AMENDMENT AND SUPPLEMENT NO. 1

                                       TO

                 SUPPLEMENTAL AND ADDITIONAL INDENTURE OF LEASE

                                     BETWEEN

                           THE NAVAJO TRIBE OF INDIANS

                                       AND

                         ARIZONA PUBLIC SERVICE COMPANY,

                            EL PASO ELECTRIC COMPANY,

                      PUBLIC SERVICE COMPANY OF NEW MEXICO,

                   SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT

                               AND POWER DISTRICT,

                       SOUTHERN CALIFORNIA EDISON COMPANY,

                                       AND

                          TUCSON ELECTRIC POWER COMPANY



                                    

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                         AMENDMENT AND SUPPLEMENT NO. 1

                                       TO

                 SUPPLEMENTAL AND ADDITIONAL INDENTURE OF LEASE

                                TABLE OF CONTENTS


         SECTION                                                  PAGE
         -------                                                  ----
 1.      Parties                                                     1
 2.      Recitals                                                    1
 3.      Agreement                                                   3
 4.      Effective Date                                              6
 5.      Leasing Provisions                                          6
 6.      Consent to Grants of Rights-of-Way
           by Secretary                                             21
 7.      Relocation Procedures                                      21
 8.      Future Rights-of-Way                                       22
 9.      Rental For Additional Land                                 26
10.      Lease Rentals                                              28
11.      Water Rights                                               30
12.      Labor Policy                                               31
13.      Navajo Scholarships                                        31
14.      Supplemental Lease to Remain in Effect                     33


                                    

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                         AMENDMENT AND SUPPLEMENT NO. 1

                                       TO

                      SUPPLEMENTAL AND ADDITIONAL OF LEASE


 1.      PARTIES:
         The Parties to this Amendment and Supplement No. 1 to Supplemental  and
         Additional  Indenture of Lease  (hereinafter  referred to as "Amendment
         No. 1") are THE NAVAJO  TRIBE OF  INDIANS,  acting  through  the Navajo
         Tribal  Council and its  chairman for and on behalf of the Navajo Tribe
         of Indians  (hereinafter)  referred to as the "Tribe"),  as Lessor, and
         ARIZONA  PUBLIC  SERVICE  COMPANY,  EL PASO  ELECTRIC  COMPANY,  PUBLIC
         SERVICE  COMPANY  OF  NEW  MEXICO,  SALT  RIVER  PROJECT   AGRICULTURAL
         IMPROVEMENT AND POWER DISTRICT, SOUTHERN CALIFORNIA EDISON COMPANY, and
         TUCSON ELECTRIC POWER COMPANY,  formerly Tucson Gas & Electric  company
         (hereinafter collectively,  together with their successors and assigns,
         referred  to as  "Lessees,"  and singly  referred to as  "Lessee"),  as
         Lessees.

 2.      RECITALS:
         The Parties are entering into this Amendment No. 1 with reference to 
         the following facts, among others:
         2.1   Effective July 6, 1966, the Parties entered into the Supplemental


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               and Additional  Indenture of Lease ("Supplemental Lease"), which
               among  other  things  amended the  Amended  Original  Lease in
               certain  respects  and further  granted  the  Lessees  certain
               leasehold  rights to  construct,  reconstruct,  use,  operate,
               maintain, locate, and remove the Four Corners Project.
         2.2   Since the  Supplemental  Lease was signed in 1966, a number of
               matters have arisen which were not addressed therein or which,
               if addressed,  require  modifications  to the Lease and to the
               coal lease  between  the Tribe and Utah Mining (now named Utah
               International,  Inc.),  the coal  supplier to the Four Corners
               Project,  in order to satisfy the purposes and  objectives  of
               the Parties.
         2.3   Among the more important  modifications from the Tribe's point
               of view is a substantial  increase in the royalties payable on
               coal mined by Utah Mining,  which  eventually will be borne by
               the   Lessees   and   their   customers,    thereby   creating
               consideration to the Tribe for additional  benefits  conferred
               on Lessees by this Amendment No. 1.
         2.4   The Parties desire through this Amendment No. 1 to address and
               resolve to the extent feasible the matters referred to in
               Sections 2.2 and 2.3.
         2.5   The Parties  desire to use in this  Amendment  No. 1 the terms
               defined on Pages 1 through 6 of the Supplemental  Lease in the
               same context as defined and used  therein,  except those terms
               which are amended to read as follows:

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                        "Related   Facilities"  -  Those   facilities  to  be
               constructed  or installed at Four Corners and ultimately to be
               owned by one or more  Lessees  which will serve in  connection
               with the  operation and  maintenance  of any or all of Units 4
               and 5 and the existing three units of the Initial Four Corners
               Plant;
                        "Amended  Original  Plant  Site" - The plant site for
               the existing  three units of the Initial  Four Corners  Plant,
               the area and location of which are shown and  described on the
               plat attached hereto as amended Exhibit 1 hereof, this Amended
               Original Plant Site being a revision (and a diminution) of the
               so  called  "plant  site  area"  leased to  Arizona  under the
               Original  Lease  and  shown  on  Exhibit  A  and  Supplemental
               Exhibits thereto of the Original lease;
                        "New  Plant  Site" - The plant site for Units 4 and 5
               and the switchyard facilities therefor,  the area and location
               of which are shown and described on the plat  attached  hereto
               as Amended  Exhibit 2 hereof.  The New Plant  Site  includes a
               portion of the  so-called  "plant site area" leased to Arizona
               under the Original  Lease,  as well as  additional  contiguous
               lands (the portion heretofore leased to Arizona as part of the
               area  designated  as the "plant site area" under the  Original
               Lease being  deleted  from said "plant site area"  pursuant to
               this Supplement Lease);

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                        "Pumping  Plant  Site" - The site for  facilities  to
               divert  and pump  water  from the San  Juan  River,  including
               diversion works,  water intake works,  pumping station,  water
               lines and facilities related thereto, the area and location of
               which  are  shown  described  on the plat  attached  hereto as
               Amended  Exhibit 3 hereof,  this Pumping  Plant Site being the
               same as the area designated as the "pumping plant site" leased
               to Arizona under the Original Lease and shown on Exhibit b and
               Supplemental Exhibits thereto of the Original Lease;

                        "Dam Site" - The site of the dam and other facilities
               and  appurtenances  constructed by Arizona as Lessee under the
               Original  Lease,  the area and location of which are shown and
               described  on the plat  attached  hereto as Amended  Exhibit 4
               hereof, this Dam Site being the same as the area designated as
               the "dam site" leased to Arizona under the Original  Lease and
               shown on Exhibit C and  Supplemental  Exhibits  thereto of the
               Original Lease;

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                        "Common and Related  Facilities  Area" - The area, in
               addition to, an exclusive of, the Amended Original Plant Site,
               New Plant Site,  Pumping Plant site, Dam Site and Ash Disposal
               Area,  on which are or will be  located  certain of the Common
               Facilities  and  certain of the Related  Facilities,  which is
               shown and  described  on the plat  attached  hereto as Amended
               Exhibit 5 hereof;
                        "Ash  Disposal  Area" - The area for the  disposal of
               ash and refuse  products  resulting  from the operation of the
               Enlarged Four Corners Generating Station, together with access
               there from the Amended  Original  Plant Site and the New Plant
               Site,  which area is shown and  described on the plat attached
               hereto as Amended Exhibits 6 and 6A hereof. This area includes
               the area  designated  as the "ash  disposal  area"  under  the
               Original Lease and shown on Exhibit D thereof and Supplemental
               Exhibits thereto,  together with an additional area contiguous
               thereto;
                        "Storage  Lake"  -  The  lake  formed  by  the  water
               impounded  behind the dam located on the Dam Site, the contour
               line  showing  the  maximum  level of  which  lake is shown on
               Amended Exhibit 8 hereof;

 3.      AGREEMENT:
         The Parties agree as follows:

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 4.      EFFECTIVE DATE:
          This Amendment No. 1 shall become effective upon the date of the last 
          to occur of the following: (i) the  approval of the  Secretary  of the
          Interior or his authorized  delegate of this Amendment No. 1; (ii) the
          approval of the Secretary of the Interior or his  authorized  delegate
          of Amendment  No. 4 and  Supplement to the Mining Lease dated July 26,
          1957,  or (iii)  execution  by the  Secretary  of the  Interior or his
          authorized delegate of amendments to the ss. 323 Grant and the Arizona
          ss. 323 Grant,  conforming  said  Grants to this  Amendment  No. 1. 5.

 5.       LEASING PROVISIONS:
          Sections 2, 3, and 4 of the Supplemental Lease are hereby amended to 
          read as follows:
               "2.      LEASED LANDS UNDER NEW LEASE:  The Tribe, for and in
              consideration  of the  payment by the  Lessees of the  rentals
              specified and the  performance by the Lessees of the covenants
              hereinafter recited,  does hereby for the term hereinafter set
              out,  and for the  purpose  of  constructing,  reconstructing,
              using,  operating,  maintaining,  relocating  and removing the
              Four  Corners  Project,  lease unto the Lessees  under the new
              Lease the real property hereinafter described:

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                  (a)      The Tribe  hereby  leases  the New Plant  Site to the
                           Lessees as tenants in common,  with Arizona having an
                           undivided  15%  interest  therein,  El Paso having an
                           undivided 7% interest  therein,  New Mexico having an
                           undivided  13% interest  therein.  Salt River Project
                           having an  undivided  10%  interest  therein,  Edison
                           having an undivided 48% interest therein,  and Tucson
                           having an undivided 7% interest therein.
                  (b)      The Tribe hereby leases the Pumping Plant Site,  the
                           Dam Site, the Common and Related Facilities Areas and
                           the Ash  Disposal  Area to the  Lessees as tenants in
                           common,  with  Arizona  having  an  undivided  10.86%
                           interest  therein,  El Paso having an undivided 5.07%
                           interest  therein,  New  Mexico  having an  undivided
                           9.42% interest therein,  Salt River Project having an
                           undivided  7.24% interest  therein,  Edison having an
                           undivided 34.76% interest therein,  and Tucson having
                           an  undivided  5.07%  interest  therein.  Pending the
                           outcome  of  technical   studies   and/or   operating
                           experience, it is possible that additional common and
                           related facilities area and ash disposal area will be

                                      - 7 -
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                           required either contiguous to or in the general areas
                           of the Common  and  Related  Facilities  Area and Ash
                           Disposal  Area.  In the event  that  such  additional
                           areas are required, subject to procuring the approval
                           of the  Tribe and the  Secretary  at that  time,  the
                           appropriate  exhibits  will be  amended  to show  the
                           additional  areas.  Payments  to the  Tribe  for such
                           additional  areas shall include an initial payment of
                           $200 per acre,  plus  payments  at the rate of $10.00
                           per acre per year. Such payments shall be in addition
                           to the lease rental payments  hereinafter provided in
                           Section 11.
                  (c)      Insofar as some  portions or  components  of the
                           Common  Facilities or Related  Facilities are located
                           on the Amended  Original Plant Site, the Tribe hereby
                           leases the Amended Original Plant Site to the Lessees
                           as tenants in common,  with  Lessees  having the same
                           respective interests set forth above in Section 2(b),
                           to the extent and only to the extent that the Lessees
                           shall  have  reasonable  access to such  portions  or
                           components  of  the  Common  Facilities  and  Related
                           Facilities and shall  have the  right to  construct,

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                           use, operate, maintain,  relocate, replace and remove
                           the  same  in  connection   with  the   construction,
                           reconstruction,    use,    operation,    maintenance,
                           relocation  and removal of the Four Corners  Project,
                           provided  that  Lessees,  in  exercising  the  rights
                           hereby leased, shall not interfere with or impair the
                           use by Arizona of the Amended Original Plant Site for
                           the  purpose  for which  said  plant  site is held by
                           Arizona under the Amended Original Lease.

                  A plat showing,  among other things, all of said Leased Lands,
                  and also indicating the portions thereof  heretofore leased to
                  Arizona  under  the  Original  Lease,  is  attached  hereto as
                  Amended Exhibit 7 hereof.

     3.           AMENDMENTS  TO ORIGINAL  LEASE:  The Original  Lease is hereby
                  amended and supplemented,  in addition to other amendments and
                  supplements as herein  provided,  so that the Amended Original
                  Lease shall provide as follows:
                  (a)      The Amended  Original Plant Site  hereunder  (Amended
                           Exhibit 1 hereof) is  substituted  for the plant site
                           thereunder   (Exhibit  A  thereof  and   Supplemental
                           Exhibits thereto);

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                   (b)      The Tribe hereby leases to Arizona,  as Lessee under
                            the Amended  Original  Lease,  an  undivided  27.58%
                            interest in the lands within the Ash  Disposal  Area
                            (Amended  Exhibits  6 and 6A  hereof)  not  included
                            within the Ash Disposal Area leased to Arizona under
                            the   Original   Lease   (Exhibit   D  thereof   and
                            Supplemental Exhibits thereto); and the Ash Disposal
                            Area  under  this  Supplemental   Lease,  as  hereby
                            amended,  is  substituted  for the ash disposal area
                            under  the  Original  Lease;  
                   (c)      Insofar as some portions or components of the Common
                            Facilities or Related  Facilities,  or facilities of
                            Arizona,  are  located  on the New Plant  Site,  the
                            Tribe  hereby  leases the New Plant Site to Arizona,
                            to the extent and only to the  extent  that  Arizona
                            shall have  reasonable  access to such  portions  or
                            components  of the  Common  Facilities  and  Related
                            Facilities,  and  facilities  of Arizona,  and shall
                            have  the  right  to  construct,  reconstruct,  use,
                            operate, maintain,  relocate, replace and remove the
                            same   in   connection   with   the    construction,
                            reconstruction,    use,   operation,    maintenance,
                            relocation  and removal of the Initial  Four Corners
                            Plant, provided that Arizona, in exercising the  

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                           rights hereby leased, shall not interfere with or
                           impair  the use by  Lessees of the New Plant Site for
                           the  purpose  for which  said  plant  site is held by
                           Lessees under the New Lease;
                  (d)      The  Common and  Related  Facilities  Area  hereunder
                           (Amended  Exhibit 5 hereof) is substituted as to that
                           portion  of the  plant  site  thereunder  (Exhibit  A
                           thereof and Supplemental  Exhibits  thereto) included
                           within said Common and Related Facilities Area;
                  (e)      Plant access road hereunder  (Amended Exhibits 10 and
                           10A hereof) is substituted  for the plant access road
                           thereunder  (Exhibit  I,  Sheets 1 and 2 thereof  and
                           Supplemental Exhibits thereto);
                  (f)      Access  road and water  pipeline  hereunder  (Amended
                           Exhibit 9 hereof) is substituted  for the access road
                           and water  pipeline  thereunder  (Exhibit H, Sheets 1
                           and 2 thereof and supplemental Exhibits thereto);
                  (g)      Sections  6,  16  and 19 of the  Original  Lease  are
                           hereby amended to conform with Sections 11(e), 21 and
                           25,  respectively,  of  the  Supplemental  Lease,  as
                           amended herein.

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                  (h)      Sections 6A, 6B, 11(f), 51 and 52 of the Supplemental
                           Lease,  as added by this  Amendment No. 1, are hereby
                           added as Sections 7A, 7B, 6, 34 and 35, respectively,
                           of the Original Lease.
                  (i)      The leasehold  rights leased to Arizona under Section
                           2(b) hereof,  as a Lessee under the New Lease,  shall
                           be separate and independent from, and shall not merge
                           with,  the  leasehold  rights leased to Arizona under
                           the Amended Original Lease;
                  (j)      The leasehold  rights leased to Lessees under Section
                           2(b) hereof shall be equal in time and priority  with
                           the  leasehold  rights  leased to  Arizona  under the
                           Amended Original Lease;
                  (k)      The leasehold  rights leased to Lessees under Section
                           2(c) hereof shall be equal in time and priority  with
                           the leasehold  rights in the Amended  Original  Plant
                           Site  leased to Arizona  under the  Amended  Original
                           Lease;
                  (l)      The leasehold  rights leased to Arizona under Section
                           3(c) hereof shall be equal in time and priority  with
                           the leasehold  rights in the New Plant Site leased to
                           Lessees under the New Lease;

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     4.  LEASE OR RELATED RIGHTS:The Tribe hereby leases to Lessees under thenew
         -----------------------  
         Lease and to Arizona under the Amended Original Lease the auxiliary and
         related rights  hereinafter  set out (herein  sometimes for convenience
         referred to as "Related Rights") as tenants in common, with the Lessees
         having the same  respective  interests  therein under the New Lease set
         forth above in Section 2(b),  and with Arizona being a tenant in common
         and having an undivided 27.58% interest in the Related Rights as lessee
         under the Amended  Original Lease (in addition to its undivided  10.86%
         interest  therein  under the New Lease,  as herein  provided);  and the
         Related  Rights  leased to Lessees  under the New Lease and the related
         rights  leased to Arizona  under the  Original  Lease and  retained  by
         Arizona under the Amended Original Lease and shall be equal in time and
         priority.  The Related Rights herein leased are rights to occupancy and
         possession of the real property hereinafter  described and do not apply
         to or affect any Common Facilities heretofore constructed by Arizona on
         such real  property  pursuant  to the  Original  Lease,  or any Related
         Facilities  hereafter  constructed  by  Lessees  on said real  property
         pursuant to the New Lease and the Amended Original Lease. 

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         (a)      The  right to  occupy  and use  Reservation  Lands in order to
                  construct,  reconstruct,  install, operate, maintain, relocate
                  and remove (i)  diversion    works,   including   dams, wells,
                  pipelines, facilities and structures for diverting water,
                  on the stream bed of the San Juan River within the Reservation
                  Lands,  in addition to  diversion  works in the Pumping  Plant
                  Site,  in order to  maintain  diversion  works in the  Pumping
                  Plant Site,  in order to maintain  diversions  of water to the
                  pumps  installed on the Pumping Plant Site, in event of change
                  in the location of the stream bed of the San Juan River;  (ii)
                  electric  power and  communication  lines and  facilities  and
                  access  roads to the  said  new  diversion  works  from  other
                  facilities of the Lessees;  and (iii) pipelines,  conduits and
                  other  structures and facilities which will conduct water from
                  the San Juan River or from other sources to the Storage Lake.
         (b)      the right to construct,reconstruct,install, operate, maintain,
                  relocate and  remove  water  lines  across  the  Reservation  
                  Lands (in addition to those from the Pumping Plant Site) for 

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<PAGE>  
                  the purpose of  transporting  water for  operation  of the
                  Enlarged  Four Corners  Generating  Station,  and the right of
                  access  thereto.  
         (c)      The  right  to  construct,   reconstruct,   install,  operate,
                  maintain, relocate and remove a power line and a communication
                  line from the Dam Site to the Pumping Plant Site. The location
                  of said power line and communication  line is within is within
                  the real property  shown and  described on Amended  Exhibit 13
                  hereof. 
         (d)      The  right  to  construct,   reconstruct,   install,  improve,
                  operate,  maintain,  relocate and remove a water  pipeline and
                  access road from the Storage  Lake to the Pumping  Plant Site.
                  The  locations of said pipeline and access road are within the
                  real property shown and described on Amended Exhibit 9 hereof.
         (e)      The right to construct,  reconstruct,  improve,  maintain, and
                  relocate an access road  extending  from San Juan River bridge
                  to the  Amended  Original  Plant  Site.  The  location of said
                  access road is within the real property shown and described on
                  Amended Exhibits 10 and 10A hereof.  
         (f)      The right to conduct, reconstruct,  install, improve, operate,
                  maintain,  relocate and remove an access road, water pipelines

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                  andpower and communication lines extending from the Common and
                  Related  Facilities Area to the Utah Mining Leased Lands.  The
                  location of said access road,  water  pipelines  and power and
                  communication  lines is  within  the real  property  shown and
                  described  on  Amended  Exhibit  11  hereof.  
         (g)      The  right  to  construct,   reconstruct,   install,  operate,
                  maintain,  relocate and remove water pipelines  extending from
                  the Common and Related  Facilities Area to the Storage Lake to
                  the Utah  Mining  Leased  Lands.  The  location  of said water
                  pipelines is within the real  property  shown and described on
                  Amended Exhibit 12 hereof. 
         (h)      The right to store  water in the  Storage  Lake behind the dam
                  located  on the Dam  Site;  to flood and  utilize  Reservation
                  Lands to the extent  that will be  required to store the water
                  in the Storage Lake which can be contained  behind the Dam, up
                  to a maxim  elevation of 5327.5 feet,  with a maximum  Storage
                  Lake area of approximately  1288 acres (including the portions
                  of the  Storage  Lake  included  in  the  Common  and  Related
                  Facilities Area

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                  and the Dam Site),  the Storage Lake at such maximum  level to
                  have substantially the contour line shown on Amended Exhibit 8
                  hereof;  to use and draw  down the  water  from,  and to fill,
                  refill and empty the Storage  Lake;  to fluctuate the level of
                  the Storage Lake and the Storage Lake  surface  area;  to take
                  water from the Storage  Lake into the  Enlarged  Four  Corners
                  Generating  Station  and to  discharge  water  back  into  the
                  Storage Lake at a higher temperature;  to use the Storage Lake
                  in any way required for operation of the Enlarged Four Corners
                  Generating Station; to clean the Storage Lake surface; to take
                  any action that  Lessees may deem  necessary  for  limiting or
                  preventing undue seepage and for  controlling,  curtailing and
                  removing debris, weed,  vegetable,  marine,  insect and animal
                  growths;  to have access to all of the  Storage  Lake area for
                  all of such previously  described  purposes;  and to construct
                  and  maintain  dikes and  embankments  to prevent  flooding of
                  roads and to make full use of the area  described  as Parcel B
                  (all as shown on Amended  Exhibit  8).  Insofar as the Dam and
                  Storage Lake will affect Reservation Lands subject to existing
                  rights-of-way, to the extent the Tribe has the right to do so,
                  the Tribe hereby leases to the Lessees the right to construct

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                  and  maintain  said Dam and Storage  Lake and confers upon the
                  Lessees  whatever  rights  the Tribe may have with  respect to
                  construction  and  maintenance  of  a  Dam  and  Storage  Lake
                  affecting Reservation Lands subject to such rights-of-way. 
         (i)      The right to dispose of waste water on the  Reservation  Lands
                  by  permitting  waste  water from the  Enlarged  Four  Corners
                  Generating Station to flow from the Ash Disposal Area into and
                  along the Chaco  wash;  the right to  construct,  reconstruct,
                  install,  operate,  maintain,  relocate and remove  pipelines,
                  sluice works and other  facilities for  transporting of ashes,
                  refuse  products and waste water,  and roads,  from the Common
                  and  Related  Facilities  Area to the Ash  Disposal  Area.  In
                  addition to the Related Rights leased under this Section 4(i),
                  the  lease  of the  Ash  Disposal  Area to the  Lessees  shall
                  include the right for the following  uses,  among others:  the
                  right to dispose of and dump thereon  ashes,  refuse  products
                  and waste  water from the  Enlarged  Four  Corners  Generating
                  Station; the right to

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                  construct,  reconstruct,  install, operate,  maintain, replace
                  and  remove  roads,  pipelines,  sluice  works,  dikes,  dams,
                  canals,  and other  works and  facilities  for the storage and
                  disposal of ashes,  refuse  products and waste water.  Lessees
                  will install such dikes,  settling basins, or other facilities
                  as are  reasonably  necessary  to retain said ashes in the Ash
                  Disposal Area.  Appropriate and standard tests for determining
                  the  presence  of  contaminants  in the  waste  water  will be
                  conducted by Lessees under the New Lease and Arizona under the
                  Amended  Original Lease, and reasonable steps will be taken by
                  them to reduce such contaminants to an acceptable minimum. 
         (j)      The  locations  and routes of the  facilities  referred  to in
                  Section 4(a) and (b), and of any ash, refuse product and waste
                  water disposal  facilities located outside of the Ash Disposal
                  Area,  and  referred  to  in  Section  4(i),  shall  be  first
                  submitted to and approved by the Tribe and the Secretary,  and
                  the Tribe  agrees that it will not withhold its consent to any
                  reasonable  locations and routes.  In the event  additional or
                  extended diversion works are constructed or installed in the

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<PAGE>
                  stream bed of the San Juan River within the Reservation Lands,
                  other  than on the  Pumping  Plant  site,  or  facilities  are
                  constructed within the Chaco wash, a plat or plats showing the
                  location  thereof shall  promptly be filled with the Secretary
                  and with the Tribe.  
         (k)      All access roads  outside the Leased Lands will be subject to
                  being  used by  members  of the tribe or its  permittees  in a
                  normal  manner not  preventing  the Lessees from making normal
                  use of the roads; provided,  however, that the Lessees are not
                  obligated   hereby  to  maintain   such   roads,   except  for
                  maintenance  made  necessary by the use by the Lessees of such
                  roads. In the event an access road shall be incorporated  into
                  the  improved  road  system for the State of New Mexico or the
                  Reservation Road System of the Bureau of Indian Affairs, so as
                  to become open for public  use,  the  Lessees  will  surrender
                  their  right-of-way  and  easement  for such  road.  For heavy
                  haulage during periods of construction,  reconstruction,  use,
                  operation,  maintenance,  relocation  and  removal of Enlarged
                  Four  Corners  Generating  Station,  in cases where use of the
                  access roads  hereinabove  described is not  practicable,  the
                  Lessees shall have the right to  reasonable  access across the
                  Reservation Lands to the Leased Lands."

                                     - 20 -

<PAGE>

 6.      CONSENT TO GRANT OF RIGHTS-OF-WAY BY SECRETARY:
         Section 5 of the Supplemental Lease is hereby amended by adding the 
         following Subsection (d):

         "(d)     The Tribe  hereby  gives its consent to the  amendment  by the
                  Secretary  of any Exhibit to the ss. 323 Grant and the Arizona
                  ss. 323 Grant  required in order to conform said Exhibits with
                  the Amended Exhibits to this Supplemental  Lease covering both
                  the New Lease and the Amended  Original  Lease." 7. RELOCATION
                  PROCEDURES:
         A new Section 6A is hereby added to the  Supplemental  Lease to read as
         follows:

         "6A.     RELOCATION OF NAVAJOS:
                  (a)   Lessees  shall comply with all existing and future rules
                        and  regulations,  ordinances,  and  laws  of the  Tribe
                        relating to relocation  of  individual  Navajos and just
                        compensation   to  individual   Navajo   permittees  for
                        impairment  of their use  areas as a result of  Lessees'
                        operations hereunder, including, but not limited to, the
                        loss of or damage to  traditional  or customary  grazing
                        areas  or  area  grazed  under   permit;   the  removal,
                        relocation  and/or  replacement  of  people,  buildings,
                        hogans,  and other structures;  damages to livestock and
                        crops;   and  other  losses.   In  connection  with  the
                        foregoing, Lessees shall pay such compensation as may be


                                     - 21 -

<PAGE>


                        determined according to rules, regulations,  ordinances,
                        and  laws of the  Tribe  and,  in  addition,  shall  (if
                        required by such  rules,  regulations,  ordinances,  and
                        laws) pay or reimburse the administrative costs involved
                        in  determining,   awarding,   and   implementing   such
                        compensation.  
                  (b)   Before  commencing  any activities on any portion of the
                        leased  premises,  Lessees shall pay to Tribe all of the
                        compensation  required  under  this  Section  6A for all
                        individual  Navajos entitled to compensation  under this
                        Section  6A.  Lessees  shall  then  be  deemed  to  have
                        discharged  its  obligations  to  pay   compensation  to
                        individual Navajos under this Section 6A. The individual
                        Navajos  entitled to compensation  under this Section 6A
                        may, at their option,  either (a)  immediately  relocate
                        and  receive  from the Tribe the funds to which they are
                        entitled  under  this  Section  6A or (b)  remain on the
                        leased  premises until they are given notice to relocate
                        by Lessees, at which time they shall be removed from the
                        leased  premises,  and upon  completion  of such removal
                        they  shall  receive  from the  Tribe the funds to which
                        they are entitled under this Section 6A. Notwithstanding
                        anything to the contrary herein,  the Tribe shall not be
                        required to pay any  compensation to individual  Navajos
                        from funds other than those  provided  by Lessees  under
                        this Section 6A."

                                     - 22 -

<PAGE>

 8.      FUTURE RIGHTS-OF-WAY:
         A new Section 6B is hereby added to the Supplemental Lease to read as 
         follows:

         "6B.     COMPENSATION FOR FUTURE RIGHTS-OF-WAY:
                  If during the remaining  term of this  Supplemental  Lease any
                  Lessee on behalf of itself or a joint venture project in which
                  it is a participant applies to the Tribe for a permit or grant
                  of  right-of-way  or  easement  to  construct  and  operate an
                  electric  transmission line over or across  Reservation Lands,
                  if  the  Lessor  in  its  sole   discretion   determines  such
                  right-of-way or easement should be granted,  and if during the
                  twelve-month  period  preceding  the  date of the  application
                  Lessees' fuel supplier has paid  royalties to the Tribe on not
                  less than six (6) million tons of coal sold to be Lessees, the
                  amount of the initial and annually  adjusted  payment for said
                  permit  or  grant  of   right-of-way   or  easement  shall  be
                  determined  in  accordance  with the formulas  established  as
                  follows:

                                     - 23 -

<PAGE>
                  (a)      For each such right-of-way or easement,  Lessee shall
                           pay the  Secretary  for the  use and  benefit  of the
                           Tribe a one-time payment computed on the basis of the
                           following formula: 

                            Ra1 = (R1) X (Ic1) WHEREIN:
                                         (Ib1)

                            R1  = The adjusted  one-time payment for
                                  such right-of-way or easement.

                           Ic1  = The final  quarterly  index of the Index
                                  of Implicit Price Deflators for Gross National
                                  Product  (as  presently   published  in  Table
                                  7.1-7.2 of the  National  Income  and  Product
                                  Tables,  in  publication  by the United States
                                  Department  of  Commerce  entitled  Survey  of
                                  Current Business,  hereinafter  referred to as
                                  "IPD") last  published  immediately  preceding
                                  the date of the grant of the  right-of-way  or
                                  easement  is  effective,  provided  that in no
                                  event shall 1cl be less than the value of Ib1.
                            Ib1 = The  final  quarterly  index of IPD last
                                  published before the Effective Date.

                                     - 24 -

<PAGE>

                  (b)      In addition to the  payments set forth in (a) hereof,
                           as  consideration   for  each  such  right-of-way  or
                           easement,  Lessee shall pay the Secretary for the use
                           and benefit of the Tribe an annually adjusted payment
                           of $10 per acre.  The payment  shall be calculated on
                           the basis of the following formula: 

                           Ra2 = (Ic1) X $10 WHEREIN:
                                 (Ib2)

                           Ra2 = The adjusted annual payment for each acre.

                           Ic2 = The final  quarterly  index of IPD
                                 last  published  preceding  the date
                                 each annual payment is due, provided
                                 that in no event shall Ic2 less than
                                 the value of Ib2.

                           Ib2 = The final  quarterly  index of IPD
                                 last published  before the Effective
                                 Date.

                  The  foregoing  formula  shall not apply to  renewals of or to
                  rights-of-way or easements for which application was submitted
                  to the Lessor before the effective date of Amendment No.1, nor
                  to any  rights-of-way  or easements for which  application  is
                  made by an entity,  or joint venture project which will wholly
                  own the transmission lines for which the application is  made,

                                     - 25 -

<PAGE>


                  and in which the Lessor,  its political  subdivisions,  or its
                  enterprises have an ownership interest.

 9.      RENTAL FOR ADDITIONAL LAND:
         Section 11 of the  Supplemental  Lease is hereby  amended by adding the
         following Subsection (f): 
         "(f) Pursuant to Section (b), 725.68 acres of additional land have
              been leased to Lessees by this  Amendment  No. 1, as  additions to
              the Common and Related  Facilities Area and the Ash Disposal Area,
              all as reflected on Amended Exhibits 5 and 6A, respectively.  Said
              additions shall result in the following additional rental payments
              to the Tribe:  
              (i)  With  respect to the  addition  to the Common and Related
                   Facilities  Area,  an initial  one-time  payment of  $35,206,
                   payable by the Lessees on the Effective Date, said payment to
                   be made as provided in Section 11(d) hereof.
              (ii) With respect to the  addition to the Ash Disposal  Area,
                   an initial, one-time payment of $109,930,  payable by Arizona
                   on the Effective Date.
              (iii)With respect to the addition to Common and Related facilities
                   Area,a monthly rental of $146.70 effective for the first full
                   
                                     - 26 -

<PAGE>
                   month  subsequent  to  the  Effective  Date  and  each  month
                   thereafter  through  December  31, 1985 to be paid by Lessees
                   within  thirty  (30) days  after  the  Effective  Date,  said
                   payment to be made as provided in Section 11(d) hereof.
              (iv) With respect to the addition to the Ash Disposal Area, a
                   monthly rental of $458.05  effective for the first full month
                   subsequent  to the Effective  Date and each month  thereafter
                   through December 31, 1985 to be paid by Arizona within thirty
                   (30) days after the Effective Date.
               (v) With  respect to the  addition  to the Common and Related
                   Facilities Area, an annual rental of $1,760.30 for the twelve
                   (12) month period ending December 31, 1985, to be paid by the
                   Lessees on or before January 1, 1985, said payment to be made
                   as provided in Section 11(d) hereof.
              (vi) With respect to the  addition to the Ash Disposal  Area,
                   an annual  rental of  $5,496.50  for the  twelve  (12)  month
                   period ending  December 31, 1985, to be paid by Arizona on or
                   before January 1.

                                     - 27 -

<PAGE>

             (vii) Annual payments thereafter with respect to (v) and (vi)
                   above  shall be payable in advance on or before  January 1 of
                   each  year  and  shall  be  calculated  on the  basis  of the
                   following formula:

                   Ra3  = (Ic3) X $1760.30,  and  45,496.50,
                           respectively, (Ib3) WHEREIN:

                   Ra3  = The  adjusted  annual  payment for
                          such additional leased land.

                   Ic3  = The final  quarterly  index of IPD
                          last  published  preceding  the date
                          each annual payment is due, provided
                          that in no event  shall  Ic3 be less
                          than the value of Ib3.

                   Ib3 =  The final quarterly index of IPD last published
                          before the Effective Date."

         The Tribe hereby waives its right to receive  consideration and damages
         for the  conforming  amendments to the Arizona ss. 323 Grant and to the
         ss. 323 Grant, as provided in 25 C.F.R.  ss.ss.  169.12 and 169.13.

 10.     LEASE RENTALS:
         Section 11(e) of the  Supplemental  Leases is hereby amended to read as
         follows:
               "(e) The lease rentals for the New Lease and the Amended Original
         Lease are to be in lieu of all taxes, assessments, levies, exactions or
         charges  of any  kind  made or  imposed  by the  Tribe,  and the  Tribe
         covenants  that it will  not tax or  assess,  in any  manner  whatever,
         directly or indirectly,  the ss. 323 Grant,  the Arizona ss. 323 Grant,
         the New Lease,  the  Amended  Original  Lease,  or the  property of the
         Lessees  located on the Leased  Lands or located on  Reservation  Lands
         pursuant to the Related Rights leased in the New Lease or Amended

                                     - 28 -

<PAGE>


         Original Lease, or Lessee's activities under the New Lease or Arizona's
         activities  under  the  Amended  Original  Lease,  or their  ownership,
         construction,  operation  or  removal  of the Four  Corners  Project by
         Lessees,  pursuant to the New Lease,  or the Initial Four Corners Plant
         by Arizona under the Amended  Original  Lease,  or the power  generated
         thereon or the  transmission,  sale,  or disposal of such power,  their
         income, or otherwise, or the sale or delivery of fuel to the Lessees by
         the suppliers of their fuel, or the severance or extraction  thereof by
         such suppliers (other than royalties  provided in their leases from the
         Tribe) or the diversion or use of water; provided,  however, that after
         July 6, 2001, the foregoing  covenants  shall lapse. By agreeing to the
         amended Section 11(e), the Tribe does not intend to ratify or otherwise
         reaffirm the provisions of Section 11(e) as amended, nor otherwise give
         any  validity,  effectiveness  or scope to said  provisions  which they
         would not have as originally written. In addition, this amended Section
         11(e) shall not  prejudice  or  constitute a waiver of the right of the
         Tribe to contest  the  validity,  applicability  or  enforceability  of
         Section 11(e) as amended.  Likewise, by agreeing to the amended Section
         11(e),  the Lessees do not intend to repudiate,  invalidate or diminish
         the effectiveness, enforceability or scope of Section 11(e) as amended,
         except as specifically provided herein."

                                     - 29 -

<PAGE>

11.      WATER RIGHTS:
         Section 21 of the  Supplemental  Lease is hereby  amended by adding the
         following sentence at the end of said Section:
                  "In the event the  rights of the Tribe to take  water from the
                  San Juan River are  quantified  judicially  or  otherwise in a
                  manner  that  impairs  or  adversely  affects  the  ability of
                  Lessees  or of  Arizona  under  said  Permit  2838 to remove a
                  supply  of  water  from  the  San  Juan  River  in  sufficient
                  quantities  to meet  the  requirements  of the  Enlarged  Four
                  Corners  Generating  Station and the mining operations of Utah
                  Mining,  the Tribe hereby agrees not to interrupt or cause the
                  interruption  of said water  supply and to sell to the Lessees
                  an annual  amount of water equal to the amount by which Permit
                  2838 is so impaired or adversely affected.  The annual payment
                  shall be  calculated on the basis of $50 (in 1985 dollars) per
                  acre foot per year adjusted  annually on January 1 of the year
                  following  the  Effective  Date of  Amendment  No.  1 and each
                  January 1 thereafter on the basis of the following formula:

                           R1 =     R(1+i)

                           Where:   R1 =  the adjusted rate per acre-foot per 
                                          year for the current year;

                                    R  =  the adjusted rate per acre-foot per 
                                          year for the previous year; and

                                    i  =  the 10-year constant maturity
                                          United States Treasury interest
                                          rate  for the year preceding the
                                          year the adjustment is made.

                                     - 30 -

<PAGE>

                  Nothing in this Supplemental  Lease shall be construed or used
                  as an  admission  against the  interest of either the Tribe or
                  Lessees in connection with any pending or future litigation or
                  adjudication  involving  water  rights  in  the  basin  of the
                  Colorado River, the San Juan River or their tributaries."

12.      LABOR POLICY:
         Section  25 of the  Supplemental  Lease is  hereby  amended  to read as
         follows:
         "25.     LABOR POLICY - PREFERENTIAL EMPLOYMENT OF INDIANS:
                  Lessee  shall  provide  preference  in  employment  to Indians
                  living  within  or near the  Reservation  in  connection  with
                  construction  and operation of the facilities  contemplated in
                  this Supplemental  Lease, all in accordance with the terms and
                  provisions of the Letter Agreement relating to said employment
                  which is attached hereto as Exhibit 15, as said Exhibit 15 may
                  be amended from time to time in accordance with its terms."

13.      NAVAJO SCHOLARSHIPS:
         A new Section 51 is hereby added to the  Supplemental  Lease to read as
         follows:


                                     - 31 -

<PAGE>

         "51.     NAVAJO SCHOLARSHIPS:  Lessees shall contribute to a foundation
                  to be established  jointly by the Lessees and to the Tribe for
                  a term of ten  years of not  less  than  TWENTY-FIVE  THOUSAND
                  DOLLARS ($25,000)  annually,  the first payment of which shall
                  be made within thirty (30) days after the Effective  Date, for
                  the sole and exclusive purpose of providing scholarship aid to
                  Navajo   recipients.   Said   foundation   shall  be   jointly
                  administered by the Tribe's and Lessees' representatives.  For
                  the initial  five years,  80% of such  contributions  shall be
                  invested to generate future funds for scholarships and 20% may
                  be used for direct scholarship aid to Navajo  recipients.  For
                  the second  five year  period the joint  administrators  shall
                  determine  how the  contributed  funds  are to be  used.  Such
                  scholarships  shall  be  awarded  to  recipients  and  used at
                  colleges and  universities as the joint  administrators  shall
                  determine. Annual payments shall be calculated on the basis of
                  the following formula:

                   AASP     =    (Ic4) X $25,000 WHEREIN:
                                 -----
                                 (Ib4)

                   AASP     =    The adjusted annual scholarship payment.

                   Ic4      =    The final  quarterly  index of IPD
                                 last  published  preceding  the date
                                 each annual payment is due, provided
                                 that in no event  shall  Ic4 be less
                                 than the value of Ib4.

                   Ib4      =    The final quarterly index of IPD las published
                                 before the Effective Date."


                                     - 32 -

<PAGE>

14.      SUPPLEMENTAL LEASE AND AMENDED ORIGINAL LEASE TO
         REMAIN IN EFFECT:
         Except as specifically  amended herein,  the Supplemental Lease and the
         Amended  Original  Lease  shall  remain  in full  force  and  effect in
         accordance  with their  terms.  

         IN WITNESS  WHEREOF, the Parties havecaused this Amendment No. 1 to be
signed in their behalf by their duly authorized officers as of this _____ day of
__________, 1985.

                                THE NAVAJO TRIBE OF INDIANS

                                By:      ______________________________________
                                         /S/ Peterson Zah, Chairman
                                         Navajo Tribal Chairman


                                ARIZONA PUBLIC SERVICE COMPANY

                                By:      ______________________________________
                                         /S/

                                Title:   President

ATTEST:

/S/ Suzanne W. D
Secretary Associate




                                     - 33 -

<PAGE>

                                EL PASO ELECTRIC COMPANY

                                By:      ______________________________________
                                         /S/

                                Title:   Assistant Vice President

ATTEST:

/S/ Theta S. Fields
Secretary


                                PUBLIC SERVICE COMPANY OF NEW MEXICO

                                By:      /S/ J. L. Wilkins
                                         -----------------------------------

                                Title:   Senior Vice President, Power Supply

ATTEST:

/S/ D. E. Peckham
Secretary


                                SALT RIVER PROJECT AGRICULTURAL
                                IMPROVEMENT AND POWER DISTRICT

                                By:      ______________________________________
                                         /S/

                                Title:   Vice President

ATTEST:

-------------------------
/S/ Don E. Smith
Asst. Secretary



                                     - 34 -

<PAGE>



                                 SOUTHERN CALIFORNIA EDISON COMPANY

                                 By:      ______________________________________

                                 Title:   Vice President


ATTEST:

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


                                 TUCSON ELECTRIC POWER COMPANY

                                 By:      ______________________________________
                                          /S/

                                 Title:   Senior Vice President


ATTEST:

-------------------------
/S/ Jean E. Kettlewell
Secretary


APPROVED this    25    day of     April   , 1985.


                                  UNITED STATES DEPARTMENT OF THE
                                  INTERIOR

                                  By:      /S/ Wilson Barber
                                         ---------------------------------
                                               Secretary by
                                               Navajo Area Director,
                                               Mr. Wilson Barber, Pursuant
                                               to the Commissioner's
                                               Redelegation Order 10
                                               BIAM, Section 3.1.


                                     - 35 -

<PAGE>


STATE OF ARIZONA            )
                            ) SS
COUNTY OF APACHE            )

         The  foregoing  instrument  was  acknowledged  before me this 25 day of
April,  1985,  by PETERSON  ZAH,  Chairman of the Navajo  Tribal  Council of the
Navajo Tribe of Indians, on behalf of the Navajo Tribe of Indians.

                                /S/ Linda A Scott
                                ------------------------------------------
                                    Notary Public


My Commission Expires:

/S/ My Commission Expires Feb. 14, 1988


STATE OF ARIZONA            )
                            ) SS
COUNTY OF MARICOPA          )

         The  foregoing  instrument  was  acknowledged  before me this 18 day of
March,  1985,  by /S/  _________________________,  President  of ARIZONA  PUBLIC
SERVICE COMPANY, a corporation, on behalf of said corporation.

                                     /S/
                                     ---------------------------------------
                                     Notary Public


My Commission Expires:

Nov. 13, 1986



                                     - 36 -

<PAGE>

STATE OF TEXAS                 )
                               ) SS
COUNTY OF EL PASO              )

         The foregoing instrument was acknowledged before me this  20th  day of
March   , 1985, by /S/      Joseph E. Wasiak     ,      Asst. Vice President    
of EL PASO ELECTRIC COMPANY, a corporation, on behalf of said corporation.

                                             /S/ Cecilia R. Jyea
                                             --------------------------------
                                             Notary Public

My Commission Expires:

/S/ 7-3-85


STATE OF NEW MEXICO             )
                                ) SS
COUNTY OF BERNALILLO            )

         The foregoing instrument was acknowledged before me this 20th day of 
March 1985, by J. L. Wilkins, Senior Vice President, Power Supply of PUBLIC 
SERVICE COMPANY OF NEW MEXICO, on behalf of said corporation.

                                            /S/ Sherry Leeson
                                            ---------------------------------   
                                         
                                            Notary Public


My Commission Expires:

July 1, 1988



                                     - 37 -

<PAGE>

STATE OF CALIFORNIA             )
                                ) SS
COUNTY OF LOS ANGELES           )

         The foregoing  instrument was  acknowledged  before me this 21st day of
March, 1985, by /S/ ____________________, Vice President, of SOUTHERN CALIFORNIA
EDISON COMPANY, a corporation, on behalf of said corporation.


                                            /S/ Ven
                                            -------------------------------
                                            Notary Public


My Commission Expires:

Aug. 19, 1987


STATE OF ARIZONA                )
                                ) SS
COUNTY OF MARICOPA              )


         The foregoing  instrument was  acknowledged  before me this 19th day of
March,  1985,  by  Marcel J.  Boulais & Don E.  Smith,  Vice  President  & Asst.
Secretary of SALT RIVER PROJECT  AGRICULTURAL  IMPROVEMENT AND POWER DISTRICT, a
political  subdivision  of the State of  Arizona,  on behalf of said SALT  RIVER
PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT.

                                            /S/ Ken Lynn M. Franszczak
                                            ------------------------------
                                            Notary Public

My Commission Expires:

Feb. 7, 1987


                                     - 38 -

<PAGE>


STATE OF ARIZONA       )
                       ) SS
COUNTY OF PIMA         )

         The foregoing instrument was acknowledged before me this 19th  day of
March    , 1985, H. A. Heim, Senior Vice President of TUCSON ELECTRIC POWER 
COMPANY, a corporation, on behalf of said corporation.

                                            /S/ Katharine Snell
                                            ---------------------------------
                                            Notary Public

My Commission Expires:

November 4, 1986



                                     - 39 -

<PAGE>

EXHIBIT NOS. 1 - 13 are maps describing Four Corners Generating Station Plant 
site and related area adjacent to the plant.



                                     - 40 -

<PAGE>

                                 EXHIBIT NO. 15

                                  March 8, 1985

The Honorable Peterson Zah
Chairman
The Navajo Nation
Window Rock, AZ  86513

Dear Chairman Zah:

         Since  1962,   when  the  Four  Corners   Generating   Station   became
operational,  Arizona Public Service  Company  ("APS") has been dedicated to the
employment of Indians within the plant.  We have made a concerted and consistent
effort to adhere to and advance the concept of "Indian Preference," which can be
demonstrated by the following statistics:

                                       1977           1984
                                    ---------       --------

Total Number of Indian Employees     312 (49%)     696 (65.7%)

         In  addition,  APS has made a  significant  contribution  to the upward
mobility of qualified Indians in numerous  classifications,  as evidenced by the
following information:
                                       1977           1984
                                    ---------       --------

Maintenance Mechanics                 11 (41%)      66 (52%)
Journeyman Classification             20 (19%)     108 (45%)
Auxiliary Operators                   25 (61%)      50 (91%)
Control Operators                      6 (35%)      15 (63%)
First Line Supervisors                 3 (10%)      32 (36%)

         APS is committed to the continued pursuit of preferential employment of
Indians at the Four Corners  Generating  Station  pursuant to the  provisions of
this  Lette  Agreement,  subject  to any  limitations  contained  in  applicable
provisions of the Labor  Agreement in effect between APS and the I.B.E.W.  Local
Union No. 387.  Qualifications  for employment and promotion shall be determined
by APS. In all instances,  qualifications  for positions will be job-related and
nondiscriminatory,  and will be reviewed on an ongoing basis to ensure  validity
and  relevance  of such  qualifications.  A list  of the  current  positions  is
attached as Appendix A.

         In support of this  commitment,  APS proposes the following  program to
enhance the employment status of Indians:

                                     - 41 -

<PAGE>
The Honorable Peterson Zah
March 8, 1985
Page 2

 1.      Employment Preference

          A.      Subject to meeting its established minimum qualifications, APS
                  shall give preference in hiring and promotion to Indians whose
                  qualifications are equal to or better than those of non-Indian
                  Candidates.

          B.      When hiring temporary student employees, preference will be 
                  given to Indians, where qualified.

 2.      Training

         Training   Programs  shall  be  designed  and  implemented  where  cost
         effective  to enable the Four  Corners  Generating  Station to meet its
         manpower  requirements.  With respect to training  courses which may be
         implemented  at the Four  Corners  Generating  Station  in the  future,
         preferential selection will be extended to Indian candidates.

          A.      Training courses APS has conducted at the Four Corners 
                  Generating Station in the past, including the following:

                  Auxiliary Operator             Power Plant Fundamentals
                  Basic Mechanics                Safety Training
                  Control Operator               Supervisory Skills
                  Lubeman                        Management Training
                  Mobile Equipment Training      Water Analyst
                                                 Welder

          B.      With respect to training programs, APS will encourage its 
                  Indian employees to take advantage of such opportunities to 
                  enhance their upward mobility potential.

 3.      Promotions, Transfers and Work Force Reduction

          A.      Performance  Review:  Preference  shall  be  given  to  Indian
                  employees with respect to reductions in force for  performance
                  review  positions  subject  to  job   requirements,   employee
                  qualifications,  and past work  history.  Should a transfer be
                  desired by performance  review  employees and required by APS,
                  preference  shall  be  given  to  the  best  qualified  Indian
                  employee as provided in  Paragraph 1 hereof,  depending on the
                  position into which the transfer is sought.

          B.      Bargaining Unit:  With respect to bargaining unit positions 
                  involved in promotions, transfers, reductions in force and 

                                     - 43 -

<PAGE>
The Honorable Peterson Zah
March 8, 1985
Page 3

                  recalls, seniority establishing by the Labor Agreement will be
                  the deciding factor where  qualifications and physical fitness
                  are substantially equal. However, if not in conflict with such
                  Labor Agreement,  such seniority shall first be applied to the
                  Indian  applicants  or  candidates.  If after  APS has met its
                  preference  obligations  and no Indians  are  available,  then
                  seniority  may be applied among the  non-Indian  applicants or
                  candidates.

 4.      Grievance Procedure:

          A.      Bargaining unit employees will utilize the Grievance Procedure
                  agreed to between APS and I.B.E.W. Local Union No. 387.

          B.      Performance review employees will utilize the established APS 
                  Equity Procedure to resolve grievances.

          C.      APS shall make a good faith  effort to  negotiate  with the
                  I.B.E.W.  to  include  a  provision  in  the  Labor  Agreement
                  requiring the  inclusion of Navajo  employees in the grievance
                  procedure.

 5.      Hiring Notification, Recruiting and Advertising

          A.      When it is  necessary  for APS to hire outside  applicants  to
                  fill job openings,  APS shall utilize Navajo  personnel in its
                  recruitment  process  and shall  provide  notification  to the
                  Navajo  Nation and other  agencies as  indicated  below.  Such
                  notifications  shall  state that  preference  will be given to
                  qualified  American Indians as provided in Paragraph 1 hereof,
                  depending on the position being filled:

                  (i)   Director of the Office of Navajo Labor Relations
                        ("ONLR") in Window Rock, Arizona,

                  (ii)  BIA Employment Assistance Offices in Window Rock and
                        Farmington,

                  (iii) Farmington Inter-Tribal Organization,

                  (iv)  Denver National Indian Employment Resource Center, and



                                     - 44 -

<PAGE>
The Honorable Peterson Zah
March 8, 1985
Page 4

          B.      When  advertising  is  required  for an outside  hire,  the
                  following newspapers will be utilized in addition to others as
                  appropriate:

                  (i)   Navajo Times, Window Rock, Arizona

                  (ii)  Gallup Independent, Gallup, New Mexico

                  (iii) Farmington Daily Times, Farmington, New Mexico

                  (iv)  Lake Powell Chronicle, Page, Arizona.

         C.       APS will  recruit  Indian  candidates  at Northern  Arizona
                  University,  University of Arizona,  Arizona State University,
                  University of New Mexico, and New Mexico State University,  in
                  addition to other educational institutions as appropriate.
 
 6.      Reporting

         The Four  Corners  Power  Plant  will  report  manpower  and  furnish a
         statistical  breakdown  by  race  of  all  new  hires,  promotions  and
         transfers, on a quarterly basis to the ONLR.

 7.      Contractor/Hiring Preference

          A.      Contractors  will be required to agree that Indian  preference
                  will  apply  to  employment  at the  Four  Corners  Generating
                  Station.  Contractors  will be  instructed to notify the Union
                  Hall that Indians,  where  qualified and available,  are to be
                  dispatched before non-Indians.

          B.      Contractors  and APS shall not be responsible  for dispatching
                  of  personnel  by the  Union  Hall,  but only  for the  proper
                  notification  of  the  Union  Hall.   Problems,   if  any,  in
                  dispatching,  shall be addressed  by the Navajo  Nation to the
                  Union Hall,  rather than to  contractors  or APS.  The parties
                  shall use their best  efforts to insure  that job  completion,
                  productivity  and/or costs will not be impacted by dispatching
                  problems.

          C.      Contractors  will be  instructed  by APS to notify the ONLR as
                  soon as  practical  (and to provide  copies of such  notice to
                  APS) of anticipated  manpower  requirements and qualifications
                  needed before placing a call to the Union Hall.



                                     - 45 -

<PAGE>
The Honorable Peterson Zah
March 8, 1985
Page 5

          D.      Contractors will be required to report manpower monthly to
                  ONLR (and provide  copies of such reports to APS),  indicating
                  numbers  of  Indians   and   non-Indians   personnel   by  job
                  classification.

 8.      Contractor/Vendor Preference

         APS shall give  contracting  preference to members of the Navajo Nation
         and Navajo  firms,  certified by the Commerce  Department of the Navajo
         Nation,  in all contract work to be performed on leased lands including
         but not limited to  construction  contracts,  procurement  and personal
         service   contracts,   provided  that  the  requisite   experience  and
         competence to perform such  contractual  work and procure  material and
         equipment of comparable  quality and price in accordance  with standard
         practices in the electric utility industry can be demonstrated. Subject
         to the  foregoing,  where  two or more bids are  received  by APS for a
         given item of contractual  work and where one of such bids is submitted
         by a member of the  Navajo  Nation or a  certified  Navajo  Firm,  such
         contract shall be awarded to such member of the Navajo Nation or Navajo
         firm,  if  their  bids are  equal to or less in price  than the bids of
         non-members or uncertified firms and their  qualifications are equal to
         or better than those of such non-members and firms. More specifically:

          A.      APS shall extend preference to Indian  contractors/vendors and
                  where they are qualified  and/or supply a quality  product and
                  are   evaluated   equal   to   or   better   than   non-Indian
                  contractor/vendor,   the  Indian   contractor/vendor  will  be
                  selected.

          B.      All  contractors/vendors  must be  qualified  by APS before
                  being  placed  on  an  approved  bidders  list.  Qualification
                  includes commercial and financial viability as well as product
                  and/or service quality.

          C.      Potential  contractors/vendors  should be directed to call
                  the Four Corners Power Plant for an  appointment  to apply for
                  consideration as a qualified bidder. Appointments are normally
                  scheduled Tuesday, Wednesday, and/or Thursday 8:30 a.m.

                                     - 46 -

<PAGE>
The Honorable Peterson Zah
March 8, 1985
Page 6

                  through 3:00 p.m.  The following is a general list of products
                  and services utilized at Four Corners:

                     Products:                        Services:

                     Boiler equipment                 Mobile demineralizer
                     Turbine and auxiliary equip.     Landscaping
                     Safety items                     Weed control
                     Sanitary supplies                Temporary personnel
                     Paper products                   Truck scale maintenance
                     Personal consumable items        Survey and monitoring
                     Office supplies                  Contract labor
                     Furniture                        Sandblasting
                     Auto parts                       Non-destructive testing
                     Chemicals                        Painting
                     Fuels                            Scrubber coating
                     Fire equipment                   Exterminating
                     Hardware                         Office equipment repair
                     Bottle water                     Coal belt repair
                                                      Consulting work
                                                      Fence repair/installation
                                                      Janitorial service
                                                      Ash haul
                                                      Asphalting
                                                      Tire repair
                                                      Vacuum service
                                                      Elevator-crane inspection

         D.       Goods  and  services  shall be  purchased  on the basis of
                  competitive  bidding where practical.  Invitations to bid will
                  be issued to  individuals  and firms on the  approved  bidders
                  list.

 9.      Community Programs

         APS will actively support community programs as they relate to the Four
         Corners  Generating  Station  and  Career   Days/educational   programs
         sponsored by schools located on the Navajo Reservation.  These programs
         will be supported with printed  materials,  speakers,  and  audiovisual
         material as appropriate.


                                     - 47 -

<PAGE>
The Honorable Peterson Zah
March 8, 1985
Page 7

10.      Navajo Preference

         In the event the Navajo Nation secures a judgement upholding APS' right
         to  grant  "Navajo"  as  distinguished  from  "Indian"   preference  in
         employment,  APS  agrees  thereafter  to  grant  Navajo  preference  in
         employment in accordance with this Letter Agreement.

11.      Resolution of Disputes Between Parties

         In the  event of a  claimed  breached  of this  Letter  Agreement  or a
         dispute  between the parties arising out of this Letter  Agreement,  at
         the  request  of  either  the  Chairman  of the  Navajo  Nation  or the
         President  of APS,  each of the parties  shall  submit to a  compulsory
         minitrial for the resolution of any such claim or dispute.

         The purpose of the  minitrial is to inform  management  representatives
         for the  parties  of the  theories,  strengths  and  weaknesses  of the
         parties' respective  positions so that the parties may amicably resolve
         the claim or dispute at issue.

          A.      Business  representatives  of each of the parties empowered to
                  decide the issues shall  attend the  minitrial to be conducted
                  for one  business day within 60 days after  written  notice of
                  the claim or  dispute  is  delivered  to the other  party at a
                  mutually  convenient  location.  In  addition,  an  individual
                  mutually  selected by counsel for the parties will attend as a
                  "neutral advisor."

          B.      The fees and expenses of the neutral advisor shall be borne
                  equally by the parties.  Each of the parties  shall  otherwise
                  pay its own costs.

          C.      The  neutral  advisor  shall be  provided  with copies of this
                  Letter  Agreement.  Neither of the  parties  nor anyone on its
                  behalf shall  unilaterally  approach,  contact or  communicate
                  with the neutral advisor after his or her selection.

          D.      Shortly after  appointment of the neutral advisor,  each of
                  the  parties  shall in good faith  attempt to agree to produce
                  documents  requested  by the other party in as  expeditious  a
                  manner as  possible.  The  production  of  documents  shall be
                  subject to the  successful  negotiation  by the  parties of an
                  acceptable arrangement regarding the protection of proprietary
                  or other confidential information. In the event that after the
                  minitrial  the parties  submit their  dispute to litigation as
                  provided in  Subsection  I below,  the  parties  shall in good
                  faith  attempt  to  agree  to  the  entry  of  an  appropriate
                  protective order with respect to the documents produced.

                                     - 48 -

<PAGE>
The Honorable Peterson Zah
March 8, 1985
Page 8

                  The  neutral  advisor  will be  required  to be a party of any
                  confidentiality agreement or protective order.

         E.       Shortly after appointment of the neutral advisor,  mutually
                  agreed  upon  source  material  will  be  jointly  sent to the
                  neutral advisor to assist him/her in familiarizing him/herself
                  with the basic  issues  of the case.  Seven  days  before  the
                  minitrial  is to be  held,  the  parties  shall  exchange  all
                  exhibits they plan to use at the minitrial. Shortly before the
                  scheduled minitrial, if the neutral advisor so suggests and if
                  the parties agree, the neutral advisor may confer jointly with
                  counsel for the parties to resolve any outstanding  procedural
                  questions.  If the neutral  advisor wishes to consult with the
                  parties'  technical  experts on  substantive  issues  prior or
                  after the  meeting,  he/she may outline  the general  areas of
                  inquiry and, on agreement by the parties,  the neutral advisor
                  may  submit  written  questions  to  the  parties'   technical
                  experts.

          F.      Within three (3) days before the minitrial is to be held,  the
                  parties  shall  exchange  and  submit to the  neutral  advisor
                  introductory  statements  which are not to be longer  than ten
                  8-1/2" x 11" double-spaced pages.

          G.      The presentations at the minitrial shall be informal, the time
                  for which  presentations  will be equally  divided between the
                  parties.  Rules of evidence will not apply. While permitted to
                  ask  clarifying  questions,  the  neutral  advisor  shall  not
                  preside  like a judge or  arbitrator,  nor  have the  power to
                  limit the scope or substance  of the  Parties'  presentations.
                  The  presentations  will not be transcribed  or recorded,  but
                  either of the parties may take notes of the proceedings.

          H.      At the  conclusion  of  the  presentations  and to the  extent
                  reasonable,    the   parties   will   make   their    business
                  representatives available for discussions.  If the parties are
                  unable to resolve the  disputes  themselves  based upon a good
                  faith evaluation of the  presentations,  to assist the parties
                  in  further  discussions,  the  neutral  advisor  will  render
                  his/her  comments  orally  on  the  issues.   Thereafter,  the
                  business  representatives  of the  parties  shall  meet and be
                  available for discussions at least once.

          I.      In the event that upon conclusion of the minitrial the parties
                  are unable to  amicably  resolve  their  disputes,  each party
                  shall be free to litigate  such  disputes in the courts of the
                  United  States.  Litigation  shall be  limited  to the  issues
                  considered at the minitrialan shall be conducted to the extent
                  possible on the same terms as the minitrial. The parties agree
                  to waive any applicable statute of limitations for three years
                  following  the  minitrial  defense with respect to  subsequent
                  litigation of these disputes between the parties.

                                     - 49 -

<PAGE>
The Honorable Peterson Zah
March 8, 1985
Page 9
                

         J.       The  advisory  comments  of the  neutral  advisor  will be
                  inadmissible  for all  purposes  in this or any other  dispute
                  involving the parties.
12.      Term

         The program  outlined herein will be in effect for a period of not less
         than four years.  At any time  following the  anniversary of the fourth
         year,  the terms of this  Letter  Agreement  may be  reopened by either
         Party,  and upon  reaching any new  agreements,  this Letter  Agreement
         shall be amended without amending the Four Corners Plant Site Leases.

         If you  approve  our program as  outlined  herein,  please  indicate by
signing in the space provided  below and by returning  this Letter  Agreement to
the undersigned.

                                         Sincerely,



                                         /S/ O. Mark De Michele
                                         --------------------------- 

OMD:TEP/fp

Approved this _____ day of __________, 1985.



/S/ Peterson Zah, Chairman
The Navajo Nation




                                     - 50 -

<PAGE>

                                   APPENDIX A


*Accounting Clerk                                 *Industrial Nurse
*Accounting Specialist                            *Insp./Planner Mtc.
*Analyst Admin.                                    Inst. Repairman Journeyman
*Analyst Contract 4-C                             *Instructor - Ops., Mtc.
 Appren. Electrician                               Insulator Refractoryman
 Appren. Instr. Repairman                         *Inventory Control Analyst
 Appren. Mach.                                    *Inventory Control Specialist
*Auditor                                            Janitor
 Auto Mechanic                                    *Labor Relations Analyst
 Aux. Oper. Scrubber 4-5                           Laborer
*Betterment Specialist                             Lubeman
 Building Equipmentman                             Machinist Journeyman
*Chemical Analyst                                 *Manager 4-C Adm. Services
*Chemical Engineer                                *Manager 4-C Emp. Relations
*Computer Technician                              *Manager 4-C Engineering
*Cost Analyst                                     *Manager 4-C Power Plant
*Data Entry Operator                              *Material Analyst
*Designer                                         *Materials Foreman
*Electrical Engineer                               Mech. Pwr. Plt. Mtc.
 Electrician Journeyman                           *Mechanical Engineer
*Employee Relations Analyst                        Oper. Aux.
*Eng. Elec. Test Sr. 4-C                           Oper. Aux. Scrubber
*Eng. Mech. Bettermt.                              Oper. Aux. Trn.
*Eng. Mech. Test                                   Oper. Baghouse
*Eng. Mtc.                                         Oper. Control
*Environmental Technician                          Oper. Control Trn.
*Facilities Foreman                                Oper Scrubber 4-C
*Facilities Supervisor                             Painter
*Food Service Coordinator                         *Personnel Clerk
*Foreman Mtc. 4-C                                 *Placement Specialist
*Foreman Mtc. 4-C Overhaul                        *Placement Supervisor
  Foreman Mtc. 4-C SO2                            *Planner Scheduler
*Foreman Shift 4-C 1-2-3                          *Planning Expeditor
*Foreman Shift 4-C 4-5                            *Receptionist
*Foreman Shift 4-C Scrubber                       *Record Clerk
 Fuel Handler                                     *Safety Analyst
 Fuel Handler Trn.                                *Secretary
 Fuel Specialist                                  *Security Supervisor
 Helper Pwer. Plt. Mtc.                           *Shift Supv. 4-C 1-2-3
*Industrial Engineer                              *Shift Supv. 4-C 4-5




                                       A-1

<PAGE>

                                   APPENDIX A

*Shift Supv. Scrubber 4-C 4-5                     *Supv. 4-C Mech. 1-2-3
*Spec. Chemical Con. 4-C                          *Supv. 4-C Oper. 1-2-3
 Storekeeper                                      *Supv. 4-C Oper. 4-5
*Summer Employee                                  *Supv. 4-C Overhaul Mtc.
*Supply Expeditor                                 *Supv. 4-C Planning 1-2-3
*Supt. 4-C Elec. inst. Mtc.                       *Supv. 4-C Planning 4-5
*Supt. 4-C Mech. Mtc.                             *Supv. 4-C Planning SO2
*Supt. 4-C Mtc.                                   *Supv. 4-C Scrubber 1-2-3
*Supt. 4-C Oper.                                  *Supv. 4-C Scrubber 4-5
*Supt. 4-C Planning                               *Tech Computer Lead 4-C
*Supv. 4-C Accounting                             *Training Supervisor
*Supv. 4-C Betterment Eng.                         Truck Driver
*Supv. 4-C Betterment Eng.                         Utility Equipment Operator
*Supv. 4-C Chem. Measure                          *Utility Foreman
*Supv. 4-C Materials                               Warehouseman
*Supv. 4-C Mtc. E-I 1-2-3                         *Water Analyst
*Supv. 4-C Mtc. E-I 4-5                            Welder Chrome Mold
*Supv. 4-C Mtc. E-I SO2                            Welder Combination
*Supv. 4-C Mtc. Mech 4-5                          *Word Processing Operator
*Supv. 4-C Mtc. Mech SO2


--------------------
*Performance review employee

                                       A-2