When Recorded, Return to: Greg R. Nielsen, Esq.
                          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
DECEMBER  15,  1986.   THIS   FACILIY LEASE  HAS  BEEN  EXECUTED  IN  SEVERAL
COUNTERPARTS. SEE SECTION 22(e) OF THIS AMENDMENT NO1 FOR INFORMATION CONCERNING
THE RIGHTS OF HOLDERS OF VARIOUS COUNTERPARTS HEREOF.

      THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

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

                                 FACILITY LEASE

                            Dated as of August 12, 1986

                                     between

                       THE FIRST NATIONAL BANK OF BOSTON,
                        not in its individual capacity ,a
                           but solely as Owner Trustee
                        under a Trust Agreement, dated as
                               of August 12, 1986,
                        with Burnham Leasing Corporation,

                                     Lessor
 
                                      and

                      PUBLIC SERVICE COMPANY OF NEW MEXICO,

                                     Lessee

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

                   Sale and Leaseback of an Undivided Interest
               in Palo Verde Nuclear Generating Station Unit 2 and
                            an Undivided Interest in
                           Certain Common Facilities
================================================================================

6091.BURNHAM.1106.47:1


<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......................................  2

           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

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


                                     --i--
6091.BURNHAM.1106.47:1
<PAGE>
                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

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

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

           b      Disposition Services................................... 12

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

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

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

           c      Enforcement of Certain
                  Warranties............................................. 14

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

SECTION 8         Operation and Maintenance;
                  Capital Improvements................................... 15

           a      Operation and
                  Maintenance............................................ 15

           b      Inspection............................................. 16

           c      Capital Improvements................................... 17

           d      Reports................................................ 18

           e      Title to Capital
                  Improvements........................................... 18

           f      Funding of the Cost of
                  Capital Improvements................................... 20


                                     --ii--

6091.BURNHAM.1106.47:1
<PAGE>
                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

SECTION 9         Event of Loss; Deemed
                  Loss Event............................................. 22

           a      Damage or Loss......................................... 22

           b      Repair................................................. 23

           c      Payment of Casualty
                  Value.................................................. 23
 
           d      Payment of Special
                  Casualty Value......................................... 24 

           e      Requisition of Use..................................... 25

           f      Termination of
                  Obligation............................................. 25

           g      Application of Payments
                  on an Event of Loss.................................... 26

           h      Application of Payments
                  Not Relating to an Event
                  of Loss................................................ 27

           i      Other Dispositions..................................... 27

           j      Assumption of Notes;
                  Creation of Lien on
                  Undivided Interest .................................... 27

SECTION 10        Insurance.............................................. 28

           a      Required Insurance..................................... 28

           b      Permitted Insurance.................................... 29

SECTION 11        Rights to Assign or
                  Sublease............................................... 30

                                    --iii--
6091.BURNHAM.1106.47:1
<PAGE>
                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

           a      Assignment or Sublease
                  by the Lessee.......................................... 30

           b      Assignment by Lessor as
                  Security for Lessor's
                  Obligations............................................ 31

SECTION 12        Lease Renewal.......................................... 31


SECTION 13        Notices for Renewal or
                  Purchase; Purchase
                  Options................................................ 31

           a      Notice, Determination of
                  Values, Appraisal
                  Procedure.............................................. 31

           b      Purchase Option at
                  Expiration of the Lease
                  Term................................................... 32

           c      Special Purchase Event................................. 32


SECTION 14        Termination for
                  Obsolescence........................................... 33

           a      Termination Notice..................................... 33

           b      Right of Lessor to
                  Retain Undivided
                  Interest upon
                  Termination............................................ 34

           c      Events on the
                  Termination Date....................................... 34

           d      Early Termination
                  Notice................................................. 35

                                     --iv--
6091.BURNHAM.1106.47:1
<PAGE>
                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----
           e      Events on the Early
                  Termination............................................ 36

SECTION 15        Events of Default...................................... 36

SECTION 16        Remedies............................................... 40

           a      Remedies............................................... 40

           b      No Release............................................. 44

           c      Remedies Cumulative.................................... 45

           d      Exercise of Other Rights
                  or Remedies............................................ 46

           e      Special Cure Right of
                  Lessee................................................. 46

SECTION 17        Notices................................................ 47

SECTION 18        Successors and Assigns................................. 47

SECTION 19        Right to Perform for
                  Lessee................................................. 47

SECTION 20        Additional Covenants................................... 48

SECTION 21        Lease of Real Property
                  Interest............................................... 49

SECTION 22        Amendments and
                  Miscellaneous.......................................... 49

           a      Amendments in Writing.................................. 49

           b      Survival............................................... 49

                                     --v--
6091.BURNHAM.1106.47:1
<PAGE>
                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

           c      Severability of
                  Provisions............................................. 50

           d      True Lease............................................. 50

           e      Original Lease......................................... 50

           f      Governing Law.......................................... 50

           g      Headings............................................... 50

           h      Concerning the Owner Trustee........................... 50

           i      Disclosure............................................. 51

           j      Counterpart Execution.................................. 51



SCHEDULE 1 Casualty Values

SCHEDULE 2 Special Casualty Values

SCHEDULE 3 Termination Values

SCHEDULE 4 Description of Undivided Interest

SCHEDULE 5 Description of Real Property Interest

APPENDIX A Definitions
                                     --vi--

6091.BURNHAM.1106.47:1
<PAGE>


                                 FACILITY LEASE



                THE FACILITY  LEASE,  dated as of August 12,  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 August 12, 1986, with Burnham
Leasing  Corporation,  as Lessor (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
consideration, the receipt and sufficiency of which are hereby acknowledged, the
par-ties 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 lessee from the Lessor, the Undivided Interest.


6091. BURNHAM. 1106.47:1


<PAGE>


                  (b) Term.  The term of this Facility  Lease shall begin on the
Closing Date 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
shall be 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.

                  (d)  Description.  The Real Property  Interest is described in
Schedule 4. The Undivided Interest is described in Schedule 5.

                  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 and the Real
Property Interest, the following amounts:

                         (i) On January 15, 1987,  an amount equal to 0.0244547%
                of  Facility  Cost  times the  actual  number  of day.  from and
                including the Closing Date 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, 2016, an amount
                equal to  4.40184%,  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 Fixed Rate Renewal  Term, on July 15,
                2016, and on each Basic Rent Payment Date thereafter  during the
                Fixed Rate  Renewal  Term,  an amount  equal to  one-half  of an
                amount  determined  by dividing the sum 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
                adjustment pursuant to Sections 3(d) and ace) and any increases
                and decreases pursuant to Section 3(h)), by 58.

                                       -2-

6091.BURNHAM. 1106.47:1


<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 in an
amount 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):

                         (1) 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;

                       (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


                                       -3-

6091.BURNHAM.1106.47:1


<PAGE>


                 (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.

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 at 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 flay,
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 for  Changes in Tax law.  Basic Rent
shall be adjusted  (upward or downward) to preserve Net Economic Return if there
is any Change in Tax Law. Any adjustments  under this Section 3(d) shall be made
not more than once a year and shall be limited in the  aggregate  to the extent,
if any,  necessary such that the Basic Rent  (excluding  any Rent  Differential)
payable on the Basic Rent Payment Date  immediately  following  such  adjustment
shall not vary from the Basic Rent (excluding any Rent Differential) which would
have been payable on such Basic Rent Payment Date had no adjustments (other than
adjustments to reflect actual  Transaction  Expenses) been made pursuant to this
Section 3(d) or pursuant to Section 3(e),  (i) prior to the  Refunding  Date, by
more  than  14% and  (ii) on at  after  the  Refunding  Date,  by more  than the
percentage that would cause the Weighted Factor to equal


                                       -4-

6091.BURNHAM.1106.47:1


<PAGE>


11.08%;  provided1  however,  that if, by reason of the  limitation set forth in
clause (i) above,  any adjustment  made prior to the Refunding Date is less than
the  adjustment  that would have been required to preserve Net Economic  Return,
then after the Refunding Date there will be a further upward adjustment to Basic
Rent in order to preserve Net Economic  Return,  subject to the  limitation  set
forth in clause (ii)  above,  and if, by reason of the  limitation  set forth in
clause (i) or (ii) above,  any upward  adjustment  contemplated  by this Section
3(d) was less than the adjustment  that would have been required to preserve Net
Economic  Return,  then  the  amount  of  any  subsequent  downward  adjustments
otherwise  required  hereunder shall be reduced to the extent necessary to cause
the aggregate  effect of such upward  adjustment  and such  subsequent  downward
adjustments to preserve Net Economic Return; and provided further, however, that
no downward adjustments shall be made pursuant to this section 3(4) in excess of
any upward  adjustments  made pursuant to this section 3(d) unless and until the
excess  of the  aggregate  amount  of all  such  downward  adjustments  aver the
aggregate of all such upward adjustments would exceed 1%.

                For purposes of  determining  whether a statutory or  regulatory
change  constitutes a Change in Tax Law, the original Owner Participant shall be
deemed to be the Owner Participant  notwithstanding any transfer of its interest
as such (whether or not permitted by Section 15 of the Participation Agreement),
provided1  however,  that a successor Owner  Participant shall be treated as the
Owner  Participant  for such  purposes if the transfer to such  successor  Owner
Participant  was permitted by Section 15 of the  Participation  Agreement and if
both the original Owner  Participant  and such successor  Owner  Participant are
members of the same affiliated  group of corporations  that files a consolidated
return for Federal income tax purposes.

                The schedules of casualty  Values,  special  Casualty Values and
Termination Values attached hereto shall be appropriately  adjusted in the event
of any adjustment to Basic Rent under this section 3(d).

                  (e)  Further  Adjustments.  Basic  Rent and the  schedules  of
Casualty Values,  Special Casualty Values and Termination Values attached hereto
shall be adjusted (upward or downward) to preserve Net Economic Return if (i) in



                                       -5-

6O9S1.BURNHAM. 1106.47:1


<PAGE>

consequence  of any  releveraqing  or  refunding of the Notes or the issuance of
Additional  Notes the  unpaid  principal  amount of Notes  Outstanding  shall be
greater  or  less  than  the  unpaid  principal  amount  of  Motes   Outstanding
immediately prior to such  transaction,  (ii) in consequence of events described
in clause  (i)  above,  the  schedule  of  amortization  of  principal  of Notes
Outstanding  after  such  transaction  shall  be  other  than  the  schedule  of
amortization of principal of Notes  immediately prior to such transaction or the
interest  rate  applicable  to such Notes shall be other than  contained  in the
Pricing  Assumptions,  (iii)  Transaction  Expenses  are paid by the  Lessor  in
amounts  greater or less than an amount equal to 0.8% of Facility  Cost, or (iv)
there is any change in the Pricing Assumptions.

                (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 made within 45 days
after the Owner  Participant  shall have  furnished  the revised  amounts to the
Lessee) by the Owner  Participant's  nationally  recognized  independent  public
accountants (to whom the Owner  Participant  shall have provided all information
necessary to perform such  verification),  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) if such
accountants shall for any reason be unable to provide such confirmation, compute
and  provide  to the  Lessee,  the  Lessor,  the  Owner  Participant,  the  Loan
Participant and the Indenture  Trustee revised amounts and percentages 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, and the



                                       -6-

6091. BURNHAM. 1106.47:1


<PAGE>

Owner  Participant.  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 amount of 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 2 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  75-2a,  but,  in the case of any upward
adjustment,  shall be no less than the adjustment otherwise required pursuant to
this Section 3.

                (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 such Basic
Rent  Payment  Date on all Notes then  Outstanding,  and (ii)  unless the Lessee
shall have  assumed the Notes or  acquired  the Owner  Participant's  beneficial
interest  in the  Trust  following  the  grant  of a  security  interest  in the
Undivided  Interest and the Real Property  Interest,  in each case in accordance
with the  terms of the  Indenture,  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 the 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.




                                       -7-

6091. BURNHAM.1106.47:1


<PAGE>


                (h)  Rent  Differential.  Prior  to  the  Refunding  Date,  each
installment (if any) 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 such Basic Rent Payment Date on
the Notes then Outstanding, and (ii) the aggregate amount of interest that would
have been due and payable on such Basic Rent  Payment Date on such Notes if such
Notes had at all times during the relevant period borne interest at a rate equal
to 10.5% per annum  (computed  on the basis of a 36O-day  year of twelve  30-day
months).  If, as of any Basic Rent Payment  Date,  (A) the amount  determined in
accordance  with  clause  (y) 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 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.

                 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  imitation,  (i)  any  set-off,  abatement,
counterclaim,  suspension,  recoupement, 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
2, 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



                                       -8-

6091.BURNHAM.1106.47:1


<PAGE>

of the Undivided Interest,  Unit 2, any Capital  Improvement,  the Real Property
Interest, the WNGS Site or PVNGS, (iii) any damage to, or removal,  abandonment,
shutdown, salvage, scrapping, requisition, taking, loss, theft or destruction of
all or any part of the Undivided Interest, Unit 2, 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 or 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 2, 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  Occurrence,  or any
doctrine of force majeure, impassability, 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




                                      -9-
6091. BURNHAM. 1106.47:1


<PAGE>

ANPP Project 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 2, 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  contained in 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 flow 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  here-under,  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 undertakings of the Lessee
herein  shall be  performed  at its  cost,  expense  and risk  unless  expressly
otherwise stated. Nothing in this Section 4 or elsewhere shall be construed as a
guaranty by the Lessee of any residual  value in the Undivided  Interest or as a


                                      -10-

6091.BURNHAM. 1106.47:1


<PAGE>

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  applicable  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.

                SECTION 5. Return and Disposition.

                  (a) Return of the  Undivided  Interest  and the Real  Property
Interest. On the Lease Termination Date, the Lessee will surrender possession of
the Undivided Interest,  at which time Unit 2 shall have a net rated power level
of at least 630 megawatts electric, 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) 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 and receipt of possession ion (including, but
without limitation,  appropriate amendments to the License),  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 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,  unless the Lessor shall have transferred the Undivided Interest and
the Real Property  Interest to another Person,  all amounts payable with respect
to any and all  Capital  Improvements  to Unit 2 or the PVNGS Site  approved  or
authorized  (without the concurrence of the Owner  Participant) prior to the end



                                      -11-

6O91.BURNHAM.l106.47:1


<PAGE>

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), (iv), (v) (other than those arising by, through
or under the Lessee alone), (vi), (vii) (other than as aforesaid), (viii) (other
than as aforesaid),  (ix),  (x), (xi) and (xiii) of the definition of such term)
and in the condition and state of repair required by Section A. The Lessor shall
not abandon the Undivided  Interest.  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).

                (b)  Disposition.  If the Lessee 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 Lessor will attempt to lease
or dispose of the Undivided Interest and the Real Property Interest.  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.


                                      -12-

6O91.BURNHAM.1106.47:1


<PAGE>


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.  The Lessor
agrees that it may not  exercise  the remedy  contained  in Section  16(a) (vii)
hereof as a result of the  failure of the Lessee to comply  with  Section  (5) a
hereof if the Lessor  shall have failed to Transfer the  Undivided  Interest and
the Real Property  Interest to a purchaser  (which shall not be the Lessee or an
Affiliate  of the Lessee)  that shall have (i)  submitted a bid on or before the
date on which such Event of Default  arose which is the  highest  bona fide cash
bid so submitted  and is in an amount not less than the fair market value of the
Undivided  Interest and the Real Property  Interest and (ii) tendered payment in
full to the Owner Participant prior to the date upon which payment by the Lessee
would otherwise be required from the Lessee under section 16(a) (vii).

                  SECTION 6. Warranty of the Lessor.

                (a) Quiet  Enjoyment.  The Lessor  warrants that until the Lease
Termination  Date,  so long as the Lessee is in  compliance  with each and every
provision  of this  Facility  Lease and each  other  Transaction  Document,  the
Lessee's use and possession of Unit 2, 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 2, 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 Lessee shall be conclusive
proof of the  compliance  of Unit 2 (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 OR
SUCH KIND AND (ii) THE LESSOR LEASES AND THE LESSEE TAKES THE UNDIVIDED INTEREST



                                      -13-

6091.BURNHAM.1106.47:1


<PAGE>

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 2, ANY  CAPITAL  IMPROVEMENT,  THE  UNDIVIDED
INTEREST,  THE REAL  PROPERTY  INTREST,  THE PVNGS  SITE OR  PYNGS,  OR ANY PART
TKEREOF,  THE  MERCKANTABIUTY  IS OF OR THE FITNESS  THEREOF  FOR ANY  PARTICULA
PURPOSE,  TITLE TO UNIT 2, 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
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 5(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 2  (including  any  Capital  Improvement),  the
Undivided Interest, PVNGS, the Real Property Interest or the PVNGS Site that may
arise pursuant 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 Lessee 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 2
(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



                                      -14-

6091.BURNHAM.1106.47:1


<PAGE>

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.

                  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 2
in such condition  that Unit 2 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 substantially at the ratings at which it
is, from time to time, rated, (B) operate,  service,  maintain and repair Unit 2
and replace all  necessary  or useful parts and  components  thereof so that the
condition and operating  efficiency of Unit 2 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 maintain  Unit 2 in  compliance  with all material  applicable  Governmental
Actions  (including  the  License)  affecting  PVNGS  or  Unit  2  or  the  use,
possession,   operation  and  maintenance  thereof  and  (D)  otherwise  act  in



                                      -15-

6091.BURNHAM. 1106.47:1


<PAGE>

accordance with the standards set forth in the ANPP Participation Agreement. The
Lessee will comply with all its obligations  under Applicable Law affecting Unit
2, 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  Fund.  to the  operation  and  maintenance  of  Unit 2 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 2, 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  2,  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 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, 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



                                      -16-

6091.BURNHAM.1106.47:1


<PAGE>

Trust Trustee shall have any duty  whatsoever to make any  inspection or inquiry
referred to in this Section a(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 2. Of the net
proceeds of (i) any sale or other  disposition  of property  removed from Unit 2
receivable  (without regard to any right of setoff or other similar right of any
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,  the Lessor's  Portion,  in the case of property not constituting
Common  Facilities,  or the Common  Facilities  Interest,  in the case of Common
Facilities,  (of  either)  such  amount  shall be applied as provided in Section
9(g),  (h) or (i)1 as the  case  may be.  The  Unit 2  Interest,  in the case of
property not constituting  Common  Facilities,  or the Unit 2 Common  Facilities
Interest, in the case of Common Facilities, in property at any time removed from
Unit 2 or the Common  Facilities  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 2 or the Common
Facilities 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 the Unit 2 Interest, in the case of
property not constituting  Common  Facilities,  or the Unit 2 Common  Facilities
Interest,  in the case of Common Facilities,  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 2 or the
Common Facilities,  without further act, (i) title to a Unit 2 Interest,  in the
case of  property  not  constituting  Common  Facilities,  or the  Unit 2 Common
Facilities  Interest,  in  the  case  of  Common  Facilities,  in  such  Capital
Improvement shall vest in the Lessor and (ii) such applicable undivided interest



                                      -17-

6091.BURNHAN.1106.47:1


<PAGE>

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 2 or the  Common  Facilities.  The  Lessee
warrants and agrees that the Lessor's interest in all Capital Improvements shall
be free and clear of all  Liens,  except  Permitted  Liens  other than the types
specified in clauses (iii), (xii) and (xiii) 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 reasonable
time  prior to the date for  filing,  any  reports  with  respect to Unit 2, 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 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, 1926 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).

                (e) Title to capital Improvements. Title to the Unit 2 Interest,
in the case of property not constituting Common Facilities, or the Unit 2 Common
Facilities  Interest,  in  the  case  of  Common  Facilities,  in  each  Capital
Improvement to Unit 2 or the Common  Facilities,  as the case may be, shall vest
as follows:



                                      -18-

6091.BURNHAM.1106.47:1


<PAGE>


                (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 2 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) a Unit 2  interest,  in the  case of
        property  not  constituting  Common  Facilities,  or  a  unit  2  Common
        Facilities  Interest,  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  either  an  Additional   Equity
        Investment or a Supplemental  Financing,  or both) a Unit 2 Interest, in
        the case of property not  constituting  Common  Facilities,  or a Unit 2
        Common Facilities  Interest,  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 a Unit 2 Interest, in the case of
property not constituting Common Facilities,  or such a Unit 2 Common Facilities
Interest,  in the case of Common Facilities,  in any Capital Improvement vesting
in the Lessor pursuant to sub-paragraph (1) or sub-paragraph (2) of this Section
S (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 and Unit 2 or the Common Facilities,  as the case may be, for
all purposes hereof.



                                      -19-

6091.BURHAM.1106.47:1


<PAGE>


                  (f)  Funding  of the  Cost  of  Capital  Improvements.  Before
placing in service any Capital  Improvement  to Unit 2 or the Common  Facilities
the cost of which exceeds  $100,000,000  in respect of the interests 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 a Unit 2 Interest,  in
the case of property  not  constituting  Common  Facilities6  or a Unit 2 Common
Facilities interest,  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  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, a Unit 2 Interest, in the case of property not constituting Common
Facilities,  or a Unit 2  Common  Facilities  Interest,  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 the Lessee or any Person  affiliated  with the Lessee within
the meaning of section 318 of the Code) Additional Notes and to use the proceeds
thereof  to  pay  the  applicable   percentage  of  the  cost  of  such  Capital
Improvement, subject, however, to satisfaction of the following conditions:

                    (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 the  Lessor's  Portion 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  Financing  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;




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6091. BURNHAM.1106.47:1


<PAGE>


                     (iv) the total amount of all Supplemental  Financing during
                the Basic  Lease Term shall not exceed the  Lessor's  Portion of
                $100, 000,0007

                         (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 sum of the  Supplemental  Financing Amount and
                any Additional  Equity  Investment 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 or 1016 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 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 Motes shall have a final maturity date
                no later than January 15, 2016;

                      (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;



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6091.BURNHAM.1106.47:1


<PAGE>


                       (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:

                    (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; and

                    (xiv) in the  reasonable  opinion of the Owner  Participant,
                such  Supplemental  Financing  shall not  result in any  adverse
                accounting or financial consequences to the Owner Participant.

                  (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,
2015,  the Lessee shall  initiate  the  Appraisal  Procedure  to  determine  the
remaining  Economic  Useful  Life of Unit 2 as of July 15,  2015 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 2 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,  2015 (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)

                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)  or any  similar
provision of the ANPP Participation  Agreement (as in effect on such date) shall



                                      -22-

6091.BURNHAM.1106.47:l


<PAGE>

become applicable, or an Event of Loss, a Requisition of Use or a Requisition of
Title shall occur, or Unit 2 or the Common  Facilities or any  substantial  part
thereof shall suffer  destruction,  damage,  loss,  condemnation,  confiscation,
theft or seizure for any reason whatsoever, such fact shall promptly, and in any
case within five  Business  Days  following  any 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 2 or the Common Facilities
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 repairs to
or reconstruction of Unit 2 or the Common Facilities.

                  (a) Payment of Casualty Value. Except as otherwise provided in
the  definition of the term "Final  Shutdown",  an Event of Loss shall not occur
unless. and until the Owner Participant  delivers to the Lessor and the Lessee a
written notice  identifying  the applicable  event and declaring that such event
constitutes  an Event of Loss  hereunder.  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.  (a)  Upon  compliance  in full by the  Lessee  with  the  foregoing
provisions  of  this  Section  9(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 (b)
at any time after the occurrence of an Event of Loss the Lessor may:



                                      -23-

6091.BURNHAM.1106.47:l


<PAGE>

                       (i) if Section 16.2 of the ANPP  Participation  Agreement
                (as in effect on the date  hereof) or any similar  provision  of
                the ANPP  Participation  Agreement  (as in effect on such  date)
                shall be applicable and the Lessee shall have declined,  but one
                or more of the other ANPP  Participants  shall have elected,  to
                reconstruct  or  restore  Unit  2,  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 "salvage value" purchase price allocable
                to the Undivided Interest and he Real Property Interest; or

                         (ii) if  clause  (i)  above  shall  not be  applicable,
                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 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.  A Deemed Loss Event
shall not occur unless and until the Owner Participant  delivers to the Lessee a
written notice  identifying  the applicable  event and declaring that such event
constitutes  a Deemed Loss Event  hereunder.  On the  fifteenth day of the month
during  which a Deemed Loss Event shall have  occurred  (or, if such Deemed Loss
Event shall occur after the  fifteenth  day of such month,  the fifteenth day of
the next  following  month),  the  Lessee  shall pay to the Lessor (x) an amount
equal to the excess of (i) special Casualty Value determined as of the date such
payment is due over


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6O91.BURNHAM.1106.47:1


<PAGE>


(ii) 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, plus (y) if such fifteenth day is a Basic Rent Payment Date, all Basic
Rent due on such Basic Rent Payment  Date.  (a) 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 (b) 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.




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<PAGE>

                  (f)  Termination or  Continuation  of  Obligations.  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.  So long  as no  Event  of  Default  shall  have  occurred  and be
continuing,  if as a  consequence  of a Deemed  Loss Event,  a Special  Purchase
Event,  an exercise of the Cure Option or  otherwise,  the Lessee is required to
purchase the Undivided  Interest and the Real Property  Interest,  this Facility
Lease shall not be  terminated  nor shall the use or possession of the Undivided
Interest  or the Real  Property  Interest  be  transferred  by the Lessee to the
Lessor or to any other  Person  prior to the actual  purchase  of the  Undivided
Interest and the Real Property Interest by the Lessee.

                (g)  Application  of Payments  on an Event of Loss.  My payments
received 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) as a result
of the occurrence of an Event of Loss shall be applied as follows:

                         (i) all such  payments  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


                                      -26-

6091. BURNHAM. 1106.47:1


<PAGE>


                 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 bet'4een the Lessor and the Lessee,
                as their interests may appear.

                (xi)  Application  of Payments Not Relating to an Event of Loss.
Payments  received 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,  Unit  2 or  the  Common
Facilities,  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 Unit 3 or the Common Facilities, 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.

                  (i)  Disposition at rise of Event of Default.  Notwithstanding
the  foregoing  provisions  of this Section 9, if an 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 the Lessee  shall have cured any such Event of Default,  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 and of the Indenture.

                  (j)  Assumption  of  Notes;  Creation  of  Lien  on  Undivided
Interest.  In connection  with a declared Event of Loss, a declared  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


                                      -27-

6091.BURNHAN.1106.47:l


<PAGE>


Owner Trustee under the Indenture and the Outstanding 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  Outstanding  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),  9(d) or
16(e),  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 nuclear liability and other liability in5urance 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 2, the
Caution Facilities 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 2, the Common Facilities,  or any part thereof, shall include all
Indemnitees as insureds,  through an omnibus definition of "insureds" 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



                                      -28-

6091.BURNHAM 1106.47:1


<PAGE>

the  broker  or  brokers  for the PVNGS  insurance  (or if  insurance  is placed
directly  by the  Operating  Agent,  by the  Operating  Agent) (i)  showing  the
insurance then maintained by the ANPP  Participants  with respect to PVNGS, (ii)
stating  that no  premiums  are then  delinquent,  and  (iii)  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  Lessees
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 (0) 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
proceeds 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) above, 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.



                                      -29-

6091.BURNHAM.1106.47:1


<PAGE>
                  (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 2, the Common  Facilities,  the  Undivided  Interest  or the Real  Property
Interest or the operation of Unit 2, 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).

                 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  encumber  (except  for
Permitted Liens), or assign,  sublease or transfer its leasehold interest in the
Undivided  Interest or the Real Property  Interest  under this  Facility  Lease,
except that the Lessee may assign its  leasehold  interest  under this  Facility
Lease in the Undivided  Interest or the Real Property Interest to a wholly owned
subsidiary  of the  Lessee  or of  the  Lessee's  parent  if  such  subsidiary's
obligations under this Facility Lease and any other Transaction  Documents which
may be assumed by such  subsidiary  shall be guaranteed  by the original  Lessee
under  this  Facility  Lease  pursuant  to a  valid  and  enforceable  guarantee
satisfactory in all respects to the Lessor and the Owner Participant. 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
(including,  without  limitation,  the first sentence of this Section 11(a)), or
any other Transaction Document.



                                      -30-

6091.BURNHAM.1106.47:1


<PAGE>
                  (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 (x) 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 (y) if and when required by Section 9(j), its right,  title
and interest in the  Undivided  Interest  and the Real  Property  Interest.  The
Lessee  hereby (a)  consents  to such  assignment  pursuant to clause (x) of the
first sentence of this paragraph (b) and the terms of the Indenture,  (b) agrees
to pay directly to the Indenture  Trustee at the Indenture  Trustee's Office (50
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, Cc) 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 (4) 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 right. 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  or Event of
Default  shall have occurred and be  continuing  hereunder,  or Event of Loss or
Deemed  Loss Event  shall have  occurred,  and all 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, 2016,  and ending on January 15, 2018 (the
Fixed Rate Renewal  Term),  during which period the Basic Rent payable  shall be
the rental provided in Section 3(a)(iii).

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

                  (a) Notice;  Determination of Values; Appraisal Procedure. Not
later than (i) three years nor earlier  than five years prior to the  expiration
date of the  Basic  Lease  Term or  (ii)  two  years,  six-months  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


                                      -31-

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<PAGE>

Interest and the Real Property  Interest to the Lessor  pursuant to Section 5 or
(B) (x) in the case of  clause  (i)  above,  (I)  exercise  the  renewal  option
permitted  by Section 12 or (II)  exercise  the  purchase  option  permitted  by
Section  13(b) or (y) in the case of clause (ii) above,  exercise  such purchase
option.  If the notice specified in clause (B) (x) of the preceding  sentence is
given 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 purchase option permitted by Section 13(b) or the renewal option
permitted  by  Section  12. 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  pursuant to clause (B) (x) (II) or (B) (y) of the first sentence of this
Section 13(a),  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 values shall be determined
by the Appraisal Procedure.

                  (b) Purchase  Option at  Expiration of the Term Subject to the
notice requirements set forth in Section 13(a), unless an Event of Default shall
have  occurred  and be  continuing,  or an Event of Loss or a Deemed  Loss Event
shall have been declared,  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, or before the Refunding Date,
the Owner Participant shall reasonably  determine (in consultation with Milbank,
Tweed, Hadley & McCloy and Rodey, Dickason, Sloan, Akin & Robb, P.A.), or if the
Lessee, in its reasonable  judgment,  shall determine,  that there is a material
risk that the  Weighted  Factor will exceed  ll.25%,  then,  unless  (subject to
Section 3(h) hereof in all events) by unilateral  action of the Lessor the Basic
Rent shall  have been  reduced  such that the  Weighted  Factor  does not exceed
11.25%,  the Lessee shall purchase the Undivided  Interest and the Real Property



                                      -32-

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<PAGE>

Interest  from the Lessor,  on a Business  Day  specified  by the Lessor to. the
Lessee  by not less  than 30 days  (or,  if there is a  material  risk  that the
Weighted Factor will exceed 11.25% within a shorter period, a number of days one
day less than such shorter  period) 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
proration of Basic Rent to the date of purchase.

                (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  fund.,  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 Deemed Loss Event shall have
occurred,  the Lessee shall,  if the Lessee's Board of Directors has adopted and
there is in effect on or after  January  15, 1997 and on or prior to January 15,
2013 a resolution determining that Unit 2 is (A) uneconomic to the Lessee or (B)
economically  obsolete for any reason, give prompt written notice (a Termination
Notice) to the Lessor,  the Owner  Participant and the Indenture  Trustee (which
notice  shall be  irrevocable)  of such  resolution  and  shall  terminate  this
Facility Lease on the first Basic Rent Payment Date occurring after the later of
January 1, 1997 and the date of such resolution (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



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<PAGE>
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 L4(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 aver the highest bona
tide offer received pursuant to section 14(a).

                  (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



                                      -34-

6O9l.BURNHAM.1lO6.47:l


<PAGE>

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  in  section  15.10  thereof)  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 requisite Governmental Action in connection therewith)

                  (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.

                                      -35-

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<PAGE>



                (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 on such
date 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 in Section 15.10
thereof) 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):

                

                                      -36-

6091.BURNHAM. 1106.47:1


<PAGE>
                       (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 S 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

                       (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) , 10(b) (3) (ii), 10(b) (3) (iii)
                or 10(b) (3) (iv) of the  Participation  Agreement or section 7,
                10 (other  than  failure of the Lessee to cause to be  delivered
                the insurance  certificates  (other than the  Certificate of the
                Lessee)  described  therein provided that the Owner  Participant
                shall have  received  within S Business  Days after its  request
                therefor other confirmation reasonably satisfactory to it of the
                existence in full force and effect of the insurance  referred to
                in Section 10), or it of this Facility Lease; or

                    (iii)  the  remaining  Economic  Useful  Life  of Unit 2, as
                determined  under  Section  8(g) if  required  thereby  to be so
                determined,  shall be (x) as of the date 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

                       (iv) 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



                                      -37-

6091. BURNHAM. 1106.47:1


<PAGE>


                       (v) the Lessee shall fail to perform its  agreements  set
                forth in the first sentence of Section 5(a); or

                      (vi) the Lessee  shall  fail to  perform  or  observe  any
                covenant,  condition or agreement  (other than those referred to
                in clauses (i) through (v) 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

                    (vii) 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

                       (viii) the Lessee (which term shall include, for purposes
                of this clause (viii) and clauses (ix), (x) and (xi) below,  any
                predecessor Lessee that guarantees the obligations of the Lessee
                hereunder  pursuant to Section 11(a)  hereof)  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


                                      -36-

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<PAGE>


                 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

                       (ix) 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 6O day. from the entry thereof:
                or

                         (x)  (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




                                      -39-

6091.BURNHAM.1106.47:l


<PAGE>
                       (xi) (1) the Lessee  shall fail to pay when due  (whether
                by scheduled maturity, required prepayment, acceleration, demand
                or otherwise) any Debt 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,  except as  hereinbelow  expressly  otherwise  set forth,
exercise  one or  more of the  following  remedies  as the  Lessor  in its  sole
discretion shall elect:

                       (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 oand 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)


                                      -40-

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<PAGE>


                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;



                                      -41-

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<PAGE>

                       (v) except in the case of an Event of  Default  specified
                in clause (iii) or clause (v) of Section 15  (subject,  however,
                to the proviso to the first  sentence of Section 16(c)  hereof),
                the Lessor may,  whether or not the Lessor shall have  exercised
                or shall thereafter at any time exercise its rights under clause
                (i), (ii), (iii) or (iv) above, demand, by written notice to the
                Lessee  specifying  a payment  date which  shall be a Basic Rent
                Payment  Date not  earlier  than 10 days  after the date of such
                notice,  that the Lessee pay to the Lessor, and the 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  specified  in such  notice),  any unpaid 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 2) until the end of
                         the remaining useful life of Unit 2, 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 ; of per annum;



                                      -42-

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<PAGE>
                
                                (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 2) 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 2) 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,  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, but not in the case
                of an Event of Default  specified  in clause (iii) or clause (v)
                of Section 15 (except as  provided  in the  proviso to the first
                sentence of Section 16(c) hereof), demand that the Lessee pay to



                                      -43-
6091.BURNHAM.1106.47:1


<PAGE>

                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 difference between the sale
                Proceeds  and  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:

                      (vii)  subject to section 5(b)  hereof,  in the case of an
                Event of  Default  specified  in clause  (iii) or clause  (v) of
                Section  15,  the Lessor may  demand,  by written  notice to the
                Lessee  specifying a payment date which shall be, in the case of
                an Event of Default  specified  in said clause  (iii),  the last
                Basic Rent Payment Date of the Lease Term, or, in the case of an
                Event of Default  specified  in said clause (V), the date thirty
                day. after the last Basic Rent Payment Date, 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 Basic Rent
                Payment  Date plus an amount  (not less than zero)  equal to the
                Fair Market Sales Value of the  Undivided  Interest and the Real
                Property Interest  determined as of such Basic Rent Payment Date
                (together  with  interest  on such amount at the  interest  rate
                specified in section 3(b) (iii) from the payment date  specified
                in such notice to the date of actual  payment)  and upon receipt
                of such  payment  the Lessor  shall (and may prior to receipt of
                such payment) Transfer to the Lessee the Undivided  Interest and
                the Real Property Interest.

                  (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



                                      -44-
6O91.BURNHAM.l1O6.47:l


<PAGE>

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.

                (C) Remedies Cumulative.  Except as expressly set forth therein,
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,  that if the  Lessee is in default of its  payment  obligations  under
Section  16(a)(vii),  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  specified  in said
clause (A), (B) or (C) , or the difference 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  (including the related
Generation Entitlement Share) or Unit 2 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.


                                      -45-

6091.BURNHAM.1106.47:1


<PAGE>

                  (d) Exercise at 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 the 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
damage. for the breach hereof.

                  (e)  Special  Cure Right of Lessee.  In the event a "Notice of
Default"  is given  under  Section  l5(iv),  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;  provided,  however, that such Value, for
purposes of this paragraph  (e), shall be determined on the assumption  that the
purchaser shall be required to pay the full amount of the  decommissioning  cost
of the  Undivided  Interest.  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 (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 (a) 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  Transfer  the  Undivided
Interest and the Real Property  Interest to the Lessee.  If the Lessee shall not



                                      -46-

609l.BURNHAM.ll06.47:l


<PAGE>

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:  in which case,  without further act an the part of the Lessor or the
Lessee,  (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.

                 SECTION 17. Notices.

                All  communications  and notices  provided for in this  Facility
Lease  shall be in  writing  and  shall be given in person 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.

                 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


                                      -47-

6091.BURNHAM.ll06.47:1


<PAGE>

agreements  contained  in any ANPP Project  Agreement,  either the Lessor or the
Owner  Participant  may,  but  shall not be  obligated  to (i) if  permitted  by
Applicable Law, tender such payment,  or (ii) if permitted by Applicable Law and
the ANPP Project  Agreements,  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 and the ANPP Project  Agreements) to receive the
Generation  Entitlement  Share  of  the  Lessee  under  the  ANPP  Participation
Agreement (not limited to Unit 2), with each contributor to such cure 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  and to pay all  amounts  (if any)  which are to be paid by the Lessee
under the terms of the Indenture,  which provisions are  incorporated  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  7(b)(4),
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.








                                      -43-

6091.BURNHAM.1106.47:1


<PAGE>


                 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.

                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.

                  (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 2 or
any other property  referred to 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 Indernnitee.


                                      -49-

6091.BURNHAM.1106.47:1


<PAGE>


                (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 is intended as and shall
constitute an agreement of lease and nothing herein or elsewhere contained 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  CONTERPART  IS  THE  ORIGINAL  COUNTERPART"  and
containing the receipt of the Indenture  Trustee thereon ohall 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 thereto.

                (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.




                                      -50-

6091. BURNHAM. 1106.47:1


<PAGE>
                  (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 hereunder 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 Burnham Leasing Corporation, a
New York  corporation,  whose  address is so Broad  Street,  New York,  New York
10004,  Attention:  Assistant  Treasurer.  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.






                                      -51-

6091.BURNHAM. 1106.47:1


<PAGE>


                IN WITNESS  WHEREOF,  each of the parties hereto has caused this
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
                                        August 12, 1986, with
                                        Burnham Leasing Corporation

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



                                       PUBLIC SERVICE COMPANY OF NEW MEXICO




                                       By
                                           --------------------------------
                                            Vice President, Revenue Management













6O9l.BURNHAM.1106.47B:l


<PAGE>


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


                The foregoing  instrument was  acknowledged  before me this 17th
day of August,  1986, by J.E. STERBA, the Vice President,  Revenue Management of
PUBLIC SERVICE  CONPANY OF NEW MEXICO,  a New Mexico  corporation,  on behalf of
said corporation.



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

                                                 David A. Spivak
                                        Notary Public, State of New York
                                                 No. 31-4693468
                                          Qualified In New York County
                                        Commission Expires March 30, 1987

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



                The foregoing  instrument was  acknowledged  before me this 17th
day of August,  1986, by M.  .P.Henry,  an Assistant Vice President of THE FIRST
NATIONAL  BANK OF  BOSTON,  a  national  banking  association,  on behalf of the
banking  association as trustee under that certain Trust Agreement,  dated as of
August 12, 1986, with Burnham Leasing Corporation.


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

                                                 David A. Spivak
                                        Notary Public, State of New York
                                                 No. 31-4693468
                                          Qualified In New York County
                                        Commission Expires March 30, 1987





6091.BURNHAM.1106.47B:1
<PAGE>

                                                                      SCHEDULE 1
                                                                              to
                                                                 AMENDMENT NO. 1

                           SCHEDULE OF CASUALTY VALUES

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

7/15/1987        107.3214792              1/15/2005             68.4786850
1/15/1988        109.3866622              7/15/2005             65.9549845
7/15/1988        108.7324908              1/15/2006             63.6084475
1/15/1989        110.2890342              7/15/2006             61.2034113
7/15/1989        109.1565103              1/15/2007             58.7383750
1/15/1990        110.2811458              7/15/2007             56.2081600
7/15/1990        108.7437008              1/15/2008             53.5961840
1/15/1991        109.4409749              7/15/2008             50.9465850
7/15/1991        107.4430512              1/15/2009             48.4068189
1/15/1992        107.6449054              7/15/2009             46.0019776
7/15/1992        105.1184914              1/15/2010             43.8093499
1/15/1993        104.7898085              7/15/2010             41.8269965
7/15/1993        104.2034408              1/15/2011             40.1464641
1/15/1994        104.4621918              7/15/2011             38.7720939
7/15/1994        105.0746043              1/15/2012             37.4741344
1/15/1995        105.3313670              7/15/2012             36.0172097
7/15/1995        105.4258440              1/15/2013             34.4124193
1/15/1996        104.3460229              7/15/2013             32.5888575
7/15/1996        103.2076348              1/15/2014             30.5794579
1/15/1997        102.0075284              7/15/2014             28.3092521
7/15/1997        100.7423843              1/15/2015             25.8069882
1/15/1998        98.9769915               7/15/2015             22.9931020
7/15/1998        96.8379410               1/15/2016             20.0000000
1/15/1999        94.7183084  
7/15/1999        92.3466042  
1/15/2000        89.9930168  
7/15/2000        87.3598679  
1/15/2001        84.9164720  
7/15/2001        83.2856328  
1/15/2002        81.1200173  
7/15/2002        79.4045153  
1/15/2003        77.1226200  
7/15/2003        75.3166896  
1/15/2004        72.9124246  
7/15/2004        71.0116226  


<PAGE>
                                                                      Schedule 2
                                                                              to
                                                                           Lease

                      SCHEDULE OF SPECIAL CASUALTY VALUES

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

1986-Aug              102.1288350             Jul                  107.9900354
Sep                   103.551082              Aug                  106.3566164
Oct                   104.7577969             Sep                  107.2079214
Nov                   105.9690500             Oct                  108.0387451
Dec                   107.1890001             Nov                  108.8729188
1987-Jan              104.7469334             Dec                  109.7104940
Feb                   105.8953117             1991-Jan             106.1221028
Mar                   107.0514101             Feb                  106.9356524
Apr                   108.1807222             Mar                  107.7523828
May                   109.2806319             Apr                  108.5615682
June                  110.3875084             May                  109.3499550
July                  107.0603718             June                 110.1411302
Aug                   105.6584574             July                 106.5057575
Sep                   106.7443686             Aug                  104.7904266
Oct                   107.8004092             Sep                  105.5587490
Nov                   108.8628041             Oct                  106.3059750
Dec                   109.9316515             Nov                  107.0554541
1988-Jan              106.5659987             Dec                  107.8072206
Feb                   107.6060402             1992-Jan             104.1319920
Mar                   108.6522601             Feb                  104.8572360
Apr                   109.6884203             Mar                  105.5845013
May                   110.6998752             Apr                  106.3032497
June                  111.7170637             May                  107.0033501
July                  108.3047423             June                 107.7050799
Aug                   106.8162363             July                 103.9820366
Sep                   107.8143593             Aug                  104.6586589
Oct                   108.7874341             Sep                  105.3366619
Nov                   109.7657228             Oct                  105.9957573
Dec                   110.7493057             Nov                  106.6559602
1989-Jan              107.3029779             Dec                  107.3172872
Feb                   108.2610033             1993-Jan             103.5533963
Mar                   109.2240893             Feb                  104.1884686
Apr                   110.1786578             Mar                  104.8243968
May                   111.1134663             Apr                  105.4521169
June                  112.0529737             May                  106.0605617
July                  108.5676894             June                 106.6694473
Aug                   107.0049947             July                 102.8524714
Sep                   107.9279406             Aug                  103.4335629
Oct                   108.8309099             Sep                  104.4997786
Nov                   109.7381681             Oct                  105.0764842
Dec                   110.6497812             Nov                  105.6532650
1990-Jan              107.1363037             Dec                  106.8642699
Feb                   108.0260386             1994-Jan             103.0346527
Mar                   108.9199462             Feb                  103.6028310
Apr                   109.8071307             Mar                  104.4553998
May                   110.6740871             Apr                  105.6489107
June                  111.5448610             May                  106.2173221


<PAGE>


                                                                      Schedule 2
                                                                              to
                                                                           Lease

                SCHEDULE OF SPECIAL CASUALTY VALUES (Continued)

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

Jun                   107.4102001             May                  98.3566627
July                  103.5719724             June                 98.5366882
Aug                   104.1313271             Jul                  94.6108969
Sep                   105.3057290             Aug                  95.0805240
Oct                   105.8652448             Sep                  95.2326961
Nov                   106.4248420             Oct                  95.7025449
Dec                   107.5978253             Nov                  96.1725056
1995-Jan              103.7505297             Dec                  96.3225100
Feb                   104.3005918             1999-Jan             92.3853005
Mar                   105.1260528             Feb                  92.8385708
Apr                   106.2796494             Mar                  93.1561225
May                   106.8299640             Apr                  93.2768904
June                  107.6204041             May                  93.7328080
July                  103.7635586             June                 93.8524921
Aug                   104.3038346             July                 89.8985362
Sep                   104.8441977             Aug                  90.3393038
Oct                   105.3846483             Sep                  90.4281252
Nov                   105.9251870             Oct                  90.8691330
Dec                   106.4658145             Nov                  91.3102621
1996-Jan              102.5989118             Dec                  91.3966737
Feb                   103.1288819             2000-Jan             87.4275047
Mar                   103.6589425             Feb                  87.8526842
Apr                   104.1890943             Mar                  88.1248451
May                   104.7193378             Apr                  88.1788585
June                  105.2496736             May                  88.6044141
July                  101.3721795             June                 88.6572213
Aug                   101.8912963             July                 84.6720319
Sep                   102.4105073             Aug                  85.0807963
Oct                   102.9298132             Sep                  85.0994062
Nov                   103.4492145             Oct                  85.5084307
Dec                   103.9687120             Nov                  85.9175865
1997-Jan              100.0800638             Dec                  85.9335180
Feb                   100.3877511             2001-Jan             82.1020842
Mar                   101.0955363             Feb                  82.4951670
Apr                   101.6034203             Mar                  82.7186145
May                   102.1114036             Apr                  83.1119670
June                  102.6194869             May                  83.5181857
July                  98.7190924              June                 83.9247396
Aug                   99.2147432              July                 80.3579202
Sep                   99.5644633              Aug                  80.7448529
Oct                   100.0603188             Sep                  80.7128549
Nov                   100.5562777             Oct                  81.1000693
Dec                   100.7636596             Nov                  81.4874259
1998-Jan              96.8508951              Dec                  81.8749247
Feb                   97.3338705              2002-Jan             78.0511202
Mar                   97.6923678              Feb                  78.4253795
Apr                   97.8733668              Mar                  78.6152248



<PAGE>


                                                                      Schedule 2
                                                                              to
                                                                           Lease

                SCHEDULE OF SPECIAL CASUALTY VALUES (Continued)

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

Apr                   78.9897761             Mar                   59.8452512
May                   79.3779493             Apr                   60.1390817
June                  79.7664805             May                   60.4501342
July                  76.2061444             June                  60.7617674
Aug                   76.5739367             July                  56.6826356
Sep                   76.4988577             Aug                   56.9579842
Oct                   76.8669550             Sep                   57.2335405
Nov                   77.2352064             Oct                   57.5266386
Dec                   77.6036117             Nov                   57.8202176
2003-Jan              73.7716915             Dec                   58.1142829
Feb                   74.1261158             2007-Jan              54.0165502
Mar                   74.2855097             Feb                   54.2784579
Apr                   74.6402503             Mar                   54.5405818
May                   75.0093948             Apr                   54.8105461
June                  75.3789216             May                   55.0987103
July                  71.8254603             June                  55.3874938
Aug                   72.1730779             July                  51.2861507
Sep                   72.0525336             Aug                   51.5366040
Oct                   72.4004815             Sep                   51.7872821
Nov                   72.7485963             Oct                   52.0564975
Dec                   73.0968779             Nov                   52.3262265
2004-Jan              69.2563525             Dec                   52.5964750
Feb                   69.5898695             2008-Jan              48.4746932
Mar                   69.7172195             Feb                   48.7144424
Apr                   70.0510791             Mar                   48.9545044
May                   7034001690             Apr                   49.2029319
June                  70.7496674             May                   49.4707190
July                  67.2035191             June                  49.7392476
Aug                   67.5298725             July                  45.6106931
Sep                   67.3613448             Aug                   45.8719451
Oct                   67.6880560             Sep                   46.1342662
Nov                   68.0149478             Oct                   46.4175034
Dec                   68.3420203             Nov                   46.7021465
2005-Jan              64.4924555             Dec                   46.9882150
Feb                   64.8039363             2009-Jan              42.8781341
Mar                   64.8974848             Feb                   43.1578937
Apr                   65.2093366             Mar                   43.4394544
May                   65.5372924             Apr                   43.7314754
June                  65.8656845             May                   44.0464023
July                  61.08013766            June                  44.3636692
Aug                   62.1003736             July                  40.2859016
Sep                   62.3995624             Aug                   40.5982101
Oct                   62.7153385             Sep                   40.9132931
Nov                   63.0315647             Oct                   41.2531699
Dec                   63.3482461             Nov                   41.5962444
2006-Jan              59.2725820             Dec                   41.9425639
Feb                   59.5588168             2010-Jan              37.8950478



<PAGE>
                                                                      Schedule 2
                                                                              to
                                                                           Lease

                SCHEDULE OF SPECIAL CASUALTY VALUES (Continued)

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

Feb                    38.2377974             2014-Jan            22.4047630
Mar                    38.5842871             Feb                 22.6613287
Apr                    38.9441336             Mar                 22.9213712
May                    39.3311627             Apr                 23.1965436
June                   39.7226118             May                 23.5015807
July                   35.7216245             June                23.8108366
Aug                    36.1113307             July                19.7486393
Sep                    36.5060251             Aug                 19.9665246
Oct                    36.9301379             Sep                 20.1872659
Nov                    37.3597676             Oct                 20.4370098
Dec                    37.7949972             Nov                 20.6900970
2011-Jan               33.8392989             Dec                 20.9465759
Feb                    34.2746875             2015-Jan            16.8307614
Mar                    34.7163197             Feb                 16.9941762
Apr                    35.1748850             Mar                 17.1595803
May                    35.6657370             Apr                 17.3386034
June                   36.1636855             May                 17.5459565
July                   32.2888086             June                17.7559696
Aug                    32.7192845             July                13.5929463
Sep                    33.1560274             Aug                 13.7083977
Oct                    33.6251963             Sep                 13.8250716
Nov                    34.1012270             Oct                 13.9690892
Dec                    34.5842234             Nov                 14.1147652
2012-Jan               30.6985566             Dec                 14.2621213
Feb                    31.0958065             2016-Jan            10.0000000
Mar                    31.4987908
Apr                    31.9191123
May                    32.3716265
June                   32.8307241
July                   28.9207704
Aug                    29.2933390
Sep                    29.6712416
Oct                    30.0806639
Nov                    30.4959860
Dec                    30.9172966
2013-Jan               26.9689514
Feb                    27.3025146
Mar                    27.6407882
Apr                    27.9954449
May                    28.3812389
June                   28.7725446
July                   24.7937101
Aug                    25.0962920
Sep                    25.4030845
Oct                    25.7402557
Nov                    26.0821678
Dec                    26.4288911


<PAGE>


                                                                      Schedule 3
                                                                              to
                                                                           Lease

                         SCHEDULE OF TERMINATION VALUES

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

7/15/1987                   106.2908686            1/15/2005        64.3187250
1/15/1988                   105.8330228            7/15/2005        61.6258250
7/15/1988                   107.6163400            1/15/2006        59.1032129
1/15/1989                   106.6463755            7/15/2006        56.5149370
7/15/1989                   107.9477195            1/15/2007        53.8592081
1/15/1990                   106.5420793            7/15/2007        51.1305447
7/15/1990                   107.4345809            1/15/2008        48.3120487
1/15/1991                   105.5974986            7/15/2008        45.4475301
7/15/1991                   103.0252750            1/15/2009        42.6841030
1/15/1992                   103.6003535            7/15/2009        40.0465039
7/15/1992                   103.5830405            1/15/2010        37.6116513
1/15/1993                   103.1919068            7/15/2010        41.8269965
7/15/1993                   102.5405483            1/15/2011        40.1464641
1/15/1994                   102.7316651            7/15/2011        38.7720939
7/15/1994                   103.2736925            1/15/2012        37.4741344
1/15/1995                   103.4572075            7/15/2012        36.0172097
7/15/1995                   103.4754575            1/15/2013        34.4124193
1/15/1996                   102.3163090            7/15/2013        32.5888575
7/15/1996                   101.0953671            1/15/2014        30.5794579
1/15/1997                    99.8093493            7/15/2014        28.3092521
7/15/1997                    98.4547994            1/15/2015        25.8069882
1/15/1998                    96.5933646            7/15/2015        22.9931020
7/15/1998                    94.3604877            1/15/2016        20.0000000
1/15/1999                    92.1400906            
7/15/1999                    89.6635235            
1/15/2000                    87.2008083            
7/15/2000                    84.4540929            
1/15/2001                    81.8925115            
7/15/2001                    80.1386799            
1/15/2002                    77.8450696            
7/15/2002                    75.9963669            
1/15/2003                    73.5758532            
7/15/2003                    71.6256665            
1/15/2004                    69.0712779
7/15/2004                    67.0142464

<PAGE>
                                   SCHEDULE 4

                                       to
                                 FACLILITY LEASE


                        REAL ESTATE INTEREST DESCRIPTION

                The  Real  Property  Undivided  Interest  is  a  (i)  0.6548444%
undivided interest in the land described in I below, a (ii) 0.7555556% undivided
interest  in the  rights  and  interests  described  in II  below,  and  (iii) a
0.7515556% undivided Interest in the right and interests described in III below.

I.      PVNGS PLAHT 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 Qua 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~a11 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.


6091. BURNHAM. 1106.47:1


<PAGE>


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 Qua and Salt River Base and Meridian, Maricopa County,
Arizona.

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
1946.46  feet to a point on the  South  right-of-way  line of the 200 foot  wide
HM5AYAMPA-5ALCME 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 on the North
right-of-way line of said highway; thence South 58 degrees 43 minutes 35 seconds


                                       -2-
60911.BURNHAM.1106.47:1


<PAGE>


East, along aid 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 seconds 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 53, 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.


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).






                                       -3-

6091.BURNHAM.1106.47:l

<PAGE>

                                   SCHEDULE 5

                                       to
                                 FACILITY LEASE


                         UNDIVIDED Interest DESCRIPTION

                  The Undivided interest is (i) a 2.2666667%  undivided interest
in and to the property  described under A below and (ii) a 0.7555556%  undivided
interest in and to the property described in B below.

                  A.  Unit  2 of  the  Palo  Verde  Nuclear  Generating  Station
(PNVGS), 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 2  Combustion  Engineering  "System 80"  pressurized
                    water reactor nuclear steam supply system (the MISS). The NO
                    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 2 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 2 GE TCEF-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 DWA at 24,000 V, 3 phase,  60 HZ,
                    1.5 in Hg ASS  back  pressure,  and  approximately  1,363 MW
                    maximum gross electric output.

                    III.   Unit  2  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.
                    psig.  The containment building houses the reactor system.

6091.BURNHAM.1106.47:1
<PAGE>
            

                     IV.  Unit  2  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 2 start-up transformer.

                    V.  Unit 2  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 2 radioactive  waste  treatment  system,  including
                    liquid,  gaseous,  and  solid  waste  subsystems,  controls,
                    instrumentation, storage, handling and shipment facilities.

                    VII. Unit 2 emergency  diesel-generator  system, including a
                    diesel-generator   building   which   contains   two  diesel
                    generators,  fuel oil systems,  storage  tanks,  control and
                    instrumentation systems and otner equipment.

                    VIII.  Unit  2  internal  communication  systems,  including
                    associated interconnections and computer data links.

BUT EXCLUDING:

         I.          Nuclear fuel for Unit 2, including spare fuel assemblies.

         II.         Spare Parts (Unit 2)

         III.         Transmission  facilities (including any and all facilities
                      and equipment providing interconnection between the Unit 2
                      turbine  generator  and the ANPP High Voltage  Switchyard,
                      including  step-up  transformers and standby equipment and
                      Systems).



                                       -2-

6091.BURNHAM.1106.47:1


<PAGE>


         IV.         Oil and diesel fuel inventories (Unit 2)

               B.    All PVNGS common facilities, INCLUDING BUT NOT LIMITED TO:

         I.          Surveillance systems, including associated radioactive 
                     monitoring systems and equipment.

        II.          Water treatment facilities and transport systems forsupply
                     of waste water effluent.

BUT EXCLUDING:

       I.            Nuclear fuel, including spare fuel assemblies.

       II.           All transmission and ANPP High Voltage   
                     Switchyard facilities.

       III           Administration Building.

       IV.           Administration Annex Building.

        V.           Technical Support Center.

        VI.          Visitor Center.

        VII.         External communication systems and equipment, including 
                     associated interconnections and computer data links.

        VIII.        Parking lot improvements, road improvements, fencing and 
                     dikes.

        IX.         Spare parts (common facilities).

        X.           Simulator.

        XI.          Oil and diesel fuel inventories.

        XII.         Real property, beneficial interest in Title USA Company of
                     Arizona Trust No. 530, and Project Agreement interests
                     described in Schedule 4.

        XIII.        Warehouse.




                                       -3-

6091.BURNHAM.1106.47:1


<PAGE>


                                   Appendix A.

                               DEFINITION OF TERMS

                  The terms defined herein relate to the participation Agreement
(as  defined  below)  and  certain  Transaction  Documents  executed,  or  to be
executed, in connection with the participation Agreement. Such terms include the
plural as well as the singular. Any agreement defined or referred to below shall
include each amendment,  modification and supplement  thereto and waiver thereof
as may become effective from time to time, except where otherwise indicated. Any
term defined below by reference to any agreement shall have such meaning whether
or not such document is in effect. The terms "hereof", "herein", "hereunder" and
comparable  terms refer to the entire agreement with respect to which such terms
are  used  and not to any  particular  article,  section  or  other  subdivision
thereof.

                If, and to the extent that, either the  participation  Agreement
or any other  Transaction  Document  which  incorporates  this Appendix shall be
amended  from  time to time  pursuant  to the  respective  terms  thereof,  this
Appendix  shall be, or be deemed to have  been,  amended  concurrently  with the
execution  and  delivery  of  each  such  amendment  in  order  to  conform  the
definitions herein to the new or amended definitions set forth in or required by
each such amendment.

                  Additional  Bards  shall mean Bonds in addition to the Initial
Series Bonds.

                  Additional  Equity Investment shall have the meaning specified
in Section 8(f) of the Facility Lease.

                Additional  Notes  shall  have  the  meaning  set  forth  in the
recitations in the Indenture, which Additional Notes shall be issued, if at all,
pursuant to Section 3.5 of the Indenture.

                  Affiliate,  with  respect to any Person,  shall mean any other
Person  directly or indirectly  controlling or controlled by, or under direct or
indirect common control with, such person. For purposes of this definition,  the


6091.BURNHAM.1106.47:1


<PAGE>

term "control"  (including the correlative meanings of the terms "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the  possession,  directly  or  indirectly,  of the power to direct or cause the
direction  of the  management  policies  of such  Person,  whether  through  the
ownership of voting securities or by contract or otherwise.

                  After-Tax  Basis  shall  mean,  with  respect  to any  payment
received  or deemed to have been  received  by any  Person,  the  amount of such
payment  supplemented by a further payment to that Person so that the sum of the
two payments shall,  after deduction of all taxes and other charges (taking into
account any credits or  deductions  arising  therefrom  and the timing  thereof)
computed at the highest  marginal  statutory tax rate resulting from the receipt
(actual or  constructive)  of such two payments imposed under any Applicable Law
or by any Governmental Authority, be equal to such payment received or deemed to
have been received.

                  Agent and Agency Period shall have the respective meanings set
forth in Section 7.01 of the Assignment and Assumption.

                  ANPP   Administrative   Committee  shall  mean  the  committee
established  pursuant to section 6.1.1 of the ANPP  Participation  Agreement (or
any comparable successor provision).

                  ANPP operating Committee shall mean the committee  established
pursuant to Section 6.1.2 of the ANPP Participation Agreement (or any comparable
successor provision).

                  ANPP Participants  shall have the meaning assigned to the word
Participant under the ANPP Participation Agreement.

                ANPP  Participation  Agreement  shall mean the  Arizona  Nuclear
Power Project Participation  Agreement,  dated as of August 23, 1973, among APS,
Salt River,  Southern  California,  PNM, El Paso, LADWP and SCPPA, as heretofore
and hereafter amended pursuant to the terms thereof.






                                       -2-

609l.BURNHAM.ll06.55:l


<PAGE>


                  ANPP  Project  Agreements  shall  mean the ANPP  Participation
Agreement and the other Project  Agreements (as such term is defined in the ANPP
Participation Agreement)

                  ANPP  switchyard  shall mean the ANPP High Voltage  switchyard
located  at  the  PVNGS  site,  the  owner-ship,   construction,  operation  and
maintenance  of  which  are  governed  by  the  AN??  High  Voltage   switchyard
Participation  Agreement  executed  as of  August  20,  1921 (APS  Contract  No.
2252-419,00),  the parties to which are APS, PNM, salt River, El Paso, LADWP and
southern California.

                  ANPP  Transferee  shall have the  meaning set forth in Section
4.01 of the Assignment and Assumption.

                  Applicable  Law  shall  mean all  applicable  laws,  statutes,
treaties, rules, codes, ordinances,  regulations, permits, certificates, orders,
licenses and permits of any Governmental  Authority,  interpretations  of any of
the foregoing by a Governmental  Authority having  jurisdiction,  and judgments,
decrees,  injunctions,  writs, orders or like action of any court, arbitrator or
other judicial or quasi judicial tribunal (including those pertaining to health,
safety, the environment or otherwise).

                  Appraisal   procedure  shall  mean  a  procedure  whereby  two
independent  appraisers,  one chosen by the Lessee and one by the Lessor,  shall
mutually agree upon the value, period or amount (including Economic useful Life)
then the subject of an  appraisal.  If either the Lessor or the  Lessee,  as the
case may be, shall  determine  that a value,  period or amount to be  determined
(other than fair market value under  section  5(b) of the Facility  Lease) under
the  Facility  Lease or any other  Transaction  Document  cannot be  established
promptly by mutual agreement, such party shall appoint its appraiser and deliver
a written notice thereof to the other party.  Such other party shall appoint its
appraiser  within 15 days after  receipt  from the other party of the  foregoing
written notice.  If within 20 days after  appointment of the two appraisers,  as
described above,  the two appraisers are unable to agree upon the value,  period
or amount in question, a third independent  appraiser shall be chosen within ten
days  thereafter by the mutual  consent of such first two appraisers or, if such



                                       -3-

6091.BURNHAM.1106.47:1

<PAGE>

first two appraisers  fail to agree upon the  appointment  of a third  appraiser
within such period,  such appointment shall be made by the American  Arbitration
Association,  or any organization successor thereto, from a panel of arbitrators
having  experience  in the business of operating a nuclear  electric  generating
plant and a familiarity  with equipment  used or operated in such business.  The
decision of the third  appraiser so  appointed  and chosen shall be given within
ten days after the selection of such third appraiser.  If three appraisers shall
be so appointed and the  determination  of one  appraiser is disparate  from the
middle determination by more than twice the amount, period or value by which the
third  determination  is  disparate  from  the  middle  determination,  then the
determination   of  such  appraiser   shall  be  excluded,   the  remaining  two
determinations  shall  be  averaged  and  such  average  shall  be  binding  and
conclusive  on the Lessor and the  Lessee;  otherwise  the  average of all three
determinations shall be binding and conclusive on the Lessor and the Lessee. The
fees and  expenses Of  appraisers  incurred  in  connection  with any  Appraisal
Procedure  relating to any  transaction  contemplated  by any  provision  of any
Transaction  Document shall be divided equally between the Lessor and the Lessee
(except pursuant to section 16 of the Facility Lease, which shall be paid solely
by the Lessee)

                  APS shall mean  Arizona  public  service  Company,  an Arizona
corporation.

                  Arizona  Public  utility Act 5 shall mean Chapter 2, Title 40,
Arizona Revised Statutes.

                  Assigned  Payments shall have the meaning specified in section
2.1(1) of the Indenture.

                  Assignment   and   Assumption   shall  mean  the   Assignment,
Assumption and Further  Agreement.  dated as of August 12, 1986, between PNM and
the Owner Trustee.

                  Assignment  of  Beneficial  interest  shall  mean the Deed and
Assignment of Beneficial  Interest  under Title USA Company of Arizona Trust No.
530, dated as of August 18, 1986, from PNM to the owner Trustee.







                                       -4-

6091.BURNHAM.1106.47:1


<PAGE>


                  Assumption  Agreement  shall mean the Assumption  Agreement of
PNM substantially in the form of Exhibit B to the Indenture.

                  Assumptions  shall mean the  Pricing  Assumptions  and the Tax
Assumptions.

                  Atomic Energy Act shall mean the Atomic Energy Act of 1954, as
amended,  and  regulations  from time to time issued,  published or  promulgated
pursuant thereto.

                  Authorized  officer shall mean,  with respect to the Indenture
Trustee,  any officer of the Indenture  Trustee who shall be duly  authorized by
appropriate corporate action to authenticate a Note and shall mean, with respect
to the  owner  Trustee,  any  officer  of the  owner  Trustee  who shall be duly
authorized by appropriate corporate action to execute any Transaction Document.

                  Bankruptcy code shall mean the Bankruptcy  Reform Act of 1978,
as amended, and any law with respect to bankruptcy, insolvency or reorganization
successor thereto.

                  Basic Lease Tern shall mean the initial  term of the  Facility
Lease, which shall begin on the Closing Date and end on January 15, 2016, unless
earlier terminated.

                  Basic Rent shall have the meaning set forth in section 3(a) of
the Facility Lease.

                  Basic Rent  Payment  Dates shall mean and include  January 15,
1987,  and each  January  15 and July 15 of each  year  thereafter  through  and
including  January 15, 2016,  and, if the Lessee  shall elect the Renewal  Term,
each  January 15 and July 15 of each year  during the Renewal  Term,  commencing
July 15, 2016 and ending on the last day of the Renewal Term.

                  Bill of Sale shall mean the Deed and Bill of sale, dated as of
August 18, 1986, between PNM and the owner Trustee.






                                       -5-

6091.BURNHAM.1106.55:1


<PAGE>


                  Bonds  shall  mean all  bonds,  notes and other  evidences  of
indebtedness from time to time issued and outstanding under the Collateral Trust
rndenture,  including.  but without  limitation,  the Initial series Bonds,  the
Releveraging Bonds, the Refunding Bonds and any other Additional Bonds.

                  Business  Day shall  mean any day  other  than a  Saturday  or
Sunday or other day on which banks in  Albuquerque,  New Mexico,  new York,  New
York or Boston, Massachusetts are authorized or obligated to be closed.

                  Capital Improvement shall mean (a) the addition, betterment or
enlargement of any property constituting part of Unit 2 or the Common Facilities
or the  replacement of any such property with other  property,  irrespective  of
whether (i) such replacement  property  constitutes an enlargement or betterment
of the property which it replaces,  (ii) the cost of such addition,  betterment,
enlargement  or replacement is or may be capital ized, or charged to maintenance
or repairs,  in  accordance  with the  Uniform  System of Accounts or (iii) such
addition,  betterment or  enlargement  is or is not included or reflected in the
plans and specifications for Unit 2 or the Common Facilities,  as built, and (b)
any  alteration,  modification,  addition or  improvement  to Unit 2, other than
original, substitute or replacement parts incorporated into Unit 2 or the Common
Facilities.

                  Casualty value, as of any Basic Rent payment Date,  shall mean
the  percentage of Facility  Cost set forth  opposite such date in Schedule 1 to
the Facility Lease.  casualty value as of any Basic Rent Payment Date during the
Renewal  Term shall mean the  unamortized  portion as of such Basic Rent Payment
Date of the Fair Market sales value of the undivided Interest, determined by the
straight-line amortization of such Fair Market sales value at the corrurencement
of the  itenewal  Term over the period from such  commencemant  date through the
remaining  term of the License  determined  pursuant to the Appraisal  procedure
undertaken in accordance with the last sentence of section 13(a) of the Facility
Lease.  Anything contained in the participation  Agreement or the Facility Lease
to the  contrary  notwithstanding,  Casualty  Value  shall be, when added to all
other  amounts  which the Lessee is  required to pay under  Section  9(c) of the
Facility  Lease  (taking  into account any  assumption  of Notes by the Lessee),



                                       -6-

6091.BURNHAM.llO6.55:l


<PAGE>


a under any  circumstances and in any event, in an amount at least sufficient to
pay in full, as of any Basic Rent Payment Date, the aggregate  unpaid  principal
amount of all Notes Outstanding at the close of business on such date,  together
with accrued and unpaid interest on such Notes.

                  Change  in Tax  raw  shall  mean  any  change  in the  Code or
successor  legislation  enacted by either the  Ninety-ninth or the One Hundredth
Congress  (other  than a change in respect of an  alternative  minimum tax or an
add-on minimum tax having the same effect as an alternative  minimum tax), or if
prior to January 15, 1997 Ci) there is enacted any technical correction thereto,
or (ii)  there are  adopted,  promulgated,  issued or  published  any  proposed,
temporary or final Regulations  resulting therefrom (regardless of the effective
date of such technical  corrections or  Regulations,  but only if such technical
corrections or Regulations would affect Net Economic Return), provided, however,
that a Change in Tax Law shall  occur in the  event the  provision  set forth in
Section 1509(b) of H.R. 3838 as passed by the U.S. House of  Representatives  on
December 17, 1985 and Section  1809(b) of H.R. 3838 as passed by the U.S. Senate
on June 24, 1986 shall fail to be enacted into law in the form therein set forth
or, if such  provision  is so enacted into law, it shall not apply to the Common
Facilities.

                  Chemical  Bank shall mean  chemical  Bank,  a New York banking
corporation.

                  Chief  Financial  officer shall mean the person  designated by
the Board of Directors of PNN as the chief financial officer of PNM.

                  Claim shall mean liabilities,  obligations,  losses,  damages,
penalties, claims (including,  without limitation, claims involving liability in
tort, strict or otherwise), actions, suits, judgments, costs, interest, expenses
and  disbursements,  whether  or not any of the  foregoing  shall be  founded or
unfounded (including,  without limitation,  legal fees and expenses and costs of
investigation)  of any kind and nature  whatsoever  without any limitation as to
amount.







                                       -7-

6091.BURNHAM.1106.47:1


<PAGE>


                  Closing shall mean the proceedings  which are  contemplated by
Section 4 of the Participation Agreement

                  Closing Date shall mean August 18, 1986.

                  Code shall mean the Internal Revenue Code of 1954, as amended,
or any comparable successor law.

                  Collateral  Trust  Indenture  shall mean the Collateral  Trust
Indenture,  dated as of  December  16,  1985,  among PNM,  Funding  Corp and the
Collateral Trust Trustee.

                  Collateral Trust Indenture  supplement shall mean a supplement
to the Collateral Trust Indenture.

                  Collateral  Trust Trustee shall mean Chemical Bank, not in its
individual capacity, but solely as Collateral Trust Trustee under the Collateral
Trust Indenture, and the successors or assigns of such Trustee.

                  Common Facilities shall mean all PVNGS common  facilities,  as
set  forth  in rtem B of  Exhibit  B to the  Bill of  Sale,  other  than  common
facilities excluded therefrom in said item B.

                  Common  Facilities  Interest  shall  mean the Owner  Trustee's
portion  of the  Lessee's  original  10.2%  undivided  interest  in  all  Common
Facilities at PVNGS,  the  percentage of which is set forth in Schedule 2 to the
Participation Agreement.

                  Coverage Ratio shall mean the fraction (i) the  denominator of
which shall be the sum  (calculated  as of a date no earlier than 135 days prior
to the date of  calculation) of (x) the interest that will be payable during the
twelve-month  period following the date of the transaction with respect to which
a calculation is required to be made on the debt (both long-term and short-term)
of the Surviving Lessee, and (y) the interest portion of payments due during the
twelve-month  period following the date of such transaction on lease obligations
of the  Surviving  Lessee  with a term in  excess  of one  year,  and  (ii)  the
numerator  of which shall be the sum of (x) the pro forma net  sarnings  (before
taxes  and  excluding  allowance  for funds  used  during  construction)  of the



                                       -8-

6091. BURNHAM. 1106.55:1


<PAGE>

Surviving Lessee for a twelve-month period ending no earlier than 135 days prior
to the date of such transaction, and Cy) such denominator.

                  Cure option shall have the meaning set forth in section  16(e)
of the Facility Lease.

                  Debt 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, if the principal  amount (or  equivalent)  thereof is greater than
$20,000,000  for any one item of Debt or  $30,000,000  in the  aggregate for all
items of Debt of the Lessee).

                  Decommissioning  shall mean the decommissioning and retirement
from service of Unit 2, and the related possession,  maintenance and disposal of
radioactive  material  used  in ot  produced  incident  to  the  p05session  and
operation  of  Unit  2,  including,   without  limitation,   (i)  placement  and
maintenance of Unit 2 in a state of protective storage, (ii) in-place entombment
and maintenance of Unit 2, (iii) dismantlement of Unit 2, (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 2, removal and disposition of
debris from the PVNGS Site, and  restoration of the PVNGS Site related to Unit 2
for unrestricted use.

                  Decommissioning  Costs shall mean all costs,  liabilities  and
expenses  relating  or  allocable  to,  or  incurred  in  connection  with,  the
Decommissioning of Unit 2, including,  without limitation, (i) any and all costs
of activities  undertaken to terminate NRC licensing  authority and requirements
to own, operate and p05sess Unit 2 and to possess  radioactive  material used in
or produced incident to the possession and operation of Unit 2; and (ii) any and
all costs of activities  undertaken,  prior to  termination of all NRC licensing



                                       -9-

6091.BURNHAM.1106.47:1

<PAGE>

authority and requirements  with respect to Unit 2 and the radioactive  material
used in or  produced  incident to the  possession  and  operation  of Unit 2, to
possess,  maintain,  and  dispose of  radioactive  material  used in or produced
incident to the possession and operation of Unit 2.

                  Deed shall mean the Deed,  dated as of August 12,  1986,  from
PNM to the Owner Trustee.

                  Deemed  Loss  Event  shall  mean any of the  following  events
(unless  waived by the Owner  Participant,  which waiver shall be in writing and
may be either indefinite or for a specified period):

                  (1)  Regulation.  If at any time  after the  closing  Date and
        before  the  Lease  Termination  Date,  the Owner  Trustee  or the Owner
        Participant, by reason of the ownership of the Undivided Interest or the
        Real Property  Interest or any part thereof by the Owner Trustee (or any
        beneficial  interest  therein by the Owner  Participant) dr the lease of
        the Undivided  Interest or the Real  Property  rnterest to the Lessee or
        any of the other transactions  contemplated by the Transaction Documents
        (the term Owner Participant,  as used in this definition,  not including
        any  Transferee  who at the time of  transfer  to such  Transferee  is a
        non-exempt entity of the type referred to in this clause (1), whether by
        reason of such ownership or lease  transactions,  or otherwise) shall be
        deemed by any Governmental Authority having jurisdiction to be, or shall
        become subject to regulation (other than Non-Burdensome  Regulation) as,
        an "electric  utility" or a "public utility" under any Applicable Law or
        a holding  company under the Holding Company Act, or as a consequence of
        any Governmental  Action, and the effect thereof on the Owner Trustee or
        the Owner  Participant  would be, in the sole  judgment  of either  such
        Person, acting on advice of counsel,  adverse, and the Owner Trustee and
        the Owner  Participant  have not waived  application of this definition,
        except that if the Lessee,  at its sole cost and expense,  is contesting
        diligently  and in good faith any action by any  Governmental  Authority
        which would  otherwise  constitute a Deemed Loss Event under this clause
        Cl), such Deemed Loss Event shall be deemed not to have occurred so long
        as (i) such  contest  does not involve  ariy danger of the  foreclosure,
        sale, forfeiture or loss of, or the creation of any Lien


                                      -10-

6091.BURNHAM.1106.47:1

<PAGE>


        on, the  Undivided  Interest,  the Real  property  rnterest  or any part
        thereof or any interest  therein,  (ii) such contest does not  adversely
        affect the Undivided  Interest,  the Real property  Interest or any part
        thereof or any other property,  assets or rights of the owner Trustee or
        the owner  participant or the Lien of the Indenture  thereon,  (iii) the
        Lessee shall have  furnished the owner Trustee,  the owner  Participant,
        and  the  Indenture  Trustee  with an  opinion  of  independent  counsel
        satisfactory  to each such  person to the  effect  that  there  exists a
        reasonable  basis for  contesting  such  determination  and the  effects
        thereof,  (iv)  such  determination  and the  effects  thereof  shall be
        effectively  stayed or  withdrawn  during such contest (and shall not be
        subject to retroactive application at the conclusion of such contest) in
        a manner  satisfactory  to the owner Trustee and the owner  participant,
        and the Owner Participant shall have determined that the Owner Trustee's
        continued  ownership of the  Undivided  Interest  and the Real  Property
        rnterest  during the  pendency of such  contest or such contest will not
        adversely  affect its or its  Affiliates'  business,  and (V) the Lessee
        shall have indemnified the owner Trustee and the owner  participant in a
        manner  satisfactory to each such Person for any liability or loss which
        either such person may incur as a result of the Lessee's contest;

                  (2)  Price-Anderson Act Change. If there shall be, at any time
        during the Lease Term, any change in the price-Anderson  Act, the Atomic
        Energy Act or the  regulations of the NRC, or any other  Applicable Law,
        in each case as in effect on the Closing Date, as a result of which,  in
        the opinion of independent  counsel for the Owner  Participant,  (i) the
        aggregate   liability  for  a  single   Nuclear   Incident  of  "persons
        indemnified" (as each such term is defined in the price-Anderson Act) is
        increased,  unless the change is such that neither the owner Trustee nor
        the Owner participant may be exposed, either during or subsequent to the
        Lease Term, to any increased real or potential liability in respect of a
        Nuclear  Incident,  (ii) the aggregate  liability  for a single  Nuclear
        Incident  of  "persons  indemnified"  (as such  term is  defined  in the
        price-Anderson   Act)  exceeds  the  amount  of   financial   protection
        established by the NRC as a condition to the License,  unless the change
        


                                      -11-

6091.BURNHAM.1106.47:1

<PAGE>

         is such that neither the Owner Trustee nor the Owner Participant may be
         exposed,  either  during  or  subsequent  to  the  Lease  Term,  to any
         increased real or potential liability in respect of a Nuclear Zncident,
         (iii) the amount of financial protection  required,  including but flat
         limited to the  limitation on the amount of deferred  premiums for such
         financial  protection,  is  increased,  unless  the change is such that
         neither  the Owner  Trustee nor the Owner  Participant  may be exposed,
         either during or subsequent to the Lease Term, to any increased real or
         potential  liability in respect of a Nuclear  Incident,  or (iv) either
         the Owner Trustee or the Owner  Participant may be exposed to any other
         increase  in its real or  potential  liability  in respect of a Nuclear
         Incident,  either  during or  sub-sequent  to the Lease Term,  it being
         understood  for purposes of this  definition  that the  requirement  or
         existence of insurance, retrospective premiums, indemnities (whether by
         the Lessee or any other person) or other forms of financial  protection
         (similar or dissimilar to the foregoing)  shall not be deemed to reduce
         or eliminate any exposure of the Owner Trustee or the owner Participant
         to real or potential  liability in respect of a Nuclear Incident except
         to the extent Cx) such  financial  protection is provided by the United
         States Government under Congressional action which does not require any
         further   appropriation   or  other  act  of   congress  or  any  other
         Governmental Authority,  (y) the terms of such financial protection are
         otherwise  satisfactory to the Owner Trustee and the Owner Participant,
         and (z) the Owner  Trustee or Owner  Participant  may not  otherwise be
         exposed,  either  during  or  subsequent  to  the  Lease  Term,  to any
         increased real or potential liability in respect of a Nuclear Incident;
         provided, however, that such change shall not constitute a "Deemed Loss
         Event9' if such change  shall  include a provision  drafted in a manner
         reasonably  satisfactory  to the Owner  Participant  which  exempts the
         Owner  Trustee and the owner  Participant  from all real and  potential
         liability in respect of a Nuclear Incident so long as neither the Owner
         trustee or the Owner Participant is in actual possession and control of
         Unit 2 or the Undivided Interest, unless (in the opinion of independent
         counsel to the Owner  Participant) a court could  reasonably  hold that
         the statute incorporating such provision is unconstitutional;



                                      -12-

6091. BURNHAM. 1106.55:1


<PAGE>


                  (3) Liability for  Termination  obligation.  If there shall be
         any  change in  Applicable  Law as a result of which the owner  Trustee
         shall  become  liabLe  in  its  individual   capacity,   or  the  owner
         participant  shall  become  liable in any  capacity,  in respect of any
         portion  of  the  Termination   obligation  (as  defined  in  the  ANPF
         Participation  Agreement) or ~ecommissioning Costs or, during the Lease
         Term, any other  liability or obligation  imposed as of the date hereof
         on licensees of the NRC;

                  (4) Illegality. If there shall be any change in Applicable Law
        or  any  Governmental  Action  the  effect  of  which  is  to  make  the
        transactions  contemplated  by the Transaction  Documents  unauthorized,
        illegal or otherwise contrary to Applicable Law;

         (5)   Limitation  on  Exercise  of  Rights.   Any  change  in,  or  new
         interpretation  by Governmental  Authority having  jurisdiction of, the
         License  and the  License  Amendment  (each as in effect on the Closing
         Date)  constituting an assertion to the effect that the exercise by the
         owner Trustee or the owner  participant of any right  (irrespective  of
         the event  giving rise to such right)  under any  Transaction  Document
         would constitute  impermissible control over Unit 2 or the licensees of
         Unit 2, other than an  assertion  that  affects such rights in a manner
         consistent with the second sentence of section 184 of the Atomic Energy
         Act  and  the  NRC'S   regulations   thereunder   (including,   without
         limitation, 10 CYR section 50.81, as now and hereafter in effect);

                  (6) Early Licensee  Status.  If as a result of any expiration,
        revocation,  suspension, amendment or interpretation by any Governmental
        Authority   of  the  License,   the  License   Amendment  or  any  other
        Governmental  Action or  change  in  Applicable  Law,  either  the owner
        Trustee or the owner  Participant shall be required to become a licensee
        of the NRC prior to the Lease Termination Date;

                  (7) Suspension or  Termination of Insurance.  If any policy of
        liability  insurance  with  respect  to Unit 2  shall  be  suspended  or
        terminated,   or  the.  coverage  thereunder  reduced,  for  any  reason
        whatsoever  or shall be amended  or  supplemented,  in either  case in a
        manner which may expose the owner Trustee or


                                      -13-

6091.BURNHAM.1106.47:1


<PAGE>


         the Owner  Participant,  either during or subsequent to the Lease Term1
         to any  increased  real or potential  liability in respect of a Nuclear
         Incident and such policy of insurance shall not be immediately replaced
         by insurance or other  financial  protection  satisfactory to the Owner
         Participant  effective  immediately upon such suspension,  termination,
         reduction,  amendment  or  supplementation  which,  in  the  reasonable
         opinion of the Owner  Participant,  is at least as protective of it (in
         all respects deemed by it to be material) as the policy of insurance so
         terminated,  suspended,  reduced,  amended or supplemented,  urdess the
         aggregate liability for a Nuclear Incident of "persons indemnified" (as
         such term is defined in the Atomic  Energy Act of 1954,  as amended) is
         reduced by an amount  equal to the  amount of  liability  insurance  so
         terminated,  suspended,  reduced,  amended or supplemented  and, in the
         reasonable  opinion of the Owner  Participant,  it may not otherwise be
         exposed1  either  during  or  subsequent  to  the  Lease  Term,  to any
         increased real or potential  liability in respect of a Nuclear rncident
         as a consequence of such suapenston,  termination, reduction, amendment
         or supplementation.

                  Default  shall  mean an event  or  condition  which,  with the
giving  of  notice  or lapse of time,  or  both,  would  constitute  an Event of
Default.

                  Directive  shall mean an  instrument  in writing  executed  in
accordance  with the terms and  provisions of the  Indenture by the Holders,  or
their duly authorized  agents or  attorneys-in-fact,  representing a Majority in
Interest of Holders of Notes, directing the Indenture Tru5tee to take or refrain
from taking the action specified in such instrument.

                  Early  Termination  Date shall have the meaning  specified  in
Section 14(d) of the Facility Lease.

                  Early  Termination  Notice shall have the meaning specified in
Section l4Cd) of the Facility Lease.

                  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 ci) and Cii) below cease to



                                      -14-

6091.BURNHAM.1106.47:1

<PAGE>


apply,  or can reasonably be expected to cease to apply, to Unit 2) during which
(i) Unit 2 will be useful to,  and  usable by, any owner or lessee  thereof as a
facility f6r the generation of electric pdwer'and (ii) Unit 2 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 2: (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 2; (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 2; (f) the
projected cost (including, without limitation, costs attributable to obligations
to fund any  reserve  fund  maintained  (or funded) by  licensed  owners  and/or
lessees  of Unit 2 to the extent  dedicated  to (or  attributable  to and freely
available with respect to) Unit 2 (the Unit 2 Fund)) or the  Decommissioning  or
retirement from service of Unit 2 including, without limitation, Decommissioning
Costs  (taking  into account the balance  (plus  projected  investment  earnings
thereon)  of the Unit 2 Fund);  (g) the cost of Capital  Improvements  to Unit 2
then  planned to be made,  or  reasonably  expected to be made;  (h) the cost of
acquiring or leasing the Unit 2 Retained  Assets;  (i) the current status of all
Governmental  Action with respect to Unit 2 (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 2 and such other  facilities
constituting PVNGS (including, without limitation, the Common Facilities) as are
integral to the  operation of unit 2; and (j) the relative  cost of producing an
amount of electric power and energy equivalent to the generating


                                      -15-

6O9l.BURNHAM. 1106.55:1


<PAGE>


capacity of Unit 2 from other  facilities then available in the region serviced,
or reasonably expected to be serviced by PVNGS.

                  El  Paso  shall  mean  El  Paso  Electric  Company,   a  Texas
corporation.

                  ERISA shall mean the Employee  Retirement  Income Security Act
of 1974, as amended.

                  Estimated Transaction Expenses S h a 1 1 h ave the meaning set
forth in Section 5(a) of the Participation Agreement.

                  Event of Default  shall have the  meaning set forth in Section
15 of the Facility Lease.

                  Event of Loss shall mean any of the  following  events:  (a) a
Final Shutdown,  (b) a Requisition of Title, or (a) a Requisition  of.Use for an
indefinite period which can be reasonably expected to exceed, or a stated period
which ends on the last day of or after,  the Lease Term  (including  the Renewal
term only if the Renewal Term shall have been elected prior to such  Requisition
of Use by the  exercise  of the  renewal  option  provided  in Section 12 of the
Facility Lease).

                  Excepted  Payments shall mean (i) all payments of Supplemental
Rent, other than payments by the Lessee (x) of Casualty Value, Termination Value
br Special  Casualty Value or in connection with the exercise of the Cure Option
or the occurrence of the Special Purchase Event or (y) of indemnity  payments to
which either the Loan Participant or any Indemnitee other than the owner Trustee
or  the  Owner  Participant  or any  of  their  respective  Affiliates  (or  the
respective  successors,   assigns,  agents,  officers,   directors  or.employees
thereof) is entitled; (ii) any amounts payable under any Transaction Document to
reimburse  the  Lessor  or the  Owner  Participant  or any of  their  respective
Affiliates  (including  the  reasonable  expenses  of the  Lessor  or the  Owner
Participant  incurred in  connection  with any such  payment) for  performing or
complying  with any of the  obligations  of the Lessee under and as permitted by
any Transaction  Document,  (iii) any amount payable to the Owner Participant by
any Transferee as the purchase price of the Owner Participant's  interest in the
Trust Estate, (iv) so long as no Indenture Default or Indenture Event of Default



                                      -16-

6091. BURNHAM. 1106.55:1


<PAGE>

shall have occurred and be  continuing,  all payments of Basic Rent in excess of
amounts then due and owing in respect of the  principal of and premium,  if any,
and interest on all Notes  outstanding;  (v) any insurance proceeds with respect
to an Event of Loss in excess of  amounts  then due and owing in  respect of the
principal of and premium,  if any, and interest on all Notes  outstanding,  (vi)
any insurance  proceeds (or payments with respect to risks  self-insured)  under
liability  policies  and (vii) any payments in respect of interest to the extent
attributable to payments referred to in clauses (i) through (vi) above.

                  Existing  Mortgage  shall mean the  Indenture  of Mortgage and
Deed of Trust dated as of June 1, 1947, between PNM and Irving Tuust Company, as
heretofore supplemented by all supplemental Indentures thereto.

                  Expenses shall mean liabilities, obligations, losses, damages,
taxes (other than taxes on income),  claims, actions, suits, costs, expenses and
disbursements  (including  legal  fees and  expenses)  of any  kind  and  nature
whatsoever.

                  Extension Letter shall mean the Extension Letter, dated August
18, 1986 and  addressed to the  Collateral  Trust  Trustee by the parties to the
Participation Agreement.

                  Extraordinary  Nuclear  occurrence  shall have its  meaning as
defined in Section 11 of the Atomic Energy Act and the related NRC  regulations,
as amended to the date hereof, and as the meaning of such term shall be expanded
from time to time by future amendments thereof. The definition of "extraordinary
nuclear occurrence" contained in Section 11 of the Atomic Energy Act on the date
hereof is:  "any event  causing a  discharge  or  dispersal  of source,  special
nuclear, or byproduct material from its intended place of confinement in amounts
offaite, or causing radiation levels offsite, which the Commission determines to
be  substantial,  and which  the  Commission  determines  has  resulted  or will
probably result in substantial  damages to persons off-site or property offsite.
Any determination by the Commission that such an event has, or has not, occurred
shall be final and  conclusive,  and no other  official  or any court shall have
power or jurisdiction  to review any such  determination.  The Commission  shall
establish   criteria  in  writing  setting  forth  the  basis  upon  which  such
determination  shall be made. As used in this  subsection,  'offsite' means away
fron 'the  location' or 'the  contract  location'  as defined in the  applicable
Commission  indemnity  agreement,  enterea into pursuant to section 2210 of this
title."

                                      -17-

6091. BURNHAM. 1106.55:1


<PAGE>


                  Facility  cost shall mean the  Purchase  Price plus the sum of
(x) all supplemental Financing Amounts, and (y) all Additional Equity Investment
amounts.

                  Facility  Lease  shall mean the  Facility  Lease,  dated as of
August 12, 1986, between PNM, as Lessee, and the owner Trustee, as Lessor.

Fair Market  Rental  value or Fair Market Sale' Value of any property or service
shall mean (other than for purposes of section  5(b) of the Facility  Lease) the
value of such  property or service for lease or sale  determined on the basis of
an  arm's-length  transaction for cash between an informed and willing lessee or
purchaser (under no compulsion to lease or purchase) and an informed and willing
lessor or seller  (under no  compulsion  to lease or selt),  and shall take into
account the Lessor's rights and obligations  under the Assignment and Assumption
and the Assignment of Beneficial Interest and rights under the Deed and the Bill
of sale, but shall be without regard to any rights of the Lessee  (including any
renewal  options) under the Facility  Lease.  Except pursuant to section 6.01 of
the  Assignment and  Assumption,  Fair Market Rental Value and Fair Market sales
value  of the  undivided  Interest  and the  Real  Property  Interest  shall  be
determined on the assumption  that (i) Unit 2 has been  maintained in accordance
with, and the Lessee has complied with, the  requirements of the Facility Lease,
the other Transaction Documents and the ANPP Participation  Agreement,  and (ii)
the Lessee or PNM, as possessor of the Undivided  Interest and the Real Property
Interest,  is otherwise in compliance  with the  requirements of all Transaction
Documents.  Fair Market Rental value shall be determined on the assumption  that
rent will. be payable in equal semi-annual installments in arrears.

                  Federal Power Act shall mean the Federal Power Act,as amended.







                                      -18-

6091.BURNHAM.1106.47:1


<PAGE>


                  Federal securities shall have the meaning set forth in section
2.3(c) of the Indenture.

                  FERC shall mean the Federal  Energy  Regulatory  Commission of
the United States of America or any successor agency.

                  Final  Prospectus  shall mean the  Prospectus  included in the
Registration  statement  on the  date  the  same  becomes  effective,  including
documents  incorporated  into  said  Prospectus  by  reference,   including  any
applicable prospectus supplements.

                  Final Shutdown shall mean the earlier to occur of:

                  (1)  the  expiration  or  revocation  of the  License  or that
portion of the License that permits the  operation of Unit 2 or the  expiration,
suspension  or  revocation  of the License or that  portion of the License  that
permits the  possession  by the Lessee of the  Undivided  Interest  and the Real
Property Interest: or

                  (2) the suspension  (pursuant to 10 C.F.R.  section 2.202,  as
amended,  and any  successor  provision)  of the License or that  portion of the
License that permits the operation of Unit 2, which suspension remains in effect
for three consecutive calendar months; or

                  (3) the permanent or temporary  cessation of operation of Unit
2 as a result of a Nuclear  Incident at Unit 2 (or if Unit 2 is not in operation
immediately  prior to the  occurrence of such Nuclear  Incident,  the failure to
resume operation thereof as a result of such Nuclear Incident) if (A) the Period
of such cessation or failure equals or exceeds twenty-four  consecutive calendar
months,  or  (3)  such  Nuclear  Incident  causes  the  radiation  level  in the
containment  building  of Unit 2, as  measured  by the average of two high range
radiation  monitors in such containment  building of Unit 2 (or if only one such
monitor is  operating  at such  time,  such  monitor)  over one hour to equal or
exceed  500 rads per hour;  provided e however,  this  subsection  (B) shall not
apply in respect  of a Nuclear  Incident  arising  solely  from a fuel  handling
accident; or




                                      -l9-

6091. BURNMAM. 1106.55:1


<PAGE>


                  (4) the permanent or temporary  cessation of operation of Unit
2 as a result of a Nuclear  Incident at Unit 1 or 3 (the  Affected  Unit) (or if
Unit 2 is not in operation  immediately  prior to the occurrence of such Nuclear
Incident,  the failure to resume  operation  thereof as a result of such Nuclear
Incident)  if (A) the  Period of such  cessation  or  failure  equals or exceeds
thirty-six  consecutive calendar months; or (B) such Nuclear Incident causes the
radiation level in the containment building of the Affected Unit, as measured by
the average of two high range radiation  monitors in such  containment  building
(or if only one such monitor is operating at such time,  such  monitor) over one
hour to equal or exceed 500 rads per hour;  provided,  however,  this subsection
(B) shall not apply in respect of a Nuclear  Incident arising solely from a fuel
handling accident;

                  (5) The  occurrence  of a Nuclear  Incident  at Unit 1, 2 or 3
causing (A)  substantial  injury or death to any person on or off the PYNGS Site
or (B) a discharge or dispersal of Source, special Nuclear or Byproduct Material
from its intended place of confinement in amounts of f the PVNGS Site or causing
radiation  levels off the PVNGS Site such that, in the case of (B) above (x) the
NRC declares the occurrence of an Extraordinary  Nuclear  Occurrence or declares
any other event  connoting  an  equivalent  level of accident or (y) the surface
contamination  dose rate measured off the PVNGS Site by a radiation monitor at 1
meter  above  the  surface  level  equals  or is  greater  at any  time  than 10
millirads/hour (0.10  milligray/hour) or in the case of noble gas plume passage,
the radiation dose rate equals or is greater than 10 rads (0.10 gray) integrated
over 24 hours,  (or if the NRC  shall at any time  lower  the  radiation  levels
required for the occurrence of an Extraordinary  Nuclear Occurrence,  such lower
levels as shall be consistent with such change by the NRC); or

                  (6)  damage to or  destruction  of any  portion of Unit 2 and,
unless the Lessee  theretofore  shall have  exercised its purchase  option under
Section 13(b) of the Facility Lease, the failure of the Lessee, or of the Lessee
and one or more other ANPP  Participants,  (A) to agree within eighteen calendar
months of such damage or destruction  (or prior to such earlier date as of which
one or more other ANPP  Participants  shall agree to restore or reconstruct  any
damaged  portion  of  Unit  2 in  accordance  with  Section  16.2  of  the  ANPP
Participation Agreement) to restore or reconstruct Unit 2 to completion priot to
the  day  sixty  calendar  months  after  the  date of  such  agreement  and (B)



                                      -20-

6091.BURNHAM.1106.47:1


<PAGE>

thereafter to complete the  restoration  and  reconstruction  of unit 2 within a
period of sixty calendar months after the date of such agreement,  provided that
no Final Shutdown  shall be deemed to have occurred  pursuant to this clause (6)
if and so long as Unit 2 is in operation at a rated core power level of at least
1900 megawatts thermal; or

                  (7) the  non-operation of Unit 2 or the operation of Unit 2 at
a net rated power level below 630 megawatts electric or any combination  thereof
for any reason  (including,  without  limitation,  the occurrence of any Nuclear
Incident at any generating  facility located anywhere in the world) for a Period
of thirty-six  consecutive  calendar months (or a period through the penultimate
day of the Lease  Term if the Lessee  shall  have given  notice of its intent to
exercise the purchase  option  permitted by section 13(b) of the Facility Lease)
other than as a result of damage to or destruction of Unit 2.

For purposes of this definition,  a Final Shutdown resulting from the occurrence
of an event  described  in  clause  (5) above  shall be deemed to have  occurred
immediately and automatically  upon the decline of the water coolant within Unit
2 to a level three feet above the nuclear fuel.

                  Financing Documents shall mean the Collateral Trust Indenture,
the Term Note Supplemental Indenture,  the Underwriting Agreement, the Term Loan
Agreement,  the Supplemental  Indenture of Pledge and the Refunding Supplemental
Indenture.

Fixed  Rate Nate  shall  mean the  non-recourse  promissory  note or notes to be
issued by the Owner Trustee and  authenticated  by the Indenture  Trustee on the
Refunding Date to refund the Initial series Note.

                  Fixed Rate  Renewal  Term shall have the meanings set forth in
Section 12 of the Facility Lease.

                  FNB  shall  mean The First  National  Bank of  Boston,  in its
individual capacity, and its successors and assigns.







                                      -21-

6091. BURNHAM. 1106.55:1


<PAGE>


                  Form U-7D shall mean the  certificate  to be filed pursuant to
Rule 7(d) of the  Holding  Company Act for the  purpose of  exempting  the Owner
Participant  and the Owner Trustee from  registration  under the Holding Company
Act.

                  Funding  Corp  shall  mean  First PV  Funding  Corporation,  a
Delaware corporation.

                  Generating Unit shall mean Unit 1, 2, or 3.

         Generation Entitlement Share shall have the meaning assigned thereto in
the ANPP Participation Agreement and (i) when used in reference to Unit 2, shall
mean  the  Generation  Entitlement  Share of PNM as the  ANPP  Participant  with
respect to its interest in Unit 2,. (ii) when used in reference to the Undivided
Interest,   shall  mean  that  portion  of  the  Generation   Entitlement  Share
attributable to the Undivided  Interest and (iii) when used in Section 19 of the
Facility Lease, shall refer to the Generation Entitlement Share of the Lessee in
all Generating Units as PVNGS.

                  Governmental Action shall mean all  authorizations,  consents,
approvals,  waivers,  exceptions,   variances,  orders,  licenses,   exemptions,
publications,  filings,  notices to and declarations of or with any Governmental
Authority (other than routine reporting  requirements the failure to comply with
which will not affect the validity or  enforceability  of any of the Transaction
Documents or have a material adverse effect on the transactions  contemplated by
any  Transaction  Document or any  Financing  Document)  or any other  action in
respect of any Governmental Authority and shall include, without limitation, all
siting,  environmental and operating permits and licenses which are required for
the use and operation of Unit 2,  including the Undivided  Interest and the Real
Property Interest.

                  Governmental Authority shall mean any Federal,  state, county,
municipal,  foreign,  international,  regional or other governmental  authority,
agency, board, body, instrumentality or court, and the staff thereof pursuant to
their official responsibilities.







                                      -22-

6091.BURNHAM.1106.47:1

<PAGE>


                  Holders  shall mean the holders of the Notes or the Bonds,  as
the case may be.

                  Holding  Company  Act shall  mean the Public  utility  Holding
Company Act of 1935, as amended.

                  Indemnitee  shall  mean  the  Owner  Participant,   the  Owner
Trustee,  FNB, the Loan  Participant,  the  stockholder  of Funding Corp and its
officers and directors,  Chemical Bank, the Indenture Trustee,  each Holder of a
Note from time to time Outstanding, the Collateral Trust Trustee, the Trust, the
Trust  Estate,  the Lease  Indenture  Estate,  the  indenture  estate  under the
Collateral  Trust  Indenture,  any  Affiliate  of any of the  foregoing  and the
respective successors,  assigns, agents, officers, directors or employees of the
foregoing, excluding, however, any ANYP Participant other than the Owner Trustee
or the owner Participant.

                  Indenture shall mean the Trust Indenture,  Mortgage,  Security
Agreement  and  Assignment  of Rents,  dated as of August 12, 1986,  between the
Owner Trustee and the Indenture Trustee.

                  Indenture  Default shall mean an event which,  after giving of
notice or lapse of time, or both, would become an Indenture Event of Default.

                  Indenture  Event  of  Default  shall  mean  any of the  events
specified in Section 6.2 of the Indenture.

                  Indenture Trustee shall mean Chemical Bank, a New York banking
corporation,  not iri its individual  capacity,  but solely as Indenture Trustee
under the Indenture and each successor trustee and co-trustee thereunder.

                  Indenture  Trustee's  Liens shall mean Liens against the Lease
Indenture  Estate  which  result from acts of, or any failure to act by, or as a
result of claims against,  the Indenture  Trustee,  in its individual  capacity,
unrelated to the transactions contemplated by the Transaction Documents.

                  Indenture  Trustee's  office  shall  mean  the  office  of the
Indenture Trustee located at 55 Water Street,  New York, New York 10041, or such
other office as may be designated by the Indenture  Trustee to the Owner Trustee
and each Holder of a Note Outstanding under the Indenture.



                                      -23-

6091. BURNHAM. 1106.55:1


<PAGE>




                  Initial  series  Bonds  shall  mean  the  promissory  notes of
Funding  Corp  evidencing  the loans  made to  Funding  Corp under the Term Loan
Agreement, issued, authenticated and delivered under the Term Loan Agreement and
the Collateral  Trust Indenture,  as supplemented by the Term Note  Supplemental
Indenture.

                  Initial  series  Nate  shall mean the  nonrecourse  promissory
note,.  substantially in the form of Exhibit A to the Indenture, to be issued by
the Owner Trustee and authenticated by the Indenture Trustee on the Closing Date
to finance a portion of the Purchase Price.

                  Investment  shall have the  meaning  set forth in Section 3 of
the Participation Agreement.

                  Investment  Company Act shall mean the Investment  Company Act
of 1940, as amended.

                  Investment  Percentage shall mean the percentage identified as
such in Schedule 2 to the Participation Agreement.

                  IRS shall  mean the  Internal  Revenue  Service  of the United
States Department of the Treasury or any successor agency.

LADWP shall mean the Department of Water and Power of The City of Los Angeles, a
department  organized and existing under the charter of the City of Los Angeles,
a municipal corporation of the State of California.

                  Lease  Indenture  Estate  shall have the  meaning set forth in
Section 2.1 of the Indenture.

                  Lease Term shall mean the  aggregate  of the Basic  Lease Term
and the Renewal Term, if any.

                  Lease  Termination  Date  shall mean the last day of the Lease
Term (whether  occurring by reason of a  termination  or expiration of the Lease
Term).





                                      -24-

6091. BURNHAM. 1106.55:1


<PAGE>


                  Lessee shall mean Public Service Company of New Mexico, a flew
Mexico corporation, and its successors and assigns, as lessee under the Facility
Lease and as party to the other Transactions  Documents and Financing  Documents
to which it is a signatory.

                  Lessee  Request  shall mean a request of the Lessee  delivered
pursuant to section 6.03 of the Collateral Trust Indenture.

Lessor shall mean the Owner Trustee as lessor under the Facility  Lease (and for
purposes  of the  definition  of  "Deemed  1055  Event"  and where  the  context
otherwise so requires,  the owner Trustee in its individual  capacity),  and its
successors and assigns.

                  Lessor's  Interest shall have the meaning set forth in Section
8(c) (3) of the Participation Agreement.

                  Lessor' s Liens or Owner  Trustee'  s Liens  shall  mean Liens
against the Trust Estate or the Lease  Indenture  Estate  (other than  permitted
Liens  described in the  definition of such term,  except  "Lessor's  Liens" and
"Owner  Participant's  Liens" referred to in clause (vi) of such definition) for
which  the  Lessee is not  responsible  and  which  result  from acts of, or any
failure  to act  by,  or as a  result  of  claims  against,  niB or the  Lessor,
unrelated  to the  ownership  of the  Undivided  Interest  or the Real  Property
Interest,   the   administration   of  the  Trust  Estate  or  the  transactions
contemplated by the Transaction Documents or the Financing Documents.

                  Lessor's portion shall mean the owner Trustee's portion of the
original  10.2%  undivided  interest of the Lessee in Unit 2, the  percentage of
which is set forth in Schedule 2 to the Participation Agreement.

                  License shall mean NRC Facility  Operating License No. NPF-5l,
issued April 24, 1986  (superseding NRC Facility  operating  License No. NPF-46,
issued on  December 9, 1985),  as the same may be amended,  modified,  extended,
renewed or superseded from time to time.







                                      -25-

EQgl.BURNHAM. 1106.55:1


<PAGE>


                  License  Amendment  shall mean  amendment  number No. 2 to the
License,  issued August 12, 1986,  approving the sale and leaseback  transaction
contemplated by the Transaction Documents.

                  License  Expiration  Date shall mean  December 9, 2025, or any
later or earlier date on which the License shall expire or be terminated.

                  Lien  shall  mean any  mortgage,  pledge,  security  interest,
encumbrance, lien, easement, servitude or charge of any kind, including, without
limitation,  any conditional sale or other title retention agreement,  any lease
in the nature  thereof or the filing of, or  agreement  to give,  any  financing
statement under the Uniform Commercial Code of any jurisdiction.

                  Loan shall have the meaning  set forth in Section  2(a) of the
Participation Agreement.

                  Loan Participant shall mean Funding Corp.

                  Loan Percentage  shall mean the percentage  identified as such
in schedule 2 to the Participation Agreement.

                  Majority in Interest of Holders of Notes shall mean Holders of
a majority in principal amount of all Notes  Outstanding  under the Indenture at
the time of any such determination.

                  Material Project Agreements S h a 1 1 m a a n (i) Nuclear Fuel
Contract between Arizona Nuclear Power Project and Combustion Engineering,  Inc.
(CE),  dated as of August 20, 1973, (ii) Nuclear Steam Supply  Contract  between
APS and CE,  dated as of August 20, 1973,  as amended  (iii)  Turbine  Generator
Contract between APS and General Electric  Company,  dated as of March 21, 1974,
as amended (iv) Uranium  Enrichment  Services Contract between the United States
of America (USA) and APS, dated November 15, 1984, as amended and the Associated
Supplemental  Agreement of Settlement  between USA and APS,  dated  November 15,
1984, (v) Contract  between APS and Westinghouse  Electric  Corporation for fuel
fabrication  services for reload batches of nuclear fuel,  dated August 7, 1974,
as amended,  (vi)  Agreement for the Sale and Purchase  of.Waste  Water Effluent
between  the City of  Tolleson,  APS and Salt  River,  dated June 12,  1981,  as



                                      -26-

6091.BURNHAM. 1106.55:1


<PAGE>

amended  (vii)  Agreement  for  Construction  of Arizona  nuclear  Power Project
between  Bechtel power  Corporation  (Bechtel) and APS,  dated January 15, 1973,
(viii)  Agreement  for  Engineering  and  Procurement  Services  between APS and
Bechtel,  dated  January 15, 1973,  (ix) Option and  Purchase of Effluent  dated
April  23,  1973,  among  the  Cities  of  Phoenix,  Glendale,  Mesa,  Tempe and
Scottsdale,  the Town of  Youngtown,  APS and Salt River,  APS,  and salt River,
dated April 23, 1973,  (x)  Agreement for  Conversion  Services  between  Allied
Chemical  Corporation and An, dated November 17, 1975, as amended,  (xi) Uranium
Concentrate Sales Agreement  between Energy Fuels  Exploration  company and APS,
dated as of December 1, 1983, (xii) Uranium  Concentrate Sales Agreement between
Energy Fuels  Exploration  and APS,  dated as of October 23,  1981,  as amended,
(xiii)  Agreement  for Sale of Uranium  Concentrates  between  Pathfinder  Mines
Corporation  and APS,  dated  December 1, 1983,  (xiv)  Contract for Disposal of
Spent  Nuclear  Fuel and/or High Level  Radioactive  Waste  between USA and APS,
dated July 21, 1984, and the ANPP Participation Agreement.

                  Minimum  Net Worth  means a Net Worth  equal to the greater of
(x)  $700,000,000  and  Cy) (1)  $950,000,000  less  (2)  with  respect  to each
Generating Unit as to which PNM shall have entered into one or more transactions
constituting  sale and  leaseback  transactions  under  the  ANPP  Participation
Agreement (including,  but without limitation,  the transaction  contemplated by
the  Participation  Agreement),  (A)  $50,000,000  (in  the  case of Unit 1) and
$100,000,000 (in the case of each other Generating Unit) times (B) the aggregate
percentage of the Lessee's undivided interest in such PVNGS unit subject to such
transactions.

                Mortgage  Release shall mean the Indentures of Partial  Release,
each dated August 18, 1986, under and with respect to the Existing Mortgage.

                  Net Economic  Return shall mean the after-tax  economWc  yield
and periodic after-tax cash flows (after all Federal, state and local taxes) and
the  periodic  return on  investment  and the  timing of  tecognition  of income
originally  expected  by the Owner  Participant  with  respect to the  Undivided
Interest,  utilizing the same  assumptions  as used by the Owner  Participant in
making the original  cojnputation upon which its evaluation of investment in the
Undivided  Interest and the initial  computation of Basic Rent,  Casualty Value,
Special Casualty Value and Termination Value were based.

                                      -27-

6091.BURNHAM. 1106.55:1


<PAGE>


                  Net  Worth  means  the  excess  of  assets  over   liabilities
determined  by  the  Lesseets  auditors  on  the  basis  of  generally  accepted
accounting principles.

                  New Mexico Public utility Act shall mean the New Mexico Public
Utility Act, as amended.

                  NMPSC  shall mean the New  Mexico  Public  Service  Commission
established pursuant to Section 62-5-1 of New Mexico Statutes Annotated, 1978.

                  NMPSC order  shall mean the order  issued by the NMPSC on July
8, l986 in Case No. 2019 (Phase I), approving,  among other things, the terms of
the Facility Lease and the execution and delivery of the Facility Lease by PNM.

                  Non-Burdensome  Regulation s h a 1 1 m e a n (i) regulation to
which the Owner  Participant or the Owner Trustee is otherwise subject by reason
of its  lease  financing  or  other  activities  unrelated  to the  transactions
contemplated  by  the  Transaction   Documents,   (ii)  ministerial   regulatory
requirements which do not impose  limitations or regulatory  requirements on the
business or activities  of the Owner  Participant  and which are deemed,  in the
reasonable  discretion of the Owner  Participant,  not to be  burdensome,  (iii)
regulation  resulting from any possession of the Undivided  Interest on or after
the Lease  Termination  Date or (iv) regulation of the Owner Trustee which would
be  terminated  by the  appointment  of a successor  Owner Trustee or a co-Owner
Trustee pursuant to the terms of the Trust Agreement.

                  Nonseverable,   when  used  with   respect   to  any   Capital
Improvement, shall mean any Capital Improvement which is not a Severable Capital
Improvement.

                  Noteholder  shall mean any Holder  from time to time of a Note
Outstanding under the Indenture.

                  Notes  shall mean the  Initial  Series Note and the Fixed Rate
Note, the Releveraging Note and any other Additional Notes.




                                      -28-

6091. BURNHAM. 1106.55:1


<PAGE>


                  Notice of Closing  shall have the meaning set forth in Section
5(a) of the Participation Agreement.

                  NRC  shall  mean the  Nuclear  Regulatory  Commissiofl  of the
United States of America or any successor agency.

                  Nuclear  Incident shall have its meaning as defined in Section
11 of the Atomic Energy Act, as amended to the date hereof and as the meaning of
such term may be expanded from time to time by future  amendments  thereof.  The
definition of "nuclear incident"  contained in the Atomic Energy Act on the date
hereof is: "any  occurrence,  including  an  extraordinary  nuclear  occurrence,
within the United States  causing,  within or outside the United States,  bodily
injury,  sickness,  disease, or death, or loss of or damage to property, or loss
of use of property,  arising out of or resulting  from the  radioactive,  toxic,
explosive,  or  other  hazardous  properties  of  source,  special  nuclear,  or
byproduct  material:  Provided,  however,  that as the  term is used in  section
2210(1) of this title, it shall include any such  occurrence  outside the United
States:  And provided  further,  That as the term is used in section  2210(d) of
this title,  it shall include any such  occurrence  outside the united States if
such occurrence  involves source,  special nuclear,  or byproduct material owned
by, and used by or under contract with, the United States: And provided further,
That as the term is used in section  2210(c) of this title, it shall include any
such  occurrence  outside  both the United  states and any other  nation if such
occurrence arises out of or results from the radioactive,  toxic,  explosive, or
other hazardous  properties of source,  special nuclear,  or byproduct  material
licensed  pursuant to subchapters  V, VI, VII, and rx of this chapter,  which is
used in  connection  with the operation of a licensed  stationary  production or
utilization facility or which moves outside the territorial limits of the United
States in transit from one person  licensed by the  Commission to another person
licensed by the Commission."

                  Nuclear  Waste Act shall mean the Nuclear  Waste Policy Act of
1982, as amended, or any comparable successor law.






                                      -29-

6091. BURNHAM. 1106.55:1


<PAGE>


                  Officers'  Certificate  Shall m e a n a certificate  signed by
the  President  or  any  Vice  President  and by the  Treasurer,  any  Assistant
Treasurer,  the Secretary or any Assistant  Secretary of the Person with respect
to which such term is used.

                  Operating Agent shall have the meaning assigned thereto in the
ANPP Participation Agreement.

                  Original of the Facility  Lease shall mean the fully  executed
counterpart  of the Facility  Lease,  marked "This  Counterpart  is the Original
Counterpart",  pursuant to Section 22(e) of the Facility Lease and contaming the
receipt of the Indenture Trustee.

                  Outstanding,  when used with respect to the Notes, shall mean,
as  of  the  date  of  determination,   all  such  Notes   theretofare   issued,
authenticated  and delivered under the Indenture,  except (a) Notes  theretofore
cancelled by the  Indenture  Trustee or delivered to the  Indenture  Trustee for
cancellation,  (b)  Notes or  portions  thereof  for the  payment  of which  the
Indenture  Trustee holds (and has notified the holders thereof that it holds) in
trust for that purpose an amount  sufficient  to make full payment  thereof when
due, (c) Notes or portions thereof which have been pledged as collateral for any
obligations  of the obligor  thereof to the extent that an amount  sufficient to
make full  payment  of such  obligations  when due has been  deposited  with the
pledge.  of such Notes for the  purpose of holding  such amount in trust for the
payment of such  obligations in accordance with the indenture or agreement under
which such obligations are secured and Cd) Notes in exchange for, or in lieu of,
which other Notes have been issued,  authenticated and delivered pursuant to the
rndenture;  provided,  however,  that any Note  owned by the Lessee or the owner
Trustee or any Affiliate of either thereof shall be  disregarded  and deemed not
to be Outstanding for the purpose of any Directive.

                  Overdue Interest Rate shall mean the weighted average rate per
annum of interest  payable with respect to overdue  payments of principal on the
Notes Outstanding, computed as set forth in such Notes.






                                      -30-

6091.BURNHAM.1106.47:1


<PAGE>


                  Owner Participant shall mean Burnham Leasing Corporation,  and
the successors and assigns of such Person in accordance with the Trust Agreement
and the Participation Agreement.

                  Owner  Participant's  Liens shall mean Liens against the Trust
Estate or the Lease  Indenture  Estate (other than Permitted  Liens described in
the definition bf such term,  except "Lessor's  Liens" and "Owner  Participant's
Liens"  referred to in clause (vi) of such  definition)  for which the Lessee is
not responsible and which result from acts of, or any failure to act by, or as a
result of claims against,  the owner  Participant  unrelated to the transactions
contemplated by the Transaction Documents or the Financing Documents.

                  Owner Trustee shall mean The First National Sank of Boston,  a
national  banking  association,  not in its individual  capacity,  but solely as
Owner Trustee under the Trust Agreement (unless the context otherwise requires),
and each successor as trustee, separate trustee and co-trustee thereunder.

                  Participation   Aqrecment   shall   mean   the   Participation
Agreement,  dated as of August 12, 1986, among the Owner Trustee,  the Indenture
Trustee, Funding Corp, the Owner Participant and PNM.

                  Penalty  Rate  shall  mean 2% per annum in excess of the Prime
Rate.

                  Period of a stated duration in respect of any event shall mean
an  indefinite  period which can  reasonably be expected to exceed the lesser of
such duration and the period remaining to the date which is three years prior to
the end of the  remaining  Basic Lease Term (or if such event  occurs  after the
date three years prior to the end of the remaining  Basic Lease Term, the lesser
of six months and the period  remaining to the day next preceding the end of the
Basic  Lease  Term) or a stated  period in excess of the  lesser  thereof  or an
actual period which continues in excess of the lesser thereof.

                  Permitted  Liens  shall  mean (i) the  respective  rights  and
interests of the Lessee, the Owner Participant, the Lessor, the Loan Participant
and the Indenture Trustee,  as provided in the Transaction  Documents;  (ii) the


                                      -31-

6091. BURNHAM. 1106.55:1


<PAGE>

rights of any sublessee or assignee under a sublease or an assignment  permitted
by the terms of the Facility Lease;  (iii) the Lien of the Existing  Mortgage on
the leasehold  estate under the Facility Lease;  (iv) Liens for taxes either not
yet  due or  which  are  being  contested  in  good  faith  and  by  appropriate
proceedings  diligently  conducted,  so long as such  proceedings  shall not (x)
involve any danger of the sale,  forfeiture or loss of the undivided Interest or
the Real property Interest or any part thereof or interest therein of the Lessor
or the Owner participant,  (y) interfere with the use, possession or disposition
of the Undivided Interest or the Real Property Interest,  or any part thereof or
interest  therein,  or (z) impair payment of Rent;  (v) inchoate  materialmen's,
mechanics', workmen's, repairmen's,  employees', carriers',  warehouse-men's, or
other like Liens arising in the ordinary  course of business for PVNGS,  and not
delinquent;  (vi)  Lessor's  Liens,  owner  participant's  Liens  and  Indenture
Trustee' S Liens;  (vii)  choate Liens that have been bonded for the full amount
in dispute or as to which other  satisfactory  security  arrangements shall have
been made and which are being contested  diligently by the appropriate  party in
good faith and by appropriate  proceedings so long as such proceedings shall not
violate clause (x), (y) or (z) of clause (iv) above;  (viii) choate Liens of any
of the types  described  in clause (v) above that have been  bonded for the full
amount in dispute or as to which other satisfactory  security arrangements shall
have been made and which arise out of  judgments  or awards and with  respect to
which (A) an appeal or proceeding  for review is being  prosecuted in good faith
and for the  payment of which  adequate  reserves  shall have been  provided  as
required by generally accepted accounting practice and (B) there shall have been
secured a stay of execution  pending such appeal or  proceeding  for review,  so
long as such proceedings shall not violate clause (x), (y) or (z) of clause (iv)
above;  (ix) the rights and  interests  of the Lessee under the  Assignment  and
Assumption;  (x) the rights of the NRC under the License; (xi) the rights of the
ANPP  Participants  (other  than (i) the  Lessee  and (ii) any  Person who shall
become an ANPP  Participant  in respect of the  undivided  Interest and the Real
Property  Interest)  under the ANPP  Participation  Agreement  or any other ANPP
Project Agreement; (xii) Liens on the undivided ownership interests in Unit 2 of
the ANPP  participants  and other Persons (other than the Lessee) and (xiii) any
Liens arising by virtue of the ANFP participation Agreement.


                                      -32-

6091.BURNHAM.1106.47:1

<PAGE>


                  Person shall mean any  individual,  partnership,  corporation,
trust,  unincorporated  association  or  joint  venture,  a  government  or  any
department or agency thereof, or any other entity.

                  PNM shall mean Public  Service  Company of New  Mexico,  a New
Mexico corporation.

                  Price-Anderson Act shall mean the price-Anderson  Act, Pub. L.
No. 85-256, 71 Stat. 576 (1957), as amended to the Closing Date.

                  Pricing  Assumptions  shall mean the pricing  assumptions  set
forth in schedule 2 to the Participation Agreement.

                  Prime Rate shall mean the rate of interest publicly  announced
from time to time by Chemical Bank at its  principal  office in New York City as
its prime or base lending rate.  Any change in the Prime Rate shall be effective
on the date such change in the Prime Rate is announced.

                  Project  Insurance shall have the meaning  assigned thereto in
the ANPP Participation Agreement.

                  Project Manager shall have the meaning assigned thereto in the
ANPP Participation Agreement.

                  Purchase  Documents  shall mean the Bill of Sale, the Deed and
the  Assignment  of  Beneficial  Interest and such other  documents as the Owner
Participant,  the Owner Trustee,  the Indenture Trustee, the Loan Participant or
their  respective  counsel  shall deem  desirable to convey good and  marketable
title to the Undivided Interest and the Real Property Interest to the Trust.

                  Purchase  Price  shall have the  meaning  set forth in Section
4(a) of the Participation Agreement.

                  PVNGS shall mean the Arizona  Nuclear Power  Project,  as that
term is defined in the ANPP Participation Agreement.







                                      -33-
6091.BURNHAM. 1106.55:1


<PAGE>


                  PVNGS Site shall mean the  beneficial  interest in the Arizona
land trust and the real property described in Exhibit A to the Bill of Sale.

                  Real  Estate  Investment  shall have the  meaning set forth in
Section 3(a) of the Participation Agreement.

                  Real  Property  rnterest  shall  mean  the  right,  title  and
interest of the Owner Trustee  acquired  pursuant to the Deed and the Assignment
of Beneficial rnterest.

                  Reasonable Basis for a pcsition shall exist if tax counsel may
properly  advise  reporting  such  position on a tax return in  accordance  with
Formal  opinion   85-352  issued  by  the  Standing   Committee  on  Ethics  and
Professional Responsibility of the American Bar Association.

                  Refunding  Bonds shall mean Funding  Corp's  Lease  Obligation
Bonds series 19865,  issued,  authenticated  and delivered  under the Collateral
Trust rndenture,  as supplemented by the Refunding  Supplemental  Indenture,  as
described in the Underwriting Agreement.

                  Refunding  Date  shall  mean  the  date  of  issuance  of  the
Refunding Bonds.

                  Refunding  Loan  shall have the  meaning  set forth in Section
2(d) of the Participation Agreement.

                  Refunding Supplemental Indenture shall mean the Refunding Sand
Supplemental  Indenture,  among  PNM,  Funding  Corp  and the  Collateral  Trust
Trustee, supplementing the Collateral Trust Indenture and providing, among other
things, for the issuance of the Refunding Bonds.

                  Registration  Statement shall mean the registration  statement
on  Form  S-fl,  as  amended,  and any  other  similar  registration  statement,
including  all exhibits and all  documents  incorporated  therein by  reference,
filed with the SEC under the Securities Act in connection with the offer,  issue
and sale of the Refunding Bonds.





                                      -34-

6091.BURNHAM.llO6.55:1


<PAGE>


                  Regulations  shall  mean the income  tax  regulations  issued,
published or promulgated under the Code.

                  Releveraging Amount shall (i) mean the mitial principal amount
of each series of Releveraging  Bonds, but only in an amount equal to the amount
of the related Note or Notes issued in connection  with such Bonds,  or (ii) the
initial  principal amount of the Refunding Bonds to the extent such amount is in
excess of the Initial Series Bands being  refunded,  but only in an amount equal
to the amount that the  related  Fixed Rate Note or Notes  exceed the  aggregate
amount of the Initial Series Note and any Releveraging Notes theretofore issued.

                  Releveraging  Bonds shall mean a series of securities  issued,
authenticated  and delivered under the Collateral  Trust Indenture in accordance
with  Section 2.03  thereof,  part of the proceeds of which is used to refund to
the Owner Participant a portion of its Investment as provided in Section 3(b) of
the Participation Agreement.

                  Releveraging  Date  shall  mean  the date of  issuance  of the
Releveraging Bonds.

                  Releveraging  roan shall have the meaning specified in Section
2(c) of the Participation Agreement.

                  Releveraging Note shall mean the non-recourse promissory note,
substantially  in the form of the Initial  Series Note or, if the Refunding Date
shall have occurred,  the Fixed Rate Note, to be issued by the Owner Trustee and
authenticated by the Indenture Trustee on the Releveraging Date to refund to the
owner Trustee a portion of the Investment.

                  Renewal  Term  shall  mean  the  Fixed  Rate  Renewal  Term as
provided in Section 12 of the Facility  Lease.  Rent. Rent shall mean Basic Rent
and Supplemental.
                                      -35-

6091.BURNHAM.1106.47:1

<PAGE>


                  Rent Differential  shall have the meaning set forth in Section
3(h) of the Facility Lease.

                  Requisition of Title shall mean any  circumstance  or event in
consequence  of which Unit 2 or the  Undivided  Interest  shall be  condemned or
seized or title  thereto  shall be  requisitioned  or taken by any  Governmental
Authority under power of eminent domain or otherwise and all  administrative  or
judicial appeals opposing such  condemnation,  seizure or taking shall have been
exhausted or the period for such appeal shall have expired.

                  Requisition  of Urn shall  mean any  circumstance  or event in
consequence  of  which  the use of Unit 2 or the  Undivided  Interest  shall  be
requisitioned  or taken by any  Governmental  Authority  under  power of eminent
domain or otherwise, other than a Requisition of Title.

                  Responsible  officer  shall mean,  with respect to the subject
matter of any covenant,  agreement or  obligation of any party  contained in any
Transaction  Document,  the  President,  or any Vice  President,  Assistant Vice
President,  Treasurer,  Assistant  Treasurer or other  officer who in the normal
performance  of his  operational  responsibility  would have  knowledge  of such
matter and the requirements with respect thereto.

                Retained  Assets shall mean (i) the  Lessee's  interest in PVNGS
(other than the Undivided  Interest,  the related Generation  Entitlement Share,
and the Real Property  Interest),  (ii) Severable Capital  Improvements title to
the  undivided  interest in which is retained by the Lessee in  accordance  with
Section 8(e) of the Facility Lease, and (iii) any additional  interest in and to
PVNGS (other than the Undivided  Interest,  the related  Generation  Entitlement
Share and the Real Property  Interest) to which the Lessee  becomes  entitled in
consequence of Sections 16.2 or 23.5 of the ANPP Participation Agreement (except
as otherwise provided in Section 5(a) or 19 of the Facility Lease).

                  Sale  Proceeds  shall  mean,  with  respect to any sale of the
Undivided  Interest and the Real  Property  Interest by the Lessor to any Person
other than the Lessee, the gross proceeds of such sale payable in cash, less all
costs and expenses  whatsoever  incurred by the Lessor and the Owner participant
in connection therewith.



                                      -36-

6091.BURNHAM.1106.47:1


<PAGE>



                  Salt  River  shall  mean  Salt  River   Project   Agricultural
Improvement and power District, an Arizona agricultural improvement district.

                  SCPPA shall mean southern California public power Authority, a
California joint powers agency (doing business in Arizona as southern California
public power Authority Association).

                  SEC shall mean the securities  and Exchange  commission of the
United States of America, or any successor agency.

                  Section 6(c) Application shall mean Funding Corp's Application
for an Order under Section 6(c) of the Investment  company Act of 1940 exempting
First PV Funding  Corporation from all provisions of such Act, as filed with the
SEC on September 20, 1985, as amended.

                  Secured  obligations  shall  have  the  meaning  set  forth in
section 7(b)(4) of the participation Agreement.

                  Securities  Act  shall  mean the  securities  Act of 1933,  as
amended.

                  Securities Exchange Act shall mean the Securities Exchange Act
of 1934, as amended.

                  Severable,  when used with respect to any capital improvements
shall mean any capital  improvement  which can readily be removed from Unit 2 or
the  Common  Facilities  without  materially  damaging  unit  2  or  the  Common
Facilities  or  materially  diminishing  or  impairing  the  value,  utility  or
condition of Unit 2 or the common Facilities.

                  Source, special Nuclear or Byproduct Material shall have their
respective defined meanings as defined in section 11 of the Atomic Energy Act of
1954,  as amended to the date  hereof and as the  meanings of such terms may. be
expanded by future amendments thereof.






                                      -37-

6091. BURNHAM. 1106.55:1


<PAGE>


                  Southern  California  shall mean  Southern  California  Edison
Company, a California corporation.

                  Special  Casualty Value as of any date,  shall mean (i) during
the Basic Lease Term,  the  percentage of Facility Cost set forth  opposite such
date in Schedule 2 to the Facility  Lease,  and (ii) during the Renewal Term, if
any, the  unamortized  portion of the Fair Market  Sales Value of the  Undivided
Interest  determined  by  amortizing  ratably the Fair Market Sales Value of the
Undivided  Interest as of the day following the last day of the Basic Lease Term
in  semi-annual  steps over the period from such date to the License  Expiration
Date. Anything contained in the Facility Lease to the contrary  notwithstanding,
Special  Casualty  Value  shall be,  when added to all other  amounts  which the
Lessee is required to pay under Section 9(d) of the Facility Lease (taking into.
account any assumption of Notes by the Lessee),  under any  circumstances and in
any event,  in an amount at least  sufficient  to pay in full, as of any date of
payment,  the aggregate unpaid principal amount of all Notes  Outstanding at the
close of business on such date,  together  with  accrued and unpaid  interest on
such Notes.

                  Supplemental   Financing   shall  mean  a  financing   of  the
Supplemental  Financing Amount of Capital  Improvements made pursuant to Section
8(f) of the Facility Lease.

                  Special  Purchase  Event shall have the meaning  specified  in
section 13(c) of the Facility Lease.

                  Substituted Lessee shall have the meaning specified in Section
6.8(c) of the Indenture.

                  Supplemental  Financing Amount shall mean a Unit 2 Interest in
the cost of a Capital Improvement to Unit 2, and a Common Facilities Interest in
the cost of a Capital  Improvement to the Common Facilities,  or that portion of
such  interest  in such  cost  which  shall  not  exceed  (i) the  amount of the
increase, if any, in the Owner Participant's basis in the Undivided Interest for
purposes  of  section  1012 or 1016 of the  Code  as a  result  of such  Capital
Improvement less (ii) the amount of the related  Additional Equity Investment of
the Lessor, if.
any.




                                      -38-

6091.BURNHAM.1l06.55:l


<PAGE>


                  Supplemental  Indenture  of  Pledge  shall  have  the  meaning
specified in the Term Note Supplemental Indenture.

                  Supplemental  Rent shall have the meaning set forth in section
3(b) of the Facility Lease.

                  Surviving  Leessee shall have the meaning specified in Section
10(b) (3) (ii) of the Participation Agreement.

                  Tax  shall   mean  any  and  all  fees   (including,   without
limitation,  documentation,  recording,  license and registration  fees),  taxes
(including,  without limitation, net income, franchise, value added, ad valorem,
gross income,  gross receipts,  sales, use, property (personal or real, tangible
or  intangible)  excise and stamp  taxes),  levies,  imposts,  duties,  charges,
assessments,  or  withholdings  of any nature  whatsoever,  general or  special,
ordinary or extraordinary, together with any and all penalties, tines, additions
to tax and interest thereon.

                  Tax  Assumptions  shall  mean  the  assumptions  set  forth in
Section 1(a) of the Tax Indemnification  Agreement,  with respect to the Federal
income tax  consequences  of the  transactions  contemplated  by the Transaction
Documents.

                  Tax    Indemnification    Agreement   shall   mean   the   Tax
Indemnification  Agreement,  dated as of August 12,  1986,  between  PNM and the
Owner Participant.

                  Term Loan Agreemant  shall mean the Term Loan Agreement  dated
as of August  12,  1986  among  Funding  Corp,  PNM and the  banks  named on the
signature pages thereto.

                  Term Note  Supplemental  Indentre  shall mean the Series 19868
Term Note Supplemental  Indenture dated as of August 12, 1986 among PNM, Funding
Corp and the  Collateral  Trust  Trustee,  supplementing  the  Collateral  Trust
Indenture and  providing,  among other  things,  for the issuance of the Initial
series Bonds.







                                      -39-

6091. BURNHAM. 1106.55:1


<PAGE>


                  Termination  Date shall have the  meaning set forth in Section
14(a) of the Facility Lease.

                  Termination  Event  shall  mean any early  termination  of the
Facility Lease in accordance with Section 14 thereof.

                  Termination Notice shall have the meaning set forth in Section
14(a) of the Facility Lease.

                  Termination  obligation  shall have the  meaning  set forth in
Section 15.10.2 of the ANPP Participation Agreement (or any comparable successor
provision).

                  Termination  Value,  as of any Basic Rent  Payment Date during
the  Basic  Lease  Term,   shall  mean  the  percentage  of  Facility  Cost  set
forth.opposite such date in schedule 3 to the Facility Lease. Anything contained
in the Facility Lease to the contrary  notwithstanding,  Termination Value shall
be,  when added to all other  amounts  which the Lessee is required to pay under
section 14 of the Facility Lease,  under any  circumstances and in any event, in
an amount at least  sufficient  to pay in full as of any Basic Rent Payment Date
the aggregate unpaid  principal amount of all Notes  Outstanding at the close of
business on such date, together with accrued and unpaid interest on such Notes.

                  Transaction Documents shall mean the Participation  Agreement,
the Facility Lease, the Trust Agreement,  the Indenture,  the Extension  Letter,
the Tax  Indemnification  Agreement,  the Mortgage  Release,  the Assignment and
Assumption, each Purchase Document and the Notes.

                  Transaction  Expenses  shall  have the  meaning  set  forth in
Section 14(a) of the Participation Agreement.

                  Transfer  shall  mean  the  transfer,   by  bill  of  sale  or
otherwise, by the Lessor of all the Lessor's right, title and interest in and to
the Undivided  Interest and the Real Property  Interest and under the Assignment
and  Assumption  on an "as is,  where is" basis,  free and clear of all Lessor's
Liens  and  Owner   Participant's   Liens,  but  otherwise   without   recourse,
representation or warranty  (including an express  disclaimer of representations



                                      -40-

6091.BURNHAM.1106.47:1

<PAGE>

and warranties in a manner  comparable to that set forth in the second  sentence
of Section 6(b) of the Facility Lease),  together with the due assumption by the
transferee  of,  and the due  release of the Lessor  from,  all of the  Lessor's
obligations under the Assignment and Assumption and the Assignment of Beneficial
Interest by an instrument or instruments  satisfactory  in form and substance to
the Lessor and the Owner Participant.

                  Transferee  shall have the meaning assigned thereto in Section
15 of the Participation Agreement.

                  Trust shall mean the trust created by the Trust Agreement.

                  Trust  Agrement  shall mean the Trust  Agreement,  dated as of
August 12, 1986, between Burnham Leasing Corporation and FNB.

                  Trust  Estate shall have the meaning set forth in Section 2.03
of the Trust Agreement.

                  Trust  Indenture  Act shall  mean the Trust  Indenture  Act of
1939, as amended.

                  Trustee's   Expenses  shall  mean  any  and  all  liabilities,
obligations,  casts, compensation,  fees, expenses and disbursements (including,
without  limitation,  legal fees and expenses) of any kind and nature whatsoever
(other than such amounts as are included in Transaction  Expenses)  which may be
imposed on, incurred by or asserted against the Indenture  Trustee or any of its
agents, servants or personal representatives,  in any way relating to or arising
out of the Indenture, the Lease Indenture Estate, the Participation Agreement or
the Facility Lease, or any document  contemplated thereby, or the performance or
enforcement  of any of the terms  thereof,  or in any way relating to or arising
out of the  administration  of such  Lease  Indenture  Estate  or the  action or
inaction of the Indenture Trustee under the Indenture;  provided,  however, that
such amounts shall not include any Taxes or any amount  expressly  excluded from
the Lessee's  indemnity  obligations  pursuant to Section  13(a) or 13(b) of the
Participation Agreement.






                                      -41-

6091.BURNHAM.1l06.55:l


<PAGE>


                  UCC  or  Uniform   commercial  Code  shall  mean  the  Uniform
Commercial Code as in effect in any applicable jurisdiction.

                  Underwriting  Agreement  shall  mean  the  agreement  with the
underwriters  named therein  relating to the purchase,  sale and delivery of the
Refunding Bonds.

                  Undivided  Interest  shall mean the Unit 2 Interest  in Unit 2
and the Unit 2 Common Facilities  Interest in the Cannon  Facilities.  Where the
context so requires,  the  Undivided  Interest  includes the related  Generation
Entitlement Share.

                  Undivided   Interest   Indenture   Supplment  shall  mean  the
supplement  to the  Indenture,  substantially  in the form of Exhibit C thereto,
pursuant to which the Owner Trustee  causes the Undivided  Interest and the Real
Property Interest to be subjected to the Lien of the Indenture.

                  Uniform  System of Accounts  shall mean the Uniform  System of
Accounts prescribed for Public Utilities and Licensees subject to the provisions
ot the Federal  Power Act (Class A and Class B), 18 CER 101, as in effect on the
date of execution of the  Participation  Agreement,  as amended or modified from
time to time after such date.

                  Unit 1 and Unit 3 shall mean the Generating Units bearing such
designations at PVNGS.

                  Unit 2 shall mean the 1,270 megawatt  unit,  commonly known as
Unit 2, at PVNGS, all as more fully described in Item A of Exhibit B to the Bill
of sale,  together  with all Capital  Improvements  thereto,  but  excluding all
Common Facilities.

                  Unit  2  Common  Facilities  Interest  shall  mean  the  Owner
Trustee's 0.7555556% undivided interest in all Common Facilities.

                  Unit 2  Interest  shall mean a  percentage  equal to the Owner
Trustee's 2.2666667% undivided interest in all of Unit 2.






                                      -42-

6091. BURNMAM. 1106.55:1


<PAGE>


                  Unit 2  Retained  Assets  shall  mean  (i) all  resident  fuel
assemblies,  equipment and personal property constituting part of the Generating
Unit (as defined in the ANPP Participation  Agreement)  designated as Palo Verde
Nuclear  Generating  Station Unit 2 (other than common  facilities) but excluded
from Unit 2 as set forth in Stem A of Exhibit B to the Bill of Sale and (ii) all
equipment and personal and real property  constituting  PVNOS common  facilities
under the ANPP  Participatipn  Agreement but excluded from the Common Facilities
as set forth in Stem B of Exhibit a to the Bill of Sale.

                  User shall mean a Person  unrelated to PNM (within the meaning
of Section 318 of the Code)  possessing  the Undivided  Snterest after the Lease
Termination Date.

                  Weighted  Factor  means the  weighted  average  of the  annual
percentage  rates  (averaged  over the Basic  Lease Term and (x) if the  Pricing
Assumptions  contemplate the Lessor claiming  investment tax credits,  the basic
term of all other leases so  contemplating  (the SIC Leases) entered into by PNM
pursuant  to the  authority  granted  by the NMPSC  Order or (y) if the  Pricing
Assumptions do not contemplate the Lessor claiming  investment tax credits,  the
basic term of all other leases not so contemplating (the Non-ITC Leases) entered
into by PUn  pursuant to the  authority  granted by the NMPSC Order) Ci) as such
percentage  rates may be adjusted from time to time pursuant to the terms of the
Facility Lease and the rrc Leases or the Non-STC Leases, as the case may be, but
excluding any such  adjustments  in connection  with  supplemental  financing of
capital  improvements,  and (ii) adjusted to reflect the  amortization  over the
Basic Lease Term and the basic term of the rrc Leases or the Non-ITC Leases,  as
the case may be, of any gain or loss to the Lessee  from any hedging or interest
protection program  implemented by the Lessee with respect to the Notes and with
respect to the  comparable  notes to be issued with respect to the ITC Leases or
the Non-ITC Leases,  as the case may be, which, when multiplied by the aggregate
of the Purchase Price and the comparable  purchase prices payable by the lessors
under the ITC  Leases or the  Non-ITC  Leases,  as the case may be,  determines,
respectively,  the amount of Basic Rent payable under the Facility Lease and the
comparable basic rent payable under the ITC Leases or the Non-ITC Leases, as the
case may be.


                                      -43-

6091.BURNHAM.1106.47:1

<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 OR RENTS DATED AS OF
AUGUST 12, 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 August 12, 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 August 12, 1986 with Burnham
                               Leasing Corporation

                                     Lessor

                                       and

                      PUBLIC SERVICE COMPANY OF NEW MEXICO,

                                     Lessee

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

              Original Facility Lease Recorded on August 18, 1986,
                 as Instrument No. 86-439392 in Maricopa County
                               Recorder's Office.

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

6O91.BURNHAM.DEBT.146:1


<PAGE>


                  AMENDMENT NO. 1, dated as of November 18, 1986  (Amendment No.
1), to the Facility Lease dated as of August 12, 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 August 12,
1986, with Burnham 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  August  12,  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.BURNHAM.DEBT.146:l


<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  .024553111%  of Facility
        Cost times the actual number of days from and including  August 18, 1986
        to,  but   excluding,   January  15,  1987,   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,  2016,  an amount  equal to  4.4195600%  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 "0.8% of Facility Cost" with "1.3% of Facility Cost". Section
3(e) (iv) is hereby  amended to insert (x)  "(other  than a change in items 4, 9
(as to the basis for amortization of Transaction  Expenses),  15, 17 and 19, 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-

6091.BURNHAM.DEBT.146:l


<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 7.54978%
        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."

                  (h) (1) The second  sentence of Section 9(d) is hereby amended
to read in its entirety as follows:

                  "On the  fifteenth day of the month during which a Deemed Loss
        Event  shall have  occurred  (or,  if such Deemed Loss Event shall occur
        after the  fifteenth  day of such month,  the  fifteenth day of the next
        following month),  the Lessee shall pay to the Lessor an amount equal to
        the excess of (i) Special  Casualty Value determined as of the date such
        payment is due over (ii) 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."







                                       -3-
6091.BURNHAM.DEBT.146:l




        (2) The following new sentence is hereby inserted immediately  following
the second sentence of Section 9(d), as amended by the preceding paragraph (1):

        "If such fifteenth day is a Basic Rent Payment Date, the portion of such
     amount equal to Basic Rent otherwise due on such date shall be deemed to be
     an  installment  of Basic Rent for all purposes  hereof and of Sections 5.1
     and 5.2 of the Indenture."

         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
$1,512,636.49  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.

         (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 such 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  mandatorily  applicable
hereto,

         (e) Disclosure.  Pursuant to Arizona Revised  Statutes  Section 33-401,
the  beneficiary of the Trust Agreement is Burnham  Leasing  Corporation,  a New
York corporation.  The address of the beneficiary is 60 Broad Street,  New York,
New York 10004, Attention: Assistant Treasurer. 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.


                                       -4-
609l.BURNHAM.DEBT.146:l


<PAGE>



         (f) Amendment No. 1. The single executed original of this Amendment No.
1 marked "THIS  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".


























                                       -5-
6091.BURNHAM.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 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  August  12,  1986,  with
                                        Burnham Leasing Corporation

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

                                       PUBLIC SERVICE COMPANY OF NEW MEXICO,


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






























                                       -6-
6091.BURNHAM.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. Santiago
                                            Notary Public, State of New York
                                                     No. 41-345160
                                              Qualified in Queens County
                                            Commission Expires March 30, 1987


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


                  The foregoing  instrument was acknowledged before me this 24th
day of November, 1986, by Martin P. Henry, Assistant Vice President at 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
August 12, 1986 with Burnham Leasing Corporation.


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


                                                     David A. Spivak
                                            Notary Public, State of New York
                                                      No. 31-4693463
                                               Qualified in New York County
                                            Commission Expires March 30, 1987






                                       -7-

6091.BURNHAM.DEBT.146:l


<PAGE>




                                                                      SCHEDULE 1
                                                                              to
                                                                 AMENDMENT NO. 1

                           SCHEDULE OF CASUALTY VALUES

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

1/15/1987        104.0505748              1/15/2005             69.0763910
7/15/1987        105.8018101              7/15/2005             67.3933069
1/15/1988        105.1525583              1/15/2006             64.7514850
7/15/1988        104.5152596              7/15/2006             62.6287747
1/15/1989        105.4381490              1/15/2007             60.4185648
7/15/1989        104.4749057              7/15/2007             58.1488078
1/15/1990        105.0854100              1/15/2008             55.7958028
7/15/1990        103.7620773              7/15/2008             53.3846790
1/15/1991        104.0421878              1/15/2009             51.0230738
7/15/1991        102.4512318              7/15/2009             48.7033199
1/15/1992        102.4826532              1/15/2010             46.4482298
7/15/1992        100.6234215              7/15/2010             44.2745691
1/15/1993        100.3856266              1/15/2011             42.2110179
7/15/1993        100.0054158              7/15/2011             40.2799103
1/15/1994        99.4690803               1/15/2012             38.5171132
7/15/1994        98.7690349               7/15/2012             36.9518951
1/15/1995        97.8900254               1/15/2013             33.3071917
7/15/1995        98.6232891               7/15/2013             33.4139011
1/15/1996        98.9722892               1/15/2014             31.2993913
7/15/1996        97.6544891               7/15/2014             28.9352572
1/15/1997        95.9561142               1/15/2015             26.3007332
7/15/1997        94.0536182               7/15/2015             23.3623639
1/15/1998        92.1839260               1/15/2016             20.6281891
7/15/1998        90.3855211
1/15/1999        88.8457839
7/15/1999        87.6920480
1/15/2000        86.0511887
7/15/2000        84.8210534
1/15/2001        83.0720147
7/15/2001        81.7621018
1/15/2002        79.8978801
7/15/2002        78.3031112
1/15/2003        76.5162549
7/15/2003        75.0312334
1/15/2004        72.9138145
7/15/2004        71.3328071

<PAGE>

                                                                     SCHEDULE 2
                                                                             to
                                                                AMENDMENT NO. 1

                       SCHEDULE OF SPECIAL CASUALTY VALUES

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

15 SEP 1986             104.59195              15 SEP 1989           103.39672
15 OCT 1986             105.17691              15 OCT 1989           104.20612
15 NOV 1986             106.23461              15 NOV 1989           105.04647
15 DEC 1986             106.43730              15 DEC 1989           105.89036
15 JAN 1987             106.45542              15 JAN 1990           106.69602
15 FEB 1987             104.51180              15 FEB 1990           103.05927
15 MAR 1987             105.58777              15 MAR 1990           103.88038
15 APR 1987             106.58044              15 APR 1990           104.68615
15 MAY 1987             107.56967              15 MAY 1990           105.46547
15 JUN 1987             108.61131              15 JUN 1990           106.27527
15 JUL 1987             109.58322              15 JUL 1990           107.04630
15 AUG 1987             106.13307              15 AUG 1990           103.39445
15 SEP 1987             105.38861              15 SEP 1990           102.42679
15 OCT 1987             106.32935              15 OCT 1990           103.17890
15 NOV 1987             107.32841              15 NOV 1990           103.96101
15 DEC 1987             108.33354              15 DEC 1990           104.74578
15 JAN 1988             107.06393              15 JAN 1991           105.49135
15 FEB 1988             103.54673              15 FEB 1991           101.84293
15 MAR 1988             104.48928              15 MAR 1991           102.61596
15 APR 1988             105.40607              15 APR 1991           103.37303
15 MAY 1988             106.29643              15 MAY 1991           104.10341
15 JUN 1988             107.22367              15 JUN 1991           104.86331
15 JUL 1988             108.10805              15 JUL 1991           105.58423
15 AUG 1988             104.55589              15 AUG 1991           101.91001
15 SEP 1988             103.70422              15 SEP 1991           100.89844
15 OCT 1988             104.56406              15 OCT 1991           101.60677
15 NOV 1988             105.46229              15 NOV 1991           102.34412
15 DEC 1988             106.36498              15 DEC 1991           103.08359
15 JAN 1989             107.22039              15 JAN 1992           103.78420
15 FEB 1989             103.64084              15 FEB 1992           100.08898
15 MAR 1989             104.52005              15 MAR 1992           100.81485
15 APR 1989             105.38040              15 APR 1992           101.52442
15 MAY 1989             106.21814              15 MAY 1992           102.21227
15 JUN 1989             107.08726              15 JUN 1992           102.92533
15 JUL 1989             107.91856              15 JUL 1992           103.60454
15 AUG 1989             104.30785              15 AUG 1992           99.88324

                                   Page 1 of 5

6091.BURNHAM.DEBT.146:1


<PAGE>


                                                                     SCHEDULE 2
                                                                             to
                                                                AMENDMENT NO. 1

                       SCHEDULE OF SPECIAL CASUALTY VALUES

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

15 SEP 1992              100.58271             15 SEP 1995          96.07057
15 OCT 1992              101.24859             15 OCT 1995          96.62388
15 NOV 1992              101.93917             15 NOV 1995          97.17727
15 DEC 1992              102.63130             15 DEC 1995          97.73075
15 JAN 1993              103.28980             15 JAN 1996          98.28432
15 FEB 1993              99.54696              15 FEB 1996          94.41009
15 MAR 1993              100.22467             15 MAR 1996          94.95505
15 APR 1993              100.88807             15 APR 1996          95.50010
15 MAY 1993              101.52839             15 MAY 1996          96.04524
15 JUN 1993              102.19280             15 JUN 1996          96.59048
15 JUL 1993              102.82365             15 JUL 1996          97.13581
15 AUG 1993              99.05227              15 AUG 1996          93.25294
15 SEP 1993              99.70108              15 SEP 1996          93.78927
15 OCT 1993              100.61661             15 OCT 1996          94.32570
15 NOV 1993              100.95566             15 NOV 1996          94.86223
15 DEC 1993              101.59566             15 DEC 1996          95.39884
15 JAN 1994              102.20232             15 JAN 1997          95.93556
15 FEB 1994              98.40583              15 FEB 1997          92.04367
15 MAR 1994              99.02924              15 MAR 1997          92.57099
15 APR 1994              99.63812              15 APR 1997          93.09841
15 MAY 1994              100.22395             15 MAY 1997          93.62592
15 JUN 1994              100.83260             15 JUN 1997          94.15354
15 JUL 1994              101.40799             15 JUL 1997          94.68125
15 AUG 1994              97.57920              15 AUG 1997          90.77860
15 SEP 1994              98.16994              15 SEP 1997          91.29515
15 OCT 1994              98.72770              15 OCT 1997          91.81180
15 NOV 1994              99.30764              15 NOV 1997          92.32856
15 DEC 1994              99.8784               15 DEC 1997          92.84542
15 JAN 1995              100.43497             15 JAN 1998          93.36238
15 FEB 1995              96.57690              15 FEB 1998          89.44841
15 MAR 1995              97.13802              15 MAR 1998          89.95364
15 APR 1995              97.69922              15 APR 1998          90.45898
15 MAY 1995              98.26050              15 MAY 1998          90.96443
15 JUN 1995              98.82187              15 JUN 1998          91.97065
15 JUL 1995              99.32333              15 JUL 1998          91.97065
15 AUG 1995              95.51766              15 AUG 1998          88.05147
                                               15 SEP 1998          88.54650

                                   Page 2 of 5

6091.BURNHAM.DEBT.146:1


<PAGE>

                                                                     SCHEDULE 2
                                                                             to
                                                                AMENDMENT NO. 1

                           SCHEDULE OF CASUALTY VALUES

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


15 OCT 1998             89.04164             15 OCT 2001             79.51497
15 NOV 1998             89.53689             15 NOV 2001             79.95860
15 DEC 1998             90.03225             15 DEC 2001             80.40237
15 JAN 1999             90.54443             15 JAN 2002             80.86667
15 FEB 1999             86.59955             15 FEB 2002             76.86359
15 MAR 1999             87.08502             15 MAR 2002             77.29734
15 APR 1999             87.57060             15 APR 2002             77.72925
15 MAY 1999             88.07359             15 MAY 2002             78.18240
15 JUN 1999             88.56545             15 JUN 2002             78.62197
15 JUL 1999             89.07486             15 JUL 2002             79.08297
15 AUG 1999             85.11106             15 AUG 2002             75.05889
15 SEP 1999             85.58995             15 SEP 2002             75.48268
15 OCT 1999             86.06895             15 OCT 2002             75.90663
15 NOV 1999             86.54808             15 NOV 2002             76.33074
15 DEC 1999             87.02733             15 DEC 2002             76.75500
15 JAN 2000             87.52455             15 JAN 2003             77.20119
15 FEB 2000             83.56212             15 FEB 2003             73.47885
15 MAR 2000             84.03082             15 MAR 2003             73.59029
15 APR 2000             84.49964             15 APR 2003             74.00189
15 MAY 2000             84.98907             15 MAY 2003             74.43620
15 JUN 2000             85.46259             15 JUN 2003             74.85099
15 JUL 2000             85.95688             15 JUL 2003             75.29869
15 AUG 2000             81.97426             15 AUG 2003             71.25179
15 SEP 2000             82.43595             15 SEP 2003             71.6575
15 OCT 2000             82.89776             15 OCT 2003             72.05788
15 NOV 2000             83.35970             15 NOV 2003             72.46117
15 DEC 2000             83.82178             15 DEC 2003             72.86463
15 JAN 2001             84.30306             15 JAN 2004             73.29153
15 FEB 2001             80.3292              15 FEB 2004             69.24602
15 MAR 2001             80.77274             15 MAR 2004             69.63631
15 APR 2001             81.22369             15 APR 2004             70.02626
15 MAY 2001             81.69453             15 MAY 2004             70.44049
15 JUN 2001             82.15265             15 JUN 2004             70.83920
15 JUL 2001             82.63083             15 JUL 2004             71.26239
15 AUG 2001             78.62814             15 AUG 2004             67.19117
15 SEP 2001             79.07148             15 SEP 2004             67.57192

                                   Page 3 of 5

6091.BURNHAM.DEBT.146:1
<PAGE>

                                                                     SCHEDULE 2
                                                                             to
                                                                AMENDMENT NO. 1

                           SCHEDULE OF CASUALTY VALUES

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

15 OCT 2004             67.95285               15 OCT 2007          53.98194
15 NOV 2004             68.53396               15 NOV 2007          54.29457
15 DEC 2004             68.71525               15 DEC 2007          54.60760
15 JAN 2005             69.12158               15 JAN 2008          54.95157
15 FEB 2005             65.05242               15 FEB 2008          50.77987
15 MAR 2005             65.41912               15 MAR 2008          51.06719
15 APR 2005             65.78600               15 APR 2008          51.36810
15 MAY 2005             66.17882               15 MAY 2008          51.69209
15 JUN 2005             66.55506               15 JUN 2008          51.99590
15 JUL 2005             66.93746               15 JUL 2008          52.53180
15 AUG 2005             62.86032               15 AUG 2008          48.20391
15 SEP 2005             63.21740               15 SEP 2008          48.49580
15 OCT 2005             63.57466               15 OCT 2008          48.82139
15 NOV 2005             63.93213               15 NOV 2008          49.12621
15 DEC 2005             64.78979               15 DEC 2008          49.43193
15 JAN 2006             64.57421               15 JAN 2009          49.77180
15 FEB 2006             60.57791               15 FEB 2009          45.64596
15 MAR 2006             60.91863               15 MAR 2009          45.91033
15 APR 2006             61.27117               15 APR 2009          46.25020
15 MAY 2006             61.64393               15 MAY 2009          46.58662
15 JUN 2006             61.99900               15 JUN 2009          46.90166
15 JUL 2006             62.38217               15 JUL 2009          47.25303
15 AUG 2006             58.24530               15 AUG 2009          43.13635
15 SEP 2006             58.57439               15 SEP 2009          43.44146
15 OCT 2006             58.93160               15 OCT 2009          43.73421
15 NOV 2006             59.27049               15 NOV 2009          44.10493
15 DEC 2006             59.60975               15 DEC 2009          44.42770
15 JAN 2007             59.97797               15 JAN 2010          44.79614
15 FEB 2007             55.83424               15 FEB 2010          40.68098
15 MAR 2007             56.14877               15 MAR 2010          40.99417
15 APR 2007             56.47601               15 APR 2010          41.32551
15 MAY 2007             56.82482               15 MAY 2010          41.63727
15 JUN 2007             57.15472               15 JUN 2010          42.02655
15 JUL 2007             57.51465               15 JUL 2010          42.40673
15 AUG 2007             83.34818               15 AUG 2010          38.31557
15 SEP 2007             53.64975               15SEP2010            38.64649
                                               15 OCT 2009          39.02069
                                               15 NOV 2009          39.37173
                                               15 DEC 2009          39.72610

                                   Page 4 of 5

6091.BURNHAM.DEBT.146:1
<PAGE>

                                                                     SCHEDULE 2
                                                                             to
                                                                AMENDMENT NO. 1

                           SCHEDULE OF CASUALTY VALUES

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

15 JAN 2011             40.12442               15 OCT 2013          26.39005
15 FEB 2011             36.04908               15 NOV 2013          26.73997
15 MAR 2011             36.39654               15 DEC 2013          27.09489
15 APR 2011             36.76528               15 JAN 2014          27.50297
15 MAY 2011             37.16883               15 FEB 2014          23.14938
15 JUN 2011             37.54874               15 MAR 2014          23.42703
15 JUL 2011             37.97548               15 APR 2014          23.72939
15 AUG 2011             33.92654               15 MAY 2014          24.06982
15 SEP 2011             34.30133               15 JUN 2014          24.38303
15 OCT 2011             34.72530               15 JUL 2014          24.74872
15 NOV 2011             35.12507               15 AUG 2014          20.35295
15 DEC 2011             35.52991               15 SEP 2014          20.59892
15 JAN 2012             35.98474               15 OCT 2014          20.87032
15 FEB 2012             31.96165               15 NOV 2014          21.12698
15 MAR 2012             32.36322               15 DEC 2014          21.32693
15 APR 2012             32.78981               15 JAN 2015          21.69851
15 MAY 2012             33.25636               15 FEB 2015          17.24736
15 JUN 2012             33.69833               15 MAR 2015          17.42486
15 JUL 2012             34.19360               15 APR 2015          17.62597
15 AUG 2012             30.04604               15 MAY 2015          17.86351
15 SEP 2012             30.44516               15 JUN 2015          18.07216
15 OCT 2012             30.89753               15 JUL 2015          13.33161
15 NOV 2012             31.32460               15 AUG 2015          13.82749
15 DEC 2012             31.75991               15 SEP 2015          13.95116
15 JAN 2013             32.24565               15 OCT 2015          14.12428
15 FEB 2013             27.97353               15 NOV 2015          14.26748
15 MAR 2013             28.33295               15 DEC 2015          14.41234
15 APR 2013             28.71865               15 JAN 2016          14.60697
15 MAY 2013             29.14395
15 JUN 2013             29.54340
15 JUL 2013             29.99673
15 AUG 2013             25.68962
15 SEP 2013             26.01349

                                   Page 5 of 5

6091.BURNHAM.DEBT.146:1
<PAGE>

                                                                    SCHEDULE 3
                                                                            to
                                                               AMENDMENT NO. 1

                           SCHEDULE OF CASUALTY VALUES

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

1/15/1987               103.0602435           1/15/2005            64.9164310
7/15/1987               104.7711995           7/15/2005            63.0641505
1/15/1988               102.3213300           1/15/2006            60.2462503
7/15/1988               103.3991088           7/15/2006            57.9403004
1/15/1989               102.5379014           1/15/2007            55.5393979
7/15/1989               103.2661149           7/15/2007            53.0711925
1/15/1990               102.0687545           1/15/2008            50.5116675
7/15/1990               102.4529575           7/15/2008            47.8856240
1/15/1991               100.9211226           1/15/2009            45.3003578
7/15/1991               101.0334556           7/15/2009            42.7478461
1/15/1992               99.2485124            1/15/2010            40.2505313
7/15/1992               99.0879706            7/15/2010            37.8247939
1/15/1993               98.7877249            1/15/2011            35.4989135
7/15/1993               98.3425233            7/15/2011            33.2948070
1/15/1994               97.7385536            1/15/2012            31.2489074
7/15/1994               96.9681431            7/15/2012            29.3870317
1/15/1995               96.0158658            1/15/2013            27.4346454
7/15/1995               96.6729025            7/15/2013            25.221157
1/15/1996               96.9425753            1/15/2014            22.7734275
7/15/1996               95.5422215            7/15/2014            20.0625201
1/15/1997               93.7579350            1/15/2015            17.0671186
7/15/1997               91.7660333            7/15/2015            13.7531940
1/15/1998               89.8052991            1/15/2016            10.6291891
7/15/1998               87.9080679
1/15/1999               86.2675661
7/15/1999               85.0089674
1/15/2000               83.5589801
7/15/2000               81.9152784
1/15/2001               80.0480541
7/15/2001               78.6151489
1/15/2002               76.6229324
7/15/2002               75.0949627
1/15/2003               72.9694881
7/15/2003               71.3402103
1/15/2004               69.0726678
7/15/2004               67.3354309


6091.BURNHAM.DEBT.146:1

<PAGE>

When Recorded, Return to:  Greg R. Nielsen
                           Snell & Wilmer
                           3100 Valley Bank Carter
                           Phoenix, Arizona 89073




        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 AUGUST 12, 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 November 25, 1986

                                       to
 
                                FACILITY LEASE
                          Dated as of August 12, 1986,
                             am 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 August 12, 1986, with Burnham
                             Leasing Corporation, as

                                     Lessor

                                       and

                      PUBLIC SERVICE COMPANY OF NEW MEXICO, as

                                     Lessee
                                                                              
================================================================================
              Original Facility Lease Recorded on August 18, 1986,
                as Instrument No. 86-439392 and Amendment No.1 to
              the Facility Lease Recorded on November 25, 1986, as
                Instrument No. 86-650751, all in Maricopa county
                               Recorder's office.

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



<PAGE>


                AMENDMENT  N0. 2, dated as of November 25, 1986  (Amendment  No.
2), to the Facility  Lease dated as of August 12, 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 August  12,  1986,  with  Burnham  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  August  12,  1986 (the  Facility  Lease),
providing  for the lease by the Lessor to the Lessee of the  Undivided  Interest
and the Real Property Interest;

                  WHEREAS,  the Leases and the Lessor  have  heretofore  entered
into  Amendment  No.1 to the  Facility  Lease,  dated as of  November  18,  1986
(Amendment  No. 1),  providing for,  among other things,  certain  amendments to
section 3(a) of the Facility Lease;

                  WHEREAS, the Lessee and the Lessor desire to make a correction
to Amendment No. 1, to correct a mathematical mistake made in the calculation of
Basic Rent in connection therewith; and

                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 terms in Appendix A to the Facility Lease.



<PAGE>


                SECTION 2. Amendments.

                (a)  section  3(a) (i) of the  Facility  Lease  (as  amended  by
Amendment No. 1) is deleted in its entirety.

                (b)(l)  section  3(a)(ii) of the Facility  Lease,  as amended by
Amendment No. 1, becomes "Section 3(a)(i)" and is further amended to read in its
entirety as follows:

        "(i) on January 15, 1987 and on each Basic Rent Payment Date  thereafter
        to and  including  January 15, 2016,  an amount equal to  4.4195613%  of
        Facility Cost, plus or minus the Rent Differential,  if any, referred to
        in section 3(h) hereof; and".

                (2) section 3(a)(iii) of the Facility Lease becomes section 3(a)
(ii) and the phrase  "clause (ii) of this Section 3 (a)"  immediately  preceding
the  parenthetical  is deleted and  replaced  by the phrase  "clause (i) of this
section 3(a)".

                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. 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  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.

                                       -2-


<PAGE>


                (d)  Disclosure.  Pursuant to Arizona Revised  Statutes  Section
33-401, the beneficiary of the Trust Agreement is Burnham Leasing Corporation, a
New York  Corporation.  The address of the  beneficiary is 60 Broad Street,  New
York,  New York  10004,  Attention:  Assistant  Treasurer.  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.  2. The  single  executed  original  of this
Amendment  No. 2 marked  "THIS  COUTTERPART  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  tease 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
                                              August  12,  1986,   with  Burnham
                                              Leasing Corporation

                                          By  /s/ Martin P. Henry
                                              ------------------------------
                                                 Assistant Vice President



                                          PUBLIC SERVICE COMPANY OF NEW MEXICO,


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






















6091.BURNHAM.DEBT.146A:


<PAGE>


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


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


                                                   ----------------------------
                                                     /s/ Delia T. Santiago

                                                       Notary Public
                                                     DELIA T. SANTIAGO
                                              Notary Public State of New York
                                                        No 41-3451160
                                                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 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
August 12, 1985, with Burnham Leasing Corporation.



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

                                                       DAVID A. SPIVAK
                                             Notary Public, State of New York
                                                       No. 31-4693468
                                                Qualified in New York County
                                             Commission Expires March 30, 1987

<PAGE>