Document:

Exhibit 10.92

                           THIRD MODIFICATION OF LEASE
                           ---------------------------

     Third  Modification  of Lease  ("Agreement")  made  June 17 , 2002  between
Metropolitan Life Insurance Company, a New York corporation having its principal
place of business at One Madison Avenue,  New York, New York 10010  ("Landlord")
and Jean Philippe  Fragrances,  LLC, a New York limited liability company having
an office at 551 Fifth Avenue, New York, New York 10176 ("Tenant").

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

     WHEREAS, Landlord and Tenant (by its predecessor-in-interest, Jean Philippe
Fragrances,  Inc.) heretofore entered into a certain written lease dated January
13,  1992,  as amended by  Modification  of Lease dated June 17, 1994 and Second
Modification of Lease dated April 30, 1997  (collectively,  the "Lease") wherein
and whereby  Landlord  leased to Tenant,  and Tenant hired from Landlord,  those
certain  premises (the "demised  premises") as shown on the plans annexed to the
Lease as  "Exhibit  A" thereto on the 15th  floor in the  building  known as 551
Fifth Avenue, New York, New York 10176 (the "Building"),  which demised premises
Landlord and Tenant agree contains 9,000 rentable square feet; and

     WHEREAS,  the  term of the  Lease is due to  expire  October  31,  2002 and
Landlord  and Tenant  wish to again  modify the Lease,  subject to the terms and
conditions  hereinafter set forth,  to, INTER ALIA, again extend the term of the
Lease; and

     WHEREAS, the Lease is in full force and effect; and

     WHEREAS,  Landlord  and  Tenant  desire  to modify  the  Lease  only in the
respects hereinafter stated.

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
hereinafter  contained,  the parties  hereto by these  presents do covenant  and
agree as follows:

1.   All capitalized  terms used herein without  definition are used herein with
the meanings  assigned to such terms in the Lease,  unless the context otherwise
requires.

2.   The term of the  Lease  is  hereby  extended  to  February  28,  2013  (the
"Additional Extension Period").

3.A. Effective November 1, 2002,  Tenant's annual rent shall be amended to be as
follows:  (i) from and including  November 1, 2002 through and including October
31, 2007,  Three  Hundred  Twenty Two  Thousand  Four  Hundred  Seventy  Dollars
($322,470.00)   per  annum  which  amount  shall  include  the  annual  cost  of
electricity supplied by Landlord to the

<PAGE>

demised  premises on a rent inclusion  basis of Twenty Two Thousand Five Hundred
Dollars  ($22,500.00)  per annum,  the  "Additional  Extension  Period  Electric
Charge";  and thereafter,  (ii) from and including  November 1, 2007 through and
including the end of the term of the Lease, as modified by this Agreement, Three
Hundred Fifty Eight  Thousand Four Hundred  Seventy  Dollars  ($358,470.00)  per
annum,  which amount shall  include the  Additional  Extension  Period  Electric
Charge.

B.   Notwithstanding  the foregoing,  Landlord agrees to waive to the collection
of annual rent and  additional  rent for "Real  Estate  Taxes"  (Article 35) and
"Operating  Expenses"  (Article  36), but not the  Additional  Extension  Period
Electric  Charge,  for period from and  including  November 1, 2007  through and
including February 28, 2008.

C.   Effective November 1, 2002, (i) Tenant's "Base Tax Year" (Article 35) shall
be amended to be the fiscal tax year of the City of New York  commencing July 1,
2002 and ending June 30, 2003;  (ii) Tenant's "Base Operating  Period"  (Article
36) shall be amended to be the calendar  year  commencing  January 1, 2003;  and
(iii) Tenant's  proportionate share for Real Estate Taxes and Operating Expenses
shall be 2.11 percent.

4.   Inasmuch as Tenant  currently  occupies  the demised  premises and is fully
aware of the condition thereof,  Tenant agrees to accept the demised premises in
the  condition  which it exists on the  first  day of the  Additional  Extension
Period.  Further, Tenant understands and agrees that no materials whatsoever are
to be  furnished  by  Landlord  and no work  whatsoever  is to be  furnished  by
Landlord in connection  with the demised  premises or any part thereof nor shall
any construction or tenant improvement allowance be provided by Landlord.

5.   Tenant  represents  and warrants to Landlord that it has not dealt with any
real  estate  agents or brokers in  connection  with this  Agreement  other than
Insignia/ESG,  Inc. ("IESG") whose fees, if any, Landlord agrees to pay and that
this   Agreement  was  not  brought  about  or  procured   through  the  use  or
instrumentality  of any other agent or broker.  Tenant  covenants  and agrees to
indemnify and hold Landlord harmless from any and all claims for commissions and
other  compensation  made by any agent or agents  and/or any broker or  brokers,
other than IESG,  based on any dealings  between  Tenant and any agent or agents
and/or  broker or  brokers,  together  with all costs and  expenses  incurred by
Landlord in resisting such claims,  including,  without  limitation,  reasonable
attorneys' fees.

7.   Except  as  modified  by this  Agreement,  the  Lease  and  all the  terms,
covenants,  conditions,  provisions,  and  agreements  thereof are hereby in all
respects ratified, confirmed, and approved.

8.   The Lease, as modified by this Agreement contains the entire  understanding
between  the  parties.  No  other  representations,   warranties,  covenants  or
agreements have been made.

                                       2
<PAGE>

9.   This  Agreement  may not be changed  orally,  but only by an  agreement  in
writing  signed by the party  against whom  enforcement  of any waiver,  change,
modification or discharge is sought.

10.  This  Agreement  shall be  binding  upon,  and inure to the  benefit of the
parties hereto, their respective legal  representatives,  successors and, except
as  otherwise  provided  in the  Lease  as  modified  by this  Agreement,  their
respective assigns.

11.  The  submission  of this  Agreement  to Tenant shall not be construed as an
offer,  nor shall Tenant have any rights with respect  hereto,  unless and until
Landlord shall execute a copy of this Agreement and deliver the same to Tenant.

         IN WITNESS WHEREOF, the parties hereto have respectively  executed this
Agreement as of the day and year first above written.

                                            Landlord:
                                            Metropolitan Life Insurance Company

                                            By: /s/ KATHRYN L. CAMPBELL
                                                -----------------------
                                                    Kathryn Campbell, Director

                                            Tenant:
                                            Jean Philippe Fragrances, LLC

                                            By: /s/ RUSSELL GREENBERG
                                                ---------------------
                                                    Executive Vice President

                                       3<PAGE>

                                                                   Exhibit 10.09

                           INTERCONNECTION AGREEMENT

                               DATED MAY 23, 2002

                                    BETWEEN

                            EL PASO ELECTRIC COMPANY

                                      AND

                      PUBLIC SERVICE COMPANY OF NEW MEXICO

                      DESIGNATED SERVICE AGREEMENT NO. 47

                        UNDER FERC ELECTRIC TARIFF NO. 1

                          EFFECTIVE DATE: MAY 23, 2002

<PAGE>

                            UNITED STATES OF AMERICA
                                   BEFORE THE
                      FEDERAL ENERGY REGULATORY COMMISSION

El Paso Electric Company                )        Docket No. ER02-

                                NOTICE OF FILING

Take notice that on May 29, 2002, El Paso Electric Company ("EPE") tendered for
filing an executed Interconnection Agreement ("Agreement") between EPE and
Public Service Company of New Mexico. EPE seeks an effective date of May 23,
2002 for the Agreement.

Any person desiring to be heard or to protest such filing should file a motion
to intervene or protest with the Federal Energy Regulatory Commission, 888 First
Street, N.E., Washington, DC 20426, in accordance with Rules 211 and 214 of the
Commission's Rules of Practice and Procedure, 18 C.F.R. (S)(S) 385.211 and
385.214.  All such motions and protests should be filed on or before the Comment
Date.  Protests will be considered by the Commission to determine the
appropriate action to be taken but will not serve to make protestants parties to
the proceedings.  Any person wishing to become a party must file a motion to
intervene.  Copies of this filing are on file with the Commission and are
available for public inspection.  This filing may be viewed on the web at
http://www.ferc.gov using the "RIMS" link.  Select "Docket #" from the RIMS menu
and follow the instructions.  Please call (202) 208-2222 for assistance.
Comments, protests, and interventions may be filed electronically via the
Internet in lieu of paper.

                              Magalie Roman Salas
                                   Secretary

Comment Date:

<PAGE>

                                Table Of Contents
                                -----------------

<TABLE>
<S>                                                                                                      <C>
Article I DEFINITIONS................................................................................     1
---------

Article II TERM......................................................................................     8
----------

         2.1      Effectiveness of this Agreement....................................................     8

         2.2      FERC Filing........................................................................     8

         2.3      Term...............................................................................     9

         2.4      Material Adverse Change............................................................     9

         2.5      Survival...........................................................................     9

Article III CONTINUING OBLIGATIONS AND RESPONSIBILITIES..............................................     9
-----------

         3.1      Interconnection Service Provided...................................................     9

         3.2      Scope of Interconnection Service...................................................     9

         3.3      Services Outside Scope of Agreement................................................    10

         3.4      No Guarantees; Release.............................................................    11

         3.5      Reporting Requirements.............................................................    11

         3.6      Third Party Activity...............................................................    11

         3.7      Compliance with EPE OATT and FERC Orders No. 888 and No. 889.......................    12

Article IV OPERATING COMMITTEE.......................................................................    12
----------

         4.1      Operating Committee................................................................    12

         4.2      Responsibilities of the Operating Committee........................................    12

         4.3      Effectiveness of Operating Committee Determinations................................    12

Article V FACILITY INTERCONNECTION...................................................................    12
---------

         5.1      Establishment of Interconnection...................................................    13

         5.2      Necessary Easements, Permits, Licenses, Etc........................................    13

         5.3      Design and Construction of Generator's Interconnection Facilities..................    13

         5.4      Design and Construction of EPE Interconnection Facilities and Interconnection
                   System Upgrades...................................................................    14

         5.5      Subcontractors.....................................................................    16

         5.6      Rights of Access...................................................................    16

         5.7      Course and Completion of Construction..............................................    17
</TABLE>

--------------------------------------------------------------------------------
Interconnection Agreement between                              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

<TABLE>
<S>                                                                                                            <C>
         5.8      Timely Completion.........................................................................   18

         5.9      Environmental Compliance and Procedures...................................................   18

         5.10     Generator Modeling Data...................................................................   18

         5.11     Equipment Requirements....................................................................   19

         5.12     Required Diagrams.........................................................................   19

         5.13     Required Personnel Information............................................................   19

         5.14     Use of Afton Switching Station by Third Parties...........................................   19

         5.15     Interconnected Facilities and Facility Additions, Modifications or Replacements...........   20

Article VI ACCEPTANCE AND PERFORMANCE TESTING  AND COMPLIANCE MONITORING....................................   21
----------

         6.1      Responsibility for Testing................................................................   21

         6.2      Responsibility for Modifications Following Testing........................................   21

         6.3      Documentation of Results to EPE or the Operating Agent....................................   22

         6.4      Facility Certification....................................................................   23

         6.5      Transmission Service During Testing.......................................................   23

         6.6      EPE Inspection Rights.....................................................................   23

         6.7      Generator Inspection Rights...............................................................   23

         6.8      EPE's Reviews, Inspections, and Approvals.................................................   23

Article VII INTERCONNECTION FACILITY COSTS AND BILLING......................................................   23
-----------

         7.1      Interconnection Construction Completion and Cost..........................................   23

         7.2      Invoices and Payments.....................................................................   24

         7.3      Adjustments...............................................................................   26

         7.4      Payment Not a Waiver......................................................................   26

         7.5      Income Taxes..............................................................................   26

Article VIII OPERATIONS.....................................................................................   27
------------

         8.1      General...................................................................................   27

         8.2      Obligations of Operating Agent............................................................   27

         8.3      Obligations of Generator..................................................................   28

         8.4      Reliability Criteria......................................................................   28

         8.5      Quality of Power..........................................................................   29

         8.6      Protection and System Quality.............................................................   29

         8.7      Adjustments...............................................................................   30
</TABLE>

--------------------------------------------------------------------------------
Interconnection Agreement between               -ii-           EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

<TABLE>
<S>                                                                          <C>
    8.8    Switching and Tagging Procedures................................. 30

    8.9    General Orders................................................... 31

    8.10   Generation Alert................................................. 31

Article IX  RELIABILITY MANAGEMENT SYSTEM................................... 31
----------

    9.1    Purpose.......................................................... 31

    9.2    Compliance....................................................... 31

    9.3    Participant Status............................................... 31

    9.4    Payment of Sanctions............................................. 32

    9.5    Transfer of Control or Sale of Facility.......................... 32

    9.6    Failure to Comply with RMS....................................... 32

    9.7    Publication...................................................... 32

    9.8    Third Parties.................................................... 32

    9.9    Reserved Rights.................................................. 33

    9.10   Termination...................................................... 33

    9.11   Mutual Agreement................................................. 33

    9.12   Severability..................................................... 33

Article X REACTIVE POWER.................................................... 33
---------

    10.1   Obligation to Supply Reactive Power.............................. 33

    10.2   Compensation..................................................... 33

    10.3   Reactive Power Standards......................................... 33

    10.4   Failure to Supply Reactive Power................................. 34

Article XI OUTAGES, INTERRUPTIONS, AND DISCONNECTIONS....................... 34
----------

    11.1   Outage Scheduling................................................ 34

    11.2   Scheduled Maintenance and Coordination........................... 35

    11.3   Other Maintenance and Coordination............................... 35

    11.4   Unplanned Outages................................................ 35

    11.5   Disconnection.................................................... 35

    11.6   Continuity of Service............................................ 36

Article XII EMERGENCY AND ABNORMAL CONDITION PROCEDURES..................... 36
-----------

    12.1   Emergency........................................................ 36

    12.2   Notice of Emergency.............................................. 37
</TABLE>

--------------------------------------------------------------------------------
Interconnection Agreement between          -iii-               EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

<TABLE>
<S>                                                                         <C>
    12.3   Immediate Action................................................ 37

    12.4   Disconnection of Facility in Event of Potential Emergency....... 38

    12.5   Audit Rights.................................................... 38

    12.6   Abnormal Conditions............................................. 39

Article XIII MAINTENANCE................................................... 39
------------

    13.1   The Operating Agent Obligations................................. 39

    13.2   Generator Obligations........................................... 39

    13.3   Maintenance Expenses............................................ 40

    13.4   Coordination.................................................... 40

    13.5   Observation of Deficiencies..................................... 40

    13.6   Review of Maintenance Records................................... 40

Article XIV METERING....................................................... 41
-----------

    14.1   General......................................................... 41

    14.2   Testing......................................................... 41

    14.3   Data Metered.................................................... 41

    14.4   Data Available Upon Request..................................... 41

    14.5   Costs........................................................... 41

Article XV SAFETY.......................................................... 41
----------

    15.1   General......................................................... 42

    15.2   Environmental Releases.......................................... 42

    15.3   Other Environmental Impact...................................... 42

Article XVI COMMUNICATIONS................................................. 42
-----------

    16.1   Equipment....................................................... 42

    16.2   Remote Terminal Unit............................................ 42

Article XVII INFORMATION REPORTING......................................... 43
------------

    17.1   General......................................................... 43

    17.2   Compliance Monitoring Reporting................................. 43

    17.3   Regulatory Agency Reporting..................................... 43

    17.4   Penalties....................................................... 43

Article XVIII DOCUMENTATION................................................ 43
-------------

    18.1   General......................................................... 43
</TABLE>

--------------------------------------------------------------------------------
Interconnection Agreement between            -iv-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

<TABLE>
<S>                                                                          <C>
         18.2 Drawings....................................................    44

Article XIX   FORCE MAJEURE...............................................    44
-----------

         19.1 Definition..................................................    44

         19.2 Performance Excused.........................................    45

         19.3 Labor Issues................................................    45

         19.4 Payment Not Excused.........................................    45

Article XX    INDEMNIFICATION.............................................    45
----------

         20.1 INTERCONNECTION INDEMNITY...................................    45

         20.2 RECIPROCAL INDEMNITY........................................    46

         20.3 DAMAGE DISCLAIMER...........................................    46

         20.4 Indemnities Reformed........................................    46

         20.5 Indemnification Procedures..................................    46

         20.6 Additional Indemnification Provisions.......................    47

         20.7 Survival....................................................    47

Article XXI   INSURANCE...................................................    47
-----------

         21.1 Generator...................................................    47

         21.2 EPE or Operating Agent......................................    47

         21.3 Notice of Cancellation......................................    48

         21.4 Self-Insurance..............................................    48

Article XXII  DEFAULT.....................................................    48
------------

         22.1 General.....................................................    48

         22.2 Events Constituting Breach..................................    48

         22.3 Notice by Breaching Party...................................    49

         22.4 Cure and Default............................................    49

         22.5 Continued Operations........................................    50

         22.6 Upon Default................................................    50

         22.7 Generator's Default in Payment for Equipment................    50

Article XXIII TERMINATION.................................................    51
-------------

         23.1 Expiration of Term..........................................    51

         23.2 Termination in the Event of Default.........................    51

         23.3 Survival....................................................    51
</TABLE>

--------------------------------------------------------------------------------
Interconnection Agreement between         -v-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

<TABLE>
<S>                                                                                                  <C>
         23.4  Disconnection and Disposition of Facilities Upon Termination.......................   51

Article XXIV CREDITWORTHINESS.....................................................................   51
------------

Article XXV RELATIONSHIP OF THE PARTIES...........................................................   51
-----------

Article XXVI REPRESENTATIONS AND WARRANTIES.......................................................   52
------------

         26.1  Representations of EPE.............................................................   52

         26.2  Representations of Generator.......................................................   52

         26.3  Representations of Each Party......................................................   53

Article XXVII ASSIGNMENT..........................................................................   53
-------------

         27.1  General............................................................................   53

         27.2  EPE................................................................................   53

         27.3  Generator..........................................................................   54

         27.4  No Relief in Event of Assignment...................................................   54

Article XXVIII CONFIDENTIALITY....................................................................   54
--------------

         28.1  General............................................................................   54

         28.2  Scope..............................................................................   54

         28.3  Rights in Confidential Information.................................................   54

         28.4  Standard of Care...................................................................   55

         28.5  Required Disclosures...............................................................   55

         28.6  Possession of Confidential Information at Termination of Agreement.................   55

         28.7  Remedies Regarding Confidentiality.................................................   55

Article XXIX DISPUTE RESOLUTION...................................................................   55
------------

         29.1  Dispute Resolution by Operating Committee..........................................   55

         29.2  Dispute Resolution by Senior Management............................................   55

         29.3  Arbitration........................................................................   56

         29.4  FERC Jurisdiction Over Certain Disputes............................................   57

         29.5  Continued Performance..............................................................   58

Article XXX MISCELLANEOUS.........................................................................   58
-----------

         30.1  Partial Invalidity.................................................................   58

         30.2  Successors Included................................................................   58

         30.3  Applicable Laws and Regulations....................................................   58

         30.4  Choice of Law and Jurisdiction.....................................................   58
</TABLE>

--------------------------------------------------------------------------------
Interconnection Agreement between             -vi-             EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

<TABLE>
<S>                                                                          <C>
         30.5     Entire Agreement.......................................     58

         30.6     Counterparts to this Agreement.........................     58

         30.7     Amendments.............................................     58

         30.8     Amendments Included....................................     59

         30.9     Notices................................................     59

         30.10    Waivers................................................     60

         30.11    No Third Party Beneficiaries...........................     60

         30.12    Further Assurances.....................................     60

         30.13    Headings...............................................     60

         30.14    Articles...............................................     60

         30.15    Number, Gender, and Inclusion..........................     60

         30.16    Good Utility Practice..................................     61

         30.17    Succession Upon Membership in an RTO...................     61

         30.18    Notification of Change of Operating Agent..............     61
</TABLE>

--------------------------------------------------------------------------------
Interconnection Agreement between         -vii-                EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                            INTERCONNECTION AGREEMENT

     This Interconnection Agreement (as defined below, "Agreement") is made and
entered into as of this _____________ day of ______________________, 2002, by
and between El Paso Electric Company ("EPE"), a corporation organized under the
laws of the State of Texas, and Public Service Company of New Mexico
("Generator"), a corporation organized under the laws of the State of New
Mexico.

                               W I T N E S S E T H

     WHEREAS, EPE is engaged in the transmission and distribution of electric
energy in the States of New Mexico and Texas;

     WHEREAS, EPE will own and operate the new Afton Switching Station near
Afton, New Mexico and 345 kV transmission lines from the existing EPE
Transmission System to Afton Switching Station;

     WHEREAS, Generator will construct, own and operate an electric generating
facility (as defined below, "Facility") located near Afton, New Mexico;

     WHEREAS, Generator will construct the new Afton Switching Station and 345
kV transmission lines from Afton Switching Station to EPE's existing
transmission system;

     WHEREAS, Generator seeks to interconnect the Facility with the EPE
Transmission System at the Afton Switching Station;

     WHEREAS, this Agreement does not provide for transmission, distribution or
ancillary services and separate arrangements are required for such services; and

     WHEREAS, EPE and Generator have agreed to execute an interconnection
agreement to interconnect the Facility with the EPE Transmission System at the
Afton Switching Station.

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth
herein, the Parties agree as follows:

                                    Article I
                                   DEFINITIONS

     For purposes of this Agreement, the following terms shall have the
following meanings.

1.1  "Abnormal Condition" means any condition at the Facility, on the
     Interconnected Facilities, at the Afton Switching Station, on the EPE
     Transmission System, or on the transmission system of other utilities which
     is outside normal operating parameters such that facilities are

--------------------------------------------------------------------------------
Interconnection Agreement between            -1-               EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

      operating outside their normal ratings or reasonable operating limits have
      been exceeded and would result in an Emergency if these conditions
      continue. Any condition or situation that results from lack of sufficient
      planned generating capacity to meet load requirements or that results
      solely from economic conditions shall not, standing alone, constitute an
      Abnormal Condition.

1.2   "Affiliate" means, with respect to any Person, any other Person (other
      than an individual) that, directly or indirectly, through one or more
      intermediaries, controls, or is controlled by, or is under common control
      with, such Person. For this purpose, "control" means the direct or
      indirect ownership of fifty percent (50%) or more of the outstanding
      capital stock or other equity interests having ordinary voting power.

1.3   "Afton Switching Station" means the 345 kV substation to be constructed by
      Generator, and owned and operated by EPE near Afton, New Mexico as
      depicted in Appendix D.

1.4   "Agents" means the officers, directors, shareholders, employees or agents
      acting on behalf of a Party or group of Parties.

1.5   "Agreement" means this Interconnection Agreement between EPE and
      Generator, including attachments, exhibits, and appendices.

1.6   "Applicable Laws and Regulations" means all applicable federal, state and
      local laws, codes, ordinances, rules and regulations, and all duly
      promulgated orders and other duly authorized actions, as amended from time
      to time, and whether now existing or hereafter enacted, promulgated,
      entered or otherwise arising, of any Governmental Authority having
      jurisdiction over the Parties and/or their respective facilities.

1.7   "Bankruptcy Laws" shall have the meaning set forth in Article 22.2(c).

1.8   "Breaching Party" shall have the meaning set forth in Article 22.2.

1.9   "Business Day" means any day on which the Federal Reserve member banks are
      open for business. A Business Day shall commence at 8:00 a.m. and close at
      5:00 p.m., local time, at the location of the relevant Party's principal
      place of business, or at such other location as the context may require.
      The relevant Party, in each instance unless otherwise specified, shall be
      the Party to which the notice, payment, or delivery is being sent and by
      which the notice, payment, or delivery is being received.

1.10  "Commercial Operation Date" means the first day on which the Facility
      generates electric energy, other than test energy, for sale.

1.11  "Commercially Reasonable Efforts" means efforts by a Party to perform the
      particular obligation under this Agreement using skills, time and funds
      which are customary and reasonable in transactions of the kind and nature
      contemplated by this Agreement in order for such Party to satisfy such
      obligation under this Agreement.

--------------------------------------------------------------------------------
Interconnection Agreement between            -2-               EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

1.12  "Confidential Information" means any confidential, proprietary, or trade
      secret information associated with a plan, specification, pattern,
      procedure, design, device, list, concept, policy, or compilation relating
      to the present or planned business of a Party (including all information
      relating to a Party's technology, research and development, business
      affairs and pricing), which is designated as "Confidential" by the Party
      supplying the information, whether conveyed orally, in writing,
      electronically, through inspection, or otherwise prior to or after the
      Effective Date. Any Confidential Information designated as such by a Party
      that is conveyed in writing or electronically must clearly be designated
      or marked as confidential on the face of the document or electronic
      transmission. To the extent that the Confidential Information is
      designated as such by a Party orally or through inspection, the Party
      providing such information must inform the Party receiving such
      information that it is Confidential Information.

1.13  "Custodian" shall have the meaning set forth in Article 22.2(c).

1.14  "Due Diligence" means the exercise of good faith efforts to perform a
      required act on a timely basis and in accordance with Good Utility
      Practice using the necessary technical resources and personnel.

1.15  "Effective Date" means the date set forth in Article 2.1 of this
      Agreement.

1.16  "Emergency" means (a) a condition or situation which, in the judgment of
      the Operating Agent, requires immediate manual or automatic action to
      prevent (i) endangerment of life or property, or (ii) loss of firm load,
      equipment damage, or tripping of system elements that could adversely
      affect the reliability of the Afton Switching Station, the EPE
      Transmission System or the electrical transmission systems of others to
      which the EPE Transmission System is directly or indirectly connected, and
      which requires that the output of the Facility be adjusted to help avoid
      or mitigate such condition or situation, and (b) a condition or situation
      which Generator deems imminently likely to (i) endanger life or property,
      or (ii) adversely affect or impair the reliability of the Facility. The
      conditions or situations described in Articles 1.16(a)(ii) and 1.16(b)(ii)
      include equipment damage, danger of instability, voltage collapse or
      uncontrollable cascading outages. Any condition or situation that results
      from lack of sufficient planned generating capacity to meet load
      requirements or that results solely from economic conditions shall not,
      standing alone, constitute an Emergency.

1.17  "Environmental Laws" means federal, state, and local laws, regulations,
      rules, ordinances, codes, decrees, judgments, directives, or judicial or
      administrative orders (and any amendments thereto) relating to pollution
      or protection of the environment, archaeological or natural resources, or
      human health and safety, including laws relating to exposures, Releases or
      threatened Releases of Hazardous Substances (including Releases or
      threatened Releases to ambient air, surface water, groundwater, land,
      surface and subsurface strata) or otherwise relating to the manufacture,
      processing, distribution, use, treatment, storage, Release, transport, or
      handling of Hazardous Substances.

1.18  "EPE" shall have the meaning set forth in the first paragraph of this
      Agreement.

--------------------------------------------------------------------------------
Interconnection Agreement between            -3-               EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

1.19  "EPE Control Area" means the power system where EPE is responsible for
      matching generation within the control area and net transactions with
      other control areas with the prevailing real-time electrical load in the
      control area, for maintaining within limits generally accepted as Good
      Utility Practice scheduled interchange with neighboring control areas, and
      for maintaining frequency within reasonable limits in accordance with Good
      Utility Practice.

1.20  "EPE Interconnection Facilities" means all equipment and other facilities
      owned, operated and maintained by EPE from the high-side bushings of the
      generator step-up transformer indicated in Appendix B to the
      interconnection to the existing EPE Transmission System, including Afton
      Switching Station, the 345 kV transmission lines between Afton Switching
      Station and the existing EPE Transmission System, and the Protective
      Equipment, including any modifications, additions, or upgrades made to
      such facilities, which, in conjunction with the Generator's
      Interconnection Facilities, are necessary to connect the Facility to the
      EPE Transmission System at the Afton Switching Station.

1.21  "EPE OATT" means EPE's Open Access Transmission Tariff filed with FERC in
      accordance with FERC's Order No. 888, and any successor transmission
      service tariff thereto, including any such successor tariff of a Regional
      Transmission Organization to which EPE transfers operating authority over
      the EPE Transmission System.

1.22  "EPE Transmission System" means all of the facilities owned by EPE,
      including the EPE Interconnection Facilities, that are made available for
      the purpose of providing transmission service under the EPE OATT.

1.23  "Facility" means Generator's electric generating facility with an output
      of 135 MW located near Afton, New Mexico, together with the other
      property, facilities, and equipment owned and/or operated by Generator up
      to and including the output terminals of the generator as indicated in
      Appendix A.

1.24  "Federal Power Act" means the Federal Power Act, 16 U.S.C.(S)791a et seq.,
      as amended from time to time.

1.25  "FERC" means the Federal Energy Regulatory Commission, or any successor
      federal agency.

1.26  "General Orders" means the set of standard operating procedures, as
      modified from time to time, by which the Operating Agent operates the EPE
      Transmission System and which are applicable to generating facilities
      connected to that transmission system, including, at the Effective Date,
      the Facility.

1.27  "Generator" shall have the meaning set forth in the first paragraph of
      this Agreement.

1.28  "Generator's Interconnection Facilities" means all equipment and other
      facilities owned, operated and maintained by Generator, from the generator
      output terminals up to the high-side bushings of the generator step-up
      transformer as indicated in Appendix A, including

--------------------------------------------------------------------------------
Interconnection Agreement between            -4-               EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

      the Protective Equipment, including any modifications, additions, or
      upgrades made to such facilities, which, in conjunction with the EPE
      Interconnection Facilities, are necessary to connect the Facility to the
      EPE Transmission System at the Afton Switching Station.

1.29  "Good Utility Practice" means any of the practices, methods, and acts
      required, approved, or engaged in by the WSCC, NERC, RTO (if applicable)
      or a significant portion of the electric utility industry during the
      relevant time period, or any of the practices, methods, and acts which, in
      the exercise of reasonable judgment in light of the facts known at the
      time the decision was made, could have been expected to accomplish the
      desired result at a reasonable cost consistent with good business
      practices, reliability, safety, and expedition. Good Utility Practice is
      not intended to be limited to the optimum practice, method, or act;
      rather, it is intended to be a spectrum of practices, methods, and acts
      generally accepted by the electric utility industry in the WSCC region.
      Good Utility Practice shall include compliance with Applicable Laws and
      Regulations.

1.30  "Governmental Authority" means any entity with proper jurisdiction or
      authority over the Parties and/or their respective facilities, including
      (i) a federal, tribal, state, local or municipal governmental body; (ii) a
      governmental, regulatory or administrative agency, commission, body or
      other authority exercising or entitled to exercise administrative,
      executive, judicial, legislative, policy, regulatory or taxing authority
      or power; and (iii) a court or governmental tribunal.

1.31  "Governor Droop" means the governor response characteristic (speed versus
      output characteristic) defining the decrease in frequency needed to cause
      generator output to go from no load to full load.

1.32  "Hazardous Substances" means (a) any petrochemical or petroleum products,
      oil, coal ash, radioactive materials, radon gas, asbestos in any form that
      is or could be friable, urea formaldehyde foam insulation and transformers
      or other equipment that contains dielectric fluid that may contain
      polychlorinated biphenyls; (b) any chemicals, materials, or substances
      defined as or included in the definition of "hazardous substances,"
      "hazardous wastes," "hazardous materials," "hazardous constituents,"
      "restricted hazardous materials," "extremely hazardous substances," "toxic
      substances," "contaminants," "pollutants," "toxic pollutants," or words of
      similar meaning and regulatory effect under any applicable Environmental
      Law; or (c) any other chemical, material, or substance, exposure to which
      is prohibited, limited, or regulated by any applicable Environmental Law.

1.33  "Interconnected Facilities" means the EPE Interconnection Facilities and
      Generator's Interconnection Facilities.

1.34  "Interconnection Point" means the point at which the Facility, via
      Generator's Interconnection Facilities, is connected to the EPE
      Transmission System at the Afton Switching Station as indicated on
      Appendix D.

--------------------------------------------------------------------------------
Interconnection Agreement between            -5-               EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

1.35    "Interconnection Service" means the service provided by EPE to
        interconnect the Facility, via Generator's Interconnection Facilities,
        with the EPE Transmission System at the Afton Switching Station.

1.36    "Interconnection Studies" means the studies performed by or on behalf of
        EPE pursuant to an interconnection request by Generator which have
        determined the design, specifications and cost estimate for the
        Interconnected Facilities and any Interconnection System Upgrades
        required to accommodate the interconnection of the Facility.

1.37    "Interconnection System Upgrades" means the necessary upgrades, if any,
        to the EPE Transmission System that would not have been required but for
        the interconnection of the Facility to the EPE Transmission System at
        the Afton Switching Station and identified in Appendix B.

1.38    "Interest Rate" means the prime interest rate for currency as published
        from time to time under "Money Rates" by The Wall Street Journal, or its
        successor (or, if no longer so published, any substitute mutually
        agreeable to the Parties), as of the payment due date and/or default
        date, plus two (2) percent; provided, however, that in no event shall
        the Interest Rate exceed the maximum interest rate permitted by
        Applicable Laws and Regulations.

1.39    "Metering Equipment" means all metering equipment to be installed at the
        Facility and at or near the Interconnection Point and Afton Switching
        Station. Metering Equipment is identified in Appendices A, B and D.

1.40    "NERC" means the North American Electric Reliability Council, or any
        successor organization.

1.41    "Non-Breaching Party" shall have the meaning set forth in Article
        22.2(g).

1.42    "Operating Agent" shall mean the entity that operates the EPE
        Transmission System, including the EPE Interconnection Facilities. On
        the Effective Date of this Agreement, EPE is the Operating Agent for the
        EPE Transmission System, including the EPE Interconnection Facilities.

1.43    "Operating Committee" shall have the meaning set forth in Article 4.1.

1.44    "Operation Date" means the day upon which the Interconnected Facilities
        and Facility have been completed to EPE's and Generator's mutual
        satisfaction and energized in parallel operation as confirmed in a
        written notice provided by EPE to Generator.

1.45    "Participant" has the meaning as stated in Article 9.3.

1.46    "Parties" means EPE (including in its capacity as Operating Agent) and
        Generator or the successor or permitted assignee of the rights and
        obligations of any of the foregoing under this Agreement. "Party" means
        one of the Parties.

--------------------------------------------------------------------------------
Interconnection Agreement between         -6-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

1.47    "Person" means an individual, partnership, corporation (including a
        business trust), limited liability company, joint stock company, trust,
        unincorporated association, joint venture or other entity or a
        government or any political subdivision or agency thereof.

1.48    "Power System Stabilizer (PSS)" means a control system applied at a
        generator that monitors variables such as current, voltage and shaft
        speed and sends the appropriate control signals to the voltage regulator
        to damp system oscillations.

1.49    "Protective Equipment" means such protective relay systems, locks and
        seals, breakers, automatic synchronizers, associated communication
        equipment and other control schemes and protective apparatus as is
        reasonably necessary under Good Utility Practice and standards of EPE
        for the operation of the Facility in parallel with the EPE Transmission
        System and to permit the facilities of EPE and the Facility to operate
        reliably and safely.

1.50    "Regional Transmission Organization" or "RTO" means an entity approved
        by FERC to assume responsibility for providing electric transmission
        services and certain operational functions in a specific region in
        accordance with FERC Order No. 2000.

1.51    "Release" means any release, spill, leak, discharge, disposal, pumping,
        pouring, emission, emptying, injection, leaching, dumping, escape into
        or through the environment of any Hazardous Substance.

1.52    "Reliability Management System" or "RMS" means the contractual
        reliability management program implemented through the WSCC Reliability
        Criteria Agreement, Article IX of this Agreement, and any similar
        contractual arrangement(s).

1.53    "Security Coordinator" means the entity authorized by the WSCC to have
        the final authority to direct electric system operations to prevent or
        remedy problems or disturbances that have regional impacts.

1.54    "SOCC" means System Operations Control Center.

1.55    "Termination Costs" means the costs incurred by or on behalf of EPE upon
        termination of this Agreement in accordance with Article 23.4 in taking
        one or more of the following actions: (a) returning or canceling pending
        orders made by EPE for equipment or facilities required for the
        interconnection contemplated by this Agreement; (b) removing any portion
        of the EPE Interconnection Facilities or Interconnection System
        Upgrades; and (c) performing such work as may be necessary to ensure the
        safety of persons and property and to preserve the integrity of the EPE
        Transmission System.

1.56    "WSCC" means the Western Systems Coordinating Council, or any successor
        organization.

1.57    "WSCC Agreement" means the Western Systems Coordinating Council
        Agreement dated March 20, 1967.

--------------------------------------------------------------------------------
Interconnection Agreement between         -7-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

1.58    "WSCC Reliability Criteria Agreement" means the Western Systems
        Coordinating Council Reliability Criteria Agreement dated June 18, 1999,
        among the WSCC and certain members of WSCC.

                                   Article II
                                      TERM

2.1     Effectiveness of this Agreement. This Agreement shall become effective
        upon execution by the Parties subject to obtaining the required
        regulatory authorizations, including acceptance by FERC under Section
        205 of the Federal Power Act. Notwithstanding the foregoing and with
        respect to this Agreement, no Party shall take any action which is
        inconsistent with the terms of this Agreement and Applicable Laws and
        Regulations during the period between execution of this Agreement and
        acceptance by FERC or earlier termination of this Agreement.

2.2     FERC Filing.

        2.2.1   Within a reasonable time after execution of this Agreement by
                the Parties, EPE shall file this Agreement with FERC as a "Rate
                Schedule" within the meaning of Part 35 of FERC's regulations
                and with any other Governmental Authority to the extent required
                by Applicable Laws and Regulations. Each of the Parties shall
                support this Agreement in its current form at FERC when filed.
                Generator shall reasonably cooperate with EPE with respect to
                obtaining FERC approval of such FERC filing and provide any
                information, including testimony, reasonably required by EPE to
                comply with the applicable FERC filing requirements.

        2.2.2   Promptly upon execution by the Parties of any amendment to this
                Agreement, EPE shall, if necessary, file such amendment with
                FERC and with any other Governmental Authority, to the extent
                required by Applicable Laws and Regulations. Each of the Parties
                shall support any such amendment at FERC when filed. Generator
                shall reasonably cooperate with EPE with respect to obtaining
                FERC approval of such FERC filing and provide any information,
                including testimony, reasonably required by EPE to comply with
                the applicable FERC filing requirements.

        2.2.3   If FERC requires conditions to or modifications of any of the
                terms, conditions or provisions agreed to herein or in an
                amendment hereto and: (i) neither Party notifies the other Party
                in writing within fourteen (14) calendar days following receipt
                of FERC's order that the notifying Party takes exception to
                FERC's order, the FERC-ordered modifications and/or conditions
                shall become part of this Agreement as an amendment or appendix;
                or (ii) the Party taking exception to FERC's conditions or
                modifications gives fourteen (14) calendar days notice
                (following receipt of FERC's order) to the other Party of such
                exception, then the Parties shall promptly negotiate an
                amendment to this Agreement acceptable to FERC and providing
                similar benefit, rights, or effect to the Parties. Any such
                amendment shall be effective when

--------------------------------------------------------------------------------
Interconnection Agreement between         -8-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                accepted for filing by FERC. For purposes of this Article 2.2.3,
                each Party reserves and may exercise all of its rights under
                Applicable Laws and Regulations.

2.3     Term. This Agreement shall continue in full force and effect until a
        mutually agreed termination date; provided, however, that such
        termination date shall be no later than the date on which the Facility
        permanently ceases commercial operation; and provided further that this
        Agreement may be terminated earlier (a) as provided for in Article
        5.4.8; (b) upon a Party's default in accordance with the provisions of
        Article 23.2; (c) if the required regulatory authorizations described
        under Article 2.2 have not been obtained by the Operation Date; or (d)
        by the mutual agreement of the Parties or as explicitly provided
        elsewhere in this Agreement. Unless no longer required by FERC, any
        termination of this Agreement permitted hereunder shall not take effect
        until the filing at FERC of a notice of termination of this Agreement
        which notice is accepted for filing by FERC.

2.4     Material Adverse Change. In the event of a change in law or regulation
        after the Effective Date that has a material adverse effect, or may
        reasonably be expected to have a material adverse effect, on a Party's
        ability to perform under this Agreement, the Parties shall negotiate in
        good faith any amendment or amendments to this Agreement necessary to
        adapt the terms of this Agreement to such change in law or regulation.
        If the Parties are unable to reach agreement on any such amendments
        within sixty (60) days of the commencement of their negotiations, each
        Party reserves and may exercise all its rights under Applicable Laws and
        Regulations.

2.5     Survival. The applicable provisions of this Agreement shall continue in
        effect after cancellation, expiration, or termination of this Agreement
        to provide for final billings, billing adjustments, and the
        determination and enforcement of liability and indemnification
        obligations arising from acts or events that occurred while this
        Agreement was in effect. In addition, upon termination of this Agreement
        subject to the terms of Article 23.4, Generator shall be responsible for
        any Termination Costs incurred by or on behalf of EPE.

                                  Article III
                   CONTINUING OBLIGATIONS AND RESPONSIBILITIES

3.1     Interconnection Service Provided. EPE shall provide Generator with
        Interconnection Service for the Facility, as such service is defined in
        Article 1.35 and described in this Article III. EPE shall not provide
        Interconnection Service under this Agreement for any other generating
        units, wherever located. Any other generating units shall be covered by
        a separate interconnection agreement or an amendment of this Agreement
        as provided for in Article 3.2.3.

3.2     Scope of Interconnection Service.

        3.2.1   Interconnection Service shall consist of the services necessary
                to allow the physical interconnection of the Facility pursuant
                to the terms of this Agreement. Interconnection Service does not
                mean and shall not include transmission service, ancillary
                services, losses, or any other service available under the EPE
                OATT.

--------------------------------------------------------------------------------
Interconnection Agreement between         -9-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                Specifically, Interconnection Service shall not include the
                purchase or sale of energy or ancillary services to or from the
                Facility beyond the Interconnection Point, or the delivery of
                energy or ancillary services from the Facility beyond the
                Interconnection Point, which services shall be provided
                separately under the EPE OATT or by others under separate
                agreements, as applicable.

        3.2.2   Generator shall be responsible for (a) making arrangements under
                the EPE OATT for transmission and ancillary services on the EPE
                Transmission System, and under other applicable tariffs for such
                services on other transmission system(s), associated with the
                injection or delivery of the capacity and/or energy produced by
                the Facility beyond the Interconnection Point, which services
                shall not be provided under the terms of this Agreement, (b)
                obtaining capacity and/or energy to satisfy its Facility service
                or other requirements, and (c) making arrangements under
                applicable tariffs for transmission services, losses, and
                ancillary services associated with the use of the EPE
                Transmission System for the injection or delivery of capacity
                and/or energy to other generating facilities owned by Generator
                for the purpose of supplying facility service or for any other
                use. EPE makes no representations to Generator regarding the
                availability of transmission service on the EPE Transmission
                System, and Generator agrees that the availability of such
                transmission service may not be inferred or implied from this
                Agreement. Generator must request such transmission service in
                accordance with the EPE OATT.

        3.2.3   In the event of an increase in the output of the Facility or
                other material change or modification to the configuration
                and/or operation of the Facility, the Parties shall negotiate
                appropriate revisions to this Agreement, including, as
                necessary, the performance by EPE of studies to determine the
                effects of such increase or change, and changes to the
                specifications or requirements set forth in the Appendices to
                this Agreement, as necessary to permit EPE to provide
                Interconnection Service to the Facility under this Agreement in
                a safe, secure and reliable manner.

3.3     Services Outside Scope of Agreement

        3.3.1   This Agreement provides only for interconnection of the Facility
                with the EPE Transmission System at the Afton Switching Station.
                Nothing in this Agreement shall be read as a request by
                Generator, or a commitment by EPE, to install any facilities
                other than those necessary to interconnect the Facility with the
                EPE Transmission System at the Afton Switching Station.

        3.3.2   This Agreement does not obligate any Party to purchase, sell,
                transmit or otherwise provide any rights other than
                Interconnection Service. This Agreement does not obligate any
                Party to provide, or entitle any Party to receive, any
                transmission or other service not expressly provided for herein.
                This Agreement does not provide a right to inject or transmit
                energy which right shall be realized through the necessary
                arrangements for transmission rights and service, including
                mitigation related to transmission service, if any. Each Party
                is responsible for making any arrangements necessary for it to
                receive any transmission or other service not expressly provided

--------------------------------------------------------------------------------
Interconnection Agreement between        -10-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

            for herein that it may desire from the other Party or any other
            Person. Notwithstanding any other provision of this Agreement,
            nothing herein shall be construed as a relinquishment or foreclosure
            of any rights to transmission credits to which Generator may be
            entitled, now or in the future, as a result of, or otherwise,
            associated with, the transmission capacity, if any, created by the
            Interconnection System Upgrades, if any.

     3.3.3  This Agreement does not provide for the injection, sale or purchase
            of power or energy from or to the Facility. Upon Generator's
            request, construction, back-up, start-up, auxiliary, station, and
            maintenance power required for the Facility at the Facility site
            shall be provided under a separate agreement or any applicable
            tariff.

3.4  No Guarantees; Release. EPE (which, for the purposes of this Article 3.4,
     shall be deemed to include the Operating Agent) does not warrant against
     the occurrence of, and Generator releases EPE from any and all claims or
     damages associated with: (a) damage to Generator's Interconnection
     Facilities or the Facility resulting from electrical transients, or (b) any
     interruption in the availability of the EPE Interconnection Facilities,
     including the Afton Switching Station, or any Interconnection System
     Upgrades, except, in the case of subpart (a) or (b), to the extent
     determined to be attributable to the negligence of, willful misconduct of,
     or default under Article XXII by EPE. Generator does not warrant against
     the occurrence of, and EPE releases Generator from any and all claims or
     damages associated with: (y) damage to the EPE Interconnection Facilities,
     including the Afton Switching Station, any Interconnection System Upgrades,
     or the EPE Transmission System resulting from electrical transients, or (z)
     any interruption in the availability of Generator's Facility, except, in
     the case of subpart (y) or (z), to the extent determined to be attributable
     to Generator's negligence, willful misconduct or default under Article
     XXII.

3.5  Reporting Requirements. Each Party shall notify the other Party promptly
     when it becomes aware of its inability to comply with the terms and
     conditions of this Agreement, and provide a sufficient explanation of its
     inability to comply, including the date, duration, and reasons for its
     inability to comply, and corrective actions taken; provided that such
     notification shall not release such Party from its obligation to comply
     with this Agreement, except as provided under Article XIX.

3.6  Third Party Activity. During the term of this Agreement, other Persons may
     develop, construct or acquire, and operate generating facilities in EPE's
     service territory, and reservations of transmission service by such Persons
     under the EPE OATT may adversely affect the availability of transmission
     service for the Facility's electric output. EPE has no obligation to
     disclose to Generator any information regarding such third party activity,
     except as may be required under the EPE OATT or under this Agreement
     subject to the provisions of Article 3.7. To the extent that such third
     party activity has, or EPE reasonably expects the third party activity to
     have, a material adverse impact on the operation of the Facility or the
     Interconnected Facilities, EPE shall, subject to Article 3.7, disclose to
     Generator such material information as is necessary for Generator to
     understand the nature and extent of such adverse impact and the viable
     remedies.

--------------------------------------------------------------------------------
Interconnection Agreement between            -11-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

3.7  Compliance with EPE OATT and FERC Orders No. 888 and No. 889. Nothing in
     this Agreement shall be deemed or construed to obligate EPE to provide or
     make available to Generator any information in violation of the EPE OATT,
     FERC Orders No. 888 and No. 889 or any other Applicable Laws and
     Regulations.

                                   Article IV
                               OPERATING COMMITTEE

4.1  Operating Committee. Within fifteen (15) days after the Effective Date,
     each Party shall designate a primary and alternate representative to serve
     on an operating committee ("Operating Committee"), which shall meet
     periodically to ensure effective cooperation in system planning, to deal
     promptly with the various operating and technical issues that may arise
     during the term of this Agreement, and to attempt to resolve any disputes
     that may arise under this Agreement, as more specifically described in
     Article 4.2. Each primary and alternate representative shall be authorized,
     on behalf of the designating Party, to act with respect to all matters
     delegated to the Operating Committee. Each Party shall promptly notify the
     other Party of the designation of its primary and alternate representatives
     and of any subsequent changes in such designations in accordance with
     Article 30.9.

4.2  Responsibilities of the Operating Committee. The Operating Committee shall
     have the following responsibilities and functions, each of which shall be
     performed consistent with the terms and conditions of this Agreement and
     Good Utility Practice: (a) to establish general policies to be followed in
     the coordination of the operation and maintenance of the Interconnected
     Facilities; (b) to establish procedures and standard practices, consistent
     with the terms and conditions of this Agreement, for guidance for each
     Party's system controllers and other operating personnel regarding the
     interconnected operations of the Afton Switching Station and the
     Interconnected Facilities; (c) to establish detailed procedures to govern
     in the event of an Emergency; (d) to establish detailed procedures and
     standard practices for metering, communications, and control facilities;
     (e) to establish the plan for disconnection of the Facility at the
     termination of this Agreement; (f) to establish other procedures and
     standard practices as may be needed from time to time and to engage in
     other activities consistent with the terms and conditions of this
     Agreement, provided that the Operating Committee shall not have the
     authority to modify or amend any term or condition of this Agreement; and
     (g) to attempt to resolve any disputes that may arise under this Agreement
     in accordance with Article 29.1.

4.3  Effectiveness of Operating Committee Determinations. All determinations
     made by the Operating Committee, including the establishment of any
     procedure or standard practice, within the scope of the Operating
     Committee's responsibilities set forth in Article 4.2, shall be effective
     when signed by one designated representative of each Party and, if
     necessary, accepted for filing or approved by FERC.

                                   Article V
                            FACILITY INTERCONNECTION

--------------------------------------------------------------------------------
Interconnection Agreement between            -12-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

5.1  Establishment of Interconnection. The Facility to be constructed by
     Generator shall be interconnected to the EPE Transmission System at the
     Afton Switching Station, such interconnection being further described in
     Appendices A, B, and D. Appendix D may be revised by mutual written
     agreement of the Parties. Pursuant to this Agreement, the Parties shall,
     during the term of this Agreement, continue in service the existing
     transmission lines and essential terminal equipment, to the extent required
     to establish and maintain a reliable interconnection.

5.2  Necessary Easements, Permits, Licenses, Etc. Subject to Articles 5.6.1 and
     5.6.2, each Party shall diligently pursue all rights, easements, permits,
     licenses, certificates and properties necessary to construct and maintain
     its portion of the Interconnected Facilities and, in the case of EPE, the
     Interconnection System Upgrades. If a Party cannot reasonably acquire all
     the rights, easements, permits, licenses, certificates and properties
     necessary to construct and maintain its portion of the Interconnected
     Facilities and/or Interconnection System Upgrades, the Party shall promptly
     provide written notice to the other Party indicating its inability. After
     such notice, Generator shall have thirty (30) days to authorize EPE to
     initiate and diligently pursue the following at Generator's expense: (a)
     condemnation proceedings, (b) alternate routes, designs, methods or
     procedures necessary for the construction or maintenance of the
     Interconnected Facilities and/or Interconnection System Upgrades, or (c)
     any other appropriate action mutually agreed upon by the Parties. Each
     Party shall also pursue with Due Diligence and maintain all necessary
     governmental approvals, permits, licenses and inspections necessary for its
     performance of this Agreement.

5.3  Design and Construction of Generator's Interconnection Facilities.

     5.3.1  Unless the Parties agree otherwise in writing, Generator shall, at
            its own expense, design, procure, construct, install, operate,
            maintain and repair/replace Generator's Interconnection Facilities.

     5.3.2  Protective Equipment to be installed by Generator is set forth in
            Appendix A. This Protective Equipment shall be subject to review and
            approval by EPE, which approval shall not be unreasonably withheld
            or denied. EPE's review and/or approval shall not be deemed an
            endorsement of any equipment nor as any warranty as to the fitness,
            safety, durability or reliability of any equipment.

     5.3.3  Generator shall design, procure, construct and install Generator's
            Interconnection Facilities in accordance with applicable
            Interconnection Studies and Good Utility Practice.

     5.3.4  At Generator's expense, Generator's Interconnection Facilities shall
            be constructed by Generator or, at Generator's option, a third party
            contractor to be selected by Generator. Notwithstanding the
            foregoing, Generator understands and agrees that EPE shall be
            responsible for closing the connection of the EPE Interconnection
            Facilities and Generator's Interconnection Facilities, and EPE shall
            manage all

--------------------------------------------------------------------------------
Interconnection Agreement between            -13-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

            construction work involving Interconnection System Upgrades on the
            EPE Transmission System.

     5.3.5  Generator shall, at its own expense, operate, maintain and
            repair/replace Generator's Interconnection Facilities in accordance
            with Articles VIII and XIII.

5.4  Design and Construction of EPE Interconnection Facilities and
     Interconnection System Upgrades.

     5.4.1  At Generator's expense, Generator shall design, procure equipment
            for and construct the EPE Interconnection Facilities, including the
            new Afton Switching Station and associated transmission lines
            required to connect the Facility to the existing EPE Transmission
            System.

     5.4.2  At Generator's expense, EPE will review and approve all design,
            procurement of equipment and construction of the EPE Interconnection
            Facilities. EPE's approval shall not be unreasonably withheld or
            denied. EPE's review and/or approval shall not be deemed an
            endorsement of any design, facility or equipment nor as any warranty
            as to the fitness, safety, durability or reliability of any design,
            facility or equipment.

     5.4.3  At Generator's expense, EPE shall own, operate, maintain, and
            repair/replace the EPE Interconnection Facilities and the Protective
            Equipment on the EPE Transmission System, including at Afton
            Switching Station.

     5.4.4  At Generator's expense, EPE shall design, procure equipment,
            construct, install and own Interconnection System Upgrades on the
            EPE Transmission System and the Protective Equipment on the EPE
            Transmission System, including at Afton Switching Station. After the
            Operation Date, EPE shall, at its own expense, operate, maintain and
            repair/replace Interconnection System Upgrades on the EPE
            Transmission System in accordance with Articles VIII and XIII.

     5.4.5  Equipment to be installed for the EPE Interconnection Facilities,
            the Protective Equipment, and the Interconnection System Upgrades is
            set forth in Appendix B. A good faith estimate of the cost of the
            EPE Interconnection Facilities, Interconnection System Upgrades, and
            the Protective Equipment, is also set forth in Appendix B.

     5.4.6  The contemplated schedule for Generator and EPE to perform the
            design, procurement of equipment, construction and testing is set
            forth in Appendix C.

     5.4.7  The design, procurement, construction and installation of the EPE
            Interconnection Facilities, the Protective Equipment and the
            Interconnection System Upgrades on the EPE Transmission System shall
            be in accordance with applicable Interconnection Studies and Good
            Utility Practice. The EPE Interconnection Facilities and
            Interconnection System Upgrades must be sufficient, as designed and
            built, to deliver the full Facility output as defined in Article
            1.23 to the Interconnection Point

--------------------------------------------------------------------------------
Interconnection Agreement between            -14-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

            and to enable the Facility to receive capacity necessary to satisfy
            its operational requirements (not to exceed 10 MW of capacity).

     5.4.8  As soon as practicable after receiving from Generator the first
            payment shown in Appendix B, EPE shall commence construction of the
            Interconnection System Upgrades on the EPE Transmission System and
            the Protective Equipment on the EPE Transmission System. Generator
            reserves the right, (a) upon three (3) Business Days' written notice
            to EPE to suspend at any time all work by EPE associated with the
            construction and installation of the Interconnection System Upgrades
            on the EPE Transmission System and the Protective Equipment on the
            EPE Transmission System, as applicable, or any portion of them. In
            such event, Generator shall be responsible for the costs which EPE
            incurs (a) prior to the suspension of work consistent with the scope
            of work set forth in Appendix B, and deviation in such scope of work
            (subject to Generator's authorization of those deviations described
            in Article 7.1.2), and for actions and costs authorized by Generator
            pursuant to Article 5.8.2, and (b) in suspending such work,
            including any costs incurred in order to wind up such work and to
            ensure the safety of persons and property and the integrity of EPE's
            facilities and, if applicable, any costs incurred or penalties
            sustained in connection with the cancellation of material and labor
            contracts which EPE cannot reasonably avoid; provided, however,
            that, prior to canceling any material or labor contract, EPE shall
            obtain Generator's authorization which shall not be unreasonably
            withheld or denied. EPE shall invoice Generator pursuant to Article
            VII. In the event that Generator suspends performance of work by EPE
            pursuant to this Article 5.4.8 and has not requested that EPE
            re-commence such work within three hundred sixty-five (365) days of
            the date on which Generator requested such suspension, this
            Agreement shall terminate. Generator shall be responsible for costs
            as outlined in this Article 5.4.8, and any non-returnable equipment
            not already installed shall become the property of Generator "as is,
            where is" upon Generator's payment of the costs associated with such
            equipment.

     5.4.9  EPE shall inform Generator on a monthly basis, and at such other
            times as Generator reasonably requests, of the status of the
            construction and installation of the Interconnection System Upgrades
            on the EPE Transmission System and the Protective Equipment on the
            EPE Transmission System. The information provided shall include the
            following: progress to date; a description of scheduled activities
            for the next month; the delivery status of all equipment ordered;
            and the identification of any event which EPE reasonably expects may
            delay construction of, or increase the cost of, the Interconnection
            System Upgrades and/or the Protective Equipment, as applicable.

     5.4.10 Notwithstanding any other provision in this Agreement, Generator
            shall not be responsible for any costs or expenses associated with
            the design, procurement, construction, installation, testing,
            operation, maintenance, repair/replacement, or any modifications or
            upgrades to the EPE Transmission System that are undertaken in order
            to prevent, mitigate, or otherwise remedy conditions that existed
            prior to the

--------------------------------------------------------------------------------
Interconnection Agreement between            -15-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                establishment of the interconnection of the Facility with the
                EPE Transmission System at the Afton Switching Station, and that
                were required or should have been required in order to prevent,
                mitigate, or remedy such conditions regardless of, or that
                otherwise are unrelated to, such interconnection. To the extent
                that Generator has made payment to EPE for any such costs and
                expenses, EPE shall refund to Generator such sums, with interest
                at the Interest Rate calculated from the date Generator made
                such payment(s) to the date Generator receives the refund,
                within thirty (30) days of any determination as to the
                appropriate allocation of the costs for such modifications or
                upgrades.

        5.4.11  Once transmission service commences, pursuant to a transmission
                service agreement, under EPE's OATT for the delivery of power
                produced by the Facility, EPE shall credit Generator in an
                amount equal to the cost, paid by Generator, of Interconnection
                System Upgrades on EPE's Transmission System plus interest
                calculated at the FERC-approved interest rate, to the extent
                such credit and interest are required by FERC rules at the time
                such transmission service commences. Generator may assign any
                portion of such credit to any Person who takes power from the
                Facility.

5.5     Subcontractors. Nothing in this Agreement shall prevent any Party from
        using the services of subcontractors as it deems appropriate; provided,
        however, each Party shall require such subcontractors to comply with the
        relevant terms and conditions of this Agreement. The creation of any
        subcontractor relationship shall not relieve the retaining Party of any
        of its obligations under this Agreement.

5.6     Rights of Access.

        5.6.1   Generator shall furnish, at no cost to EPE and the Operating
                Agent, as applicable, all access, easements, or licenses upon,
                over, under, and across the Facility site that are necessary for
                EPE and the Operating Agent, as applicable, and their Agents and
                subcontractors to design, procure, construct, install, test,
                operate, maintain and repair/replace the EPE Interconnection
                Facilities in accordance with the terms of this Agreement;
                provided, however, that, in exercising such access rights, EPE
                and the Operating Agent, as applicable, shall (a) not
                unreasonably disrupt or interfere with normal operations of
                Generator's business, (b) act in a manner consistent with Good
                Utility Practice, and (c) adhere to the safety rules and
                procedures established by Generator. Generator shall execute
                such documents as EPE and the Operating Agent, as applicable,
                may reasonably require to enable EPE or the Operating Agent, as
                applicable, to establish record evidence of such access rights.
                Such access rights shall remain in effect for so long as this
                Agreement is in effect.

        5.6.2   EPE shall furnish, at no cost to Generator, all access,
                easements or licenses to the Afton Switching Station property
                that are necessary for Generator and its Agents and
                subcontractors to design, procure, construct, install, test,
                operate, maintain and repair/replace Generator's Interconnection
                Facilities and EPE Interconnection Facilities, as applicable, in
                accordance with the terms of this Agreement. Such

--------------------------------------------------------------------------------
Interconnection Agreement between         -16-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                access rights for Generator's facilities located inside the
                Afton Switching Station shall be exercised by Generator only
                with supervision by EPE or the Operating Agent, as applicable.
                Generator shall provide EPE or the Operating Agent, as
                applicable, reasonable notice under the circumstances of any
                request for such supervised access to the Afton Switching
                Station, and EPE or Operating Agent, as applicable, and
                Generator shall mutually agree upon the date and time of such
                supervised access, such agreement not to be unreasonably
                withheld or delayed. In addition to the aforementioned
                requirement, in exercising such access rights, Generator shall
                (a) not unreasonably disrupt or interfere with normal operations
                of EPE or the Operating Agent, (b) act in a manner consistent
                with Good Utility Practice, and (c) adhere to the safety rules
                and procedures established by the Operating Agent and EPE. EPE
                or the Operating Agent, as applicable, shall execute such
                documents as Generator may reasonably require to enable it to
                establish record evidence of such access rights. Such access
                rights shall remain in effect for so long as this Agreement is
                in effect.

        5.6.3   Any Party or its subcontractors performing construction, or
                other work, on the property of the other Party shall be
                responsible for proper housekeeping during the period the work
                is being performed and proper clean-up of the property in a
                timely fashion after the work is completed.

5.7     Course and Completion of Construction.

        5.7.1   Generator shall promptly notify EPE in writing when the
                construction of Generator's Interconnection Facilities and the
                EPE Interconnection Facilities is complete. Likewise, EPE shall
                promptly notify Generator in writing when the construction of
                the Interconnection System Upgrades on the EPE Transmission
                System and the Protective Equipment on the EPE Transmission
                System is complete.

        5.7.2   Generator shall keep the Generator's Interconnection Facilities,
                the EPE Interconnection Facilities, and any real or personal
                property of EPE related to this interconnection project free and
                clear of all Generator, contractor, subcontractor, supplier or
                materialmen's liens, claims and encumbrances arising out of the
                construction of the Generator's Interconnection Facilities and
                the EPE Interconnection Facilities. Generator shall provide to
                EPE lien waivers from Generator and all such contractors,
                subcontractors, suppliers or materialmen before or upon
                completion of the Generator's Interconnection Facilities and the
                EPE Interconnection Facilities. In the event that any such lien
                arising out of the construction of the Generator's
                Interconnection Facilities and the EPE Interconnection
                Facilities shall nevertheless be filed or asserted against the
                real or personal property of EPE, Generator agrees to take all
                steps necessary and proper for the release and discharge of such
                liens in the manner allowed under New Mexico law. Generator
                shall indemnify and hold EPE harmless against any and all loss,
                claims, or suits (including costs and attorneys' fees), for any
                lien claims asserted or filed by any party on or against EPE's
                real or personal property relating to the

--------------------------------------------------------------------------------
Interconnection Agreement between         -17-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                construction of Generator's Interconnection Facilities and EPE
                Interconnection Facilities.

5.8     Timely Completion.

        5.8.1   Generator shall use Commercially Reasonable Efforts to design,
                procure, construct, install, and test Generator's
                Interconnection Facilities and EPE Interconnection Facilities in
                accordance with the schedule set forth in Appendix C, which
                schedule may be revised from time to time by mutual agreement of
                the Parties.

        5.8.2   EPE shall use Commercially Reasonable Efforts to design,
                procure, construct, install, and test the Interconnection System
                Upgrades on the EPE Transmission System and the Protective
                Equipment on the EPE Transmission System, in accordance with the
                schedule set forth in Appendix C, which schedule may be revised
                from time to time by mutual agreement of the Parties. EPE shall,
                at Generator's request and expense, take all appropriate actions
                to accelerate its work under this Agreement in order to meet the
                schedule set forth in Appendix C, provided that Generator
                authorizes such actions and the costs associated therewith in
                advance and pays such costs in accordance with the payment
                schedule mutually agreed upon by the Parties.

        5.8.3   If any of the Interconnection System Upgrades is not reasonably
                expected to be completed prior to the Commercial Operation Date
                of the Facility, Generator may, at its option, have operating
                studies performed at its expense to determine the maximum
                allowable output of the Facility, based upon the portion of the
                Interconnection System Upgrades that is expected to be completed
                prior to such Commercial Operation Date and, subject to EPE's
                standards and Good Utility Practice, Generator will be permitted
                to operate the Facility, provided such limited operation of the
                Facility does not adversely affect the safety and reliability of
                the Afton Switching Station or the EPE Transmission System.

5.9     Environmental Compliance and Procedures. The Parties shall comply with
        (a) all applicable Environmental Laws in meeting all their obligations
        under this Agreement; and (b) all local notification and response
        procedures required for all applicable environmental and safety matters
        which affect the ability of the Parties to meet their respective
        obligations under this Agreement.

5.10    Generator Modeling Data. Generator shall provide the Operating Agent and
        EPE with such final modeling data of the Facility and Interconnected
        Facilities that reflect final Facility unit data and settings of the
        generation protection and control equipment as is reasonably requested
        by the Operating Agent and EPE and is necessary for reliable operation
        of the Afton Switching Station and the EPE Transmission System,
        including (a) the turbine speed/load controls including the governor;
        and (b) the excitation system including the automatic voltage regulator,
        power system stabilizer, over-excitation controls and limits, and other
        controls and limits. Such modeling data is to be provided in the format
        of the computer programs utilized by the Operating Agent and EPE.
        Currently such programs are:

--------------------------------------------------------------------------------
Interconnection Agreement between         -18-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

        Powerflow-General Electric PSLF; Transient Stability-General Electric
        PSLF; Short Circuit-Aspen One Liner.

5.11    Equipment Requirements. All equipment shall be of utility grade that
        meets or exceeds the quality of the equipment as required by EPE. The
        trip energy source for the interconnection breaker shall be of a stored
        energy type (i.e., battery) that will be available under circumstances
        when the alternating current source is unavailable. Generator shall
        ensure that Generator's Interconnection Facilities comply with all
        applicable requirements of the National Electrical Safety Code, as
        amended from time to time, and/or any Applicable Laws and Regulations.

5.12    Required Diagrams. Generator shall maintain the following equipment at
        locations approved by the Operating Agent, which approval shall not be
        unreasonably withheld or denied: (a) a permanent and weatherproof
        one-line electrical diagram of the Facility located at the Facility
        site; and (b) a permanent and weatherproof map of the Facility showing
        the location of all major equipment. EPE shall maintain, at locations
        approved by Generator, which approval shall not be unreasonably withheld
        or denied, a permanent and weatherproof one-line diagram of the EPE
        Interconnection Facilities.

5.13    Required Personnel Information. No later than fifteen (15) Business Days
        after the Effective Date, Generator shall provide the Operating Agent
        the names and current telephone numbers of at least two (2) persons who
        are authorized to provide access to the Facility and who have authority
        to make decisions regarding the Facility, Generator's Interconnection
        Facilities, and Generator's operations. Generator shall keep the names
        and telephone listings current at all times during the term of this
        Agreement.

5.14    Use of Afton Switching Station by Third Parties.

        5.14.1  Except as may be required by Applicable Laws and Regulations, or
                as otherwise agreed to by the Parties, the Afton Switching
                Station shall be dedicated to the sole purpose of
                interconnecting the Facility to the EPE Transmission System and
                shall be used for no other purpose.

        5.14.2  If required by Applicable Laws and Regulations, or if the
                Parties mutually agree to allow one or more third parties to use
                Afton Switching Station, or any part thereof, and such use
                decreases the capacity of Afton Switching Station available to
                the Facility, or otherwise causes any detriment to the Facility
                or to Generator, or benefits any party (including EPE) other
                than Generator, then Generator and such third party (parties)
                shall negotiate in good faith to determine the appropriate
                compensation due to Generator as a result of such third party
                use and to determine the appropriate allocation of the annual
                carrying charges. EPE shall include a provision comparable to
                this Article 5.14.2 in its agreements with third party users
                providing for such third party users to participate in such
                negotiations. In any case, the Generator shall only be entitled
                to receive a reduction in charges under this Agreement equal to
                the amount of charges allocated to the third party user(s). If
                the

--------------------------------------------------------------------------------
Interconnection Agreement between         -19-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                issue of such compensation or allocation cannot be resolved
                through such negotiations, it shall be submitted to the FERC for
                resolution.

        5.14.3  If one or more third parties are to use Afton Switching Station
                in accordance with this Article 5.14 and the Operating Agent
                determines that, as a result, Good Utility Practice requires
                that modifications be made to the Interconnected Facilities, the
                Operating Agent must comply with notification and scheduling
                provisions of Article 5.15. In no event shall Generator be
                responsible for the costs of any such modifications.

        5.14.4  If it is determined by the FERC or any Governmental Authority
                that any costs associated with the design, engineering,
                construction, procurement, or installation of any of the EPE
                Interconnection Facilities or Interconnection System Upgrades
                paid for by Generator pursuant to this Agreement are not
                Generator's responsibility, EPE shall refund to Generator, no
                later than sixty (60) days after the determination by FERC or
                any Governmental Authority, that portion of the costs paid by
                Generator that are included in the transmission revenue
                requirement or were paid by Generator and that have not been
                reflected in credits, if any, against the cost of transmission
                service from the Facility, with interest at the Interest Rate.

5.15    Interconnected Facilities and Facility Additions, Modifications or
        Replacements.

        5.15.1  EPE Interconnection Facilities and EPE Transmission System.

                     (a)   Any additions to, modifications to, or
                           replacements of the EPE Interconnection
                           Facilities must be constructed and operated in
                           accordance with Good Utility Practice. If such
                           additions, modifications, or replacements made
                           after the Operation Date will likely cause a
                           material adverse effect on Generator's operation
                           of the Facility, the Operating Agent will,
                           except in cases of Emergency, provide a minimum
                           of thirty (30) days' advance written notice to
                           Generator prior to undertaking such additions,
                           modifications, or replacements. In the written
                           notice, the Operating Agent must advise
                           Generator when such additions, modifications or
                           replacements are expected to be made; the time
                           period expected to be required to complete such
                           additions, modifications or replacements; and
                           whether, if known, such additions, modifications
                           or replacements are expected to interrupt or
                           curtail the flow of electricity from the
                           Facility. The Parties shall mutually agree in
                           advance upon a schedule for such additions,
                           modifications or replacements, such agreement
                           not to be unreasonably withheld or delayed.

                     (b)   Unless required by Applicable Laws and
                           Regulations, Generator shall not be responsible
                           for the costs of any additions, modifications,
                           or replacements made to the EPE Transmission
                           System by EPE, in its sole discretion, after the
                           Operation Date in order to facilitate (a) the

--------------------------------------------------------------------------------
Interconnection Agreement between         -20-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                         interconnection of a third party or (b) the provision
                         of transmission service to or for a third party.
                         Generator shall, however, be responsible for all costs
                         of any additions, modifications, or replacements made
                         to the EPE Transmission System as a result of any
                         additions, modifications, or replacements made by
                         Generator to the Facility.

                    (c)  If any additions, modifications, or replacements to the
                         EPE Interconnection Facilities (other than those caused
                         by additions, modifications, or replacements made by
                         the Generator to the Facility) cause a material adverse
                         effect on the Generator's Interconnection Facilities or
                         the interconnection of the Facility (via Generator's
                         Interconnection Facilities) to the EPE Transmission
                         System at the Afton Switching Station, EPE shall be
                         responsible, at its sole cost and expense, for all
                         actions necessary to mitigate such effect on the
                         interconnection ("Mitigation Actions") and, if
                         necessary, to promptly and expeditiously re-establish
                         the connection of the Facility (via Generator's
                         Interconnection Facilities) with the EPE Transmission
                         System at the Afton Switching Station, in accordance
                         with Good Utility Practice and/or secure such services
                         as are necessary to deliver the capacity and energy to
                         the Interconnection Point in accordance with Good
                         Utility Practice ("Reconnection Activities"); provided,
                         however, that, if EPE is required by Applicable Laws
                         and Regulations or the RTO (if applicable) to undertake
                         such additions, modifications, or replacements, EPE
                         shall not be required to undertake any Mitigation
                         Action or Reconnection Activity.

     5.15.2 Generator's Interconnection Facilities and Facility. Except for
            changes deemed by the Operating Agent to be necessary to ensure the
            protection and safety of a Party's personnel and the safety and
            reliability of a Party's property, Generator shall not be required
            to make any modifications to the Facility or Generator's
            Interconnection Facilities unless such change is consistent with
            Good Utility Practice and required (i) as a result of a change in
            the Facility or (ii) as a result of a change on the EPE Transmission
            System which is required by Good Utility Practice. Generator shall
            not be responsible for the cost of any such modifications and the
            cost of operating and maintaining such modifications unless required
            by Applicable Laws and Regulations or such modifications are
            required as a result of a change in the Facility made by Generator.

                                   Article VI
                       ACCEPTANCE AND PERFORMANCE TESTING
                            AND COMPLIANCE MONITORING

6.1  Responsibility for Testing.

--------------------------------------------------------------------------------
Interconnection Agreement between        -21-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

     6.1.1  Prior to the Operation Date, Generator shall perform all testing of
            the Facility and Generator's Interconnection Facilities required by
            the RTO (if applicable), NERC and WSCC. EPE or the Operating Agent,
            as applicable, may require Generator to perform additional testing
            whenever EPE or the Operating Agent reasonably determines that such
            additional testing is required for reliability reasons. All testing
            shall be successfully completed before the Operation Date. Testing
            subsequent to the Operation Date shall be performed in compliance
            with the frequency requirements of NERC, WSCC, and the RTO (if
            applicable) and any other reliability requirements of any other
            organization/entity with responsibility for electricity and whose
            requirements Generator is obligated to follow. All such tests shall
            be performed to the specifications of NERC, WSCC, the RTO (if
            applicable), or any other specifications required by new or other
            reliability organizations with responsibility for electricity and
            whose requirements Generator is obligated to follow. Generator shall
            inform EPE or the Operating Agent, as applicable, in advance
            (whenever possible, a minimum of five (5) Business Days) when such
            tests are scheduled to occur, and EPE shall have the right to have
            representatives observe and monitor such tests. The cost of all such
            testing shall be borne by Generator.

     6.1.2  Prior to the Operation Date, EPE or the Operating Agent, as
            applicable, shall perform all testing of the EPE Interconnection
            Facilities and the Interconnection System Upgrades on the EPE
            Transmission System required by NERC, WSCC and the RTO (if
            applicable). All testing shall be successfully completed before the
            Operation Date. After the Operation Date, the Operating Agent and
            EPE shall test their facilities at their own expense (or, in the
            case of the Operating Agent, the EPE Interconnection Facilities at
            the expense of EPE) in accordance with Good Utility Practice.
            Generator shall have the right, upon five (5) Business Days' advance
            written notice to the Operating Agent or EPE to require additional
            testing of such entity's facilities, at Generator's expense, if
            Generator reasonably believes that such entity's facilities are
            causing a material adverse effect on the operation of the Facility
            or Generator's Interconnection Facilities, or as may be otherwise
            prudent in accordance with Good Utility Practice, and shall have the
            right to be present during such tests.

6.2  Responsibility for Modifications Following Testing. Based upon the
     pre-operational testing, Generator is responsible for making any
     modifications necessary to ensure the safe and reliable operation of
     Generator's Interconnection Facilities and the EPE Interconnection
     Facilities in accordance with Good Utility Practice; EPE is responsible for
     making any modifications necessary to ensure the safe and reliable
     operation of the Interconnection System Upgrades on the EPE Transmission
     System and the Protective Equipment on the EPE Transmission System, in
     accordance with Good Utility Practice. The costs of all such modifications
     are to be borne by Generator, except to the extent the modifications are
     required as a result of the sole negligence or willful misconduct of EPE,
     or any Agent of EPE.

--------------------------------------------------------------------------------
Interconnection Agreement between        -22-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

6.3  Documentation of Results to EPE or the Operating Agent. Generator shall
     provide EPE or the Operating Agent, as applicable, with necessary
     documentation of all test results for all tests performed pursuant to
     Article 6.1.1. The documentation shall be, at a minimum, that required to
     conform with any RTO, NERC or WSCC requirements.

6.4  Facility Certification. Generator shall comply with any facility
     certification requirements of NERC, WSCC, and the RTO (if applicable).

6.5  Transmission Service During Testing. Generator has sole responsibility to
     make necessary arrangements under the EPE OATT to procure any transmission
     service over the EPE Transmission System that may be required to
     accommodate the testing procedures of the Facility.

6.6  EPE Inspection Rights. EPE (which, for the purposes of this Article 6.6,
     shall be deemed to include the Operating Agent) shall have the right, but
     shall have no obligation or responsibility, to: (a) observe Generator's
     tests and/or inspection of any of Generator's Protective Equipment; (b)
     review the settings of Generator's Protective Equipment; and (c) review
     Generator's maintenance records relative to the Generator's Protective
     Equipment. EPE may exercise the foregoing rights from time to time as it
     deems necessary upon five (5) Business Days' written notice to Generator.
     However, the exercise or non-exercise by EPE of any of the foregoing rights
     of observation, review or inspection shall be construed neither as an
     endorsement or confirmation of any aspect, feature, element, or condition
     of the Facility or Generator's Protective Equipment or the operation
     thereof, nor as a warranty as to the fitness, safety, durability, or
     reliability of same.

6.7  Generator Inspection Rights. Generator, upon five (5) Business Days'
     advance written notice to the Operating Agent has the right, but not the
     obligation, to inspect or observe the operation and maintenance activities,
     equipment tests, installation, construction, or other modifications to the
     EPE Interconnection Facilities which could cause a material adverse effect
     on Generator's operations. However, the exercise or non-exercise by
     Generator of any of the foregoing rights of observation, review or
     inspection shall be construed neither as an endorsement or confirmation of
     any aspect, feature, element, or condition of the EPE Interconnection
     Facilities or the operation thereof, nor as a warranty as to the fitness,
     safety, durability, or reliability of same.

6.8  EPE's Reviews, Inspections, and Approvals. EPE's or Operating Agent's
     review, inspection, and approval, related to the Generator's
     Interconnection Facilities and EPE's Interconnection Facilities required
     under this Agreement shall not be unreasonably withheld or delayed, and
     will be limited to the purpose of ensuring the safety, reliability,
     protection and control of the Afton Switching Station and the EPE
     Transmission System.

                                  Article VII
                   INTERCONNECTION FACILITY COSTS AND BILLING

7.1  Interconnection Construction Completion and Cost.

--------------------------------------------------------------------------------
Interconnection Agreement between        -23-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

     7.1.1  Notification of Delay. If any event occurs that will materially
            affect the time for completion of the Interconnection System
            Upgrades on the EPE Transmission System or the Protective Equipment
            on the EPE Transmission System, or the ability to complete them, EPE
            shall, within five (5) Business Days of its knowledge of any such
            event, notify Generator. In such circumstances, EPE shall, within
            ten (10) Business Days of notifying Generator of such an event and
            corresponding delay, convene a technical meeting with Generator to
            evaluate the alternatives available to Generator. EPE also shall
            make available to Generator all studies and work papers related to
            the event and corresponding delay, including all information that is
            in EPE's possession that is reasonably needed by Generator to
            evaluate alternatives.

     7.1.2  Cost Estimate. While, pursuant to Article 5.4.5, EPE agrees to
            provide Generator with its best estimate of the cost required to
            construct and install the Interconnection System Upgrades and the
            Protective Equipment on the EPE Transmission System, as described in
            Appendix B, such estimate shall not be binding. Generator has the
            right to approve any deviation in the scope of the work shown in
            Appendix B if such deviation would result in an estimated increase
            of ten percent (10%) or more over the cost shown in Appendix B. The
            actual cost of the Interconnection System Upgrades and the
            Protective Equipment shall be incurred in accordance with Good
            Utility Practice.

     7.1.3  Audit of Cost. Generator shall have the right to receive such cost
            information as is reasonably necessary to verify the cost of the
            Interconnection System Upgrades and the Protective Equipment on the
            EPE Transmission System and EPE's activities associated with the EPE
            Interconnection Facilities and that such cost was incurred in
            accordance with Good Utility Practice. Generator shall have the
            right to audit (a) EPE's accounts and records pertaining to the
            Interconnection System Upgrades and the Protective Equipment on the
            EPE Transmission System and EPE's activities associated with the EPE
            Interconnection Facilities at the offices where such accounts and
            records are maintained, provided at least seven (7) Business Days'
            notice is given prior to any audit, and provided further that the
            audit shall be limited to those portions of such accounts and
            records that relate to services provided under this Agreement. Costs
            billed pursuant to this Agreement for the design, engineering,
            procurement of equipment, and construction of the Interconnection
            System Upgrades and the Protective Equipment on the EPE Transmission
            System and the review and approval of the EPE Interconnection
            Facilities shall be subject to audit for a period of one (1) year
            following issuance of a final cost invoice in accordance with
            Article 7.2.2. All other costs billed pursuant to this Agreement
            shall be subject to audit for a period of one (1) year after the
            date the bill was rendered. EPE shall keep records and data related
            to all costs billed under this Agreement for a period equivalent to
            the audit periods described in this Article 7.1.3.

7.2  Invoices and Payments.

--------------------------------------------------------------------------------
Interconnection Agreement between        -24-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

     7.2.1  Monthly Statements. EPE shall render to Generator monthly statements
            for EPE's costs for review and approval activities for the EPE
            Interconnection Facilities, and EPE's costs for the Interconnection
            System Upgrades on the EPE Transmission System and the Protective
            Equipment on the EPE Transmission System by certified mail,
            facsimile or other acceptable means conforming to the provisions of
            Article 30.9. Such statements shall set forth in reasonable detail
            any costs incurred by or on behalf of EPE or other charges or
            amounts payable by Generator under the terms of this Agreement for
            the period covered thereby in connection with the EPE
            Interconnection Facilities, the Protective Equipment, and
            Interconnection System Upgrades. Generator shall make payment of the
            amount shown to be due to EPE by wire transfer to an account
            specified by EPE not later than the thirtieth (30th) day after
            receipt of the statement, unless such day is not a Business Day, in
            which case Generator shall make payment on the next Business Day.
            All such payments shall be deemed to be made when said wire transfer
            is received by EPE. Overdue payments shall accrue interest daily at
            the then-current Interest Rate from the due date of such unpaid
            amount until the date paid.

     7.2.2  Invoice of Final Cost. Within nine (9) months after completion of
            the construction of the EPE Interconnection Facilities,
            Interconnection System Upgrades on the EPE Transmission System, and
            the Protective Equipment on the EPE Transmission System, EPE shall
            provide an invoice of the final costs associated with EPE's review
            and approval of the EPE Interconnection Facilities and final costs
            of the Interconnection System Upgrades and the Protective Equipment
            on the EPE Transmission System and the net amount due, if any, from
            Generator allowing for any payments made by Generator pursuant to
            this Agreement. The final cost invoice shall set forth in reasonable
            detail the actual costs incurred by or on behalf of EPE in
            reviewing, approving, designing, procuring, constructing, installing
            and testing the EPE Interconnection Facilities, the Protective
            Equipment, and Interconnection System Upgrades, and shall set forth
            such costs in sufficient detail to enable Generator to compare the
            actual costs with the estimates and to ascertain deviations, if any,
            from the cost estimates. Generator shall reimburse EPE for the
            amount of such invoice within thirty (30) days after receipt of such
            invoice, unless such day is not a Business Day, in which case
            Generator shall make payment on the next Business Day. To the extent
            that the estimated costs for the Interconnection System Upgrades and
            the Protective Equipment on the EPE Transmission System already paid
            by Generator exceed the final, actual costs that Generator is
            obligated to pay hereunder for Interconnection System Upgrades and
            the Protective Equipment on the EPE Transmission System, EPE shall
            refund to Generator an amount equal to the difference within thirty
            (30) days of the issuance of the invoice of the final cost.

     7.2.3  Failure of Payment. In the event Generator fails, for any reason
            other than a billing dispute as described below, to make payment to
            EPE on or before the due date as described above, an event of breach
            by Generator shall be deemed to exist under Article 22.2(a). In the
            event of a billing dispute between EPE and Generator, EPE shall
            continue to perform its responsibilities under this Agreement and
            Generator

--------------------------------------------------------------------------------
Interconnection Agreement between        -25-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                shall not be deemed to have committed an event of breach under
                Article 22.2(a), as long as Generator (a) continues to make all
                payments not in dispute, and (b) upon request of EPE, pays into
                an independent escrow account the portion of the invoice in
                dispute, pending resolution of such dispute.

        7.2.4   Billing Disputes. Generator may, in good faith, challenge the
                correctness of any bill rendered under this Agreement for the
                design, engineering, procurement, and construction of the
                Interconnection System Upgrades and the Protective Equipment on
                the EPE Transmission System and for the review and approval of
                the EPE Interconnection Facilities no later than one (1) year
                following the issuance of a final cost invoice in accordance
                with Article 7.2.2. Generator may, in good faith, challenge the
                correctness of any other bill rendered under this Agreement no
                later than one (1) year after the date the bill was rendered. In
                the event that Generator challenges a bill or a portion prior to
                date on which payment is due for such bill, Generator shall
                nonetheless pay the portion of the bill that is not disputed
                when due, with notice given to the entity that rendered the bill
                at that time. Any challenge to a bill shall be in writing and
                shall state the specific basis for such challenge. If it is
                subsequently agreed or determined under Article XXIX that an
                adjustment is appropriate, such adjustment shall be made in
                accordance with Article 7.3.

7.3     Adjustments. In the event adjustments or corrections to monthly
        statements are required as a result of errors in computation or billing,
        the entity that rendered the monthly statement shall promptly recompute
        amounts due hereunder and otherwise correct any errors in such
        statements. If the total amount, as recomputed, due from Generator is
        less than the total amount due as previously computed, and payment of
        the previously computed amount has been made to EPE, EPE shall pay the
        difference to Generator within thirty (30) days after correction of the
        erroneous invoice(s), together with interest at the Interest Rate. If
        the total amount, as recomputed, due from Generator is more than the
        total amount due as previously computed, and payment of the previously
        computed amount has been made to EPE, EPE shall invoice the difference
        to Generator according to the terms of Article 7.2; provided, however,
        that no adjustment for any statement or payment will be made unless
        objection to the accuracy thereof was made within the time frames
        described in Article 7.2.4; and provided further that this Article 7.3
        will survive any termination of the Agreement for a period of one (1)
        year from the date of such termination for the purpose of such statement
        and payment objections.

7.4     Payment Not a Waiver. Payment of invoices by Generator shall not
        constitute a waiver of any rights or claims Generator may have under
        this Agreement.

7.5     Income Taxes. Generator shall be solely responsible for and shall
        indemnify and hold harmless EPE from any income taxes imposed upon EPE
        with respect to any payments or asset transfers by Generator to EPE,
        including any related payment for income taxes (or loss of tax benefits)
        by EPE based on Generator's tax payment (gross up), or any payment or
        contribution of property made by Generator for any upgrade,
        modification, addition or other capital improvement, not owned by
        Generator but required by Generator's interconnection

--------------------------------------------------------------------------------
Interconnection Agreement between        -26-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

        at Afton Switching Station or any of EPE's related facilities. EPE shall
        bill Generator for and Generator shall pay such taxes pursuant to
        Article 7.2.1 herein. For purposes of this Article 7.5, Generator's
        liability under this Article 7.5 shall be calculated on a fully
        grossed-up basis by taking into account EPE's Federal and state
        composite tax rate at the time of the payments or property transfers
        based on the highest marginal rates in effect at that time, and the
        present value of all tax depreciation deductions to which EPE is
        entitled over the life of the capital improvements and/or assets
        acquired from such contributions by Generator, based on a discount rate
        of 8.00%.

        To the extent that any legislative change or other administrative
        ruling, decision, announcement, notice, or clarification by the IRS or
        other Governmental Authority subsequent to the Effective Date makes it
        reasonably clear that EPE, determined in EPE's reasonable discretion, is
        not responsible for any portion of the taxes referenced above for the
        tax years in issue, EPE shall promptly refund to Generator any amounts
        paid by Generator pursuant to this Article 7.5, with respect to any
        payment or transfer which is determined to be non-taxable taking into
        consideration a proportionate allocation of EPE's depreciation
        deductions. As a condition of such reimbursement, Generator shall
        provide EPE, if EPE so requests, a written notice with a detailed
        explanation of such changes and an opinion from a nationally recognized
        tax consultant. EPE shall not be required to refund interest on any
        amounts reimbursed to Generator hereof.

        If Generator requests a refund of any amounts paid to EPE under this
        Section 7.5, then EPE shall have the right to file with the IRS a
        request for a private letter ruling at the Generator's sole cost and
        expense prior to refunding any amounts. Generator shall reasonably
        cooperate with EPE in filing and pursuing such request for a private
        letter ruling. In addition, Generator shall indemnify EPE for any breach
        of representations in the request for a private letter ruling and for
        any amounts refunded by EPE to Generator, which are later determined to
        be taxable to EPE under this Section 7.5.

        EPE's tax reimbursement obligation herein shall terminate at the
        expiration of the applicable Federal or state statute of limitations,
        including any extensions thereof if made, for the taxable year that
        includes the date of the last payment made by Generator under this
        Article 7.5 of this Agreement.

        For purposes of this Section 7.5, all references to the IRS shall
        include applicable state revenue authorities applicable to EPE.

                                  Article VIII
                                   OPERATIONS

8.1     General. With respect to their performance under this Agreement, the
        Operating Agent, EPE, and Generator shall comply with all applicable
        manuals, standards, and guidelines of NERC, WSCC, RTO (if applicable),
        or any successor agency.

8.2     Obligations of Operating Agent. Operating Agent shall operate and
        control the EPE Transmission System, including the EPE Interconnection
        Facilities, (a) in a safe and reliable

--------------------------------------------------------------------------------
Interconnection Agreement between        -27-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

        manner, (b) in accordance with Good Utility Practice, and (c) in
        accordance with the terms and conditions of this Agreement. In the event
        of any conflict between the terms and conditions of this Agreement and
        applicable planning, operational, and/or reliability criteria,
        protocols, and directives of the RTO (if applicable), NERC and WSCC, the
        applicable planning, operational, and/or reliability criteria,
        protocols, and directives of the RTO (if applicable), NERC and WSCC
        shall govern.

8.3     Obligations of Generator.

        8.3.1   Synchronization. Generator shall assume all responsibility and
                cost for properly synchronizing the Facility for operation with
                the EPE Transmission System. Synchronizing of generation will be
                coordinated with the Operating Agent's SOCC.

        8.3.2   Operation and Control. Generator shall operate and control the
                Facility and Generator's Interconnection Facilities (a) in a
                safe and reliable manner, (b) in accordance with Good Utility
                Practice, and (c) in accordance with the terms and conditions of
                this Agreement. In the event of any conflict between the terms
                and conditions of this Agreement and applicable planning,
                operational, and/or reliability criteria, protocols, and
                directives of the RTO (if applicable), NERC and WSCC, the
                applicable planning, operational, and/or reliability criteria,
                protocols, and directives of the RTO (if applicable), NERC and
                WSCC shall govern.

        8.3.3   Control Area Requirements. Nothing in this Agreement should be
                construed as creating any obligation that Generator operate the
                Facility as part of the EPE Control Area. If the Facility is not
                operated as part of the EPE Control Area, in no event shall this
                Agreement prohibit, prevent, or otherwise limit the ability of
                Generator to operate the Facility in accordance with the
                requirements of the control area of which it is part, and the
                Parties shall negotiate in good faith to amend this Agreement as
                necessary or appropriate.

8.4     Reliability Criteria

        8.4.1   Power System Stabilizers (PSS). Generator shall install and
                operate PSS on generators in accordance with the WSCC criteria,
                the RMS criteria and any other requirement that the Operating
                Agent is obligated to follow.

        8.4.2   Automatic Voltage Regulation (AVR). Generator shall install and
                operate AVR in accordance with all requirements of WSCC, the RMS
                criteria and any other requirement that the Operating Agent is
                obligated to follow. Each interconnected unit shall have AVR and
                such AVR shall be tuned in accordance with Institute of
                Electronics and Electrical Engineers ("IEEE") standard 421 or
                its successor. Voltage regulator controls and limit functions
                (such as over- and under-excitation and volts/hertz limiters)
                shall coordinate with the Facility's generator's short duration
                capabilities and protective relays. AVRs must be continuously
                acting solid state analog or digital. Tuning shall be in
                accordance with the WSCC criteria and

--------------------------------------------------------------------------------
Interconnection Agreement between        -28-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                standards. Tuning results shall be included in commissioning
                test reports provided to the Operating Agent or EPE, as
                applicable.

        8.4.3   Governors. Generator shall operate all governors in accordance
                with requirements of NERC and the WSCC, including any
                requirements for Governor Droop settings. To provide equitable
                and coordinated system response to load/generation imbalances,
                governors shall not be blocked or operated with excessive
                dead-bands.

8.5     Quality of Power. Generator shall ensure that the Facility's quality of
        power at the Interconnected Facilities adheres to the standards set by
        NERC, WSCC, the RTO (if applicable) and the American National Standards
        Institute ("ANSI"). In turn, the Operating Agent shall ensure that
        quality of power at the Interconnected Facilities adheres to the
        standards set by NERC, WSCC, the RTO (if applicable) and ANSI. To the
        extent that the Operating Agent determines that the Afton Switching
        Station is adversely affected by flicker or harmonic distortion caused
        by Generator, or EPE determines that the EPE Transmission System is
        adversely affected by flicker or harmonic distortion caused by
        Generator, Generator shall take the necessary actions to resolve the
        problem promptly upon notice from the Operating Agent or EPE. If such
        actions taken by Generator do not resolve the problem, the Operating
        Agent shall notify Generator of the continuing problem and may curtail,
        interrupt or reduce deliveries of electricity, or disconnect the
        Facility from the EPE Transmission System at the Afton Switching
        Station, in accordance with Good Utility Practice until the problem is
        resolved to the satisfaction of the Operating Agent or EPE, as the case
        may be.

8.6     Protection and System Quality.

        8.6.1   Facilities. Generator shall, at its expense, install, maintain,
                and operate Protective Equipment at the Facility, including such
                protective and regulating devices as are required by the RTO (if
                applicable), NERC, WSCC, or by order, rule or regulation of any
                Governmental Authority or as are otherwise necessary to protect
                personnel and equipment and to minimize adverse effects to the
                Afton Switching Station and EPE's electric system arising from
                the Facility. Any such Protective Equipment that may be required
                at the Afton Switching Station or the EPE Transmission System in
                connection with the operation of the Facility and in accordance
                with Good Utility Practice shall be installed by EPE at
                Generator's expense.

        8.6.2   Protective Equipment. Generator agrees that Protective Equipment
                must be installed to:

                     (a)   ensure safety of the general public, and personnel
                           of EPE (including in its capacity as Operating
                           Agent), and Generator;

                     (b)   minimize damage to the Afton Switching Station
                           property and to the property of the general public,
                           EPE and its customers;

--------------------------------------------------------------------------------
Interconnection Agreement between        -29-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                     (c)   minimize adverse operating conditions at the Afton
                           Switching Station and on the EPE Transmission System;
                           and

                     (d)   permit Generator to operate the Facility in parallel
                           with the EPE Transmission System in a safe and
                           efficient manner.

                The necessary Protective Equipment will be installed in
                accordance with Articles 5.3.2 and 5.4.3.

8.7     Adjustments. The Operating Agent may require Generator to adjust the
        real power output or reactive power from the Facility only for purposes
        of Emergency or Abnormal Conditions. The Operating Agent may not, unless
        the Generator and Operating Agent agree in writing, require Generator to
        make such adjustments based on economic considerations.

8.8     Switching and Tagging Procedures.

        8.8.1   Compliance with Procedures. The Parties shall abide by the
                Operating Agent's switching and tagging rules as the Operating
                Agent may modify them from time to time with respect to
                activities at the Interconnected Facilities, including the Afton
                Switching Station, and mutually agreed to activities within the
                Facility. The Operating Agent shall notify Generator in advance
                of the Operating Agent's switching and tagging rules and any
                amendments thereto. Generator shall ensure its personnel are
                trained and knowledgeable regarding the Operating Agent's
                switching and tagging rules and grounding and isolation
                procedures.

        8.8.2   Reclosing. Generator acknowledges that following an electric
                disturbance, certain equipment at the Afton Switching Station
                may reclose in accordance with Good Utility Practice. The
                Operating Agent will provide Generator notice, as far in advance
                of implementation as is reasonably practical, of the reclosing
                practices of the EPE Interconnection Facilities including the
                Afton Switching Station. The Operating Agent shall provide
                Generator all data needed to study the effect of proposed
                changes to such reclosing practices and allow a reasonable time
                period, not to exceed 120 calendar days, for modification of
                Generator's Protective Equipment if necessary. To the extent
                practicable, Operating Agent will cooperate with Generator to
                establish or modify the reclosing angle settings of the
                Operating Agent's reclosing operations to minimize the impact
                such operations will have on the Afton Switching Station, the
                EPE Transmission System and the Facility.

                Generator shall have sole responsibility for protecting the
                Facility, Generator's Interconnection Facilities and related
                equipment from any damage resulting from such reclosure. To the
                extent not prohibited by Applicable Laws and Regulations,
                Generator hereby indemnifies and agrees to hold harmless EPE,
                the Operating Agent, and their Agents for, against and from any
                and all losses, damages, costs and expenses caused by, resulting
                from or arising out of (a) any damage to the Facility,
                Generator's Interconnection Facilities or related equipment to
                the extent caused by, resulting from, or arising out of any such
                reclosure and (b) death of or injury to any

--------------------------------------------------------------------------------
Interconnection Agreement between        -30-                  EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

          person to the extent caused by, resulting from, or arising out of any
          impact or effect of such reclosure upon the Facility, Generator's
          Interconnection Facilities, and/or any related equipment.

          If, for any reason, the Facility is disconnected from the EPE
          Transmission System at the Afton Switching Station (by electric
          disturbance, line switching, or otherwise), Operating Agent shall
          cause the switching device connecting the Facility to the EPE
          Transmission System at the Afton Switching Station to become and
          remain open and not reclose until the Operating Agent approves the
          reclosure.

8.9  General Orders. Each Party shall comply with the Operating Agent's General
     Orders, in existence on the Effective Date and as may be modified from time
     to time, in the operation of the Interconnected Facilities and the
     Facility. The Operating Agent shall provide a written copy of its General
     Orders upon request of Generator and thereafter notify Generator of any
     modifications in the Operating Agent's General Orders at least ten (10)
     days prior to the effective date of any such modifications.

8.10 Generation Alert. The Operating Agent shall issue generation alerts when it
     determines that the loss of a generating unit may create a system
     disturbance. When advised by the Operating Agent, Generator shall exercise
     Due Diligence to suspend non-essential maintenance and operational
     activities that could lead to the loss of the Facility during the alerts.

                                   Article IX

                          RELIABILITY MANAGEMENT SYSTEM

9.1  Purpose. In order to maintain the reliable operation of the transmission
     grid, the WSCC Reliability Criteria Agreement sets forth reliability
     criteria adopted by the WSCC with which Generator and EPE shall comply.

9.2  Compliance. Generator shall comply with the requirements of the WSCC
     Reliability Criteria Agreement, including the applicable WSCC reliability
     criteria set forth in Section IV of Annex A thereof, and, in the event of
     failure to comply, agrees to be subject to the sanctions applicable to such
     failure. Such sanctions shall be assessed pursuant to the procedures
     contained in the WSCC Reliability Criteria Agreement.

9.3  Participant Status. Each of the pertinent provisions of the WSCC
     Reliability Criteria Agreement is hereby incorporated by reference into
     this Article IX as though fully set forth herein, and Generator shall for
     all purposes be considered a "Participant," as defined in the WSCC
     Reliability Agreement, and shall be entitled to all of the rights and
     privileges and subject to all of the obligations of a Participant under and
     in connection with the WSCC Reliability Criteria Agreement, including the
     rights, privileges, and obligations set forth in Sections 5, 6, and 10 of
     the WSCC Reliability Criteria Agreement.

--------------------------------------------------------------------------------
Interconnection Agreement between             -31-             EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

9.4  Payment of Sanctions. Generator shall be responsible for reimbursing EPE
     for any monetary sanctions assessed against EPE, to the extent determined
     to be attributable to the action or inaction of Generator, by WSCC pursuant
     to the WSCC Reliability Criteria Agreement. Generator shall also be
     responsible for payment of any monetary sanction assessed against Generator
     by WSCC pursuant to the WSCC Reliability Criteria Agreement.

9.5  Transfer of Control or Sale of Facility. In any sale or transfer of control
     of the Facility or any portion thereof, Generator shall, as a condition of
     such sale or transfer of control, require the acquiring party or transferee
     with respect to the transferred Facility either to assume the obligations
     of the Generator with respect to this Agreement or to enter into an
     agreement with EPE imposing on the acquiring party or transferee the same
     obligations applicable to Generator pursuant to this Article IX.

9.6  Failure to Comply with RMS. In the event Generator fails to comply with the
     requirements of the WSCC Reliability Criteria Agreement incorporated herein
     and, in the opinion of EPE, endangers the safety or reliability of the
     Afton Switching Station, or the EPE Transmission System, EPE shall have the
     right, subject to any necessary regulatory approval, to direct the
     Operating Agent to disconnect the Facility from the EPE Transmission System
     at the Afton Switching Station, and EPE and the Operating Agent shall have
     no liability for any damages incurred by Generator or the Facility as a
     result of such disconnection. Prior to any proposed disconnection, the
     Operating Committee shall meet and the Operating Agent shall advise the
     members of the Operating Committee regarding the reasons for the proposed
     disconnection.

9.7  Publication. Generator consents to the release by the WSCC of information
     related to Generator's compliance with this Agreement only in accordance
     with the WSCC Reliability Criteria Agreement.

9.8  Third Parties. Except for the rights and obligations between the WSCC and
     Generator specified in this Article IX, this Article IX creates contractual
     rights and obligations solely between the Parties. Nothing in this Article
     IX shall create, as between the Parties or with respect to the WSCC: (a)
     any obligation or liability whatsoever (other than as expressly provided in
     this Article IX) or (b) any duty or standard of care whatsoever. In
     addition, nothing in this Article IX shall create any duty, liability, or
     standard of care whatsoever as to any other party. Except for the rights,
     as a third-party beneficiary under this Article IX of the WSCC against
     Generator, no third party shall have any rights whatsoever with respect to
     enforcement of any provision of this Article IX. The Parties expressly
     intend that the WSCC is a third-party beneficiary to this Article IX and
     the WSCC shall have the right to seek to enforce against Generator any
     provision of this Article IX, provided that specific performance shall be
     the sole remedy available to the WSCC pursuant to Article IX and Generator
     shall not be liable to the WSCC pursuant to this Article IX for damages of
     any kind whatsoever (other than the payment of sanctions to the WSCC, if so
     construed), whether direct, compensatory, special, indirect, consequential,
     or punitive.

--------------------------------------------------------------------------------
Interconnection Agreement between             -32-             EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

9.9  Reserved Rights. Nothing in the RMS or the WSCC Reliability Criteria
     Agreement shall limit the right of EPE, subject to any necessary regulatory
     approvals, to take such other actions to maintain reliability, subject to
     any necessary regulatory approval, including disconnection, which EPE may
     otherwise be entitled to take.

9.10 Termination. The Generator may terminate its obligations pursuant to this
     Article IX: (a) if after the effective date of this Agreement, the
     requirements of the WSCC Reliability Criteria Agreement applicable to
     Generator are amended so as to adversely affect the Generator, provided
     that Generator gives fifteen (15) days' notice of such termination to EPE
     and the WSCC within forty-five (45) days of the date of issuance of a FERC
     order accepting such amendment for filing, provided further that the
     forty-five (45) day period within which notice of termination is required
     may be extended by the Generator for an additional forty-five (45) days if
     the Generator gives written notice to EPE of such requested extension
     within the initial forty-five (45) day period; or (b) for any reason on one
     (1) year's written notice to EPE and the WSCC.

9.11 Mutual Agreement. This Article IX may be terminated at any time by mutual
     agreement of Generator and EPE.

9.12 Severability. If one or more provisions of this Article IX shall be
     invalid, illegal or unenforceable in any respect, it shall be given effect
     to the extent permitted by Applicable Laws and Regulations, and such
     invalidity, illegality or unenforceability shall not affect the validity of
     the other provisions of this Article IX.

                                   Article X
                                 REACTIVE POWER

10.1 Obligation to Supply Reactive Power. Generator shall supply reactive power
     to the transmission grid in accordance with Good Utility Practice, and
     shall respond to requests from the Operating Agent to increase or decrease
     generator output voltage in a manner consistent with Generator's obligation
     to operate the Facility, provided such requests are consistent with Good
     Utility Practice and are made in order to maintain reactive area support.
     The Facility shall operate in accordance with the reactive power
     requirements as set forth in this Agreement; provided, however, that such
     amount shall not exceed the amount available from the Facility's equipment
     in service.

10.2 Compensation. The Operating Agent shall compensate Generator for generating
     or absorbing reactive power at the specific request of the Operating Agent
     outside the power factor design limitation minimum requirement specified in
     Article 10.3.1. The Operating Agent shall also compensate Generator for
     start-up costs and real power costs if reactive support is requested by the
     Operating Agent when the Facility is off-line. Such compensation shall be
     in accordance with any applicable FERC tariff or rate schedule filed by
     Generator and accepted for filing by FERC. The Operating Agent and EPE
     reserve the right to oppose any tariff or rate schedule filed by Generator
     with FERC.

10.3 Reactive Power Standards.

--------------------------------------------------------------------------------
Interconnection Agreement between             -33-            EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

     10.3.1    Composite Power Delivery. The Facility power factor design
               limitation minimum requirement shall be a reactive power
               capability sufficient to provide a composite power delivery at
               the Interconnection Point at a power factor between 95% lagging
               and 95% leading. Under normal real-time operating conditions,
               Generator shall operate the Facility to maintain a voltage
               schedule at the Interconnection Point as prescribed by the
               Operating Agent within the Facility's power factor design
               limitation minimum requirement, provided such schedule is
               consistent with Good Utility Practice, and necessary to maintain
               reactive support on the transmission grid. In the event that the
               voltage schedule at the Interconnection Point cannot be or is not
               maintained within such requirement, the Operating Agent may
               request that the Facility be operated (within the design
               limitations of the equipment in service at that time) up to the
               maximum available reactive power output (measured in mega-volt
               ampere reactance ("MVAR")) in order to achieve the prescribed
               voltage schedule; provided, however, that the Operating Agent has
               equitably coordinated such requests with other generating
               facilities and other reactive power compensation resources in the
               affected area in order to achieve the prescribed voltage
               schedule. Generator shall promptly comply with all such requests
               made by the Operating Agent and shall be compensated as provided
               for in Article 10.2.

     10.3.2    Compliance. In the event that under normal transmission system
               operating conditions, the Facility is unable to consistently
               maintain a reactive power capability within the power factor
               design limitation minimum requirement, Generator shall take
               appropriate actions to comply with such standards, including, if
               necessary, the installation of static and/or dynamic reactive
               power compensating devices.

     10.3.3    Records. Records of requests made to Generator by the Operating
               Agent, and records indicating actual responses to such requests,
               shall be maintained by the Operating Agent and subject to a third
               party independent audit at Generator's request and expense. Any
               request for an audit by Generator shall be made in accordance
               with the second sentence of Article 7.1.3.

10.4 Failure to Supply Reactive Power. To the extent that Generator fails to
     operate the Facility in accordance with this Article X and Generator has
     not taken any action pursuant to Article 10.3.2, the Operating Agent may,
     after three (3) days' notice to Generator, take any necessary actions to
     remedy Generator's default, at Generator's expense, including requiring the
     installation of capacitor banks or other reactive compensation equipment
     required to ensure the proper voltage or reactive power supply at the
     Facility.

                                   Article XI
                   OUTAGES, INTERRUPTIONS, AND DISCONNECTIONS

11.1 Outage Scheduling. On or before January 1st of each year, or such other
     date mutually acceptable to the Operating Agent and Generator, each of the
     foregoing shall, subject to Article 3.7, provide to the other a non-binding
     preliminary maintenance schedule for the upcoming calendar year for the EPE
     Interconnection Facilities, including the Afton Switching Station, and
     Facility. The Operating Agent and Generator shall, subject to

--------------------------------------------------------------------------------
Interconnection Agreement between             -34-            EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

     Article 3.7, each provide the other with timely non-binding updates to such
     schedules to reflect any significant changes.

11.2 Scheduled Maintenance and Coordination. To the extent practicable, the
     Operating Agent shall schedule any testing, shutdown, or withdrawal of the
     EPE Interconnection Facilities, including the Afton Switching Station, to
     coincide with Generator's scheduled outages or, if not possible, during
     times acceptable to the Generator. The Operating Agent shall, subject to
     Article 3.7, notify Generator in advance of any such testing, shutdown, or
     withdrawal of facilities and the schedule for maintenance as well as any
     changes in the schedule. The Operating Agent shall restore the EPE
     Interconnection Facilities, including the Afton Switching Station, to
     service as quickly as possible in accordance with Good Utility Practice.

11.3 Other Maintenance and Coordination.

     11.3.1    To the extent that Generator desires EPE or the Operating Agent
               to perform maintenance during a time period other than a
               scheduled outage, EPE and the Operating Agent shall use
               Commercially Reasonable Efforts to meet Generator's request;
               provided, however, that such maintenance will not have a material
               adverse economic impact upon EPE or the customers of the EPE
               Transmission System. If EPE determines, in the exercise of its
               reasonable judgment, that Generator's request would have a
               material adverse economic impact upon EPE or the customers of the
               EPE Transmission System, but Generator is willing to reimburse
               EPE for any costs incurred by it, EPE shall use Commercially
               Reasonable Efforts to comply with Generator's request.

     11.3.2    The Operating Agent agrees to perform any maintenance upon the
               Interconnected Facilities requested by Generator, provided that
               such maintenance is consistent with Good Utility Practice. The
               Operating Agent will notify Generator in advance of undertaking
               such maintenance as to the work expected to be done and an
               estimate of the expected cost. Generator reserves the right to
               withdraw such request any time prior to the commencement of such
               maintenance, provided Generator shall pay all costs resulting
               from the scheduling and cancellation of such maintenance,
               including penalties and non-refundable expenses.

11.4 Unplanned Outages. In the event of an unplanned outage of a Party's
     facility (including the Facility) that adversely affects the other Party's
     facilities, the Party that owns or controls the facility that is out of
     service shall use Commercially Reasonable Efforts to promptly restore that
     facility to service in accordance with Good Utility Practice and, subject
     to Article 3.7, to promptly notify the other Party as to the expected
     duration of the unplanned outage and, to the extent known, the reason
     therefor.

11.5 Disconnection.

     11.5.1 Disconnection during Underfrequency Load Shed Event. The Parties
            shall at all times comply with NERC, WSCC, and RTO (if applicable)
            requirements. NERC

--------------------------------------------------------------------------------
Interconnection Agreement between             -35-             EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

               planning criteria require the interconnected WSCC Grid frequency
               be maintained between 59.95 Hz and 60.05 Hz. WSCC has an
               off-nominal frequency program to which the EPE Transmission
               System adheres and all generators must also comply. In the event
               of an underfrequency system disturbance, the EPE Transmission
               System is designed to automatically activate a multi-tiered load
               shed program. Generator shall coordinate underfrequency relay set
               points for the Facility as determined by the Operating Committee,
               consistent with WSCC criteria.

     11.5.2    Disconnection after Agreement Terminates. Upon termination of
               this Agreement, the Operating Agent shall disconnect the Facility
               from the EPE Transmission System at the Afton Switching Station
               in accordance with the disconnection plan adopted pursuant to
               Article 23.4.

11.6 Continuity of Service. Notwithstanding any other provision of this
     Agreement, the Operating Agent shall not be obligated to accept, and the
     Operating Agent may require Generator to curtail, interrupt or reduce,
     delivery of energy if such delivery of energy impairs EPE's ability to
     construct, install, repair, replace or remove any of its equipment or any
     part of its system in a safe and reliable manner or if the Operating Agent
     determines that curtailment, interruption or reduction is necessary to
     prevent, mitigate, or remedy an Emergency or for any reason otherwise
     permitted by Applicable Laws and Regulations. The Parties shall coordinate,
     and if necessary negotiate in good faith, the timing of such curtailments,
     interruptions, or reductions with respect to maintenance, investigation or
     inspection of any of EPE's equipment or system consistent with the terms
     and conditions of this Agreement. Except in case of Emergency, in order not
     to interfere unreasonably with Generator's operations, the Operating Agent
     shall give Generator reasonable prior notice of any proposed curtailment,
     interruption or reduction, the reason(s) for its occurrence, and, if it is
     known, its expected duration. With respect to any curtailment, interruption
     or reduction permitted under this Article 11.6, the Operating Agent agrees
     that: (a) the curtailment, interruption, or reduction shall continue only
     for so long as reasonably necessary under Good Utility Practice; (b) when
     the curtailment, interruption, or reduction must be made under
     circumstances which do not allow for advance notice, the Operating Agent
     will notify Generator by telephone as soon as practicable of the reasons
     for the curtailment, interruption, or reduction and, if known, its expected
     duration; and c) Operating Agent will compensate Generator, except for
     reductions, interruptions or curtailments under the applicable OATT,
     pursuant to mutually agreed terms or pursuant to any applicable
     FERC-accepted tariff or rate schedule filed by Generator.

                                  Article XII
                   EMERGENCY AND ABNORMAL CONDITION PROCEDURES

12.1 Emergency. During an Emergency as declared by the Operating Agent, in its
     sole discretion and consistent with Good Utility Practice, or the Security
     Coordinator as appointed by WSCC for the Operating Agent's region, the
     Operating Agent has the sole discretion to direct Generator to increase or
     decrease real power production (measured in MW) and/or reactive power
     production (measured in MVAR), within the design and

--------------------------------------------------------------------------------
Interconnection Agreement between         -36-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

     operational limitations of the Facility equipment in service at the time.
     The Operating Agent shall have sole discretion, exercised in accordance
     with Good Utility Practice, to determine that: (a) the transmission grid
     security is threatened, and (b) any generator(s) connected to the
     transmission grid must increase or decrease real power and/or reactive
     power production. Generator shall follow the Operating Agent's orders and
     directives concerning Facility real power and/or reactive power output
     within the design limitations of the Facility's equipment in service at the
     time. The Operating Agent shall restore the transmission system conditions
     to normal as quickly as possible to alleviate any such Emergency. The
     Operating Agent shall reasonably allocate the responsibility to provide
     real power and/or reactive power support to the transmission system during
     an Emergency on an equitable, non-discriminatory basis with respect to all
     generating units and other reactive compensation resources available to the
     Operating Agent. The Operating Agent, or any other Party as applicable,
     will compensate Generator, for a change in real power output in compliance
     with Operating Agent's directive, except for reductions, interruptions or
     curtailment under the applicable OATT, pursuant to mutually agreed terms or
     pursuant to any applicable FERC-accepted tariff or rate schedule filed by
     Generator. The Operating Agent, or any other Party as applicable, will
     compensate Generator for a change in reactive power production pursuant to
     the terms and conditions of Article X.

12.2 Notice of Emergency. The Operating Agent shall provide Generator with
     prompt verbal or electronic notice of any Emergency which may reasonably be
     expected to affect Generator's operation of the Facility, and Generator
     shall provide the Operating Agent with prompt verbal notice of any
     generation equipment Emergency which may reasonably be expected to affect
     the Operating Agent's operations. Such verbal notification shall be
     followed within twenty-four (24) hours with written notification, which
     shall describe in reasonable detail the extent of the Emergency (including
     damage or deficiency), the anticipated length of the outage, and the
     corrective actions taken.

12.3 Immediate Action. In the event of an Emergency, the Party (either the
     Operating Agent or Generator) becoming aware of the Emergency may, in the
     exercise of its reasonable judgment and in accordance with Good Utility
     Practice, take such actions as are reasonable and necessary to prevent,
     avoid, or mitigate injury, danger, and loss, without liability to the other
     Party for its actions.

     12.3.1    In the event that Generator has identified an Emergency involving
               the transmission system, Generator shall obtain the consent of
               the Operating Agent before manually performing any switching
               operations unless, in Generator's reasonable judgment, exercised
               in accordance with Good Utility Practice, immediate action is
               required.

     12.3.2    Either the Operating Agent or Generator shall have the right to
               disconnect the Facility without prior notice or liability to the
               other Party if, in such Party's reasonable judgment and in
               accordance with Good Utility Practice, an Emergency exists and
               immediate disconnection is required to protect persons or
               property from damage caused by Generator's interconnection or
               lack of proper or properly operating protective devices. Prior to
               an Emergency, for purposes of this Article

--------------------------------------------------------------------------------
Interconnection Agreement between         -37-             EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

               12.3.2, the Operating Agent may deem protective devices to be
               operating improperly if the Operating Agent's review pursuant to
               Article XIII discloses insufficient maintenance on such devices
               or that maintenance records do not exist or are insufficient to
               establish that adequate maintenance on such devices has been
               performed, provided that the Operating Agent shall inform
               Generator, in writing following the Operating Agent's review, of
               such conclusions regarding maintenance of such devices and
               provide Generator a reasonable opportunity to demonstrate to the
               Operating Agent's satisfaction that adequate maintenance has been
               performed. The Party initiating the disconnection shall notify
               the other Party of such disconnection as soon as reasonably
               possible after the disconnection.

12.4 Disconnection of Facility in Event of Potential Emergency. If, at any time,
     the Operating Agent determines, in the exercise of its reasonable judgment
     and in accordance with Good Utility Practice, that the continued operation
     of the Facility would cause an Emergency, the Operating Agent may
     disconnect the Facility from the EPE Interconnection Facilities until such
     condition at the Facility giving rise to the potential Emergency ceases to
     exist. The Operating Agent shall not be liable to Generator for the
     Operating Agent's actions unless such action constitutes willful misconduct
     on the part of the Operating Agent.

     12.4.1    Notice of Disconnection. The Operating Agent shall provide
               Generator with as much advance notice as is reasonably practical
               under the circumstances of Operating Agent's intent to disconnect
               the Facility in response to a condition at the Facility that
               would cause an Emergency. Subject to Article 3.7, the Operating
               Agent shall also provide Generator with information relating to
               the nature of the potential Emergency and the expected duration
               of the disconnection at the Interconnection Point.

     12.4.2    Opportunity to Resolve Condition. To the extent reasonably
               practical, the Operating Agent shall allow Generator an
               opportunity to remove or remedy such condition at the Facility
               that would cause an Emergency before the Operating Agent
               disconnects the Facility.

     12.4.3    Conference Regarding Condition. In the event of disconnection,
               the Operating Agent shall promptly confer with one of Generator's
               Operating Committee representatives regarding the condition that
               gave rise to the disconnection. The Operating Agent shall provide
               Generator with its recommendation, if any, regarding the timely
               correction of the condition.

     12.4.4    Restoration. The Operating Agent shall promptly reconnect the
               Facility when the condition giving rise to the potential
               Emergency ceases to exist and shall use reasonable efforts
               consistent with Good Utility Practice to minimize the duration of
               any disconnection.

12.5 Audit Rights. The Operating Agent and Generator shall keep and maintain
     records of any actions taken during an Emergency that may reasonably be
     expected to impact the others' facilities and shall make such records
     available for review by the other or its auditor upon the request and
     expense of the other. Any request for such an audit shall be made no later

--------------------------------------------------------------------------------
Interconnection Agreement between         -38-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

     than twenty-four (24) months following the actions taken in conjunction
     with the Emergency.

12.6 Abnormal Conditions. To the extent the Operating Agent is aware of any
     Abnormal Condition, the Operating Agent will provide Generator with
     reasonably prompt oral notification of such Abnormal Condition if it may
     reasonably be expected to affect Generator's Facility or operations. To the
     extent that Generator is aware of any Abnormal Condition, Generator will
     provide the Operating Agent with reasonably prompt oral notification of
     such Abnormal Condition if it may reasonably be expected to affect the
     operations of the Operating Agent's or EPE's facilities. Subject to Article
     3.7, any such oral notification provided hereunder shall include a
     description of the Abnormal Condition, its anticipated duration, and the
     action taken and/or to be taken with respect to the notifying Party's
     facilities, and shall be followed as soon as practicable with written
     confirmation of the facts. Each Party shall cooperate and coordinate with
     the other Party in taking whatever actions on its facilities as are
     reasonably necessary to mitigate or eliminate the Abnormal Condition,
     including, to the extent necessary, adjusting the operation of equipment to
     within its rated operating parameters; provided, however, that such
     measures are consistent with Good Utility Practice and do not require
     operation of any of the Parties' facilities outside their operating limits.
     The Operating Agent and Generator each reserves the right, in its sole
     discretion, to isolate or disconnect the Facility from the EPE Transmission
     System at the Afton Switching Station if it believes an Abnormal Condition,
     including an electric disturbance, may cause damage to its facilities. The
     Operating Agent, or any other Party as applicable, will compensate
     Generator, for a change in real power output in compliance with Operating
     Agent's directive, except for reductions, interruptions or curtailment
     under the applicable OATT, pursuant to mutually agreed terms or pursuant to
     any applicable FERC-accepted tariff or rate schedule filed by Generator.
     The Operating Agent, or any other Party as applicable, will compensate
     Generator for a change in reactive power production pursuant to the terms
     and conditions of Article X. Generator will compensate Operating Agent or
     EPE, as applicable, for actions provided to Generator to mitigate Abnormal
     Conditions caused by Facility pursuant to mutually agreed terms or pursuant
     to any applicable FERC-accepted tariff or rate schedule filed by Operating
     Agent or EPE, as applicable.

                                  Article XIII
                                   MAINTENANCE

13.1 The Operating Agent Obligations. The Operating Agent shall maintain and
     repair/replace the EPE Interconnection Facilities, and EPE shall maintain
     and repair/replace any Interconnection System Upgrades on the EPE
     Transmission System: (a) in a safe and reliable manner; (b) in accordance
     with Good Utility Practice; and (c) in accordance with the terms and
     conditions of this Agreement.

13.2 Generator Obligations. Generator shall maintain and repair/replace the
     Facility and Generator's Interconnection Facilities: (a) in a safe and
     reliable manner; (b) in accordance

--------------------------------------------------------------------------------
Interconnection Agreement between         -39-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

     with Good Utility Practice; and (c) in accordance with the terms and
     conditions of this Agreement.

13.3 Maintenance Expenses. In accordance with Articles 5.3 and 5.4 and subject
     to Article 5.14, Generator shall be responsible for all expenses associated
     with maintaining and repairing/replacing the Interconnected Facilities. The
     Operating Agent agrees to provide Generator in June of each year with its
     best estimate of the costs required to operate and maintain the EPE
     Interconnection Facilities over the next twelve (12) months. The Operating
     Agent will notify Generator in advance of any increase in the cost of work
     to be performed if the total amount increases by twenty-five percent (25%)
     or more of the estimate provided to Generator. Any such increase shall be
     subject to Generator's authorization, which shall not be unreasonably
     delayed, withheld or denied. In accordance with Article 5.4.4, EPE shall be
     responsible for all expenses associated with maintaining and
     repairing/replacing Interconnection System Upgrades on the EPE Transmission
     System after the Operation Date.

13.4 Coordination. Generator agrees to coordinate with the Operating Agent in
     accordance with procedures developed by the Operating Committee regarding
     the inspection, maintenance, and testing of those secondary systems in the
     Facility and Interconnected Facilities directly affecting the operation of
     the Afton Switching Station and the EPE Transmission System. To the extent
     possible, Generator shall provide five (5) Business Days' advance written
     notice to the Operating Agent before undertaking such work.

13.5 Observation of Deficiencies. Each Party shall have the right, but not the
     obligation, to observe the testing and maintenance activities performed by
     the other Party with respect to facilities whose performance may adversely
     affect the reliability of the observing Party's facilities. If the
     observing Party observes any deficiencies or defects associated with, or
     becomes aware of a lack of maintenance, inspections, or testing with
     respect to, any of the other Party's facilities and equipment that might be
     reasonably expected to adversely affect the observing Party's facilities
     and equipment, the observing Party shall provide prompt written notice to
     such other Party. Notwithstanding the foregoing, the observing Party shall
     have no liability for failure to give such notice. Upon receipt of such
     written notice, such Party shall take any necessary corrective actions in
     accordance with Good Utility Practice.

13.6 Review of Maintenance Records. Upon ten (10) Business Days' written notice
     to Generator, Generator shall provide the Operating Agent with access to
     Generator's maintenance, inspection, and testing records for Generator's
     Interconnection Facilities and any other facilities whose operation may
     reasonably be expected to affect the reliability of the EPE Interconnection
     Facilities, including the Afton Switching Station. The other facilities
     shall include generator step up transformers, protection systems, metering,
     communications systems, breakers, automatic voltage regulators, generator
     governor and excitation systems. Upon ten (10) Business Days' written
     notice to the Operating Agent, the Operating Agent shall, subject to
     Article 3.7, provide Generator with access to the Operating Agent's
     maintenance, inspection, and testing records for the EPE Interconnection
     Facilities, including the Afton Switching Station.

--------------------------------------------------------------------------------
Interconnection Agreement between         -40-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                                  Article XIV
                                    METERING

14.1 General. Prior to the Operation Date, EPE shall provide, install, and
     maintain Metering Equipment necessary to meet its obligations under this
     Agreement. Generator shall have the option, subject to EPE approval, to use
     EPE's Metering Equipment for Facility operations. Beginning on the
     Operation Date, the Operating Agent shall assume responsibility for
     operating and maintaining the Metering Equipment. EPE shall own the
     Metering Equipment. At the Operating Agent's option, the Metering Equipment
     shall be located or adjusted in such a manner to account for any
     transformation or interconnection losses between the location of the meter
     and the Interconnection Point. The location of the Metering Equipment and
     Generator's verification meters are identified on Appendix D.

14.2 Testing. The Operating Agent shall inspect and test Metering Equipment on
     an annual basis or at such other time intervals as may be directed by the
     Operating Committee; provided, however, that Generator, may request, after
     demonstrating good cause, one additional inspection and test for Metering
     Equipment per year. In addition, any Party may request a special test of
     meters, but such Party shall bear the cost of such testing unless an
     inaccuracy shall be disclosed exceeding one percent (1%), in which case the
     Operating Agent shall be responsible for the costs of the special testing.
     Authorized representatives of each Party shall have the right to be present
     at all routine or special tests and to inspect any readings, testing,
     adjustment or calibration of the meters. The Operating Agent shall promptly
     correct any inaccuracy disclosed through such inspections and tests. For
     the purpose of checking the performance of the Metering Equipment,
     Generator may install check metering equipment, which such equipment shall
     be owned and maintained by Generator.

14.3 Data Metered. The following data shall be real-time metered and sent
     electronically to the Operating Agent's SOCC: (a) net MW output of each
     generator of the Facility; (b) reactive power output of each generator of
     the Facility, both positive and negative; (c) 345 kV bus voltage; (d)
     indications (open or closed) of all circuit breakers; (e) indications (open
     or closed) of all circuit switches; (f) various alarm points, as reasonably
     determined by the Operating Agent; (g) various relay indications and relay
     alarms; and (h) any other data as determined by the Operating Agent.

14.4 Data Available Upon Request. The Operating Agent shall provide to Generator
     and EPE all metering quantities in analog and/or digital form, whichever is
     available, upon request.

14.5 Costs. Except as otherwise provided for in this Article XIV, Generator
     shall bear all reasonable costs associated with (a) the installation and/or
     relocation of Metering Equipment, (b) the operation, maintenance, repair
     and administration of Metering Equipment, and (c) the provision of metering
     data to Generator. All such costs shall be separately stated on the invoice
     sent to Generator by EPE or the Operating Agent, as applicable.

                                   Article XV
                                     SAFETY

--------------------------------------------------------------------------------
Interconnection Agreement between         -41-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

15.1 General. All work performed by a Party shall be performed in accordance
     with Good Utility Practice and all Applicable Laws and Regulations,
     Environmental Laws, and other requirements regarding the safety of persons
     and property.

15.2 Environmental Releases. No later than twenty-four (24) hours after a Party
     becomes aware of a Release of any Hazardous Substances, any asbestos or
     lead abatement activities, or any type of remediation activities, such
     Party shall provide written notice to the other Party of such Release or
     activities, describing in reasonable detail the nature of such Release or
     activities. Such Party shall also promptly provide the other Party with
     copies of any reports filed with any Governmental Authority regarding such
     Release or activities.

15.3 Other Environmental Impact. No Party shall take any action(s) knowing that
     such action(s) might be reasonably expected to have a material adverse
     environmental impact upon the operations of the other Party without prior
     written notification and agreement between the Parties.

                                  Article XVI
                                 COMMUNICATIONS

16.1 Equipment. Generator, at its own expense, shall maintain satisfactory
     communications with the Operating Agent or its designated representative.
     At Generator's expense, Generator shall install and maintain real-time
     operating communications with the Operating Agent's SOCC to the
     satisfaction of the Operating Agent or its designated representative. The
     data circuit(s) shall extend from Generator's Facility to a location(s)
     specified by the Operating Agent. Any required maintenance of such
     communications equipment shall be performed at Generator's expense, but may
     be performed by Generator or by the Operating Agent. EPE, at Generator's
     expense, will own, operate and maintain the communications system necessary
     to support the switchyard and transmission interconnection with the
     existing transmission system, including switchyard RTU(s), protective
     relaying, telemetry, station phones, and other similar EPE systems.
     Generator will own, operate and maintain the communication system required
     to support the Generator, including Generator RTU(s), telemetry, ringdown
     phones, administrative communications such as LAN and telephones and other
     similar Generator systems.

16.2 Remote Terminal Unit. A Remote Terminal Unit ("RTU") or equivalent data
     collection and transfer equipment acceptable to Generator and the Operating
     Agent shall be installed by Generator or by EPE at Generator's expense, to
     gather accumulated and instantaneous data to be telemetered to a
     location(s) designated by the Operating Agent through use of a dedicated
     point-to-point data circuit(s). Generator shall install or facilitate
     installation of such equipment as soon as practicable, provided that
     installation shall be accomplished prior to the date of unit testing or the
     Commercial Operation Date, whichever comes first. The communication
     protocol for this data circuit(s) shall be specified by the Operating
     Agent. Instantaneous bi-directional analog real power and reactive power
     flow information must be telemetered directly to the location(s) specified
     by the Operating Agent.

--------------------------------------------------------------------------------
Interconnection Agreement between         -42-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                                  Article XVII
                              INFORMATION REPORTING

17.1 General. Generator shall provide to the Operating Agent all information,
     documents, or data, pertaining to the operations of the Facility, required
     for the Operating Agent to fulfill its obligations to NERC, WSCC, the RTO
     (if applicable) or any Governmental Authority requiring system information.
     Such information, documents or data shall be supplied in the format as
     required by NERC, WSCC, the RTO (if applicable) or any Governmental
     Authority and within a reasonable time frame designated by the Operating
     Agent to meet these obligations.

17.2 Compliance Monitoring Reporting. Generator shall provide all information,
     documents, or data, pertaining to the operations of the Facility, requested
     by NERC, WSCC, the RTO (if applicable) or any other entity with
     jurisdiction requiring system information for purposes of compliance
     monitoring programs including RMS. Such information, documents, or data
     shall be provided to the Operating Agent if required by the specific
     compliance program or to the extent otherwise required by this Agreement.
     Such information, documents, or data shall be supplied in the format as
     required by NERC, WSCC, the RTO (if applicable) or any other entity with
     jurisdiction and within the time frame designated by such compliance
     program sponsor to meet these obligations.

17.3 Regulatory Agency Reporting. Generator shall provide to the Operating Agent
     all information, documents, or data, pertaining to the operations of the
     Facility, required by the Operating Agent to fulfill reporting obligations
     to any Governmental Authority including FERC. Such information, documents,
     or data shall be supplied in the format as required by any Governmental
     Authority including FERC and within a reasonable time frame designated by
     the Operating Agent to meet these obligations.

17.4 Penalties. Generator shall be responsible for reimbursement to the
     Operating Agent of any economic sanctions or portions thereof, as
     applicable, or penalties incurred or imposed upon the Operating Agent due
     solely to Generator's failure to provide information, documents, or data,
     pertaining to the operations of the Facility, in the required format within
     the time frame specified by the Operating Agent, or the compliance
     monitoring program, except to the extent that Generator's failure is due
     solely to the Operating Agent's or any of its Agents' negligence or willful
     misconduct.

                                 Article XVIII
                                  DOCUMENTATION

18.1 General. Each Party shall provide the other Party with appropriate
     documentation, consistent with Good Utility Practice, in the form of
     written test records, operation and maintenance procedures, drawings,
     material lists, or descriptions whenever a Party makes a change,
     alteration, or modification to its property, equipment, or facilities that
     could reasonably be expected to affect the other Party, or whenever such
     documentation is necessary to ensure the safe and reliable operation of the
     EPE Transmission System, the

--------------------------------------------------------------------------------
Interconnection Agreement between         -43-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

     Facility, or the Interconnected Facilities, pursuant to Good Utility
     Practice or required by the Operating Committee.

18.2 Drawings. The Operating Agent shall identify, number, and provide Generator
     with a duplicate set of current drawings that represent equipment or
     facilities that shall be used or operated at or near the Interconnection
     Point, which shall consist of one or more of the following: (a) system
     one-line drawings that include breaker and switch designations - single
     page format drawings used for dispatch and operation purposes; (b) one-line
     drawings - prints used in conceptual design which provide detail on
     facility and system interconnections; (c) elementary diagrams - drawings
     which provide a higher level of detail than one-line drawings and identify
     on a single-line basis current and voltage transformer locations,
     protection relay types, and meter and control connections; (d) three-line
     diagrams - drawings which provide the highest level of detail for the
     facilities in a three-line format with specific current and voltage
     transformer connections, relay and meter connections; (e) schematic
     drawings or elementaries - drawings which provide information on apparatus
     controls, switch developments, etc.; (f) relay and control panel front view
     and wiring diagrams - drawings which describe physical panel layout, relay,
     terminal block and device locations, wiring, and other construction
     details; and (g) other physical drawings - drawings which include
     information on foundations, equipment layouts, grounding panel
     construction, site plans, etc.

                                   Article XIX
                                  FORCE MAJEURE

19.1 Definition. As used in this Agreement, the term "Force Majeure" means any
     cause that is beyond the reasonable control of the Party affected which,
     despite the affected Party's exercise of Due Diligence to prevent or
     overcome, prevents the performance by such affected Party of its
     obligations under this Agreement. Subject to the foregoing, "Force Majeure"
     shall include sabotage, strikes or other labor difficulties, riots, civil
     disturbances, acts of God, wars, acts of public enemies, epidemics,
     drought, earthquake, flood, explosion, fire, lightning, landslides, or
     similar cataclysmic event, breakage or accident to machinery or equipment,
     order, regulation, or restriction imposed by governmental military or
     lawfully established civil authorities, the occurrence of an event
     described in the first sentence of Article 2.4 (provided that the Party
     asserting Force Majeure based on such occurrence complies with its
     obligations under Article 2.4), or any other cause, whether of the kind
     enumerated herein or otherwise. A Force Majeure event does not include :
     (a) economic hardship of or loss of markets by a Party; (b) the
     unavailability of transmission or distribution capability, unless the Party
     claiming Force Majeure has contracted for firm transmission and such
     unavailability is the result of a "force majeure" event or "uncontrollable
     force" or a similar term as defined under the applicable transmission
     tariff; (c) events resulting from, or attributable to, normal wear and tear
     experienced in power generation, interconnection, and transmission
     materials and equipment; and (d) events attributable to negligence or
     willful misconduct, failure to comply with any Applicable Laws and
     Regulations, any default under this Agreement, or any failure to act in
     accordance with Good Utility Practice in each case by the Party claiming
     Force Majeure.

--------------------------------------------------------------------------------
Interconnection Agreement between         -44-                EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

19.2 Performance Excused. If any Party is rendered wholly or partially unable to
     perform under this Agreement because of a Force Majeure event, such Party
     shall be excused from such obligations to the extent that the occurrence of
     the Force Majeure event prevents such Party's performance and such Party
     shall not be liable for any resulting damages, provided that: (a) the
     non-performing Party provides the other Party with prompt verbal notice of
     the occurrence of the Force Majeure event, and provides written notice
     describing in reasonable detail the nature of the Force Majeure event
     within three (3) Business Days of the Force Majeure event; (b) the
     suspension of performance shall be of no greater scope and of no longer
     duration than is reasonably required by the Force Majeure event; (c) the
     non-performing Party uses Due Diligence to remedy its inability to perform;
     and (d) as soon as the non-performing Party is able to resume performance
     of its obligations excused as a result of the occurrence, it gives prompt
     written notification thereof to the other Party.

19.3 Labor Issues. No Party shall be required to settle a strike or other labor
     dispute affecting its operations.

19.4 Payment Not Excused. Nothing in this Article XIX shall excuse any Party
     from making payments due pursuant to the terms and conditions of this
     Agreement for the period prior to the occurrence of the Force Majeure
     event.

                                   Article XX
                                 INDEMNIFICATION

20.1 INTERCONNECTION INDEMNITY. GENERATOR SHALL AT ALL TIMES INDEMNIFY AND HOLD
     HARMLESS THE OPERATING AGENT AND EPE FOR, AGAINST, AND FROM ANY AND ALL
     DAMAGES, LOSSES, CLAIMS, INCLUDING CLAIMS AND ACTIONS RELATING TO INJURY TO
     OR DEATH OF ANY PERSON OR DAMAGE TO OR LOSS OF ANY PROPERTY, DEMANDS,
     SUITS, RECOVERIES, COSTS AND EXPENSES, COURT COSTS, ATTORNEY FEES, AND ALL
     OTHER OBLIGATIONS BY OR TO THIRD PARTIES, ARISING OUT OF OR RESULTING FROM
     THE OPERATING AGENT'S OR EPE'S PERFORMANCE OF ITS OBLIGATIONS UNDER THIS
     AGREEMENT ON BEHALF OF GENERATOR, EXCEPT IN CASES OF NEGLIGENCE OR
     INTENTIONAL WRONGDOIING BY THE OPERATING AGENT OR EPE.

20.2 RECIPROCAL INDEMNITY. EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, EACH
     PARTY SHALL INDEMNIFY AND HOLD HARMLESS THE OTHER PARTY, ITS AFFILIATES,
     AGENTS, SUCCESSORS, REPRESENTATIVES AND PERMITTED ASSIGNS FOR, AGAINST AND
     FROM ANY CLAIM, LIABILITY, DAMAGE, LOSS OR EXPENSE OF ANY KIND OR NATURE
     (INCLUDING REASONABLE ATTORNEYS' FEES), (A) FOR PERSONAL INJURY TO OR DEATH
     OF ANY PERSON, (B) FOR LOSS OF OR DAMAGE TO PROPERTY OF THIRD PARTIES OR
     THE REAL PROPERTY OR TANGIBLE PERSONAL PROPERTY OF SUCH OTHER PARTIES, OR
     (C) ARISING OUT OF OR RESULTING FROM PERFORMANCE OF OBLIGATIONS UNDER THIS
     AGREEMENT, IN EACH INSTANCE TO THE EXTENT DETERMINED TO BE ATTRIBUTABLE TO
     THE

--------------------------------------------------------------------------------
Interconnection Agreement between         -45-                 EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

         NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR STRICT LIABILITY
         IN TORT OF OR BREACH OF THIS AGREEMENT BY THE INDEMNITOR OR ITS
         AFFILIATES, AGENTS, SUCCESSORS OR PERMITTED ASSIGNS.

20.3     DAMAGE DISCLAIMER. THE EXPRESS REMEDIES AND MEASURES OF DAMAGES
         PROVIDED IN THIS AGREEMENT SATISFY THE ESSENTIAL PURPOSES HEREOF. FOR
         BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF
         DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF DAMAGES SHALL BE
         THE SOLE AND EXCLUSIVE REMEDY. THE OBLIGOR'S LIABILITY SHALL BE LIMITED
         AS SET FORTH IN SUCH PROVISION AND ALL OTHER REMEDIES OR DAMAGES AT LAW
         OR IN EQUITY ARE WAIVED. IN NO EVENT SHALL ANY PARTY BE LIABLE FOR
         SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES,
         INCLUDING LOSS OF PROFIT OR REVENUE, LOSS OF THE USE OF EQUIPMENT, COST
         OF CAPITAL, COST OF TEMPORARY EQUIPMENT OR SERVICES, WHETHER BASED ON
         BREACH OF CONTRACT, NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL MISCONDUCT,
         STRICT LIABILITY OR OTHER CAUSES OF ACTION. ALL PAYMENTS DUE FOR
         SERVICES UNDER THIS AGREEMENT AND ALL COSTS, EXPENSES AND PAYMENTS DUE
         UNDER ARTICLE 5.4.8 SHALL BE DEEMED TO CONSTITUTE DIRECT (NOT SPECIAL,
         INCIDENTAL, INDIRECT OR CONSEQUENTIAL) DAMAGES FOR PURPOSES OF THIS
         ARTICLE 20.3. THE PROVISIONS AND DISCLAIMERS OF THIS ARTICLE 20.3 SHALL
         NOT APPLY TO CLAIMS FOR PERSONAL INJURY OR DEATH AND SHALL NOT APPLY TO
         ARTICLE 11.3.2 AND ARTICLE 22.7 OF THIS AGREEMENT.

20.4     Indemnities Reformed. The indemnities set forth in this Article XX
         shall be construed to be effective to the maximum extent permitted by
         Applicable Laws and Regulations. To the extent that any of the
         indemnities are determined to be unenforceable or void under Applicable
         Laws and Regulations, the indemnities shall be reformed and restated to
         the extent necessary to render them effective.

20.5     Indemnification Procedures. If any Party intends to seek
         indemnification under this Article XX from any other Party, the Party
         seeking indemnification shall give such other Party written notice of
         such claim within thirty (30) days of the commencement of, or actual
         knowledge of, such claim. Such notice shall describe the claim in
         reasonable detail and shall indicate the amount (estimated, if
         necessary) of the claim that has been or may be sustained by such
         Party. To the extent that the other Party is actually and materially
         prejudiced as a result of the failure to provide such notice, the other
         Party's liability under the provisions of this Article XX shall be
         reduced proportionately to such prejudice. The Party being indemnified
         may, if in its reasonable judgment its interests are adverse to the
         interests of the indemnifying Party, elect to assume at its own expense
         and by its own counsel the defense of the claim, in which case the
         indemnifying Party shall cooperate in good faith at its own expense
         with the Party being indemnified in such defense. No Party shall settle
         or compromise any claim without the prior written consent of the Party
         from

--------------------------------------------------------------------------------
Interconnection Agreement between            -46-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

         which it is seeking indemnification; provided, however, that such
         consent shall not be unreasonably withheld, delayed or denied.

20.6     Additional Indemnification Provisions. If a court of competent
         jurisdiction determines that NMSA 1978, (S)56-7-1 is applicable to this
         Agreement, then nothing in this Article 20.6 or any other
         indemnification provision of this Agreement shall extend to liability,
         claims, damages, losses, or expenses, including attorney fees, arising
         out of:

         20.6.1   The preparation or approval of maps, drawings, opinions,
                  reports, surveys, change orders, designs, or specifications by
                  the indemnitee, or the employees or agents of the indemnitee;
                  or

         20.6.2   The giving of or failure to give directions or instructions by
                  the indemnitee, or the employees or agents of the indemnitee,
                  where such giving or failure to give directions or
                  instructions is the primary cause of bodily injury to persons
                  or damage to property.

20.7     Survival. The indemnification obligations, covenants and disclaimers,
         under this Article XX shall continue in full force and effect
         regardless of whether this Agreement has expired or been terminated or
         cancelled and shall not be limited in any way by any limitation on
         insurance, on the amount or types of damages, or by any compensation or
         benefits payable by the Parties under any applicable workers'
         compensation acts, disability benefit acts, or other employee acts.

                                   Article XXI
                                    INSURANCE

21.1     Generator. Without limiting any obligations or liabilities under this
         Agreement, Generator shall, at its expense, provide and maintain in
         effect for the term of this Agreement, insurance against the risks set
         forth below. All insurance shall include waivers of subrogation in
         favor of EPE and the Operating Agent.

         21.1.1   Workers' compensation insurance with minimum statutory limits
                  to cover obligations imposed by federal and state statutes
                  applicable to the Generator's employees and employer's
                  liability insurance with a minimum limit of one million
                  dollars ($1,000,000) per accident.

         21.1.2   Commercial general liability insurance, including contractual
                  liability, broad form property damage, premises operations,
                  and personal injury coverage in the amount of twenty-five
                  million dollars ($25,000,000) per occurrence for bodily injury
                  and property damage. Such insurance shall cover EPE (and its
                  affiliated companies) and the Operating Agent as additional
                  insureds.

21.2     EPE or Operating Agent. Without limiting any obligations or liabilities
         under this Agreement, EPE or Operating Agent shall provide and maintain
         in effect for the term of this

--------------------------------------------------------------------------------
Interconnection Agreement between            -47-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

         Agreement, insurance against the risks set forth below. All insurance
         shall include waivers of subrogation in favor of Generator.

         21.2.1   Workers' compensation insurance with minimum statutory limits
                  to cover obligations imposed by federal and state statutes
                  applicable to the employees of EPE or Operating Agent and
                  employer's liability insurance with a minimum limit of one
                  million dollars ($1,000,000) per accident.

         21.2.2   Commercial general liability insurance, including contractual
                  liability, broad form property damage, premises operations,
                  and personal injury coverage in the amount of twenty-five
                  million dollars ($25,000,000) per occurrence for bodily injury
                  and property damage. Such insurance shall cover Generator as
                  an additional insured.

21.3     Notice of Cancellation. All policies shall provide for thirty (30)
         calendar days' prior written notice of cancellation or material adverse
         change and ten (10) calendar days' prior written notice of non-payment
         of premiums. Copies of any such notice shall be provided to each Party
         and the Operating Agent. Prior to the Operation Date and annually
         thereafter, each Party shall provide, upon request, evidence of
         insurance to the Operating Agent and the other Party.

21.4     Self-Insurance. At its option, each Party may, with adequate credit
         assurance provided to the other Party, self-insure all or part of the
         insurance required in this Article XXI; provided however, that all
         other provisions of this Article XXI, including waiver of subrogation
         and additional insured status, shall remain enforceable. A Party's
         election to self-insure shall not in any manner result in a reduction
         of rights and/or benefits otherwise available to the other Party
         through formal insurance policies and endorsements as specified in this
         Article XXI. Each Party shall be responsible for its respective amounts
         of self-insurance retentions and/or deductibles.

                                  Article XXII
                                     DEFAULT

22.1     General. A Party shall be deemed to have breached this Agreement upon
         the occurrence of any of the events specified in Article 22.2. A Party
         shall be deemed to be in default of its obligations under this
         Agreement upon its failure to cure such breach in accordance with the
         procedures set forth in this Article XXII.

22.2     Events Constituting Breach. The following events shall constitute
         events of breach by a Party ("Breaching Party") under this Agreement:

                    (a)  the failure by the Breaching Party to make any payment
                         as required under the terms of this Agreement;

                    (b)  the failure by the Breaching Party to comply with any
                         material term or condition of this Agreement, including
                         any material breach of a representation, warranty, or
                         covenant of this Agreement;

--------------------------------------------------------------------------------
Interconnection Agreement between            -48-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                    (c)  the Breaching Party (or any entity guaranteeing the
                         obligations of such Breaching Party): (i) files or
                         consents by answer or otherwise to a filing against it
                         of any petition or case seeking relief under any
                         federal, state, or foreign bankruptcy, insolvency, or
                         similar law (collectively, "Bankruptcy Laws"); (ii)
                         makes a general assignment for the benefit of a
                         creditor(s); (iii) applies for or consents to the
                         appointment of a custodian, receiver, trustee,
                         conservator, or other officer with similar powers over
                         it or over any substantial part of its property
                         ("Custodian"); (iv) takes corporate action for the
                         purpose of any of the events described in Article
                         22.2(c)(i) - (iii), above; (v) is dissolved; (vi) by
                         decree of a court of competent jurisdiction, is
                         adjudicated insolvent; or (vii) is unable to provide
                         adequate assurances to the other Party of the Breaching
                         Party's continued ability to perform;

                    (d)  a Governmental Authority enters or issues an order or a
                         decree with respect to the Breaching Party: (i)
                         appointing a Custodian; (ii) constituting an order for
                         relief under, or approving a petition or case for
                         relief or reorganization or any other petition or case
                         to take advantage of, any Bankruptcy Laws; or (iii)
                         ordering its dissolution, winding-up, or liquidation;

                    (e)  the assignment of this Agreement by the Breaching Party
                         in a manner inconsistent with the terms and conditions
                         of this Agreement;

                    (f)  the failure of the Breaching Party to provide access
                         rights, or the Breaching Party's attempt to revoke or
                         terminate such access rights, as provided under this
                         Agreement; and

                    (g)  the failure by the Breaching Party to provide
                         information or data to the other Party ("Non-Breaching
                         Party") as required under this Agreement, provided that
                         the Non-Breaching Party seeking such information or
                         data requires such information or data to satisfy its
                         obligations under this Agreement.

22.3     Notice by Breaching Party. In the event of a breach under Article
         22.2(c) or Article 22.2(d), the Breaching Party shall provide the
         Non-Breaching Party notice of the event of breach within three (3)
         Business Days of the occurrence of such event of breach. Such notice
         shall be in writing and set forth in reasonable detail the nature of
         the event of breach.

22.4     Cure and Default. Upon obtaining knowledge of an event of breach under
         Article XXII, the Non-Breaching Party shall give written notice to the
         Breaching Party, describing, in reasonable detail, to the extent known
         and applicable, the actions necessary to cure the event of breach. Upon
         receiving such notice, the Breaching Party shall have thirty (30) days
         to cure such breach. If the breach cannot be cured within thirty (30)
         days, the Breaching Party shall commence in good faith all actions that
         are reasonable and

--------------------------------------------------------------------------------
Interconnection Agreement between            -49-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

         appropriate to cure such breach within such thirty (30) day period, and
         thereafter shall pursue such action to completion. In the event that
         the Breaching Party (a) fails to cure such breach or fails to take all
         actions that are reasonable and appropriate to cure such breach within
         thirty (30) days of receiving the notice from the Non-Breaching Party
         or (b) having commenced cure within such thirty (30) day period, fails
         to complete cure within one hundred eighty (180) days of receiving the
         notice from the Non-Breaching Party, the Breaching Party shall be in
         default of this Agreement.

22.5     Continued Operations. In the event of a breach or a default by a Party,
         but prior to termination of this Agreement, the Parties shall continue
         to operate and maintain such power systems, protective devices,
         metering equipment, transformers, communications equipment, building
         facilities, software, documentation, structural components, and other
         facilities, equipment, and appurtenances that are reasonably necessary
         to operate and maintain the Afton Switching Station, the EPE
         Transmission System and the Facility in a safe and reliable manner.

22.6     Upon Default. Upon default, the non-defaulting Party may: (a) commence
         an action to require the Party in default to remedy such default and
         specifically perform its obligations under this Agreement; (b) pursue
         other rights and remedies as it may have in law or equity (subject to
         the limitations set forth in Article XX); and/or (c) terminate this
         Agreement pursuant to Article 23.2. Notwithstanding the foregoing, EPE
         may not terminate this Agreement upon a default by Generator provided
         that (x) EPE can be made whole by monetary damages, (y) Generator
         agrees to compensate EPE for damages suffered by it as a result of such
         default (subject to the limitations set forth in Article XX) and (z)
         such default does not pose a threat to the safety or reliability of the
         Afton Switching Station or the EPE Transmission System.

22.7     Generator's Default in Payment for Equipment. If Generator is in
         default of its obligation to reimburse or otherwise pay EPE for the
         cost of all or any part of EPE Interconnection Facilities (the portion
         of such equipment for which Generator is in default of payment is
         herewith referred to as "Default Equipment"), then Generator shall pay
         EPE the sum of (a) the costs incurred by or on behalf of EPE for the
         acquisition, installation and maintenance of such Default Equipment
         (including appropriate carrying charges on such Default Equipment
         calculated from the date of acquisition), (b) the costs incurred by or
         on behalf of EPE for labor with respect to the Default Equipment, and
         (c) interest at the Interest Rate on the amounts specified in subparts
         (a) and (b) above calculated from the date of breach. If Generator is
         in default of its obligation to reimburse or otherwise pay EPE for the
         cost of all or any part of the Interconnection System Upgrades on the
         EPE Transmission System (the portion of such upgrade for which
         Generator is in default of payment is herewith referred to as "Default
         Upgrade"), then Generator shall pay EPE the sum of (x) the costs
         incurred by or on behalf of EPE for the acquisition, installation and
         maintenance of such Default Upgrade (including appropriate carrying
         charges on such Default Upgrade calculated from the date of
         acquisition), (y) the costs incurred by or on behalf of EPE for labor
         with respect to the Default Upgrade, and (z) interest at the Interest
         Rate on the amounts specified in subparts (x) and (y) above calculated
         from the date of breach.

--------------------------------------------------------------------------------
Interconnection Agreement between            -50-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                                  Article XXIII
                                   TERMINATION

23.1     Expiration of Term. Except as otherwise provided in this Article XXIII,
         this Agreement shall terminate at the conclusion of the term set forth
         in Article 2.3.

23.2     Termination in the Event of Default. Subject to Articles 23.3 and 22.6,
         EPE or Generator may each terminate this Agreement upon the default by
         the other Party upon: (a) providing written notice of termination to
         the other Party; and (b) to the extent required, filing a notice of
         termination with FERC, which must be accepted for filing by FERC.

23.3     Survival. Termination of this Agreement shall not relieve any Party of
         any of its liabilities or obligations arising hereunder prior to the
         effective date of the termination of this Agreement. In the event of
         termination, each Party may take whatever judicial or administrative
         actions are necessary to enforce its rights under this Agreement.

23.4     Disconnection and Disposition of Facilities Upon Termination. Upon
         termination of this Agreement, unless otherwise ordered or approved by
         FERC, the Operating Agent may disconnect the Facility from the EPE
         Transmission System at the Afton Switching Station in accordance with a
         plan for disconnection which the Operating Committee approves or upon
         which the Parties agree. EPE may dispose of the EPE Interconnection
         Facilities and the Protective Equipment as the Parties agree, and EPE
         may retain or dispose of any Interconnection System Upgrades on its
         transmission system in its sole discretion, provided that in either
         case Generator shall pay any applicable Termination Costs.

                                  Article XXIV
                                CREDITWORTHINESS

         For purposes of determining Generator's ability to meet its obligations
         hereunder during the term of this Agreement, EPE (including in its
         capacity as Operating Agent) may require Generator to provide and
         maintain in effect a letter of credit or other form of security to meet
         Generator's responsibilities and obligations or an alternate form of
         security consistent with commercial practices established by the
         Uniform Commercial Code that protects EPE against non-payment. In any
         instance where facilities to be built require EPE to incur costs, EPE
         will not be obligated to incur any costs until Generator provides EPE
         with a letter of credit or other reasonable form of security acceptable
         to EPE, consistent with commercial practices as established by Uniform
         Commercial Code, equivalent to the costs of the new facilities or
         upgrades.

                                   Article XXV
                           RELATIONSHIP OF THE PARTIES

         EPE (including in its capacity as Operating Agent) and Generator are
         independent contractors. Nothing in this Agreement creates, or is
         intended to create, an association, trust, partnership or joint venture
         or impose a trust or partnership duty, obligation or liability on or
         with regard to either of the Parties. Each Party shall be individually
         responsible for its

--------------------------------------------------------------------------------
Interconnection Agreement between            -51-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

         own covenants, obligations, and liabilities under the terms and
         conditions of this Agreement.

                                  Article XXVI
                         REPRESENTATIONS AND WARRANTIES

26.1     Representations of EPE. EPE represents and warrants to the Generator as
         follows:

         (a)      EPE is a corporation duly organized, validly existing, and in
                  good standing under the laws of the State of Texas and EPE has
                  the requisite corporate power and authority to carry on its
                  business as now being conducted;

         (b)      EPE has the requisite corporate power to execute and deliver
                  this Agreement and to carry out the actions required of it by
                  this Agreement. The execution and delivery of this Agreement
                  and the actions it contemplates have been duly and validly
                  authorized by EPE and no other corporate proceedings on the
                  part of EPE are necessary to authorize this Agreement or to
                  consummate the transactions contemplated hereby. This
                  Agreement has been duly and validly executed and delivered by
                  EPE and constitutes a legal, valid, and binding agreement of
                  EPE enforceable against it according to its terms and
                  conditions, except as such enforceability may be limited by
                  bankruptcy, insolvency, reorganization, moratorium or other
                  similar laws of general application relating to or affecting
                  the enforcement of creditors' rights and by general equitable
                  principles;

         (c)      EPE is not in violation of any Applicable Laws and Regulations
                  promulgated or judgment entered by any Governmental Authority,
                  which individually or in the aggregate would adversely affect
                  EPE's entering into or performance of its obligations under
                  this Agreement;

         (d)      EPE's entering into and performance of its obligations under
                  this Agreement will not give rise to any default under any
                  agreement to which it is a party; and

         (e)      EPE shall comply with all Applicable Laws and Regulations of
                  all Governmental Authorities having jurisdiction over EPE or
                  the transactions under this Agreement and with which failure
                  to comply could reasonably be expected to have a material
                  adverse effect on EPE.

26.2     Representations of Generator. Generator represents and warrants to EPE
         as follows:

         (a)      Generator is a corporation duly organized, validly existing,
                  and in good standing under the laws of the State of New Mexico
                  and Generator has the requisite corporate power and authority
                  to carry on its business as now being conducted;

         (b)      Generator has the requisite corporate power to execute and
                  deliver this Agreement and to carry out the actions required
                  of it by this Agreement. The execution and delivery of this
                  Agreement and the actions it contemplates have been duly and

--------------------------------------------------------------------------------
Interconnection Agreement between            -52-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                  validly authorized by Generator and no other corporate
                  proceedings on the part of Generator are necessary to
                  authorize this Agreement or to consummate the transactions
                  contemplated hereby. This Agreement has been duly and validly
                  executed and delivered by Generator and constitutes a legal,
                  valid, and binding agreement of Generator enforceable against
                  it according to its terms and conditions, except as such
                  enforceability may be limited by bankruptcy, insolvency,
                  reorganization, moratorium or other similar laws of general
                  application relating to or affecting the enforcement of
                  creditors' rights and by general equitable principles;

         (c)      Generator is not in violation of any Applicable Laws and
                  Regulations promulgated or judgment entered by any
                  Governmental Authority, which individually or in the aggregate
                  would adversely affect Generator's entering into or
                  performance of its obligations under this Agreement;

         (d)      Generator's entering into and performance of its obligations
                  under this Agreement will not give rise to any default under
                  any agreement to which it is a party; and

         (e)      Generator shall comply with all Applicable Laws and
                  Regulations of all Governmental Authorities having
                  jurisdiction over Generator or the transactions under this
                  Agreement and with which failure to comply could reasonably be
                  expected to have a material adverse effect on EPE.

26.3     Representations of Each Party. The representations and warranties set
         forth in Articles 26.1 and 26.2 shall continue in full force and effect
         for the term of this Agreement.

                                  Article XXVII
                                   ASSIGNMENT

27.1     General. This Agreement shall be binding upon and inure to the benefit
         of the Parties hereto and their respective successors and permitted
         assigns, but neither this Agreement nor any of the rights, interests,
         or obligations hereunder shall be assigned by any Party, including by
         operation of law, without the prior written consent of the other Party,
         such consent not to be unreasonably withheld or delayed; provided,
         however, that such prior consent shall not be required (a) for an
         assignment to an Affiliate or (b) for security for a financing party.
         Any assignment of this Agreement in violation of this Article XXVII
         shall be, at the option of the non-assigning Party, void. The assignee
         shall expressly assume all of the assignor's obligations under this
         Agreement.

27.2     EPE. Notwithstanding Article 27.1, any party with which EPE may
         consolidate, or into which it may merge, or into which it may convey or
         transfer substantially all of its electric utility assets or part of
         the EPE Transmission System that includes the EPE Interconnection
         Facilities and Interconnection System Upgrades, or its interest in the
         Afton Switching Station, shall automatically and without the consent or
         approval of Generator succeed to all of EPE's rights, interests, duties
         and obligations under this Agreement.

--------------------------------------------------------------------------------
Interconnection Agreement between            -53-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

27.3     Generator. Notwithstanding Article 27.1, any party with which Generator
         may consolidate, or into which it may merge, or into which it may
         convey or transfer substantially all of its electric utility assets
         shall automatically and without the consent or approval of EPE succeed
         to all of Generator's rights, interests, duties and obligations under
         this Agreement.

27.4     No Relief in Event of Assignment. No assignment shall relieve the
         assigning Party of its obligations under this Agreement in the event
         that the assignee fails to perform under the terms and conditions of
         this Agreement, unless and until the assignee agrees in writing to
         assume the obligations and duties of the assigning Party and the
         non-assigning Party reasonably determines that the assignee is no less
         technically and financially capable of performing its obligations under
         the Agreement than the assigning Party.

                                 Article XXVIII
                                 CONFIDENTIALITY

28.1     General. During the term of this Agreement and for a period of twelve
         (12) months after the expiration or termination of this Agreement,
         except as otherwise provided in this Article XXVIII, each Party shall
         hold in confidence and shall not disclose any Confidential Information
         to any Person. A Party may disclose Confidential Information received
         from the other Party to the receiving Party's auditors and attorneys,
         Persons providing financing to the receiving Party, and to other third
         parties as may be necessary for the receiving Party to perform its
         obligations under this Agreement. To the extent that any disclosure of
         Confidential Information is necessary, the disclosing Party shall
         endeavor to preserve the confidentiality of the Confidential
         Information.

28.2     Scope. Confidential Information shall not include any information that
         the receiving Party can demonstrate: (a) is generally available to the
         public other than as a result of a disclosure by the receiving Party;
         (b) was in the lawful possession of the receiving Party on a
         non-confidential basis prior to receiving it from any other Party; (c)
         was supplied to the receiving Party without any restrictions by a third
         party who, to the knowledge of the receiving Party, was under no
         obligation to any other Party to keep the information confidential; (d)
         was independently developed by the receiving Party; (e) is, or becomes,
         publicly known, through no wrongful act or omission of the receiving
         Party or breach of this Agreement; or (f) is required, in accordance
         with Article 28.5, to be disclosed to any Governmental Authority or is
         otherwise required to be disclosed by law or subpoena, or is necessary
         in any legal proceeding establishing rights or obligations under this
         Agreement. Confidential Information is not considered confidential if
         the Party that designated such information as confidential notifies the
         other Party that such information is no longer confidential.

28.3     Rights in Confidential Information. Each Party retains all rights,
         title, and interest in the Confidential Information that it discloses
         to the other Party. The disclosure by a Party to the other Party of
         Confidential Information shall not be deemed a waiver by any Party or
         any other Person or entity of the right to protect the Confidential
         Information from public disclosure.

--------------------------------------------------------------------------------
Interconnection Agreement between            -54-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

28.4     Standard of Care. Each Party shall use the same standard of care to
         protect Confidential Information that it receives as it uses to protect
         its own Confidential Information from disclosure, publication, or
         dissemination.

28.5     Required Disclosures. If a Governmental Authority requests or requires
         a Party to disclose Confidential Information, such Party shall provide
         prompt notice to the Party that provided the Confidential Information
         of such request or requirement so that such other Party may seek an
         appropriate protective order or waive compliance with the terms of this
         Agreement. Notwithstanding the absence of a protective order or waiver,
         a Party may disclose such Confidential Information which it is legally
         required to disclose. Each Party shall use Commercially Reasonable
         Efforts to obtain reliable assurances that confidential treatment will
         be accorded to Confidential Information required to be disclosed.

28.6     Possession of Confidential Information at Termination of Agreement.
         Upon the termination or expiration of this Agreement and within ten
         (10) days of receipt of a written request from the other Party, a Party
         shall destroy, erase, delete, or return to such other Party any and all
         written or electronic Confidential Information received from the other
         Party and shall retain no written or electronic copies of any
         Confidential Information.

28.7     Remedies Regarding Confidentiality. The Parties agree that monetary
         damages by themselves may be inadequate to compensate a Party for
         another Party's breach of its obligations under Article XXVIII. Each
         Party accordingly agrees that the other Party may seek equitable
         relief, by way of injunction or otherwise, if it breaches or threatens
         to breach its obligations under Article XXVIII.

                                  Article XXIX
                               DISPUTE RESOLUTION

29.1     Dispute Resolution by Operating Committee. To the extent that a dispute
         arises under this Agreement, the Party raising such dispute shall
         provide written notice of such dispute to the other Party. Within ten
         (10) Business Days (or such other period as the Parties may agree upon)
         of the receipt of the notice by such Party, the Operating Committee
         shall convene in an attempt to resolve the dispute. If the Operating
         Committee is able to resolve the dispute, such resolution shall be
         reported in writing and shall be binding on the Parties.

29.2     Dispute Resolution by Senior Management. If the Operating Committee is
         unable to resolve the dispute within thirty (30) Business Days of the
         receipt of such notice, then the Parties shall refer the dispute to
         their respective senior management for resolution. If the senior
         management is able to resolve the dispute, such resolution shall be
         reported in writing and shall be binding on the Parties. In the event
         the senior management is unable to resolve the dispute within thirty
         (30) Business Days (or such other period as the Parties may agree upon)
         of referral, the Parties may elect to proceed to arbitration pursuant
         to Article 29.3 or if the Parties do not agree to proceed to
         arbitration within thirty (30) Business Days of the referral of the
         dispute to senior management, then each Party shall have the right to
         pursue any other rights or remedies that may be available at law or
         equity, subject to Article 20.3.

--------------------------------------------------------------------------------
Interconnection Agreement between            -55-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

29.3     Arbitration.

         29.3.1   Commencement of Arbitration Proceeding. If the Operating
                  Committee and the senior management are unable to resolve a
                  dispute arising under this Agreement pursuant to Articles 29.1
                  and 29.2, the Parties, by mutual written agreement, may submit
                  the dispute to arbitration. Each Party shall submit a written
                  statement detailing the nature of the dispute, designating the
                  issue(s) to be arbitrated, identifying the provisions of this
                  Agreement under which the dispute arose, and setting forth
                  such Party's proposed resolution of such dispute. The
                  arbitration shall be conducted in accordance with the
                  provisions of this Article XXIX, unless otherwise agreed in
                  writing by the Parties.

         29.3.2   Appointment of Arbitrator. Within ten (10) days of the date of
                  the Parties' written agreement to submit a dispute to
                  arbitration, a representative of each Party shall meet for the
                  purpose of selecting an arbitrator. If the Parties'
                  representatives are unable to agree on an arbitrator within
                  twenty (20) days of the date of the Parties' written agreement
                  to submit the dispute to arbitration, then an arbitrator shall
                  be selected in accordance with the procedures of the American
                  Arbitration Association ("AAA"). Whether the arbitrator is
                  selected by the Parties' representatives or in accordance with
                  the procedures of the AAA, the arbitrator shall, to the extent
                  reasonably practicable or unless otherwise agreed by the
                  Parties, have the qualifications and experience in the
                  occupation, profession, or discipline relevant to the subject
                  matter of the dispute.

         29.3.3   Arbitration Proceedings. Any arbitration proceeding shall be
                  conducted in accordance with the commercial arbitration rules
                  of the AAA in effect on the date of the notice, except as may
                  be specifically modified in this Agreement.

         29.3.4   Authority of Arbitrator. The arbitrator shall be bound by the
                  provisions of this Agreement where applicable, and shall have
                  no authority to modify any terms and conditions of this
                  Agreement in any manner. The arbitrator shall render a
                  decision, and may determine that monetary damages are due to a
                  Party or may issue a directive that a Party take certain
                  actions or refrain from taking certain actions, but shall not
                  be authorized to order any other form of relief; provided,
                  however, that nothing in this Article 29.3 shall preclude the
                  arbitrator from rendering a decision which adopts the
                  resolution of the dispute proposed by a Party. Unless
                  otherwise agreed to by the Parties, the arbitrator shall
                  render a decision within forty-five (45) days of the
                  conclusion of the arbitration hearing, and shall notify the
                  Parties in writing of such decision and the reasons supporting
                  such decision. The decision of the arbitrator shall be final
                  and binding upon the Parties and may be enforced or challenged
                  in any court of competent jurisdiction. The arbitrator shall
                  have no authority to award any damages inconsistent with the
                  terms of this Agreement. The decision must also be filed at
                  FERC if it affects FERC-jurisdictional rates, terms, and
                  conditions of service or facilities.

--------------------------------------------------------------------------------
Interconnection Agreement between            -56-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

         29.3.5   Expenses and Costs. The fees and expenses of the arbitrator
                  shall be shared equally by the Parties, unless the arbitrator
                  specifies a different allocation. All other expenses and costs
                  of the arbitration proceeding shall be the responsibility of
                  the Party incurring such expenses and costs.

         29.3.6   Location of Arbitration Proceedings. Unless otherwise agreed
                  by the Parties, any arbitration proceedings shall be conducted
                  in El Paso, Texas.

         29.3.7   Confidentiality. The existence, contents, or results of any
                  arbitration proceeding under this Article XXIX may not be
                  disclosed without the prior written consent of the Parties;
                  provided, however, that any Party may make disclosures as may
                  be required to fulfill regulatory obligations to any agencies
                  having jurisdiction, seek or obtain from a court of competent
                  jurisdiction judgment on, confirmation, or vacation of an
                  arbitration award, and may inform its lenders, Affiliates,
                  auditors, attorneys, and insurers, and any Person providing it
                  with financing, as necessary, under pledge of confidentiality
                  and may consult with expert consultants as required in
                  connection with an arbitration proceeding under pledge of
                  confidentiality. If a Party seeks preliminary injunctive
                  relief from any court to preserve the status quo or avoid
                  irreparable harm pending arbitration, the Parties shall keep
                  the court proceedings confidential to the maximum extent
                  permitted by Applicable Laws and Regulations.

         29.3.8   Preliminary Injunctive Relief. Nothing in this Article XXIX
                  shall be construed to preclude the ability of any Party to
                  resort to a court of competent jurisdiction solely for the
                  purposes of securing a temporary or preliminary injunction to
                  preserve the status quo or avoid irreparable harm pending
                  arbitration. This Article 29.3.8 shall not be construed as a
                  waiver of arbitration under Article 29.3.

29.4     FERC Jurisdiction Over Certain Disputes. Nothing in this Agreement
         shall be construed to preclude any Party from filing an application,
         petition or complaint with FERC with respect to any claim over which
         FERC has jurisdiction. In such case, the other Party may request that
         FERC decline to adjudicate such application, petition or complaint. If
         FERC declines to adjudicate such application, petition or complaint
         with respect to all or part of a claim, the portion of the claim not so
         accepted by FERC may be resolved through arbitration, as provided in
         this Article XXIX. To the extent that FERC asserts or accepts
         jurisdiction over all or part of a claim, the decisions, findings of
         fact, or orders of FERC shall be final and binding, subject to judicial
         review under the Federal Power Act, and any arbitration proceedings
         that may have commenced prior to the assertion or acceptance of
         jurisdiction by FERC shall be stayed, pending the outcome of the FERC
         proceedings. The arbitrator shall have no authority to modify, and
         shall be conclusively bound by, any decisions, findings of fact, or
         orders of FERC; provided, however, that to the extent that any
         decisions, findings of fact, or orders of FERC do not provide a final
         or complete remedy to the Party seeking relief, such Party may proceed
         to arbitration under this Article XXIX to secure such a remedy, subject
         to any FERC decisions, findings, or orders.

--------------------------------------------------------------------------------
Interconnection Agreement between            -57-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

29.5     ContinuedPerformance. The Parties shall continue to perform their
         respective obligations under this Agreement during the pendency of any
         dispute including a dispute regarding the effectiveness of the
         purported termination of this Agreement.

                                   Article XXX
                                  MISCELLANEOUS

30.1     Partial Invalidity. Wherever possible, each provision of this Agreement
         shall be interpreted in a manner as to be effective and valid under
         Applicable Laws and Regulations, but if any provision contained herein
         shall be found to be invalid, illegal, or unenforceable in any respect
         and for any reason, such provision shall be ineffective to the extent,
         but only to the extent, of such invalidity, illegality, or
         unenforceability without invalidating the remainder of the provision or
         any provision of this Agreement, unless such a construction would be
         unreasonable. If such a construction would be unreasonable or would
         deprive a Party of a material benefit under this Agreement, the Parties
         shall seek to amend this Agreement to remove the invalid portion and
         otherwise provide the benefit, unless prohibited by Applicable Laws and
         Regulations.

30.2     Successors Included. Reference to any individual, corporation, or other
         entity shall be deemed a reference to such individual, corporation, or
         other entity together with its successors and permitted assigns from
         time to time.

30.3     Applicable Laws and Regulations. This Agreement is made subject to all
         existing and future Applicable Laws and Regulations, and to all
         existing and future duly promulgated orders or other duly authorized
         actions of Governmental Authorities having jurisdiction over the
         matters set forth in this Agreement.

30.4     Choice of Law and Jurisdiction. The interpretation and performance of
         this Agreement shall be in accordance with the laws of the State of New
         Mexico, without regard to choice of law or conflict of laws principles
         that would require the application of the laws of a different
         jurisdiction.

30.5     Entire Agreement. This Agreement supersedes all previous
         representations, understandings, negotiations, and agreements either
         written or oral between the Parties or their representatives with
         respect to the subject matter hereof, and constitutes the entire
         agreement of the Parties with respect to the subject matter hereof. In
         the event of any inconsistency between the main body of this Agreement
         and the Appendices attached hereto and made a part hereof, the main
         body of this Agreement shall control.

30.6     Counterparts to this Agreement. This Agreement may be executed in any
         number of counterparts, each of which shall be an original, but all of
         which together shall constitute one and the same instrument.

30.7     Amendments. No amendments or changes to this Agreement shall be binding
         unless made in writing and duly executed by the Parties and accepted or
         approved by the FERC. Notwithstanding any provisions in this Agreement
         to the contrary, Generator may exercise

--------------------------------------------------------------------------------
Interconnection Agreement between            -58-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

         its rights under Sections 205 and 206 of the Federal Power Act and
         pursuant to FERC's rules and regulations promulgated thereunder with
         respect to any rate, term, condition, charge, classification of
         service, rule or regulation for any services provided under this
         Agreement over which FERC has jurisdiction. Notwithstanding any
         provisions in this Agreement to the contrary, EPE may unilaterally make
         application to the FERC under Section 205 of the Federal Power Act and
         pursuant to FERC's rules and regulations promulgated thereunder for a
         change in any rate, term, condition, charge, classification of service,
         rule or regulation under or related to this Agreement.

30.8     Amendments Included. Reference to, and the definition of, any document
         (including this Agreement) shall be deemed a reference to such document
         as it may be amended, amended and restated, supplemented, or modified
         from time to time.

30.9     Notices. Unless otherwise provided in this Agreement, any notice,
         consent, or other communication required to be made under this
         Agreement shall be in writing and shall be delivered in person, by
         certified mail (postage prepaid, return receipt requested), or by
         nationally recognized overnight courier (charges prepaid), in each case
         properly addressed to such Party as shown below, or sent by facsimile
         transmission to the facsimile number indicated below. Any Party may
         from time to time change its address for the purposes of notices,
         consents, or other communications to that Party by a similar notice
         specifying a new address, but no such change shall become effective
         until it is actually received by the Party sought to be charged with
         its contents. All notices, consents, or other communications required
         or permitted under this Agreement that are addressed as provided in
         this Article 30.9 shall be deemed to have been given (a) upon delivery
         if delivered in person, by overnight courier or certified mail or (b)
         upon automatically generated confirmation if given by facsimile.

         Generator:

         Mr. William J. Real
         Executive Vice President
         Power Production & Marketing
         Public Service Company of New Mexico
         2401 Aztec Road, NE
         Albuquerque, New Mexico 87107
         Tel: 505-855-6260
         Fax: 505-855-6368

         El Paso Electric Company:

         Assistant Vice President, System Operations
         El Paso Electric Company
         123 W. Mills
         El Paso, Texas 79901
         Tel: 915-543-5888

--------------------------------------------------------------------------------
Interconnection Agreement between            -59-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

         Fax: 915-521-4763

         Operating Agent:

         Assistant Vice President, System Operations
         El Paso Electric Company
         123 W. Mills
         El Paso, Texas 79901
         Tel: 915-543-5888
         Fax: 915-521-4763

30.10    Waivers. The failure of any Party to enforce at any time any provision
         of this Agreement shall not be construed as a waiver of such provision.
         Nor shall such Party's failure to enforce a provision affect in any way
         the validity of this Agreement or any portion thereof or the right of a
         Party thereafter to enforce each and every provision of this Agreement.
         To be effective, a waiver under this Agreement must be in writing and
         specifically state that it is a waiver. No waiver of any breach of this
         Agreement shall be held to constitute a waiver of any other or
         subsequent breach.

30.11    No Third Party Beneficiaries. Except as provided in Article IX with
         respect to the WSCC for express purposes set forth in Article IX,
         nothing in this Agreement, whether express or implied, is intended to
         confer any rights or remedies under or by reason of this Agreement on
         any Persons other than the Parties and their respective permitted
         successors and assigns.

30.12    Further Assurances. If any Party determines in its reasonable
         discretion that any further instruments, assurances, or other things
         are necessary or desirable to carry out the terms of this Agreement,
         the other Party shall execute and deliver all such instruments or
         assurances, and do all things reasonably necessary or desirable to
         carry out the terms of this Agreement. Without limiting the generality
         of the foregoing, EPE agrees, at Generator's expense and upon
         Generator's request, to prepare and/or provide such information in
         connection with this Agreement and/or the services to be provided under
         this Agreement as may be reasonably required by any potential lender to
         Generator.

30.13    Headings. The headings contained in this Agreement are solely for the
         convenience of the Parties and shall not be used or relied upon in any
         manner in the construction or interpretation of this Agreement.

30.14    Articles. Unless otherwise specified, all references in this Agreement
         to numbered articles shall be to numbered articles in this Agreement.

30.15    Number, Gender, and Inclusion. Defined terms in the singular shall
         include the plural and vice versa, and the masculine, feminine, or
         neuter gender shall include all genders. Whenever the words "include,"
         "includes," or "including" are used in this Agreement, they are not
         limiting, and have the meaning as if followed by the words "without
         limitation."

--------------------------------------------------------------------------------
Interconnection Agreement between            -60-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

30.16    Good Utility Practice. The Parties shall discharge any and all
         obligations under this Agreement in accordance with Good Utility
         Practice.

30.17    Succession Upon Membership in an RTO. If the Operating Agent joins an
         RTO, the terms and conditions provided in this Agreement for
         interconnection with the EPE Transmission System at the Afton Switching
         Station shall be superseded by any pertinent interconnection and
         operational provisions required by the RTO, and the Parties shall amend
         this Agreement as necessary to conform with RTO requirements.
         Additionally, if a change in the Operating Agent occurs under an RTO,
         the Parties shall amend this Agreement to reflect such change.

30.18    Notification of Change of Operating Agent. The Operating Agent will
         provide the other Party with advanced written notice of a change in the
         identity of the Operating Agent.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date set
forth at the beginning of this Agreement.

PUBLIC SERVICE COMPANY OF NEW MEXICO

By: /s/ WILLIAM J. REAL
   ------------------------------------------------------------

Title: Executive Vice President, Power Production and Marketing
      ---------------------------------------------------------

EL PASO ELECTRIC COMPANY (INCLUDING IN ITS CAPACITY AS OPERATING
AGENT)

By: /s/ JOHN A. WHITACRE
   ------------------------------------------------------------

Title: Assistant Vice President, System Operations
      ---------------------------------------------------------

--------------------------------------------------------------------------------
Interconnection Agreement between            -61-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

  Appendix A
Equipment to be Installed for Generator Interconnection Facilities

 Appendix B
Equipment to be Installed for EPE Interconnection Facilities & Interconnection
System Upgrades

 Appendix C
EPE's and Generator's Construction and Testing Schedule

 Appendix D
Interconnection Drawings, One-lines and Schematics

--------------------------------------------------------------------------------
Interconnection Agreement between            -62-              EXECUTION VERSION
El Paso Electric Company and
Public Service Company of New Mexico

<PAGE>

                                   APPENDIX A

                            EQUIPMENT TO BE INSTALLED
                    FOR GENERATOR INTERCONNECTION FACILITIES
                                     PHASE I

The Afton Power Project Phase I consists of a simple cycle turbine for peaking
application and common facilities configured to allow for immediate expansion to
a combined cycle facility. The comprehensive design is based on interconnection
studies have been completed for a combined cycle unit. The unit is being
designed to current utility industry standards. Certain items below are subject
to bid change, field change, and manufacturer's change but represent final
design as of the date of execution of this Agreement .The equipment provided for
the Facility is being designed to PNM design criteria.

The following major items are to be installed, as defined in the Agreement, as
the Generator Interconnection Facilities:

     .    GE 18 kV generator low side breaker, synchronizing systems, relay and
          protective systems

     .    Waukesha 208 MVA 18kV: 345 kV autotransformer, three phase

     .    Interconnecting Isophase Al buss, PT's, CT's

     .    Steel reinforced concrete civil/foundation structures, conduit and
          cable trench as required, control and power cables, grounding and
          lightning protection system

     .    Interconnection to EPE communication equipment, interconnection to
          switchyard communication and control equipment

<PAGE>

                                   APPENDIX B

                EQUIPMENT TO BE INSTALLED FOR EPE INTERCONNECTION
                 FACILITIES AND INTERCONNECTION SYSTEM UPGRADES

I.       EPE Interconnection Facilities

The Afton Switchyard is configured for an ultimate arrangement of four (4) bays
arranged in a breaker and a half arrangement. This ultimate arrangement can
accommodate four (4) 345 kV lines and three (3) generator connections. One
breaker position will be a spare position. The initial switchyard installation
will be two (2) bays arranged in breaker and a half arrangement. This initial
arrangement will provide connections for two (2) 345 kV lines and two (2)
generators. The switchyard is being designed using EPE standards.

The Afton 345 kV Switchyard will be connected to El Paso Electric Company's
(EPE) Luna to Newman 345 kV Line by the construction of two (2) parallel single
circuit transmission lines (approximately 0.5 miles each) called the Afton to
Luna line No. 1 and the Afton to Newman Line.

Each line will consist of three (3) phases using two (2) 795 kcmil, 45/7 strands
ACSR code word "Tern" per phase and two (2) 3/8" EHS, 7 strands galvanized steel
overhead shieldwires. One shieldwire will carry integral fiber optic
communications cable.

The conductors and shieldwires will be supported using direct embedded H-Frame
tangent structures and single pole angle guyed tubular steel pole structures.

Connection to the existing EPE Luna to Newman Line will be by means of a flying
tap configuration. The New transmission lines will be isolated from each other
by installing a self-supporting steel pole Deadend structure with drilled pier
type foundations in the existing EPE Luna to Newman right of way.

The equipment being provided for the switchyard was purchased using EPE
specifications, as follows:

     .   Six (6) circuit breakers rated 362 kV, 1300 kV BIL, 2000 Amp, 40 kA
         interrupting rating. The breakers are provided with bushing current
         transformers and standard factory control cabinets. These breakers are
         being provided by GE-Hitachi HVB, Inc.
     .   14 - 345 kV disconnect switches rated 362 kV, 1300 kV BIL, 2000 Amp,
         100 kA withstand capability. Two of the switches are being provided
         with grounding switches. These switches are Pascor Atlantic switches.

                                     Page 1

<PAGE>

     .  14 capacitor voltage transformers (CVT) rated 345 kV,1300 kV BIL, with a
        ratio of 1800/3000 to 1. The CVT's accuracy classification is 0.3MWXYZ,
        ZZ. The CVT's are being provided by Trench Limited.
     .  6 current transformers (CT) rated 345kV, 1300kV BIL, with a ratio of
        2000:5 A MR. The CT's accuracy classification is 0.3B1.8. 3 current
        transformers (CT) rated 345kV, 1300kV BIL, with a ratio of 300:5 A. The
        CT's accuracy classification is 0.15B1.8 and have an extended range to
        provide metering accuracy for the plant auxiliary loads as well as plant
        generation. 3 current transformers (CT) rated 345kV, 1300kV BIL, with a
        ratio of 500:5 A. The CT's accuracy classification is 0.15B1.8.The CT's
        are being provided by Trench Limited.
     .  Structural Steel for transmission line dead ends and equipment supports.
     .  DC system including batteries, battery rack, charger and panel boards.
        The DC system will be rated 125 volts.
     .  120/208 volt AC auxiliary system including transformers, automatic
        transfer switch and panel boards.
     .  Control building for housing the 125 v DC system and the 120/208 v AC
        system and the protective relay panels.
     .  Protective relay and control panels for line and bus protection. Ten
        (10) line protection and control panels and two (2) bus protection and
        control panels will be included. The protective relay and control panels
        will be designed to EPE standards. The panels include redundant revenue
        metering equipment. EPE designed and provided six (6) transmission line
        protective relay panels.
     .  Conduit and cable trench.
     .  Control and Power cable.
     .  Grounding system consisting of cable, ground rods and connections to
        equipment.
     .  Lightning protection system consisting of shield wires connected to the
        transmission line dead ends.
     .  Switchyard bus rated 2000 amp. The bus will consist of aluminum tube and
        ACSR conductor.
     .  Lighting system mounted on the switchyard steel structures.
     .  Bus support insulators.
     .  Crushed rock for covering the switchyard.
     .  Switchyard fence.
     .  Interconnection to EPE communications equipment.
     .  Interconnection to the Generators plant equipment.

II.     Interconnection System Upgrades

None.

                                     Page 2

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00041-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00041-of-00352.parquet"}]]