AGREEMENT NO 13904

                         OPTION AND PURCHSE OF EFFLUENT

1.       PARTIES:  The  parties  to  this  Agreement  are the  CITY  OF  PHOENIX
         ("Phoenix")  , the  City  of  Glendale  ("Glendale")  the  City of Mesa
         ("Mesa") , the City of Scottsdale  ("Scottsdale  11), the City of Tempe
         ("Tempe")  and the Town of Youngtown  ("Youngtown")  Arizona  municipal
         corporations (hereinafter collectively called "Cities"), ARIZONA PUBLIC
         SERVICE COMPANY, an Arizona corporation (hereinafter called "Arizona"),
         and SALT RIVER PROJECT AGRICULTURAL  IMPR0VEMENT AND POWER DISTRICT, an
         Arizona  agricultural  improvement  district  (hereinafter called "Salt
         River Project") (hereinafter collectively called "Participants").

2.       RECITALS: This Agreement is made with reference to the following facts,
         among others:

                  2.1 Phoenix owns and operates the 23rd Avenue  Plant,  a waste
         water treatment plant. Cities share in the owner-ship of plant capacity
         and share the costs of operating and maintaining the 91st Avenue Plant,
         a waste water  treatment  plant,  which is operated and  maintained  by
         Phoenix in its own behalf  and as  administrative  agent for all others
         presently  involved  in  the  Multi-City  Sewerage  Plan.  Effluent  is
         available  from the 23rd  Avenue  Plant and the 91st  Avenue  Plant for
         beneficial uses.

                  2.2  Beneficial  use of Effluent is in tile best  interests of
         the cities and the users thereof  because of the  reclamation of waters
         in an arid region arid the economic  benefits of such  reclamation  and
         use.

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                  2.3 The Participants are studying and planning Arizona Nuclear
         Power  Project  ("ANPP")  to be located in the  Central  Arizona  Water
         Conservation  District  organized  and  existing  pursuant  to  Arizona
         Revised  Statutes SS 45-2601 et seq. In order for the  Participants  to
         prepare  environmental  and  site  selection  studies  in the  form and
         substance   as  required  by  the  U.  S.  Atomic   Energy   Commission
         (hereinafter  referred  to as  "USAEC")  and by the  State  of  Arizona
         pursuant to ARS SS 40-360 and 40.360.0l to 40-360.12,  the Participants
         must secure an assured and adequate water supply for  construction  and
         operation of ANPP.

                  2.4 The Participants  desire to obtain sufficient  Effluent to
         proceed  with ANPP site  selection  studies  arid the Cities  desire to
         contract for the sale,  transfer  and delivery of such  Effluent as set
         forth in this  Agreement,  including  their  respective  rights therein
         after delivery thereof to Participants to waive their right to reuse or
         otherwise  dispose  of such  Effluent  upon the  terms  and  conditions
         hereinafter set forth.

3.       AREEMENT:  In consideration of the terms , covenants and conditions 
         contained in this Agreement, the parties agree as follows:

4.       EFFECTIVE DATE:   This Agreement shall become effective when executed 
         by the parties  hereto and shall  terminate  forty (40) years after the
         last ANPP Unit has been placed in operation, but in no event later than
         the year 2040, unless the parties shall agree upon an extension hereof.

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5.       DEFINITIONS:

                  5.1 USAEC: The United States Atomic Energy Commission.

                  5.2 ANPP: The Arizona  Nuclear Power Project which may consist
         of one or more nuclear steam electric generating units.

                  5.3 ANPP UNITS: Units 1, 2, 3 and 4.

                  5.4 W & S  DIRECTOR:  The  person  designated  by  Phoenix  to
         perform the duties and  responsibilities  of the Water & Sewer Director
         as set forth in this Agreement.

                  5.5 COMMITTED  EFFLUENT:  Effluent which the Cities, as of the
         date of this Agreement,  have consented to the use thereof,  by others,
         as  described  on  Exhibit  A,  and  such  amount  of  Effluent  as may
         reasonably be required in connection with the operation and maintenance
         of the 23rd  Avenue  Plant and the 91st  Avenue  Plant,  but  excluding
         Effluent  sold or used for  irrigation  of any lands  beyond  the plant
         sites described in Exhibits B and C attached hereto.

                  5.6 CONSTRUCTION  WATER:  The water  requirements of each ANPP
         Unit prior to its Date of Firm Operation.

                  5.7 DATE OF FIRM OPERATION:  The date on which each ANPP Unit
         can be  expected  to  operate  reliably  at any  load  up to its  rated
         capacity as determined by the Project Manager.


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                  5.8 EFFLUENT:  The waste water discharged from the 23rd Avenue
         Plant and the 91st Avenue Plant after the processing thereof.

                  5.9 OPERATING AGENT: The entity determined by the Participants
         to be their agent for operation, maintenance, repair and replacement of
         each ANPP Unit.  Arizona shall be the  Operating  Agent for Unit 1. The
         Participants shall designate in writing the Operating Agent for Unit 2,
         Unit 3 and Unit 4.

                  5.10  OPERATING  AGENT'S  ENGINEER:  The person  designated in
         writing   by  the   Operating   Agent  to   perform   the   duties  and
         responsibilities of the Operating Agent's Engineer as set forth in this
         Agreement.

                  5.11 OPERATING  EMERGENCY:  An unplanned event or circumstance
         which  reduces  or may  reduce  the  Cities'  ability to deliver or the
         Participants' ability to receive Uncommitted Effluent.

                  5.12 PARTICIPANTS:  Arizona,  Salt River Project and any other
         electric  utility,  person or agency  providing  electric  service  who
         becomes the holder of an ownership interest in any ANPP Unit.

                  5.13 PARTICIPANTS'  FACILITIISS:  All facilities,  structures,
         and equipment owned by Participants,  wherever located,  used or useful
         for  the  receipt,  treatment,  storage,   transportation  and  use  of
         Effluent, including without limitation all such facilities,  structures
         and equipment  which may be located on property  owned by the Cities or
         any of them.




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                  5.l4   PROJECT   MANAGER:   The  entity   determined   by  the
         Participants  to be their  agent for  construction  of each ANPP  Unit.
         Arizona  shall be Project  Manager for Unit 1. The  Participants  shall
         designate in writing the Project Manager for Unit 2, Unit 3 and Unit 4.

                  5.15 PROJECT  MANAGER'S  ENGINEER:  The person  designated  in
         writing   by  the   Project   Manager   to   perform   the  duties  and
         responsibilities of the Project Manager's Engineer as set forth in this
         Agreement.

                  5.16 SCHEDULED  OUTAGE: A planned event or circumstance  which
         reduces  or  may  reduce  the  Cities'  ability  to  deliver,   or  the
         Participants' ability to receive, Uncommitted Effluent;

                  5.17 SHUTDOWN  DATE:  The date on which any ANPP Unit is taken
         out of service and retired from use as a source of electric  generation
         as  determined  by the  Operating  Agent,  customarily  expected  to be
         approximately  forty (40) years after such Unit is placed in commercial
         operation.

                  5.18  UNCOMMITTED  EFFLUENT:  The  Effluent  in excess of that
         which is  indicated  oil Exhibit A available  at any time from the 23rd
         Avenue  Plant and the 91st Avenue  Plant  including  but not limited to
         Option Effluent.

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                  5.19 OPTION  EFFLUENT:  The sum of Unit 1 Water  Requirements,
         Unit 2 Water  Requirements,  Unit 3 Water Requirements and Unit 4 Water
         Requirements.

                  5.20 UNIT 1, UNIT 2, UNIT 3 and UNIT 4: Each of the respective
         complete systems of ANPP for generating electricity,  including without
         limitation the nuclear;  steam supply system and its containment or any
         other  complete  steam  supply  systems,  the  turbine  generator,  all
         auxiliary  structures,  system  facilities  and equipment  necessary or
         useful in the operation of the Unit.

                  5.21  UNIT 1 OPTION:  The  option  given by the  Cities to the
         Participants  under this Agreement to acquire Effluent in the amount of
         Unit 1 Water Requirements.

                  5.22  UNIT 2 OPTION  The  option  given by the  Cities  to the
         Participants  under this Agreement to acquire Effluent in the amount of
         Unit 2 Water Requirements in the amount of Unit.

                  5.23  UNIT 3 OPTION  The  option  given by the  Cities  to the
         Participants  under this Agreement to acquire Effluent in the amount of
         Unit 3 Water Requirements.

                  5.24  UNIT 4 OPTION  The  option  given by the  Cities  to the
         Participants  under this Agreement to acquire Effluent in the amount of
         Unit 4 Water Requirements



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                  5.25 UNIT 1 OPTION From the effective  date of this  Agreement
         until the date of issuance of the last of any  authorizations  required
         by federal,  state or local laws prior to  commencement of construction
         of  Unit  1,  including  without   limitation  any  authorizations  for
         construction of any water or Effluent  facility  required to construct,
         operate and maintain such unit, but in no event later than December 31,
         1995.

                  5.26 UNIT 2 OPTION - INITIAL TERM:  From the effective date of
         this  Agreement  until  the  date  of  issuance  of  the  last  of  any
         authorizations  required  by  federal,  state  or local  laws  prior to
         commencement of construction  of Unit 2, including  without  limitation
         any  authorizations  for construction of any water or Effluent facility
         required to construct,  operate and maintain such unit, but in no event
         later than December 31, 1995.

                  5.27 UNIT 3 OPTION - INITIAL TERM:  From the effective date of
         this  Agreement  until  the  date  of  issuance  of  the  last  of  any
         authorizations  required  by  federal,  state  or local  laws  prior to
         commencement of construction  of Unit 3, including  without  limitation
         any  authorizations  for construction of any water or Effluent facility
         to  construct,  operate and maintain  such unit,  but in no event later
         than December 31, 1995.

                  5.28 UNIT 4 OPTION - INITIAL TERM:  From the effective date of
         this  Agreement  until  the  date  of  issuance  of  the  last  of  any
         authorizations  required  by  federal,  state  or local  laws  prior to
         commencement of construction  of Unit 4, including  without  limitation
         any  authorizations  for construction of any water or Eff1uent facility
         required to construct,  operate and maintain such unit, but in no event
         later than December 31, 1995.

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                  5.29  UNIT  1  OPTION  -  EXTENDED  TERM:  From  the  date  of
         expiration of the Unit 1 Option - Initial Term to December 31, 2000.

                  5.30  UNIT  2  OPTION  -  EXTENDED  TERM:  From  the  date  of
         expiration of the Unit 2 Option - Initial Term to December 31, 2000.

                  5.31  UNIT  3  OPTION  -  EXTENDED  TERM:  From  the  date  of
         expiration of the Unit 3 Option - Initial Term to December 31, 2000.

                  5.32  UNIT  4  OPTION  -  EXTENDED  TERM:  From  the  date  of
         expiration of the Unit 4 Option - Initial Term to December 31, 2000.

                  5.33 UNIT 1 WATER REQUIREMENTS:  The annual water requirements
         of Unit 1 which shall be deemed to be 35,000  acre-feet,  provided that
         the Unit 1  Project  Manager  may  establish  a lesser  amount  for all
         purposes  hereof by delivery to Phoenix of a written notice stating the
         revised water  requirements for such unit not later than the expiration
         of the Unit 1 Option - Extended Term.

                  5.34 UNIT 2 WATER REQUIREMENTS:  The annual water requirements
         of Unit 2 which shall be deemed to be 35,000  acre-fact,  provided that
         the Unit 2  Project  Manager  may  establish  a lesser  amount  for all
         purposes  hereof by delivery to Phoenix of a written notice stating the
         revised water  requirements for such unit not later than the expiration
         of the Unit 2 Option - Extended Term.

                                      -8-


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                  5.35 UNIT 3 WATER REQUIREMENTS:  The annual water requirements
         of Unit 3 which shall be deemed to be 3S,O00  acre-feet,  provided that
         the Unit 3  Project  Manager  may  establish  a lesser  amount  for all
         purposes hereof by. delivery to Phoenix of a written notice stating the
         revised water  requirements for such unit not later than the expiration
         of the Unit 3 Option - Extended Term.

                  5.36 UNIT 4 WATER REQUIREMENTS:  The annual water requirements
         of Unit 4 which shall be deemed to be 35,000  acre-feet,  provided that
         the Unit 4  Project  Manager  may  establish  a lesser  amount  for all
         purposes  hereof by delivery to Phoenix of a written notice stating the
         revised water  requirements for such unit not later than the expiration
         of the Unit 4 option - Extended Term.

                  5.37 23RD AVENUE PLANT: Phoenix's waste water processing plant
         located at 23rd Avenue and the Salt River,  including all land and land
         rights  that  are a part  thereof,  all as more  particularly  shown on
         Exhibit B, and any' future land acquisitions thereto.

                  5.38 91ST AVENUE PLANT:  Cities.' waste water processing plant
         located at 91st Avenue and the Salt River,  including all land and land
         rights that are a part thereof,  all more particularly shown on Exhibit
         C, and any future land acquisitions thereto.

                                       -9-


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                  5.39 23RD AVENUE DELIVERY  POINT:  The location on or adjacent
         to the 23rd Avenue Plant site where the  Participants  take delivery of
         Effluent.

                  5.40 91ST AVENUE DELIVERY  POINT:  The location on or adjacent
         to the 91st Avenue Plant site where the  Participants  take delivery of
         Effluent.

6.       OPTION FOR EFFLUENT:

                  6.1 The Cities hereby convey and grant to the Participants the
         Unit 1 Option,  Unit 2 Option,  Unit 3 Option and Unit 4 Option for the
         purchase,  transfer,  delivery  and  right  to  use a  portion.  of the
         Uncommitted  Effluent  in the amount of the Unit 1 Water  Requirements,
         Unit 2 Water  Requirements,  Unit 3 Water Requirements and Unit 4 Water
         Requirements, respectively.

                  6.2 The Participants may exercise all or a portion of the Unit
         1 Option,  the Unit 2 Option,  the Unit 3 Option and the Unit 4 Option,
         on or before the  expiration of the Unit 1 Option - Extended  Term, the
         Unit 2 Option - Extended  Term,  the Unit 3 Option - Extended  Term and
         the Unit 4 Option - Extended term, respectively, by delivery of written
         notice  to  Phoenix  of such  exercise  12  months  in  advance  of the
         effective  date of such  exercise,  but in no event later than December
         31, 2000.



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                  6.3 In the event the Initial Term Option,  Unit 2 Option, Unit
         3 Option or of the Unit 1 Unit 4 Option has  expired  and  construction
         has not started by December 31, 1995, on the respective ANPP Unit, then
         the option for such unit shall  expire and the Cities shall be under no
         obligation  to sell or transfer any amount of Effluent  covered by such
         unit to Participants.

                  6.4 The Participants may by written notice to Phoenix release,
         remise and  surrender  all or any portion of the Unit 1 Option,  Unit 2
         Option,  Unit 3 Option  or Unit 4  Option  or may  transfer  all or any
         portion  of  any  of  said  options  for  use in  connection  with  the
         construction,   operation  and   maintenance   of  any  other  electric
         generating units wherever located.  In the event of the transfer of any
         of said  options or any portion  thereof for use at any other  electric
         generating  units, the terms of the original option,  including without
         limitation the Initial and Extended Term thereof,  the option payments,
         exercise of the option  delivery and acceptance of Option  Effluent and
         payments  therefor,  shall apply in respect of the transferred  option.
         The  release,  remise and  surrender  of any such  Options or  portions
         thereof not so  transferred  shall be  effective  upon  receipt of such
         notice by Phoenix,  and from and after such date neither the Cities nor
         the Participants shall have any rights, duties,  powers,  privileges or
         obligations  hereunder  with  regard to the  Option  Effluent  released
         pursuant to this Section 6.4.






                                  -11-


<PAGE>

                  6.5 From the  effective  date of this  Agreement and until the
         exercise of,  release of or  expiration  of the Unit 1 Option - Initial
         Term,  the Unit 2 Option -  Initial  Term,  the Unit 3 Option - Initial
         Term  and  the  Unit  4  Option  -  Initial  Term,  respectively,   the
         Participants  shall  pay to  Phoenix  for the use  and  benefit  of the
         Cities,  as their  respective  interests  may appear from time to time,
         annually  in  advance  the  amount  equal of $1.00  times the number of
         acre-feet  of  Option  Effluent  actually  available  during  the  year
         preceding the date of payment,  but not to exceed the sum of the Unit 1
         Water   Requirements,   Unit  2  Water   Requirements,   Unit  3  Water
         Requirements and Unit 4 Water Requirements.

                  6.6 In the event the Participants do not exercise, transfer or
         release  the Unit 1  Option,  Unit 2 Option,  Unit 3 Option  and Unit 4
         Option,  in each  case,  during  the  Initial  Term  thereof,  from the
         beginning of the Extended Term until the exercise, transfer, or release
         or  termination  of the Term of, the Unit 1 Option  Extended  Term, the
         Unit 2 Option - Extended  Term,  the Unit 3 Option  Extended  Term, and
         the.  Unit 4 Option -  Extended  Term,  the  Participants  shall pay to
         Phoenix  for the use and  benefit of the  Cities,  as their  respective
         interests may appear from time to time,  annually in advance the amount
         equal to $2.00 tines tile number of  acre-feet  of the Option  Effluent
         actually  available in the year preceding the date of payment,  but not
         to exceed the sum of the applicable Unit 1 Water  Requirements,  Unit 2
         Water  Requirements,  Unit  3  Water  Requirements  and  Unit  4  Water
         Requirements.


                                        -12-


<PAGE>



                  6.7 Any  payments  to be made by the  Participants  to Phoenix
         pursuant to Sections 6.5 and 6.6 hereof shall be due and payable on the
         effective  date of  this  Agreement  and  each  succeeding  anniversary
         thereof,  provided,  h9wever,  that the final payment due on account of
         Unit 1 Option,  Unit 2 Option, Unit 3 Option and Unit 4 Option, in each
         case,  shall be prorated  and  Phoenix  acting on its own behalf and as
         agent for the other Cities shall  reimburse or credit the  Participants
         as follows:

               R = OP   x   X   x   OAU
                           ---      ---
                           365       OA

          Where R is Reimbursement or credit;
          OP is the  Option  Payment  made  pursuant  to  Section  6.5  or  6.6,
          whichever is applicable;  X is 365 minus the number of days which have
          elapsed  since  the  preceding  payment  to the date on  which  Unit 1
          Option,  Unit 2 Option, Unit 3 Option and Unit 4 Option, in each case,
          has  been  exercised  or  released  and  terminated  pursuant  to this
          Agreement;  OA is the amount of the Unit 1 Option,  the Unit 2 Option,
          the Unit 3 Option or the Unit 4 Option, as the case may be; and OAU is
          the amount of the Unit 1 Option,  the Unit 2 Option, the Unit 3 Option
          or the Unit 4 Option as the case may be,  actually used in the year in
          which payments therefor pursuant to Section 8 hereof first become due.



                                       -13-


<PAGE>
        

                  6.8 All payments made by the  Participants to Phoenix pursuant
         to Sections  6.S and 6.6 hereof  shall be  credited by Phoenix  against
         amounts due from the  Participants  pursuant  to Section 8 hereof.  For
         purposes of applying such credit,  Phoenix shall record  separately the
         amounts  paid on account of the Unit 1 Option,  Unit  2.Option,  Unit 3
         Option  and Unit 4  Option.  In the  event  the Unit 1  Option,  Unit 2
         Option,  Unit 3  Option,  or Unit 4  Option,  in whole  or in part,  is
         released and  terminated  or any portion of any such Option is not used
         pursuant  to  Section  6.4  hereof  there  shall be no  credit  due the
         Participants on account of the payments applicable thereto.

                  6.9  It  shall  be  presumed  that  Option  Effluent  actually
         available  from the 91st  Avenue  Plant  shall  be  deemed  to be fully
         committed to the Participants  hereunder prior to the commitment of any
         Effluent from the 23rd Avenue Plant.

                  6.10 It is understood that the volumes of Uncommitted Effluent
         available  and the volumes of Effluent  required for electric  electric
         generation  are  estimates  and that the actual  needs in future  years
         could be less, but the  construction of generating units is intended to
         parallel the needs for power and availability of Uncommitted Effluent.



                                     -14-


<PAGE>


7.       SALE OF EFFLUENT; QUALITY OF EFFLUENT; PROCESSING SERVICE:

                  7.1  When  the  Participants  desire  to  exercise  all or any
         portion  of the Unit 1 Option,  Unit 2 Option,  Unit 3 Option or Unit 4
         Option,  in each or any  case  pursuant  to  Section  6.2  hereof,  the
         Participants  shall promptly execute and deliver to Phoenix one or more
         completed  instruments  in the  form  of  Exhibit  D,  which  shall  be
         effective  as of  the  effective  date  provided  in  such  instrument,
         providing for the sale, transfer, delivery and right to use Effluent in
         the   amounts  of  the  Unit  1  Water   Requirements,   Unit  2  Water
         Requirements, Unit 3 Water Requirements or Unit 4 Water Requirements or
         so  much  thereof  as the  Participants  have  exorcised  their  option
         therefor. The source and quality of Effluent to be transferred from and
         processed  in the 23rd  Avenue  Plant  and to be  transferred  from and
         processed  in the 91st  Avenue  Plant shall be as shown on Exhibit B In
         the event that the Participants'  water  requirements are less than the
         amounts  indicated  in the  Options,  in  each  and any  case,  and the
         Participants  exercise such  Options,  in each and any case, in amounts
         less than the amounts indicated in the Options, then the balance of the
         Effluent in the amount for which the Option is not  exercised,  in each
         aria any case, shall become Uncommitted Effluent, not under Option, and
         available to be used at the Cities' sole discretion.



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                  7.2  Following  any  execution  of an  instrument  pursuant to
         Section 7 hereof and  during  the term  thereof as set forth in Section
         7.S hereof,  Phoenix  shall collect  waste-water,  process the same and
         deliver  Effluent of the  quality  shown on Exhibit E to either or both
         the 23rd Avenue Plant Delivery Point and the 91st Avenue Plant Delivery
         Point as the  Participants  may from time to time  designate and in the
         amounts  as the  Participants  have  exercised  their  Option  thereof;
         provided  that such amounts are  available at the  designated  delivery
         point;  and  provided,  however,  that the  Participants  shall  not be
         obligated  to  accept  delivery  of  Effluent  which  does not meet the
         quality set forth in Exhibit E.

                  7.3 Phoenix on behalf of itself and the other Cities covenants
         and agrees that it will operate,  maintain, repair and replace the 23rd
         Avenue Plant and 91st Avenue Plant in at least  substantially  the same
         condition  as  they  exist  upon  the  date  of the  execution  of this
         Agreement,  ordinary  wear and tear  excepted  and  shall  enlarge  the
         capacity  of the 91st  Avenue  Plant as  required  from tune to time to
         treat  increased  quantities of wastewater  delivered to the plant in a
         manner  and on a  schedule  such  that the  annual  average  DOD of the
         Effluent  from said  plant  shall not  exceed 30 mg/l due to  increased
         flows   through   said  Plant.   Phoenix  may  make   alterations   in,



                                       -16-


<PAGE>

         modifications  to,  replacements , betterments and improve ments of and
         to the 23rd Avenue Plant and the 91st Avenue Plant; provided,  however,
         that the Cities shall at all times carry out their obligations pursuant
         to Section 7.2 hereof.  The Cities further covenant and agree that they
         will not install,  operate and maintain any new sewage  treatment plant
         at any other location if the installation, operation and maintenance of
         such new plant would  impair the ability of the Cities to transfer  and
         deliver  Effluent  pursuant  to this  Agreement.  In  this  connection,
         however,  it is  recognized  that the  long-range  Master  Plan for the
         collection  and treatment of wastewater  from the urban  development in
         the  metropolitan.  area  extends  into  drainage  basins not  normally
         tributary  to the 23rd Avenue or the 91st Avenue  Wastewater  Treatment
         Plants.  New  treatment  facilities  for the Gila and lower  Litchfield
         tributary  basins  are  envisioned,   as  generally  described  in  the
         "Wastewater  Report  for  the  Valley  Metropolitan  Area  of  Phoenix,
         Arizona" by John  Carollo  Engineers,  dated  December,  1968.  Nothing
         herein is intended to impair the  implementation of the Master Plan nor
         to grant  Participants any rights or interests in wastewater  collected
         in the Gila and lower Litchfield  tributary basins, and treated at such
         envisioned  new  facilities.  Prior to the  beginning of each  calendar
         year, the Participants shall submit to the W&S Director in writing, the



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<PAGE>

         estimates of water  requirements  (including  Construction  Water) on a
         daily basis or by month for the ensuing  calendar year.  Such estimates
         will be used  by the W &S  Director  as an  operational  guide  and for
         planning  purposes.  It is understood that Water  Requirements cited in
         Section S of this Agreement are annual quantities only.  Nothing herein
         shall obligate  Phoenix to operate the wastewater  treatment  plants in
         such a manner  as to  process  Effluent  in  uniformly  equal  daily or
         monthly  quantities,  it being  understood that the proper operation of
         the plants is dependent upon the operation of other related  wastewater
         disposal   facilities  and  the  amount  of   non-consumptive   use  of
         water-producing  raw  wastewater  discharged  into the  sanitary  sewer
         system. Like wise, it is understood that the maximum amount of Effluent
         available  for the  Participants'  use is  restricted  to the amount of
         Uncommitted  Effluent which has been processed at the treatment plants.
         The Participant's Facilities located at the 23rd Avenue and 91st Avenue
         Delivery Points shall include metering  devices,  approved by the W & S
         Director and the Operating Agent's  Engineer,  which shall be the basis
         for determining the amount of Effluent sold.

                  7.4 Prior to the effective  date of the exercise of any option
         pursuant to Section 6.2 the W & S Director  and the  Operating  Agent's
         Engineer shall agree upon written practices and procedures  relating to
         processing and delivery of Effluent pursuant to this Section 7, and its
         receipt,   storage  and  transportation  by  the  Participants   during
         Operating Emergencies and Scheduled Outages.

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                    7.5 The transfer,  sale and delivery of Effluent by the City
         to the Participants in amounts equal to the Unit 1 Water  Requirements,
         Unit 2 Water Requirements,  Unit 3. Water Requirements and Unit 4 Water
         Requirements;  shall in each case  terminate  and  expire on the Unit 1
         Shutdown Date,  Unit 2 Shutdown  Date,  Unit 3 Shutdown Date and Unit 4
         Shutdown Date,  respectively.  On such dates the amount of the sale and
         purchase of Effluent related to each ANPP Unit shall terminate, without
         further  act of the  Participants.  The  Participants  agree to provide
         Phoenix with at least 24 months' notice of intent of any Shutdown Date.

                    7.6  Nothing  herein  shall be  construed  to  constitute  a
         waiver, relinquishment,  abandonment or forfeiture of any appropriative
         water rights of any of the Cities or any other party hereto.

8.       PAYMENT FOR DELIVERY OF EFFLUENT:

                  8.1 In  consideration  of the  transfer,  sale and delivery of
         Effluent  made by the Cities and the  services to be  performed by them
         pursuant to Section 7 hereof;  the Participants  shall make payments to
         Phoenix in the manner and as determined pursuant to this Section 8.


                                      -19-


<PAGE>

                  8.2 ANPP, through its Participants, shall pay for all Effluent
         delivered  hereunder  which  meets the  quality set forth in Exhibit E,
         whether the Effluent be used for Construction Water, operating needs or
         other uses, a price per  acre-foot  equal to Forty percent (40%) of the
         then-current  price charged per acre-foot for Central  Arizona  Project
         Municipal  and  Industrial  Water,  but in no event  less  than  Twenty
         Dollars  ($20.00) per acre-foot nor more than Thirty Dollars  ($30.00).
         In the  event  that  Effluent  is  delivered  under  the  terms of this
         Agreement  in the  absence of a currently  effective  price for Central
         Arizona  Project  Municipal  and  Industrial  Water,  the  price of the
         Effluent for a period of Twenty (20) years from the  effective  date of
         this  Agreement  shall be Twenty Dollars  ($20.00) per  acre-foot,  and
         Twenty-Five   Dollars  $25.00  per  acre-foot   thereafter   until  the
         expiration of this Agreement.

                  8.3 The price per  acre-foot  determined  in  accordance  with
         Section 8.2 above, shall be paid for each acre-foot of Effluent,  which
         meets the quality set forth on Exhibit E, that is actually delivered in
         any month during the term of this Agreement as measured by the metering
         devices  provided at the 23rd Avenue and 91st  Avenue  Delivery  Points
         pursuant to Section 7.3 hereof.





                                       -20-


<PAGE>

                  8.4 In the event the amount of Effluent  delivered in any year
         hereunder  is less than the  amount of  Effluent  the  Cities  could be
         required to deliver in such year under Section 7, then the Participants
         shall pay,  in  addition  to the  payment  required  under  Section 8.2
         hereof, an amount equal to Two Dollars ($2.00) per acre-foot times tile
         amount  in  acre-feet  of the  difference  between  (i) the  amount  of
         Effluent the Cities are required to deliver  under Section 7 (excluding
         any amount  thereof  which may be rejected by the  Participants  as not
         meeting  the  quality  set forth in  Exhibit  E) and (ii) the amount of
         Effluent actually delivered hereunder.

                  8.5 The  payments  to be made by the  Participants  under this
         Section 8 shall be  computed  and  billed  monthly in  accordance  with
         Section  8.3 hereof by  Phoenix.  Within  ten (10) days of receipt  the
         Participants shall pay such billings to Phoenix for the use and benefit
         of the Cities as their  respective  interests  may appear  from time to
         time. Any applicable credit  determined  pursuant to Section 6.8 hereof
         shall be used to reduce the first and succeeding  monthly  payments due
         hereunder  until  such  credit is fully  used.  In no event  shall such
         reduction  in monthly  payments  be  applied in a manner  such that the
         total of all payments  made in any current  calendar  year  pursuant to
         Sections 6 and 8 hereof  shall not be reduced to an amount less than an
         amount  equal  to (I)  the  total  of all  payments  made  tinder  this
         Agreement in the  preceding  calendar  year less (ii) any  reduction in
         payments due under this  Agreement  during said current  calendar  year
         because of the release,  termination or expiration by the  Participants
         0r their rights to receive Effluent hereunder.


                                   -21-


<PAGE>

     

9.       DELIVERY OF CONSTRUCTION WATER; PARTICIPANTS' FACILITIES:

                  9.1  Whether or not the Unit 1 Option,  Unit 2 Option,  Unit 3
         Option  and Unit 4 Option  has been  exercised  pursuant  to  Section 7
         hereof,  the Project Manager's  Engineer by written notice to the W & S
         Director  may  schedule  Construction  Water for delivery at either the
         23rd Avenue Delivery Point or the 91st Avenue Delivery Point,  provided
         that such volumes are available at the designated  delivery point.  The
         Cities shall make available the Construction  Water in accord with such
         schedule  and it shall  meet the  quality  specified  in Exhibit E. The
         Participants  shall pay for all Effluent  delivered in accordance  with
         this Section 9.1 at the price  determined in accordance  with Section 8
         hereof.

               9.2 It is  recognized  that the  scope,  location  and  design of
         Participants'  Facilities  shall not occur for some time  following the
         execution of this Agreement.  It shall be a responsibility 0(pound) the
         W & S Director and the Project  Manager's  Engineer to  coordinate  the
         location,  design,  operation  and  maintenance  of  the  Participants'
         Facilities as may be located on the treatment plant sites.

10.      OTHER USES OP EFFLUENT SUBORDINATED:

                  10.1 Any use of Option  Effluent  by the Cities or any of them
         and by others  claiming by,  through or under the Cities or any of them
         shall be  subordinated  to the rights of the  Participants  pursuant to
         this Agreement.

                                      -22-


<PAGE>


                  10.2 The Cities or any of them shall include in any instrument
         or document  to which the are or it is a party that  relates to the use
         of Option Effluent a provision stating that any sales, grants to or any
         rights  and  interests  of the  other  party or  parties  thereto,  are
         subordinate to the rights and interests of the Participants pursuant to
         this Agreement and that the Participants shall have the first right and
         call on all Effluent pursuant to the Options cited in this Agreement.

11.      OPERATION AND MAINTENANCE - RIGHTS OF WAY:

                    11.1 The Cities at their  expense shall  operate,  maintain,
         repair and  replace  the 91st  Avenue  Plant and Phoenix at its expense
         shall operate, maintain, repair and replace the 23rd Avenue Plant.

                  11.2  The   Participants   at  their  expense  shall  operate,
         maintain, repair and replace the Participants' Facilities.  Phoenix and
         the Project Manager or Operating Agent may agree by separate  agreement
         that  Phoenix  shall  operate  and  maintain  certain of  Participants'
         Facilities or engage in other activities for the Participants and shall
         be compensated therefore.




                                      -23-


<PAGE>
                  11.3 The Cities without cost to the  Participants  shall grant
         leases, or right1/2:-of-way and easements,  to the Participants for all
         Participants' Facilities as may be located at the 23rd Avenue Plant and
         the 91st  Avenue  Plant and on, in,  under and over any other  property
         owned by the Cities or any of them or in which they or any of them have
         the power to grant  rights  therein  for any public  use. It shall be a
         responsibility.  of  the  W & S  Director  and  the  Project  Manager's
         Engineer  to  agree  upon the  description  of such  rights-of-way  and
         easements.

                    11.4 It shall be the  responsibility  of the W & S  Director
         and the Project  Manager's  Engineer or Operating  Agent's  Engineer to
         develop  practices and procedures for the operation and  maintenance of
         the 23rd  Avenue  Plant,  the 91st Avenue  Plant and the  Participants'
         Facilities  insofar  as  they  relate  to and  affect  the  duties  and
         obligations  of the  Cities  and the  Participants  to  deliver  and to
         receive Effluent,  without undue interference with the normal operation
         and maintenance of the wastewater treatment plants.

12.      TRANSFER AND ASSIGNMENT:

                  12.1 The Cities and the  Participants  shall have the right at
         any time and from time to time to  mortgage,  create or  provide  for a
         security interest in or convey in trust all or part of their respective
         interests in this Agreement and in any property installed or maintained
         subject to this Agreement  including without  limitation  Participants'
         Facilities,  to  a  trustee  or  trustees  under  deeds,  mortgages  or
         indentures or to a secured party or parties under a security  agreement
         as security for its present or future  successors  or assigns  thereof,
         without  need for the  prior  written  consent  of any  other  party or
         Participant  and  without  such  mortgagee,  trustee or  secured  party
         assuming  or  becoming  in  any  respect   obligated   to  perform  any
         obligations under this Agreement.

                                             -24-


<PAGE>

                  12.2 Any mortgagee,  trustee or secured party under present or
         future deeds of trust, mortgages,  indentures or security agreements of
         any City or Participant  and any successor or assign  thereof,  and any
         receiver,  referee or trustee in  bankruptcy or  reorganization  of any
         City or  Participant,  and any successor by action of law or otherwise,
         and any purchaser,  transferee or assignee of any thereof may,  without
         need for the prior  written  consent of any other City or  Participant,
         succeed to and  acquire all the rights,  titles and  interests  of such
         City or Participant in this Agreement and in any property  installed or
         maintained subject to this Agreement and may take over possession of or
         foreclose  upon  said  rights,  titles  and  interests  of such City or
         Participant.

                  12.3 Each  Participant  shall have the right to  transfer  and
         assign  all or part of its  interest  in this  Agreement  to any  other
         Participant  without  the prior  written  consent  of the Cities or any
         other Participant.  Upon any such transfer,  the Participant  acquiring
         such  interest  shall  assume all the duties  and  obligations  related
         thereto and, with the written  consent of the Cities which shall not be
         unreasonably withheld, the Participant transferring such interest shall
         be released and discharged therefrom.

                                       -25-


<PAGE>

                  12.4 Except as otherwise  provided in Sections 12.1,  12.2 and
         12.3 hereof,  any  successor to the rights,  titles and  interests of a
         City or  Participant  shall  assume  and  agree  to fully  perform  and
         discharge all of the obligations hereunder of such City or Participant,
         and  such  successor   shall  notify  each  of  the  other  Cities  and
         Participants  in writing of such  transfer,  assignment or merger,  and
         shall furnish to each City and  Participant  evidence of such transfer,
         assignment or merger.

                  12.5 Except as provided in Section 12.1, 12.2 and 12.3 hereof,
         neither the Cities nor the Participants shall transfer or assign any of
         their respective  rights,  titles and interest in and to this Agreement
         without the prior written consent of any other party and Participants.

                  12.6 Effluent made available under this Agreement, shall in no
         event be directly or  indirectly  utilized  other than for the purposes
         stated in this  Agreement  without  the prior  written  consent  of the
         Cities.

\


                                      -26-

<PAGE>

13.      ENFORCEMENT OF LAWS AND CONTRACTS; IMPROVEMENT AND ADDITIONS:

                  13.1 The Cities  shall  enforce  all valid  laws,  ordinances,
         rules  and  regulations  regarding  discharges  into  their  respective
         wastewater  collection  systems  which are tributary to the 23rd Avenue
         Plant and the 91st  Avenue  Plant.  The Cities  shall also  enforce all
         contracts  heretofore or hereafter entered into with others relating to
         connection with said collection Systems and discharge of waste therein,
         and the  Cities  agree  that they will not  hereafter  modify  any such
         contracts  nor enter into any other  contracts  relating to  connection
         with the said collection systems and discharge of waste therein, sewage
         treatment  or disposal  of  Effluent,  which  shall  impair the Cities'
         ability to transfer and deliver the quantity and quality of Effluent in
         accordance with the terms of this Agreement.  Control of connections to
         and discharges  into said  collection  systems shall be established and
         maintained  in a manner that the quality of Effluent can be  maintained
         in accord with the standards set forth in Exhibit E. If in the exercise
         of due  diligence by  enforcing  its valid laws  ordinances,  rules and
         regulations  regarding discharges and contracts heretofore or hereafter
         entered  into,  the Cities are unable to prevent  any third  party from
         discharging  wastes  into  their  respective  collection  systems  of a
         quality  which shall result in the  delivery of Effluent  from the 23rd
         



                               -27-


<PAGE>

         Avenue  Plant or the 91st  Avenue  Plant that does not meet the quality
         specifications  set forth in Exhibit E, then  Phoenix in respect of the
         23rd Avenue  Plant and the Cities in respect of the 91st  Avenue  Plant
         shall,  at  its  or  their  expense  as  the  case  may  be,  make  all
         improvements  modifications  and  additions to the 23rd Avenue Plant or
         91st Avenue  Plant which may be  required  for the  Effluent to satisfy
         such specifications insofar as they relate to the Rules and Regulations
         for Effluent  quality of the Arizona State Department of Health and the
         United States Environmental  Protection Agency. In the event Phoenix or
         the  Cities  shall  fail,   refuse,  or  be  unable  to  make  required
         improvements,  modifications and additions, the Participants shall have
         the  right  with  the  concurrence  of  the  Cities,  which  shall  not
         unreasonably  be withheld,  to install any facilities on  Participants'
         property  necessary to provide the  treatment  of Effluent  required to
         meet such quality  specifications  and payments  required to be made by
         Participants  pursuant  to  Section 8 hereof  shall be  reduced  by the
         amount of all costs  reasonably  incurred  by  Participants  to install
         operate  and  maintain  such  facilities,  including  reasonable  fixed
         charges and operating and maintenance expenses.

14.      COMPLIANCE WITH HEALTH LAWS:  Participants shall obtain necessary 
         permits for the use of Effluent for their  intended  purposes front the
         Arizona  State  Department  of Health,  and shall use such  Effluent in




                                      -28-


<PAGE>

         accordance  with the  applicable  laws of the United States of America,
         the State of Arizona,  the Rules and  Regulations  of the State  Health
         Department  and of the  Maricopa  County  Health  Department,  and  the
         ordinances of any of the Cities having lawful  jurisdiction to regulate
         such  use;  provided,  however,  that in the  event  any  such  laws or
         regulations  shall be amended in the future so as to make it impossible
         or  unfeasible  to use  Effluent  for the  purposes  specified  in this
         Agreement,  Participants  shall,  at their  option,  have the  right to
         cancel and  terminate  this  Agreement  upon  giving  thirty (30) days'
         notice in writing to each of the Cities.

15.      INDEMNIFICATION:  Participants hereby indemnify the Cities against any 
         claim  resulting  from the  control,  transmission,  use or disposal of
         Effluent by Participants after delivery thereof.

16.      DESTRUCTION, DAMAGE OR CONDEMNATION:

                  16.1 If all, or any part, of the 23rd Avenue Plant or the 91st
         Avenue Plant should be destroyed,  damaged or condemned, Phoenix or the
         Cities as the case may be shall restore or reconstruct  the 23rd Avenue
         Plant or the 91st Avenue Plant in such a manner as to permit the Cities
         to deliver Effluent to the Participants pursuant to this Agreement,  or
         in the event substitute wastewater treatment facilities arc constructed
         at a new location  other than the 23rd Avenue or 91st Avenue  Plants in
         lieu of restoration or  reconstruction of either such plant, the Cities
         shall  transfer,  sell and  deliver  the  same  rights  to the  treated
         wastewater  from  such  substitute  facilities  on the same  terms  and
         conditions as apply to Uncommitted Effluent from the destroyed, damaged
         or condemned plant.

                                      -29-


<PAGE>

                  16.2 If all or a portion of the  Participant's  Facilities are
         destroyed or  condemned,  the  Participants  shall  repair,  restore or
         reconstruct  the  Participants'  Facilities  in a manner to permit  the
         Participants  to  receive  and  transport  Effluent  pursuant  to  this
         Agreement.

17.      TAXES:

                  17.1 If any general  and/or  special  city,  county,  state or
         other real property taxes, or any other type of taxes and imposts,  are
         assessed or levied  against  the 23rd Avenue  Plant and the 91st Avenue
         Plant,  Phoenix  or the  Cities  as the case may be shall  pay all such
         taxes prior to delinquency.  In the event the State of Arizona,  County
         of Maricopa or the federal  government  should  require that the Cities
         pay a tax resulting from the sale of Effluent to the Participants, then
         the price for the  Effluent  shall be  increased  by the amount of such
         tax.

                    17.2 If any general  and/or special city,  county,  state or
         other real  property  taxes,  or any other typical taxes or imposts are
         properly assessed or levied against the Participants'  Facilities,  the
         Participants  shall pay all such  taxes  prior to  delinquency.  In the
         event the



                                      -30-


<PAGE>


         Cities  or any of  them  should  require  that  Participants  pay a tax
         resulting  from the sale of Effluent  by the Cities,  then the price of
         Effluent shall be decreased by the amount of such tax.

                    17.3  Nothing  contained  in  this  Section  17  shall  be
         construed  as  a  recognition   or  admission  by  the  Cities  or  the
         Participants of the validity of any such tax, levy or assessment.

18.      LIENS:

                    18.1 Phoenix shall keep the 23rd Avenue Plant and the Cities
         shall keep the 91st  Avenue  Plant free and clear of all liens  arising
         out of or claimed by reason of any work performed,  material  furnished
         or obligations incurred by or at the instance of Phoenix or the Cities,
         and Phoenix and the Cities as the case may be shall  indemnify and save
         the Participants harmless from all such items or claims of lien and all
         attorneys'  fees and  other  costs  and  expenses  incurred  by  reason
         thereof,  provided,  however, that neither Phoenix nor the Cities shall
         be  required to pay or  discharge  any such lien so long as it shall be
         contesting the same in any proceeding  which while pending prevents the
         collection or enforcement of the lien so contested.





                                             -31-


<PAGE>
                  18.2 The Participants shall keep the Participants'  Facilities
         free and clear of all liens  arising out of or claimed by reason of any
         work performed, material furnished or obligations incurred by or at the
         instance of the  Participants,  and shall indemnify and save the Cities
         harmless from all such liens or claims of lien and all attorneys'  fees
         and other  costs and  expenses  incurred by reason  thereof,  provided,
         however,  that  the  Participants  shall  not  be  required  to  pay or
         discharge any such lien so long as they shall be contesting the same in
         any  proceeding   which  while  pending   prevents  the  collection  or
         enforcement of the lien so contested.

19.  LIABILITY AND INSURANCE

                    19.1 Except for the  negligence of the  Participants,  their
         officers,  directors,  employees  and  agents,  Phoenix and the Cities,
         respectively,   shall  be  liable  insofar  as  the   Participants  are
         concerned,  for any  physical  damage to  property  and  death of,  and
         personal  injury  to,  anyone  arising  out  of  the  ownership,   use,
         occupancy,    operation,    maintenance,    repair,   replacement   and
         reconstruction  of the 23rd Avenue Plant and the 91st Avenue Plant, and
         Phoenix and the Cities,  respectively,  hereby  indemnify  and hold the
         Participants  harmless from any cost, expense,  claim or loss from such
         damage or injury.

                  19.2 Except for the  negligence of the Cities,.  its officers,
         managers  employees or agents, the Participants shall be liable insofar
         as the Cities are  concerned  for any  physical  damage to property and
         death of, and personal  injury to, anyone arising out of  Participants'
         owner-ship, use, occupancy, operation, maintenance, repair, replacement
         and   reconstruction   of  the   Participants'   Facilities,   and  the
         Participants  hereby  indemnify  and hold the Cities  harmless from any
         cost; expense, claim or loss from such damage or injury.

                                             -32-


<PAGE>
                    19.3 The  Cities  and the  Participants  shall  procure  and
         maintain  insurance  against  physical damage to property and death of,
         and personal injury to, persons of the kind and with coverages normally
         carried by  entities  operating  properties  similar to the 23rd Avenue
         Plant, the 91st Avenue Plant and the Participants' Facilities.  Nothing
         contained  herein shall prohibit the Cities and the  Participants  from
         adopting a self-insurance  program of a type and kind being utilized by
         entities  operating  properties  similar to the 23rd Avenue Plant,  the
         91st Avenue Plant and the Participants'  Facilities.  Upon request, the
         Cities and the Participants  shall furnish the others with certificates
         of insurance demonstrating compliance with this Sec-19.3.

20.      COOPERATION OF PARTIES:

                    20.1 Each of the Cities  and the  Participants  shall  fully
         cooperate  with and  assist  one  another in  obtaining  all  licenses,
         permits,  authorizations,  approvals  and consents and all judicial and
         administrative proceedings required in or related to the performance of
         this Agreement, including, but not limited to, the delivery and



                                      -33-


<PAGE>


         use of  Effluent  to and by the  Participants,  approval  of plant site
         location  by the  State of  Arizona  pursuant  to ARS SS  40-360.01  to
         40-360.12, and construction and operating permits from the USAEC.

                  20.2  Each of the  Cities  and the  Participants  shall  make,
         execute and deliver all documents and  instruments  necessary or useful
         to the implementation and performance of this Agreement.

                  20.3  In  the  event  any  proceeding  at  law  or  equity  is
         instituted  involving  the  authority  and  power of any of the  Cities
         and/or the  Participants  to make,  execute and deliver this  Agreement
         and/or to perform its terms,  covenants and  conditions,  or related to
         the rights, title and interest of any of the Cities or the Participants
         in and to Effluent,  then such City and the Participants  shall jointly
         and cooperatively  defend the validity of this Agreement and the use of
         Effluent intended thereunder.

21.  INTERRUPTION OF DELIVERY OF EFFLUENT:

                    21.1  Cities  shall  have the  right to  refuse  to  deliver
         Effluent under the terms of this Agreement when the following occurs:

                       (a) There exists in the Cities a critical  need for water
                  to be used for domestic purposes;

                       (b) All other reasonable sources of water,  including any
                  Uncommitted  Effluent in excess of the Option  Effluent,  have
                  been exhausted;
                                      -34-
                                                                                
<PAGE>


                       (c)  Reasonable  steps  have been taken to  conserve  the
                  water supply in the Cities ; and

                       (d) Reasonable notice of the critical need has been given
                  to Participants.

          When the critical need expires,  or when other  reasonable  sources of
          water  become  available,  Cities  can no  longer  refuse  to  deliver
          Effluent under the terms of this Agreement. The Cities shall use their
          best  efforts  to  resume  deliveries  of  Effluent  hereunder  at the
          earliest  practical time in the event such  deliveries are interrupted
          in accordance with this Section 2l.

22.      SUCCESSORS AND ASSIGNS:

                    22.1 The terms,  covenants and  conditions of this Agreement
         shall be binding  upon and inure to the  benefit of and shall  apply to
         the  respective  transferees,  successors and assigns of the Cities and
         Participants.

23.      DEFAULTS:

                    23.1 The Cities  and  Participants  hereto  agree that they,
         respectively,   shall   pay  all   monies   and  carry  out  all  other
         performances, duties and obligations agreed to be paid and/or performed
         by them  pursuant  to all of the  terms  and  conditions  set forth and
         contained  in this  Agreement,  and a default  by either  the Cities or
         Participants in the covenants and obligations to be them, respectively,
         kept and performed  pursuant to the terms and  conditions set forth and
         contained  in this  Agreement  shall be an  actof  default  under  this
         Agreement.

                                      -35-


<PAGE>


                  23.2 In the event of a default  by  either  the  Cities or the
         Participants  in any of the terms and  conditions  of this.  Agreement,
         then, within thirty (30) days following the giving of written notice of
         such  default by the other,  the  defaulting  party  shall  remedy such
         default  either by advancing the necessary  funds and/or  rendering the
         necessary  performance.  Such notice shall  specify the  existence  and
         nature of such default.

                  23.3 In the event that  either the Cities or the  Participants
         shall  dispute  an  asserted  default,  then such  party  shall pay the
         disputed  payment or perform  the  disputed  obligation,  but may do so
         under  protest.  The protest shall be in writing,  shall  accompany the
         disputed payment or precede the performance of the disputed obligation,
         and shall specify the reasons upon which the protest is based. Payments
         not made under protest shall be deemed to be correct.

                  23.4 In the event a default by the Cities or the  Participants
         in the payment or performance  of any  obligation  under this Agreement
         shall  continue for a period of two months or more without  having been
         cured by the defaulting  party, or without such party having  commenced
         or continued action in good faith to cure such default, or in the event
         the  question  of whether an act of  default  exists is the  subject of




                                            -36-


<PAGE>

         litigation  and  such  default  continues  for a period  of two  months
         following a final  determination  by a Court of competent  jurisdiction
         that an act of default  exists and the  defaulting  party has failed to
         cure such  default or to  commence  such  action  during said two month
         period,  then,  at any  time  thereafter  and  while  said  default  is
         continuing,  the  non-defaulting  party at its option  may,  by written
         notice to the other, terminate this Agreement.

                    23.5 If this  Agreement is  terminated  for any reason,  the
         Cities  shall have the  immediate  right of re-entry of any easement or
         leasehold granted to the Participants  pursuant to Section 11.3 hereof.
         The  Participants  shall  within  180  days or such  other  time as the
         parties agree remove all facilities owned by the  Participants  located
         on  property  owned by the Cities or any of them.  All  facilities  not
         removed  from such  property  within 180 days or such other time as the
         parties agree after the  termination of this Agreement shall become the
         property of the owner of such property.

24.      PERFORMANCE AND UNCONTROLLABLE FORCES:

                  24.1 All terms,  covenants and conditions  herein contained to
         be performed by the Cities or any of them or by the Participants  shall
         be performed at the sole expense of the party SQ obligated,  and if the
         other party shall pay any sum of money or do any act which requires the
         payment of money,  by reason of the failure,  neglect or refusal of the
         obligated party to perform such term, covenant or condition, the sum of
         money so paid by the other party shall  immediately  be payable to such
         party by the party obligated to perform.


                                      -37-


<PAGE>

                  24.2 Neither the Cities nor the  Participants  hereto shall be
         considered  to  be  in  default  in  the  performance  of  any  of  the
         obligations  hereunder  (other than  obligations of either party to pay
         casts  and  expenses)  if  failure  of  performance  shall be due to an
         uncontrollable force. The term  1'uncontrollable  force" shall mean any
         cause  beyond the  control  of the party  affected,  including  but not
         limited to failure of facilities,  flood,  earthquake,  tornado, storm,
         fire,   lightning,   epidemic,   war,   riot,   civil   disturbance  or
         disobedience,  labor dispute,  and action or nonaction by or failure to
         obtain the necessary  authorizations or approvals from any governmental
         agency or  authority  or the  electorate,  labor or material  shortage,
         sabotage  and  restraint by Court order or public  authority,  which by
         exercise  of  due  diligence  and  fore-sight   such  party  could  not
         reasonably  have been  expected  to avoid and which by  exercise of due
         diligence it shall be unable to overcome Nothing contained herein shall
         be  construed  so as to  require  either  party to settle any strike or
         labor dispute in which it may be involved. Either party rendered unable
         to fulfill any  obligation by reason of an  uncontrollable  force shall
         exercise due diligence to remove such inability with all reasonable
         dispatch.

                                       -38-


<PAGE>

         

25.      NOTICES AND EXHIBITS:

                  25.1 All notices,  demands or consents  given or made pursuant
         to this Agreement shall be in writing unless otherwise specified herein
         and be  deemed  to have been  fully  given,  made or sent when made and
         deposited in the United States mail by registered or certified mail and
         postage prepaid and addressed as follows:

               To City of Phoenix:                   City Manager
                                                     City of Phoenix
                                                     Municipal Building
                                                     251 West Washington
                                                     Phoenix, Arizona  85003

               To City of Glendale:                  City Manager
                                                     City of Glendale
                                                     7022 North 58th Drive
                                                     Glendale, Arizona  85301

               To City of Mesa:                      City Manager
                                                     City of Mesa
                                                     55 North Center
                                                     Mesa, Arizona  85021

               To City of Scottsdale:                City Manager
                                                     City of Scottsdale
                                                     3939 Civic Center Plaza
                                                     Scottsdale, Arizona  85251

               To City of Tempe:                     City Manager
                                                     City of Tempe
                                                     35 West Southern Avenue
                                                     Tempe, Arizona  85281

               To Town of Youngtown:                 Mayor
                                                     Town of Youngtown
                                                     12030 Clubhouse Square .
                                                     Youngtown, Arizona  85363

               To Participants:                      Arizona Public Service Co.
                                                     C/C Secretary
                                                     P. 0. Box 21666
                                                     Phoenix, Arizona  85036

                                      -39-


<PAGE>


                                                     Salt River Project Agri-
                                                     cultural Improvement and 
                                                     Power District
                                                     c/o Secretary
                                                     P. 0. Box 1980
                                                     Phoenix, Arizona  85001


          The address to which any notice, demand, consent, or other writing may
          be given,  made or sent to either party may be changed by notice given
          by such party as above provided.  Routine  notices and  communications
          shall be sent as provided herein or as directed by the City Manager of
          Phoenix and the  Project  Manager's  Engineer  and  Operating  Agent's
          Engineer.

                    25.2 The Exhibits  referred to in this Agreement as Exhibits
         A, B, C, D and B shall  be  attached  hereto  and are all  incorporated
         herein and made a part hereof.

26.      WAIVER:

                    26.1 The waiver by either the Cities or the  Participants of
         any breach of any term,  covenant or condition  herein  contained shall
         not be deemed a waiver  of such  term,  covenant  or  condition  or any
         subsequent breach of the same or any other term,  covenant or condition
         herein contained.

27.      SECTION HEADINGS:

                  27.1 Section  headings in this  Agreement are for  convenience
         only and do not  purport  accurately  or  completely  to  describe  the
         contents of any  section.  Such  headings  are not to be construed as a
         part of this  Agreement or in any way defining,  limiting or amplifying
         the provisions hereof.

                                      -40-


<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this or Agreement to
be executed by their respective  officers  thereunto duly authorized this 23 day
of April, 1973.


                                       ARIZONA PUBLIC SERVICE COMPANY


                                       By
                                           --------------------------
                                                 Vice President
ATTEST:


---------------------
Assistant Secretary
                                       SALT RIVER PROJECT AGRICULTURAL
                                       IMPROVEMENT AND POWER DISTRICT


                                       By
                                           ----------------------------

ATTEST & COUNTERSIGN:

---------------------
APPROVED AS TO FORM: 

---------------------                                   
                                       CITY OF PHOENIX
ATTEST:               

---------------------                  By  
City Clerk                                 -----------------------------
                                              City Manager
APPROVED AS TO FORM:

---------------------
City Attorney

                                      -41-
<PAGE>

                                       CITY OF GENDALE                 


                                       By
                                           --------------------------
                                              Mayor/City Manager
ATTEST:

---------------------
CITY CLERK

APPROVED AS TO FORM:

---------------------
CITY ATTORNEY
                                       CITY OF MESA


                                       By
                                           --------------------------
                                                 City Manager
ATTEST:

---------------------
CITY CLERK

APPROVED AS TO FORM:

---------------------
CITY ATTORNEY
                                       CITY OF SCOTTSDALE

                                       By
                                           --------------------------
                                                 Mayor
ATTEST:

---------------------
CITY CLERK

APPROVED AS TO FORM:

---------------------
CITY ATTORNEY
                                       CITY OF TEMPE
                        

                                       By
                                           --------------------------
                                                 Mayor

                                      -42-



<PAGE>


                                       TOWN OF YOUNGTOWN

                                
ATTEST:                                By
                                          --------------------------
-------------------                               Mayor
Town Clerk

APPROVED AS TO FORM

-------------------
Town Attorney



STATE OF ARIZONA   )
                   ) ss.
County of Maricopa )

                  On this the 4th day of April,  1973, before me the undersigned
Notary Public personally appeared Karl F Abel; and F. E. Smith, who acknowledged
themselves  to be  the  President  and  Secretary  of  the  SALT  RIVER  PROJECT
AGRICULTRURAL   IMPOVEMENT  AND  POWER  DISTRICT,  an  agricultural  improvement
district  organized  existing  under the laws of the State of Arizona,  and that
they, as officers,  being  authorized so to do,  executed the instrument for the
purposes therein  contained by signing name of the company by themselves as such
President and Secretary.


                  IN WITNESS WHEREOF, I hereunto set my hand and official seal.


                                                  /s/ Marlaine White
                                                 -----------------------
                                                      Notary Public



My Commission Expires:

March 15, 1975

<PAGE>

                                      -43-

STATE OF ARIZONA    )
                    )ss.
County of Maricopa  )


         On this the 5th day of April,  l973, before me, the undersigned  Notary
Public  personally  appeared  T. G.  WOODS,  Jr.  and  Gerald  J.  Griffin,  who
acknowledged  themselves to be of the Vice President and Assistant  Secretary of
ARIZONA PUBLIC SERVICE COMPANY,  an Arizona  corporation,  and that they as such
officers,  being authorized so to do, executed the foregoing  instrument for the
purposes  therein  contained by signing the name of the company by themselves as
such Vice President and Assistant Secretary


         IN WITNESS WHEREOF, I hereunto set my hand and official seal.


                                                  /s/ Eloise E. Warren
                                                 -----------------------
                                                      Notary Public



My Commission Expires:
February 20, 1975
                                      -44-

STATE OF ARIZONA    )
                    )ss.
County of Maricopa  )


         On this the 12th day of April, l973, before me, the undersigned  Notary
Public  personally  appeared  J. A. Petrie and  Marston Richards,  who
acknowledged  themselves to be of the Manager and City Clerk of
CITY OF MESA, ARIZONA, a municipal/corporation,  and that they as such
officers,  being authorized so to do, executed the foregoing  instrument for the
purposes  therein  contained by signing the name of CITY OF MESA, ARIZONA, BY
themselves as such Manager and City Clerk.


         IN WITNESS WHEREOF, I hereunto set my hand and official seal.


                                                  /s/ Joyce H. West
                                                 -----------------------
                                                      Notary Public



My Commission Expires:
January 16, 1976

                                      -45-
<PAGE>
STATE OF ARIZONA    )
                    )ss.
County of Maricopa  )


         On this the 13th day of April, l973, before me, the undersigned  Notary
Public  personally  appeared  Dale R. Shumary and Virgina S. Thompson who
acknowledged  themselves to be of the Mayor and City Clerk of
CITY OF TEMPE, ARIZONA, a municipal/corporation,  and that they as such
officers,  being authorized so to do, executed the foregoing  instrument for the
purposes  therein  contained by signing the name of CITY OF TEMPE, ARIZONA, BY
themselves as such Mayor and City Clerk.


         IN WITNESS WHEREOF, I hereunto set my hand and official seal.


                                                  /s/     
                                                 -----------------------
                                                      Notary Public



My Commission Expires:
April 17, 1976




                                      -46-
<PAGE>


                                    EXHIBIT A

                               EFFLUENT COMMITTED

                                 91ST AVE. PLANT

                                                                A. f/yr.
                                                                --------

Buckeye Irrigation Company                                       30,000

Arizona Game a Fish Department                                    7,300

U.S. Water Conservation Lab.                                      1,200
                                                                 ------
     TOTAL                                                       38,500
                                                                 ------


         Previous Effluent Commitments. It is understood by the parties that the
Cities have  previously  authorized  the  disposition  of  approximately  36,500
acre-feet  of  Effluent  discharged  in each  calendar  year at the plant to the
United States Department of Agriculture for research and scientific purposes, to
the Arizona Game and Fish Department for wildlife and recreational  purposes and
to the Buckeye Irrigation Company for agricultural purposes, and portions of the
Effluent are or may be used for the in-plant use and irrigation of land owned by
the Cities at the plant sites.












                                       A-1


<PAGE>


                                    EXHIBIT B

                        DESCRIPTION OF 23RD AVENUE PLANT


         The 23rd Avenue  Wastewater  Treatment  Plant is located at 23rd Avenue
and Durango Street, Phoenix,  Arizona. The plant is solely owned and operated by
the City of Phoenix, and provides secondary treatment, by means of the activated
sludge process, to all wastewater received.

         The plant serves part of the Phoenix sewer  service area only.  Some of
the wastewater flows received at the 23rd Avenue Plant headworks can be diverted
to. the 91st Avenue Plant. The balance of the Phoenix wastewater and all of that
from the other  cities  participating  in the  Multi-City  Sewerage  Program  is
treated at the 91st Avenue Wastewater Treatment Plant.

         The treatment  capacity of the 23rd Avenue Plant,  as of March 1973, is
40 million  gallons per day.  The unit  processes  employed at the plant,  as of
March 1973, are  preliminary  screening,  grit removal,  primary  sedimentation,
aeration,  secondary  sedimentation,  and anaerobic  digestion of the wastewater
solids removed.

         Any future additions to the 23rd Avenue Wastewater treatment Plant will
be designed  and operated to provide ,  secondary  treatment  to all  wastewater
received by the plant.




                                            B-l


<PAGE>


                                    EXHIBIT C


                        DESCRIPTION OF 91ST AVBNUE PLANT


         The 91st Avenue  Wastewater  Treatment  Plant is located at 91st Avenue
and Southern Avenue.  The plant is under the jurisdiction of and operated by the
City of  Phoenix;  however,  several  other  cities  share  with  Phoenix in the
ownership  of plant  capacity.  The cities that share in the  ownership of plant
capacity  by  contractual  agreements  are  Phoenix,   Glendale,   Mesa,  Tempe,
Scottsdale and Youngtown.

         The 91st Avenue Plant  provides  secondary  treatment,  by means of the
activated sludge process, to all wastewater received.  The plant receives all of
the wastewater from Tempe, Scottsdale, Glendale, Youngtown, Peoria and Sun City,
and part of the wastewater from Phoenix and Mesa.

         The treatment  capacity of the 91st Avenue Plant,  as of March 1973, is
65 mil1ion  gallons per day.  The unit  processes  employed at the plant,  as of
March 1973, are  preliminary  screening,  grit removal,  primary  sedimentation,
aeration,  secondary  sedimentation,  and anaerobic  digestion of the wastewater
solids removed.

         Any future additions to the 91st Avenue Wastewater Treatment Plant will
be  designed  and  operated to provide  secondary  treatment  to all  wastewater
received by the plant.



                                      -C-1-


<PAGE>


                                    EXHIBIT D

                               EXERCISE OF OPTION

To: City of Phoenix
    251 W. Washington
    Phoenix, Arizona

    Attention: Water & Sewer Director

               Pursuant  to  Agreement  No.  ______,   Option  and  Purchase  of
Effluent,  dated  ________________________,  19Y3 (hereinafter the Participants,
hereby exercise the Unit ______ Option, in the amount of _____________ acre-feet
per year.

               Whenever and to the extent Effluent  meeting the  requirements of
Appendix E attached to the  4greernent  is available  for delivery at the Avenue
Plant, the Effluent  required to be delivered in fulfillment of this exercise of
the Unit _____ Option shall be  delivered at the _______  Avenue Plant  Delivery
Point,  unless and until the Participants shall hereafter otherwise designate in
writing.  The balance, if any, of the Effluent required to be delivered pursuant
to this exercise of the Unit Option shall be delivered at the _____ Avenue Plant
Delivery Point.

               It is requested that the Cities take any and all steps  necessary
to deliver such Effluent in accordance  with.  the estimates and schedules to be
submitted by Participants to W & S Director  pursuant to Sections 7.3 and 9.1 of
the Agreement.  The first of such estimates or schedules shall be given to the W
& S Director not less than


                                       D-1


<PAGE>


two (2) years prior to the delivery of any Effluent to meet the Unit-Water 
Requirements (including Construction Water).

          [If only a portion of the Unit 1, Unit 2, Unit 3 or Unit 4 Option,  as
          the case may be is exercised  hereunder,  Participants  shall complete
          the following paragraph).

         The Participants hereby release,  remise and surrender that portion, in
the amount of  __________  acre-feet  per year, of the Unit Option which has not
been previously transferred or released pursuant to Section 6.4 of the Agreement
ant which is not exercised hereby.

         All terms used herein which are defined in the Agreement shall have the
meanings as therein defined.


                                          ------------------------------
                                            ANPP Project Manager
                                            as Agent for and on behalf 
                                            of the Participants.


















                                       D-2

<PAGE>


                                    EXHIBIT E

1. SOURCE OF WASTEWATER

         The 23rd Avenue and 91st Avenue  Sewage  Treatment  Plants  receive and
treat all wastewater  discharged  into the respective  tributary  sanitary sewer
systems of the  Cities,  which  serve  residential,  commercial  and  industrial
establishments.  Storm water is not  intended to be admitted  into the  sanitary
sewer  Systems but is handled by  separate  storm  sewer  Systems  which are not
tributary to the treatment works.

         The water supply from which the  wastewater  derives,  after being used
for domestic, commercial and industrial purposes, consists of surface water from
the Salt and Verde Rivers and ground water from numerous  wells.  In the future,
Colorado River water may be an added source.

         The strength and  character of  wastewater  entering the Phoenix  sewer
system is regulated by Ordinance.  All  establishments  that produce  wastewater
that  exceeds  the limits set forth in the  Ordinance  are  required to pretreat
their  wastewater  before it is accepted  into the sewer  system.  A copy of the
currently  effective  "Maximum  Allowable  Limits for Discharge into the Phoenix
Sanitary  Sewers  System" - P-S3,  dated  December  22, 1970,  is  attached,  In
addition,  tile  contractual  agreements  between  Phoenix and the other  Cities
involved in the  Multi-City  Sewerage  Plan  include  restrictions  and controls
regarding the strength and character of wastewater  consistent  with the Phoenix
regulations.

                                       E-1


<PAGE>


2.       QUANTITY OF EFFLUENT

                  Attached is a copy of "Wastewater Flow Projections  1972-2000:
         Estimated Uncommitted Effluent Available, Acre Feet/Year."

3. QUALITY OF EFFLUENT AND METHODS OF ANALYSIS

                    Both the 23rd Avenue and 91st Avenue Sewage Treatment Plants
         are designed and operated, as will be any anticipated future additions,
         to provide secondary treatment for all wastewaters delivered to them by
         the sanitary  sewage  collection  system.  This secondary  treatment is
         presently accomplished at both plants by the activated sludge process.

                    Effluent  quality is based upon and determined at each plant
         by suspended solids and BOD analyses  performed daily on representative
         composite  samples.  The analyses are performed in accordance  with the
         latest  edition of Standard  Methods for the  Examination  of Water and
         Wastewater,   published   jointly  by  the   American   Public   Health
         Association,  American Water Works Association, and the Water Pollution
         Control Federation.

                  The 23rd Avenue and 91st Avenue Sewage Treatment  Plants,  and
         any future  addition  thereto,  will  continue to be operated in such a
         manner that will  produce an  Effluent  that will comply with the Rules
         and Regulations of the Arizona State Department of Health.

                                       E-2



<PAGE>


                  The City shall  exercise  all  reasonable  efforts to operate,
         maintain, enlarge and improve the 23rd Avenue and 91st Avenue Plants in
         a  manner  such  that  the  quality  of the  Effluent  therefrom  to be
         delivered  to  Participants  hereunder  shall  be  compatible  with the
         operation  and  maintenance  of the  Participants'  Effluent  treatment
         facilities  in order that the following  components  of such.  Effluent
         shall  not  exceed  on  an  annual  average  basis  the  concentrations
         indicated below:

               Phosphate                      60 mg/l
               Suspended Solids               30 mg/1
               BOD5                           30 mg/1

         Whenever analyses shall indicate that due to normal or other causes the
         quality of the  Effluent  is in a trend in which it may be  anticipated
         that the above values indicated as annual average concentrations may be
         exceeded  for  extended  periods of time and  whenever any upset in the
         treatment  processes  at either 23rd Avenue or 91st Avenue Plant occurs
         which may result in the  delivery of Effluent  with  concentrations  in
         excess of those listed  above,  for extended  periods of time the W & S
         Director shall cause the Project  Manager's  Engineer or the Operating.
         Agent's Engineer to be promptly notified of such occurrences.


                                       E-3


<PAGE>




  The Cities shall also use their best efforts to regulate  the  discharge  into
  their sewerage  collection  Systems from industrial and commercial  sources of
  any  substances  which would be  detrimental  to the  quality of the  Effluent
  delivered hereunder.

  Participants  shall not be obligated to accept  delivery of, or to pay for any
  inadequately treated Effluent which could not otherwise be lawfully discharged
  in accordance with the Rules and  Regulations of the Arizona State  Department
  of Health or the United States Environmental Protection Agency.

  It is recognized that the Participants'  Facilities require storage reservoirs
  or ponds for purposes of  operational  flexibility  and as a standby source of
  water.  Participants  shall not be obligated to accept  delivery of, or to pay
  for any such inadequately  treated Effluent that cannot be provides sufficient
  dilution by the Participants'  storage ponds to render the Effluent compatible
  with the operation and maintenance of the Participants' treatment facilities.




                                       E-4


<PAGE>
                            CITY OF PHOENIX, ARIZONA
                           WATER AND SEWERS DEPARTMENT
                               DIVISION OF SEWERS
                                   ORD. G-1049
                                    12/22/70

 MAXIMUM ALLOWABLE LIMITS FOR DISCHARGE INTO THE PHOENIX SANITARY SEWERS SYSTEM
                           SEC. 28-21, 28-22 CITY CODE

                   CONSTITUENT                          MAXIMUM
                   -----------                          -------

Unpolluted waters  rain runoff, single pass         None allowed
cooling water, evaporative coller water

Temperature                                         150F

Floatable Oil, Grease, etc.                         None visible

Flammable or Explosives                             None allowed

Total Grease, Oil, Fat, etc.                        100 mg/1

Any solid or viscous substance capable of           None allowed
causing obstruction to the flow in sewers or
other interference with the proper operation 
of the sewage works.

Suspended Solids                                    350 mg/1

Dissolved Solids                                    Must not require unusual 
                                                    attention or expense
                                                    for treatment and disposal.

Corrosive, noxious or malodorous substances         Must not
                                                    be    injurious   to
                                                    personnel    or   to
                                                    concrete   or   iron
                                                    structures  and must
                                                    not  be  capable  of
                                                    producing  a  public
                                                    nuisance.

p H                                                 p H 5.5 to 9.5

BOD (5 Day, 20 C Biochemical Oxygen Demand)         300 mg/1

Average Daily Flow                                  50,000 gals/day

*Dissolved Sulfide                                  0.5 m/1

Toxic, radio-active,or poisonous substances         Less    than    that
                                                    sufficient  to cause
                                                    interference    with
                                                    any waste  treatment
                                                    process,  or  hazard
                                                    to humans,  animals,
                                                    or   in    receiving
                                                    stream.

*Radio-active substances                            Per latest Arizona Atomic 
                                                    Energy Commission 
                                                    regulations

*Cyanide (includes cyanates)                        0.1 mg/1

*Heavy Toxic Metals, mg/1:

Arsenic                                        0.1
Barium                                         10.
Boron                                          10.0
Cadmium                                        0.1
Chromium VI                                    0.5
Copper                                         10.0
Lead                                           0.5
Manganese                                      0.5
Mercury                                        0.05
Selenium                                       0.1
Silver                                         0.5
Zinc                                           50.0

*Limits  established by Water and Sewers  Director in accordance with Sec. 28-22
of the City Code.  All other limits listed are from Sec.  28-21 and 28-22 of the
City Code. The Director shall establish  permissible limits as required on other
hazardous, toxic or undesirable substances not listed herein.

Date  February 16, 1971                                                   
-------------------------                        -------------------------      
                                                 Water and Sewers Director
Approved:

____________________                             David Travaini, Director
City Manager                                     Water & Sewers Department

By:_________________                             By_________________
Assistant City Manager


PUBLIC SERVICE COMPANY OF NEW MEXICO



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











6091.CGI. 1106.99A: 1

                                       -4-