Recourse  Promissory  Note, Fixed Rate
                  Series (Due July 15, 1991) in the amount of  $4,693,000  dated
                  July 17, 1986, payable by Owner Trustee No. 3; and

                           (viii) the  Non-Recourse  Promissory Note, Fixed Rate
                  Series (Due July 15, 1996) in the amount of  $7,185,000  dated
                  July 17, 1986,  payable by Owner Trustee No. 3 to the Company;
                  and

                           (ix) the  Non-Recourse  Promissory  Note,  Fixed Rate
                  Series  (Due  January 15,  2014) in the amount of  $34,605,000
                  dated July 17,  1986,  payable by Owner  Trustee  No. 3 to the
                  Company.

                  (3) Lessor or Owner Trustee  means The First  National Bank of
Boston, a national banking  association  (FNB), in its capacity as owner trustee
under three separate Trust Agreements,  each dated as of December 16, 1985, with
the equity  investor named therein,  in such capacity Owner Trustee No. 1, Owner
Trustee No. 2 and Owner Trustee No. 3, respectively.

                  (4) Indenture  Trustee means Chemical Bank, a New York banking
corporation, as Trustee.

                  (5)      Lease means each of:

                           (i) the  Facility  Lease,  dated as of  December  16,
                  1985,  between  PNM,  as lessee,  and Owner  Trustee No. 1, as
                  lessor,  as amended by  Amendment  No. 1 thereto,  dated as of
                  July 15, 1986;

                           (ii) the  Facility  Lease,  dated as of December  16,
                  1985,  between  PNM,  as lessee,  and Owner  Trustee No. 2, as
                  lessor,  as amended by  Amendment  No. 1 thereto,  dated as of
                  July 15, 1986; and

                           (iii) the  Facility  Lease,  dated as of December 16,
                  1985,  between  PNM,  as lessee,  and Owner  Trustee No. 3, as
                  lessor,  as amended by  Amendment  No. 1 thereto,  dated as of
                  July 15, 1986.

                  (6)      Participation Agreement means each of:

                           (i) the Participation Agreement, dated as of December
                  16, 1985, among the Owner Participant  designated therein, the
                  Company,  FNB, in its individual capacity and as Owner Trustee
                  No.  1,  Chemical  Bank,  in its  individual  capacity  and as
                  Indenture  Trustee,  and PNM,  as amended by  Amendment  No. 1
                  thereto, dated as of July 15, 1986;

                           (ii)  the  Participation   Agreement,   dated  as  of
                  December  16,  1985,  among the Owner  Participant  designated
                  therein,  the Company,  FNB, in its individual capacity and as
                  Owner Trustee No. 2, Chemical Bank, in its individual capacity
                  and as Indenture Trustee, and PNM, as amended by Amendment No.
                  1 thereto, dated as of July 15, 1986; and

                           (iii)  the  Participation  Agreement,   dated  as  of
                  December  16,  1985,  among the Owner  Participant  designated
                  therein,  the Company,  FNB, in its individual capacity and as
                  Owner Trustee No. 3, Chemical Bank, in its individual capacity
                  and as Indenture Trustee, and PNM, as amended by Amendment No.
                  1 thereto, dated as of July 15, 1986.

#30122043.1
                                        2

<PAGE>



                                                               EXHIBIT C to
                                                       Conformed Collateral
                                                            Trust Indenture
================================================================================



                          FIRST PV FUNDING CORPORATION,


                      PUBLIC SERVICE COMPANY OF NEW MEXICO


                                       and


                                 CHEMICAL BANK,
                                   as Trustee

                                   ----------


                    SERIES 1986B BOND SUPPLEMENTAL INDENTURE

                          dated as of November 18, 1986

                                       to

                           COLLATERAL TRUST INDENTURE

                          dated as of December 16, 1985


                                   ----------


                          Providing for the Issuance of
                          $460,000,000 Aggregate Amount
                     of Lease Obligation Bonds, Series 1986B
                  with the Interest Rates and Stated Maturities
                                Set Forth Herein

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



                      PALO VERDE NUCLEAR GENERATING STATION

                  SERIES 1986B BOND SUPPLEMENTAL INDENTURE, dated as of November
18,  1986  among  FIRST PV FUNDING  CORPORATION,  a  Delaware  corporation  (the
Company),  PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (PNM),
and CHEMICAL BANK, a New York banking corporation, as trustee (the Trustee).


#30122046.1
                                        3

<PAGE>

                  WHEREAS,  the Company  and PNM have  heretofore  executed  and
delivered  to the  Trustee  an  indenture  dated as of  December  16,  1985 (the
Original  Indenture) to provide for the issue from time to time of the Company's
debentures, notes or other evidences of indebtedness to be issued in one or more
series (the Securities);

                  WHEREAS,  Section  2.03 of the  Original  Indenture  provides,
among  other  things,  that PNM,  the  Company  and the  Trustee  may enter into
indentures  supplemental to the Original  Indenture for, among other things, the
purpose  of  establishing  the form and  terms of  Securities  of any  series as
permitted by Section 2.03 of the Original Indenture;

                  WHEREAS, PNM and the Company heretofore executed and delivered
the Series  1986A Term Note  Supplemental  Indenture,  dated as of July 31, 1986
(the Series 1986A Term Note  Supplemental  Indenture),  to the Trustee,  and the
Company  issued  thereunder  a  series  of  Securities  designated  "Term  Lease
Obligation Notes Series 1986A" in the aggregate principal amount of $40,000,000;

                  WHEREAS,   Section   1.03  of  the  Series   1986A  Term  Note
Supplemental  Indenture  provides,  among  other  things,  that the  Term  Lease
Obligation  Notes Series 1986A shall be redeemed in connection with the issuance
of a series of Securities to effect a refunding of the same;

                  WHEREAS, PNM and the Company heretofore executed and delivered
the Series 1986B Term Note Supplemental  Indenture,  dated as of August 12, 1986
(the Series 1986B Term Note  Supplemental  Indenture),  to the Trustee,  and the
Company  issued  thereunder  a  series  of  Securities  designated  "Term  Lease
Obligation   Notes  Series   1986B"  in  the  aggregate   principal   amount  of
$325,960,123.15;

                  WHEREAS,   Section   1.03  of  the  Series   1986B  Term  Note
Supplemental  Indenture  provides,  among  other  things,  that the  Term  Lease
Obligation  Notes Series 1986B shall be redeemed in connection with the issuance
of a series of Securities to effect a refunding of the same;

                  WHEREAS,  PNM and the Company  (i) desire the  issuance by the
Company of a new series of Securities to be designated as  hereinafter  provided
to effect a refunding  of the Term Lease  Obligation  Notes Series 1986A and the
Term Lease Obligation  Notes Series 1986B,  and for certain other purposes,  and
(ii)  have   requested  the  Trustee  to  enter  into  this  Series  1986B  Bond
Supplemental  Indenture (the Series 1986B Bond  Supplemental  Indenture) for the
purpose of establishing the form and terms of the Securities of such series;

                  WHEREAS,  all action on the part of the Company  necessary  to
authorize the issuance of $460,000,000  principal amount of its Lease Obligation
Bonds,  Series 1986B (the Bonds) under the  Original  Indenture  and this Series
1986B Bond  Supplemental  Indenture  (said  Original  Indenture,  as  heretofore
supplemented  and  amended  and  as  supplemented  by  this  Series  1986B  Bond
Supplemental  Indenture,  being hereinafter  called the Indenture) has been duly
taken;

                  WHEREAS,   the  Bonds  to  be  issued   hereunder  are  to  be
substantially in the form annexed as Schedule 1 hereto;

                  WHEREAS,  to the  extent not  released  on the date of initial
issuance of the Bonds, the Company intends,  in accordance with Sections 2.15(b)
and 13.01 of the Original  Indenture,  to obtain the release of all or a portion
of the remaining  proceeds of sale of the Bonds by subjecting to the Lien of the
Original  Indenture,  pursuant to one or more Supplemental  Indentures of Pledge
(each a Supplemental Indenture of Pledge, a form of which is attached as Exhibit
A to this Series 1986B Bond Supplemental  Indenture),  all or some of the Lessor
Notes described in Schedule 3 hereto;

                  WHEREAS, Section 11.01 of the Original Indenture provides that
the  Company  and  the  Trustee  may,  without  consent  of the  Holders  of any
Securities,  enter into an indenture  supplemental to the Original  Indenture to
cure a defective  provision in the Original  Indenture provided such action does
not adversely affect the interest of the Holders of the Securities;


#30122046.1
                                        4

<PAGE>

                  WHEREAS,  the Company desires to make the amendment to Section
9.06(b) of the  Original  Indenture  set forth in Article  Three of this  Series
1986B Bond Supplemental Indenture; and

                  WHEREAS, all acts and things necessary to make the Bonds, when
executed  by the  Company  and  authenticated  and  delivered  by the Trustee as
provided in the Original Indenture,  the valid, binding and legal obligations of
the Company,  and to constitute these presents a valid and binding  supplemental
indenture and agreement  according to its terms,  have been done and  performed,
and the  execution  of this Series  1986B Bond  Supplemental  Indenture  and the
creation and issuance under the Indenture of  $460,000,000  aggregate  principal
amount of the Bonds have in all respects been duly authorized,  and the Company,
in the  exercise  of legal  right and power in it vested,  executes  this Series
1986B Bond  Supplemental  Indenture and proposes to create,  execute,  issue and
deliver the Bonds:

                  NOW, THEREFORE, THIS SERIES 1986B BOND SUPPLEMENTAL INDENTURE
WITNESSETH:

                  That in  order  to  establish  the  form  and  terms of and to
authorize the  authentication and delivery of the Bonds, and in consideration of
the acceptance of the Bonds by the holders  thereof and of the sum of one dollar
duly paid to the Company by the Trustee at the execution of these presents,  the
receipt  whereof is hereby  acknowledged,  the Company and PNM each covenant and
agree  with  the  Trustee,  for  the  equal  and  proportionate  benefit  of the
respective holders from time to time of the Bonds, as follows:


                                   ARTICLE I.

                                    THE BONDS

                  SECTION 1.011. Terms of the Bonds.

                  There is  hereby  created a series  of  Securities  designated
"Lease Obligation Bonds, Series 1986B". Subject to the exceptions referred to in
the Original Indenture,  the aggregate principal amount of the Bonds that may be
authenticated and delivered under this Series 1986B Bond Supplemental  Indenture
is  limited  to  $460,000,000.  Bonds  in  the  aggregate  principal  amount  of
$460,000,000  may  forthwith  be executed by the  Company and  delivered  to the
Trustee for  authentication  and delivery by the Trustee in accordance  with the
provisions of Section 2.04 of the Original  Indenture in the  following  amounts
for the Stated Maturities of principal and at the interest rates indicated:

         Stated Maturity            Interest        Principal
           of Principal               Rate            Amount
           ------------               ----            ------

         January 15, 1992            8.05%           $ 13,988,000
         January 15, 1997            8.95              60,347,000
         January 15, 2016           10.15             385,665,000
                                                    -------------
                                                     $460,000,000

The Bonds shall be payable,  bear interest and have and be subject to such other
terms as provided in the form of Bond attached as Schedule 1 hereto.

                  SECTION 1.012.  Mandatory Redemption of the Bonds.


                  (a) Failure to Pledge Lessor  Notes.  If the Company shall (i)
fail,  on or  before  January  25,  1987,  duly to  subject  to the  Lien of the
Indenture Lessor Notes (in addition to the Lessor Notes identified in Schedule 2
hereto) in the principal  amount of $88,000,000  and with the  amortizations  of
principal and bearing the interest  rates set forth in Schedule 3 hereto or (ii)
deliver to the  Trustee,  on or before  January 25,  1987,  irrevocable  written
notice that it shall not so subject  such  Lessor  Notes,  then,  in either such
event, on the Redemption Date established in accordance with Section 1.02(d) of

#30122046.1
                                        5

<PAGE>

this Series 1986B Bond Supplemental Indenture, Bonds of the Stated Maturities of
principal and in the aggregate principal amounts set forth in Section 1.02(c)(i)
of this Series 1986B Bond  Supplemental  Indenture  shall be redeemed from funds
held by the Trustee  pursuant to Section  2.15(a) of the  Indenture  and, to the
extent the aforesaid  funds shall not be sufficient to redeem such Bonds,  funds
provided by the Company.

                  (b)  Termination of Lease. In the event that there shall occur
under Section 14 of any Lease  identified in Schedule 2 hereto or related to the
Lessor Notes  described in Schedule 3 hereto a termination of such Lease,  Bonds
with a Stated  Maturity of principal  of January 15, 2016 shall be redeemed,  in
part,  in proportion  to the  principal  amount of the Pledged  Lessor Notes (as
defined in Article II of this  Series  1986B  Bond  Supplemental  Indenture  and
identified  in  Schedules  2 and 3 hereto)  related to such  Lease (the  Prepaid
Lessor  Notes)  prepaid in  accordance  with their  terms and Section 5.2 of the
Lease  Indenture  under which such  Pledged  Lessor  Notes are issued.  Any such
redemption  shall be on the same date on which,  and shall be made to the extent
that, the Prepaid Lessor Notes are so prepaid.

                  (c)  Selection  of  Bonds  to be  Redeemed.  (i)  Attached  as
Schedule 3 hereto is a description of six Lessor Notes, three of which relate to
a Lease with respect to an undivided  interest in Palo Verde Nuclear  Generating
Station (PVNGS) Unit 1 and certain related common  facilities (the Unit 1 Lessor
Notes) and three of which  relate to an  undivided  interest in PVNGS Unit 2 and
certain related common  facilities (the Unit 2 Lessor Notes).  In the event of a
redemption  pursuant to Section  1.02(a) of this Series 1986B Bond  Supplemental
Indenture arising from a failure to pledge the Unit 1 Lessor Notes, the Bonds so
to be redeemed shall (notwithstanding the first proviso to the first sentence of
Section  6.02 of the  Original  Indenture)  be  selected  from  among the Stated
Maturities of principal of the Bonds as follows:  Bonds of a Stated  Maturity of
principal  of  January  15,  1992,  $3,300,000;  Bonds of a Stated  Maturity  of
principal of January 15,  1997,  $8,060,000;  and Bonds of a Stated  Maturity of
principal  of  January  15,  2016,  $48,640,000.  In the  event of a  redemption
pursuant to Section  1.02(a) of this Series  1986B Bond  Supplemental  Indenture
arising  from a failure  to pledge the Unit 2 Lessor  Notes,  the Bonds so to be
redeemed  shall  (notwithstanding  the first  proviso to the first  sentence  of
Section  6.02 of the  Original  Indenture)  be  selected  from  among the Stated
Maturities of principal of the Bonds as follows:  Bonds of a Stated  Maturity of
principal  of  January  15,  1992,  $1,270,000;  Bonds of a Stated  Maturity  of
principal of January 15,  1997,  $3,501,000;  and Bonds of a Stated  Maturity of
principal of January 15, 2016, $23,229,000.

                  (ii) In the  event  of a  redemption  of  Bonds  with a Stated
Maturity of  principal of January 15, 2016  pursuant to Section  1.02(b) of this
Series 1986B Bond Supplemental  Indenture,  the Bonds so to be redeemed shall be
selected in accordance  with Section 6.02 of the  Indenture,  but without giving
effect to the first proviso to the first sentence of such Section.

                  (d) Redemption  Dates. (i) The Redemption Date for any Bond to
be redeemed  pursuant to Section 1.02(a) of this Series 1986B Bond  Supplemental
Indenture shall be a Business Day selected by the Company  occurring at least 30
days  after  notice  of such  selection  has been  given by the  Company  to the
Trustee; provided, however, that such Redemption Date shall in no event be later
than April 25, 1987; provided further,  however, that such Redemption Date shall
be April 25, 1987 if the Company  has not at least 35 days prior  thereto  given
written notice of such selection of a Redemption Date to the Trustee.

                  (ii) The Redemption Date for any Bond to be redeemed  pursuant
to Section  1.02(b) of this Series 1986B Bond  Supplemental  Indenture  shall be
determined in accordance with such Section 1.02(b).

                  (e) Redemption Price. (i) The Redemption Price for any Bond to
be redeemed  pursuant to Section 1.02(a) of this Series 1986B Bond  Supplemental
Indenture shall be 101% of the principal  amount thereof,  together with accrued
interest to the Redemption Date.

                  (ii) The Redemption Price for any Bond to be redeemed pursuant
to Section  1.02(b) of this Series 1986B Bond  Supplemental  Indenture  shall be
100% of the principal  amount  thereof,  together  with accrued  interest to the
Redemption Date.


#30122046.1
                                        6

<PAGE>

                  SECTION 1.013. Optional Redemption of Bonds.

                  The Bonds may not be  redeemed  at the  option of the  Company
prior to January 15, 1992.  On and after  January 15, 1992,  Bonds with a Stated
Maturity of  principal  of January 15, 1997 and Bonds with a Stated  Maturity of
principal of January 15, 2016 may be redeemed at the option of the  Company,  in
whole or in part with  monies  deposited  with the  Trustee by the  Company,  as
follows:

                  (a) Bonds with a Stated  Maturity of  principal of January 15,
1997  may be  redeemed  at  the  following  redemption  prices  (expressed  as a
percentage  of  principal  amount),   together  with  interest  accrued  to  the
redemption date:

                          Twelve Month           Redemption
                        Period Beginning            Price
                        ----------------            -----

                       January 15, 1992          102.557%
                       January 15, 1993          101.279

and thereafter at the principal  amount thereof,  together with interest accrued
to the Redemption Date.

                  (b) Bonds with a Stated  Maturity of  principal of January 15,
2016  may be  redeemed  at  the  following  redemption  prices  (expressed  as a
percentage  of  principal  amount),   together  with  interest  accrued  to  the
Redemption Date:

                           Twelve Month          Redemption
                         Period Beginning           Price
                         ----------------           -----

                         January 15, 1992        108.120%
                         January 15, 1993        107.714
                         January 15, 1994        107.308
                         January 15, 1995        106.902
                         January 15, 1996        106.496
                         January 15, 1997        106.090
                         January 15, 1998        105.684
                         January 15, 1999        105.278
                         January 15, 2000        104.872
                         January 15, 2001        104.466
                         January 15, 2002        104.060
                         January 15, 2003        103.654
                         January 15, 2004        103.248
                         January 15, 2005        102.842
                         January 15, 2006        102.436
                         January 15, 2007        102.030
                         January 15, 2008        101.624
                         January 15, 2009        101.218
                         January 15, 2010        100.812
                         January 15, 2011        100.406

and thereafter at the principal  amount thereof,  together with interest accrued
to the Redemption Date.


#30122046.1
                                        7

<PAGE>

                  SECTION 1.014.  Sinking Fund.

                  (a)  Amounts and Dates.  The Bonds  shall be redeemed  through
operation of a sinking fund. The amount of each Sinking Fund payment (subject to
adjustment  as provided in  paragraphs  (c) and (d) below) and each Sinking Fund
Date  applicable to a Stated Maturity of principal of the Bonds are as set forth
below:

                            Stated Maturity of Principal
                            ----------------------------

      Sinking Fund      January 15,   January 15,      January 15,
          Date             1992          1997             2016
    ----------------     --------      --------        --------


    July 15, 1989       $   379,000
 January 15, 1990           773,000
    July 15, 1990         1,344,000
 January 15, 1991         2,221,000
    July 15, 1991         4,545,000
 January 15, 1992         4,726,000
    July 15, 1992                      $ 4,916,000
 January 15, 1993                        5,137,000
    July 15, 1993                        5,366,000
 January 15, 1994                        5,607,000
    July 15, 1994                        5,857,000
 January 15, 1995                        6,118,000
    July 15, 1995                        6,395,000
 January 15, 1996                        6,680,000
    July 15, 1996                        6,980,000
 January 15, 1997                        7,291,000
    July 15, 1997                                         $ 7,618,000
 January 15, 1998                                           8,005,000
    July 15, 1998                                           8,211,000
 January 15, 1999                                           7,383,000
    July 15, 1999                                           6,891,000
 January 15, 2000                                           6,921,000
    July 15, 2000                                           7,004,000
 January 15, 2001                                           6,739,000
    July 15, 2001                                           7,065,000
 January 15, 2002                                           7,116,000
    July 15, 2002                                           7,414,000
 January 15, 2003                                           7,439,000
    July 15, 2003                                           7,783,000
 January 15, 2004                                           7,839,000
    July 15, 2004                                           8,289,000
 January 15, 2005                                           8,352,000
    July 15, 2005                                           8,830,000
 January 15, 2006                                           9,063,000
    July 15, 2006                                           9,635,000
 January 15, 2007                                           9,250,000
    July 15, 2007                                          10,262,000
 January 15, 2008                                           9,892,000
    July 15, 2008                                          12,043,000
 January 15, 2009                                          11,501,000

#30122046.1
                                        8

<PAGE>


    July 15, 2009                                          12,938,000
 January 15, 2010                                          12,367,000
    July 15, 2010                                          13,904,000
 January 15, 2011                                          13,301,000
    July 15, 2011                                          14,947,000
 January 15, 2012                                          14,309,000
    July 15, 2012                                          13,495,000
 January 15, 2013                                          10,850,000
    July 15, 2013                                          12,502,000
 January 15, 2014                                          11,555,000
    July 15, 2014                                          13,314,000
 January 15, 2015                                          19,217,000
    July 15, 2015                                          10,473,000
 January 15, 2016                                          11,948,000

                  (b) Selection of Bonds.  The provisions of Section 7.02 of the
Original  Indenture to the  contrary  notwithstanding,  the Trustee  shall first
select for  redemption  on any  Sinking  Fund Date on which  Bonds with a Stated
Maturity of principal of January 15, 2016 are to be redeemed in accordance  with
the Sinking Fund relating  thereto,  such Bonds, if any, of such Stated Maturity
of  principal,  as the Company shall specify (by Bond number) are held by PNM or
an  Affiliate of PNM in a Company  Request  delivered to the Trustee at least 40
(but not more than 90) days prior to such  Sinking  Fund Date and upon which the
Trustee may rely.  Subject to the foregoing,  particular Bonds to be redeemed on
any Sinking Fund Date shall be selected in  accordance  with Section 7.02 of the
Original Indenture.

                  (c) Optional  Adjustment to Sinking Bond Fund for Bonds with a
Stated Maturity of principal of January 15, 2016. The principal  amount of Bonds
with a Stated  Maturity of principal of January 15, 2016 to be redeemed  through
operation  of the  Sinking  Fund for  such  Bonds  may be  adjusted  (upward  or
downward) at the  discretion  of the Company at one time prior to July 15, 1997;
provided,  however,  that no such adjustment  shall be made by the Company which
will increase or reduce the average life of such Bonds (calculated in accordance
with generally accepted financial practice from the date of initial issuance) by
more than two years; provided further, however, such adjustment may only be made
in  connection  with an adjustment to basic rent pursuant to Section 3(d) of one
or more of the Leases  identified  in Schedule 2 hereto or related to the Lessor
Notes  described  in Schedule 3 hereto.  If the Company  shall elect to make the
foregoing adjustment,  the Company shall deliver to the Trustee and PNM at least
60 days prior to the first  Sinking  Fund Date  proposed  to be affected by such
adjustment,  a Company  Request (w) stating that the Company has elected to make
such adjustment in connection  with  adjustments to basic rent under one or more
of such Leases, (x) setting forth a revised schedule of principal amounts of the
Sinking  Fund  applicable  to such  Bonds,  (y)  attaching a copy of the revised
schedules of principal  amortization  for the related  Pledged  Lessor Notes (as
defined in Article II of this  Series  1986B  Bond  Supplemental  Indenture  and
identified in Schedules 2 and 3 hereto) and (z) attaching  calculations  showing
that (i) the average life of such Bonds will not be reduced or increased  except
as permitted by this paragraph (c), (ii) the aggregate  principal  amount of the
Pledged  Lessor Notes  equals the  aggregate  principal  amount of the Bonds and
(iii) the aggregate  amortization of the principal amount of such Pledged Lessor
Notes is sufficient  to repay in full, as and when due, the principal  amount of
such Bonds as and when due,  whether upon  redemption  through  operation of the
applicable  Sinking  Fund or at  maturity.  The Trustee may rely on such Company
Request and shall have no duty with respect to the  calculations  referred to in
the foregoing clause (z) other than to make them available for inspection by any
Holder of such Bonds at the Corporate Trust Office upon reasonable  notice.  The
Trustee shall, at the expense of PNM, send to each Holder of such Bonds at least
20 days  before the first  Sinking  Fund Date to be affected  thereby,  by first
class mail, a copy of such revised schedule of principal amounts of Sinking Fund
payments applicable to such Bonds.

                  (d)  Mandatory   Adjustment  to  Sinking  Funds.   The  second
paragraph  of  Section   7.01  of  the   Original   Indenture  to  the  contrary
notwithstanding,  in the event that there shall have been any partial redemption
of Bonds of a particular  Stated  Maturity of principal  (other than pursuant to
the Sinking Fund), the Sinking Fund payments  thereafter to be made with respect
to such Bonds shall be adjusted as follows. The Company shall first identify all
related Pledged Lessor Notes (as defined in Article II of this Series 1986B Bond
Supplemental  Indenture and  identified in Schedules 2 and 3 hereto)  having the
same  maturity as the Bonds of such  particular  Stated  Maturity  of  principal
redeemed,

#30122046.1
                                        9

<PAGE>

if any, which are outstanding following such redemption provided,  however, that
for  purposes of this  Section  1.04(d),  any such  Pledged  Lessor Notes with a
maturity  subsequent  to January  15, 2010 shall be deemed to have a maturity of
January 15, 2016.  Having  identified all such outstanding  Pledged Lessor Notes
(the  Outstanding  Notes),  the Company  shall  determine the dates on which the
principal  of  such  Outstanding   Notes  is  to  be  amortized  (the  Scheduled
Amortization Dates). The amount of the Sinking Fund payment scheduled to be made
on each Sinking  Fund Date  subsequent  to the date of such  partial  redemption
shall  then  be  adjusted  to  equal  the  aggregate  principal  amount  of  all
Outstanding  Notes scheduled to be amortized on the Scheduled  Amortization Date
corresponding  to such Sinking  Fund Date.  All such  adjustments  in respect of
Sinking  Fund  payments  on a Sinking  Fund Date shall be rounded to the nearest
$1,000,  and shall be subject to necessary further  adjustment so that the total
amount of such  reduction  is at least  equal to the total  principal  amount of
Bonds redeemed pursuant to such partial redemption. Having made the calculations
required  by the  preceding  two  sentences,  the Company  shall  deliver to the
Trustee  a  Company  Request  not  later  than 30  days  following  any  partial
redemption of Bonds (other than pursuant to the Sinking Fund), setting forth (x)
the schedules of principal  amortization of all related Outstanding Notes having
the same maturity as the Stated  Maturity of principal of the Bonds redeemed and
(y) a revised  schedule of Sinking Fund payments  applicable to Bonds having the
same Stated Maturity of principal as the Bonds redeemed. The Trustee may rely on
such Company  Request and shall have no duty with respect to the adjustments set
forth  therein other than to make them  available for  inspection by a Holder of
Bonds at the Corporate Trust Office upon reasonable notice.

                  (e) Redemption  Price. The Redemption Price for any Bond to be
redeemed  pursuant  to Section  1.04(a) of this Series  1986B Bond  Supplemental
Indenture shall be 100% of the principal  amount thereof,  together with accrued
interest to the Redemption Date.


                                   ARTICLE II.

                             PLEDGE OF LESSOR NOTES

                  SECTION 1.021. Pledge of Lessor Notes.

                  To secure the payment of the principal of and premium (if any)
and  interest  on all the  Securities  from time to time  Outstanding  under the
Indenture,  and the performance of the covenants  therein and herein  contained,
the  Company by these  presents  does grant,  bargain,  sell,  release,  convey,
assign, transfer, mortgage,  hypothecate,  pledge, confirm and create a security
interest in, unto the Trustee,  the Lessor Notes identified on Schedule 2 hereto
(herein, together with each Unit 1 Lessor Note and each Unit 2 Lessor Note which
shall  hereafter be  subjected  to the Lien of the Original  Indenture by one or
more  Supplemental  Indentures of Pledge, in the form attached hereto as Exhibit
A, referred to as the Pledged Lessor Notes).

                  TO  HAVE  AND TO  HOLD  the  aforesaid  Pledged  Lessor  Notes
identified on Schedule 2 hereto unto the Trustee and its  successors and assigns
forever, in trust and for the uses and purposes and subject to the covenants and
conditions set forth in the Indenture.


                                  ARTICLE III.

                         AMENDMENT TO ORIGINAL INDENTURE

                  SECTION 1.031. Amendment to Original Indenture.

                  Section  9.06(b) of the Original  Indenture is hereby amended,
to read in its entirety as follows:

                  "At any time and from time to time prior to payment in full of
any amounts to be paid by the Trustee  pursuant to Section 2.15(b) in respect of
any series of Securities (or prior to payment in full of any amount  required to
be paid by the  Trustee in  respect of such  series of  Securities  pursuant  to
Section 1.02(a) of the Series 1986B Bond Supplemental  Indenture,  dated

#30122046.1
                                       10

<PAGE>

as  of  November  18,  1986,  or  analogous   provisions  of  any  other  Series
Supplemental Indenture),  if at the time no Event of Default has occurred and is
continuing,  the  Trustee  shall,  on Company  Request,  invest and  reinvest in
Permitted  Investments as specified in such Company  Request any monies from the
sale of the Securities of such series at the time on deposit with the Trustee as
part of the  Pledged  Property,  together  with any  income  and gains  from the
investment and  reinvestment  thereof,  and sell any Permitted  Investments,  in
either case, at such prices,  including  accrued  interest,  as are set forth in
such  Company  Request,  and  such  Permitted  Investments  shall be held by the
Trustee  until so sold in trust as part of the  Pledged  Property.  The  Trustee
shall, on Company Request,  sell such Permitted  Investments as may be specified
therein, and the Trustee shall, without Company Request, in the event monies are
required  for  payment of any  amounts  to be paid by the  Trustee  pursuant  to
Section  2.15(b) in respect of any series of  Securities  and for any payment of
principal,  premium, if any, or interest on any series of Securities,  sell such
Permitted  Investments as are required to restore to cash as part of the Pledged
Property such amounts as are needed for any such payments. The Trustee shall not
be  responsible  for  any  losses  on any  investments  or  sales  of  Permitted
Investments made pursuant to the procedure specified in this subsection (b)."


                                   ARTICLE IV.

                                  MISCELLANEOUS

                  SECTION 1.041. Execution as Supplemental Indenture.

                  This Series 1986B Bond Supplemental  Indenture is executed and
shall be construed as an indenture  supplemental to the Original  Indenture and,
as provided in the  Original  Indenture,  this  Series  1986B Bond  Supplemental
Indenture forms a part thereof.  Except as herein expressly  otherwise  defined,
the use of the terms herein is in accordance with the  definitions  contained in
the Original Indenture.

                  SECTION 1.042. Responsibility for Recitals, Etc.

                  The  recitals  contained  herein and in the Bonds,  except the
Trustee's certificate of authentication, shall be taken as the statements of the
Company and PNM, and the Trustee assumes no  responsibility  for the correctness
of  the  same.  The  Trustee  makes  no  representation  as to the  validity  or
sufficiency of this Series 1986B Bond Supplemental Indenture or the Bonds.

                  SECTION 1.043. Provisions Binding on Successors.

                  All the  covenants,  stipulations,  promises and agreements in
this Series 1986B Bond Supplemental  Indenture  contained by or on behalf of the
Company shall bind its successors and assigns, whether so expressed or not.

                  SECTION 1.044. New York Contract.

                  This Series 1986B Bond Supplemental Indenture and each
Bond shall be deemed to be a  contract  under the laws of the State of New York,
and for all purposes  shall be governed by and construed in accordance  with the
laws of said state.

                  SECTION 1.045. Counterparts.

                  This Series 1986B Bond Supplemental  Indenture may be executed
in any number of  counterparts,  each of which  shall be an  original;  but such
counterparts shall together constitute but one and the same instrument.

#30122046.1
                                       11

<PAGE>

                  IN WITNESS  WHEREOF,  the  Company,  PNM and the Trustee  have
caused this Series  1986B Bond  Supplemental  Indenture  to be duly  executed by
their respective  officers  thereunto duly  authorized,  as of the date and year
first above written.

                                       FIRST PV FUNDING CORPORATION
[CORPORATE SEAL]
                                       By  /s/  J.A. Barbera
                                          ------------------------- 
                                                 President
Attest:

    /s/  R. Franzen
-----------------------
  Assistant Secretary

                                       PUBLIC SERVICE COMPANY
                                         OF NEW MEXICO
[CORPORATE SEAL]

                                       By     /s/  B.D. Lackey
                                           ------------------------
                                              Vice President and
                                             Corporate Controller
Attest:

   /s/  K.A. Knight
-----------------------
  Assistant Secretary
                                       CHEMICAL BANK,
                                         as Trustee
[CORPORATE SEAL]

                                       By      /s/  T.J. Foley
                                           ------------------------
                                                Vice President
Attest:

  /s/  G.McFarlane
----------------------
     Trust Officer


#30122046.1
                                       12

<PAGE>



                                                                SCHEDULE 1
                                                                    to
                                                             SERIES 1986B BOND
                                                          SUPPLEMENTAL INDENTURE


                             [FORM OF FACE OF BOND]


No. R-                                                                   $
                                                                          -----
                          FIRST PV FUNDING CORPORATION


                       LEASE OBLIGATION BOND, SERIES 1986B


INTEREST RATE                                                   STATED MATURITY


REGISTERED HOLDER:


PRINCIPAL AMOUNT:                                                   DOLLARS


                  FIRST  PV  FUNDING   CORPORATION,   a   Delaware   corporation
(hereinafter called the "Company", which term includes any successor corporation
under the  Indenture  referred to on the reverse  hereof),  for value  received,
hereby  promises  to pay to the  Registered  Holder  (named  above)  hereof,  or
registered  assigns,  the Principal Amount (stated above) on the Stated Maturity
(stated  above) and to pay interest  thereon  from the date hereof,  or from the
most  recent  interest  payment  date to which  interest  has been  paid or duly
provided for,  semiannually on July 15 and January 15, in each year,  commencing
January 15, 1987,  at the  Interest  Rate  (stated  above) per annum,  until the
principal hereof is paid in full or made available for payment.  The interest so
payable,  and punctually paid or duly provided for, on any interest payment date
will,  as provided in such  Indenture,  be paid to the person in whose name this
Bond (or one or more  Predecessor  Securities,  as defined in such Indenture) is
registered  at the  close  of  business  on the  Regular  Record  Date  for such
interest, which shall be the June 30 or December 31, as the case may be (whether
or not a Business  Day,  as  defined in such  Indenture),  next  preceding  such
interest payment date. Any such interest not so punctually paid or duly provided
for shall forthwith cease to be payable to the Registered Holder on such Regular
Record  Date,  and may be paid to the  person in whose name this Bond (or one or
more Predecessor Securities) is registered at the close of business on a Special
Record  Date  for the  payment  of such  defaulted  interest  to be fixed by the
Trustee, notice of which shall be given to the Bondholders not less than 10 days
prior to such  Special  Record  Date,  or may be paid at any  time in any  other
lawful manner not inconsistent with the requirements of any securities  exchange
on which the Bonds may be listed,  and upon such  notice as may be  required  by
such  exchange,  all as more fully  provided in such  Indenture.  Payment of the
principal of (and premium, if any) and interest on this Bond will be made at the
corporate trust office of the Paying Agent,  Chemical Bank (or if such office is
not in the Borough of Manhattan,  The City of New York, at either such office or
an office to be  maintained  in such  Borough),  in such coin or currency of the
United  States of America as at the time of payment is legal  tender for payment
of public or private debts, provided that payment of interest may be made at the
option of the  Company by check  mailed to the  address  of the Holder  entitled
thereto as such address shall appear on the Security Register.

                  Interest on any overdue principal and premium, if any, and (to
the extent  permitted by applicable law) any overdue  interest shall be paid, on
demand, from the due date thereof at the rate of interest per annum (computed on
the  basis of a  360-day  year of twelve  30-day  months)  equal to 1% above the
Interest  Rate (stated  above) on this Bond for the period during which any such
principal, premium or interest shall be overdue.

#30122046.1
                                        1

<PAGE>

                  Reference  is hereby  made to the further  provisions  of this
Bond set forth on the reverse  hereof  which  further  provisions  shall for all
purposes have the same effect as if set forth at this place.
                  Unless  the  certificate  of  authentication  hereon  has been
executed by the Trustee by manual signature,  this Bond shall not be entitled to
any benefit under such Indenture, or be valid or obligatory for any purpose.

                  IN WITNESS WHEREOF,  the Company has caused this instrument to
be duly executed under its corporate seal.

Dated:  November 25, 1986

                                       FIRST PV FUNDING CORPORATION


                                       By
                                          -------------------------
                                                  President
Attest:

----------------------
     Secretary


                     [FORM OF CERTIFICATE OF AUTHENTICATION]

                  This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.

                                       CHEMICAL BANK
                                         as Trustee

                                       By
                                          ------------------------
                                             Authorized Officer

#30122046.1
                                        2

<PAGE>

                            [FORM OF REVERSE OF BOND]

                          FIRST PV FUNDING CORPORATION

                       LEASE OBLIGATION BOND, SERIES 1986B

                  This Bond is one of an  authorized  issue of Securities of the
Company known as its "Lease Obligation Bonds, Series 1986B" (the "Bonds") issued
under,  and all equally and ratably  secured by, a  Collateral  Trust  Indenture
dated as of December 16, 1985 among the Company,  Public Service  Company of New
Mexico, a New Mexico  corporation  (herein called "PNM"),  and Chemical Bank, as
Trustee (herein called the "Trustee",  which term includes any successor Trustee
under the  Indenture),  as  heretofore  supplemented  and amended and as further
supplemented and amended by the Series 1986B Bond  Supplemental  Indenture dated
as of November 18, 1986 among such parties  (collectively,  the  "Indenture") to
which  Indenture  reference is hereby made for a  description  of the nature and
extent of the securities and other property  assigned,  pledged and  transferred
thereunder, the respective rights of the holders of the Bonds and of the Trustee
and the Company in respect of such security,  and the terms upon which the Bonds
are and are to be authenticated and delivered.

                  The principal  of, and premium,  if any, and interest on, this
Bond are payable  from,  and  secured by, the assets  subject to the lien of the
Indenture or the income and proceeds received by the Trustee therefrom,  and all
payments of principal, premium (if any) and interest shall be made in accordance
with the terms of the Indenture.

                  The Indenture and each of the  Participation  Agreements among
an Equity Investor (as hereinafter  defined), a Lessor (as hereinafter defined),
the Company,  the Lease Indenture  Trustee (as hereinafter  defined) and certain
other parties  (each a  "Participation  Agreement")  provide (or, in the case of
each of two of such  Participation  Agreements  to be hereafter  entered into as
contemplated by the Indenture, will upon execution and delivery thereof provide)
that, as and when issued,  certain  Nonrecourse  Promissory  Notes (the "Pledged
Lessor Notes"), in the aggregate principal amount of $460,000,000,  to be issued
by The  First  National  Bank of  Boston,  as owner  trustee  under  one or more
separate Trust Agreements,  with the respective institutional investors named in
such  Trust  Agreements  (The  First  National  Bank of  Boston  in each of such
capacities  as owner  trustee  being  herein  called a  "Lessor"  and each  such
institutional  investor  being  herein  called an  "Equity  Investor"),  will be
included  within the assets  subject to the lien of the  Indenture  pursuant  to
indenture supplements. Such Pledged Lessor Notes are to be issued under separate
documents entitled Trust Indenture,  Mortgage, Security Agreement and Assignment
of Rents,  each  between a Lessor and  Chemical  Bank,  as trustee  (the  "Lease
Indenture  Trustee") (each of such Trust Indentures,  as and when it is executed
and  delivered and as thereafter  amended in  accordance  with its terms,  being
herein called a "Lease  Indenture").  Reference is made to each Lease  Indenture
for a description of the nature and extent of property to be assigned,  pledged,
transferred  and  mortgaged  thereunder  and the rights of the  holders of notes
issued  thereunder,  including  the Pledged  Lessor  Notes.  Except as expressly
provided in a Lease Indenture,  all payments of principal,  premium, if any, and
interest to be made on a Pledged Lessor Note and under such Lease Indenture will
be made only from the assets subject to the lien of such Lease  Indenture or the
income  and  proceeds  received  by  the  Lease  Indenture  Trustee   therefrom,
including,  in the case of each Lease Indenture,  the rights of the Lessor which
is a party thereto to receive basic rentals and certain other  payments  under a
Lease with PNM relating to an undivided interest in certain assets  constituting
part of the Palo Verde  Nuclear  Generating  Station  (also known as the Arizona
Nuclear  Power  Project)  (each of such  Leases,  as and when it is executed and
delivered and as thereafter  amended in accordance with its terms,  being herein
called a "Lease"),  which  basic  rentals  and other  payments  will be at least
sufficient to provide for the payment of the  principal of and premium,  if any,
and interest on each Pledged Lessor Note issued under such Lease Indenture. Each
Holder  hereof,  by its  acceptance  of this  Bond,  agrees  (x) that  except as
expressly  provided above, it will look solely to the assets subject to the lien
of the Indenture or the income and proceeds  received by the Trustee  therefrom,
to the extent available for distribution to the Holder hereof as provided in the
Indenture and (y) that none of an Equity  Investor,  a Lessor, a Lease Indenture
Trustee  or the  Trustee  is liable to the  Holder  hereof or, in the case of an
Equity Investor,  a Lessor and a Lease Indenture Trustee, to the Trustee for any
amounts  payable under this Bond or,  except as provided in the  Indenture  with
respect  to the  Trustee,  for any  liability  under  the  Indenture.  An Equity
Investor  shall not have any duty or  responsibility  under the Indenture or the
Bonds to any Holder or to the Trustee.


#30122046.1
                                        3

<PAGE>

                  The  Indenture  permits,  with certain  exceptions  as therein
provided,  the  amendment  thereof  and  the  modification  of  the  rights  and
obligations  of PNM and  the  Company  and  the  rights  of the  Holders  of the
Securities  under  the  Indenture  at any time by PNM and the  Company  with the
consent of the Holders of not less than a majority in aggregate principal amount
of the  Securities at the time  Outstanding,  as defined in the  Indenture.  The
Indenture  also  contains   provisions   permitting  the  Holders  of  specified
percentages  in  aggregate  principal  amount  of the  Securities  at  the  time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by PNM and the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences.  Any such consent or waiver
by the Holder of this Bond shall be conclusive  and binding upon such Holder and
upon all  future  Holders  of this  Bond  and of any  Security  issued  upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent or waiver is made upon this Bond.

                  As provided in the Indenture,  the aggregate  principal amount
of Securities which may be issued thereunder is unlimited. The Bonds are limited
in aggregate principal amount to $460,000,000, consisting of:

           Stated Maturity      Interest             Principal
             of Principal         Rate                 Amount
             ------------         ----                 ------

      January 15, 1992           8.05%               $13,988,000

      January 15, 1997           8.95                $60,347,000

      January 15, 2016          10.15               $385,665,000
                                                    ------------
                                                    $460,000,000

                  In the event  that one or more  Leases  are  terminated  under
Section 14 thereof,  Bonds with a Stated  Maturity of  principal  of January 15,
2016 are subject to mandatory  redemption  in part from time to time on not less
than 20 nor more than 60 days' prior notice  given as provided in the  Indenture
at a redemption  price equal to the principal amount of the Bonds to be redeemed
plus  accrued  interest  to the date fixed for  redemption,  on the same date on
which,  and to the same extent that,  the Pledged  Lessor Notes  relating to the
Bonds are prepaid as provided in Section 5.2 of the Lease  Indenture under which
they were issued.

                  The  Bonds  of each  Stated  Maturity  of  principal  are also
subject to mandatory  redemption pursuant to sinking fund installments,  as more
fully provided in the Indenture, at the principal amount thereof,  together with
interest  accrued  to the date  fixed  for  redemption,  on the dates and in the
respective principal amounts set forth in the Indenture.

                  The sinking fund installments for Bonds with a Stated Maturity
of principal of January 15, 2016 may be adjusted  once at the  discretion of the
Company prior to July 15, 1997, in connection with certain  adjustments in basic
rent pursuant to any of the Leases; provided,  however, that no such adjustments
shall be made by the Company  which will  increase or reduce the average life of
such Bonds (calculated in accordance with generally  accepted financial practice
from the date of initial issuance thereof) by more than two years.

                  As provided in the Indenture, in connection with any mandatory
sinking fund  redemption of Bonds with a Stated Maturity of principal of January
15, 2016, the Company may cause the Trustee first to select for such  redemption
Bonds of such Stated Maturity of principal held by PNM or any Affiliate of PNM.

                  In  the  event  of  any  partial  redemption  of  Bonds  of  a
particular   Stated   Maturity  of  principal   (other  than   pursuant  to  the
aforementioned  sinking  fund),  the  principal  amounts of Bonds of such Stated
Maturity of  principal  to be redeemed  thereafter  pursuant to the sinking fund
schedule  indicated in the Indenture  shall be adjusted in  accordance  with the
Indenture.

                  As  provided in the  Indenture,  in the event that the Company
shall fail to pledge certain  Nonrecourse  Promissory  Notes included within the
term  "Pledged  Lessor Notes" (the "Lessor  Notes") in the  aggregate  principal
amount of $88,000,000 (and otherwise as required by the Indenture),  on or prior
to January 25, 1987, Bonds will be redeemed as provided in the Indenture

#30122046.1
                                        4

<PAGE>

(allocated among the Stated  Maturities of principal of the Bonds as provided in
the  Indenture)  in  the  aggregate  amount  equal  to  the  difference  between
$88,000,000  and the principal  amount of such Lessor Notes so pledged (if any),
at a  redemption  price  equal to 101% of the  principal  amount  thereof,  plus
accrued interest thereon to the date fixed for redemption.

                  In  addition,  the  Bonds  (other  than  Bonds  with a  Stated
Maturity of principal of January 15, 1992) are subject to  redemption,  in whole
or in part,  at any time on and after  January  15,  1992,  at the option of the
Company,  with monies  deposited with the Trustee,  on not less than 20 nor more
than 60 days' notice given as provided in the Indenture, as follows:

                  (a) Bonds with a Stated  Maturity of  principal of January 15,
1997  may be  redeemed  at  the  following  redemption  prices  (expressed  as a
percentage  of  principal  amount),   together  with  interest  accrued  to  the
redemption date:

               Twelve Month                      Redemption
             Period Beginning                      Price
             ----------------                      -----

             January 15, 1992                      102.557%
             January 15, 1993                      101.279


and thereafter at the principal  amount thereof,  together with interest accrued
to the redemption date.

                  (b) Bonds with a Stated  Maturity of  principal of January 15,
2016  may be  redeemed  at  the  following  redemption  prices  (expressed  as a
percentage  of  principal  amount),   together  with  interest  accrued  to  the
redemption date:

                     Twelve Month                                Redemption
                   Period Beginning                                 Price
                   ----------------                                 -----

                   January 15, 1992                                108.120%
                   January 15, 1993                                107.714
                   January 15, 1994                                107.308
                   January 15, 1995                                106.902
                   January 15, 1996                                106.496
                   January 15, 1997                                106.090
                   January 15, 1998                                105.684
                   January 15, 1999                                105.278
                   January 15, 2000                                104.872
                   January 15, 2001                                104.466
                   January 15, 2002                                104.060
                   January 15, 2003                                103.654
                   January 15, 2004                                103.248
                   January 15, 2005                                102.842
                   January 15, 2006                                102.436
                   January 15, 2007                                102.030
                   January 15, 2008                                101.624
                   January 15, 2009                                101.218
                   January 15, 2010                                100.812
                   January 15, 2011                                100.406

and thereafter at the principal  amount thereof,  together with interest accrued
to the redemption date.


#30122046.1
                                        5

<PAGE>

                  In the  case  of any  redemption  of  Bonds,  unpaid  interest
installments whose Stated Maturity, as defined in the Indenture,  is on or prior
to the date fixed for redemption will be payable to the Holders of such Bonds or
one or more  Predecessor  Securities  of record at the close of  business on the
relevant Regular or Special Record Date referred to on the face hereof.

                  The  Indenture  provides that Bonds of a  denomination  larger
than $1,000 may be redeemed in part ($1,000 or an integral multiple thereof) and
that upon any partial  redemption of any such Bond the same shall be surrendered
at the  corporate  trust  office of the Paying Agent in exchange for one or more
new Bonds for the unredeemed portion thereof.

                  Bonds (or portions  thereof as aforesaid) for whose redemption
and payment  provision is made in accordance  with the Indenture shall thereupon
cease  to be  entitled  to the lien of the  Indenture  and  shall  cease to bear
interest from and after the date fixed for redemption.

                  If an Event of  Default,  as defined in the  Indenture,  shall
occur, the principal of this Bond may become or be declared due and payable,  in
the manner and with the effect provided in the Indenture.

                  This Bond is  transferable  by the registered  owner hereof in
person or by attorney  authorized in writing,  at the corporate  trust office of
the Bond  Registrar,  Chemical  Bank (or if such office is not in the Borough of
Manhattan,  The City of New  York,  at  either  such  office  or an office to be
maintained  in such  Borough),  upon  surrender of this Bond,  and upon any such
transfer  a new Bond of the same  Stated  Maturity  of  principal,  for the same
aggregate  principal  amount,  will be  issued  to the  transferee  in  exchange
herefor.

                  The  Bonds  are  issuable  only as  registered  Bonds  without
coupons in  denominations  of $1,000 and/or any integral  multiple  thereof.  As
provided  in,  and  subject to the  provisions  of,  the  Indenture,  Bonds of a
particular Stated Maturity of principal are exchangeable for other Bonds of such
Stated Maturity, but of a different authorized denomination or denominations, as
requested by the Holder surrendering the same.

                  No service  charge will be made to any Holder of Bonds for any
such transfer or exchange,  but the Bond Registrar may require  payment of a sum
sufficient to cover any tax or other  governmental  charge payable in connection
therewith.

                  Prior to due  presentment for  registration  of transfer,  the
person in whose  name this  Bond is  registered  shall be deemed to be the owner
hereof for the purpose of receiving payment as herein provided and for all other
purposes whether or not this Bond be overdue, regardless of any notice to anyone
to the contrary.

                  As  provided in the  Indenture,  the  Indenture  and the Bonds
shall be construed in  accordance  with and governed by the laws of the State of
New York.


#30122046.1
                                        6

<PAGE>

                                                               SCHEDULE 2
                                                                   to
                                                            SERIES 1986B BOND
                                                         SUPPLEMENTAL INDENTURE



A.       As used in this Series 1986B Bond Supplemental Indenture, the following
         terms have the following meanings:

                  (1)      Lease Indenture means each of:

                           (i) the Trust Indenture, Mortgage, Security Agreement
                  and  Assignment  of  Rents,  dated as of  December  16,  1985,
                  between  the  Indenture  Trustee  and Owner  Trustee No. 1, as
                  amended by Supplemental  Indenture No. 1 thereto,  dated as of
                  July 15, 1986, and Supplemental Indenture No. 2 thereto, dated
                  as of November 18, 1986

                           (ii)  the   Trust   Indenture,   Mortgage,   Security
                  Agreement and  Assignment  of Rents,  dated as of December 16,
                  1985,  between the Indenture  Trustee and Owner Trustee No. 2,
                  as amended by Supplemental  Indenture No. 1 thereto,  dated as
                  of July 15, 1986,  and  Supplemental  Indenture No. 2 thereto,
                  dated as of November 18, 1986

                           (iii)  the  Trust   Indenture,   Mortgage,   Security
                  Agreement and  Assignment  of Rents,  dated as of December 16,
                  1985,  between the Indenture  Trustee and Owner Trustee No. 3,
                  as amended by Supplemental  Indenture No. 1 thereto,  dated as
                  of July 15, 1986,  and  Supplemental  Indenture No. 2 thereto,
                  dated as of November 18, 1986

                           (iv)  the   Trust   Indenture,   Mortgage,   Security
                  Agreement and Assignment of Rents,  dated as of July 31, 1986,
                  between  the  Indenture  Trustee  and Owner  Trustee No. 4, as
                  amended by Supplemental  Indenture No. 1 thereto,  dated as of
                  November 18, 1986;

                           (v) the Trust Indenture, Mortgage, Security Agreement
                  and Assignment of Rents,  dated as of August 12, 1986, between
                  the  Indenture  Trustee and Owner Trustee No. 5, as amended by
                  Supplemental Indenture No. 1 thereto, dated as of November 18,
                  1986;

                           (vi)  the   Trust   Indenture,   Mortgage,   Security
                  Agreement  and  Assignment  of Rents,  dated as of August  12,
                  1986,  between the Indenture  Trustee and Owner Trustee No. 6,
                  as amended by Supplemental  Indenture No. 1 thereto,  dated as
                  of November 18, 1986;

                           (vii)  the  Trust   Indenture,   Mortgage,   Security
                  Agreement  and  Assignment  of Rents,  dated as of August  12,
                  1986,  between the Indenture  Trustee and Owner Trustee No. 7,
                  as amended by Supplemental  Indenture No. 1 thereto,  dated as
                  of November 18, 1986;

                           (viii)  the  Trust  Indenture,   Mortgage,   Security
                  Agreement  and  Assignment  of Rents,  dated as of August  12,
                  1986,  between the Indenture  Trustee and Owner Trustee No. 8,
                  as amended by Supplemental  Indenture No. 1 thereto,  dated as
                  of November 18, 1986; and

#30122046.1
                                        1

<PAGE>

                           (ix)  the   Trust   Indenture,   Mortgage,   Security
                  Agreement  and  Assignment  of Rents,  dated as of August  12,
                  1986,  between the Indenture  Trustee and Owner Trustee No. 9,
                  as amended by Supplemental  Indenture No. 1 thereto,  dated as
                  of November 18, 1986.

                  (2)  Lessor Note  means each of:

                           (i) the Non-Recourse  Promissory  Note,  Releveraging
                  Series  (Due  January 15,  2015) in the amount of  $2,350,000,
                  dated November 25, 1986, payable by Owner Trustee No. 1 to the
                  Company;

                           (ii) the Nonrecourse  Promissory  Note,  Releveraging
                  Series  (Due  January 15,  2015) in the amount of  $2,456,000,
                  dated November 25, 1986, payable by Owner Trustee No. 2 to the
                  Company;

                           (iii) the Nonrecourse  Promissory Note,  Releveraging
                  Series  (Due  January 15,  2015) in the amount of  $1,235,000,
                  dated November 25, 1986, payable by Owner Trustee No. 3 to the
                  Company;

                           (iv) the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series  (Due  January  15,  1992) in the amount of  $1,501,000
                  dated November 25, 1986, payable by Owner Trustee No. 4 to the
                  Company;

                           (v)  the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series  (Due  January  15,  1997) in the amount of  $5,626,000
                  dated November 25, 1986, payable by Owner Trustee No. 4 to the
                  Company;

                           (vi) the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series  (Due  January 15,  2015) in the amount of  $32,873,000
                  dated November 25, 1986, payable by Owner Trustee No. 4 to the
                  Company;

                           (vii) the  Nonrecourse  Promissory  Note,  Fixed Rate
                  Series  (Due  January  15,  1992) in the amount of  $1,737,000
                  dated November 25, 1986, payable by Owner Trustee No. 5 to the
                  Company;

                           (viii) the Nonrecourse  Promissory  Note,  Fixed Rate
                  Series  (Due  January 15,  1997) in the amount of  $10,653,000
                  dated November 25, 1986, payable by Owner Trustee No. 5 to the
                  Company;

                           (ix) the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series  (Due  January 15,  2016) in the amount of  $71,610,000
                  dated November 25, 1986, payable by Owner Trustee No. 5 to the
                  Company;

                           (x)  the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series  (Due  January  15,  1992) in the amount of  $2,716,000
                  dated November 25, 1986, payable by Owner Trustee No. 6 to the
                  Company; and

                           (xi) the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series  (Due  January 15,  1997) in the amount of  $10,645,000
                  dated November 25, 1986, payable by Owner Trustee No. 6 to the
                  Company;


#30122046.1
                                        2

<PAGE>

                           (xii) the  Nonrecourse  Promissory  Note,  Fixed Rate
                  Series (Due July 15, 2012) in the amount of $60,598,000  dated
                  November  25,  1986,  payable  by Owner  Trustee  No. 6 to the
                  Company.

                           (xiii) the Nonrecourse  Promissory  Note,  Fixed Rate
                  Series (Due January 15, 1992) in the amount of $993,000  dated
                  November  25,  1986,  payable  by Owner  Trustee  No. 7 to the
                  Company.

                           (xiv) the  Nonrecourse  Promissory  Note,  Fixed Rate
                  Series  (Due  January  15,  1997) in the amount of  $6,087,000
                  dated November 25, 1986, payable by Owner Trustee No. 7 to the
                  Company;

                           (xv) the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series  (Due  January 15,  2016) in the amount of  $40,920,000
                  dated November 25, 1986, payable by Owner Trustee No. 7 to the
                  Company;

                           (xvi) the  Nonrecourse  Promissory  Note,  Fixed Rate
                  Series (Due January 15, 1992) in the amount of $827,000  dated
                  November  25,  1986,  payable  by Owner  Trustee  No. 8 to the
                  Company;

                           (xvii) the Nonrecourse  Promissory  Note,  Fixed Rate
                  Series  (Due  January  15,  1997) in the amount of  $5,072,000
                  dated November 25, 1986, payable by Owner Trustee No. 8 to the
                  Company;

                           (xviii) the Nonrecourse  Promissory  Note, Fixed Rate
                  Series  (Due  January 15,  2016) in the amount of  $34,101,000
                  dated November 25, 1986, payable by Owner Trustee No. 8 to the
                  Company;

                           (xix) the  Nonrecourse  Promissory  Note,  Fixed Rate
                  Series  (Due  January  15,  1992) in the amount of  $1,644,000
                  dated November 25, 1986, payable by Owner Trustee No. 9 to the
                  Company;

                           (xx) the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series  (Due  January 15,  1997) in the amount of  $10,703,000
                  dated November 25, 1986, payable by Owner Trustee No. 9 to the
                  Company; and

                           (xxi) the  Nonrecourse  Promissory  Note,  Fixed Rate
                  Series  (Due  January 15,  2016) in the amount of  $67,653,000
                  dated November 25, 1986, payable by Owner Trustee No. 9 to the
                  Company.

                  (3) Lessor or Owner Trustee  means The First  National Bank of
Boston, a national banking  association  (FNB), in its capacity as owner trustee
under nine  separate  Trust  Agreements,  respectively  dated as of December 16,
1985,  July 31, 1986 or August 12, 1986, with the equity investor named therein;
in such capacity  referred to as Owner Trustee No. 1, Owner Trustee No. 2, Owner
Trustee No. 3, Owner  Trustee No. 4, Owner  Trustee No. 5, Owner  Trustee No. 6,
Owner Trustee No. 7, Owner Trustee No. 8 and Owner Trustee No. 9, respectively.

                  (4) Indenture  Trustee means Chemical Bank, a New York banking
corporation, as Trustee.

                  (5) Lease means each of:

                           (i) the  Facility  Lease,  dated as of  December  16,
                  1985,  between  PNM,  as lessee,  and Owner  Trustee No. 1, as
                  lessor, as amended by Amendment No. 1
#30122046.1
                                        3

<PAGE>



                  thereto, dated as of July 15, 1986, and by Amendment No. 2 
                  thereto, dated as of November 18, 1986

                           (ii) the  Facility  Lease,  dated as of December  16,
                  1985,  between  PNM,  as lessee,  and Owner  Trustee No. 2, as
                  lessor,  as amended by  Amendment  No. 1 thereto,  dated as of
                  July 15,  1986,  and by Amendment  No. 2 thereto,  dated as of
                  November 18, 1986

                           (iii) the  Facility  Lease,  dated as of December 16,
                  1985,  between  PNM,  as lessee,  and Owner  Trustee No. 3, as
                  lessor,  as amended by  Amendment  No. 1 thereto,  dated as of
                  July 15,  1986,  and by Amendment  No. 2 thereto,  dated as of
                  November 18, 1986

                           (iv) the Facility  Lease,  dated as of July 31, 1986,
                  between PNM, as lessee, and Owner Trustee No. 4, as lessor, as
                  amended by Amendment  No. 1 thereto,  dated as of November 18,
                  1986;

                           (v) the Facility Lease,  dated as of August 12, 1986,
                  between PNM, as lessee, and Owner Trustee No. 5, as lessor, as
                  amended by Amendment  No. 1 thereto,  dated as of November 18,
                  1986;

                           (vi) the Facility Lease, dated as of August 12, 1986,
                  between PNM, as lessee, and Owner Trustee No. 6, as lessor, as
                  amended by Amendment  No. 1 thereto,  dated as of November 18,
                  1986;

                           (vii) the  Facility  Lease,  dated as of  August  12,
                  1986,  between  PNM,  as lessee,  and Owner  Trustee No. 7, as
                  lessor,  as amended by  Amendment  No. 1 thereto,  dated as of
                  November 18, 1986;

                           (viii)  the  Facility  Lease,  dated as of August 12,
                  1986,  between  PNM,  as lessee,  and Owner  Trustee No. 8, as
                  lessor,  as amended by  Amendment  No. 1 thereto,  dated as of
                  November 18, 1986; and

                           (ix) the Facility Lease, dated as of August 12, 1986,
                  between PNM, as lessee, and Owner Trustee No. 9, as lessor, as
                  amended by Amendment  No. 1 thereto,  dated as of November 18,
                  1986.

                  (6)      Participation Agreement means each of:

                           (i) the Participation Agreement, dated as of December
                  16, 1985, among the Owner Participant  designated therein, the
                  Company,  FNB, in its individual capacity and as Owner Trustee
                  No.  1,  Chemical  Bank,  in its  individual  capacity  and as
                  Indenture  Trustee,  and PNM,  as amended by  Amendment  No. 1
                  thereto,  dated  as of July  15,  1986  and  Amendment  No.  2
                  thereto, dated as of November 18, 1986;

                           (ii)  the  Participation   Agreement,   dated  as  of
                  December  16,  1985,  among the Owner  Participant  designated
                  therein,  the Company,  FNB, in its individual capacity and as
                  Owner Trustee No. 2, Chemical Bank, in its individual capacity
                  and as Indenture Trustee, and PNM, as amended by Amendment No.
                  1  thereto,  dated as of July 15,  1986  and  Amendment  No. 2
                  thereto, dated as of November 18, 1986;


#30122046.1
                                        4

<PAGE>

                           (iii)  the  Participation  Agreement,   dated  as  of
                  December  16,  1985,  among the Owner  Participant  designated
                  therein,  the Company,  FNB, in its individual capacity and as
                  Owner Trustee No. 3, Chemical Bank, in its individual capacity
                  and as Indenture Trustee, and PNM, as amended by Amendment No.
                  1  thereto,  dated as of July 15,  1986  and  Amendment  No. 2
                  thereto, dated as of November 18, 1986;

                           (iv) the  Participation  Agreement,  dated as of July
                  31, 1986, among the Owner Participant  designated therein, the
                  Company,  FNB, in its individual capacity and as Owner Trustee
                  No.  4,  Chemical  Bank,  in its  individual  capacity  and as
                  Indenture  Trustee,  and PNM,  as amended by  Amendment  No. 1
                  thereto, dated as of November 18, 1986;

                           (v) the Participation  Agreement,  dated as of August
                  12, 1986, among the Owner Participant  designated therein, the
                  Company,  FNB, in its individual capacity and as Owner Trustee
                  No.  5,  Chemical  Bank,  in its  individual  capacity  and as
                  Indenture  Trustee,  and PNM,  as amended by  Amendment  No. 1
                  thereto, dated as of November 18, 1986;

                           (vi) the Participation Agreement,  dated as of August
                  12, 1986, among the Owner Participant  designated therein, the
                  Company,  FNB, in its individual capacity and as Owner Trustee
                  No.  6,  Chemical  Bank,  in its  individual  capacity  and as
                  Indenture  Trustee,  and PNM,  as amended by  Amendment  No. 1
                  thereto, dated as of November 18, 1986;

                           (vii) the Participation Agreement, dated as of August
                  12, 1986, among the Owner Participant  designated therein, the
                  Company,  FNB, in its individual capacity and as Owner Trustee
                  No.  7,  Chemical  Bank,  in its  individual  capacity  and as
                  Indenture  Trustee,  and PNM,  as amended by  Amendment  No. 1
                  thereto, dated as of November 18, 1986;

                           (viii)  the  Participation  Agreement,  dated  as  of
                  August  12,  1986,  among  the  Owner  Participant  designated
                  therein,  the Company,  FNB, in its individual capacity and as
                  Owner Trustee No. 8, Chemical Bank, in its individual capacity
                  and as Indenture Trustee, and PNM, as amended by Amendment No.
                  1 thereto, dated as of November 18, 1986; and

                           (ix) the Participation Agreement,  dated as of August
                  12, 1986, among the Owner Participant  designated therein, the
                  Company,  FNB, in its individual capacity and as Owner Trustee
                  No.  9,  Chemical  Bank,  in its  individual  capacity  and as
                  Indenture  Trustee,  and PNM,  as amended by  Amendment  No. 1
                  thereto, dated as of November 18, 1986.


#30122046.1
                                        5

<PAGE>



                                                               SCHEDULE 3
                                                                   to
                                                            SERIES 1986B BOND
                                                         SUPPLEMENTAL INDENTURE


                       DESCRIPTION OF CERTAIN LESSOR NOTES


                  (A) The following  Lessor Notes relate to a Lease with respect
to an undivided interest in PVNGS Unit 1 and certain related common facilities:

                           (i)  the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series (Due January 15,  1992),  in the amount of  $3,300,000,
                  bearing  interest  at  8.05%,  the  principal  amount of which
                  amortizes as follows:

                          Payment                       Principal
                           Date                       Amount Payable
                           ----                       --------------

                    July 15, 1989                         $  379,000
                    January 15, 1990                         539,000
                    July 15, 1990                            561,000
                    January 15, 1991                         583,000
                    July 15, 1991                            607,000
                    January 15, 1992                         631,000
                                                         -----------
                    Principal Amount                      $3,300,000
                                                         ===========


                           (ii) the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series (Due January 15,  1997),  in the amount of  $8,060,000,
                  bearing  interest  at  8.95%,  the  principal  amount of which
                  amortizes as follows:

                         Payment                          Principal
                           Date                        Amount Payable
                           ----                        --------------

                    July 15, 1992                          $ 657,000
                    January 15, 1993                         686,000
                    July 15, 1993                            717,000
                    January 15, 1994                         749,000
                    July 15, 1994                            782,000
                    January 15, 1995                         817,000
                    July 15, 1995                            854,000
                    January 15, 1996                         892,000
                    July 15, 1996                            932,000
                    January 15, 1997                         974,000
                                                          ----------
                    Principal Amount                      $8,060,000
                                                          ==========

                           (iii) the  Nonrecourse  Promissory  Note,  Fixed Rate
                  Series (Due January 15, 2015),  in the amount of  $48,640,000,
                  bearing  interest  at 10.15%,  the  principal  amount of which
                  amortizes as follows:


#30122046.1
                                        1

<PAGE>



                    July 15, 1997                       $1,017,000
                    January 15, 1998                     1,069,000
                    July 15, 1998                        1,123,000
                    January 15, 1999                     1,180,000
                    July 15, 1999                        1,240,000
                    January 15, 2000                     1,303,000
                    July 15, 2000                        1,217,000
                    January 15, 2001                       939,000
                    July 15, 2001                        1,053,000
                    January 15, 2002                       967,000
                    July 15, 2002                        1,065,000
                    January 15, 2003                       960,000
                    July 15, 2003                        1,077,000
                    January 15, 2004                       979,000
                    July 15, 2004                        1,143,000
                    January 15, 2005                     1,039,000
                    July 15, 2005                        1,214,000
                    January 15, 2006                     1,103,000
                    July 15, 2006                        1,288,000
                    January 15, 2007                     1,171,000
                    July 15, 2007                        1,368,000
                    January 15, 2008                     1,243,000
                    July 15, 2008                        1,452,000
                    January 15, 2009                     1,319,000
                    July 15, 2009                        1,541,000
                    January 15, 2010                     1,400,000
                    July 15, 2010                        1,636,000
                    January 15, 2011                     1,486,000
                    July 15, 2011                        1,737,000
                    January 15, 2012                     1,577,000
                    July 15, 2012                        1,844,000
                    January 15, 2013                     1,674,000
                    July 15, 2013                        1,957,000
                    January 15, 2014                     1,777,000
                    July 15, 2014                        2,077,000
                    January 15, 2015                     2,405,000
                                                       -----------
                    Principal Amount                   $48,640,000
                                                       ===========


                  (B) The following  Lessor Notes relate to a Lease with respect
to an undivided interest in PVNGS Unit 2 and certain related common facilities:

                           (i)  the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series (Due January 15,  1992),  in the amount of  $1,270,000,
                  bearing  interest  at  8.05%,  the  principal  amount of which
                  amortizes as follows:


#30122046.1
                                        2

<PAGE>

 
                        Payment                         Principal
                          Date                        Amount Payable
                          ----                        --------------

                    January 15, 1990                      $  234,000
                    July 15, 1990                            244,000
                    January 15, 1991                         254,000
                    July 15, 1991                            264,000
                    January 15, 1992                         274,000
                                                          ----------
                    Principal Amount                      $1,270,000
                                                          ==========


                           (ii) the  Nonrecourse  Promissory  Note,  Fixed  Rate
                  Series (Due January 15,  1997),  in the amount of  $3,501,000,
                  bearing  interest  at  8.95%,  the  principal  amount of which
                  amortizes as follows:

                        Payment                          Principal
                          Date                         Amount Payable
                          ----                         --------------

                    July 15, 1992                           $285,000
                    January 15, 1993                         298,000
                    July 15, 1993                            311,000
                    January 15, 1994                         325,000
                    July 15, 1994                            340,000
                    January 15, 1995                         355,000
                    July 15, 1995                            371,000
                    January 15, 1996                         388,000
                    July 15, 1996                            405,000
                    January 15, 1997                         423,000
                                                          ----------
                    Principal Amount                      $3,501,000
                                                          ==========

                           (iii) the  Nonrecourse  Promissory  Note,  Fixed Rate
                  Series (Due January 15, 2016),  in the amount of  $23,229,000,
                  bearing  interest  at 10.15%,  the  principal  amount of which
                  amortizes as follows:

                         Payment                         Principal
                           Date                        Amount Payable

                    July 15, 1997                          $442,000
                    January 15, 1998                        465,000
                    July 15, 1998                           488,000
                    January 15, 1999                        513,000
                    July 15, 1999                           539,000
                    January 15, 2000                        566,000
                    July 15, 2000                           585,000
                    January 15, 2001                        416,000
                    July 15, 2001                           464,000
                    January 15, 2002                        427,000
                    July 15, 2002                           468,000
                    January 15, 2003                        422,000

#30122046.1
                                        3

<PAGE>

                        Payment                          Principal
                         Date                          Amount Payable
                         ----                          --------------

                    July 15, 2003                           372,000
                    January 15, 2004                        430,000
                    July 15, 2004                           501,000
                    January 15, 2005                        456,000
                    July 15, 2005                           532,000
                    January 15, 2006                        484,000
                    July 15, 2006                           565,000
                    January 15, 2007                        514,000
                    July 15, 2007                           600,000
                    January 15, 2008                        545,000
                    July 15, 2008                           637,000
                    January 15, 2009                        579,000
                    July 15, 2009                           676,000
                    January 15, 2010                        614,000
                    July 15, 2010                           717,000
                    January 15, 2011                        652,000
                    July 15, 2011                           762,000
                    January 15, 2012                        692,000
                    July 15, 2012                           808,000
                    January 15, 2013                        734,000
                    July 15, 2013                           858,000
                    January 15, 2014                        780,000
                    July 15, 2014                           911,000
                    January 15, 2015                        827,000
                    July 15, 2015                           968,000
                    January 15, 2016                      1,120,000
                                                        -----------

                    Principal Amount                    $23,229,000
                                                        ===========


#30122046.1
                                        4

<PAGE>



                                                                 EXHIBIT A
                                                                    to
                                                             Series 1986B Bond
                                                          Supplemental Indenture

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


                          FIRST PV FUNDING CORPORATION,

                      PUBLIC SERVICE COMPANY OF NEW MEXICO

                                       and

                                 CHEMICAL BANK,
                                   as Trustee


                                   ----------


                      UNIT   SUPPLEMENTAL INDENTURE OF PLEDGE
                          -- 

                      (LEASE OBLIGATION BONDS SERIES 1986B)


                              dated December , 1986


                                       to


                           COLLATERAL TRUST INDENTURE

                          dated as of December 16, 1985


                                   ----------


                           Providing for the Pledge of
                           the Lessor Notes Specified
                              on Schedule 1 hereto

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

                      PALO VERDE NUCLEAR GENERATING STATION

#30122046.1
                                        1

<PAGE>


                  UNIT SUPPLEMENTAL INDENTURE OF PLEDGE (LEASE OBLIGATION BONDS,
SERIES 1986B),  dated  December , 1986,  among FIRST PV FUNDING  CORPORATION,  a
Delaware corporation (the Company),  PUBLIC SERVICE COMPANY OF NEW MEXICO, a New
Mexico corporation (PNM), and CHEMICAL BANK, as trustee (the Trustee).

                  WHEREAS,  the Company  and PNM have  heretofore  executed  and
delivered  to the  Trustee  an  indenture  dated  as of  December  16,  1985 (as
heretofore amended and supplemented, the Original Indenture);

                  WHEREAS,  Section 11.01(4) of the Original Indenture provides,
among other things, that the Company and the Trustee may, without the consent of
the  Holders of any  Securities,  enter into an  indenture  supplemental  to the
Original Indenture to convey, transfer and assign to the Trustee, and to subject
to the Lien of the Original Indenture additional Pledged Lessor Notes;

                  WHEREAS,  PNM and the Company  have  heretofore  executed  and
delivered the Series 1986B Bond Supplemental Indenture, dated as of November 18,
1986 (the Series 1986B Bond  Supplemental  Indenture),  to the Trustee,  and the
Company issued  thereunder a series of Securities  designated  "Lease Obligation
Bonds,  Series 1986B" (the Series 1986B  Securities) in the aggregate  principal
amount of $460,000,000;

                  WHEREAS,  the Company,  in accordance  with Section 2.15(a) of
the Original  Indenture,  deposited with the Trustee the proceeds of sale of the
Series 1986B Securities;

                  WHEREAS,  the Company has heretofore obtained the release of 
$            from such proceeds of sale;
 ----------

                  WHEREAS,  the Company, (i) in accordance with Sections 2.15(b)
and 13.01 of the  Original  Indenture,  desires to obtain the  release of $ from
such  proceeds  of sale and to  cause  the  application  thereof  in the  manner
specified by such Section  2.15(b) and (ii) has  requested  the Trustee to enter
into this  Supplemental  Indenture of Pledge for the purpose,  among others,  of
meeting the  condition  to such  release set forth in clause (a) of such Section
13.01; and

                  WHEREAS,  all acts and things  necessary to  constitute  these
presents a valid and binding  supplemental  indenture and agreement according to
its terms, have been done and performed,  and the execution of this Supplemental
Indenture of Pledge has in all respects been duly  authorized,  and the Company,
in  the  exercise  of  legal  right  and  power  in  it  vested,  executes  this
Supplemental Indenture of Pledge;

                  NOW,   THEREFORE,   THIS  SUPPLEMENTAL   INDENTURE  OF  PLEDGE
WITNESSETH:

                  That in  consideration  of the  premises and of the sum of one
dollar to it duly paid by the Trustee at the  execution of these  presents,  the
receipt whereof is hereby  acknowledged,  the Company and PNM each covenants and
agrees  with  the  Trustee,  for the  equal  and  proportionate  benefit  of the
respective Holders from time to time of the Securities, as follows:


                                   ARTICLE I.

                             PLEDGE OF LESSOR NOTES

                  To secure the payment of the  principal  of,  premium (if any)
and  interest  on all the  Securities  from time to time  Outstanding  under the
Original  Indenture,  and the  performance  of the covenants  therein and herein
contained,  the Company by these presents does grant,  bargain,  sell,  release,
convey, assign, transfer,  mortgage,  hypothecate,  pledge, confirm and create a
security interest in, unto the Trustee,  the Lessor Notes identified on Schedule
1 hereto (herein referred to as the Pledged Lessor Notes).


#30122046.1
                                        2

<PAGE>

                  TO HAVE AND TO HOLD the  aforesaid  Pledged  Lessor Notes unto
the Trustee and its  successors and assigns  forever,  in trust and for the uses
and  purposes  and  subject to the  covenants  and  conditions  set forth in the
Original Indenture.


                                   ARTICLE II.

                                  MISCELLANEOUS

                  SECTION 1.021. Execution as Supplemental Indenture.

                  This Supplemental Indenture of Pledge is executed and shall be
construed  as an  indenture  supplemental  to the  Original  Indenture  and,  as
provided in the Original Indenture,  this Supplemental Indenture of Pledge forms
a part  thereof.  Except as herein or in Schedule 1 hereto  expressly  otherwise
defined,  the use of the terms and expressions  herein is in accordance with the
definitions, uses and constructions contained in the Original Indenture.

                  SECTION 1.022. Responsibility for Recitals, Etc.

                  The recitals contained herein shall be taken as the statements
of the  Company  and PNM,  and the  Trustee  assumes no  responsibility  for the
correctness of the same. The Trustee makes no  representation as to the validity
or  sufficiency  of this  Supplemental  Indenture  of Pledge or the Series 1986B
Securities.

                  SECTION 1.023. Provisions Binding on Successors.

                  All the  covenants,  stipulations,  promises and agreements in
this  Supplemental  Indenture of Pledge contained by or in behalf of the Company
shall bind its successors and assigns, whether so expressed or not.

                  SECTION 1.024. New York Contract.

                  This Supplemental  Indenture of Pledge shall be deemed to be a
contract  under the laws of the State of New York, and for all purposes shall be
construed in accordance with the laws of said state.

                  SECTION 1.025. Counterparts.

                  This  Supplemental  Indenture of Pledge may be executed in any
number  of  counterparts,   each  of  which  shall  be  an  original;  but  such
counterparts shall together constitute but one and the same instrument.


#30122046.1
                                        3

<PAGE>

                  IN WITNESS  WHEREOF,  the  Company,  PNM and the Trustee  have
caused  this  Supplemental  Indenture  of  Pledge to be duly  executed  by their
respective  officers  thereunto duly  authorized,  as of the date and year first
above written.

                                       FIRST PV FUNDING CORPORATION


[CORPORATE SEAL]

                                       By
                                          -------------------------
                                          Title:

Attest:


----------------------
       Secretary

                                       PUBLIC SERVICE COMPANY
                                         OF NEW MEXICO


[CORPORATE SEAL]

                                       By
                                          ------------------------
                                          Title:

Attest:


----------------------
       Secretary

                                       CHEMICAL BANK,
                                         as Trustee


[CORPORATE SEAL]

                                       By
                                          ----------------------- 
                                               Vice President

Attest:

----------------------
     Trust Officer


#30122046.1
                                        4

<PAGE>

                                                              SCHEDULE 1
                                                                  to
                                                        SUPPLEMENTAL INDENTURE
                                                               OF PLEDGE


                  As  used  in  this  Supplemental   Indenture  of  Pledge,  the
following terms have the following meanings:

                  (1)  Lease  Indenture  means the  Trust  Indenture,  Mortgage,
Security  Agreement  and  Assignment  of Rents,  dated as of December  __, 1986,
between the Indenture Trustee and the Owner Trustee.

                  (2)  Lessor  Note means  each of the  Non-Recourse  Promissory
Note,  Fixed  Rate  Series  (Due  January  15,  1992),  in the amount of $ , the
Non-Recourse  Promissory  Note, Fixed Rate Series (Due January 15, 1997), in the
amount of $ and the Non-Recourse Promissory Note, Fixed Rate Series (Due January
15, 201 ), in the amount of $ , each dated December , 1986, payable by the Owner
Trustee to the Company.

                  (3) Lessor or Owner Trustee  means The First  National Bank of
Boston, a national banking  association  (FNB), in its capacity as owner trustee
under  the  Trust  Agreement,  dated  as of  December  , 1986,  with  the  owner
participant named therein.

                  (4) Indenture  Trustee means Chemical Bank, a New York banking
corporation, as Trustee.

                  (5) Lease means the Facility Lease,  dated as of December __ ,
1986, between PNM, as lessee, and the Owner Trustee, as lessor.

                  (6) Participation  Agreement means the Participation Agreement
dated as of December , 1986,  among the Owner  Participant  party  thereto,  the
Company, FNB in its individual capacity and as Owner Trustee,  Chemical Bank, in
its individual capacity and as Indenture Trustee, and PNM.

#30122046.1
                                        1

<PAGE>

                                TABLE OF CONTENTS

                                                                           Page
 

ARTICLE I.  THE BONDS.......................................................  2

         SECTION 1.01.    Terms of the Bonds................................  2

         SECTION 1.02.    Mandatory Redemption of the Bonds.................  3

         SECTION 1.03.    Optional Redemption of Bonds......................  4

         SECTION 1.04.    Sinking Fund......................................  5


ARTICLE II.  PLEDGE OF LESSOR NOTES.........................................  7

         SECTION 2.01.    Pledge of Lessor Notes............................  7


ARTICLE III. AMENDMENT TO ORIGINAL INDENTURE................................  8

         SECTION 3.01.    Amendment to Original Indenture...................  8

ARTICLE IV.  MISCELLANEOUS..................................................  8

         SECTION 4.01.    Execution as Supplemental Indenture...............  8

         SECTION 4.02.    Responsibility for Recitals, Etc..................  9

         SECTION 4.03.    Provisions Binding on Successors..................  9

         SECTION 4.04.    New York Contract.................................  9

         SECTION 4.05.    Counterparts......................................  9


Schedule 1:       FORM OF BOND

Schedule 2:       CERTAIN DEFINITIONS

Schedule 3:       CERTAIN LESSOR NOTES

Exhibit A:        SUPPLEMENTAL INDENTURE OF PLEDGE


#30122046.1
                                       -i-

<PAGE>



  
                                                                EXHIBIT D to
                                                           Conformed Collateral
                                                              Trust Indenture
================================================================================


                          FIRST PV FUNDING CORPORATION,

                      PUBLIC SERVICE COMPANY OF NEW MEXICO

                                       and

                                 CHEMICAL BANK,
                                   as Trustee

                                   ----------



                     UNIT 1 SUPPLEMENTAL INDENTURE OF PLEDGE
                     (LEASE OBLIGATION BONDS, SERIES 1986B)

                          dated as of December 15, 1986


                                       to


                           COLLATERAL TRUST INDENTURE

                          dated as of December 16, 1985


                                   ----------

                           Providing for the Pledge of
                           the Lessor Notes Specified
                              on Schedule 1 hereto


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

                  PALO VERDE NUCLEAR GENERATING STATION UNIT 1



#30122196.1
                                      -ii-

<PAGE>

                  UNIT 1  SUPPLEMENTAL  INDENTURE  OF PLEDGE  (LEASE  OBLIGATION
BONDS,  SERIES  1986B),  dated as of December 15,  1986,  among FIRST PV FUNDING
CORPORATION, a Delaware corporation (the Company), PUBLIC SERVICE COMPANY OF NEW
MEXICO,  a New Mexico  corporation  (PNM),  and CHEMICAL  BANK,  as trustee (the
Trustee)

                  WHEREAS,  the Company  and PNM have  heretofore  executed  and
delivered  to the  Trustee  an  indenture  dated  as of  December  16,  1985 (as
heretofore amended and supplemented, the Original Indenture);

                  WHEREAS,  Section 11.01(4) of the Original Indenture provides,
among other things, that the Company and the Trustee may, without the consent of
the  Holders of any  Securities,  enter into an  indenture  supplemental  to the
Original Indenture to convey, transfer and assign to the Trustee, and to subject
to the Lien of the Original Indenture, additional Pledged Lessor Notes;

                  WHEREAS,  PNM and the Company  have  heretofore  executed  and
delivered the Series 1986B Bond Supplemental Indenture, dated as of November 18,
1986 (the Series 1986B Bond  Supplemental  Indenture),  to the Trustee,  and the
Company issued  thereunder a series of Securities  designated  "Lease Obligation
Bonds,  Series 1986B" (the Series 1986B  Securities) in the aggregate  principal
amount of $460,000,000;

                  WHEREAS,  the Company,  in accordance  with Section 2.15(a) of
the Original  Indenture,  deposited with the Trustee the proceeds of sale of the
Series 1986B Securities;

                  WHEREAS,  the Company has  heretofore  obtained the release of
$372,000,000 from such proceeds of sale;

                  WHEREAS,  the Company, (i) in accordance with Sections 2.15(b)
and  13.01  of  the  Original  Indenture,  desires  to  obtain  the  release  of
$60,000,000  from such proceeds of sale and to cause the application  thereof in
the manner  specified by such Section 2.15(b) and (ii) has requested the Trustee
to enter  into this  Supplemental  Indenture  of Pledge for the  purpose,  among
others, of meeting the condition to such release set forth in clause (a) of such
Section 13.01; and

                  WHEREAS,  all acts and things  necessary to  constitute  these
presents a valid and binding  supplemental  indenture and agreement according to
its terms, have been done and performed,  and the execution of this Supplemental
Indenture of Pledge has in all respects been duly  authorized,  and the Company,
in  the  exercise  of  legal  right  and  power  in  it  vested,  executes  this
Supplemental Indenture of Pledge;

                  NOW,   THEREFORE,   THIS  SUPPLEMENTAL   INDENTURE  OF  PLEDGE
WITNESSETH:

                  That in  consideration  of the  premises and of the sum of one
dollar to it duly paid by the Trustee at the  execution of these  presents,  the
receipt whereof is hereby  acknowledged,  the Company and PNM each covenants and
agrees  with  the  Trustee,  for the  equal  and  proportionate  benefit  of the
respective Holders from time to time of the Securities, as follows:


                                   ARTICLE ONE

                             PLEDGE OF LESSOR NOTES

                  To secure the payment of the  principal  of,  premium (if any)
and  interest  on all the  Securities  from time to time  Outstanding  under the
Original  Indenture,  and the  performance  of the covenants  therein and herein
contained,  the Company by these presents does grant,  bargain,  sell,  release,
convey, assign, transfer,  mortgage,  hypothecate,  pledge, confirm and create a
security interest in, unto the Trustee,  the Lessor Notes identified on Schedule
1 hereto (herein referred to as the Pledged Lessor Notes).


#30122196.1
                                       -i-

<PAGE>

                  TO HAVE AND TO HOLD the  aforesaid  Pledged  Lessor Notes unto
the Trustee and its  successors and assigns  forever,  in trust and for the uses
and  purposes  and  subject to the  covenants  and  conditions  set forth in the
Original Indenture.


                                   ARTICLE TWO

                                  MISCELLANEOUS

                  SECTION 1.026.  Execution as Supplemental Indenture.

                  This Supplemental indenture of Pledge is executed and shall be
construed  as an  indenture  supplemental  to the  Original  Indenture  and,  as
provided in the Original Indenture,  this Supplemental Indenture of Pledge forms
a part  thereof.  Except as herein or in Schedule l hereto  expressly  otherwise
defined,  the use of the terms and expressions  herein is in accordance with the
definitions, uses and constructions contained in the Original Indenture.

                  SECTION 1.027.  Responsibility for Recitals, Etc.

                  The recitals contained herein shall be taken as the statements
of the  Company  and PNM,  and the  Trustee  assumes no  responsibility  for the
correctness of the same. The Trustee makes no  representation as to the validity
or  sufficiency  of this  Supplemental  Indenture  of Pledge or the Series 1986B
Securities.

                  SECTION 1.028.  Provisions Binding on Successors.

                  All the  covenants,  stipulations,  promises and agreements in
this  Supplemental  Indenture of Pledge contained by or in behalf of the Company
shall bind its successors and assigns, whether so expressed or not.

                  SECTION 1.029.  New York Contract.

                  This Supplemental  Indenture of Pledge shall be deemed to be a
contract  under the laws of the State of New York, and for all purposes shall be
construed in accordance with the laws of said state.

                  SECTION 1.0210.  Counterparts.

                  This  Supplemental  Indenture of Pledge may be executed in any
number  of  counterparts,   each  of  which  shall  be  an  original;  but  such
counterparts shall together constitute but one and the same instrument.


#30122196.1
                                      -ii-

<PAGE>


                  IN WITNESS  WHEREOF,  the  Company,  PNM and the Trustee  have
caused  this  Supplemental  Indenture  of  Pledge to be duly  executed  by their
respective  officers  thereunto duly  authorized,  as of the date and year first
above written.


                                       FIRST PV FUNDING CORPORATION
[CORPORATE SEAL]


                                       By
                                          -------------------------
                                          Title:
Attest:


-----------------------
  Assistant Secretary


                                       PUBLIC SERVICE COMPANY OF NEW
                                         MEXICO
[CORPORATE SEAL]


                                       By
                                          --------------------------
                                           Title:
Attest:


-----------------------
  Assistant Secretary


                                       CHEMICAL BANK,
                                         as Trustee
[CORPORATE SEAL]


                                       By
                                          --------------------------
                                                Vice President
Attest:


-----------------------
      Trust Officer



#30122196.1
                                      -iii-

<PAGE>

                                                               SCHEDULE 1
                                                                   to
                                                                 UNIT 1
                                                         SUPPLEMENTAL INDENTURE
                                                                OF PLEDGE


                  As used  with  reference  to this  Supplemental  Indenture  of
Pledge, the following terms have the following meanings:

                  (1)  Lease  Indenture  means the  Trust  Indenture,  Mortgage,
Security  Agreement  and  Assignment  of Rents,  dated as of December  15, 1986,
between the Indenture Trustee and the Owner Trustee.

                  (2) Lessor Note means each of (i) the Non-Recourse  Promissory
Note,  Fixed Rate Series (Due January 15,  1992),  in the amount of  $3,300,000,
(ii) the Non-Recourse Promissory Note, Fixed Rate Series (Due January 15, 1997),
in the amount of $8,060,000 and (iii) the  Non-Recourse  Promissory  Note, Fixed
Rate Series (Due January 15,  2015),  in the amount of  $48,640,000,  each dated
December 17, 1986, payable by the Owner Trustee to the Company.

                  (3) Lessor or Owner Trustee  means The First  National Bank of
Boston, a national banking  association  (FNB), in its capacity as owner trustee
under  the  Trust  Agreement,  dated as of  December  15,  1986,  with the owner
participant named therein.

                  (4) Indenture  Trustee means Chemical Bank, a New York banking
corporation, as Trustee.

                  (5) Lease means the Facility  Lease,  dated as of December 15,
1986, between PNM, as lessee, and the Owner Trustee, as lessor.

                  (6) Participation  Agreement means the Participation Agreement
dated as of December 15, 1986, among the Owner  Participant  party thereto,  the
Company, FNB in its individual capacity and as Owner Trustee,  Chemical Bank, in
its individual capacity and as Indenture Trustee, and PNM.


#30122196.1

<PAGE>

                                                                   EXHIBIT E to
                                                           Conformed Collateral
                                                                Trust Indenture



                          FIRST PV FUNDING CORPORATION,

                      PUBLIC SERVICE COMPANY OF NEW MEXICO

                                       and

                                 CHEMICAL BANK,
                                   as Trustee

                                   ----------


                     UNIT 2 SUPPLEMENTAL INDENTURE OF PLEDGE
                     (LEASE OBLIGATION BONDS, SERIES 1986B)

                          dated as of December 15, 1986

                                       to

                           COLLATERAL TRUST INDENTURE

                          dated as of December 16, 1985

                                   ----------


                           Providing for the Pledge of
                           the Lessor Notes Specified
                              on Schedule 1 hereto



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

                  PALO VERDE NUCLEAR GENERATING STATION UNIT 2


#30122195.1
                                       -v-

<PAGE>


                  UNIT 2  SUPPLEMENTAL  INDENTURE  OF PLEDGE  (LEASE  OBLIGATION
BONDS,  SERIES  1986B),  dated as of December 15,  1986,  among FIRST PV FUNDING
CORPORATION, a Delaware corporation (the Company), PUBLIC SERVICE COMPANY OF NEW
MEXICO,  a New Mexico  corporation  (PNM),  and CHEMICAL  BANK,  as trustee (the
Trustee).

                  WHEREAS,  the Company  and PNM have  heretofore  executed  and
delivered  to the  Trustee  an  indenture  dated  as of  December  16,  1985 (as
heretofore amended and supplemented, the Original Indenture);

                  WHEREAS,  Section 11.01(4) of the Original Indenture provides,
among other things, that the Company and the Trustee may, without the consent of
the  Holders of any  Securities,  enter into an  indenture  supplemental  to the
Original Indenture to convey, transfer and assign to the Trustee, and to subject
to the Lien of the Original Indenture, additional Pledged Lessor Notes;

                  WHEREAS,  PNM and the Company  have  heretofore  executed  and
delivered the Series 1986B Bond Supplemental Indenture, dated as of November 18,
1986 (the Series 1986B Bond  Supplemental  Indenture),  to the Trustee,  and the
Company issued  thereunder a series of Securities  designated  "Lease Obligation
Bonds,  Series 1986B" (the Series 1986B  Securities) in the aggregate  principal
amount of $460,000,000;

                  WHEREAS,  the Company,  in accordance  with Section 2.15(a) of
the Original  Indenture,  deposited with the Trustee the proceeds of sale of the
Series 1986B Securities;

                  WHEREAS,  the Company has  heretofore  obtained the release of
$372,000,000 from such proceeds of sale;

                  WHEREAS,  the Company, (i) in accordance with Sections 2.15(b)
and  13.01  of  the  Original  Indenture,  desires  to  obtain  the  release  of
$28,000,000  from such proceeds of sale and to cause the application  thereof in
the manner  specified by such Section 2.15(b) and (ii) has requested the Trustee
to enter  into this  Supplemental  Indenture  of Pledge for the  purpose,  among
others, of meeting the condition to such release set forth in clause (a) of such
Section 13.01; and

                  WHEREAS,  all acts and things  necessary to  constitute  these
presents a valid binding  supplemental  indenture and agreement according to its
terms,  have been done and  performed,  and the  execution of this  Supplemental
Indenture of Pledge has in all respects been duly  authorized,  and the Company,
in  the  exercise  of  legal  right  and  power  in  it  vested,  executes  this
Supplemental Indenture of Pledge;

                  NOW,   THEREFORE,   THIS  SUPPLEMENTAL   INDENTURE  OF  PLEDGE
WITNESSETH:

                  That in  consideration  of the  premises and of the sum of one
dollar to it duly paid by the Trustee at the  execution of these  presents,  the
receipt whereof is hereby  acknowledged,  the Company and PNM each covenants and
agrees  with  the  Trustee,  for the  equal  and  proportionate  benefit  of the
respective Holders from time to time of the Securities, as follows:

                                   ARTICLE ONE

                             PLEDGE OF LESSOR NOTES

                  To secure the payment of the  principal  of,  premium (if any)
and  interest  on all the  Securities  from time to time  Outstanding  under the
Original  Indenture,  and the  performance  of the covenants  therein and herein
contained,  the Company by these presents does grant,  bargain,  sell,  release,
convey, assign, transfer,  mortgage,  hypothecate,  pledge, confirm and create a
security interest in, unto the Trustee,  the Lessor Notes identified on Schedule
1 hereto (herein referred to as the Pledged Lessor Notes).


#30122195.1
                                      -vi-

<PAGE>

                  TO HAVE AND TO HOLD the  aforesaid  Pledged  Lessor Notes unto
the Trustee and its  successors and assigns  forever,  in trust and for the uses
and  purposes  and  subject to the  covenants  and  conditions  set forth in the
Original Indenture.

                                   ARTICLE TWO

                                  MISCELLANEOUS

                  SECTION 1.0211.  Execution as Supplemental Indenture.

                  This Supplemental Indenture of Pledge is executed and shall be
construed  as an  indenture  supplemental  to the  Original  Indenture  and,  as
provided in the Original Indenture,  this Supplemental Indenture of Pledge forms
a part  thereof.  Except as herein or in Schedule 1 hereto  expressly  otherwise
defined,  the use of the terms and expressions  herein is in accordance with the
definitions, uses and constructions contained in the Original Indenture.

                  SECTION 1.0212.  Responsibility for Recitals, Etc.

                  The recitals contained herein shall be taken as the statements
of the  Company  and PNM,  and the  Trustee  assumes no  responsibility  for the
correctness of the same. The Trustee makes no  representation as to the validity
or  sufficiency  of this  Supplemental  Indenture  of Pledge or the Series 1986B
Securities.

                  SECTION 1.0213.  Provisions Binding on Successors.

                  All the  covenants,  stipulations,  promises and agreements in
this  Supplemental  Indenture of Pledge contained by or in behalf of the Company
shall bind its successors and assigns, whether so expressed or not.


                  SECTION 1.0214.  New York Contract.

                  This Supplemental  Indenture of Pledge shall be deemed to be a
contract  under the laws of the State of New York, and for all purposes shall be
construed in accordance with the laws of said state.


                  SECTION 1.0215.  Counterparts.

                  This  Supplemental  Indenture of Pledge may be executed in any
number  of  counterparts,   each  of  which  shall  be  an  original;  but  such
counterparts shall together constitute but one and the same instrument.

#30122195.1
                                      -vii-

<PAGE>

                  IN WITNESS  WHEREOF,  the  Company,  PNM and the Trustee  have
caused  this  Supplemental  Indenture  of  Pledge to be duly  executed  by their
respective  officers  thereunto duly  authorized,  as of the date and year first
above written.


                                       FIRST PV FUNDING CORPORATION

[CORPORATE SEAL]
                                       By
                                          --------------------------            
                                          Title:
Attest:


----------------------
 Assistant Secretary
                                       PUBLIC SERVICE COMPANY
                                         OF NEW MEXICO

[CORPORATE SEAL]

                                       By
                                          -------------------------
                                          Title:

Attest:

----------------------
 Assistant Secretary

                                       CHEMICAL BANK,
                                         as Trustee

[CORPORATE SEAL]
                                       By
                                          -------------------------
                                              Vice President

Attest:

----------------------
   Trust Officer


#30122195.1
                                     -viii-

<PAGE>


                                                                SCHEDULE 1
                                                                    TO
                                                                  UNIT 2
                                                          SUPPLEMENTAL INDENTURE
                                                                 OF PLEDGE


                  As used  with  reference  to this  Supplemental  Indenture  of
Pledge, the following terms have the following meanings:

                  (1)  Lease  Indenture  means the  Trust  Indenture,  Mortgage,
Security  Agreement  and  Assignment  of Rents,  dated as of December  15, 1986,
between the Indenture Trustee and the Owner Trustee.

                  (2) Lessor Note means each of (1) the Non-Recourse  Promissory
Note,  Fixed Rate Series (Due January 15,  1992),  in the amount of  $1,270,000,
(ii) the Non-Recourse Promissory Note, Fixed Rate Series (Due January 15, 1997),
in the amount of $3,501,000 and (iii) the  Non-Recourse  Promissory  Note, Fixed
Rate Series (Due January 15,  2016),  in the amount of  $23,229,000,  each dated
December 17, 1986, payable by the Owner Trustee to the Company.

                  (3) Lessor or Owner Trustee  means The First  National Bank of
Boston, a national banking  association  (FNB), in its capacity as owner trustee
under  the  Trust  Agreement,  dated as of  December  15,  1986,  with the owner
participant named therein.

                  (4) Indenture  Trustee means Chemical Bank, a New York banking
corporation, as Trustee.

                  (5) Lease means the Facility  Lease,  dated as of December 15,
1986, between PNM, as lessee, and the Owner Trustee, as lessor.

                  (6)  Participation  Agreement means the Participant  Agreement
dated as of December 15, 1986, among the Owner  Participant  party thereto,  the
Company, FNB in its individual capacity and as Owner Trustee,  Chemical Bank, in
its individual capacity and as Indenture Trustee, and PNM.


#30122195.1
                                      -ix-

<PAGE>