When Recorded, Return to:                               Gregg R. Neilsen
                                                        Snell & Wilmer
                                                        3100 Valley Bank Center
                                                        Phoenix, Arizona  85073


            CERTAIN  RIGHTS OF THE LESSOR  UNDER THIS  FACILITY  LEASE HAVE BEEN
ASSIGNED TO, AND ARE SUBJECT TO A SECURITY  INTEREST IN FAVOR OF, CHEMICAL BANK,
AS INDENTURE TRUSTEE UNDER A TRUST INDENTURE,  MORTGAGE,  SECURITY AGREEMENT AND
ASSIGNMENT  OF RENTS DATED AS OF JULY 31,  1986.  THIS  FACILITY  LEASE HAS BEEN
EXECUTED IN SEVERAL COUNTERPARTS.  SEE SECTION 22 (e) OF THIS FACILITY LEASE FOR
INFORMATION CONCERNING THE RIGHTS OF HOLDERS OF VARIOUS COUNTERPARTS HEREOF.

            THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

================================================================================
                                 FACILITY LEASE

                            Dated as of July 31, 1996

                                     between

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

                                     Lessor

                                       and

                      PUBLIC SERVICE COMPANY OF NEW MEXICO

                                     Lessee

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

                        Sale and Leaseback of a 1.13333%
                              Undivided Interest in
                  Palo Verde Nuclear Generating Station Unit 1
                        and a .377777% Undivided Interest
                          in Certain Common Facilities

================================================================================
<PAGE>
                                TABLE OF CONTENTS

                                                                          Page

SECTION 1         Definitions............................................  1

SECTION 2         Lease of Undivided
                  Interest; Term; Personal
                  Property...............................................  1

           a      Lease of Undivided
                  Interest...............................................  1

           b      Term...................................................  1

           c      Personal Property......................................  1

           d      Description............................................  2

SECTION 3         Rent; Adjustments to
                  Rent...................................................  2

           a      Basic Rent.............................................  2

           b      Supplement Rent........................................  3

           c      Form of Payment........................................  4

           d      Adjustments to Rent....................................  4

           e      Further Adjustments....................................  5

           f      Computation of
                  Adjustments............................................  6

           g      Sufficiency of Basic
                  Rent and Supplemental
                  Rent...................................................  7

           h      Rent Differential......................................  7

SECTION 4         Net Lease..............................................  8

SECTION 5         Return of the Undivided
                  Interest............................................... 11

           a      Return of the Undivided
                  Interest............................................... 11

           b      Disposition Services................................... 13

SECTION 6         Warranty of the Lessor................................. 13

           a      Quiet Enjoyment........................................ 13

           b      Disclaimer of Other
                  Warranties............................................. 13

           c      Enforcement of Certain
                  Warranties............................................. 13

SECTION 7         Liens  ................................................ 15

SECTION 8         Operation and Maintenance;
                  Capital Improvements................................... 16

<PAGE>


           a      Operation and
                  Maintenance............................................ 16

           b      Inspection............................................. 17

           c      Capital Improvements................................... 18

           d      Reports................................................ 19

           e      Title to Capital
                  Improvements........................................... 19

           f      Funding of the Cost of
                  Capital Improvements................................... 21

SECTION 9         Event of Loss; Deemed
                  Loss Event............................................. 23

           a      Damage or Loss......................................... 24

           b      Repair................................................. 24

           c      Payment of Casualty
                  Value.................................................. 24

           d      Payment of Special
                  Casualty Value......................................... 25

           e      Requisition of Use..................................... 26

           f      Termination of
                  Obligation............................................. 26



<PAGE>

           g      Application of Payments
                  on an Event of Loss.................................... 27

           h      Application of Payments
                  Not Relating to an Event
                  of Loss................................................ 28

           I      Other Dispositions..................................... 28

SECTION 10        Insurance.............................................. 29

           a      Required Insurance..................................... 29

           b      Permitted Insurance.................................... 31

SECTION 11        Rights to Assign or
                  Sublease............................................... 31

           a      Assignment or Sublease
                  by the Lessee.......................................... 31

           b      Assignment by Lessor as
                  Security for Lessor's
                  Obligations............................................ 32

SECTION 12        Lease Renewal.......................................... 32

<PAGE>


SECTION 13        Notices for Renewal or
                  Purchase; Purchase
                  Options................................................ 33

           a      Notice, Determination of
                  Values, Appraisal
                  Procedure.............................................. 33

           b      Purchase Option at
                  Expiration of the Lease
                  Term................................................... 34

           c      Special Purchase Event................................. 34

           d      Purchase of the
                  Undivided Interest;
                  Payment, Etc........................................... 34

SECTION 14        Termination for
                  Obsolescence........................................... 35

           a      Termination Notice..................................... 35

           b      Right of Lessor to
                  Retain Undivided
                  Interest upon
                  Termination............................................ 35

           c      Events on the
                  Termination Date....................................... 36

           d      Early Termination
                  Notice................................................. 37

<PAGE>


           e      Events on the Early
                  Termination............................................ 38

SECTION 15        Events of Default...................................... 38

SECTION 16        Remedies............................................... 42

           a      Remedies............................................... 42

           b      No Release............................................. 48

           c      Remedies Cumulative.................................... 48

           d      Exercise of Other Rights
                  or Remedies............................................ 49

           e      Special Cure Right of
                  Lessee................................................. 50

SECTION 17        Notices................................................ 51

SECTION 18        Successors and Assigns................................. 51

SECTION 19        Right to Perform for
                  Lessee................................................. 52

SECTION 20        Additional Covenants................................... 52

SECTION 21        Lease of Real Property
                  Interest............................................... 53

<PAGE>


SECTION 22        Amendments and
                  Miscellaneous.......................................... 53

           a      Amendments in Writing.................................. 53

           b      Survival............................................... 53

           c      Severability of
                  Provisions............................................. 54

           d      True Lease............................................. 54

           e      Original Lease......................................... 54

           f      Governing Law.......................................... 55

           g      Headings............................................... 55

           h      Concerning the Owner Trustee........................... 55

           i      Disclosure............................................. 56

           j      Counterpart Execution.................................. 56

APPENDIX A Definitions

SCHEDULE 1 Casualty Values

SCHEDULE 2 Special Casualty Values

SCHEDULE 3 Termination Values

SCHEDULE 4 [Intentinally Omitted]

SCHEDULE 5 Real Estate Description

SCHEDULE 6 Undivided Interest Description

<PAGE>


6091.50.2831.47:1

            FACILITY  LEASE,  dated  as of July  31,  1986,  between  THE  FIRST
NATIONAL BANK OF BOSTON, a national banking  association,  not in its individual
capacity, but solely as Owner Trustee under a Trust Agreement,  dated as of July
31, 1986,  with Chase Manhattan  Realty Leasing  Corporation  (the Lessor),  and
PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the Lessee).

                                   WITNESSETH:

            WHEREAS,  the  Lessor  owns  the  Undivided  interest  and the  Real
Property Interest;

            WHEREAS,  the Lessee desires to lease the Undivided Interest and the
Real  Property  Interest from the Lessor on the terms and  conditions  set forth
herein; and

            WHEREAS,  the Lessor is willing to lease the Undivided  Interest and
the Real Property  Interest to the Lessee on the terms and  conditions set forth
herein;

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

            SECTION 1. Definitions.

            For purposes  hereof,  capitalized  terms used herein shall have the
meanings  assigned  to such  terms in  Appendix  A  hereto.  References  in this
Facility Lease to sections,  paragraphs and clauses are to sections,  paragraphs
and clauses in this Facility Lease unless otherwise indicated.

            SECTION 2. Lease of Undivided Interest; Term; Personal Property.

            (a) Lease of Undivided  Interest.  Upon the terms and subject to the
conditions of this Facility Lease,  the Lessor hereby leases to the Lessee,  and
the Lessee hereby leases from the Lessor, the Undivided Interest.

            (b) Term.  The term of this Facility  Lease shall begin on August 1,
1986, and shall end on the last day of the Lease Term.

            (c) Personal Property. It is the express intention of the Lessor and
the Lessee that title to the undivided  Interest and every  portion  thereof be,
and hereby is, severed, and shall be and remain severed,  from title to the real
estate  constituting  the Real Property  Interest and the PVNGS Site. The Lessor
and the Lessee  intend that the Undivided  Interest  shall  constitute  personal
property to the maximum extent permitted by Applicable Law.

<PAGE>

            (d) Description. The Real Property Interest is described on Schedule
S hereto. The Undivided Interest is described on Schedule 6 hereto.

            SECTION 3. Rent; Adjustments to Rent.

            (a) Basic Rent.  The Lessee  shall pay to the Lessor,  as basic rent
(herein  referred to as Basic Rent) for the  Undivided  Interest,  the following
amounts:

                (i) on January 15,  1987,  an amount  equal to  .0257526% of the
            Facility Cost for each day from, and  including,  August 1, 1986 to,
            but   excluding,   January  15,   1987,   plus  or  minus  the  Rent
            Differential, if any, referred to in Section 3(h);

                (ii) on July  15,  1987  and on each  Basic  Rent  Payment  Date
            thereafter  to and  including  January 15, 2015,  an amount equal to
            4.635455% of Facility Cost, plus or minus the Rent Differential,  if
            any, referred to in Section 3(h); and

                (iii) if the Lessee  shall elect the Renewal  Term,  on July 15,
            2015 and on each  Basic  Rent  Payment  Date  thereafter  during the
            Renewal Term, an amount equal to one-half of an amount determined by
            dividing the aggregate  amount of all payments of Basic Rent payable
            with respect to the Basic Lease Term pursuant to clause (ii) of this
            Section  3(a)  (taking  into  account  any  adjustments  pursuant to
            Sections  3(d) and 3(e) and any  increases or decreases  pursuant to
            Section 3(h)), by 56.

<PAGE>

If an  interest  payment  on any Note  shall be due on a date other than a Basic
Rent Payment Date, the Lessee shall pay additional Basic Rent on such date equal
to such  interest  payment and such  payment of  additional  Basic Rent shall be
credited  against  the  Basic  Rent due on the  Basic  Rent  Payment  Date  next
succeeding. the date that such additional Basic Rent shall have been paid.

            (b)   Supplemental   Rent.   The  Lessee  shall  pay  the  following
amounts(herein referred to as Supplemental Rent):

                (i) when due or, where no due date is specified,  on demand, any
            amount (other than Basic Rent, Casualty Value, Termination Value and
            Special  Casualty  Value) which the Lessee assumes the obligation to
            pay or  agrees to pay to the  Lessor,  the  Owner  Participant,  the
            Indenture  Trustee,  the Collateral  Trust Trustee or any Indemnitee
            under this Facility  Lease,  any other  Transaction  Document or the
            Collateral  Trust  Indenture,  any amount  which is to be paid under
            Section  6.9,  7.6 or 8.7 of the  Indenture  and any amount that the
            Lessee is required  to pay,  or provide  for the  payment of,  under
            Section 8.5 of the Indenture;

                (ii) when due, any amount payable  hereunder as Casualty  Value,
            Termination  Value or Special Casualty Value, and an amount equal to
            any premium or prepayment penalty with respect to the Notes;

                (iii) on demand and in any event on the Basic Rent  Payment Date
            next  succeeding  the date  such  amounts  shall be due and  payable
            hereunder,  to the extent  permitted  by  Applicable  Law,  interest
            (computed on the same basis as interest on the Notes is computed) at
            a rate per annum equal to (A) the  Overdue  Interest  Rate,  on that
            portion  of  the  payment  of  Basic  Rent  or   Supplemental   Rent
            distributable  pursuant  to clause  "first" of Section 5.1 or clause
            "second" of Section 5.3 of the  Indenture  (determined  prior to the
            computation  of  interest  on overdue  payments  referred to in such
            clauses),  and (B) the  Penalty  Rate,  on the  balance  of any such
            payment of Basic Rent or Supplemental  Rent (including,  in the case
            of both clause (i) and clause (ii) above, but without limitation, to
            the extent permitted by Applicable Law, interest payable pursuant to
            this clause  (iii)) not paid when due (without  regard to any period
            of grace) for any period for which the same shall be overdue.

<PAGE>

The Lessor  shall have all  rights,  powers and  remedies  provided  for in this
Facility  Lease,  at law, in equity or otherwise,  in the case of non-payment of
Basic Rent or Supplemental Rent.

            (c) Form of Payment.  Subject to Section 11(b), each payment of Rent
under this Facility Lease shall be made in immediately  available funds no later
than  11:00  a.m.,  local  time at the place of  receipt,  on the date each such
payment  shall be due and payable  hereunder and shall be paid either (A) in the
case of  payments  other than  Excepted  Payments,  to the Lessor at its address
determined in accordance with Section 17, or at such other address as the Lessor
may direct by notice in writing to the  Lessee,  or (B) in the case of  Excepted
Payments,  to such Person as shall be entitled to receive  such  payment at such
address as such  Person may  direct by notice in writing to the  Lessee.  If the
date on which any payment of Rent is due hereunder  shall not be a Business Day,
the  payment  otherwise  due thereon  shall be due and payable on the  preceding
Business  Day,  with the same  force and effect as if paid on the  nominal  date
provided in this Facility  Lease.  

            (d)  Adjustments  to Rent.  Basic Rent and the schedules of Casualty
Values,  Termination Values and Special Casualty Values attached hereto shall be
adjusted  (upward or downward)  to preserve Net Economic  Return if there is any
Change in Tax Law other  than a Change in respect  of a minimum  tax;  provided,
however, that the aggregate amount of such downward adjustments shall not exceed
the  aggregate  amount  of  such  upward  adjustments.  Adjustments  under  this
paragraph (d) shall be (1) made not more than once a year and (2) limited in the
aggregate to the extent  necessary such that the aggregate  amount of Basic Rent
theretofore and thereafter payable throughout the Basic Lease Term (computed for
such purposes only without regard to any adjustments  theretofore  made pursuant
to Section 3(e)) shall not be more than the following  percentages of Basic Rent
pay able throughout the Basic Lease Term  (calculated as aforesaid):  (i) 22% in
the event that the  Outstanding  Notes have not been  reoptimized  in accordance
with their terms and (ii) 15.5% if the Outstanding  Notes have been  reoptimized
in full in accordance with their terms.

<PAGE>

The  provisions  of this Section 3(d) to the  contrary  notwithstanding,  if any
Change in Tax Law is, or becomes,  applicable to the transaction contemplated by
this Facility Lease in  consequence  of the transfer of the Owner  Participant's
beneficial  interest in the Trust (whether or not permitted by Section 15 of the
Participation  Agreement)  or if such  Change  in Tax Law  would  not have  been
applicable to such transaction had no such transfer occurred, then no adjustment
shall be, or be required to be, made pursuant to this paragraph  (d);  provided,
however, that this sentence shall not apply to the initial transfer of the Owner
Participant's beneficial interest in the Trust to one of its Affiliates.

            (e) Further  Adjustments.  Basic Rent and the  schedules of Casualty
Values,  Special Casualty Values and Termination Values attached hereto shall be
appropriately  adjusted  (upward or downward) to preserve Net Economic Return if
there  is (i) any  issuance  of the  Fixed  Rate  Note,  (ii)  any  Supplemental
Financing, (iii) the payment of Transaction Expenses in an amount which is other
than 2.0% of the Purchase Price or (iv) any change in the Pricing Assumptions.

<PAGE>

            (f)  Computation  of  Adjustments.  Upon the  occurrence of an event
requiring an adjustment to Basic Rent payable pursuant to clause (ii) of Section
3(a),  and the  schedules  of  Casualty  Values,  Special  Casualty  Values  and
Termination  Values  attached  hereto,  pursuant to paragraph (d) or (e) of this
Section 3, the Owner  Participant  shall  make the  necessary  computations  and
furnish to the  Lessee,  the Loan  Participant,  the  Lessor  and the  Indenture
Trustee the revised amounts and percentages, which amounts and percentages shall
be implemented  upon delivery thereof and effective as of the date of occurrence
of the event requiring such adjustment (taking into account any payment of Basic
Rent already made) and shall remain  effective  until changed in  consequence of
any verification procedure set forth below. Such revised amounts and percentages
shall be subject to verification  (at the Lessee's  request within 90 days after
the Owner  Participant  furnishes  the revised  amounts to the Lessee,  the Loan
participant  the Lessor and the  Indenture  Trustee) by the Owner  Participant's
nationally  recognized  independent  public  accountants,  in  which  case  such
accountants  shall either (i) confirm to the Lessee in writing that such revised
amounts were computed on a basis consistent with the original  calculations,  or
(ii) compute and provide to the Lessee, the Lessor,  the Owner Participant,  the
Loan Participant and the Indenture Trustee revised amounts and percentages which
are on such a basis.  The revised  amounts and  percentages,  as so confirmed or
computed if  applicable,  shall be conclusive  and binding upon the Lessee,  the
Lessor, the Owner  Participant,  the Loan Participant and the Indenture Trustee.
The cost of any such  verification  shall be  borne by the  Lessee  unless  such
accountants  shall require an adjustment to the revised  amounts and percentages
originally provided by the Owner Participant which differs by more than 10% from
the adjustment so provided, in which case such cost shall be divided and paid by
the Lessee and the Owner Participant in equal amounts.  Each adjustment pursuant
to paragraph (d) or (e) of this Section 3 may, but need not, be evidenced by the
execution  and  delivery  of a  supplement  to this  Facility  Lease in form and
substance  satisfactory  to the Lessee and the Owner  Participant,  but shall be
effective as provided herein without regard to the date on which such supplement
to this Facility Lease is so executed and delivered.  Any adjustment referred to
in this  Section 3 shall  satisfy the  provisions  of Revenue  Procedure  75-21,
Revenue Procedure 75-28 and any other applicable  statute,  regulation,  revenue
procedure  revenue  ruling or  technical  information  release  relating  to the
subject matter of Revenue  procedure 75-21 or Revenue  Procedure 75-28,  but, in
the  case of any  upward  adjustment,  shall  be no  less  than  the  adjustment
otherwise required pursuant to this Section 3.

<PAGE>

            (g) Sufficiency of Basic Rent and Supplemental Rent. Notwithstanding
any other provision of this Facility Lease,  any other  Transaction  Document or
any Financing Document,  (i) the amount of Basic Rent payable on each Basic Rent
Payment  Date  shall be at least  equal to the  aggregate  amount of  principal,
premium,  if any, and accrued interest payable on all Notes then Outstanding and
(ii) each payment of Casualty  Value,  Special  Casualty  Value and  Termination
Value  shall in no event be less (when  added to all other  amounts,  other than
Excepted  Payments,  required to be paid by the Lessee under this Facility Lease
in respect  of any Event of Loss or Deemed  Loss  Event or  termination  of this
Facility Lease) than an amount sufficient,  as of the date of payment, to pay in
full all principal  of, and premium,  if any, and interest then due on all Notes
Outstanding  on  and as of  such  date  of  payment  (taking  into  account  any
assumption of the Notes by the Lessee).

            (h) Rent  Differential.  So long as the Initial Series Note shall be
outstanding,  each installment of Basic Rent shall be increased or decreased, as
the  case  may  be,  by  the  Rent  Differential.  For  purposes  hereof,  "Rent
Differential"  shall mean,  as of any Basic Rent Payment  Date,  the  difference
between (i) the aggregate  amount of interest due and payable on each Basic Rent
Payment  Date on the  Initial  Series  Note,  and (ii) the  aggregate  amount of
interest that would have been due and payable on such Basic Rent Payment Date on
such  Note if such  Note had at all  times  during  the  relevant  period  borne
interest at a rate equal to 10.0% per annum (computed on the basis of the actual
number of days elapsed in a year of 365 or 366 days, as the case may be). If, as
of any Basic Rent Payment Date,  (A) the amount  determined  in accordance  with
clause  (i) of the  immediately  preceding  sentence  shall  exceed  the  amount
determined in accordance with clause (ii) of such sentence,  the amount of Basic
Rent  due on such  Basic  Rent  Payment  Date  shall  be  increased  by the Rent
Differential,  and (B) the amount determined in accordance with such clause (ii)
shall  exceed the amount  determined  in  accordance  with such clause (i),  the
amount of Basic Rent due on such Basic Rent  Payment  Date shall be decreased by
the Rent Differential.

<PAGE>

            SECTION 4. Net Lease.

            This  Facility  Lease  (as  originally  executed  and  as  modified,
supplemented  and  amended  from time to time) is a net  lease,  and the  Lessee
hereby  acknowledges  and agrees that the  Lessee's  obligation  to pay all Rent
hereunder,  and the rights of the Lessor in and to such Rent, shall be absolute,
unconditional  and irrevocable and shall not be affected by any circumstances of
any  character,  including,  without  limitation,  (i) any  set-off,  abatement,
counterclaim,  suspension,  recoupment,  reduction, rescission, defense or other
right or claim  which  the  Lessee  may have  against  the.  Lessor,  the  Owner
Participant,  the Indenture  Trustee,  the Collateral  Trust  Trustee,  the Loan
Participant,   the  Operating  Agent,  any  ANPP  Participant,   any  vendor  or
manufacturer of any equipment or assets included in the Undivided Interest, Unit
1, any Capital Improvement,  the Real Property Interest,  the PVNGS Site, PVNGS,
or any part of any thereof, or any other Person for any reason whatsoever,  (ii)
any  defect in or  failure of the  title,  merchantability,  condition,  design,
compliance with specifications,  operation or fitness for use of all or any part
of the Undivided Interest,  Unit 1, any Capital  Improvement,  the Real Property
Interest, the PVNGS Site or PVNGS, (iii) any damage to, or removal, abandonment,
decommissioning,  shutdown, salvage, scrapping,  requisition taking, loss, theft
or destruction of all or any part of the Undivided Interest, Unit 1, any Capital
Improvement,  the Real  Property  Interest,  the  PVNGS  Site or  PVNGS,  or any
interference,  interruption or cessation in the use or possession  thereof or of
the  Undivided  Interest by the Lessee or by any other  Person  (including,  but
without limitation,  the Operating Agent for any other ANPP Participant) for any
reason whatsoever or of whatever duration,  (iv) any restriction,  prevention or
curtailment of or interference  with any use of all or any part of the Undivided
Interest, Unit 1, any Capital Improvement, the Real Property Interest, the PVNGS
Site or  PVNGS,  (v)  any  insolvency,  bankruptcy,  reorganization  or  similar
proceeding  by or against the Lessee,  the Lessor,  the Owner  Participant,  the
Indenture  Trustee,  the Collateral  Trust Trustee,  the Loan  Participant,  the
Operating  Agent,  any other  ANPP  Participant  or any other  Person,  (vi) the
invalidity,  illegality or  unenforceability  of this Facility Lease,  any other
Transaction Document, any Financing Document,  the ANPP Participation  Agreement
or any other  instrument  referred  to herein or therein or any other  infirmity
herein or therein or any lack of right,  power or authority  of the Lessor,  the
Lessee,  the Owner  Participant,  the Indenture  Trustee,  the Collateral  Trust
Trustee,  the Loan  Participant  or any other Person to enter into this Facility
Lease, any other Transaction Document or any Financing Document, or any doctrine
of force majeure, impossibility,  frustration,  failure of consideration, or any
similar legal or equitable doctrine that the Lessee's  obligation to pay Rent is
excused  because the Lessee has not received or will not receive the benefit for
which the  Lessee  bargained,  it being the  intent of the  Lessee to assume all
risks from all causes  whatsoever that the Lessee does not receive such benefit,
(vii) the breach or  failure  of any  warranty  or  representation  made in this
Facility Lease or any other  Transaction  Document or any Financing  Document by
the Lessor, the Owner Participant,  the Indenture Trustee,  the Collateral Trust
Trustee, the Loan Participant or any other Person, (viii) any amendment or other
change of, or any  assignment of rights under,  this Facility  Lease,  any other
Transaction Document,  any Financing Document or any ANPP Project Agreement,  or
any waiver,  action or inaction under or in respect of this Facility Lease,  any
other  Transaction  Document,   any  Financing  Document  or  any  ANPP  Project

<PAGE>

Agreement,  or any  exercise or  non-exercise  of any right or remedy under this
Facility Lease, any other Transaction  Document,  any Financing  Document or any
ANPP  Project  Agreement,  including,  without  limitation,  the exercise of any
foreclosure or other remedy under the Indenture,  the Collateral Trust Indenture
or this  Facility  Lease,  or the sale of Unit 1, any Capital  Improvement,  the
Undivided Interest,  the Real Property Interest, the PVNGS Site or PVNGS, or any
part  thereof  or any  interest  therein,  or (ix)  any  other  circumstance  or
happening whatsoever whether or not similar to any of the foregoing.  The Lessee
acknowledges  that by conveying  the leasehold  estate  created by this Facility
Lease to the Lessee and by putting  the Lessee in  possession  of the  Undivided
Interest and the Real  Property  Interest,  the Lessor has  performed all of the
Lessor's  obligations  under and in respect of this Facility  Lease,  except the
covenant  under  Section 6(a) hereof that the Lessor and Persons  acting for the
Lessor will not  interfere  with the Lessee's  quiet  enjoyment of the Undivided
Interest and the Real Property Interest. The Lessee hereby waives, to the extent
permitted by  Applicable  Law, any and all rights which it may now have or which
at any time  hereafter  may be conferred  upon it, by statute or  otherwise,  to
terminate,  cancel,  quit or surrender this Facility Lease or to effect or claim
any diminution or reduction of Rent payable by the Lessee  hereunder,  including
without  limitation the provisions of Arizona Revised  Statutes  Section 33-343,
except in accordance with the express terms hereof. If for any reason whatsoever
this Facility  Lease shall be terminated in whole or in part by operation of law
or otherwise,  except as specifically  provided herein,  the Lessee  nonetheless
agrees to pay to the Lessor or other Person entitled  thereto an amount equal to
each  installment  of Basic  Rent  and all  Supplemental  Rent at the time  such
payment  would have become due and payable in  accordance  with the terms hereof
had this Facility Lease not been terminated in whole or in part. Each payment of
Rent made by the Lessee  hereunder  shall be final and the Lessee shall not seek
or have any right to recover all or any part of such  payment from the Lessor or
any other Person for any reason whatsoever. All covenants,  agreements and under
takings of the Lessee  herein shall be  performed at its cost,  expense and risk
unless expressly otherwise stated.  Nothing in this Section 4 shall be construed
as a guaranty by the Lessee of any residual  value in the Undivided  Interest or
as a guaranty of the Notes.  Any  provisions  of Section  7(b)(2) or 8(c) of the
Participation  Agreement  to the contrary  notwithstanding,  if the Lessee shall
fail to make any  payment of Rent to any  Person  when and as due  (taking  into
account  appli cable  grace  periods),  such Person  shall have the right at all
times, to the exclusion of the ANPP Participants,  to demand,  collect, sue for,
enforce obligations  relating to and otherwise obtain all amounts due in respect
of such Rent.

<PAGE>

            SECTION 5. Return of the Undivided Interest.

            (a) Return of the Undivided Interest. On the Lease Termination Date,
the Lessee will  surrender  possession  of the  Undivided  Interest and the Real
Property  Interest to the Lessor (or to a Person  specified by the Lessor to the
Lessee in writing not less than 6 months  prior to the Lease  Termination  Date)
with full rights as a "Transferee"  and the sole  "Participant"  with respect to
the  Undivided  Interest and the Real  Property  Interest  within the meaning of
Section  15.10 of the ANPP  Participation  Agreement,  and will  furnish  to the
Lessor:  (i)  copies  certified  by a  senior  officer  of  the  Lessee  of  all
Governmental Action necessary to effect such surrender  (including,  but without
limitation, appropriate amendments to the License permitting the Lessor (without
the Lessor being  required to change its business) or such Person to possess the
Undivided  Interest and the Real Property Interest with or without the continued
involvement of the Lessee as Agent),  which Governmental Action shall be in full
force and  effect;  and (ii) an  opinion  of  counsel  (which  may be Mudge Rose
Guthrie Alexander & Ferdon,  Snell & Wilmer or another counsel  experienced with
NRC and other nuclear matters reasonably  satisfactory to the Owner Participant)
to the effect  that (A) the  Lessee has  obtained  all  Governmental  Action and
action under the ANPP Participation Agreement necessary to effect such surrender
by the  Lessee  and  receipt  of  possession  by the Lessor (or to the Person so
specified by the Lessor) and (B) such  Governmental  Action is in full force and
effect. At the time of such return the Lessee shall pay or have paid all amounts
due and  payable,  or to become due and  payable,  by it as an ANPP  Participant
under each and every ANPP Project Agreement  allocable or chargeable (whether or
not  payable  during or after the Lease Term) to the  Undivided  Interest or the
Real Property Interest in respect of any period or periods ending on or prior to
the Lease  Termination  Date  (including,  but without  limitation,  all amounts
payable with respect to any and all discretionary Capital Improvements to Unit 1
or the PVNGS Site approved or authorized  (without the  concurrence of the Owner
Participant)  within  the 3-year  period  preceding  the end of the Lease  Term,
whether or not  implementation  thereof  has been  completed  on or prior to the
Lease  Termination  Date),  and the  Undivided  Interest  and the Real  Property
Interest  shall be free and  clear of all  Liens  (other  than  Permitted  Liens
described in clauses (i), (v) (other than those arising by, through or under the
Lessee  alone),  (vi),  (vii) (other than as  aforesaid),  (viii) (other than as
aforesaid),  (ix) and (x) of the  definition  of such term) and in the condition
and state of repair  required by Section 8. In the event that on or prior to the
Lease  Termination  Date  there  shall  have  occurred  a  default  by any  ANPP
Participant (other than the Lessee) under the ANPP  Participation  Agreement and
such default shall not have been cured by the defaulting ANPP Participant,  then
(i) the Lessee  agrees to  indemnify  and hold the Lessor  (and each  successor,
assign and transferee  thereof)  harmless against any and all obligations  under
the ANPP  Participation  Agreement  with  respect to  contributions  or payments
required to be made thereby as a result of such default and (ii) the Lessor (and
each  successor,  assign and transferee  thereof) agrees to reimburse the Lessee
for all amounts paid by the Lessee  pursuant to the foregoing  clause (i) to the
extent,  but only to the extent,  that the Lessor (or such successor,  assign or
transferee)  shall  have  actually  received  proceeds  from  the  sale  of  the
Generation  Entitlement  Share of the defaulting ANPP Participant as a result of
the payment made by the Lessee pursuant to the foregoing clause (i), and, to the
extent the Lessor (or such successor,  assign or transferee) shall have received
such proceeds, the amount to be reimbursed to the Lessee pursuant to this clause
(ii) shall  include  interest  at the Prime Rate from the date of any payment by
the  Lessee   pursuant  to  the  foregoing   clause  (i)  through  the  date  of
reimbursement of such amount pursuant to this clause (ii).

<PAGE>

            (b)  Disposition  Services.  The Lessee  agrees  that if it does not
exercise  its option to renew or  purchase  as  provided  in Sections 12 and 13,
respectively,  then during the last  thirty-six  months of the Lease  Term,  the
Lessee will fully  cooperate  with the Lessor in  connection  with the  Lessor's
efforts to lease or  dispose of the  Undivided  Interest  and the Real  Property
Interest including using the Lessee's  reasonable efforts to lease or dispose of
the  Undivided  Interest and the Real  Property  Interest.  The Lessor agrees to
reimburse  the Lessee for  reasonable  out-of-pocket  costs and  expenses of the
Lessee  incurred  at the  request  of the  Lessor  or the Owner  Participant  in
connection with such cooperation and such efforts.

            SECTION 6. Warranty of the Lessor.

            (a)  Quiet  Enjoyment.  The  Lessor  warrants  that  until the Lease
Termination  Date,  so long as no Event of Default  shall have  occurred  and be
continuing,  the Lessee's use and  possession of Unit 1, including the Undivided
Interest,  shall not be  interrupted  by the Lessor or any Person  claiming  by,
through or under the Lessor, and their respective successors and assigns.

            (b)  Disclaimer  of Other  Warranties.  The  warranty  set  forth in
Section  6(a) is in lieu of all  other  warranties  of the  Lessor  or the Owner
Participant,  whether  written,  oral or implied,  with respect to this Facility
Lease, Unit 1, any Capital Improvement,  the Undivided Interest, PVNGS, the Real
Property  Interest or the PVNGS Site. As among the Owner  Participant,  the Loan
Participant, the Indenture Trustee, the Collateral Trust Trustee, the Lessor and
the Lessee,  execution by the Lessee of this Facility  Lease shall be conclusive
proof of the  compliance  of Unit 1  (including  any Capital  Improvement),  the
Undivided  Interest and the Real Property Interest with all requirements of this
Facility  Lease,  and the Lessee  acknowledges  and agrees  that (i) NEITHER THE
LESSOR NOR THE OWNER  PARTICIPANT IS A  MANUFACTURER  OR A DEALER IN PROPERTY OF
SUCH KIND AND (ii) THE LESSOR LEASES AND THE LESSEE TAKES THE UNDIVIDED INTEREST
AND THE REAL PROPERTY INTEREST, AND SHALL TAKE EACH CAPITAL IMPROVEMENT, AND ANY
PART  THEREOF,  AS IS AND  WHERE  IS,  and  neither  the  Lessor  nor the  Owner
Participant  shall  be  deemed  to have  made,  and  THE  LESSOR  AND THE  OWNER
PARTICIPANT EACH HEREBY DISCLAIMS, ANY OTHER REPRESENTATION OR WARRANTY,  EITHER
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER,  INCLUDING, WITHOUT LIMITATION,
THE  DESIGN OR  CONDITION  OF UNIT 1, ANY  CAPITAL  IMPROVEMENT,  THE  UNDIVIDED
INTEREST,  THE REAL  PROPERTY  INTEREST,  THE PVNGS  SITE OR PVNGS,  OR ANY PART
THEREOF,  THE MERCHANTABILITY  THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR
PURPOSE,  TITLE TO UNIT 1, ANY CAPITAL IMPROVEMENT,  THE UNDIVIDED INTEREST, THE
REAL  PROPERTY  INTEREST,  THE PVNGS  SITE OR PVNGS,  OR ANY PART  THEREOF,  THE
QUALITY  OF THE  MATERIAL  OR  WORKMANSHIP  THEREOF  OR  CONFORMITY  THEREOF  TO
SPECIFICATIONS,  FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT OR THE ABSENCE OF
ANY LATENT OR OTHER DEFECTS,  WHETHER OR NOT DISCOVERABLE,  NOR SHALL THE LESSOR
OR THE OWNER  PARTICIPANT  BE LIABLE FOR  INCIDENTAL  OR  CONSEQUENTIAL  DAMAGES
(INCLUDING  LIABILITY IN TORT,  STRICT OR  OTHERWISE),  it being agreed that all

<PAGE>

such risks, as among the Owner Participant, the Loan Participant, the Collateral
Trust Trustee, the Indenture Trustee, the Lessor and the Lessee, are to be borne
by the Lessee.  The provisions of this Section 6(b) have been  negotiated,  and,
except to the extent otherwise expressly provided in Section 6(a), the foregoing
provisions  are  intended  to  be a  complete  exclusion  and  negation  of  any
representations  or warranties by the Lessor,  the Owner  Participant,  the Loan
Participant,  the Collateral Trust Trustee or the Indenture Trustee,  express or
implied,  with  respect  to Unit 1  (including  any  Capital  Improvement),  the
Undivided Interest, PVNGS, the Real Property Interest or the PVNGS Site that may
arise pur suant to any law now or hereafter in effect, or otherwise.

            (c) Enforcement of Certain  Warranties.  The Lessor  authorizes' the
Lessee  ('directly or through  agents,  including the Operating  Agent),  at the
Lessee's expense, to assert for the Lessor's account, during the Lease Term, all
of the  Lessor's  rights (if any) under any  applicable  warranty  and any other
claims (under this Facility  Lease or any Purchase  Document) that the Lessee or
the Lessor may have  against any vendor or  manufacturer  with respect to Unit 1
(including any Capital  Improvement) or the Undivided Interest,  and, the Lessor
agrees to cooperate,  at the Lessee's expense, with the Lessee and the Operating
Agent in asserting such rights.  Any amount  receivable  (without  regard to any
right of setoff or other similar right of any Person  against the Lessee) by the
Lessee as payment  under any such  warranty or other claim against any vendor or
manufacturer  (or, if such warranty or claim  relates to the Undivided  Interest
and the  Retained  Assets,  the portion of such  received  amount  appropriately
allocable  to the  Undivided  Interest)  shall be  applied  in  accordance  with
Sections 9(g), (h) and (i).

            SECTION 7. Liens.

            The Lessee will not directly or indirectly create,  incur, assume or
permit to exist any Lien on or with respect to the Undivided Interest,  the Real
Property  Interest,  the Lessor's title thereto or any interest of the Lessor or
Lessee  therein (and the Lessee will  promptly,  at its own  expense,  take such
action as may be necessary  duly to discharge any such Lien),  except  Permitted
Liens. - 15 SECTION 8. Operation and Maintenance; Capital Improvements.

            (a)  Operation  and  Maintenance.  The  Lessee  agrees  that it will
exercise its rights, powers,  elections and options as an ANPP Participant under
the ANPP Project  Agreements to cause the operating Agent to (A) maintain Unit 1
in such condition that Unit 1 will have the capacity and functional  ability' to
perform,  on a continuing  basis  (ordinary wear and tear  excepted),  in normal
commercial  operation,  the functions and substan tially at the ratings at which
it is, from time to time, rated, (B) operate,  service, maintain and repair Unit
1 and replace all necessary or useful parts and  components  thereof so that the
condition and operating  efficiency  will be maintained and preserved,  ordinary
wear and tear excepted,  in all material respects in accordance with (1) prudent
utility  practice  for items of  similar  size and  nature,  (2) such  operating
standards as shall be required to take  advantage  of and enforce all  available
warranties and (3) the terms and conditions of all insurance policies maintained
in  effect at any time with  respect  thereto,  (C) use,  possess,  operate  and

<PAGE>

maintain Unit 1 in compliance with all material applicable  Governmental Actions
(including  the  License)  affecting  PVNGS  or Unit 1 or the  use,  possession,
operation and  maintenance  thereof and (D) otherwise act in accordance with the
standards set forth in the ANPP Participation  Agreement. The Lessee will comply
with all its  obligations  under  Applicable Law affecting Unit 1, the Undivided
Interest,  PVNGS,  the Real Property  Interest and the PVNGS Site,  and the use,
operation and maintenance  thereof. The Lessee agrees to (i) exercise its rights
under the ANPP Participation Agreement so that there will always be an Operating
Agent under the ANPP Participation Agreement and (ii) maintain in full force and
effect a license from the NRC adequate to possess the Undivided Interest and the
Real  Property  Interest  under  the  circumstances  contemplated  by  the  ANPP
Participation  Agreement.  The Lessee will keep and  maintain  proper  books and
records  (i)  relating  to  all   Operating   Funds  (as  defined  in  the  ANPP
Participation  Agreement)  provided by it to the Operating  Agent under the ANPP
Participation  Agreement and (ii) upon receipt of the requisite information from
the Operating Agent,  relating to the application of such Operating Funds to the
operation  and  maintenance  of Unit 1 and  the  acquisition,  construction  and
installation of Capital Improvements,  all in accordance with the Uniform System
of  Accounts.  The Lessor  shall not be obliged in any way to  maintain,  alter,
repair,  rebuild or  replace  Unit 1, any  Capital  Improvement,  the  Undivided
Interest or the Real  Property  Interest,  or any part  thereof,  or,  except as
provided  in  Section  8(f),  to  pay  the  cost  of   alteration,   rebuilding,
replacement,  repair or  maintenance  of Unit 1, any  Capital  Improvement,  the
Undivided Interest or the Real Property Interest,  or any part thereof,  and the
Lessee  expressly  waives the right to perform any such action at the expense of
the Lessor pursuant to any law at any time in effect.

            (b)  Inspection.  The  Lessor  and the Owner  Participant  and their
respective  authorized  representatives  shall have the right to  inspect  PVNGS
(subject,  in each event, to the ANPP Participation  Agreement,  Applicable Law,
applicable  confidentiality  undertakings  and  procedures  established  by  the
Operating  Agent) at a their expense.  The Lessor and the Owner  Participant and
their respective authorized  representatives shall have the right to inspect, at
their expense,  the books and records of the Lessee relating to PVNGS,  and make
copies of and  extracts  therefrom  (subject  as  aforesaid)  and may,  at their
expense, discuss the Lessee's affairs,  finances and accounts with its executive
officers and its independent  public  accountants  (and by this  provision,  the
Lessee  authorizes such  accountants,  in the presence of the Lessee, to discuss
with the  Lessor  and the  Owner  Participant  and their  respective  authorized
representatives the affairs,  finances and accounts of the Lessee),  all at such
times and as often as may be reasonably requested. None of the Lessor, the Owner
Participant,  the Indenture  Trustee and the Collateral Trust Trustee shall have
any duty  whatsoever  to make any  inspection  or  inquiry  referred  to in this
Section 8(b) and shall not incur any  liability or  obligation  by reason of not
making any such inspection or inquiry.

            (c) Capital Improvements.  If and to the extent required by the ANPP
Participation  Agreement,  the  Lessee  shall,  at its  sole  expense,  promptly
participate  in the  making  of any  Capital  Improvement  to Unit 1. Of the net
proceeds of (i) any sale or other  disposition  of property  removed from Unit 1
receivable  (without regard to any right of setoff or other similar right of any

<PAGE>

Person  against  the  Lessee)  by, or  credited  to the account of the Lessee in
accordance with the ANPP Participation Agreement and (ii) any insurance proceeds
receivable  (without regard to any right of setoff or other similar right of any
Person  against  the  Lessee)  for the  account  of the  Lessor or the Lessee in
respect  of the loss or  destruction  of,  or damage or  casualty  to,  any such
property,  11.1111%  in the case of Unit 1, or  3.7037%  in the  case of  Common
Facilities,  of either such amount shall be applied as provided in Section 9(g),
(h),  or  (i),  as the  case  may be.  A  1.133333%,  in the  case of Unit 1, or
 .377777%,  in the case of Common  Facilities,  undivided interest in property at
any time removed from Unit 1 shall remain the property of the Lessor,  no matter
where  located,  until  such  time  as  a  Capital  Improvement  constituting  a
replacement of such property shall have been installed in Unit 1 or such removed
property has been disposed of by the Operating Agent in accordance with the ANPP
Participation  Agreement.  Simultaneously with such disposition by the Operating
Agent, title to a 1.133333%,  in the case of Unit 1, or .377777%, in the case of
Common Facilities,  undivided interest in the removed property shall vest in the
Person  designated by the Operating Agent,  free and clear of any and all claims
or rights of the  Lessor.  Unless  subparagraph  (3) of  Section  8(e)  shall be
applicable,  upon the incorporation of a Capital  Improvement in Unit 1, without
further act, (i) title to a  14133333%,  in the case of Unit 1, or .377777%,  in
the case of Common Facilities,  undivided  interest in such Capital  Improvement
shall vest in the Lessor and (ii) such  applicable  undivided  interest  in such
Capital Improvement shall become subject to this Facility Lease and be deemed to
be part of the  Undivided  Interest for all  purposes  hereof to the same extent
that  the  Lessor  had a like  undivided  interest  in the  property  originally
incorporated  or  installed  in Unit 1. The Lessee  warrants and agrees that the
Lessor's 1.133333% undivided interest in all Capital  Improvements shall be free
and clear of all Liens,  except Permitted Liens other than the type specified in
clauses (ii), (iii) and (xii) of the definition thereof.

            (d) Reports. To the extent permissible, the Lessee shall prepare and
file in timely  fashion,  or,  where the Lessor  shall be required to file,  the
Lessee shall prepare and deliver to the Lessor  within a reason-able  time prior
to the date for  filing,  any  reports  with  respect  to Unit 1, the  Undivided
Interest or the Real  Property  Interest or the  condition or operation  thereof
that  shall  be  required  to be  filed  with  any  governmental  or  regulatory
authority.  On or before March 1 of each year  (commencing on March 1, 1987) and
on the Lease Termination Date, the Lessee shall furnish the Lessor and the Owner
Participant with a report stating the total cost of all Capital Improvements and
describing  separately  and in reasonable  detail each Capital  Improvement  (or
related  group of Capital  Improvements)  made  during the period  from the date
hereof to  December  31, 1986 in the case of the first such report or during the
period  from the end of the period  covered by the last  previous  report to the
December 31 prior to such report in the case of subsequent reports. On or before
March 1 in each year  (commencing  March 1, 1987) and at such other times as the
Lessor or the Owner  Participant  shall  reasonably  request in  writing  (which
request shall provide a reasonable period for response) , the Lessee will report
in writing to the Lessor  with  respect to (i) the most  recent  annual  capital
expenditure  budget submitted by the Operating Agent to the Lessee in accordance
with the ANPP Participation Agreement and (ii) the then plans (if any) which the
Lessee may have for the financing of the same under Section 8(f).

<PAGE>

            (e) Title to Capital Improvements. Title to a 1.133333%, in the case
of Unit 1, or .377777%, in the case of Common Facilities,  undivided interest in
each Capital Improvement to Unit 1 or the Common Facilities, as the case may be,
shall vest as follows:


            (1) in the case of each Nonseverable Capital Improvement, whether or
      not the Lessor shall have  financed or provided  financing (in whole or in
      part)  for such  undivided  interest  in such  Capital  Improvement  by an
      Additional  Equity  Investment  or  a  Supplemental  Financing,  or  both,
      effective   on  the  date  such  Capital   Improvement   shall  have  been
      incorporated or installed in Unit 1 or the Common Facilities,  as the case
      may be, the Lessor  shall,  without  further  act,  acquire  title to such
      undivided interest in such Capital Improvement;

            (2) in the case of each Severable Capital Improvement, if the Lessor
      shall have financed (by an Additional  Equity Investment or a Supplemental
      Financing,  or both) 1.133333%, in the case of Unit 1, or .377777%, in the
      case of Common Facilities,  of the cost of such Capital  Improvement,  the
      Lessor  shall,  without  further  act,  acquire  title  to such  undivided
      interest in such Capital Improvement; and

            (3) in the case of each Severable Capital Improvement, if the Lessor
      shall  not  have  financed  (by  an  Additional  Equity  Investment  or  a
      supplemental  Financing,  or  both)  1.133333%,  in the case of Unit 1, or
      .377777%,  in the case of Common  Facilities,  of the cost of such Capital
      Improvement,  the Lessee shall retain title to such undivided  interest in
      such Capital Improvement  Immediately upon title to such 1.133333%, in the
      case of Unit 1, or .377777%,  in the case of Common Facilities,  undivided
      interest  in any  Capital  Improvement  vesting in the Lessor  pursuant to
      subparagraph (1) or sub-paragraph (2) of this Section 8(e), such undivided
      interest in such Capital  Improvement  shall,  without further act, become
      subject  to this  Facility  Lease  and be  deemed  part  of the  Undivided
      Interest for all purposes hereof.

            (f) Funding of the Cost of Capital  Improvements.  Before placing in
service any Capital  Improvement to Unit 1 or the Common  Facilities the cost of
which  exceeds   $100,000,000   in  respect  of  the  inter  ests  of  all  ANPP
Participants,  the  Lessee  shall  give the  Lessor  and the  Owner  Participant
reasonable advance notice thereof.  The Owner Participant shall have the option,
in its sole discretion,  of financing through the Lessor' 1.133333%, in the case
of Unit 1, or  .377777%,  in the case of Common  Facilities,  of the cost of any
such Capital  Improvement,  or any other  Capital  Improvement  presented to the
Owner  Participant  for  financing,  including or not including the making of an
investment by the Owner  Participant (an Additional  Equity  Investment) and the
issuance of one or more Additional  Notes, all on terms acceptable to the Lessee
and the Owner Participant. If the Owner Participant does not finance, or arrange
the financing of, 1.133333%,  in the case of Unit 1, or .377777%, in the case of
Common Facilities, of the cost of such Capital Improvement, the Lessee may cause
the Lessor to issue, if and to the extent permitted by the Indenture,  to one or
more  Persons  (other  than any Person  affiliated  with the  Lessee  within the
meaning of Section 318 of the Code)one or more  Additional  Notes and to use the
proceeds  thereof to pay the  applicable  percentage of the cost of such Capital
Improvement, subject to satisfaction of the following conditions:

<PAGE>

            (i) there shall be no more than one  Supplemental  Financing  in any
      calendar year;

            (ii) the sum of the Supplemental  Financing  Amounts in any calendar
      year shall equal or exceed 1.133333% of $5,000,000;

            (iii) the  Lessee  may  include in any  request  for a  Supplemental
      Financing  only  Capital  Improvements  not  previously  financed  in  any
      Supplemental  Financings  and which  have been  installed  or  affixed  no
      earlier than three  calendar  years  before the  beginning of the calendar
      year in which such Supplemental Financing occurs;

            (iv) the total  amount of all  Supplemental  Financings  during  the
      Basic Lease Term shall not exceed one-ninth of $100,000,000;

            (v) unless  waived by the Owner  Participant,  the Bonds  issued and
      outstanding  under the Collateral  Trust  Indenture shall be rated no less
      than "investment  grade",  as determined by Standard & Poor's  Corporation
      and Moody's Investors Service, Inc.;

            (vi) the Supplemental Financing Amount shall not exceed that portion
      of the cost of Capital Improvements which, when financed,  will constitute
      an addition to the Owner  Participant's  basis under  section  1012 of the
      Code;

            (vii)  in the  opinion  of  independent  tax  counsel  to the  Owner
      Participant,  such Supplemental  Financing shall not result in adverse tax
      consequences  to the Owner  Participant or adversely  affect the status of
      this Facility  Lease as a "true lease" for Federal,  New York State or New
      York City tax  purposes,  and the Owner  Participant  and the Lessee shall
      have  agreed  upon the amount and manner of payment of the  indemnity  (if
      any)  payable  by  the  Lessee  as  a  consequence  of  such  Supplemental
      Financing;

            (viii) the  Additional  Notes  shall have a final  maturity  date no
      later than January 15, 2015;

            (ix) the Lessee shall have made such representations, warranties and
      covenants  regarding  the tax  characteristics  of the Lessor's  undivided
      interest in each Capital  Improvement as the Owner Participant  reasonably
      requests,   and  the  Tax   Indemnification   Agreement  shall  have  been
      appropriately modified;

            (x)  appropriate  adjustments  to Basic  Rent and the  schedules  of
      Casualty Values, Special Casualty Values and Termination Values shall have
      been agreed to by the Owner Participant to support the amortization of the
      Additional Notes issued in respect of such  Supplemental  Financing and to
      preserve Net Economic  Return;  (xi) the Lessee shall pay to the Lessor an
      amount equal to all out-of-pocket  costs and expenses  reasonably incurred
      by the Lessor or the Owner  Participant and not financed as a part of such
      Supplemental Financing or reflected in adjustments to Basic Rent;

            (xii) no  Default or Event of Default  shall  have  occurred  and be
      continuing; and

<PAGE>

            (xiii) the Lessee  shall enter into such  agreements  and shall have
      provided  such tax  indemnities,  representations  warranties,  covenants,
      opinions,  certificates and other documents as the Owner Participant shall
      reasonably request.

            SECTION 9. Event of Loss; Deemed Loss Event.

            (a)  Damage or Loss.  In the  event  that  Section  16.2 of the ANPP
Participation  Agreement  (as  in  effect  on  the  date  hereof)  shall  become
applicable,  or an Event of Loss, a Requisition of Use or a Requisition of Title
shall occur, or Unit 1 or any substantial part thereof shall suffer destruction,
damage,  loss,  condemn  nation,  confiscation,  theft or seizure for any reason
whatsoever,  such fact shall promptly, and in any case within five Business Days
following  such  event,  be  reported  by the Lessee to the Lessor and the Owner
Participant.

            (b) Repair.  The Lessee  shall  promptly  make any and all  payments
required of the Lessee under the provisions of the ANPP Participation  Agreement
relating to damage or destruction or the like to Unit 1 or any portion  thereof;
provided,  however,  that the Lessee  shall in no event be  obligated to make or
join in any agreement under Section 16.2 of the ANPP Participation Agreement (as
in effect on the date hereof)  concerning  repair's to or reconstruction of Unit
1.

            (c) Payment of Casualty  Value.  On the Basic Rent Payment Date next
following  receipt by the  Lessee of a written  notice  from the Lessor  that an
Event of Loss has  occurred,  the Lessee  shall pay to the Lessor all Basic Rent
due on such Basic Rent Payment  Date,  plus an amount equal to the excess of (i)
Casualty  Value  determined  as of such Basic Rent Payment  Date,  over (ii) the
unpaid  principal  amount of the Notes  Outstanding  on such date  after  giving
effect to the payment,  if any, of the principal  installment due and payable on
such  date.  An Event of Loss  shall not be deemed to have  occurred  unless and
until the Lessor delivers the notice specified in the preceding  sentence.  Upon
compliance in full by the Lessee with the  foregoing  provisions of this Section
(c) and assumption by the Lessee of all the  obligations  and liabilities of the
Owner Trustee under the  Indenture and the Notes  pursuant to Section  3.9(b) of
the Indenture, the Lessor shall (so long as no Default or Event of Default shall
have  occurred and be  continuing),  and at any time after the  occurrence of an
Event of Loss, the Lessor may:

            (1) in the case of an Event of Loss arising  from a Final  Shutdown,
      if the  Lessee  shall  have  declined,  but one or more of the other  ANPP
      Participants  shall have  elected,  to  reconstruct  or restore Unit 1, as
      permitted by the ANPP  Participation  Agreement,  Transfer  the  Undivided
      Interest  and  the  Real   Property   Interest  to  such   electing   ANPP
      Participants,  as required by and in the proportions set forth in the ANPP
      Participation  Agreement,  in which case the Lessee  shall be  entitled to
      receive the portion of the "salvage value" purchase price allocable to the
      Undivided Interest; or

            (2) if clause (1) shall not be  applicable,  Transfer the  Undivided
      Interest and the Real Property Interest to the Lessee.

<PAGE>

If the Lessee shall not have assumed all the  obligations and liabilities of the
Owner  Trustee  under the  Indenture  and the Notes in  accordance  with Section
3.9(b) of the  Indenture,  but the Owner  Participant  shall have received under
Section  5.2 of the  Indenture  all  amounts  required  to be paid by the Lessee
pursuant to this Section 9(c) (including  interest,  if any, thereon pursuant to
Section 3(b)(iii)  hereof),  the Lessor shall retain the Undivided  Interest and
the Real  Property  Interest  subject  to the terms of this  Facility  Lease and
Section 7(b,)(4) of the Participation Agreement; provided, however, that (i) the
obligation of the Lessee to pay further Basic Rent shall be reduced to an amount
on each Basic Rent  Payment  Date equal to the  aggregate  amount of  principal,
premium, if any, and accrued interest then payable on all Notes then Outstanding
and (ii) this Facility Lease shall become a security  agreement for all purposes
of Applicable Law.

            (d)  Payment  of  Special  Casualty  Value.  If a Deemed  Loss Event
occurs,  the party hereto having  knowledge  thereof shall  promptly  notify the
other thereof  (provided that the failure by the Lessor to furnish to the Lessee
the foregoing  notification shall not impair the right of the Lessor to exercise
the option  referred to below)  and,  at the  Lessor's  option,  exercisable  by
delivery of written  notice to the Lessee,  on the day (specified in Schedule 2)
of the month next  following  the month during which such notice is delivered to
the Lessee,  the Lessee shall pay to the Lessor an amount equal to the excess of
(i) Special  Casualty  Value deter mined as of the date such payment is due over
(ij) the  principal  amount of the Notes  Outstanding  on such date after giving
effect to the payment,  if any, of the principal  installment due and payable on
such day. Upon compliance in full by the Lessee with the foregoing provisions of
this  Section  9(d) and  assumption  by the  Lessee of all the  obligations  and
liabilities  of the Owner Trustee under the Indenture and the Notes  pursuant to
Section  3.9(b) of the  Indenture,  the  Lessor  shall (so long as no Default or
Event of Default shall have occurred and be  continuing) , and at any time after
the  occurrence of a Deemed Loss Event,  the Lessor may,  Transfer the Undivided
Interest and the Real Property  Interest to the Lessee.  If the Lessee shall not
have assumed all the' liabilities and obligations of the Owner Trustee under the
Indenture and the Notes in accordance with Section 3.9(b) of the Indenture,  but
the Owner Participant shall have received under Section 5.2 of the Indenture all
amounts  required  to be paid  by the  Lessee  pursuant  to  this  Section  9(d)
(including interest, if any, thereon pursuant to Section 3(b)(iii)),  the Lessor
shall retain the Undivided  Interest and the Real Property  Interest  subject to
the terms of this  Facility  Lease  and  Section  7(b) (4) of the  Participation
Agreement;  provided,  however,  that (i) the  obligation  of the  Lessee to pay
further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date
equal to the  aggregate  amount  of  principal,  premium,  if any,  and  accrued
interest  then payable on all Notes  Outstanding  and (ii) this  Facility  Lease
shall become a security agreement for all purposes of Applicable Law.

            (e)  Requisition  of Use.  In the case of a  Requisition  of Use not
constituting an Event of Loss, this Facility Lease shall continue,  and each and
every  obligation of the Lessee  hereunder and under each  Transaction  Document
shall remain in full force and effect. So long as no Default or Event of Default
shall have occurred and be continuing,  the Lessee shall be entitled to all sums
received by reason of any such  Requisition  of Use for the period ending on the
Lease Termination Date, and the Lessor shall be entitled to all sums received by
reason of any such Requisition of Use for the period after the Lease Termination
Date.

<PAGE>

            (f) Termination of Obligation.  Until the Lessee shall have made the
payments  specified in Section 9(c) or 9(d),  the Lessee shall make all payments
of Rent when due;  and the  Lessee  shall  thereafter  be  required  to make all
payments  of  Supplemental  Rent as and when due.  In the event  that the Lessee
shall assume all the  obligations and liabilities of the Owner Trustee under the
Indenture  and the Notes  pursuant  to  Section  3.9(b) of the  Indenture,  upon
receipt by the Owner  Participant  under  Section  5.2 of the  Indenture  of the
payments  specified  in  Section  9(c) or 9(d) and  payment by the Lessee of all
other Rent due and owing through and  including  the date of payment  (including
Basic Rent due on or accrued  through such date,  as the case may be), the Lease
Term  shall end and the  Lessee's  obligation  to pay  further  Basic Rent shall
cease.

            (g)  Application  of  Payments  on an Event of  Loss.  Any  payments
receivable  (without regard to any right of setoff or other similar right of any
Person  against the Lessee) at any time by the Lessor or the Lessee  (other than
insurance  placed by the Owner  Trustee  or the Owner  Participant  pursuant  to
Section 10(b)) from any Governmental Authority,  insurer or other Person (except
the  Lessee,  the Owner  Trustee  or the Owner  Participant)  as a result of the
occurrence of an Event of Loss shall be applied as follows:

            (i) all such  payments  received at any time by the Lessee  shall be
      promptly  paid to the Lessor for  application  pursuant  to the  following
      provisions  of this  Section  9(g),  except that the Lessee may retain any
      amounts  that would at the time be payable to the Lessee as  reimbursement
      under the provisions of clause (ii) below;

            (ii) so much of  such  payments  as  shall  not  exceed  the  amount
      required to be paid by the Lessee pursuant to Section 9(c) (ignoring,  for
      this purpose,  clause (ii) of the first sentence thereof) shall be applied
      in reduction of the Lessee's  obligation to pay such amount if not already
      paid by the Lessee or, if already paid by the Lessee,  shall be applied to
      reimburse the Lessee for its payment of such amount; and

            (iii) the balance,  if any, of such  payments  remaining  thereafter
      shall be divided  between the Lessor and the Lessee as their interests may
      appear.

            (h)  Application  of  Payments  Not  Relating  to an  Event of Loss.
Payments receivable (without regard to anyright of setoff or other similar right
of any  Person  against  the  Lessee)  at any  time by the  Lessor  (other  than
insurance  placed by the Owner  Trustee  or the Owner  Participant  pursuant  to
Section 10(b)) or the Lessee from any Governmental  Authority,  insurer or other
Person  with   respect  to  any   destruction,   damage,   loss,   condemnation,
confiscation,  theft or seizure of or  Requisition of Title to or Requisition of
Use of the Undivided  Interest or any part thereof not  constituting an Event of
Loss shall be applied first to reimburse the Lessee for all amounts  expended in
respect of the repair,  replacement or reconstruction of the Undivided  Interest
or any part thereof as provided in Section 9(b), and second the balance, if any,
of such  payments  shall be divided  between  the Lessor and the Lessee as their
interests may appear.

<PAGE>

            (i) Other Dispositions.  Notwithstanding the foregoing provisions of
this Section 9, 50 long as a Default or Event of Default shall have occurred and
be continuing,  any amount that would otherwise be payable to or for the account
of, or that would otherwise be retained by, the Lessee pursuant to Section 10 or
this  Section 9 shall be paid to the Lessor as security for the  obligations  of
the Lessee under this Facility Lease and, at such time  thereafter as no Default
or Event of Default shall be  continuing,  such amount shall be paid promptly to
the Lessee unless this Facility Lease shall have theretofore been declared to be
in default,  in which event such amount shall be disposed of in accordance  with
the provisions hereof, of the Indenture and of the Trust Agreement.

            (j) Assumption of Notes;  Creation of Lien on Undivided Interest. In
connection  with an Event of Loss,  a Deemed  Loss Event or the  exercise of the
Cure  Option,  (i) the Lessee  agrees to use its best efforts to comply with the
conditions  respecting its assumption of all the  obligations and liabilities of
the Owner Trustee under the Indenture and the Notes set forth in Section  3.9(b)
of the Indenture, and (ii) the Lessor agrees that, if the Lessee fails to assume
all the obligations and liabilities of the Owner Trustee under the Indenture and
the Notes in accordance with Section 3.9(b) of the Indenture, not later than two
Business  Days  prior to the date on which the  Lessee is  required  to make the
payments  specified in Section 9(c) or 9(d), the Lessor will cause the Undivided
Interest  and the Real  Property  Interest  to be  subjected  to the Lien of the
Indenture by executing and  delivering  to the  Indenture  Trustee the Undivided
Interest Indenture Supplement.

            SECTION 10. Insurance.

            (a)  Required  Insurance.  The Lessee  will use its best  efforts to
cause the Operating  Agent to carry and maintain  insurance  required  under the
ANPP  Participation  Agreement and will make all payments required of the Lessee
under the ANPP Participation Agreement in respect of such insurance.  The Lessee
will at all times maintain, directly or through the Operating Agent, policies of
casualty and liability  insurance with respect to the Undivided Interest and the
Real  Property  Interest  in such  amounts  and with such  coverage  as shall be
adequate in accordance with prudent utility practice.  Any policies of insurance
in  respect  of  destruction,  damage,  loss,  theft  or other  casualty  to the
Undivided Interest, the Real Property Interest, Unit 1 or any part thereof shall
name the Lessor (and, to the extent  practicable,  the Owner  Participant) as an
additional  insured,  as its interest (or their  interests) may appear,  and any
policies  with  respect  to  nuclear  liability  insurance  with  respect to the
Undivided  Interest,  the Real Property  Interest,  Unit 1, or any part thereof,
shall  include all  Indemnitees  as insureds  through an omnibus  definition  of
"insured"  or through  endorsement;  provided,  however,  that if the  Operating
Agent,  as trustee,  shall  become the loss payee under any policy of  insurance
constituting Project Insurance,  then the Lessor and the Owner Participant shall
be and be made  beneficiaries of the trust arrangement under which the Operating
Agent acts as  trustee.  The Lessee  shall,  on or before  March 1 of each year,
commencing March 1, 1987,  furnish to the Lessor and the Owner Participant (A) a
report signed by the broker or brokers for the PVNGS  insurance (or if insurance
is placed directly by the Operating Agent, a certificate signed by the Operating
Agent) (i) showing the insurance then main tained by the ANPP  Participants with
respect to PVNGS,  (ii) stating that no premiums are then delinquent,  and (iii)

<PAGE>

stating that the insurance  maintained by the ANPP  Participants with respect to
PVNGS is in accordance  with the terms of (1) the ANPP  Participation  Agreement
and (2) this  Section  10, (B) a report  signed by the broker or brokers for the
Lessee's  insurance  (or if  insurance  is  placed  directly  by the  Lessee,  a
certificate signed by the Lessee) showing the separate  insurance,  if any, then
maintained  by the Lessee with respect to its interest in PVNGS and stating that
no premiums under such insurance are delinquent; (C) a certificate signed by the
Lessee stating that the insurance maintained by the ANPP participants and by the
Lessee,  identified  on the reports to be delivered  pursuant to clauses (A) and
(B), is in accordance with prudent utility practice within the nuclear industry,
the ANPP  Participation  Agreement and this Section 10; and (D) upon the request
of the Lessor or the Owner  Participant,  copies (to the extent permitted by the
issuers of such policies) of policies so maintained.  Any report by an insurance
broker  with  respect  to  clause  (A)(iii)(1)  may be made in  reliance  upon a
schedule provided by the Lessee (a copy of which shall be attached)  identifying
the  insurance  (by  coverage,  limits,  insureds and other  pertinent  details)
required to be maintained  under the ANPP  Participation  Agreement.  Any report
with  respect  to  clause  (A)(iii)(2)  may be made in  reliance  upon a similar
schedule provided by the Lessee (a copy of which shall be attached)  identifying
the insurance required to be maintained under this Section 10. All insurance pro
ceeds paid in respect of damage,  destruction,  loss, theft or other casualty to
the  Undivided  Interest  or the Real  Property  Interest  shall be  applied  as
provided in Section 9(g), (h) or (i), as the case may be, subject,  however,  to
any priority  allocations of such proceeds to decontamination and debris removal
set forth in the insurance  policies or required  under  Applicable  Law. In the
event that  either the  Operating  Agent or the  Lessee  delivers a  certificate
pursuant to clause (A) or (B) of the foregoing,  the Owner  Participant shall be
entitled to receive (if it so requests and if the insurer will issue the same) a
report from any insurer listed in such certificate.

            (b) Permitted  Insurance.  Nothing in this Section 10 shall prohibit
the Lessee from  placing,  at its  expense,  insurance on or with respect to the
cost of purchasing  replacement power,  naming the Lessee as insured and/or loss
payee,  unless  such  insurance  would  conflict  with or  otherwise  limit  the
availability  of  insurance  to be provided or  maintained  in  accordance  with
Section 10(a). Nothing in this Section 10 shall prohibit the Lessor or the Owner
Participant  from placing at its expense  other  insurance on or with respect to
Unit 1, the Undivided Interest or the Real Property Interest or the operation of
Unit 1, naming the Lessor or the Owner Participant as insured and/or loss payee,
unless such insurance would conflict with or otherwise limit the insurance to be
provided or maintained in accordance with Section 10(a).

<PAGE>

            SECTION 11.  Rights to Assign or Sublease.

            (a) Assignment or Sublease by the Lessee.  Without the prior written
consent of the  Lessor,  the Lessee  shall not  assign,  sublease,  transfer  or
encumber  (except for Permitted  Liens) its leasehold  interest in the Undivided
Interest or the Real Property  Interest  under this Facility  Lease.  The Lessee
shall  not,  without  the prior  written  consent  of the  Lessor  and the Owner
Participant,  part with the possession of, or suffer or allow to pass out of its
possession,  the Undivided Interest,  the Real Property Interest or any interest
therein,  except  to the  extent  required  pursuant  to the ANPP  Participation
Agreement or expressly permitted by the provisions of this Facility Lease or any
other Transaction Document.

            (b)  Assignment by Lessor as Security for Lessor's  Obligations.  To
secure the  indebtedness  evidenced by the Notes,  the Lessor will assign to the
Indenture  Trustee its right,  title and interest to receive certain payments of
Rent (not including, in any event, Excepted Payments), to the extent provided in
the  Indenture  and may assign to the  Indenture  Trustee  its right,  title and
interest  in  the  Undivided   Interest  and  the  Real  Property   Interest  as
contemplated  by Section 9(j). The Lessee hereby (a) consents to such assignment
pursuant  to the  terms of the  Indenture,  (b)  agrees to pay  directly  to the
Indenture Trustee at the Indenture  Trustee's Office (so long as the lien of the
Indenture  has not been  satisfied  and  discharged  and the Lessor is obligated
thereunder) all amounts of Rent (other than Excepted  Payments) due or to become
due to the Lessor  that shall be required  to be paid to the  Indenture  Trustee
pursuant to the Indenture, (c) agrees that the right of the Indenture Trustee to
any such payments shall be absolute and  unconditional and shall not be affected
by  any  circumstances   whatsoever,   including,   without  limitation,   those
circumstances set forth in Section 4 and (d) agrees that, to the extent provided
in the Indenture  and until the  Indenture is discharged in accordance  with its
terms,  the Indenture  Trustee shall have all the rights of the Lessor hereunder
with respect to Assigned  Payments as if the  Indenture  Trustee had  originally
been named herein as the Lessor.

            SECTION 12.  Lease Renewal.

            Subject to the notice  requirements  set forth in Section 13(a),  at
the end of the Basic Lease  Term,  provided  that no Default,  Event of Default,
Event of Loss or Deemed Loss Event shall have occurred and be continuing and the
Notes shall have been paid in full, the Lessee shall have the right to renew the
term of this Facility Lease for a period commencing January 15, 2015, and ending
on the later of January 15, 2017 and the end of the Maximum  Option  Period (the
Renewal Term),  during which the Basic Rent payable shall be the rental provided
in Section 3(a)(iii) and one-half of the rental provided in Section 21.

<PAGE>

            SECTION 13.  Notices for Renewal or Purchase; Purchase Options.

            (a) Notice;  Determination of values; Appraisal Procedure. Not later
than three years nor earlier than five years prior to the expiration date of the
Basic  Lease Term,  and not later than three  years nor earlier  than five years
prior to the expiration date of the Renewal Term, as the case may be, the Lessee
shall give to the Lessor written notice of its election either to (A) return the
Undivided  Interest  and the Real  Property  Interest to the Lessor  pursuant to
Section 5, or (B)  exercise the renewal  option  permitted by Section 12 (in the
case of the notice  delivered  in respect  of the  expiration  date of the Basic
Lease Term) or the purchase  option  permitted by Section  13(b).  If the notice
specified in clause (B) of the preceding  sentence is given three years prior to
the  expiration of the Basic Lease Term,  then not later than two years prior to
the  expiration  date of the Basic Lease  Term,  the Lessee will give the Lessor
written notice of its election  either to exercise the renewal option  permitted
by Section 12 or the  purchase  option  permitted  by  Section  13(b).  Any such
election  shall be  irrevocable  as to the Lessee but no such election  shall be
binding on the Lessor if, on the  effective  date  thereof,  an Event of Default
shall have occurred and be continuing or an Event of Loss or a Deemed Loss Event
shall have  occurred.  Promptly  after  giving  notice,  (i) in case the renewal
option has been  elected,  the Maximum  Option Period shall be determined by the
Appraisal  Procedure,  or (ii) in case the purchase option  permitted by Section
13(b) has been elected,  the Lessee and the Owner  Participant  shall agree upon
the Fair Market  Sales Value of the  Undivided  Interest  and the Real  Property
Interest,  or, if within three months after the date of the Lessee's  notice the
Lessee and the Owner  Participant  shall be unable so to agree, such value shall
be determined by the Appraisal Procedure.

            (b) Purchase Option at Expiration of the Lease Term.  Subject to the
notice  requirements set forth in Section 13(a), unless a Default or an Event of
Default shall have occurred and be continuing or an Event of Loss or Deemed Loss
Event shall have occurred, on the date of the expiration of the Basic Lease Term
or the Renewal  Term (if  elected),  the Lessee shall have the right to purchase
the Undivided Interest and the Real Property Interest for a purchase price equal
to the Fair Market Sales Value thereof.

            (c) Special Purchase Event. If, at or before the Refunding Date, the
Owner  Participant  shall  reasonably  determine  (in  consultation  with  Owner
Participant's  Special  Counsel  and  Owner  Participant's  Special  New  Mexico
Counsel)  that the  "weighted  annual  lease  payment  factor"  (as such term is
defined in the New Mexico Order and as the same may be reasonably interpreted by
the Owner Participant, in consultation with counsel as aforesaid) for all "Lease
Transactions" (as so defined) exceeds 11.5% or there is a material risk that the
same will  exceed  11.7% and so notifies  the Lessor and the  Lessee,  or if the
Lessee, in its reasonable judgment, determines that such a material risk exists,
then the Lessee shall  purchase  the  Undivided  Interest and the Real  Property
Interest  from the  Lessor,  on a Business  Day  specified  by the Lessor to the
Lessee by not less than 30 days prior notice,  for a purchase price equal to the
greater of (i) the Fair Market Sales Value thereof and (ii) Casualty value as of
the Basic Rent Payment Date first  preceding  the date of such purchase or as of
the date of such purchase, if such date shall be a Basic Rent Payment Date plus,
if such  purchase  date shall not be a Basic Rent Payment  Date, a pro ration of
Basic Rent to the date of purchase.

<PAGE>

            (d) Purchase of the Undivided Interest;  Payment, Etc. If the Lessee
shall have  elected or be required to purchase  the  Undivided  Interest and the
Real Property Interest pursuant to Section 13(b) or 13(c), payment by the Lessee
of the purchase price for the Undivided  Interest and the Real Property Interest
shall  be made in  immediately  available  funds,  whereupon  the  Lessor  shall
Transfer the Undivided Interest and the Real Property Interest to the Lessee.

            SECTION 14.  Termination for Obsolescence.

            (a)  Termination   Notice.   Notwithstanding  any  provision  herein
contained to the  contrary,  unless a Default or an Event of Default  shall have
occurred and be continuing or an Event of Loss or a Deemed Loss Event shall have
occurred,  the Lessee shall have the option (provided that the Lessee shall have
delivered to the Lessor an Officers' Certificate to the effect that the Lessee's
Board of Directors  has adopted and there is in effect a resolution  determining
that Unit 1 is (A) uneconomic to the Lessee or (B) economically obsolete for any
reason;  and provided that the Lessee shall be disposing of all its other leased
interests in Unit 1), on at least 360 days' prior written  notice a (Termination
Notice) to the Lessor,  the Owner  Participant and the Indenture  Trustee (which
notice shall be irrevocable)) to terminate this Facility Lease on any Basic Rent
Payment  Date  after  January  15,  1998,  and prior to  January  15,  2012 (the
Termination Date). If the Lessee shall give the Lessor a Termination Notice, the
Lessee shall, as agent for the Lessor,  use its best efforts to obtain cash bids
for the  purchase of the  Undivided  Interest  and the Real  Property  Interest,
together with the interest of the Lessor under the  Assignment  and  Assumption.
The Lessor shall also have the right to obtain such cash bids,  either  directly
or through agents other than the Lessee.  The Lessee shall certify to the Lessor
within ten days after the Lessee's receipt of each bid (and, in any event, prior
to the  Termination  Date) the amount and terms thereof and the name and address
of the party  (which  shall not be the Lessee or any  Affiliate  of the  Lessee)
submitting such bid.

            (b) Right of Lessor to Retain Undivided  Interest upon  Termination.
The Lessor may elect to retain, rather than sell, the Undivided Interest and the
Real Property  Interest by giving notice to the Lessee and the Indenture Trustee
prior to the Termination Date. It shall be a condition precedent to the Lessor's
right to retain the Undivided Interest and the Real Property Interest that on or
prior to the Termination  Date the Lessor shall have paid (or made provision for
payment) to the  Indenture  Trustee,  the unpaid  principal  amount of all Notes
Outstanding  on such date and all  premium,  if any,  and  interest  accrued and
unpaid on the date of  payment.  If the Lessor  elects to retain  the  Undivided
Interest and the Real  Property  Interest  pursuant to this Section  14(b),  the
Lessee  shall pay to the Lessor on the  Termination  Date the Basic Rent and any
other Rent due or accrued,  as the case may be, to and including the Termination
Date,  together with an amount equal to the excess,  if any, of the  Termination
Value as of the  Termination  Date over the  highest  bona fide  offer  received
pursuant to Section 14(a).

<PAGE>

            (c) Events on the Termination Date. If the Lessor has not elected to
retain the  Undivided  Interest  and the Real  Property  Interest as provided in
Section  14(b),  on the  Termination  Date the Lessor shall (upon receipt of the
sale price and all additional  payments specified in the next sentence) Transfer
the  Undivided  Interest and the Real  Property  Interest for cash to the bidder
(which  shall not be the Lessee or an  Affiliate  of the Lessee) that shall have
submitted  the highest  bid on or before the  Termination  Date.  The total sale
price realized at such sale shall be retained by the Lessor  (subject,  however,
to the terms of the  Indenture  and the  requirement  that there shall have been
paid,  or  provision  for  payment  made,  to the  Indenture  Trustee the unpaid
principal  amount  of all  Notes  Outstanding  on the  Termination  Date and all
premium, if any, and interest accrued and unpaid on the date of payment) and, in
addition,  on the  Termination  Date the Lessee  shall pay to the Lessor (A) the
excess, if any, of the Termination Value as of the Termination Date over the net
sale price of the Undivided  Interest and the Real Property Interest and (B) any
Basic Rent due or accrued,  as the case may be, to and including the Termination
Date and shall pay to the Person or Persons  entitled  thereto all  Supplemental
Rent (other than  Termination  Value).  Upon  compliance  by the Lessee with the
applicable  provisions  of this Section 14, the  obligation of the Lessee to pay
Basic Rent due hereunder for any period after the  Termination  Date shall cease
and the Basic Lease Term shall end on the Termination Date;  provided,  however,
that,  in the event of  termination  of this  Facility  Lease  pursuant  to this
Section 14, the obligations of the Lessee under the ANPP Participation Agreement
(except as therein  expressly  provided) and the Assignment and Assumption shall
continue  in full force and effect  and shall not be  impaired  by reason of any
such termination.  If, other than as a result of the Lessor's election to retain
the  Undivided  Interest and the Real  Property  Interest as provided in Section
14(b), on or as of the  Termination  Date no such sale shall occur or the Lessee
shall not have complied in full with this Section 14, this Facility  Lease shall
continue in full force and effect in accordance with its terms without prejudice
to the Lessee's  right to exercise its rights under this Section 14  thereafter,
except  that the Lessee  shall not be entitled  to deliver  another  Termination
Notice during the 3-year period  following  such  Termination  Date.  The Lessor
shall be under no duty to  solicit  bids,  to  inquire  into the  efforts of the
Lessee to obtain bids or otherwise  take any action in connection  with any such
sale other than, if the Lessor has not elected to retain the Undivided  Interest
and the Real Property Interest,  to Transfer the Undivided Interest and the Real
Property  Interest to the  purchaser  named in the highest bid  certified by the
Lessee to the Lessor or obtained by the Lessor,  against receipt of the payments
provided for herein (but only if such  purchaser  has obtained all  Governmental
Action by the NRC necessary in connection therewith).

<PAGE>

            (d) Early  Termination  Notice.  In the event that the Lessee  shall
fail to exercise  its renewal  option or purchase  option  within the time limit
provided by Section 13(a),  the Lessor shall have the option,  on any Basic Rent
Payment Date  thereafter,  on at least 120 days prior  written  notice (an Early
Termination  Notice) to the Lessee and the Indenture Trustee,  to terminate this
Facility  Lease on the Basic Rent  Payment  Date  specified  in such notice (the
Early  Termination  Date).  Any Early  Termination  Notice may be revoked by the
Lessor at any time on or prior to the Early Termination Date.

                            
            (e) Events on the Early  Termination  Date. On the Early Termination
Date the Lessor shall,  at its option,  (i) Transfer the Undivided  Interest and
the Real Property Interest to the bidder (other than the Lessee or any Affiliate
of the Lessee) selected by the Lessor or (ii) retain the Undivided  Interest and
the Real Property  Interest.  It shall be a condition  precedent to the Lessor's
right to sell or retain the Undivided  Interest and the Real  Property  Interest
that on or prior to the Early  Termination  Date the Lessor  shall have paid (or
made provision for payment) to the Indenture Trustee the unpaid principal amount
of all Notes  Outstanding  on such date and all  premium,  if any,  and interest
accrued and unpaid on the date of payment.  The total sale price realized at any
such sale  shall be  retained  by the  Lessor  and,  in  addition,  on the Early
Termination  Date the  Lessee  shall pay to the  Lessor  any  Basic  Rent due or
accrued,  as the case may be, to and including the Early  Termination  Date, and
shall pay to the Person or Persons entitled thereto all Supplemental Rent (other
than  Termination  Value).  Upon  compliance  by the Lessee with the  applicable
provisions  of this Section 14, the  obligation  of the Lessee to pay Basic Rent
due  hereunder for any period after the Early  Termination  Date shall cease and
the Lease Term shall end on the Early Termination Date; provided,  however, that
in the event of the  termination of this Facility Lease pursuant to this Section
14, the obligations of the Lessee under the ANPP Participation Agreement (except
as therein expressly  provided) and the Assignment and Assumption shall continue
in full  force  and  effect  and  shall  not be  impaired  by reason of any such
termination.

            SECTION 15.  Events of Default.

            The term Event of Default,  wherever used herein,  shall mean any of
the following  events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary,  or come about or be effected by operation
of  law,  or  be  pursuant  to or in  compliance  with  any  Applicable  Law  or
Governmental Action)

            (i) the Lessee shall fail to make, or cause to be made,  (x) payment
      of Casualty Value,  Termination  Value,  Special Casualty Value or payment
      due  pursuant to exercise of the Cure Option when due,  (y) any payment of
      Basic Rent within 5 Business  Days after the same shall  become due or (z)
      any payment of Supplemental  Rent (other than Casualty Value,  Termination
      Value,  Special  Casualty Value or payment due pursuant to exercise of the
      Cure  Option)  within 20 days after the same shall become due or demanded,
      as the case may be; or

<PAGE>

            (ii) the Lessee  shall fail to  perform  or  observe  any  covenant,
      condition or agreement to be performed or observed by it under  Section 10
      ( b ) ( 3 ) ( i ) , 1 0 ( b )( 3 ) ( i i),10(b) (3) (iii) or 10(b) (3) (v)
      of the Participation Agreement or Section 7, 10 (other than failure of the
      Lessee to cause to be delivered the insurance  certificates  (other than a
      certificate  of the  Lessee)  described  therein)  or 11 of this  Facility
      Lease; or

            (iii) the Lessee  shall fail to perform or observe  any  covenant or
      agreement to be performed or observed by it under  Section  10(b)(3)(viii)
      of the  Participation  Agreement  and such  failure  shall  continue for a
      period of 30 days after  there  shall have been given to the Lessee by the
      Lessor or the Owner  Participant  a notice  specifying  such  failure  and
      requiring  it to be remedied  and stating that such notice is a "Notice of
      Default" hereunder; or

            (iv) the Lessee  shall fail to perform its  agreements  set forth in
      Section 5(a) hereof; or

            (v) the  Lessee  shall fail to  perform  or  observe  any  covenant,
      condition or agreement  (other than  covenants,  conditions  or agreements
      referred to in clauses (i) through (iv) above) to be performed or observed
      by it under this Facility  Lease or any other  Transaction  Document,  and
      such failure shall continue for a period of 30 days after there shall have
      been given to the Lessee by the Lessor or the Owner  Participant  a notice
      specifying  such failure and  requiring it to be remedied and stating that
      such notice is a "Notice of Default" hereunder; or

            (vi) any  representation  or  warranty  made by the  Lessee  in this
      Facility  Lease,  any  other  Transaction  Document  (other  than  the Tax
      Indemnification  Agreement)  or any  agreement,  document  or  certificate
      delivered by the Lessee in connection herewith or therewith shall prove to
      have been incorrect in any material  respect when any such  representation
      or warranty  was made or given and shall remain  material  and  materially
      incorrect at the time in question; or

            (vii) the Lessee shall commence a voluntary case or other proceeding
      seeking liquidation, reorganization or other relief with respect to itself
      or its debts under any bankruptcy,  insolvency or other similar law now or
      hereafter  in effect or seeking the  appointment  of a trustee,  receiver,
      liquidator,  custodian or other similar  official of it or any substantial
      part of its  property,  or  shall  consent  to any such  relief  or to the
      appointment  of or  taking  of  possession  by  any  such  official  in an
      involuntary case or other proceeding commenced against it, or shall make a
      general  assignment  for the  benefit  of  creditors,  or  shall  take any
      corporate action to authorize any of the foregoing; or an involuntary case
      or  other  proceeding  shall  be  commenced  against  the  Lessee  seeking
      liquidation,  reorganization  or other  relief  with  respect to it or its
      debts  under  any  bankruptcy,  insolvency  or  other  similar  law now or
      hereafter  in effect or seeking the  appointment  of a trustee,  receiver,
      liquidator,  custodian or other similar  official of it or any substantial
      part of its property,  and such involuntary case or other proceeding shall
      remain undismissed or unstayed for a period of 60 consecutive days; or

<PAGE>

            (viii)  final  judgment  for the  payment  of  money  in  excess  of
      $1,000,000  shall be rendered  against the Lessee and the Lessee shall not
      have  discharged the same or provided for its discharge in accordance with
      its terms or  bonded  the same or  procured  a stay of  execution  thereof
      within 60 days from the entry thereof; or

            (ix) (1) a  default  by the  Lessee  under  the  ANPP  Participation
      Agreement  in  consequence  of which the  Lessee's  right to  receive  its
      Generation  Entitlement  Share in PVNGS is  suspended  by the  other  ANPP
      Participants,  or (2) the giving by any ANPP Participant of a notice under
      Section  23.2  (or  any  comparable   successor  provision)  of  the  ANPP
      Participation  Agreement respecting a default thereunder by the Lessee and
      the lapse of 20 Business  Days from the giving of such notice  without the
      Lessee having cured such default; provided,  however, that for purposes of
      this clause (2) if the Lessee  shall have,  in good  faith,  disputed  the
      existence  or nature of a default and such  dispute  shall have become the
      subject of an arbitration  under Section 24 (or any  comparable  successor
      provision)  of the ANPP  Participation  Agreement,  such 20  Business  Day
      period shall commence on the date of the final  determination of the board
      of arbitrators under such Section 24; or

            (x) (1) the Lessee  shall fail to pay when due (whether by scheduled
      maturity,  required  (prepayment,  acceleration,  demand or otherwise) any
      Debt (which  term shall mean (A)  indebtedness  for  borrowed  money,  (B)
      obligations  as lessee  under leases and (C)  obligations  under direct or
      indirect  guarantees  in  respect  of,  and  obligations   (contingent  or
      otherwise)  to  purchase or  otherwise  acquire or  otherwise  to assure a
      creditor against loss in respect of, indebtedness or obligations of others
      of the kinds  referred to in clause (A) or (B) above,  in each case if the
      principal amount (or equivalent)  thereof (or in the case of any operating
      lease, an equivalent on the assumption such lease were a lease required to
      be  capitalized  in  accordance   with   generally   accepted   accounting
      principles)  is greater than  $20,000,000  ($5,000,000  in the case of any
      PVNGS  operating  lease)) of the Lessee,  and such failure shall  continue
      after the applicable grace period,  if any,  specified in the agreement or
      instrument  relating  to such  Debt,  but only if the  Lessee  shall  have
      received  notice of such  failure or a  Responsible  Officer of the Lessee
      shall have actual  knowledge  of such  failure;  or (2) any other  default
      under any agreement or instrument  relating to any such Debt, or any other
      event,  shall occur and shall continue after the applicable  grace period,
      if any,  specified in such agreement or instrument,  if the effect of such
      default or event is to accelerate,  or to permit the  acceleration of, the
      maturity of such Debt,  but only if the Lessee shall have received  notice
      of such default or event or a Responsible Officer of the Lessee shall have
      actual knowledge of such default or event.

            SECTION 16.  Remedies.

            (a)  Remedies.  Upon the  occurrence  of any Event of Default and so
long as the same shall be  continuing,  the Lessor may,  at its option,  declare
this Facility  Lease to be in default by written  notice to such effect given to
the Lessee, and may exercise one or more of the following remedies as the Lessor
in its sole discretion shall elect:

<PAGE>

            (i) the Lessor may, by notice to the  Lessee,  rescind or  terminate
      this Facility Lease;  

            (ii) the Lessor may (x) demand that the Lessee,  and  thereupon  the
      Lessee shall,  return  possession  of the Undivided  Interest and the Real
      Property  Interest  promptly  to the Lessor in the  manner  and  condition
      required by, and  otherwise in  accordance  with the  provisions  of, this
      Facility Lease as if the Undivided Interest and the Real Property Interest
      were being  returned at the end of the Lease Term and the Lessor shall not
      be liable for the  reimbursement  of the Lessee for any costs and expenses
      incurred  by the  Lessee  in  connection  therewith  and  (y)  subject  to
      Applicable Law, enter upon the PVNGS Site and take immediate possession of
      (to the  exclusion  of the Lessee)  the  Undivided  Interest  and the Real
      Property  Interest,  by summary  proceedings  or  otherwise,  all  without
      liability  to the  Lessee  for or by  reason  of such  entry or  taking of
      possession,  whether for the  restoration of damage to property  caused by
      such taking or otherwise;

            (iii)  the  Lessor  may sell  the  Undivided  Interest  and the Real
      Property Interest, or any part thereof,  together with any interest of the
      Lessor under the Assignment and Assumption, at public or private sale in a
      commercially  reasonable  manner,  as the Lessor may  determine,  free and
      clear of any rights of the Lessee in the  Undivided  Interest and the Real
      Property  Interest  and  without  any duty to account  to the Lessee  with
      respect to such action or inaction or any proceeds  with  respect  thereto
      (except to the extent  required  by clause (v) or (vi) below if the Lessor
      shall  elect to  exercise  its  rights  thereunder)  , in which  event the
      Lessee's  obligation to pay Basic Rent  hereunder  for periods  commencing
      after  the  date of such  sale  shall  be  terminated  or  proportionately
      reduced, as the case may be (except to the extent that Basic Rent is to be
      included  in  computations  under  clause  (v) or (vi) below if the Lessor
      shall elect to exercise its rights thereunder);

            (iv) the  Lessor  may hold,  keep idle or lease to others all or any
      part of the  Undivided  Interest and the Real  Property  Interest,  as the
      Lessor in its sole discretion may determine,  free and clear of any rights
      of the Lessee and without  any duty to account to the Lessee with  respect
      to such action or inaction or for any proceeds with respect to such action
      or  inaction,  except that the Lessee's  obligation  to pay Basic Rent for
      periods commencing after the Lessee shall have been deprived of use of the
      Undivided  Interest and the Real Property Interest pursuant to this clause

            (iv)  shall be reduced by an amount  equal to the net  proceeds,  if
      any,  received by the Lessor from leasing the  Undivided  Interest and the
      Real  Property  Interest to any Person  other than the Lessee for the same
      periods or any portion  thereof;  Lessee  shall pay to the Lessor,  on the
      Basic Rent Payment Date  specified in such notice,  as liquidated  damages
      for loss of a bargain  and not as a penalty (in lieu of the Basic Rent due
      after the Basic Rent Payment Date speci fied in such  notice),  any unpaid

<PAGE>

      Rent due through the Basic Rent Payment Date specified in such notice plus
      whichever of the  following  amounts the Lessor,  in its sole  discretion,
      shall specify in such notice (together with interest on such amount at the
      interest rate  specified in Section  3(b)(iii) from the Basic Rent Payment
      Date specified in such notice to the date of actual  payment) (and, in the
      case of (D) below,  upon  receipt of such payment the Lessor shall (or may
      prior to the receipt of such payment) Transfer to the Lessee the Undivided
      Interest and the Real Property Interest):

                  (A) an amount  equal to the excess,  if any,  of (1)  Casualty
            Value,  computed as of the Basic Rent Payment Date specified in such
            notice,  over  (2) the Fair  Market  Rental  Value of the  Undivided
            Interest and the Real Property Interest  (determined on the basis of
            the then -actual condition of Unit 1) until the end of the remaining
            useful life of Unit 1, after  discounting  such Fair  Market  Rental
            Value  semi-annually  to present  value as of the Basic Rent Payment
            Date specified in such notice at a rate of 10% per annum;

                  (B) an  amount  equal  to the  excess,  if  any,  of (1)  such
            Casualty Value over (2) the Fair Market Sales Value of the Undivided
            Interest and the Real Property Interest  (determined on the basis of
            the then actual  condition  of Unit 1) as of the Basic Rent  Payment
            Date specified in such notice;

                  (C) an amount equal to the excess,  if any, of (1) the present
            value as of the Basic Rent Payment Date  specified in such notice of
            all installments of Basic Rent until the end of the Basic Lease Term
            or the Renewal Term, as the case may be, discounted semi-annually at
            a rate of 10% per annum, over (2) the present value as of such Basic
            Rent Payment Date of the Fair Market  Rental Value of the  Undivided
            Interest and the Real Property Interest  (determined on the basis of
            the then  actual  condition  of Unit 1) until  the end of the  Basic
            Lease  Term or the  Renewal  Term,  as the case  may be,  discounted
            semi-annually at a rate of 10% per annum; or

                  (D) an  amount  equal  to  higher  of (1) the  Casualty  Value
            (Special  Casualty  Value  if  the  Event  of  Default  is an  event
            specified  in clause  (v),  (viii) or (x)(2) of Section 15  hereof),
            computed as of the Basic Rent Payment Date  specified in such notice
            or (2) the Fair Market  Sales Value of the  Undivided.  Interest and
            the Real Property Interest;

            (vi) if the Lessor  shall have sold all the  Undivided  Interest and
      the Real Property  Interest pursuant to clause (iii) above, the Lessor, in
      lieu of  exercising  its rights under clause (v) above with respect to the
      Undivided  Interest  and the Real  Property  Interest  may, if it shall so
      elect,  demand that the Lessee pay to the Lessor and the Lessee  shall pay
      to the Lessor on the date of such sale, as liquidated  damages for loss of
      a bargain  and not as a  penalty  (in lieu of Basic  Rent due for  periods
      commencing  after the next Basic Rent Payment Date  following  the date of
      such  sale),  any unpaid  Basic Rent due through  such Basic Rent  Payment
      Date,  plus the amount of any  deficiency of the Sale  Proceeds  under the
      Casualty Value, computed as of such Basic Rent Payment Date, together with
      interest at the interest rate specified in Section 3(b)(iii) on the amount
      of such Rent and such deficiency from the date of such sale until the date
      of actual payment; or

<PAGE>

            (vii) in the case of an Event of Default specified in clause (iv) of
      Section  15,  the  Lessor  may  demand,  by  written  notice to the Lessee
      specifying a payment date which shall be not earlier than the date 30 days
      after the last Basic Rent Payment Date of the Lease Term,  that the Lessee
      pay to the Lessor,  and the Lessee  shall pay to the Lessor,  on such last
      payment  date,  as  liquidated  damages for loss of a bargain and not as a
      penalty,  any unpaid Rent due through  such last Basic Rent  Payment  Date
      plus an amount (not less than zero)  equal to the Fair Market  Sales Value
      (determined  without  regard to the obligation of the Lessee under Section
      10(b)(3)(xi) of the Participation Agreement) of the Undivided Interest and
      the  Real  Property  Interest  (determined  on the  basis  of  the  actual
      condition  of Unit 1)  determined  as of such last Basic Rent Payment Date
      (together  with interest on such amount at the interest rate  specified in
      Section  3(b)(iii)  from such last Basic Rent  Payment Date to the date of
      actual  payment) and upon receipt of such payment the Lessor shall (or may
      prior to the receipt of such payment) Transfer to the Lessee the Undivided
      Interest and the Real  Property  Interest);  provided,  however,  that the
      Lessor may not  exercise  the  foregoing  remedy if the Lessor  shall have
      failed to Transfer the Undivided  Interest and the Real Property  Interest
      to the  bidder  (which  shall  not be the  Lessee or an  Affiliate  of the
      Lessee)  that shall have  submitted  the highest cash bid on or before the
      date on which such Event of Default  arose  excluding,  however,  any such
      cash bid which the  Lessor or the  Owner  Participant  determines  was not
      submitted in good faith, or as to which the bidder fails to certify to the
      Lessor such information as the Lessor or Owner  Participant may reasonably
      request in order to  determine  whether or not such bid was  submitted  in
      good faith (and the Lessor  agrees  that it will,  if and to the extent so
      requested by the Lessee on or after the date 90 days  preceding  such last
      Basic Rent Payment  Date,  use  reasonable  efforts (at the expense of the
      Lessee) for a period  ending on the day 90 days after such last Basic Rent
      Payment Date, to find a Person willing to submit such cash bid;  provided,
      however,  that the  failure of the Lessor to do so shall not  relieve  the
      Lessee of its obligations under this clause (vii)).

            (b) No Release. No rescission or termination of this Facility Lease,
in whole or in part,  or  repossession  of the  Undivided  Interest  or the Real
Property  Interest or exercise of any remedy under paragraph (a) of this Section
16 shall, except as specifically provided therein,  relieve the Lessee of any of
its  liabilities  and obligations  hereunder.  In addition,  the Lessee shall be
liable,  except as  otherwise  provided  above,  for any and all unpaid Rent due
hereunder before, after or during the exercise of any of the foregoing remedies,
including all reasonable legal fees and other costs and expenses incurred by the
Lessor or the Owner  Participant  by  reason of the  occurrence  of any Event of
Default or the exercise of the Lessor's  remedies with respect  thereto.  At any
sale of the Undivided  Interest,  the Real Property Interest or any part thereof
pursuant to this Section 16, the Owner Participant,  the Lessor or the Indenture
Trustee may bid for and purchase such property.

<PAGE>

            (c)Remedies  Cumulative.  No  remedy  under  paragraph  (a) of  this
Section 16 is  intended to be  exclusive,  but each shall be  cumulative  and in
addition to any other  remedy  provided  under such  paragraph  (a) or otherwise
available  to  the  Lessor  at  law  or  in  equity;  provided,   however,  that
notwithstanding  anything to the contrary set forth in this Facility Lease,  the
remedy set forth in Section  l6(a)(vii)  shall be the sole and exclusive  remedy
under this  Section 16 in the case of an Event of  Default  specified  in clause
(iv) of Section 15, unless the Lessee is in default of its payment  obliga tions
under  Section  16(a)(vii),  in which  case the Lessor  may  exercise  its other
remedies  under Section  16(a);  (except that the maximum  amount payable by the
Lessee  in the  event  of the  exercise  by the  Lessor  of any of the  remedies
provided  for in Section  16(a)(v)  or (vi)  shall not  exceed the total  amount
payable by the Lessee  under  Section  16(a)(vii)  minus the amount  provided in
subclause (2) of clause (A), (B) or (C) of such Section 16(a)(v),  if the Lessor
elects a remedy  speci fied in said  clause (A),  (B) or (C), or the  deficiency
referred to in Section  16(a)(vi),  if the Lessor elects the remedy specified in
Section  16(a)(vi)  hereof).  No express or implied  waiver by the Lessor of any
Default or Event of Default  hereunder  shall in any way be, or be  construed to
be, a waiver of any  future  or  subsequent  Default  or Event of  Default.  The
failure or delay of the Lessor in exercising any right granted it hereunder upon
any occurrence of any of the contingencies set forth herein shall not constitute
a waiver of any such  right  upon the  continuation  or  recurrence  of any such
contingencies or similar contingencies and any single or partial exercise of any
particular right by the Lessor shall not exhaust the same or constitute a waiver
of any other right provided  herein.  To the extent permitted by Applicable Law,
the Lessee  hereby  waives any rights now or  hereafter  conferred by statute or
otherwise  which may  require  the Lessor to sell,  lease or  otherwise  use the
Undivided  Interest or Unit 1 in mitigation of the Lessor's damages as set forth
in paragraph (a) of this Section 16 or which may  otherwise  limit or modify any
of the Lessor's rights and remedies provided in this Section 16.

            (d) Exercise of Other  Rights or Remedies.  In addition to all other
rights and remedies  provided in this Section 16, the Lessor may,  except to the
extent  expressly  limited by provisions of this Section 16,  exercise any other
right or remedy that may be available to it under  Applicable  Law or proceed by
appropriate  court action to enforce the terms hereof or to recover  damages for
the breach hereof.

            (e) Special Cure Right of Lessee. In the event a "Notice of Default"
is given under Section 15(iii), the Lessee may, on or prior to the occurrence of
an Event of  Default  resulting  therefrom,  give  written  notice to the Lessor
stating  that the Lessee has  elected to exercise  the option (the Cure  Option)
provided in this Section  16(e),  which  election shall be irrevocable as to the
Lessee.  Promptly  after the  giving of such  notice,  the  Lessee and the Owner
Participant  shall  agree  upon the Fair  Market  Sales  Value of the  Undivided
Interest and the Real Property  Interest or; if they shall be unable so to agree
within one month  after the date of the  Lessee's  notice,  such value  shall be
determined  by the  Appraisal  Procedure.  On the Basic Rent  Payment  Date next
following the date that such Fair Market Sales Value shall have been determined,
the Lessee shall pay to the Lessor all Rent due on such Basic Rent Payment Date,
plus an amount  equal to the excess of (i) the greater of such Fair Market Sales
Value and the Casualty Value  determined as of such Basic Rent Payment Date over

<PAGE>

(ii) the unpaid  principal  amount of the Notes  Outstanding  on such date after
giving  effect to the  payment,  if any, of the  principal  installment  due and
payable on such date.  Upon  compliance in full by the Lessee with the foregoing
provisions  of  this  paragraph  (e) and  assumption  by the  Lessee  of all the
obligations  and  liabilities  of the Owner  Trustee under the Indenture and the
Notes pursuant to Section 3.9(b) of the Indenture,  the Lessor shall (so long as
no Default or Event of Default shall have occurred and be  continuing)  Transfer
the  Undivided  Interest and the Real  Property  Interest to the Lessee.  If the
Lessee shall not have assumed all the  obligations  and liabilities of the Owner
Trustee under the Indenture and the Notes in accordance  with Section  3.9(b) of
the Indenture,  but the Owner  Participant shall have received under Section 5.2
of the Indenture all amounts  required to be paid by the Lessee pursuant to this
paragraph  (e)  (including  interest,   if  any,  thereon  pursuant  to  Section
3(b)(iii)), the Lessor shall retain the Undivided Interest and the Real Property
Interest subject to the terms of this Facility Lease and Section 7(b) (4) of the
Participation Agreement; provided, however, that the obligation of the Lessee to
pay further  Basic Rent shall be reduced to an amount on each Basic Rent Payment
Date equal to the aggregate  amount of principal,  premium,  if any, and accrued
interest  then payable on all Notes then  Outstanding  and this  Facility  Lease
shall  become a secu rity  agreement  for all  purposes of  Applicable  Law. The
Lessee agrees to Use its best efforts to comply with the  conditions  respecting
its assumption  set forth in Section  3.9(b) of the Indenture and,  failing such
assumption,  agrees to accept a transfer of the Owner Participant's right, title
and  interest  in  the  Trust  Estate   pursuant  to  Section   7(b)(4)  of  the
Participation Agreement.

            SECTION 17.  Notices.

            All  communications  and notices provided for in this Facility Lease
shall be in  writing  and shall be given in person  (with  signed  receipt of an
officer  of the  Owner  Participant  in the  case  of a  delivery  to the  Owner
Participant)  or by means of telex,  telecopy,  or other wire  transmission,  or
mailed by  registered  or  certified  mail,  or  delivered  by express  delivery
service,  addressed  as  provided  in  the  Participation  Agreement.  All  such
communications  and notices  given in such manner shall be effective on the date
of receipt of such communication or notice.

            SECTION 18.  Successors and Assigns.

            This   Facility   Lease,   including  all   agreements,   covenants,
indemnities,  representations and warranties, shall be binding upon and inure to
the benefit of the Lessor and its  successors  and  permitted  assigns,  and the
Lessee and its successors and, to the extent permitted hereby, assigns.

<PAGE>

            SECTION 19.  Right to Perform for Lessee.

            If the Lessee  shall fail to make any  payment of Rent to be made by
it,  or  shall  fail to  perform  or  comply  with any of its  other  agreements
contained  herein,  or fail to make any  payment to be made by it under any ANPP
Project  Agreement,  or shall fail to  perform  or comply  with any of its other
agreements  contained  in any ANPP Project  Agreement,  either the Lessor or the
Owner  Participant  may, but shall not be obligated to, tender such payment,  or
effect such  performance or  compliance,  and the amount of such payment and the
amount of all costs and expenses (including, without limitation,  attorneys' and
other  professionals' fees and expenses) of the Lessor or the Owner Participant,
as the case may be,  incurred in connection with such payment or the performance
of or compliance with such agreement, as the case may be, together with interest
thereon at the Penalty Rate, shall be deemed  Supplemental  Rent, payable by the
Lessee upon demand.  In the event that the Lessor or the Owner Participant shall
cure any default by the Lessee under the ANPP Participation Agreement,  then (so
long as an event of Default has occurred and is continuing) the Lessor, together
with each other Person contributing to such cure, shall be entitled (to the full
extent  enforceable in accordance with Applicable Law) to receive the Generation
Entitlement  Share of the Lessee  under the ANPP  Participation  Agreement  (not
limited  to Unit 1),  with each  contributor  to  receive a  percentage  of such
Generation  Entitlement  Share equal to the  percentage of the cure  contributed
thereby.

            SECTION 20.  Additional Covenants.

            The Lessee agrees to comply with and to pay, as  Supplemental  Rent,
all  amounts   payable  by  it  under  the  provisions  of  Section  13  of  the
Participation  Agreement  and under the  provisions  of the Tax  Indemnification
Agreement,  which provisions are incorpo rated herein by this reference as fully
as if set forth in full at this  place.  The  Lessee  agrees to comply  with its
covenants  and  agreements  set  forth  in  Sections  10(b),  14  and  16 of the
Participation  Agreement  and Articles III, IV, V and VI of the  Assignment  and
Assumption  which  covenants  and  agreements  are  incorporated  herein by this
reference as fully as if set forth in full at this place.

            SECTION 21. Lease of Real Property Interest.

            Pursuant to the Deed and the Assignment of Beneficial Interest,  the
Lessee has sold to the  Lessor the Real  Property  Interest.  The Lessor  hereby
grants to the Lessee a leasehold  interest in the Real Property  Interest,  such
leasehold to be coterminous with the lease of the Undivided  Interest  hereunder
and to be at a rent per annum equal to 4.635455% of the Real Estate  Investment,
payable by the Lessee to the Lessor in arrears in equal semiannual  installments
on each Basic Rent Payment Date during the Lease Term.

            SECTION 22.  Amendments and Miscellaneous.

            (a) Amendments in Writing.  The terms of this Facility Lease may not
be waived, altered, modified, amended,  supplemented or terminated in any manner
whatsoever except by written instrument signed by the Lessor and the Lessee.

<PAGE>

            (b) Survival.  (1) All indemnities,  representations  and warranties
contained in this  Facility  Lease and the other  Transaction  Documents and the
Financing  Documents and in any  agreement,  document or  certificate  delivered
pursuant hereto or thereto or in connection herewith or therewith shall survive,
and continue in effect  following,  the  execution and delivery of this Facility
Lease and the expiration or other termination of this Facility Lease.

            (2) The obligations of the Lessee to pay  Supplemental  Rent and the
obligations  of the Lessee under  Sections 5, 16, 19 and 20 hereof shall survive
the  expiration  or  termination  of this Facility  Lease.  The extension of any
applicable  statute of limitations by the Owner Trustee,  the Indenture Trustee,
the Lessee, the Owner Participant,  the Loan Participant or any Indemnitee shall
not affect such  survival.  The  obligations  of the Lessee under Section 20 are
expressly made for the benefit of, and shall be enforceable  by, any Indemnitee,
separately or together,  without  declaring this Facility Lease to be in default
and  notwithstanding  any assignment by the Lessor of this Facility Lease or any
of its rights  thereunder or any  disposition of all or any part of any interest
in the  Undivided  Interest,  the Real  Property  Interest,  Unit 1 or any other
property  referred to in this Facility  Lease or in this  Facility  Lease or any
other Transaction  Document or Financing  Document.  All payments required to be
made pursuant to Section 20 shall be made directly to, or as otherwise requested
by, the Indemnitee entitled thereto upon written demand by such Indemnitee.

            (c) Severability of Provisions. Any provision of this Facility Lease
which may be determined by competent authority to be prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such  prohibition  or  unenforceability  without  invalidating  the remaining
provisions hereof or thereof,  and any such prohibition or  unenforceability  in
any jurisdiction shall not invalidate or render  unenforceable such provision in
any other  jurisdiction.  To the extent  permitted by Applicable Law, the Lessee
hereby waives any provision of law which renders any provision hereof prohibited
or unenforceable in any respect.

            (d) True Lease. This Facility Lease shall constitute an agreement of
lease and nothing  herein or  elsewhere  shall be  construed as conveying to the
Lessee any right,  title or interest in or to the Undivided Interest or the Real
Property Interest, except as lessee only.

            (e) Original Lease.  The single  executed  original of this Facility
Lease marked "THIS  COUNTERPART IS THE ORIGINAL  COUNTERPART" and containing the
receipt  of the  Indenture  Trustee  thereon  shall  be the  "Original"  of this
Facility  Lease.  To the extent that this  Facility  Lease  constitutes  chattel
paper,  as such term is defined in the Uniform  Commercial  Code as in effect in
any applicable jurisdiction,  no security interest in this Facility Lease may be
created  through the transfer or  possession of any  counterpart  other than the
"Original".

            (f)  Governing  Law.  This  Facility  Lease shall be governed by and
construed  in  accordance  with the law of the State of New York,  except to the
extent that  pursuant to the law of the State of Arizona the law of the State of
Arizona is mandatorily applicable hereto.

<PAGE>

            (g) Headings. The division of this Facility Lease into sections, the
provision  of a  table  of  contents  and  the  insertion  of  headings  are for
convenience  of  reference  only  and  shall  not  affect  the  construction  or
interpretation of this Facility Lease.

            (h) Concerning the Owner Trustee. FNB is entering into this Facility
Lease  solely  as  Owner  Trustee  under  the  Trust  Agreement  and  not in its
individual capacity.  Anything herein to the contrary  notwithstanding,  all and
each of the representations, warranties, undertakings and agreements herein made
on the  part  of the  Owner  Trustee  are  made  and  intended  not as  personal
representations,  warranties,  undertakings and agreements by or for the purpose
or with the  intention of binding FNB  personally  but are made and intended for
the  purpose  of  binding  only the Trust  Estate,  and this  Facility  Lease is
executed and delivered by the Owner Trustee solely in the exercise of the powers
expressly  conferred  upon it as  trustee  under  the  Trust  Agreement;  and no
personal  liability or  responsibility  is assumed  hereunder by or shall at any
time  be  enforceable  against  FNB or  any  successor  in  trust  or the  Owner
Participant on account of any representation, warranty, undertaking or agreement
hereunder of the Owner Trustee,  either expressed or implied,  all such personal
liability,  if any, being expressly waived by the Lessee, except that the Lessee
or any Person claiming by, through or under it, making claim hereunder, may look
to the Trust Estate for  satisfaction  of the same and the Owner  Trustee or its
successor in trust, as applicable,  shall be personally liable for its own gross
negligence or willful  misconduct.  If a successor owner trustee is appointed in
accordance with the terms of the Trust  Agreement,  such successor owner trustee
shall,  without any further act, succeed to all the rights,  duties,  immunities
and  obligations  of the Owner  Trustee  hereun  der and the  predecessor  owner
trustee shall be released from all further duties and obligations hereunder.

            (i) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401,
the  beneficiary  of the  Trust  Agreement  is Chase  Manhattan  Realty  Leasing
Corporation,  a New York corporation  whose address is One Chase Manhattan Plaza
(20th Floor), New York, New York 10081, Attention of Leasing Administrator.  The
address  of the  beneficiary  is also  therein  described.  A copy of the  Trust
Agreement is available for inspection at the offices of the Owner Trustee at 100
Federal  Street,  Boston,  Massachusetts  02110,  Attention of  Corporate  Trust
Division.

            (j)  Counterpart  Execution.  This Facility Lease may be executed in
any  number of  counterparts  and by each of the  parties  hereto or  thereto on
separate  counterparts,  all such counterparts together constituting but one and
the same instrument.

<PAGE>

                                                                     SCHEDULE 1
                                                                         to
                                                                       LEASE

                           SCHEDULE OF CASUALTY VALUES


    Basic Rent           Percentage of      Basic Rent        Percentage of
   Payment Date          Facility Cost     Payment Date       Facility Cost
   ------------          -------------     ------------       -------------

      15JAN87             109.10599          15JAN98            105.02054
      15JUL87             114.76002          15JUL98            103.97373
      15JAN88             113.17994          15JAN99            102.04367
      15JUL88             117.70456          15JUL99            100.81532
      15JAN89             116.07167         15JAN100             98.74684
      15JUL89             119.65174         15JUL100             97.31725
      15JAN90             117.95016         15JAN101             95.09237
      15JUL90             120.53475         15JUL101             93.43984
      15JAN91             118.69682         15JAN102             91.07806
      15JUL91             120.25014         15JUL102             89.28211
      15JAN92             118.20917         15JAN103             86.84308
      15JUL92             118.72285         15JUL103             84.92967
      15JAN93             116.54349         15JAN104             82.40638
      15JUL93             116.42005         15JUL104             80.36623
      15JAN94             114.56122         15JAN105             77.75328
      15JUL94             114.08476         15JUL105             75.57905
      15JAN95             112.43357         15JAN106             72.87080
      15JUL95             111.75470         15JUL106             70.55479
      15JAN96             110.14794         15JAN107             67.74535
      15JUL96             109.41227         15JUL107             65.27947
      15JAN97             107.71163         15JAN108             62.36264
      15JUL97             106.82849         15JUL108             59.73841

<PAGE>

                                                                    SCHEDULE 1
                                                                            to
                                                                         LEASE

                           SCHEDULE OF CASUALTY VALUES

Basic Rent             Percentage of        Basic Rent            Percentage of
Payment Date           Facility Cost        Payment Date          Facility Cost
------------           -------------        ------------          -------------

15JAN109               56.70765
15JUL109               53.91617

15JAN110               50.76464
15JUL110               47.79658

15JAN111               44.51710
15JUL111               41.36264

15JAN112               37.94767
15JUL112               34.59656

15JAN113               31.03819
15JAN113               27.47963

15JAN114               23.76956
15JUL114               21.85439

15JAN115               20.00000


<PAGE>
                                                                    SCHEDULE 2
                                                                            to
                                                                         LEASE

                       SCHEDULE OF SPECIAL CASUALTY VALUES

Basic Rent          Percentage of          Basic Rent           Percentage of
Payment Date        Facility Cost          Payment Date         Facility Cost
------------        -------------          ------------         -------------

15AUG86             104.099993             15JAN90              119.27824
15SEP86             103.18569              15FEB90              119.43084
15OCT86             103.65043              15MAR90              119.58739
15NOV86             104.12325              15APR90              118.85885
15DEC86             104.25292              15MAY90              118.98243
                                           15JUN90              117.38007
15JAN87             110.52963              15JUL90              117.48130
15FEB87             110.99000              15AUG90              117.57940
15MAR87             111.45839              15SEP90              116.81803
15APR87             110.27755              15OCT90              116.89414
15MAY87             110.71365              15NOV90              116.97322
15JUN87             108.65107              15DEC90              116.89842
15JUL87             109.06029
15AUG87             109.45859              15JAN91              119.94867
15SEP87             108.52150              15FEB91              120.00169
15OCT87             108.89348              15MAR91              120.05744
15NOV87             109.27223              15APR91              119.44437
15DEC87             109.34400              15MAY91              119.46653
                                           15JUN91              117.99211
15JAN88             114.66863              15JUL91              117.99154
15FEB88             115.00952              15AUG91              117.98593
15MAR88             115.35674              15SEP91              117.25913
15APR88             114.64228              15OCT91              117.23086
15MAY88             114.65149              15NOV91              117.20427
15JUN88             112.75517              15DEC91              117.06632
15JUL88             113.04087
15AUG88             113.32361              15JAN92              119.40380
15SEP88             112.45267              15FEB92              119.34830
15OCT88             112.71259              15MAR92              119.29420
15NOV88             112.97776              15APR92              118.77580
15DEC88             112.99499              15MAY92              118.68865
                                           15JUN92              117.32935
15JAN89             117.49595              15JUL92              117.21979
15FEB89             117.73796              15AUG92              117.10314
15MAR89             117.73796              15SEP92              116.39871
15APR89             117.12413              15OCT92              116.25944
15MAY89             117.33793              15NOV92              116.12050
15JUN89             115.59881              15DEC92              115.90990
15JUL89             115.79155
15AUG89             115.98287              15JAN93              117.56857
15SEP89             115.17614              15FEB93              117.39844
15OCT89             115.34705              15MAR93              117.22832
15NOV89             115.52210              15APR93              116.79146
15DEC89             115.49943              15MAY93              116.62105

<PAGE>
                                                                    SCHEDULE 2
                                                                            to
                                                                         LEASE

                       SCHEDULE OF SPECIAL CASUALTY VALUES

Basic Rent          Percentage of          Basic Rent             Percentage of
Payment Date        Facility Cost          Payment Date           Facility Cost
------------        -------------          ------------           -------------

15JUN93             115.39274              15NOV96                106.46442
15JUL93             115.22233              15DEC96                10622464
15AUG93             115.04340
15SEP93             114.40251              15JAN97                106.54943
15OCT93             114.22358              15FEB97                106.29766
15NOV93             114.04465              15MAR97                106.04588
15DEC93             113.83133              15APR97                105.79411
                                           15MAY97                105.54233
15JAN94             114.91015              15JUN97                104.83831
15FEB94             114.72228              15JUL97                104.58654
15MAR94             114.53440              15AUG97                104.32218
15APR94             114.26601              15SEP97                103.94549
15MAY94             114.07813              15OCT97                103.68113
15JUN94             113.04848              15NOV97                103.41677
15JUL94             112.86060              15DEC97                103.15240
15AUG94             112.66333
15SEP94             112.13060              15JAN98                103.41930
15OCT94             111.93333              15FEB98                103.14172
15NOV94             111.73605              15MAR98                102.86414
15DEC94             111.53878              15APR98                102.58656
                                           15MAY98                102.30898
15JAN95             112.17156              15JUN98                101.60285
15FEB95             111.96443              15JUL98                101.32527
15MAR95             111.75729              15AUG98                101.03381
15APR95             111.55016              15SEP98                100.63964
15MAY95             111.34302              15OCT98                100.34818
15JUN95             110.51294              15NOV98                100.05672
15JUL95             110.30581              15DEC98                99.76526
15AUG95             110.08832
15SEP95             109.66372              15JAN99                99.97051
15OCT95             109.44623              15FEB99                99.66448
15NOV95             109.22874              15MAR99                99.35845
15DEC95             109.01125              15APR99                99.05241
                                           15MAY99                98.74638
15JAN96             109.39052              15JUN99                98.03656
15FEB96             109.16216              15JUL99                97.73053
15MAR96             108.93379              15AUG99                97.40920
15APR96             108.70542              15SEP99                96.99494
15MAY96             108.47706              15OCT99                96.67361
15JUN96             107.77372              15NOV99                96.35228
15JUL96             107.54535              15DEC99                96.03094
15AUG96             107.30557
15SEP96             106.94399              15JAN100               96.17040
15OCT96             106.70421              15FEB100               95.83299

<PAGE>
                                                                    SCHEDULE 2
                                                                            to
                                                                         LEASE

                       SCHEDULE OF SPECIAL CASUALTY VALUES

Basic Rent          Percentage of           Basic Rent           Percentage of
Payment Date        Facility Cost           Payment Date         Facility Cost
------------        -------------           ------------         -------------

15MAR100            95.49559                15AUG103               79.14289
15APR100            95.15819                15SEP103               78.64881
15MAY100            94.82079                15OCT103               78.21004
15JUN100            94.10556                15NOV103               77.77126
15JUL100            93.76816                15DEC103               77.33249
15AUG100            93.41388
15SEP100            92.97666                15JAN104               77.24112
15OCT100            92.62239                15FEB104               76.79259
15NOV100            92.26812                15MAR104               76.34407
15DEC100            91.91385                15APR104               75.89555
                                            15MAY104               75.44709
15JAN101            91.98295                15JUN104               74.71978
15FEB101            91.61096                15JUL104               74.28869
15MAR101            91.23898                15AUG104               73.82803
15APR101            90.86699                15SEP104               73.31576
15MAY101            90.49501                15OCT104               72.85509
15JUN101            89.77244                15NOV104               72.39443
15JUL101            89.40045                15DEC104               71.93376
15AUG101            89.00987
15SEP101            88.54651                15JAN105               71.79757
15OCT101            88.15593                15FEB105               71.32668
15NOV101            87.76535                15MAR105               70.85579
15DEC101            87.37476                15APR105               70.38490
                                            15MAY105               69.91403
15JAN102            87.36846                15JUN105               69.18425
15FEB102            86.96239                15JUL105               68.73164
15MAR102            86.55632                15AUG105               68.24801
15APR102            86.15026                15SEP105               67.71661
15MAY102            85.74426                15OCT105               67.23297
15JUN102            85.01636                15NOV105               66.74934
15JUL102            84.62523                15DEC105               66.26571
15AUG102            84.20767
15SEP102            83.72773                15JAN106               66.08259
15OCT102            86.31017                15FEB106               65.58823
15NOV102            82.89261                15MAR106               65.09388
15DEC102            82.47505                15APR106               64.59952
                                            15MAY106               64.10516
15JAN103            82.42598                15JUN106               63.37272
15FEB103            81.99878                15JUL106               62.89753
15MAR103            81.57158                15AUG106               62.38980
15APR103            81.14438                15SEP106               61.83828
15MAY103            80.71726                15OCT106               61.33055
15JUN103            79.99225                15NOV106               60.82282
15JUL103            79.58167                15DEC106               60.31509

<PAGE>
                                                                    SCHEDULE 2
                                                                            to
                                                                         LEASE

                       SCHEDULE OF SPECIAL CASUALTY VALUES

Basic Rent          Percentage of          Basic Rent          Percentage of
Payment Date        Facility Cost          Payment Date        Facility Cost
------------        -------------          ------------        -------------

15JAN107            60.08285               15JUN110              37.08524
15FEB107            59.56387               15JUL110              36.50803
15MAR107            59.04489               15AUG110              35.89146
15APR107            58.52591               15SEP110              35.24859
15MAY107            58.00692               15OCT110              34.63202
15JUN107            57.27166               15NOV110              34.01544
15JUL107            56.77277               15DEC110              33.39887
15AUG107            56.23975
15SEP107            55.66708               15JAN111              32.94594
15OCT107            55.13407               15FEB111              32.31573
15NOV107            54.60106               15MAR111              31.68553
15DEC107            54.06805               15APR111              31.05532
                                           15MAY111              30.42512
15JAN108            53.78438               15JUN111              29.67637
15FEB108            53.23957               15JUL111              29.07045
15MAR108            52.69475               15AUG111              28.42323
15APR108            52.14993               15SEP111              27.75454
15MAY108            51.60511               15OCT111              27.10732
15JUN108            50.86681               15NOV111              26.46011
15JUL108            50.34306               15DEC111              25.81290
15AUG108            49.78352
15SEP108            49.18861               15JAN112              25.29813
15OCT108            48.62907               15FEB112              24.63662
15NOV108            48.06953               15MAR112              23.97510
15DEC108            47.50999               15APR112              23.31359
                                           15MAY112              22.65208
15JAN109            47.17248               15JUN112              21.89937
15FEB109            46.60056               15JUL112              21.26330
15MAR109            46.02864               15AUG112              20.58394
15APR109            45.45671               15SEP112              19.88810
15MAY109            44.88479               15OCT112              19.20874
15JUN109            44.14324               15NOV112              18.52938
15JUL109            43.59340               15DEC112              17.85002
15AUG109            43.00602
15SEP109            42.38774               15JAN113              17.27048
15OCT109            41.80036               15FEB113              16.57612
15NOV109            41.21299               15MAR113              15.88176
15DEC109            40.62562               15APR113              15.18740
                                           15MAY113              14.49304
15JAN110            40.23173               15JUN113              13.73610
15FEB110            39.63137               15JUL113              13.06842
15MAR110            39.03100               15AUG113              12.35533
15APR110            38.43064               15SEP113              11.63096
15MAY110            37.83027               15OCT113              10.91787


<PAGE>

                                                                   SCHEDULE 2
                                                                           to
                                                                        LEASE

                       SCHEDULE OF SPECIAL CASUALTY VALUES

Basic Rent          Percentage of          Basic Rent             Percentage of
Payment Date        Facility Cost          Payment Date           Facility Cost
------------        -------------          ------------           -------------

15NOV113            10.20479
15DEC113            9.49170

15JAN114            8.84431
15FEB114            8.11549
15MAR114            7.38666
15APR114            6.65783
15MAY114            5.92901
15JUN114            5.16757
15JUL114            4.46671
15AUG114            3.71824
15SEP114            2.96389
15OCT114            2.21541
15NOV114            1.46694
15DEC114            0.71846

15JAN115            0.00000

<PAGE>
                                                                    SCHEDULE 3
                                                                            to
                                                                         LEASE

                         SCHEDULE OF TERMINATION VALUES

Basic Rent   Percentage    Basic Rent    Percentage    Basic Rent   Percentage 
 Payment    of Facility      Payment     of Facility     Payment    of Facility
  Date          Cost          Date          Cost          Date         Cost
----------  -----------    ----------    -----------   ----------   -----------

15JAN87      109.01599       15JAN98       105.02054     15JAN109      56.70765
15JUL87      114.76002       15JUL98       103.97373     15JUL109      53.91617

15JAN88      113.17994       15JAN99       102.04367     15JAN110      50.76464
15JUL87      117.70456       15JUL99       100.81532     15JUL110      47.79658

15JAN89      116.07167       15JAN100      98.74684      15JAN111      44.51710
15JUL89      119.65174       15JUL100      97.31725      15JUL111      41.36264

15JAN90      117.95016       15JAN101      95.09237      15JAN112      37.94767
15JUL90      120.53475       15JUL101      93.43984      15JUL112      34.59656

15JAN91      118.69682       15JAN102      91.07806      15JAN113      31.03819
15JUL91      120.25014       15JUL102      89.28211      15JUL113      27.47963

15JAN92      118.20917       15JAN103      86.84308      15JAN114      23.76956
15JUL92      118.72285       15JUL103      84.92967      15JUL114      21.85439

15JAN93      116.54349       15JAN104      82.40638      15JAN115      20.00000
15JUL93      116.42005       15JUL104      80.36623

15JAN94      114.56122       15JAN105      77.75328
15JUL94      114.08476       15JUL105      75.57905

15JAN95      112.43357       15JAN106      72.87080
15JUL95      111.75470       15JUL106      70.55479

15JAN96      110.14794       15JAN107      67.74535
15JUL96      109.41227       15JUL107      65.27947

15JAN97      107.71163       15JAN108      62.36264
15JUL97      106.82849       15JUL108      59.73841
 
<PAGE>


                                                                    SCHEDULE 5
                                                                        to
                                                                  FACILITY LEASE


                        REAL ESTATE INTEREST DESCRIPTION

            The Real Estate  Interest is a (i) .333333% a undivided  interest in
the land described in I below, a (ii) .377777%  undivided interest in the rights
and interests  described in II below, and (iii) a .377777% undivided interest in
the right and interests described in III below.

I.  PVNGS PLANT SITE

PARCEL NO. 1: Lot Four (4); the Southwest quarter of the Northwest quarter;  and
the West half of the Southwest quarter, all in Section Two (2), Township One (1)
South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa
County, Arizona

PARCEL NO. 2: All of Section  Three (3),  Township One (1) South,  Range Six (6)
West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona

PARCEL NO. 3: The East half of Section Four (4),  Township One (1) South,  Range
Six (6) West of the Gila and Salt  River  Base and  Meridian,  Maricopa  County,
Arizona

PARCEL NO. 4: The West half of Section Twenty-six (26),  Township One (1) North,
Range  Six (6)  West of the  Gila and Salt  River  Base and  Meridian,  Maricopa
County, Arizona.

PARCEL NO. 5: Section  Twenty-seven (27),  Township One (1) North, Range Six (6)
West of the Gila and Salt River Base and  Meridian,  Maricopa  County,  Arizona;
EXCEPT the Northwest quarter of Section 27

PARCEL NO. 6: The Southeast quarter of Section  Twenty-eight (28),  Township One
(1)  North,  Range Six (6) West of the Gila and Salt  River  Base and  Meridian,
Maricopa County,  Arizona; EXCEPT 50% of all oil, gas and other mineral deposits
and  geothermal  resources  recovered  from or  developed  on the  property,  as
reserved in instrument recorded May 10, 1974 in Docket 10647, page 136.

PARCEL  NO. 7: The East half of  Section  Thirty-three  (33),  Township  One (1)
North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa
County, Arizona.

PARCEL NO.8: All of Section  Thirty-four (34), Township One (1) North, Range Six
(6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 9: The West half of Section Thirty-five (35), Township One (1) North,
Range  Six (6)  West of the  Gila and Salt  River  Base and  Meridian,  Maricopa
County, Arizona.

<PAGE>

PARCEL NO. 10: The  Southeast  quarter  of Section  Nine (9),  Township  One (1)
South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa
County, Arizona; EXCEPT the Northwest quarter thereof.

PARCEL NO. 11: All of Section Ten (10),  Township  One (1) South,  Range Six (6)
West of the Gila and Salt River Base and  Meridian,  Maricopa  County,  Arizona;
EXCEPT the East half of the Southeast quarter thereof; and EXCEPT the North half
of the South half of the Northwest quarter of the Northwest quarter thereof.

PARCEL NO. 12:  That part of the East half of the  Southwest  quarter of Section
Twenty-three  (23),  Township One (1) North,  Range Six (6) West of the Gila and
Salt  River Base and  Meridian,  Maricopa  County,  Arizona,  more  particularly
described as follows:

            BEGINNING  at the  Southeast  corner  of the said  East  half of the
      Southwest quarter of Section 23; thence West, an assumed bearing along the
      South line of the said East half of the  Southwest  quarter of Section 23,
      for a  distance  of 762.04  feet;  thence  North 0 degrees  03  minutes 39
      seconds  West;  parallel  to the East  line of the said  East  half of the
      Southwest  quarter of Section  23, for a distance  of a 1946.46  feet to a
      point   on  the   South   right-of-way   line   of  the  200   foot   wide
      HASSAYAMPA-SALOME  HIGHWAY,  as recorded in Book 12 of Road Maps, page 82,
      Maricopa County Recorder,  Maricopa  County,  Arizona;  thence  continuing
      North 0 degrees 03 minutes 39 seconds  West for a distance  of 234.15 feet
      to a point a on the North right-of-way line of said highway;  thence South
      58 degrees 43 minutes 35 seconds East, along said North  right-of-way line
      for a distance of 892.17 feet to a point on the said East line of the East
      half of the  Southwest  quarter of Section 23;  thence  South 0 degrees 03
      minutes 39  seconds  East,  along said East line for a distance  of 234.15
      feet to a point on the said South  right-of-way  line;  thence  continuing
      South 0 degrees 03 minutes 39 sec onds East for a distance of 1483.31 feet
      to the true point of beginning;  

            EXCEPT the East 305 feet of the South 305 feet thereof; and

            EXCEPT  one-half  of the  minerals  and  mineral  rights and mineral
      estates of every kind and nature,  as set forth in Deed recorded in Docket
      11652, page 52, Maricopa County Records.

PARCEL NO. 13: The North half of the South half of the Northwest  quarter of the
Northwest  quarter of Section Ten (10),  Township  One (1) South,  Range Six (6)
West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

II. HASSAYAMPA PUMPING STATION AND EFFLUENT PIPELINE

            All real property,  leases, licenses,  easements,  rights-of-way and
other property held by Title USA Company of Arizona Trust No. 530 established by
that certain Trust Agreement  dated October 15, 1975, as amended,  but excluding
therefrom all improvements.

<PAGE>

III.  MISCELLANEOUS REAL PROPERTY INTERESTS

            Those ANPP Project  Agreements (as defined in the ANPP Participation
Agreement),  in addition to the Trust Agreement for Title USA Company of Arizona
Trust 530, consisting of leases, licenses, easements, and permits, which provide
land and land  rights for (a) the  pipeline to supply  waste  water  effluent to
PVNGS  from  the  91st  Avenue  sewage   treatment  plant  serving  the  Phoenix
Metropolitan  area and (b) railroad access to the Nuclear Plant Site (as defined
in the ANPP Participation Agreement).


<PAGE>

                                                                    SCHEDULE 6
                                                                       to
                                                                  FACILITY LEASE

                         UNDIVIDED INTEREST DESCRIPTION

            The Undivided Interest is a (i) 1.133333%  undivided interest in and
to the property  described under A below and (ii) a .377777%  undivided interest
in and to the property described in B below.

            A. Unit 1 of the Palo  Verde  Nuclear  Generating  Station  (PVNGS),
located in Maricopa County, Arizona,  approximately 55 miles west of the City of
Phoenix,  Arizona,  and  approximately  16 miles  west of the  City of  Buckeye,
Arizona, consisting of:

            I.    Unit 1 Combustion  Engineering  "System 80" pressurized  water
                  reactor  nuclear steam supply  system (the NSSS).  The NSSS is
                  comprised of a reactor vessel  containing 241 fuel  assemblies
                  with   approximately   100  tons  of  enriched  uranium  (fuel
                  assemblies,  however,  are  not  part  of  Unit 1 and  are not
                  included in the  Undivided  Interest  being  sold),  two steam
                  generators,  four reactor coolant pumps and various additional
                  systems and  subsystems.  The licensed  thermal  rating of the
                  NSSS is 3800 MW.

            II.   Unit 1 GE TC6F-43, 1800 RPM tandem-compound,  six flow, reheat
                  turbine-generator  including  turbine,   generator,   moisture
                  separator-reheater,    exciter,    controls,   and   auxiliary
                  subsystems.  The  turbine-generator  is  conductor  cooled and
                  rated at 1,554 MVA at 24,000 V, 3 phase,  60 Hz, 1.5 in Hg ABS
                  back  pressure,  and  approximately  1,363  MW  maximum  gross
                  electric output.

            III.  Unit  1  146  ft.  inside  diameter, steel-lined,  prestressed
                  concrete cylindrical containment building with a hemispherical
                  dome designed for 60 psig. The containment building houses the
                  reactor system.

            IV.   Unit 1 auxiliary  systems and equipment  including  engineered
                  safeguards    systems,    reactor    auxiliary   systems   and
                  turbine-generator  auxiliary systems  associated with items I,
                  II,  and III  above,  extending  to and  including  the Unit 1
                  start-up transformer.

            V.    Unit 1 cooling tower system consisting of three (3) mechanical
                  draft  cooling  towers,  including a closed cycle  circulating
                  water system, make-up water systems and essential spray ponds.

            VI.   Unit 1 radioactive waste treatment  system,  including liquid,
                  gaseous,    and    solid    waste    subsystems,     controls,
                  instrumentation, storage, handling and shipment facilities.

<PAGE>

            VII.  Unit  1   emergency   diesel-generator  system,  including   a
                  diesel-generator    building   which   contains   two   diesel
                  generators,  fuel oil  systems,  storage  tanks,  control  and
                  instrumentation systems and other equipment.
           
            VIII. Unit 1 internal  communication  systems,  including associated
                  interconnections and computer data links.

BUT EXCLUDING:

I.   Nuclear fuel for Unit 1, including spare fuel assemblies.

<PAGE>
When Recorded, Return to: Greg R. Nielsen
                          Snell & Wilmer
                          3100 Valley Bank Center
                          Phoenix, Arizona 85073


        CERTAIN RIGHTS OF THE LESSOR UNDER THE FACILITY LEASE AS AMENDED BY THIS
AMENDMENT  NO. 1 THERETO  HAVE BEEN  ASSIGNED  TO, AND ARE SUBJECT TO A SECURITY
INTEREST  IN  FAVOR  OF,  CHEMICAL  BANK,  AS  INDENTURE  TRUSTEE  UNDER A TRUST
INDENTURE, MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS DATED AS OF JULY
31,  1986,  AS  AMENDED.  THIS  AMENDMENT  NO.1 HAS  BEEN  EXECUTED  IN  SEVERAL
COUNTERPARTS.  SEE  SECTION  3(f)  OF  THIS  AMENDMENT  NO.  1  FOR  INFORMATION
CONCERNING THE RIGHTS OF HOLDERS OF VARIOUS COUNTERPARTS HEREOF.

            THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

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

                                 AMENDMENT NO.1
                          Dated as of November 18, 1986
                                       to
                                 FACILITY LEASE
                            Dated as of July 31, 1986
                                     between
                        THE FIRST NATIONAL BANK OF BOSTON
                         not in its individual capacity,
                           but solely as Owner Trustee
                        under a Trust Agreement, dated as
                           of July 31, 1926 with Chase
                            Manhattan. Realty Leasing
                                   Corporation
                                     Lessor
                                       and
                      PUBLIC SERVICE COMPANY OF NEW MEXICO,
                                     Lessee

================================================================================
               Original Facility Lease Recorded on August 1, 1986,
                 as Instrument No. 86-404570 in Maricopa County
                               Recorder's Office.

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

6091.CHASE.DEBT.146:1


<PAGE>


                  AMENDMENT NO. 1, dated as of November 18, 1986  (Amendment No.
1), to the Facility  Lease dated as of July 31, 1986 between THE FIRST  NATIONAL
BANK OF BOSTON, a national banking association,  not in its individual capacity,
but solely as Owner Trustee under a Trust Agreement,  dated as of July 31, 1985,
with Chase Manhattan  Realty Leasing  Corporation,  a New York  corporation (the
Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the
Lessee).


                               W I T N E S S E T H

                  WHEREAS,  the Lessee and The Lessor  have  heretofore  entered
into a Facility Lease dated as of July 31, 1986 (the Facility Lease),  providing
for the lease by the Lessor to the Lessee of the Undivided Interest and the Real
Property Interest;

                  WHEREAS,  Section 3(e) of the Facility  Lease  provides for an
adjustment  to Basic  Rent and to the  schedules  of  Casualty  Values,  Special
Casualty Values and Termination  Values in the event, among other things, of the
refunding (by issuance of the Fixed Rate Notes) of the Initial Series Note;

                  WHEREAS,  the Fixed Rate Notes are being  issued  pursuant  to
Supplemental Indenture No. 1, dated as of November 18, 1986, to the Indenture;

                  WHEREAS,  Section 3(d) of the Facility  Lease  provides for an
adjustment  to Basic  Rent and to the  schedules  of  Casualty  Values,  Special
Casualty Values and Termination Values in the event of a Change in Tax Law; and

                  WHEREAS, a Change in Tax Law has occurred;

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

                  SECTION 1. Definitions.

                  For  purposes  hereof,  capitalized  terms used herein and not
otherwise  defined herein or in the recitals shall have the meanings assigned to
such terms in Appendix A to the Facility Lease.



6091.CHASE.DEBT. 146:1


<PAGE>




                  SECTION 2. Amendments

                  (a) Section  3(a)(i) of the Facility  Lease is amended to read
in its entirety as follows:

        "(i) on January 15, 1987,  an amount equal to .02643205% of the Facility
        Cost for each day from,  and including  August 1, 1986 to, but excluding
        January 15, plus or minus the Rent Differential,  if any, referred to in
        Section 3(h):"

                  (b) (1) Section 3(a) (ii) of the Facility  Lease is amended to
read in its entirety as follows:

        "(ii) on. July 15, 1987 and on each Basic Rent Payment Date  thereafter
        to and  including  January 15,  2015,  an amount  equal to  4.757769% of
        Facility Cost;".

                  (2)  Section   3(a)  (iii)  is  amended  to  delete  from  the
parenthetical  contained  therein the phrase" and any  increases  and  decreases
pursuant to Section 3(h)".

                  (c) Section 3(e) (iii) of the Facility Lease is hereby amended
to replace  "2.0% of the  Purchase  Price"  with "2.2% of the  Purchase  Price".
Section 3(e) (iv) is hereby amended to insert (x) "(other than a change in items
4, 5, 8 (as to the basis for amortization of Transaction  Expenses),  14, 13 and
17,  but  without  limiting  the  effect of Section  3(d)  hereof)"  immediately
following  the  word  "change"  and (y) the word  "Current"  before  the  phrase
"Pricing  Assumptions."  Section  3(e) of the Facility  Lease is hereby  further
amended  to insert at the end  thereof  the  following  new  sentence:  "Current
Pricing  Assumptions shall mean the assumptions  attached to the letter from the
Lessee to the Owner  Participant  dated November 25, 1986, as such letter may be
replaced from time to time with the written consent of the Owner Participant."

                  (d)  Schedule 1 to the  Facility  Lease  (Schedule of Casualty
Values) is hereby replaced with Schedule 1 hereto.

                  (e)  Schedule 2 to the  Facility  Lease  (Schedule  of Special
Casualty Values) is hereby replaced with Schedule 2 hereto.



                                       -2-

6O91.CHASE.DEBT.146:1


<PAGE>

                  (f) Schedule 3 to The Facility Lease  (Schedule of Termination
Values) is hereby replaced with Schedule 3 hereto.

                  (g) Section  3(h) of the Facility  Lease is hereby  amended to
read in its entirety as follows:

                    "(h) Rent  Differential.  The  installment of Basic Rent due
           January 15, 1987 shall be increased or decreased, as the case may be,
           by the Rent  Differential.  For purposes  hereof,  Rent  Differential
           shall  mean  the  difference  between  (i) the  aggregate  amount  of
           interest  paid or payable on the  Initial  Series  Notes on or before
           November  25, 1986 and (ii) the  aggregate  amount of  interest  that
           would have been paid on such  Initial  Series Notes if such Notes had
           at all times from the date of issuance  thereof to November  25, 1986
           borne interest at a rate equal to 9.9024175%  per annum  (computed on
           the basis of a  360-day  year of twelve  30-day  months).  If (A) the
           amount  determined in accordance  with clause (i) of the  immediately
           preceding  sentence  shall be greater than the amount  determined  in
           accordance  with  clause (ii) of such  sentence,  the amount of Basic
           Rent  due on  January  15,  1987  shall  be  increased  by  the  Rent
           Differential,  and (B) the amount  determined in accordance with such
           clause (ii) shall exceed the amount  determined  in  accordance  with
           such  clause  (i),  the amount of Basic Rent due on January  15, 1987
           shall be decreased by the Rent Differential."

                    SECTION 3. Miscellaneous.

                    (a) Partial  Prepayment of Rent. In accordance with the last
    sentence of section  3(a) of the  Facility  Lease,  the Lessee  shall pay an
    amount equal to  $336,986.30  on November  25,  1986,  such amount (i) being
    equal to the  interest  payment due on the Initial  Series Note on such date
    and (ii) to be credited against Basic Rent due on January 15, 1987.

                  (b) Effective Date of Amendments.  The amendments set forth in
Section 2 hereof shall be and become  effective upon the execution hereof by the
parties hereto.


                                       -3-
6091.CHASE.DEBT.146:1


<PAGE>


                  (c)  Counterpart  Execution.  This  Amendment  No.  1  may  be
executed  in any number of  counterparts  and by each of the  parties  hereto on
separate  counterparts;  all much counterparts shall together constitute but one
and the same instrument.

                  (d) Governing  Law. This  Amendment No. 1 has been  negotiated
and  delivered  in the  State of New  York and  shall  be  governed  by,  and be
construed in accordance  with, the laws of the State of New York,  except to the
extent that  pursuant to the law of The State of Arizona  such law is  mandatory
applicable hereto.

                  (e) Disclosure.  Pursuant to Arizona Revised  Statutes Section
33-401, the beneficiary of the Trust Agreement is Chase Manhattan Realty Leasing
Corporation, a New York corporation. The address of the beneficiary is One Chase
Manhattan  Plaza,  New York,  New York 10005.  A copy of the Trust  Agreement is
available  for  inspection  at the  offices of the Owner  Trustee at 100 Federal
Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

                  (f)  Amendment  No. 1. The single  executed  original  of this
Amendment  No.  1 marked  "THE  COUNTERPART  IS THE  ORIGINAL  COUNTERPART"  and
containing the receipt of the Indenture  Trustee thereon shall be the "Original"
of this  Amendment  No. 1. To The extent that this  Amendment  No. 1 constitutes
chattel  paper,  as such term is defined in the  Uniform  Commercial  Code as in
effect in any applicable  jurisdiction,  no security  interest in this Amendment
No. 1 may be created or  continued  through the  transfer or  possession  of any
counterpart other than the "Original".


















                                       -4-
6091.CHASE.DEBT.146:1


<PAGE>


                  IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 1 to Facility  Lease to be duly executed in New York,  New York by
an officer there-unto duly authorized.

                                            THE FIRST NATIONAL BANK OF BOSTON
                                                not in its individual  capacity,
                                                but  solely  as  Owner   Trustee
                                                under a Trust  Agreement,  dated
                                                as of July 31, 1936,  with chase
                                                Manhattan     Realty     Leasing
                                                Corporation

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



                                            PUBLIC SERVICE COMPANY OF 
                                            NEW MEXICO,


                                            By:
                                                 ----------------------------   
                                                   Vice President and 
                                                  Corporate Controller
















                                       -5-
6O9l.CHASE.DEBT.146:l


<PAGE>


State of New York )
                  )ss:
County of New York)


                The foregoing  instrument was  acknowledged  before me this 24th
day of November,  1986, by B.D. LACKEY, Vice President and Corporate  Controller
of PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation,  on behalf of
the corporation.

                                            /s/ Delia T. Santiago
                                           -----------------------
                                               Notary Public
                                               Delia T. Santago
                                       Notary Public State of New York
                                               No 41-3451160
                                         Qualified In Queens County
                                      Commission Expires March 30, 1987


State of New York )
                  ) ss:
County of New York)


The foregoing  instrument was acknowledged  before me this 24th day of November,
1986, by Martin P. Henry, Assistant Vice President of THE FIRST NATIONAL BANK OF
BOSTON, a national banking association,  on behalf of the banking association as
Owner  Trustee  under the Trust  Agreement  dated as of July 31, 1986 with Chase
Manhattan Realty Leasing Corporation.




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

                                                David A. Spivak
                                         Notary Public, State of New York
                                                 No. 31-4693488
                                          Qualified in New York County
                                        Commission Expires March 10, 1987


6091.CHASE.DEBT. 146:1

                                   SCHEDULE 1
                                       to
                                 AMENDMENT NO.1

                           SCHEDULE OF CASUALTY VALUES

 Basic                                       Basic
  Rent           Percentage                   Rent            Percentage
 Payment          of Facility                Payment          of Facility
  Date              Cost                      Date               Cost
 -------          -----------                -------          -----------

15JAN87            108.39224                  15JAN98        102.28809
15JUL87            107.23024                  15JUL98        100.70917
15JAN88            101.51081                  15JAN99         99.63607
15JUL88            107.60714                  15JUL99         97.93951
15JAN89            110.72584                  15JAN100        96.69628
15JUL89            109.72664                  15JUL100        94.89680
15JAN90            112.19177                  15JAN101        93.52454
15JUL90            111.06507                  15JUL101        91.63860
15JAN91            112.87839                  15JAN102        90.12880
15JUL91            111.69339                  15JUL102        88.15050
15JAN92            112.92483                  15JAN103        86.51027
15JUL92            111.68018                  15JUL103        84.43301
15JAN93            112.35208                  15JAN104        82.66793
15JUL93            111.01255                  15JUL104        80.48337
15JAN94            111.08451                  15JAN105        78.58288
15JUL94            109.60551                  15JUL105        76.28283
15JAN95            109.08161                  15JAN106        74.23710
15JUL95            107.62209                  15JUL106        71.81301
15JAN96            106.87515                  15JAN107        69.61205
15JUL96            105.47391                  15JUL107        67.05595
15JAN97            104.68407                  15JAN108        64.69021
15JUL97            103.20804                  15JUL108        61.99287


                                  Page 1 of 2

6091.CHASE.DEBT.146:l


<PAGE>

                                   SCHEDULE 1
                                       to
                                 AMENDMENT NO.1


                           SCHEDULE OF CASUALTY VALUES

 Basic                                       Basic
  Rent           Percentage                   Rent            Percentage
 Payment          of Facility                Payment          of Facility
  Date              Cost                      Date               Cost
 -------          -----------                -------          -----------

15JAN109               59.45078
15JUL109               56.60203
                       
15JAN110               53.87142
15JUL110               50.86047
                               
15JAN111               47.92842
15JUL111               44.74379
                       
15JAN112               41.59654 
15JUL112               38.22608
                               
15JAN113               34.84909
15JUL113               31.27985
                               
15JAN114               27.65763
15JUL114               23.87600
                               
15JAN115               20.00000
                       









                                  Page 2 of 2

6091.CHASE.DEBT.146:l
<PAGE>


                                   SCHEDULE 2
                                       to
                                 AMENDMENT NO. 1


                       SCHEDULE OF SPECIAL CASUALTY VALUES

                                                  
                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------
                       
15AUG86                  104.27687            11JAN89           110.51760
15SEP86                  103.32804            15FEB89           110.68360
15OCT86                  103.76229            15MAR89           110.85374
15NOV86                  104.20441            15APR89           110.27364
15DEC86                  104.30295            15MAY89           110.42615
                                              15JUN89           109.30420
15JAN87                  108.37051            15JUL89           109.44686
15FEB87                  108.74577            15AUG89           109.57477
15MAR87                  109.12807            15SEP89           109.04477
15APR87                  108.15899            15OCT89           109.16270
15MAY87                  108.51711            15NOV89           109.28411
15JUN87                  106.84559            15DEC89           109.27124
15JUL87                  107.18467
15AUG87                  107.50988            15JAN90           111.81873
15SEP87                  101.74809            15FEB90           111.91504
15OCT87                  107.05454            11MAR90           112.01453
15NOV87                  107.36708            15APR90           111.49867
15DEC87                  107.42871            15MAY90           111.58039
                                              15JUN90           110.52636
15JAN88                  108.41911            11JUL90           110.59665
15FEB88                  108.66143            15AUG90           110.65880
15MAR88                  108.90895            15SEP90           110.14733
15APR88                  108.24364            15OCT90           110.19806
15MAY88                  108.46860            15NOV90           110.25136
15JUN88                  107.25568            15DEC90           110.19663
15JUL88                  107.46881
15AUG88                  107.66817
15SEP88                  107.10979
15OCT88                  107.29730
15NOV88                  107.48926
15DEC88                  107.51542



                                  Page 1 of 6

6091.CHASE.DEBT.146:l


<PAGE>


                                   SCHEDULE 2
                                       to
                                 AMENDMENT NO. 1


                       SCHEDULE OF SPECIAL CASUALTY VALUES

                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------

15JAN91                  112.29286           15JAN94           109.57539
15FEB91                  112.33172           15FEB94           109.42999
15MAR91                  112.37308           15MAR94           109.28510
15APR91                  111.92973           15APR94           109.01130
15MAY91                  111.95239           15MAY94           108.84777
15JUN91                  110.97827           15JUN94           108.08218
15JUL91                  110.98863           15JUL94           107.90562
15AUG91                  110.11543           15AUG14           107.73011
15SEP91                  110.51243           15SEP94           107.28037
15OCT91                  110.50706           15OCT94           107.09027
15NOV91                  110.50366           15NOV94           106.90017
15DEC91                  110.41809           15DEC94           106.69743
                                                     
15JAN92                  112.07912           15JAN95           107.16923
15FEB92                  112.05940           15FEB95           106.97064
15MAR92                  112.04153           15MAR95           106.77204
11APR92                  111.66699           15APR95           106.56219
15MAY92                  111.63146           15MAY95           106.36360
15JUN92                  110.73818           15JUN95           105.69371
15JUL92                  110.69141           15JUL95           105.49511
15AUG92                  110.63926           15AUG95           105.28762
15SEP92                  110.18044           15SEP95           104.90076
15OCT92                  110.11712           15OCT95           104.69328
15NOV92                  110.05513           15DEC95           104.48579
15DEC92                  109.93623           15DEC95           104.27831
                                             
15JAN93                  111.19851
15FEB93                  111.11931
15MAR93                  111.04133
15APR93                  110 72175
15MAY93                  110.62612
15JUN93                  109.79976
15JUL93                  109.69206
15AUG93                  109.57771
15SEP93                  109.13192
15OCT93                  109.00545
15NOV93                  108.87964
15DEC93                  108.71924
                         

                                  Page 2 of 6

6091.CHASE.DEBT.146.1


<PAGE>




                                   SCHEDULE 2
                                       to
                                 AMENDMENT NO.1


                     SCHEDULE OF SPECIAL CASUALTY VALUES

                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------

15JAN96                 104.51184            15JAN99            95.63381
15FEB96                 104.29506            15FEB99            95.34538
15MAR96                 104.07829            15MAR99            95.05694
15APR96                 103.64474            15APR99            94.76851
15MAY96                 103.08893            15MAY99            94.48007
15JUN96                 103.08893            15JUN99            93.91569
15JUL96                 102.87215            15JUL99            93.62726
15AUG96                 102.64567            15AUG99            93.32418
15SEP96                 102.31721            15SEP99            92.94856
15OCT96                 102.09072            15OCT99            92.64548
15NOV96                 101.86424            15NOV99            92.34241
15DEC96                 101.63776            15DEC99            92.03933

15JAN97                 101.82213            15JAN100           92.05232
15FEB97                 101.58551            15FEB100           91.73903
15MAR97                 101.34889            15MAR100           91.42574
15APR97                 101.11227            15APR100           91.11244
15MAY97                 101.87564            15MAY100           90.79915
15JUN97                 100.32043            15JUN100           90.23230
15JUL97                 100.08381            15JUL100           89.91901
15AUG97                  99.83518            15AUG100           89.59431
15SEP97                  99.49429            15SEP100           89.20709
15OCT97                  99.24566            15OCT100           88.88238
15NOV97                  98.99704            15NOV100           88.55767
15DEC97                  98.74841            15DEC100           88.23297

15JAN98                  98.87984
15FEB98                  98.61859
15MAR98                  98.35735
15APR98                  98.09611
15MAY98                  97.83487
15JUN98                  97.27602
15JUL98                  97.01478
15AUG98                  96.74028
15SEP98                  96.38332
15OCT98                  96.10882
15NOV98                  95.83432
15DEC98                  95.55982

                                  Page 3 of 6

6091.CHASE.DEBT    
<PAGE>
                                   SCHEDULE 2
                                       to
                                 AMENDMENT NO.1


                     SCHEDULE OF SPECIAL CASUALTY VALUES

                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------

15JAN101                  88.19119            15JAN104          74.98028
15FEB101                  87.85568            15FEB104          74.57432
15MAR101                  87.50217            15MAR104          74.16836
15APR101                  87.18466            15APR104          73.76240
15MAY101                  86.84914            15MAY104          73.35645
15JUN101                  86.28309            15JUN104          72.77247
15JUL101                  85.94758            15JUL104          72.36651
15AUG101                  85.59993            15AUG104          71.94734
15SEP101                  85.19988            15SEP104          71.49457
15OCT101                  84.85223            15OCT104          71.07541
15NOV101                  84.50458            15NOV104          70.65624
15DEC101                  84.15692            15DEC104          70.23707
                                                      
15JAN102                  84.05837            15JAN105          70.01508
15FEB102                  83.69956            15FEB105          69.58389
15MAR102                  83.34075            15MAR105          69.15270
15APR102                  82.98193            15APR105          68.72151
15MAY102                  82.62312            15MAY105          68.29032
15JUN102                  82.05737            15JUN105          67.69316
15JUL102                  81.69856            15JUL105          67.26197
15AUG102                  81.32745            15AUG105          66.81677
15SEP102                  80.91417            15SEP105          66.34036
15OCT102                  80.54306            15OCT105          65.89515
15NOV102                  80.17196            15NOV105          65.44994
15DEC102                  79.80085            15DEC105          65.00473
                                              
15JAN103                  79.65508
15FEB103                  79.27288
15MAR103                  78.89068
15APR103                  78.50847
15MAY103                  78.12627
15JUN103                  77.55465
15JUL103                  77.17245
15AUG103                  77.77780
15SEP103                  76.34724
15OCT103                  75.95260
15NOV103                  75.55795
15DEC103                  75.16331



                                  Page 4 of 6

6091.CHASE.DEBT                                  
<PAGE>

                                   SCHEDULE 2
                                       to
                                 AMENDMENT NO.1


                     SCHEDULE OF SPECIAL CASUALTY VALUES

                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------

15JAN106                  64.74147            15JAN109          46.88549
15FEB106                  64.28351            15FEB109          46.33693
15MAR106                  63.82555            15MAR109          45.78837
15APR106                  63.36759            15APR109          45.23980
15MAY106                  62.90964            15MAY109          44.69124
15JUN106                  62.29843            15JUN109          44.03206
15JUL106                  61.84047            15JUL109          43.48830
15AUG106                  61.36763            15AUG109          42.92193
15SEP106                  60.86610            15SEP109          42.33510
15OCT106                  60.39326            15OCT109          41.76873
15NOV106                  59.92042            15NOV109          41.20236
15DEC106                  59.44759            15DEC109          40.63600
                                                      
15JAN107                  59.14089            15JAN110          40.18753
15FEB107                  58.65452            15FEB110          39.60498
15MAR107                  58.16816            15MAR110          39.02243
15APR107                  57.68179            15APR110          38.43988
15MAY107                  57.19542            15MAY110          37.85732
15JUN107                  56.56925            15JUN110          37.18000
15JUL107                  56.08404            15JUL110          36.60430
15AUG107                  55.58188            15AUG110          36.00284
15SEP107                  55.05365            15SEP110          35.38392
15OCT107                  54.55149            15OCT110          34.78247
15NOV107                  54.04933            15NOV110          34.18101
15DEC107                  53.54716            15DEC110          33.57955
                                              

15JAN108                  53.19582
15FEB108                  52.67929
15MAR108                  52.16275
15APR108                  51.64622
15MAY108                  51.12968
15JUN108                  50.48754
15JUL108                  49.97390
15AUG108                  49.44059
15SEP108                  48.88395
15OCT108                  48.35064
15NOV108                  47.81733
15DEC108                  47.28402

                                  Page 5 of 6

6091.CHASE.DEBT.          
<PAGE>
                                   SCHEDULE 2
                                       to
                                 AMENDMENT NO.1


                     SCHEDULE OF SPECIAL CASUALTY VALUES

                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------

15JAN111                  33.07824            15JAN114          9.02244
15FEB111                  32.45960            15FEB114          8.28170
15MAR111                  31.84096            15MAR114          7.54095
15APR111                  31.22233            15APR114          6.80021
15MAY111                  30.60369            15MAY114          6.05946
15JUN111                  29.90703            15JUN114          5.29694
15JUL111                  29.29748            15JUL114          4.57315
15AUG111                  28.65877            15AUG114          3.80841
15SEP111                  28.00574            15SEP114          3.03971
15OCT111                  27.36703            15OCT114          2.27497
15NOV111                  26.72832            15NOV114          1.51023
15DEC111                  26.08961            15DEC114          0.74549
                                                      
15JAN112                  25.53238            15JAN115          (-.00001)
15FEB112                  24.87545            
15MAR112                  24.21851
15APR112                  23.56157
15MAY112                  22.90463
15JUN112                  22.18738
15JUL112                  21.54195
15AUG112                  20.86371
15SEP112                  20.17443
15OCT112                  19.49619
15NOV112                  18.81794
15DEC112                  18.13969

15JAN113                  17.52326
15FEB113                  16.82565
15MAR113                  16.12805
15APR113                  15.43044
15MAY113                  14.73283
15JUN113                  13.99364
15JUL113                  13.31020
15AUG113                  12.58999
15SEP113                  11.86219
15OCT113                  11.14197
15NOV113                  10.42176
15DEC113                   9.70154



                                  Page 6 of 6

6091.CHASE.DEBT.
<PAGE>
                                   SCHEDULE 3
                                       to
                                 AMENDMENT NO.1


                         SCHEDULE OF TERMINATION VALUES

 Basic                                       Basic
  Rent                  Percentage           Rent            Percentage
 Payment                of Facility         Payment          of Facility
  Date                     Cost               Date               Cost
 -------                -----------         -------          -----------
                        
15JAN87                   108.37051          15JAN99          95.63381
15JUL87                   107.18467          15JUL99          93.62726
                                                     
15JAN88                   108.41911          15JAN100         92.05232
15JUL88                   107.46881          15JUL100         89.91901
                                                     
15JAN89                   110.51760          15JAN101         88.19119
15JUL89                   109.44686          15JUL101         85.94758
                                                     
15JAN90                   111.81873          15JUL102         84.05837
15JUL90                   110.59665          15JUL102         81.69856
                                                     
15JAN91                   112.29286          15JAN103         79.65508
15JUL91                   110.69141          15JUL103         77.17245
                                                     
15JAN92                   112.07912          15JUL104         74.98028
15JUL92                   110.69141          15JUL104         72.36651
                                                     
15JAN93                   111.19851          15JAN105         70.01508
15JUL93                   109.69206          15JUL105         67.26197
                                                     
15JAN94                   109.57539          15JAN106         64.74147
15JUL94                   107.90562          15JUL106         61.84047
                                                     
15JAN95                   107.16923          15JAN107         59.14089
15JUL95                   105.49511          15JUL107         56.08404
                                                     
15JAN96                   104.51184          15JAN108         53.19582
15JUL96                   102.87215          15JUL108         49.97390
                                                     
15JAN97                   101.82213          15JAN109         46.88549
15JUL97                   100.08381          15JUL109         43.48830
                                                     
15JAN98                    98.87984          15JAN110         40.18753
15JUL98                    97.01478          15JUL110         36.60430
                                             




                                  Page 1 of 2
6091.CHASE.DEBT.
<PAGE>
                                   SCHEDULE 3
                                       to
                                 AMENDMENT NO.1


                         SCHEDULE OF TERMINATION VALUES

 Basic                                       Basic
  Rent                  Percentage           Rent            Percentage
 Payment                of Facility         Payment          of Facility
  Date                     Cost               Date               Cost
 -------                -----------         -------          -----------





15JAN111                   33.07824
15JUL111                   29.29748

15JAN112                   25.53238
15JUL112                   21.54195

15JAN113                   17.52326
15JUL113                   13.31020

15JAN114                    9.02244
15JUL114                    4.57315

15JAN115                    0.0
























                                  Page 2 of 2

6091.CHASE.DEBT


<PAGE>

When Recorded, Return to:  Greg R. Nielsen
                           Snell & Wilmer
                           3100 Valley Bank Center
                           Phoenix, Arizona 85073



     CERTAIN RIGHTS OF THE LESSOR UNDER THE FACILITY LEASE AS HERETOFORE AMENDED
AND AS FURTHER  AMENDED BY THIS  AMENDMENT  NO. 2 THERETO HAVE BEEN ASSIGNED TO,
AND ARE SUBJECT TO A SECURITY  INTEREST IN FAVOR OF, CHEMICAL BANK, AS INDENTURE
TRUSTEE UNDER A TRUST INDENTURE,  MORTGAGE, SECURITY AGREEMENT AND ASSIGMIENT OF
RENTS DATED AS OF JULY 31, 1986, AS HERETOFORE AMENDED. THIS AMENDMENT NO. 2 HAS
BEEN EXECUTED IN SEVERAL COUNTERPARTS.  SEE SECTION 3(e) OF THIS AMENDMENT NO. 2
FOR INF0RMATION CONCERNING THE RIGHTS OF HOLDERS or VARIOUS COUNTERPARTS HEREOF.

THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

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

                                 AMENDMENT NO.2
                          Dated as of December 11, 1986
                                       to

                                 FACILITY LEASE
                           Dated as of July 31, 1986,
                             as heretofore amended,
                                     between

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

                                     Lessor

                                       and

                      PUBLIC SERVICE COMPANY OF NEW MEXICO,

                                     Lessee

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

Original  Facility Lease Recorded on August 1, 1986, as Instrument No. 86-404570
and  Amendment  No.1 to the Facility  Lease  Recorded on November  25, 1986,  as
Instrument No. 86-650771, all in Maricopa County Recorder's Office.

================================================================================
<PAGE>

         AMENDMENT  N0. 2, dated as of December 11, 1986  (Amendment  No. 2), to
the Facility Lease dated as of July 31, 1986, as heretofore amended, between THE
FIRST  NATIONAL  BANK OF BOSTON,  a  national  banking  association,  not in its
individual capacity, but solely as Owner Trustee under a Trust Agreement,  dated
as of July 31, 1986, with Chase Manhattan Realty Leasing Corporation, a New York
corporation (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico
corporation (the Lessee).


                                   WITNESSETH:

         WHEREAS,  the Lessee  and the Lessor  have  heretofore  entered  into a
Facility  Lease dated as of July 31, 1986, as  heretofore  amended (the Facility
Lease),  providing  for the lease by the Lessor to the  Lessee of the  Undivided
Interest and the Real Property Interest;

         WHEREAS, the Lessee and the Lessor desire to execute this Amendment No.
2, to eliminate an overpayment of rent by the Lessee;

         WHEREAS,  the Indenture  Trustee has consented to this  Amendment No. 2
pursuant to the Request, Instruction and Consent effective on December 15, 1986;

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

         SECTION 1. Definitions.

         For purposes  hereof,  capitalized  terms used herein and not otherwise
defined herein or in the recitals shall have the meanings assigned to such tents
in Appendix A to the Facility Lease.



<PAGE>


         SECTION 2. Amendments.

         (a) Section 3(a) of the Facility  Lease is hereby  amended by inserting
the phrase  "and the Real  Property  Interest"  immediately  following  the term
"Undivided Interest".

         (b) Section 21 of the Facility  Lease is hereby  amended to read in its
entirety as follow:

                "Pursuant to the Deed and the Assignment of Beneficial Interest,
        the Lessee has sold to the Lessor the Real Property Interest. The Lessor
        hereby  grants to the Lessee a leasehold  interest in the Real  Property
        Interest,  such  leasehold  to be  coterminous  with  the  lease  of the
        Undivided  Interest hereunder and to be at a rent per annum equal to the
        respective  percentages of the Real Estate Investment for the applicable
        period set forth or derived from the respective  percentages of Facility
        Cost in  clauses  (i),  (ii) and (iii)  respectively,  of  Section 3 (a)
        hereof (which rent is included as part of Basic Rent payable pursuant to
        Section 3(a) hereof)."

        SECTION 3. Miscellaneous.

         (a) Effective Date of  Amendments.  The amendments set forth in section
 .2 hereof shall be and become effective upon the execution hereof by the parties
hereto.

         (b) Counterpart Execution.  This Amendment No. 2 may be executed in any
number  of  counterparts   and  by  each  of  the  parties  hereto  on  separate
counterparts;  all such counterparts  shall together  constitute but one and the
same instrument.

         (c)  Governing  Law.  This  Amendment  No.  2 has been  negotiated  and
delivered in the State of New York and shall be governed by, and be construed in
accordance  with,  the laws of the State of New York,  except to the extent that
pursuant to the law of the State of Arizona such law is  mandatorily  applicable
hereto.

         (d) Disclosure.  Pursuant to Arizona Revised  Statutes  Section 33-401,
the  beneficiary  of the  Trust  Agreement  is Chase  Manhattan  Realty  Leasing
Corporation, a New York corporation. The address of the beneficiary is One chase
Manhattan  Plaza,  New York,  New York 10005.  A copy of the Trust  Agreement is
available  for  inspection  at the  offices of the Owner  Trustee at 100 Federal
Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.


                                       -2-




<PAGE>

         (e) Amendment No.2. The single executed  original of this Amendment No.
2 marked "THIS  COUNTERPART  IS THE ORIGINAL  COUNTERPART"  and  containing  the
receipt  of the  Indenture  Trustee  thereon  shall  be the  "Original"  of this
Amendment No. 2. To the extent that this  Amendment  No. 2  constitutes  chattel
paper,  as such term is defined in the Uniform  Commercial  Code as in effect in
any applicable jurisdiction, no security interest in this Amendment No. 2 may be
created or continued through the transfer or possession of any counterpart other
than the "Original".

                                       -3-


<PAGE>


         IN  WITNESS  WHEREOF,  each  of the  parties  hereto  has  caused  this
Amendment No. 2 to Facility  Lease to be duly executed in New York,  New York by
an officer thereunto duly authorized.

                                     THE FIRST  NATIONAL  BANK OF BOSTON,
                                         not in its individual  capacity,
                                         but  solely  as  owner   Trustee
                                         under a Trust  Agreement,  dated
                                         as of July 31, 1966,  with Chase
                                         Manhattan     Realty     Leasing
                                         Corporation

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


                                     PUBLIC SERVICE COMPANY OF NEW MEXICO,


                                     By  /s/ A. J. Robison 
                                         --------------------------------
                                         Senior Vice President and 
                                         Chief Financial Officer




<PAGE>


State of New York     )
                      ) ss: 
County of New York    )



         The  foregoing  instrument  was  acknowledged  before  me  15th  day of
December,  1986, by A.J.  ROBINSON,  Senior vice  president and Chief  Financial
Officer of PUBLIC  SERVICE  COMPANY OF NEW  MEXICO, a New Mexico corporation  on
behalf of the corporation.


                                            /s/ Delia T. Santiago
                                           -----------------------
                                               Notary Public
                                               Delia T. Santago
                                       Notary Public State of New York
                                               No 41-3451160
                                         Qualified In Queens County
                                      Commission Expires March 30, 1987


State of New York     )
                      ) ss:
County of New York    )


         The foregoing  instrument was  acknowledged  before me this 15th day of
December,  1986, by Martin P. Henry,  Assistant  Vice  President of the NATIONAL
BANK OF  BOSTON,  a  national  banking  association,  on behalf  of the  banking
association as Owner Trustee under the Trust Agreement dated as of July 31, 1986
with Chase Manhattan Realty Leasing Corporation.



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

                                                David A. Spivak
                                         Notary Public, State of New York
                                                 No. 31-4693488
                                          Qualified in New York County
                                        Commission Expires March 10, 1987

<PAGE>

When Recorded, Return to: Greg R. Nielsen, Esq.
                          Snell & Wilmer
                          3100 Valley Bank Center
                          Phoenix, Arizona 85073

        CERTAIN  RIGHTS OF THE LESSOR  UNDER TIE  FACILITY  LEASE AS  HERETOFORE
AMENDED  AND AS  FURTHER  AMENDED  BY THIS  AMENDMENT  NO. E  THERETO  HAVE BEEN
ASSIGNED TO, AND ARE SUBJECCT TO A SECURITY INTEREST IN FAVOR OF, CHEMICAL BANK,
AS INDENTURE TRUSTEE UNDER A TRUST INDENTRURE, MORTAGAGE, SECURITY AGREEMENT AND
ASSIGNEMNT  OF RENTS DATED AS OF JULYY 31, 1986,  AS  HERETOFORE  AMENDED.  THIS
AMENDMENT NO. 3 HAS BEEN EXECUTED IN SERVERAL COUNTERPARTS.  SEE SECTION 3(e) OF
THIS AMENDMENT NO. 3 FOR  INFORMATION  CONCERNING THE RIGHTS OF HOLDRS OF VAROUS
COUNTERPARTS HEREOF.

THIS COUNTERPART IS NOT THE ORIGINIAL COUNTERPART.

================================================================================
                                 AMENDMENT NO. 3
                            Dated as of April 8, 1987
                                       to
                                 FACILITY LEASE
                           Dated as of July 31, 1986,
                             as heretofore amended,

                                     between

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

                                     Lessor
                                       and

                      PUBLIC SERVICE COMPANY OF NEW MEXICO,
                                     Lessee

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

Original  Facility  Lease  Recorded  on,  August  1,  1986,  as  Instrument  No.
86-404570,  Amendment  No. 1 Recorded on November 25, 1986,  as  instrument  No.
86-650771,  and Amendment No. 2 Recorded on December 17, 1986, as Instrument No.
86-695945, all in Maricopa County Recorder's Office.

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

6091CHASE.DEBT.160:1


                  AMENDMENT NO. 3, dated as of April 8, 1987  (Amendment No. 3),
to the Facility Lease dated as of July 31, 1986, as heretofore amended,  between
THE FIRST NATIONAL BANK OF BOSTON,  a national banking  association,  not in its
individual capacity, but solely as Owner Trustee under a Trust Agreement,  dated
as of July 31, 1986, with Chase Manhattan Realty Leasing Corporation, a New York
corporation (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico
corporation (the Lessee).


                                   WITNESSETH


                WHEREAS, the Lessee and Lease the Lessor have heretofore entered
into a Facility  dated as of July 31, 1986, as heretofore  amended (the Facility
Lease),  providing  for the lease by the Lessor to the  Lessee of the  Undivided
Interest and the Real Property Interest;

                  WHEREAS,  the  Lessee  and the  Lessor  desire  to  amend  the
Facility Lease as set forth in Section 2 hereof; and

                  WHEREAS, the Indenture Trustee has consented to this Amendment
No. 3 pursuant to the  Request,  Instruction  and Consent  effective on April 8,
1987;

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

                  SECTION 1. Definitions.

                  For  purposes  hereof,  capitalized  terms used herein and not
otherwise  defined herein or in the recitals shall have the meanings assigned to
such terms in Appendix A to the Facility Lease.






6091.CHASE.DEBT.160:l


<PAGE>


                Section 2. Amendments.

                  (a) Section  5(a) of the Facility  Lease is hereby  amended to
read in its entirety as follows:

                "(a) Return of the undivided Interest. On the Lease Termination 
        Date, the Lessee will (1) surrender possession of the Undivided Interest
        and the Real Property  Interest to the Lessor (or to a Person  specified
        by the Lessor to the Lessee in writing  not less than 6 months  prior to
        the Lease  Termination  Date) (i) with full rights as a "Transferee" and
        the sole  "Participant"  with respect to the Undivided  Interest and the
        Real Property  Interest  within the meaning of Section 15.10 of the ANPP
        Participation  Agreement  and (ii)  without a  Price-Anderson  Event (as
        hereinafter  defined)  having  arisen  prior to,  or  arising  upon,  or
        immediately following, such surrender and (2) furnish to the Lessor: (i)
        copies  certified by a senior officer of the Lessee of all  Governmental
        Action  necessary  to effect  such  surrender  (including,  but  without
        limitation,  appropriate amendments to the License permitting the Lessor
        (without  the Lessor  being  required  to change its  business)  or such
        Person to possess the Undivided  Interest and the Real Property Interest
        with or without the continued involvement of the Lessee as Agent), which
        Governmental  Action  shall be in full  force  and  effect;  and (ii) an
        opinion of counsel (which may be nudge Rose Guthrie  Alexander & Ferdon,
        Snell & Wilmer or another counsel experienced with NRC and other nuclear
        matters reasonably  satisfactory to the Owner Participant) to the effect
        that (A) the  Lessee has  obtained  all  Governmental  Action and action
        under  the  ANPP  Participation   Agreement  necessary  to  effect  such
        surrender by the Lessee and receipt of  possession  by the Lessor (or by
        the Person so specified by the Lessor) and (3) such Governmental  Action
        is in full force and effect. At the time of such return the Lessee shall
        pay or have paid all  amounts  due and  payable,  or to  become  due and
        payable,  by it as an ANPP Participant under each and every ANPP Project
        



                                       -2-

609l.CHASE.DEBT.160:l


<PAGE>

        Agreement  allocable  or  chargeable  (whether or not payable  during or
        after the Lease Term) to the  Undivided  Interest  or the Real  Property
        Interest  in respect of any period or periods  ending on or prior to the
        Lease Termination Date (including,  but without limitation,  all amounts
        payable with respect to any and all discretionary  Capital  Improvements
        to  Unit 1 or  the  PVNGS  Site  approved  or  authorized  (without  the
        concurrence of the Owner Participant) within the 3-year period preceding
        the end of the Lease  Term,  whether or not  implementation  thereof has
        been  completed  on or prior to the  Lease  Termination  Date),  and the
        Undivided  Interest  and the Real  Property  Interest  shall be free and
        clear of all Liens (other than Permitted Liens described in clauses (i),
        (V) (other than those  arising by,  through or under the Lessee  alone),
        (vi), (vii) (other than as aforesaid), (viii) (other than as aforesaid)1
        (ix) and (x) of the  definition  of such term) and in the  condition and
        state of repair  required by Section 8. In the event that on or prior to
        the Lease  Termination  Date there shall have  occurred a default by any
        ANPP  Participant  (other than the Lessee) under the ANPP  Participation
        Agreement and such default  shall not have been cured by the  defaulting
        ANPP  Participant,  then (i) the Lessee agrees to indemnify and hold the
        Lessor (and each  successor,  assign and  transferee  thereof)  harmless
        against any and all obligations under the ANPP  Participation  Agreement
        with respect to contributions or payments required to be made thereby as
        a result of such default and (ii) the Lessor (and each successor, assign
        and transferee  thereof)  agrees to reimburse the Lessee for all amounts
        paid by the Lessee  pursuant to the foregoing  clause (i) to the extent,
        but only to the extent,  that the Lessor (or such  successor,  assign or
        transferee)  shall have actually  received proceeds from the sale of the
        Generation  Entitlement  share of the defaulting  ANPP  Participant as a
        result of the  payment  made by the  Lessee  pursuant  to the  foregoing
        clause (i), and, to the extent the Lessor (or such successor,  assign or
        transferee)  shall  have  received  such  proceeds,  the  amount  to  be


                                       -3-

6091.CHASE.DEBT.160:l


<PAGE>


        reimbursed  to the Lessee  pursuant to this  clause  (ii) shall  include
        interest  at the Prime  Rate from the date of any  payment by the Lessee
        pursuant to the foregoing  clause (i) through the date of  reimbursement
        of such  amount  pursuant  to this  clause  (ii).  For  purposes of this
        Section 5(a) a  "Price-Anderson  Event" shall mean any Change in, or new
        interpretation  by  Governmental   Authority  having   jurisdiction  of,
        Applicable Law, including without limitation the Price-Anderson Act, the
        Atomic  Energy Act and the  regulations  of the NRC,  in each case as in
        effect on the  Closing  Date,  but only if such change is  specified  in
        clauses (2) (i) through  (iv) of the  definition  of "Deemed Loss Event"
        (other than a change which is specified in clause (A) of the  definition
        of "Acceptable Change")."

                (b)  A new  section  8(g) of the  Facility  Lease is  inserted  
therein,  to read in its  entirety as follows:

                "(g)  Useful  Life.  If the Lessee  shall not  theretofore  have
        exercised its option under section 13 to purchase the Undivided Interest
        and the  Real  Property  Interest,  then  (i) if the  Lessee  shall  not
        theretofore  have  exercised  its option to renew the Lease  pursuant to
        Section 12, on January 15, 2014, the Lessee shall initiate the Appraisal
        Procedure to determine the remaining  Economic  Useful Life of Unit 1 as
        of July 15, 2014 and (ii) on the Rent  Payment Date  occurring  one year
        prior to the end of the Renewal Term, if any, the Lessee shall  initiate
        the Appraisal  Procedure to determine the remaining Economic Useful Life
        of Unit 1 as of the date  six  months  prior  to the end of the  Renewal
        Term.  The  Lessee and the  Lessor  agree to use their  best  efforts to
        ensure that such determination of remaining economic useful life is made
        no  later   than  July  15,   2014  (in  the  case  of  the  first  such
        determination)  and six months  prior to the end of the Renewal Term (in
        the case of the second such determination) "




                                       -4-

6091.CHASE.DEBT. 160:1


<PAGE>


                  (c) Section  15(iv) of the Facility Lease is hereby amended to
read in its entirety as follows:

                "(iv) (1) the Lessee  shall fail to perform its  agreements  set
        forth in Section 5(a) hereof or (2) the remaining  Economic  Useful Life
        of Unit 1, as determined under Section 8(g) if required thereby to be so
        determined,  shall be (x) as of the data six months  prior to the end of
        the Basic Lease Term, less than five and one-half years or (y) as of the
        date six months prior to the end of the Renewal Term, three and one-half
        years; or"

                  (d)  Section  16(a)  (vii) of the  Facility  Lease  is  hereby
amended to read in its entirety as follows:

                  "(vii) in the case of an Event of Default  specified in clause
        (iv) of Section  15, the Lessor  may  demand,  by written  notice to the
        Lessee  specifying  a payment  date which shall be (A) in the case of an
        Event of Default  specified  in subclause  (1) of said clause (iv),  not
        earlier  than the data 30 days after the last Basic Rent Payment Date of
        the Lease Term, and (B), in the case of an Event of Default specified in
        subclause  (2) of said clause (iv),  the last Basic Rent Payment Date of
        the Lease Term, that the Lessee pay to the Lessor,  and the Lessee shall
        pay to the Lessor, on such payment date, as liquidated  damages for loss
        of a bargain and not as a penalty, any unpaid Rent due through such last
        Basic Rent Payment Date plus an amount (not less than zero) equal to the
        Fair Market Sales Value (determined  without regard to the obligation of
        the Lessee under Section l0(b)(3)(xi) of the Participation Agreement) of
        the Undivided Interest and the Real Property Interest (determined on the
        basis of the  actual  condition  of Unit 1)  determined  as of such last
        Basic Rent Payment Date  (together  with  interest on such amount at the
        interest rate  specified in Section 3(b) (iii) from such last Basic Rent
        Payment  Date to the date of actual  payment)  and upon  receipt of such
        payment the Lessor  shall (or may prior to the receipt of such  payment)
        


                                       -5-

609l.CHASE.DEBT. 160:1


<PAGE>

        Transfer  to the Lessee the  Undivided  Interest  and the Real  Property
        Interest);  provided,  however,  that the  Lessor may not  exercise  the
        foregoing  remedy  if the  Lessor  shall  have  failed to  Transfer  the
        Undivided  Interest and the Real Property  Interest to the bidder (which
        shall not be the Lessee or an  Affiliate  of the Lessee) that shall have
        submitted the highest cash bid on or before the date on which such Event
        of Default arose excluding,  however, any such cash bid which the Lessor
        or the Owner Participant  determines was not submitted in good faith, or
        as to which the bidder  fails to certify to the Lessor such  information
        as the Lessor or Owner  Participant  may reasonably  request in order to
        determine  whether or not such bid was  submitted in good faith (and the
        Lessor  agrees that it will,  if and to the extent so  requested  by the
        Lessee  on or after the date 90 days  preceding  such  last  Basic  Rent
        Payment Date, use reasonable  efforts (at the expense of the Lessee) for
        a period  ending on the day 90 days after  such last Basic Rent  Payment
        Date,  to find a Person  willing  to submit  such  cash  bid;  provided,
        however,  that the  failure of the Lessor to do so shall not relieve the
        Lessee of its obligations under this clause (vii))."

                  (e)  The  definition  of  "Acceptable  Change"  set  forth  in
Appendix A to the  Facility  Lease is hereby  amended to read in its entirety as
follows:

                "Acceptable   Change   shall   mean   any   change   in  or  new
interpretation   by   Governmental   Authority   having   jurisdiction   of  the
Price-Anderson  Act or the  Atomic  Energy  Act (or the  regulations  of the NRC
relating thereto) if, after giving effect to such change or new interpretation:

        (A) (a) the  "aggregate  liability" for a single  "nuclear  incident" of
        "persons  indemnified"  shall not exceed  $6.563  billion  (assuming 101
        operating  nuclear  facilities  participating in the deferred premium or
        similar plan  referred to in clause (c) below and subject to  adjustment
        in an amount not exceeding (X) $63 million for each increase or decrease
        in said number of operating nuclear facilities and (V)


                                       -6-

6091.CHASE.DEBT.l60:l


<PAGE>


        the  aggregate of all changes in such  "aggregate  liability" to reflect
        the effects of inflation contemplated pursuant to clause (c) below);

        (b)  the  "aggregate  liability"  for a  single  "nuclear  incident"  of
        "persons  indemnified" shall not exceed the sum of, without duplication,
        (X) the amount of 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 Applicable Law and required to be maintained by each licensee
        with  respect  to any  single  nuclear  facility,  and (IC) the  maximum
        aggregate amount payable with respect to a single. "nuclear incident" by
        all  licensees  of  nuclear  facilities  participating  in any  deferred
        premium or similar plan required under  Applicable Law, by more than $40
        million.

        (c) the amount  payable by all  licensees of a single  nuclear  facility
        with respect to such facility under any deferred premium or similar plan
        required under  Applicable Law shall not exceed $63 million per "nuclear
        incident" (subject to an annual adjustment upward for each calendar year
        after  the  enactment  of a change  in the  Price-Anderson  Act (if such
        change increases the standard  deferred  premium) by an amount equal to,
        if  specified by such change or  otherwise  by  Applicable  law, (X) the
        annual  percentage  change during the immediately prior calendar year in
        the implicit price deflator for the Gross National Product  published by
        the United States  Department  of Commerce or (Y) the annual  percentage
        change in the consumer price index since the immediately  prior calendar
        year; provided, however, that (i) in the event that Applicable Law shall
        not  specify an  inflation  adjustment,  then the  inflation  adjustment
        permitted by this parenthetical shall be that specified in the preceding
        subclause (X) and (ii) in the event that  Applicable Law shall specify a
        standard  deferred premium below $63 million,  the inflation  adjustment
        factor shall not be available to increase the standard  deferred premium
        permissible  under this clause (c) beyond $63  million  until such lower
        deferred premium (as so inflated) equals or exceeds $63 million);

                                       -7-

6091.CHASE.DEBT.160:l


<PAGE>


        (d) the amount  payable by all  licensees of a single  nuclear  facility
        with  respect to such  facility 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;

        (e)  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;

        (f) a provision shall be included (X) which  authorizes  (whether or not
        subject to appropriation  acts) the NRC or other Governmental  Authority
        to barrow from the United States Treasury (1) to make payments on behalf
        of any licensees  under any deferred  premium or similar plan and (2) to
        make  payments to  claimants  in the event that funds  available  to pay
        valid claims in any year are  insufficient as a result of any limitation
        on the amount of  deferred  premiums  that may be required of a licensee
        under Applicable Law (in both cases the reimbursement obligation of such
        licensees  in any  calendar  year  shall not exceed  $12  million,  plus
        interest),  or CY) which  makes the  exclusive  source of  payments  for
        public  liability  claims the funds  provided  by  financial  protection
        required by Applicable Law and, where  appropriate,  funds provided as a
        result of NRC or other  Governmental  Authority  borrowings or (Z) which
        establishes   another   mechanism  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;

                                       -8-

609l.CHASE.DEBT.160:l


<PAGE>

        (g) there shall be no claim,  liability or expense excluded (1) from the
        limitation of liability  established  by the  Price-Anderson  Act (as in
        effect on the closing Date) (through  modification of the definitions of
        "aggregate  liability",  "persons  indemnified",  "nuclear  incident" or
        otherwise)  or (2)  under  commercially  available  insurance  or  other
        financial  protection required under Applicable Law (as in effect on the
        closing Date) (other than an exclusion of the coats of investigating and
        settling claims and defending suits for damages),  except,  for purposes
        of  subclauses  (1) and (2) of this clause  (g), to the extent  excluded
        pursuant to Applicable Law as in effect on the closing Date;

        (h) subject only to clause (b) above,  policies of insurance,  including
        policies  in respect of any  deferred  premium  or similar  plan,  shall
        provide,  or shall have been  amended or modified  to  provide,  in both
        timing and  amount,  and make  available,  or shall have been  mended or
        modified  to  make  available,   financial   protection  required  under
        Applicable Law; and

        (i) 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; or

                  (B) at all  times  from the date of such  Change  to,  but not
including, the Lease Termination Date,

        (a)  a  provision   shall  be  included,.   with   language   reasonably
        satisfactory to the Owner  Participant,  which exempts the Owner Trustee
        and the  Owner  Participant  from all  real or  potential  liability  in
        respect of a "nuclear incident" so long as neither the owner Trustee nor
        


                                       -9-

6091.CHASE.DEBT.l6O:l


<PAGE>

        the Owner  Participant is in actual  possession and control of Unit 1 or
        the Undivided Interest, unless (in the opinion of independent counsel to
        the  Owner  Participant)  (x) a court  could  reasonably  hold  that the
        statute  incorporating such provision is  unconstitutional  or (y) there
        shall have  occurred a subsequent  change in, or new  interpretation  by
        Governmental  Authority  having  jurisdiction  of,  the  exemption  from
        liability  provided  by such  provision  as to  interests  of the  Owner
        Trustee  and  the  Owner  Participant  in  Unit 1  which  change  or new
        interpretation renders ineffective such exemption;

        (b)  the  "aggregate  liability"  for a  single  "nuclear  incident"  of
        "persons  indemnified"  shall  not  exceed  $13  billion  (assuming  101
        operating  nuclear  facilities  participating in the deferred premium or
        similar  plan  referred  to in  clause  (c) of  paragraph  (A) above and
        subject to  adjustment  in an amount not  exceeding (X) $126 million for
        each increase or decrease in said number of operating nuclear facilities
        and (Y) the  aggregate of all changes in such  "aggregate  liability" to
        reflect the effects of inflation  contemplated pursuant to clause (C) of
        paragraph  (A) above (but  without  giving  effect to clause (ii) of the
        proviso set forth in such clause)); and

        (c) the amount payable by all licensees of a single nuclear  facility in
        respect  of such  facility  in any one year and with  respect to any one
        "nuclear  incident" under any deferred  premium or similar plan required
        by Applicable Law shall not exceed $36 million (subject to adjustment as
        provided in subclause CY) of the preceding clause (b)).

        For purposes at this definition, "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."







                                      -10-

6091.CHASE.DEBT.l6O:1


<PAGE>


                  (f) A new  definition  is hereby  added to  Appendix  A to the
Facility Lease, to read in its entirety as follows:

                "Decommissioning  shall mean the  ecommissioning  and retirement
        from  service of Unit 1, and the  related  possession,  maintenance  and
        disposal of  radioactive  material  used in or produced  incident to the
        possession and operation of Unit 1, including,  without limitation,  (i)
        placement and  maintenance  of Unit 1 in a state of protective  storage,
        (ii) in-place  entombment and maintenance of Unit 1, (iii) dismantlement
        of Unit 1, (iv) any other form of  decommissioning  and retirement  from
        service  required  by or  acceptable  to the NRC and (v) all  activities
        undertaken  incident to the implementation  thereof and to the obtaining
        of NRC authority therefor,  including, without limitation,  maintenance,
        storage,   custody,   removal,   decontamination,   and  disposition  of
        materials,  equipment  and  fixtures,  razing  of  Unit 1,  removal  and
        disposition of debris from the PYNGS site, and  restoration of the PVNCS
        Site related to Unit 1 for unrestricted use."

                  (g) A new  definition  is hereby  added to  Appendix  A to the
Facility Lease, to read in its entirety as follows:

                  "Decommissioning  Costs shall mean all costs,  liabilities and
        expenses  relating or allocable to, or incurred in connection  with, the
        Decommissioning of Unit 1, including,  without  limitation,  (i) any and
        all costs of activities  undertaken to terminate NRC licensing authority
        and  requirements  to own,  operate  and  possess  Unit 1 and to possess
        radioactive  material used in or produced incident to the possession and
        operation  of  Unit  1;  and  (ii)  any  and  all  costs  of  activities
        undertaken,  prior to  termination  of all NRC  licensing  authority and
        requirements with respect to Unit 1 and the radioactive material used in
        or  produced  incident to the  possession  and  operation  of Unit 1, to
        possess, maintain, and dispose of radioactive material used in or
        produced incident to the possession and operation of Unit 1."


                                      -11-

6091.CHASE.DEBT.l60:l


<PAGE>

                  (h) A new  definition  is hereby  added to  Appendix  A to the
Facility Lease, to read in its entirety as follows:

                  "Economic  Useful Life shall mean that period  (commencing  on
        the date as of which the  determination of Economic Useful Life is to be
        made as provided in Section 8(g) of the Facility Lease and ending on the
        date upon which either of the states of affairs described in clauses (i)
        and (ii) below ceases to apply,  or can  reasonably be expected to cease
        to apply,  to Unit 1) during  which  (i) Unit 1 will be useful  to,  and
        usable by, any owner or lessee  thereof as a facility for the generation
        of  electric  power  and (ii)  Unit 1 is an  economic  and  commercially
        practical  facility  for the  generation  of electric  power  capable of
        producing  (after  taking into  account  costs of capital) a  reasonable
        economic return to the owner thereof. For the purposes of determinations
        under clauses (i) and (ii) above, the following  factors,  among others,
        shall be taken  into  account  (as such  factors  obtain  on the date of
        determination  and as such factors are reasonably  expected to obtain in
        the future):  (a) provisions of the ANPP Project Agreements  (including,
        without  limitation,  the ANPP Participation  Agreement and the Material
        Project  Agreements (or substitutes for such Material Project Agreements
        in effect on the date of  determination));  (b) the actual condition and
        performance of Unit it (c) the actual  condition and performance of such
        other facilities constituting PVNGS (including,  without limitation, the
        Common  Facilities)  as are integral to the operation of Unit 1; (d) the
        actual  condition of, and access of the ANPP  Participants  to, the ANPP
        Switchyard and such other  transmission  facilities as are available and
        necessary  to permit the  transmission  of the  maximum  amount of power
        generated by PVNGS;  (e) the cost of  obtaining,  handling,  storing and
        disposing of nuclear fuel for Unit it (f) the projected cost (including,
       


                                      -12-

6091.CHASE.DEBT.l60:l


<PAGE>

        without  limitation,  costs  attributable  to  obligations  to fund  any
        reserve fund maintained (or funded) by licensed owners and/or lessees of
        Unit  1 to  the  extent  dedicated  to (or  attributable  to and  freely
        available   with   respect  to)  Unit  1  (the  Unit  1  Fund))  or  the
        Decommissioning or retirement from service of Unit 1 including,  without
        limitation, Decommissioning Costs (taking into account the balance (plus
        projected investment earnings thereon) of the Unit 1 Fund): (g) the cost
        of Capital improvements to Unit 1 then planned to be made, or reasonably
        expected  to be made;  (h) the cost of  acquiring  or leasing the Unit 1
        Retained Assets; (i) the current status of all Governmental  Action with
        respect to Unit 1 (including,  without limitation, the License) required
        to permit  licensed owners and/or lessees to possess and (in the case of
        the  operating  Agent)  to  operate  Unit 1 and  such  other  facilities
        constituting   PVNGS   (including,   without   limitation,   the  Common
        Facilities)  as are  integral  to the  operation  of Unit 1; and (j) the
        relative  cost of  producing  an amount  of  electric  power and  energy
        equivalent to the  generating  capacity of Unit 1 from other  facilities
        then  available in the region  serviced,  or  reasonably  expected to be
        serviced, by PVNGS."

                  SECTION 3. Miscellaneous.

                  (a) Effective Date of Amendments.  The amendments set forth in
section 2 hereof shall be and became  effective upon the execution hereof by the
parties hereto.

                  (b)  Counterpart  Execution.  This  Amendment  No.  3  may  be
executed  in any number of  counterparts  and by each of the  parties  hereto on
separate  counterparts:  all such counterparts shall together constitute but one
and the same instrument.

                  (c) Governing  Law. This  Amendment No. 3 has been  negotiated
and  delivered  in the  State of New  York and  shall  be  governed  by,  and be
construed in accordance  with, the laws of the state of New York,  except to the
extent that pursuant to the law of the State of Arizona such law is  mandatorily
applicable hereto.


                                      -13-

6091.CHASE.DEBT.16O:l


<PAGE>


                  (d) Disclosure.  Pursuant to Arizona Revised Statutes Section
33-401, the beneficiary of the Trust Agreement is Chase Manhattan Realty Leasing
Corporation, a New York corporation. The address of the beneficiary is One Chase
Manhattan  Plaza,  New York,  New York 10081.  A copy of the Trust  Agreement is
available  for  inspection  at the  offices of the Owner  Trustee at 100 Federal
Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

                  (e)  Amendment  No. 3. The single  executed  original  of this
Amendment  No. 3 marked  "THIS  COUNTERPART  IS THE  ORIGINAL  COUNTERPART"  and
containing the receipt of the Indenture  Trustee thereon shall be the "Original"
of this  Amendment  No. 3. To the extent that this  Amendment  No. 3 constitutes
chattel  paper,  as such term is defined in the  Uniform  Commercial  Code as in
effect in any applicable  jurisdiction,  no security  interest in this Amendment
No. 3 may be created or  continued  through the  transfer or  possession  of any
counterpart other than the "Original".




























                                      -14-

609l.CHASE.DEBT.l60:l


<PAGE>


                IN WITNESS  WHUBOF,  each of the parties  hereto has caused this
Amendment No. 3 to Facility  Lease to be duly  executed by an officer  thereunto
duly authorized.

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





                                       PUBLIC SERVICE COMPANY OF NEW MEXICO


                                       By
                                          ---------------------------------
                                             Vice President and 
                                            Corporate Controller

























                                      -15-

6091.CHASE.DEBT.l60:l


<PAGE>


                  IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 3 to Facility  Lease to be duly  executed by an officer  thereunto
duly authorized.


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


                                       By
                                           -------------------------------- 
                                                Assistant Cashier

                                       PUBLIC SERVICE COMPANY OF NEW MEXICO


                                       By
                                           --------------------------------
                                               Vice President and 
                                               Corporate Controller
























                                      -15-
6091 CHASE. DEBT. 160:1


<PAGE>


State of New Mexico   )
                      ) ss:
County of Bernalillo  )


                  The foregoing  instrument was acknowledged  before me this 8th
day of April, l987, by B. D. Lackey, the Vice President and Corporate Controller
of PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation,  on behalf of
the corporation.



                                                ---------------------
                                                    Notary Public


Commonwealth of Massachusetts  )
                               ) ss:
County of Suffolk              ) 


                The foregoing instrument was acknowledged before me this 8th day
of April,  1987, by James E. Mogavero,  Assistant  Cashier of THE FIRST NATIONAL
BANK OF  BOSTON,  a  national  banking  association,  on behalf  of the  banking
association as Owner Trustee under the Trust Agreement dated as of July 31, 1986
with Chase Manhattan Realty Leasing Corporation.


                                                  /s/ Carol Malley
                                                ---------------------
                                                    Notary Public



                                                    CAROL MALLEY
                                                    Notary Public






6091.CHASE.DEBT.160:l


<PAGE>


State of New Mexico   )
                      )ss:
County of Bernalillo  )


                  The foregoing  instrument was acknowledged  before me this 8th
day of April, 1987, by B. D. lackey, the Vice President and Corporate Controller
of PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation,  on behalf of
the corporation.


                                                 
                                                ---------------------
                                                    Notary Public








Commonwealth of Massachusetts )
                              )ss:
County of Suffolk             )



                The foregoing instrument was acknowledged before me this 8th day
of April,  1987, by James E. Mogavero,  Assistant  cashier of THE FIRST NATIONAL
BANK OF  BOSTON,  a  national  banking  association,  on behalf  of the  banking
association as Owner Trustee under the Trust Agreement dated as of July 31, 1986
with Chase Manhattan Realty Leasing corporation.


                                                  /s/ Carol Malley
                                                ---------------------
                                                    Notary Public



                                                    CAROL MALLEY
                                                    Notary Public











609l.CHASE.DEBT.160:l