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                                                                   Exhibit 10.46
                              EMPLOYMENT AGREEMENT



     EMPLOYMENT AGREEMENT (this "Agreement"), effective as of April 30, 1999, by
and between El Paso Electric Company, a Texas corporation ("Company"), and Helen
Knopp ("Executive").

                             W I T N E S S E T H:
                             -------------------

     WHEREAS, the Board of Directors of the Company desires to employ Executive
as its Vice President - Customer/Public Affairs; and

     WHEREAS, Executive is willing, on the terms and subject to the conditions
provided in this Agreement, to undertake the management responsibilities
contemplated herein, to furnish services to Company as provided herein, and to
be subject to certain employment restrictions and obligations;

     NOW, THEREFORE, in consideration of the premises and the covenants herein
contained and other good, valuable, and binding consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

                            Article I.  Employment
                                        ----------

     1.1  Responsibilities and Authority.  Company hereby employs Executive to
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serve as its Vice President - Customer Relations/Public Affairs for planning or
directing all activities pertaining to Customer Service (i.e., customer
inquiries, meter reading and collections), Public Affairs and Community
Development.  The duties of Executive shall be those duties which can reasonably
be expected to be performed by a person with the title of Vice President -
Customer/Public Affairs.  Executive shall report directly to the Chief Executive
Officer and President of the Company and shall perform such other duties as may
be assigned to her by the Chief Executive Officer and President or the Board of
Directors as are not inconsistent with Executive's position as Vice President -
Customer/Public Affairs.

     1.2  Acceptance of Employment.  Executive accepts employment by Company on
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the terms and conditions herein provided and agrees, subject to the terms of
this Agreement, to devote substantially all of her business time to advance the
business of the Company.  Nothing contained in this Agreement shall be construed
so as to prevent Executive from investing her personal assets in such a manner
and otherwise engaging in business transactions that are not inconsistent with
the interests of the Company and that will not require a substantial portion of
Executive's business time or otherwise interfere with the performance of her
duties hereunder.

     1.3  Employment Term.  Company hereby employs Executive for an employment
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term of two years, beginning April 30, 1999 and terminating on April 30, 2001
(the "Employment Term").

     1.4  Termination.  This Agreement may be terminated, subject to the
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provisions of Article IV below, at the option of either party upon the giving of
at least thirty (30) days written notice to the other party.
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                   Article II.  Compensation and Incentives
                                ---------------------------

     As compensation for her services hereunder, Executive shall be paid the
following:

     2.1  Base Compensation.  Commencing on April 30, 1999, Company shall pay
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Executive a base cash salary at the aggregate initial rate of $145,000.00 per
annum.  Thereafter, the base salary amount will be reviewed annually by the
Board of Directors, which may, in its discretion, make appropriate annual merit
increases, provided, however, Executive's base cash salary shall never be less
than $145,000.00 per annum.  The compensation paid to Executive pursuant to this
Section 2.1 is hereinafter referred to as "Base Compensation."    The Base
Compensation shall be paid to Executive in accordance with the Company's
existing payroll policy.

     2.2  Options.  (a) As additional inducement for Executive to enter into
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this Agreement, Company hereby grants to Executive nontransferable Options to
purchase 100,000 shares of Common Stock (the "Options") for an amount per share
equal to the closing price of the Common Stock on the American Stock Exchange on
April 29, 1999.  The Options will be issued under the El Paso Electric Company
1996 Long-Term Incentive Plan and will be evidenced by a separate Stock Option
Agreement (the "Stock Option Agreement") between Executive and the Company which
agreement will provide that the maximum number of Options will be incentive
stock options (the "Qualified Options") and the remainder of the Options will be
non-qualified stock options (the "Non-Qualified Options").

          (b) The Stock Option Agreement will provide that twenty per cent (20%)
of the Qualified Options and twenty per cent (20%) of the Non-Qualified Options
shall vest each year for five (5) successive years beginning on January 2, 2000,
and continuing each and every January 2 thereafter, until all such are fully
vested on January 2, 2004; provided, however, that all such shall vest
immediately in the event of a Triggering Event (as described in Section 5.3
below).  Executive (or her legal representative) may exercise such Options any
time after vesting subject to such reasonable terms and conditions as are
contained in the Stock Option Agreement.  All Options granted and not earlier
exercised shall expire ten years from the date of the grant.

                            Article III.  Benefits
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     3.1  Benefits.  In addition to the Base Compensation required to be paid to
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Executive hereunder, Executive shall receive the benefits (the "Benefits")
described on Exhibit 3.1 attached hereto and made a part hereof for all
purposes.

     3.2  Beneficiaries. Executive shall have the absolute right to designate
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the beneficiary or beneficiaries to receive all payments and employee benefits
described in this Agreement which may be payable or available in the event of
Executive's death.

     3.3  Reimbursement of Expenses.  Executive will be promptly reimbursed by
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Company for all reasonable and necessary expenses incurred by Executive on
behalf of, and in connection with, the business of Company.

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                           Article IV.  Termination
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     4.1  Acceleration of Payments.  In the event of the occurrence of a
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"Triggering Event" (as defined in Section 5.3 below), Company shall pay to
Executive upon the fifth business day after the giving of written demand from
the Executive to Company, a lump sum cash payment equal to the sum of (i) the
greater of (x) the balance of the Base Compensation due to Executive for the
remainder of the Employment Term and (y) the product obtained by multiplying
Executive's then current monthly Base Compensation by six (6) (including in each
case, without limitation, accrued but unused vacation time), plus (ii) earned
but unpaid bonuses, plus (iii) any other payments due to Executive pursuant to
any Benefits.  Executive will forfeit the unvested Options described in Section
2.2 above, and Executive will have not less than 90 days to exercise the vested
Qualified Options and not less than 120 days to exercise the vested Non-
Qualified Options.

     4.2  Continuation of Benefits.  In the event of any termination of this
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Agreement, except voluntary termination by Executive which is not for "Good
Reason" prior to April 30, 2001, for a period of two years from the date of such
termination the Company shall maintain full coverage for Executive and her
surviving spouse, if any, under all group medical and dental plans in which
Executive was entitled to participate immediately prior to the termination,
provided that her continued participation is possible under the general terms
and provisions of such plans.  In the event that Executive's participation in
any such plan or program is barred, Company shall arrange to provide Executive
and such surviving spouse with benefits substantially similar to those which
they are entitled to receive under such plans.  While Executive continues to
participate in any such plan or receive any such benefit, she shall continue to
pay employee premiums at the level of such premiums in force at the time of such
termination.  Executive and Company hereby expressly acknowledge that all
eligibility periods under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") shall run from the termination of this Agreement and provision of
benefits by the Company during the two year period following termination shall
not extend the period during which Executive can elect to participate under
COBRA.

     4.3  Termination Upon Death.  In the event of Executive's death, this
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Agreement will terminate upon the first day of the month following Executive's
date of death, and her surviving spouse, if any, shall be entitled to the
benefits described in Section 4.2 above and to all other benefits described in
this Agreement or otherwise available to Executive which may be payable or
available in the event of Executive's death.  Any unvested Options described in
Section 2.2 above shall be forfeited, and Executive's surviving spouse or legal
representative shall have not less than 90 days to exercise the vested Qualified
Options and not less than 120 days to exercise vested Non-Qualified Options.

     4.4  Termination Upon Total Disability.  (a) Company may terminate this
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Agreement by reason of Executive's "Total Disability" upon at least 30 days'
written notice to Executive, in which event Company shall pay Executive the
amounts set forth in Section 4.1 above and, subject to the standards and
restrictions governing employee disabilities in general under the Company's
medical plans, Executive shall be entitled to the benefits set forth in Section
4.2 above.  As used herein, "Total Disability" means illness or other physical
or mental disability of Executive which shall continue for a period aggregating
at least six months during any 12-month period, which such illness or disability
shall make it impossible or impracticable for Executive to substantially perform
her duties and responsibilities hereunder with whatever reasonable accommodation
may be required by applicable law.  If a disagreement arises between Executive
and Company as to whether Executive is suffering from "Total Disability," as
defined herein, the

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question of Executive's disability shall be determined by a physician designated
by a majority of the Board of Directors.

          (b) In the event of a termination of this Agreement by Company
pursuant to subparagraph (a) above, Executive will forfeit any right to unvested
Options described in Section 2.2  above, and Executive will be paid those
benefits provided by Company's disability insurance coverage as described on
Exhibit 3.1. Executive shall have not less than 90 days to exercise vested
Qualified Options and not less than 120 days to exercise vested Non-Qualified
Options.

     4.5  Constructive Termination by Company.  As used herein, "constructive
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termination" shall mean any one or more of the events constituting "Good Reason"
if not remedied by Company within 15 business days after receipt by Company of
written notice from Executive of such event of constructive termination.
Executive's continued employment with Company shall not constitute consent to,
or a waiver of rights with respect to, any circumstances constituting
constructive termination hereunder.

     4.6  Termination by Company for Cause.  Pursuant to the procedure set forth
          --------------------------------
in the definition of "Cause" in Section 5.1 below, Company shall be entitled to
terminate Executive's employment for Cause, in which event Executive will no
longer be entitled to her Base Compensation, will forfeit the unvested Options
as described in Section 2.2 above, and, if such termination occurs before
October 30, 1999, will forfeit the benefits described in Section 4.2 above.
Notwithstanding the foregoing, if Executive disputes such termination for Cause,
Executive may require the Company to resolve the dispute pursuant to the
procedure set forth in Article VII of this Agreement.  As provided in Section
6.4 below, Executive's Base Compensation, the grant of Options described in
Section 2.2 above, and all Benefits to which Executive would otherwise be
entitled, including but not limited to group medical and dental coverage, shall
continue to be made currently available to Executive pending final resolution of
the dispute.

                            Article V.  Definitions
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     For purposes of this Agreement and in addition to any other defined terms
herein, the following terms shall have the indicated meanings:

     5.1  Cause.  (a) "Cause" shall mean any act of dishonesty, commission of a
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felony, significant activities harmful to the reputation of the Company,
repeated refusal to perform or substantial disregard of duties properly assigned
by the Chief Executive Officer and President or the Board of Directors
(following notice thereof to the Executive), or significant violation of any
statutory or common law duty of loyalty to the Company.

          (b) Notwithstanding the foregoing and subject to the resolution of any
disputes pursuant to Articles IV and VI, the Executive shall in no event be
deemed to have been terminated for Cause unless and until there shall have been
delivered to her a termination notice in the form of a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Board of Directors specifying the reason for such termination
at a meeting of such Board duly called and held.

     5.2  Good Reason.  "Good Reason" shall mean the occurrence of any of the
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following events without Executive's express written consent:

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          (a) A substantial and adverse change in the Executive's duties,
control, authority, status or position, or the assignment to the Executive of
any duties or responsibilities which are inconsistent with such status or
position, or a reduction in the duties and responsibilities previously exercised
by the Executive, or a loss of title, loss of office, relocation of Executive's
office to a location more than 100 miles from Executive's original office with
Company, loss of significant authority, power or control, or any removal of her
from or any failure to reappoint or reelect her to such positions, except in
connection with the termination of her employment for "Cause" (as defined in
Section 5.1(a)) or "Total Disability" (as defined in Section 4.4), or as a
result of her death;

          (b) A reduction by Company for any reason in Executive's Base
Compensation or in the grants of Options described in section 2.2 above, or a
substantial and adverse change in Executive's Benefits; or

          (c) Any material breach by Company of any provisions of this
Agreement.

     5.3  Triggering Event.  "Triggering Event" shall mean the termination by
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Executive of Executive's employment hereunder after the occurrence of Good
Reason; or the actual or constructive termination of this Agreement by the
Company for any other reason other than:

          (a) Executive's voluntary termination (except a voluntary termination
for "Good Reason" as defined in Section 5.2 above); or

          (b) Termination of employment in the event of Executive's death (under
Section 4.3 above); or in the event of Executive's "Total Disability" under
Section 4.4 above; or

          (c) Termination of employment for "Cause" as defined in Section 5.1
above.

                    Article VI.  Arbitration and Mediation
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     6.1  Mediation.  Any dispute arising hereunder between Executive and
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Company (including any dispute over whether Company has properly terminated
Executive for Cause) which cannot be resolved by them to their mutual
satisfaction within a period of fourteen days, unless mutually extended, shall
first be submitted to mediation in El Paso, Texas, to a mediator selected
pursuant to the rules of the American Arbitration Association ("AAA").  All
costs of mediation incurred by Executive will be paid by the Company.

     6.2  Arbitration.  If such mediation shall not result in an agreed
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settlement between the parties, the dispute will be promptly submitted to
binding arbitration (conducted in El Paso, Texas, by a panel of three
arbitrators) in accordance with the rules of the AAA then in effect.  The
results of such arbitration shall be binding and conclusive upon the parties
hereto, and judgment on the award may be entered at the instance of either party
in any court of competent jurisdiction.  The dispute resolution procedure set
forth in this Section 6.2 may be initiated by either party upon five business
days prior written notice to the other and after failure to resolve the dispute
after the expiration of the 14 day time period referred to in Section 6.1.

     6.3  Proceedings.  Unless otherwise expressly agreed in writing by the
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parties to the arbitration proceedings:

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          (a) The arbitration proceedings shall be conducted in accordance with
the Commercial Arbitration Rules of the AAA, as amended from time to time;

          (b) Any procedural issues not determined under the arbitral rules
selected pursuant to item (a) above shall be determined by the law of the place
of arbitration, other than those laws which would refer the matter to another
jurisdiction;

          (c) All costs of the arbitration proceedings incurred by Executive
(including the fees of attorneys and expert witnesses and all other costs) shall
be borne by the Company regardless of the outcome of the proceeding; and

          (d) The decision of the arbitrators shall be reduced to writing; final
and binding without the right of appeal; the sole and exclusive remedy regarding
any claims, counterclaims, issues or accounting presented to the arbitrators;
made and promptly paid in United States dollars free of any deduction or offset;
and any costs or fees incident to enforcing the award shall, to the maximum
extent permitted by law, be charged against the party resisting such
enforcement.

     6.4  Continuation of Payments/Benefits.  Until final resolution of any
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dispute between Company and Executive, the Company shall continue to pay to
Executive the Base Compensation under Section 2.1, and the Options shall
continue to vest in Executive pursuant to Section 2.2 above.

     6.5  Acknowledgement of Parties.  Each party acknowledges that she or it
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has voluntarily and knowingly entered into an agreement to arbitration under
this Section by executing this Agreement.

                          Article VII.  Miscellaneous
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     7.1  Notices.  Any notice, demand or request to be given hereunder to
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either party hereto shall be deemed given and effective only if in writing and
either (1) delivered personally to Executive or (in case of a notice to Company)
to the Secretary of the Company, or (2) sent by certified or registered mail,
postage prepaid, to the addresses set forth on the signature page hereof or to
such other address as either party may hereafter specify to the other by notice
similarly served.

     7.2  Governing Law.  This Agreement shall be construed and enforced in
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accordance with the laws of the State of Texas.

     7.3  Modification.  No modification or waiver of any provision hereof shall
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be made unless it be in writing and signed by both of the parties hereto.

     7.4  Scope of Agreement.  This Agreement constitutes the whole of the
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agreement between the parties on the subject matter, superseding all prior oral
and written conversations, negotiations, understandings, and agreements in
effect as of the date of this Agreement.

     7.5  Indemnification. The Company shall provide Executive with the same
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indemnification and insurance protection provided by Company from time to time
to all of its officers and directors, whether pursuant to that Indemnity
Agreement attached hereto as Exhibit 7.5 or otherwise.

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     7.6  Tax Payments, Withholdings and Reporting.  Executive recognizes that
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the payments and benefits provided under this Agreement may result in taxable
income to her which Company and its affiliates will report to the appropriate
taxing authorities.  Company shall have the right to deduct from any payment
made under this Agreement to Executive, any federal, state, local or foreign
income, employment or other taxes it determines are required by law to be
withheld with respect to such payments or benefits provided thereunder or to
require payment from Executive which she agrees to pay upon demand, for the
purpose of satisfying any such withholding requirement.

     7.7  Separate Counsel.  Executive acknowledges that she has been advised by
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Company that before she signs this Agreement she should consult with an
attorney.

     7.8  Successors and Assigns.  The terms and provisions of this Agreement
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shall inure to the benefit of and be binding upon the successors and assigns of
the Company.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
April 30, 1999.

                                        EL PASO ELECTRIC COMPANY
                                        123 W. Mills St.
                                        El Paso, Texas  79901


                                        By:   /s/ James Haines
                                            ------------------------
                                            Authorized Officer

                                                                COMPANY


                                        Helen Knopp
                                        5756 Box Elder
                                        El Paso, Texas  79932


                                        /s/ Helen Knopp
                                        ----------------------------

                                                                EXECUTIVE

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                                  EXHIBIT 3.1

                             SCHEDULE OF BENEFITS

                                      FOR

 .  Participation in the El Paso Electric Company Retirement Income Plan, as
   amended from time to time and other qualified plans covering executive
   officers of the Company from time to time.

 .  All other insurance coverages, including without limitations, any disability,
   life and accident coverage, extended to non-bargaining employees from time to
   time.

 .  Annual physical coverage as previously structured for senior management of
   the Company.

 .  Waiver of waiting periods for health insurance coverage for Executive and
   Executive's family.

 .  Annual paid vacation of four (4) weeks per year or such greater vacation
   benefits as may be provided generally to executive officers of the company.

 .  Personal use of cellular phone and related service.

 .  Car allowance of $250 per month.

 .  All other benefits to which executive officers of the company are entitled
   from time to time.

EL PASO ELECTRIC COMPANY


By:  /s/ James Haines                            /s/ Helen Knopp
    -------------------------               -------------------------
    Authorized Officer
                      COMPANY                               EXECUTIVE