BURNHAM LEASING CORPORATION
                                 60 Broad Street
                            New York, New York 10004


                                                August 18, 1986


Public Service Company of New Mexico
Alvarado Square
Albuquerque, New Mexico 87158

 Attention of J. D. Geist
   Chairman and President

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

Dear Mr. Geist:

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



6091.BURNHAM.1106.99B:l



<PAGE>

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



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<PAGE>

change  increases  the  standard  deferred  premium)  by an amount  equal to, if
specified by such change or otherwise by Applicable law, a percentage of (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 (V) 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  sub-clause (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 (d) beyond $63
million until such lower deferred premium (as so inflated) equals or exceeds $63
million); (e) the aggregate amount payable by all licensees in any one year with
respect to any one Nuclear  Incident under any deferred  premium or similar plan
required  under  Applicable  Law shall not exceed $12 million;  (f) 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;  (g) a mechanism in form and  substance
reasonably  satisfactory to the Owner Participant shall be in effect under which
the maximum  potential  liability of all Persons  during any calendar  year as a
result of a Nuclear  Incident  shall not exceed the amount of insurance or other
financial  protection  required to be available during such calendar year to pay
all amounts which may become payable by any such Person, when and as they become
payable,  in respect of such  liability;  (h) the form and  source  (other  than
commercial  insurance  under-writers  in  respect  of $160  million  of  primary
insurance  coverage and  licensees of nuclear  facilities in respect of deferred
premiums) of insurance and other financial  protection required under Applicable


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6091.BURNHAM.l106.99B:l


<PAGE>

Law to be  maintained  in respect of liability  arising from a Nuclear  incident
shall be reasonably  satisfactory to the Owner  Participant;  (i) as a result of
such change or  interpretation,  there shall be pa claim,  liability  or expense
excluded from the  limitation of liability  established by Existing Law (through
modification  of the meaning of the phrases of "aggregate  liability",  "persons
indemnified",  "nuclear  incident" or  otherwise) or excluded (or the funding or
payment  thereof  deferred)  under  commercially  available  insurance  or other
financial  protection  provisions  provided  for by  Existing  Law  except,  for
purposes of this clause (i), to the extent and in the amount  excluded  pursuant
to Existing  Law;  and (j) neither the Owner  Trustee nor the Owner  Participant
shall be (in the  opinion  of  independent  counsel  to the  Owner  Participant)
exposed to any other increase in its real or potential liability with respect to
a Nuclear  incident,  either during or  subsequent to the Lease Term;  provided,
however that this waiver shall not continue  beyond the date of enactment of the
first  change in the  Price-Anderson  Act,  the  Atomic  Energy Act or any other
Applicable  Law  relating  to any of the  issues set forth  above and  affecting
licensees  of  nuclear  facilities,  but  shall  continue  with  respect  to any
regulations of the NRC adopted thereafter implementing such change. For purposes
hereof,  "nuclear  facility"  shall  mean and refer to a facility  designed  for
producing  substantial  amounts of  electricity  and having a rated  capacity of
100,000 electrical kilowatts or more.

                Notwithstanding any other provision hereof, the waiver set forth
herein shall  automatically  terminate in the event (i) the aggregate  liability
for a single Nuclear  incident of "persons  indemnified"  (within the meaning of
Section  170(e) of the Atomic  Energy Act) shall equal or exceed,  after  giving
effect to any adjustments pursuant to clause (a) above, $10 billion, or (ii) the
aggregate  amount payable by all licensees of any single nuclear  facility under
any deferred  premium or similar plan required under  Applicable Law shall equal
or exceed,  after  giving  effect to any  adjustments  to reflect the effects of
inflation contemplated pursuant to clause (d) above, $97.03 million.



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6091. BURNHAM. 1106. 99B: 1


<PAGE>


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


                                       BURNHAM LEASING CORPORATION


                                       by
                                           -----------------------
                                            Assistant Treasurer

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

PUBUC SERVICE COMPANY OF NEW MEXICO



by
    ------------------------------
     Vice President, Revenue
     Management



















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6091.BURNHAM. 1106. 99B: 1