CGI CAPITAL, INC.
                                Barley Mill Plaza
                               4303 Lancaster Pike
                           Wilmington, Delaware 19805



                                             August 18, 1986


Public Service Company of New Mexico
Alvarado Square
Albuquerque, New Mexico 87158
  Attention of J. D. Geist
    Chairman and President

                   Sale and Leaseback of an Undivided Interest
                 in Palo Verde Nuclear Generating Station Unit 2
                           waiver of Deemed loss Event

Dear Mr. Geist:

                We refer to the Participation Agreement,  dated as of August 12,
1986, among Public Service Company of New Mexico,  CCI Capital,  Inc.,  Chemical
flank, in its individual  capacity and as Indenture Trustee,  The First National
Bank of Boston,  in its individual  capacity and as owner Trustee,  and First PV
Funding Corporation (the Participation Agent) the Facility Lease dated as of the
same date and the other Transaction  Documents  referred to in the Participation
Agreement.  Capitalized  terms used  herein  without  definition  shall have the
respective meanings set forth in Appendix A to the Participation Agreement.




6091.CGI. 106.99A: 1


<PAGE>


                Such  Appendix A includes a definition  of the term "Deemed Loss
Event".  With  respect  to any  change  enacted  after  the date  hereof  in the
Price-Anderson  Act, the Atomic Energy Act or any other  Applicable  Law, or the
regulations of the NRC (or other  Governmental  Authority  having  jurisdiction)
implementing  any such change,  which would  otherwise  constitute a Deemed Loss
Event by virtue of clause (2) of such  definition,  we hereby  waive such Deemed
Loss Event for all  purposes  of the  Facility  Lease and the other  Transaction
Documents if, but only if, after giving effect to such change or interpretation:
(a)  the  aggregate   liability  for  a  single  Nuclear  Incident  of  "persons
indemnified"  (within  the meaning of section  170(e) of the Atomic  Energy Act;
such  Act,  together  with  the  regulations  of the NRC or  other  Governmental
Authority  having  jurisdiction  implementing  such Act, all as in effect on the
Closing Date,  being herein referred to as Existing Law) shall not exceed $6.563
billion (assuming 101 operating nuclear facilities participating in the deferred
premium  or  similar  plan  referred  to in  clause  (d) below  and  subject  to
adjustment  in an amount not exceeding $63 million for each increase or decrease
in said  number of  operating  nuclear  facilities):  (b) the  amount of primary
insurance  coverage  available from commercial  insurance  underwriters on terms
substantially equivalent (in the reasonable opinion of the Owner Participant) to
the terms in effect on the Closing  Date under  Existing  Law and required to be
maintained by licensees with respect to any single nuclear  facility shall be at
least  equal to $160  million;  (c) the amount of primary  financial  protection
(excluding  the  primary  insurance  coverage  referred  to in clause (b) above)
required of all  licensees  with respect to any single  nuclear  facility  under
Applicable Law shall not exceed $40 million; (d) the aggregate amount payable by
all  licensees of any single  nuclear  facility  under any  deferred  premium or
similar  plan  required  under  Applicable  Law shall not exceed $63 million per
Nuclear  Incident;  (e) the aggregate amount payable by all licensees in any one
year with  respect to any one Nuclear  Incident  under any  deferred  premium or
similar plan required  under  Applicable  Law shall not exceed $12 million;  (f)




                                       -2-
6091.CGI .1106.99A: 1


<PAGE>

insurance  or other  financial  protection  shall be in effect  under  which the
providers of such insurance or other financial protection shall agree to pay any
amount payable by any licensee under any deferred premium or similar plan upon a
default in such payment by such  licensee up to a maximum  aggregate  amount for
all such  defaults in payment of not less than $30  million;  (9) a mechanism in
form and substance reasonably  satisfactory to the Owner Participant shall be in
effect under which the maximum  potential  liability  of all Persons  during any
calendar year as a result of a Nuclear  Incident  shall not exceed the amount of
insurance or other  financial  protection  required to be available  during such
calendar  year to pay all amounts  which may become  payable by any such Person,
when and as they become payable, in respect of such liability;  (h) the form and
source (other than commercial insurance under-writers in respect of $160 million
of primary insurance  coverage and licensees of nuclear facilities in respect of
deferred  premiums) of insurance and other financial  protection  required under
Applicable  Law to be maintained in respect of liability  arising from a Nuclear
Incident shall be reasonably  satisfactory  to the Owner  Participant;  (i) as a
result of such change or interpretation,  there shall be no claim,  liability or
expense  excluded from the  limitation of liability  established by Existing Law
(through  modification  of the meaning of the phrases of "aggregate  liability",
"persons  indemnified",  "nuclear  incident" or  otherwise)  or excluded (or the
funding or payment thereof deferred) under commercially  available  insurance or
other financial  protection  provisions provided for by Existing raw except, for
purposes of this clause (i), to the extent and in the amount  excluded  pursuant
to Existing  Law;  and (j) neither the Owner  Trustee nor the Owner  Participant
shall be (in the  opinion  of  independent  counsel  to the  Owner  Participant)
exposed to any other increase in its real or potential liability with respect to
a Nuclear  Incident,  either during or  subsequent to the Lease Term;  provided,
however, that this waiver shall not continue beyond the date of enactment of the
first  change in the Price  Anderson  Act,  the  Atomic  Energy Act or any other
Applicable  Law  relating  to any of the  issues set forth  above and  affecting


6091.CGI. 1106.99A: 1

                                       -3-


<PAGE>

licensees  of  nuclear  facilities,  but  shall  continue  with  respect  to any
regulations of the NRC adopted thereafter implementing such change. For purposes
hereof,  "nuclear  facility"  shall  mean and refer to a facility  designed  for
producing  substantial  amounts of  electricity  and having a rated  capacity of
100,000 electrical kilowatts or more.

                This letter  shall  constitute  a  Transaction  Document for all
purposes of the Participation Agreement and the other Transaction Documents. The
waiver  contained herein shall be governed by, and construed in accordance with,
the laws of the State of New York.



                                            CGI CAPITAL, INC.


                                            by
                                               ----------------------
                                                  Vice President


Acknowledged and agreed 
this 18th day of August, 1986.