Document:

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                                                                  Exhibit 10.100

                              AMENDED AND RESTATED

                             REIMBURSEMENT AGREEMENT

                                      among

                         ARIZONA PUBLIC SERVICE COMPANY

                             THE BANKS PARTY HERETO

                                       and

                              JPMORGAN CHASE BANK,
                    as Administrative Agent and Issuing Bank

                            dated as of July 22, 2002

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
SECTION 1.  Definitions; Accounting Terms.................................  2
SECTION 2.  Reimbursement.................................................  14
SECTION 3.  Amendment and Restatement of Letter of Credit; Conditions to
       Effectiveness; Transitional Provisions.............................  18
SECTION 4.  Adjustment of Maximum Drawing Amount; Terms of Drawing........  20
SECTION 5.  Obligations Absolute..........................................  21
SECTION 6.  Representations and Warranties of the Company.................  21
SECTION 7.  Affirmative Covenants.........................................  24
SECTION 8.  Negative Covenants............................................  29
SECTION 9.  Reimbursement Events of Default...............................  31
SECTION 10.  Amendments and Waivers.......................................  34
SECTION 11.  Notices......................................................  34
SECTION 12.  No Waiver; Remedies..........................................  35
SECTION 13.  Waiver of Right of Setoff....................................  35
SECTION 14.  Participations of the Banks..................................  36
SECTION 15.  Assignees; Participants......................................  38
SECTION 16.  Continuing Obligation; Binding Effect........................  39
SECTION 17.  Extension of the Letter of Credit............................  40
SECTION 18.  Limited Liability of the Banks...............................  40
SECTION 19.  Cost, Expenses and Taxes.....................................  41
SECTION 20.  Administrative Agent; Issuing Bank...........................  41
SECTION 21.  Indemnification..............................................  42
SECTION 22.  Confidentiality..............................................  44
SECTION 23.  Severability.................................................  44
SECTION 24.  Governing Law................................................  44
SECTION 25.  Headings.....................................................  44
SECTION 26.  Counterparts; Integration....................................  44
SECTION 27.  WAIVER OF JURY TRIAL.........................................  45

SCHEDULE I - Letter of Credit Commission Rates
SCHEDULE II  - Participation Amounts and Participation Percentages
EXHIBIT A    - Form of Amended and Restated Letter of Credit
EXHIBIT B    - Form of Opinion of Special Counsel for the Company
EXHIBIT C    - Form of Opinion of Special Counsel for the Administrative Agent
</TABLE>

             THE TABLE OF CONTENTS IS NOT A PART OF THIS AGREEMENT.

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                  AMENDED AND RESTATED REIMBURSEMENT AGREEMENT

      AMENDED AND RESTATED REIMBURSEMENT AGREEMENT among ARIZONA PUBLIC SERVICE
COMPANY, JPMORGAN CHASE BANK (successor to Morgan Guaranty Trust Company of New
York) ("MGT")), as Administrative Agent and as Issuing Bank, and the BANKS
listed on the signature pages hereto, as amended and restated as of July 22,
2002. (Unless otherwise indicated, all capitalized terms used herein have the
meanings referred to or set forth in Section 1(a).)

      WHEREAS, the Company has entered into a Participation Agreement dated as
of August 1, 1986 (as amended and in effect on July 11, 2002, the "PARTICIPATION
AGREEMENT") among the Company, State Street Bank and Trust Company (as successor
to The First National Bank of Boston), for itself and as Owner Trustee (together
with its successors in such capacity, the "OWNER TRUSTEE"), JPMorgan Chase Bank
(formerly known as The Chase Manhattan Bank, as successor to Chemical Bank), for
itself and as Indenture Trustee (together with its successors in such capacity,
the "INDENTURE TRUSTEE"), PVNGS Funding Corp., Inc., PVNGS II Funding Corp.,
Inc. and Emerson Finance Co., as Equity Participant (together with its
successors and assigns, the "EQUITY PARTICIPANT"), relating to the acquisition
of an undivided interest in Unit 2 of the Palo Verde Nuclear Generating Station
through a trust for the benefit of the Equity Participant which interest has
been leased to the Company pursuant to a lease dated as of August 1, 1986
between the Owner Trustee and the Company (as amended and in effect on July 11,
2002, the "FACILITY LEASE");

      WHEREAS, pursuant to Section 10(b)(3)(ix) of the Participation Agreement,
the Company has agreed to maintain at all times during the Basic Lease Term (as
defined in the Participation Agreement) an irrevocable letter of credit for the
benefit of the Equity Participant;

      WHEREAS, in order to comply with the requirements of Section 10(b)(3)(ix)
of the Participation Agreement, the Company entered into a Reimbursement
Agreement dated as of August 1, 1986 (as amended and restated thereafter from
time to time prior to August 15, 1997, further amended and restated as of August
15, 1997 and in effect immediately prior to July 22, 2002, the "EXISTING
REIMBURSEMENT AGREEMENT") between the Company and MGT, pursuant to which MGT
issued to the Equity Participant its irrevocable transferable letter of credit
(such letter of credit, as amended and restated and in effect from time to time
before July 22, 2002, as further amended and restated as of July 22, 2002, and
as the same may be amended in accordance with this Agreement and in effect from
time to time thereafter, and any successor Letter of Credit as provided in such
Letter of Credit, being referred to herein as the "LETTER OF CREDIT"), to secure
the payment of Rent (as defined in the Participation Agreement) by the Company
under the Facility Lease to the extent of the amount available to be drawn from
time to time under the Letter of Credit;

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      WHEREAS, the Letter of Credit will expire on August 15, 2002, if not
extended; and

      WHEREAS, the Company has requested that the Banks become parties hereto,
that the term of the Letter of Credit be extended for three years, and that
certain provisions of the Existing Reimbursement Agreement be amended, and the
Banks are willing to comply with such requests on the terms and conditions set
forth below;

      NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks to enter into this Agreement, agree to the extension of the term of
the Letter of Credit and amend certain provisions of the Existing Reimbursement
Agreement, the parties hereto agree that, upon satisfaction of the conditions
set forth in Section 3(b) below and subject to Section 3(c) below, the Existing
Reimbursement Agreement will, without any further action by the parties hereto,
be amended and restated to read in full as follows:

      SECTION 1. Definitions; Accounting Terms. (a) Definitions. Capitalized
terms used herein and not otherwise defined herein have the respective meanings
assigned thereto in Appendix A to the Facility Lease. The following terms as
used herein have the following respective meanings:

      "ACC" means the Arizona Corporation Commission or any successor thereto.

      "ADMINISTRATIVE AGENT" means JPMorgan Chase Bank, in its capacity as
administrative agent for the Banks hereunder, and its successors in such
capacity.

      "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Company) duly
completed by such Bank.

      "AFFILIATE" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person.

      "AGREEMENT" means, when used with reference to this Agreement, this
Reimbursement Agreement as originally executed as of August 1, 1986, as amended
or amended and restated from time to time before July 22, 2002, as amended and
restated as of July 22, 2002, and as the same may be amended in accordance with
its terms from time to time thereafter.

      "AMENDED AND RESTATED LETTER OF CREDIT" means the Amended and Restated
Letter of Credit dated as of July 22, 2002, amending and restating the Letter of
Credit.

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      "AMENDMENT AND RESTATEMENT" means the Amendment and Restatement dated as
of July 22, 2002, amending and restating the Existing Reimbursement Agreement.

      "APPLICABLE BOOKING OFFICE" means, as to each Bank, its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Applicable Booking
Office) or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Applicable Booking Office by notice to the Company
and the Administrative Agent.

      "ASSET TRANSFER" means the transfer by the Company to PWEC of all or any
part of the Company's generating assets, except the Nuclear Transfer, in one or
a series of transactions, which may occur on or prior to the Nuclear Transfer
and which may involve one or more intermediate transfers to one or more
wholly-owned subsidiaries of the Company formed to effect the transfer(s).

      "ASSIGNEE" has the meaning set forth in Section 15(a).

      "AUTHORIZED OFFICER" means the chairman of the board, chief executive
officer, president, chief operating officer, treasurer, controller, any vice
president or any assistant treasurer of the Company.

      "BANK" means (i) each bank or financial institution listed on the
signature pages hereof, each Assignee that becomes a Bank pursuant to Section
15(a), and their respective successors, and (ii) the Issuing Bank with respect
to its Participation.

      "BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.

      "BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York, Chicago, Illinois or the State of
California or, for purposes of Sections 2(a), 2(g) and 9(i) only, Phoenix,
Arizona, are authorized by law to close.

      "CAPITAL LEASE OBLIGATIONS" means as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property, which obligations are
required to be classified and accounted for as a capital lease on the balance
sheet of such Person under generally accepted accounting principles and, for the
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with generally accepted
accounting principles.

      "CODE" means the Internal Revenue Code of 1986, as amended, or any
successor statute.

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      "COMPANY" means Arizona Public Service Company, an Arizona corporation,
and its successors and permitted assigns.

      "COMPANY INDENTURE" means that certain Mortgage and Deed of Trust, dated
as of July 1, 1946 from Central Arizona Light and Power Company (now the
Company) to The Bank of New York, successor by assignment to Bank of America
National Trust and Savings Association, successor to Security-First National
Bank of Los Angeles, as trustee, or any supplemental indenture thereto, as the
same shall have been, or may be, amended and supplemented from time to time.

      "CONFIDENTIAL INFORMATION" means information that the Company furnishes to
any other party hereto in a writing designated as confidential, or that such
party obtains pursuant to its rights under Section 7(e), but does not include
any such information that (a) is or becomes generally available to the public
other than as a result of a breach by such party of its obligations hereunder,
(b) was available to such party on a nonconfidential basis prior to its
disclosure to such party by the Company or any of its Affiliates or (c) is or
becomes available to such party from a source other than the Company that is
not, to the knowledge of such party, acting in violation of a confidentiality
agreement with the Company.

      "CONSOLIDATED CAPITALIZATION" has the meaning set forth in Section 8(e).

      "CONSOLIDATED CASH COVERAGE RATIO" means, with respect to the Company and
its Consolidated Subsidiaries, for each twelve-month period ending on the last
day of each fiscal quarter (determined as of the last day of such fiscal
quarter), the ratio of:

      (a) an amount equal to:

            (i) consolidated net income of the Company and its Consolidated
Subsidiaries for such period, plus

            (ii) all material non-recurring items which decreased said net
income for such period, minus

            (iii) all material non-recurring items which increased said net
income for such period, plus

            (iv) income taxes deducted in determining said net income for such
period, plus

            (v) total "Interest Charges", as defined in clause (b) below, of the
Company and its Consolidated Subsidiaries for such period, plus

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            (vi) depreciation and amortization, and nuclear fuel amortization
      for such period, minus

            (vii) allowance for equity and borrowed funds used during
      construction for such period, minus

            (viii) deferrals as described in Financial Accounting Standards
      Board Statement No. 71 for such period, plus or minus

            (ix) other significant noncash items for such period as may be
      specified under Financial Accounting Standards Board Statements or other
      accounting guidelines, to

      (b) without duplication of any item, an amount equal to the sum (such
amount being the "INTEREST CHARGES") of:

            (i) interest on long-term debt for such period as reported in the
      consolidated income statement for such period, plus

            (ii) interest on short-term debt for such period as reported in the
      consolidated income statement for such period, plus

            (iii) imputed interest on the Sale Leaseback Obligation Bonds for
      such period, such amount being equal to the product of (A) the principal
      amount of Sale Leaseback Obligation Bonds outstanding during such period
      and (B) the rate of interest applicable to such Sale Leaseback Obligation
      Bonds during such period, plus

            (iv) all rental payments in respect of operating leases (excluding
      any portion of such rental payments attributable to operating expenses and
      excluding any payments in respect of Sale Leaseback Obligation Bonds) with
      respect to which the payment obligations of the Company or a Consolidated
      Subsidiary of the Company have a present value of at least $25,000,000.

      "CONSOLIDATED INDEBTEDNESS" has the meaning set forth in Section 8(e).

      "CONSOLIDATED NET WORTH" has the meaning set forth in Section 8(e).

      "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other entity
the accounts of which would be consolidated with those of the Company in its
consolidated financial statements if such statements were prepared as of such
date.

      "DATE OF EARLY TERMINATION" has the meaning set forth in the Letter of
Credit.

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      "ELIGIBLE INSTITUTION" means (i) a commercial bank or a savings and loan
association having a net worth in excess of $250,000,000 (or the equivalent in
any other currency), (ii) a Bank or an affiliate of a Bank or (ii) any other
Person which the Company designates as an Eligible Institution with the consent
of the Administrative Agent.

      "EQUITY PARTICIPANT" has the meaning set forth in the first recital
hereto.

      "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.

      "ERISA AFFILIATE" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company.

      "EXISTING LETTER OF CREDIT" means the Letter of Credit, as amended and in
effect immediately prior to July 22, 2002.

      "EXISTING REIMBURSEMENT AGREEMENT" has the meaning set forth in the third
recital hereto.

      "FACILITY LEASE" has the meaning set forth in the first recital hereto.

      "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (ii) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average rate quoted to JPMorgan
Chase Bank on such day as determined by the Administrative Agent.

      "FEE LETTER" means the Fee Letter dated as of May 21, 2002, from the
Issuing Bank to the Company and accepted and agreed to by the Company on May 21,
2002.

      "FINANCIAL INFORMATION" means (i) the annual report of the Company on Form
10-K for the year ended December 31, 2001, as filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
(ii) the Company's quarterly report on Form 10-Q for the fiscal quarter of the
Company ended March 31, 2002, as so filed, and (iii) the Company's current
reports on Form 8-K dated

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December 14, 2001, February 8, 2002, February 26, 2002, April 19, 2002, April
26, 2002, May 22, 2002, June 5, 2002, and July 11, 2002, as so filed.

      "GUARANTEE" means as to any Person, any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
of any other Person or in any manner providing for the payment of any
Indebtedness of any other Person or otherwise protecting the holder of such
Indebtedness against loss (whether by virtue of partnership arrangements,
agreements to keep well, to purchase assets, goods, securities or services, or
to take-or-pay or otherwise), provided that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.

      "INDEBTEDNESS" means as to any Person at any date (without duplication):
(a) indebtedness created, issued, incurred or assumed by such Person for
borrowed money or evidenced by bonds, debentures, notes or similar instruments;
(b) all obligations of such Person to pay the deferred purchase price of
property or services, excluding, however, trade accounts payable (other than for
borrowed money) arising in, and accrued expenses incurred in, the ordinary
course of business of such Person so long as such trade accounts payable are
paid within 180 days of the date incurred; (c) all Indebtedness secured by a
lien on any asset of such Person, to the extent such Indebtedness has been
assumed by, or is a recourse obligation of, such Person; (d) all Guarantees by
such Person; (e) all Capital Lease Obligations of such Person; and (f) the
amount of all reimbursement obligations of such Person (whether contingent or
otherwise) in respect of letters of credit, bankers' acceptances, surety or
other bonds and similar instruments in support of Indebtedness.

      "INDENTURE TRUSTEE" has the meaning set forth in the first recital hereto.

      "ISSUING BANK" means JPMorgan Chase Bank and its successors in their
capacity as issuer of the Letter of Credit.

      "LETTER OF CREDIT" has the meaning set forth in the third recital hereto.

      "LETTER OF CREDIT COMMISSION RATE" means a rate per annum determined in
accordance with Schedule I hereto.

      "LIEN" means any lien, security interest or other charge or encumbrance of
any kind, including, without limitation, the lien or retained security title of
a conditional vendor and any easement, right of way or other encumbrance on
title to real property.

      "MATERIAL SUBSIDIARY" means, at any time, a Subsidiary of the Company
which as of such time meets the definition of a "significant subsidiary"
included as of July 22, 2002 in Regulation S-X of the Securities and Exchange
Commission or whose assets at such time exceed 10% of the assets of the Company
and the Subsidiaries (on a consolidated basis).

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      "MAXIMUM CREDIT AMOUNT" means, at any date, the Maximum Credit Amount, as
defined in the Letter of Credit.

      "MAXIMUM DRAWING AMOUNT" means, at any date, the Maximum Drawing Amount,
as defined in the Letter of Credit.

      "MULTIEMPLOYER PLAN" means a plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Company or any ERISA
Affiliate within any of the preceding five plan years and which is covered by
Title IV of ERISA.

         "1986 ORDER" means Decision No. 55120, dated July 24, 1986, of the ACC.

      "NUCLEAR TRANSFER" means the transfer by the Company to PWEC of all or a
portion of the Company's interests in PVNGS, in one or a series of transactions,
including the assignment by the Company and assumption by PWEC of the Company's
rights and obligations under the Facility Lease, Participation Agreement, and
other Transaction Documents and Financing Documents, and which may involve one
or more intermediate transfers to one or more wholly-owned subsidiaries of the
Company formed to effect the transfer(s). The Nuclear Transfer will require the
consent of the Equity Participant and the Owner Trustee, among others.

      "OTHER TAXES" has the meaning set forth in Section 2(e).

      "OWNER TRUSTEE" has the meaning set forth in the first recital hereto.

      "PARENT" means, as to any Bank, any Person controlling such Bank.

      "PARTICIPANT" has the meaning set forth in Section 15(b).

      "PARTICIPATION" means a participating interest of a Bank in the credit
represented by the Letter of Credit including, without limitation, the interest
therein retained by the Issuing Bank after giving effect to all participating
interests therein granted by it pursuant to Section 14(a), but prior to giving
effect to any interest therein granted to any Participant pursuant to Section
15(b).

      "PARTICIPATION AGREEMENT" has the meaning set forth in the first recital
hereto.

      "PARTICIPATION AMOUNT" means, with respect to any Bank, the amount set
forth in Schedule II hereto opposite the name of such Bank therein, as such
amount may be changed by reason of an assignment by or to such Bank in
accordance with Section 15(a). Such amount shall be reduced from time to time by
such Bank's ratable share of each reduction of the Maximum Credit Amount.

      "PARTICIPATION PERCENTAGE" means, with respect to any Bank at any time,
the percentage equivalent of a fraction (i) the numerator of which is the
Participation Amount

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of such Bank at such time and (ii) the denominator of which is the Maximum
Credit Amount at such time.

      "PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

      "PERMITTED LIEN" of the Company or any Material Subsidiary means any of
the following:

            (i) Liens for taxes, assessments or other governmental charges or
      levies not at the time delinquent or thereafter payable without penalty or
      being contested in good faith by appropriate proceedings and for which
      adequate reserves in accordance with generally accepted accounting
      principles shall have been made;

            (ii) Liens of carriers, warehousemen, mechanics, materialmen and
      landlords incurred in the ordinary course of business, including, without
      limitation, landlord's liens arising under Arizona law under leases
      entered into by the Company in the 1986 sale and leaseback transactions
      with respect to Unit 2, including without limitation the Facility Lease,
      and securing the payment of rent under such leases, to the extent such
      leases are properly treated as operating leases, in each case, for sums
      not overdue or being contested in good faith by appropriate proceedings
      and for which adequate reserves in accordance with generally accepted
      accounting principles shall have been made;

            (iii) Liens incurred in the ordinary course of business in
      connection with worker's compensation, unemployment insurance or other
      forms of governmental insurance or benefits or other similar statutory
      obligations;

            (iv) Liens to secure obligations on surety or appeal bonds;

            (v) rights of setoff and banker's Liens with respect to funds on
      deposit in a financial institution in the ordinary course of business;

            (vi) easements, restrictions and other minor defects of title that
      are not, in the aggregate, material to the use of such property;

            (vii) Liens securing claims against any Person other than the
      Company or any Subsidiary of the Company neither assumed nor guaranteed by
      the Company or any Subsidiary of the Company nor on which the Company or
      any Subsidiary of the Company customarily pays interest, existing upon
      real estate or rights in or relating to real estate acquired by the
      Company or any Subsidiary of the Company for substation, transmission
      line, transportation line, distribution line or right of way purposes;

                                       9
<PAGE>

            (viii) rights reserved to or vested in any municipality or public
      authority by the terms of any right, power, franchise, grant, license or
      permit or by any provision of law, to terminate such right, power,
      franchise, grant, license or permit, or to purchase or recapture or to
      designate a purchaser of any of the property of the Company;

            (ix) rights reserved to or vested in others to take or receive any
      part of the power pursuant to firm power commitment contracts, purchased
      power contracts and similar agreements, gas, oil or other minerals or
      timber generated, developed, manufactured or produced by, or grown on, or
      acquired with, any property of the Company;

            (x) rights reserved to or vested in any municipality or public
      authority to control or regulate any property of the Company, or to use
      such property in a manner that does not materially impair the use of such
      property for the purposes for which it is held by the Company;

            (xi) security interests granted in favor of the Unit 2 sale
      leaseback transaction lessors in the Company's Decommissioning Trust
      Agreement (PVNGS Unit 2) dated as of January 31, 1992 (such agreement, as
      amended or otherwise modified from time to time, being the "UNIT 2 TRUST
      AGREEMENT") to secure the Company's obligations in respect of the
      decommissioning of Unit 2 or related facilities;

            (xii) Liens that may exist with respect to the Unit 2 Trust
      Agreement (other than as described in clause (xi) above), or with respect
      to either of the Company's Decommissioning Trust Agreement (PVNGS Unit 1)
      or Decommissioning Trust Agreement (PVNGS Unit 3), each dated as of July
      1, 1991, as amended or otherwise modified from time to time, relating to
      the Company's obligation to set aside funds for the decommissioning and
      retirement from service of such Units;

            (xiii) pledges of pollution control bonds and related rights to
      secure the Company's reimbursement obligations in respect of letters of
      credit supporting pollution control bond transactions, provided that such
      pollution control bonds are not secured by any other assets of the Company
      or any Material Subsidiary;

            (xiv) Liens established on specified bank accounts of the Company to
      secure the Company's reimbursement obligations in respect of letters of
      credit supporting commercial paper issued by the Company and similar
      arrangements for collateral security with respect to refinancings or
      replacements of the same; and

                                       10
<PAGE>

            (xv) any Liens securing a claim (other than in respect of
      Indebtedness) in an amount less than $10,000,000;

provided, however, that no Lien in favor of the PBGC shall, in any event, be a
Permitted Lien.

      "PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.

      "PLAN" means an employee benefit plan within the meaning of Section 3(3)
of ERISA established or maintained by the Company or any ERISA Affiliate which
is covered by Title IV of ERISA, other than a Multiemployer Plan.

      "PRIME RATE" means the rate of interest publicly announced by JPMorgan
Chase Bank in New York City from time to time as its Prime Rate.

      "PVNGS" means the Palo Verde Nuclear Generating Station.

      "PWCC" means Pinnacle West Capital Corporation, an Arizona corporation and
its successors.

      "PWEC" means Pinnacle West Energy Corporation, an Arizona corporation and
a subsidiary of PWCC, and its successors.

      "REIMBURSEMENT DEFAULT" means any event or condition which constitutes a
Reimbursement Event of Default or which with the giving of notice or the lapse
of time or both would, unless cured or waived, become a Reimbursement Event of
Default.

      "REIMBURSEMENT EVENT OF DEFAULT" has the meaning set forth in Section 9.

      "REQUIRED BANKS" means, at any time, Banks with Participation Percentages
aggregating more than 50% at such time.

      "RESTATEMENT EFFECTIVE DATE" has the meaning set forth in Section 3(b).

      "SALE LEASEBACK OBLIGATION BONDS" means PVNGS II Funding Corp. Inc.'s (i)
7.39% Secured Lease Obligation Bonds, Series 1993, due 2005; (ii) 8.00% Secured
Lease Obligation Bonds, Series 1993, due 2015; (iii) any other bonds issued by
the Company in connection with a sale/leaseback transaction; and (iv) any
refinancing or refunding of the obligations specified in clauses (i) through
(iii) above.

      "STATED TERMINATION DATE" means July 22, 2005 or such later date to which
such Stated Termination Date shall have been extended pursuant to Section 17.

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      "SUBSEQUENT ORDER" means any decision, order or ruling of the ACC issued
after July 22, 2002 that amends, supersedes or otherwise modifies the 1986 Order
or any successor decision, order or ruling.

      "SUBSIDIARY" of any Person means any corporation of which more than 50% of
the issued and outstanding capital stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation (irrespective of whether
at the time capital stock of any other class or classes of such corporation
shall or might have voting power upon the occurrence of any contingency) is at
the time directly or indirectly owned or controlled by such Person, such Person
and one or more of its other Subsidiaries, or one or more of such Person's other
Subsidiaries.

      "TAXES" has the meaning set forth in Section 2(e).

      "TERMINATING PARTICIPATION AGREEMENTS" means (i) the Participation
Agreement between Mellon Bank, N.A. and Morgan Guaranty Trust Company of New
York, dated as of August 15, 1997, (ii) the Participation Agreement between
Union Bank of California, N.A. and Morgan Guaranty Trust Company of New York,
dated as of August 15, 1997, (iii) the Participation Agreement between Barclays
Bank PLC and Morgan Guaranty Trust Company of New York, dated as of August 15,
1997, and (iv) the Participation Agreement between Toronto Dominion (Texas),
Inc. and Morgan Guaranty Trust Company of New York, dated as of August 15, 1997,
as amended by the Assignment and Assumption Agreement dated as of August 31,
1999 between Toronto Dominion (Texas), Inc. and Bank Hapoalim B.M. and consented
to by Morgan Guaranty Trust Company of New York and the Company, in each case
relating to the sale and purchase of Participations (as defined in the Existing
Reimbursement Agreement) in the drawings under the Existing Letter of Credit.

      "TERMINATION DATE" means the earliest of (i) the date on which the Issuing
Bank pays a drawing under the Letter of Credit for the lesser of the Maximum
Drawing Amount and the Maximum Credit Amount, (ii) if a drawing is not requested
by the Equity Participant after a notice of termination is given under the
Letter of Credit, the Date of Early Termination, (iii) if a drawing is requested
by the Equity Participant after a notice of termination is given under the
Letter of Credit, the date on which the Issuing Bank pays such drawing, (iv) the
date on which the Company delivers a certificate to the Issuing Bank certifying
that the Company has paid the amounts due under Section 9(c) of the Facility
Lease (so long as the Equity Participant shall have acknowledged such payment by
its express confirmation thereof in, and its countersignature to, such
certificate), (v) the date on which the Company delivers a certificate to the
Issuing Bank certifying that the Company has paid the amounts due under Section
9(d) of the Facility Lease (so long as the Equity Participant shall have
acknowledged such payment by its express confirmation thereof in, and its
countersignature to, such certificate), (vi) the latest of (x) the Stated
Termination Date, (y) if a draft and certificate all in strict conformity with
the terms and conditions of the Letter of Credit are presented on the

                                       12
<PAGE>

Stated Termination Date at such time and at such office as specified in the
fifth paragraph of the Letter of Credit, the date on which the Issuing Bank is
required to honor the draft in accordance with the provisions of such paragraph
pursuant to such presentation, and (z) if a corrected draft and certificate all
in strict conformity with the terms and conditions of the Letter of Credit are
presented on the date specified in, and in accordance with, the provisions of
the sixth paragraph of the Letter of Credit, the date on which the Issuing Bank
is required to honor the draft in accordance with the provisions of such
paragraph pursuant to such presentation, and (vii) the date on which the Company
delivers a certificate to the Issuing Bank certifying that this Agreement has
been terminated pursuant to Section 16(b) (so long as such certificate shall
have been countersigned by the Equity Participant).

      "TOTAL ASSETS" means the aggregate of all assets properly appearing on the
most recent balance sheet of the Company and its Consolidated Subsidiaries
furnished pursuant to Section 6(f) or Section 7(g).

      "UNITED STATES" means the United States of America, including the States
and the District of Columbia, but excluding its territories and possessions.

      "WHOLLY-OWNED SUBSIDIARY" of any Person means any corporation of which all
shares of the issued and outstanding capital stock (other than any director's
qualifying shares) having ordinary voting power to elect a majority of the Board
of Directors of such corporation (irrespective of whether at the time capital
stock of any other class or classes of such corporation shall or might have
voting power upon the occurrence of any contingency) is at the time directly or
indirectly owned or controlled by such Person, such Person and one or more of
its other Subsidiaries, or one or more of such Person's other Subsidiaries.

      (b) Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted accounting principles
consistent with those applied in the preparation of the financial statements
referred to in the first sentence of Section 6(f).

      SECTION 2. Reimbursement. (a) The Company agrees to pay to the
Administrative Agent for the account of the Issuing Bank (i) not later than 2:00
p.m., New York City time, on the fifth Business Day after the Issuing Bank shall
have paid any draft under the Letter of Credit a sum equal to the amount so paid
under the Letter of Credit, (ii) interest on each amount paid by the Issuing
Bank under the Letter of Credit from and including the date such amount is paid
by the Issuing Bank under the Letter of Credit until but excluding the earlier
of (x) the date the Issuing Bank shall have received from the Company the
amounts due under clause (i) above and this clause (ii) and (y) the fifth
Business Day after the Issuing Bank shall have paid the relevant draft, payable
on demand, at a rate per annum equal to the Base Rate, and (iii) interest on any
amount not paid by the Company when due under clauses (i) and (ii) above from
and including the

                                       13
<PAGE>

fifth Business Day after the relevant draft is paid by the Issuing Bank under
the Letter of Credit until such overdue amount is paid in full, payable on
demand, at a rate per annum equal to 2% per annum above the Base Rate; provided
that such interest rate shall in no event be higher (with respect to each amount
due and payable hereunder, from the date such amount is due and payable until
the date such amount is paid in full) than the maximum rate permitted by
applicable law.

      (b) The Company agrees to pay to the Administrative Agent for the account
of the Banks ratably in proportion to their Participation Percentages a letter
of credit commission computed at the Letter of Credit Commission Rate on the
Maximum Credit Amount of the Letter of Credit from and including the Restatement
Effective Date to, but excluding, the Termination Date, payable quarterly in
arrears on each January 22, April 22, July 22 and October 22 until the
Termination Date, and on the Termination Date.

      (c) The Company agrees to pay to the Administrative Agent for the account
of the Issuing Bank a fronting fee at the rate per annum heretofore mutually
agreed by the Company and the Issuing Bank pursuant to the Fee Letter, on the
Maximum Credit Amount of the Letter of Credit from and including the Restatement
Effective Date to, but excluding, the Termination Date, payable quarterly in
arrears on each January 22, April 22, July 22 and October 22 until the
Termination Date, and on the Termination Date.

      (d) (i) If after July 22, 2002 the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank with any request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
(including, without limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System) against letters of credit issued by or
assets held by, deposits with or for the account of, or credit extended by, any
Bank or shall impose on any Bank any other condition regarding this Agreement or
the Letter of Credit or its Participation therein, and the result of any of the
foregoing is to increase the cost to such Bank of the issuance or maintenance of
the Letter of Credit or its Participation therein, or to reduce the amount of
any sum received or receivable by such Bank under this Agreement with respect
thereto, by an amount deemed by such Bank to be material, then within 15 days
after demand by such Bank (with a copy to the Administrative Agent), the Company
shall pay to the Administrative Agent for the account of such Bank such
additional amount or amounts as will compensate such Bank for such increased
cost or reduction.

      (ii) If any Bank shall have determined that, after July 22, 2002, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the

                                       14
<PAGE>

interpretation or administration thereof, or any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on capital of such Bank (or its Parent) as a consequence of such
Bank's obligations hereunder to a level below that which such Bank (or its
Parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within 15
days after demand by such Bank (with a copy to the Administrative Agent), the
Company shall pay to such Bank such additional amount or amounts as will
compensate such Bank (or its Parent) for such reduction.

      (iii) Each Bank will notify the Company and the Administrative Agent of
any event of which it has knowledge, occurring after July 22, 2002 which will
entitle such Bank to compensation pursuant to clause (i) or (ii) of this Section
2(d) as promptly as practicable, but in any event within 90 days after such Bank
obtains knowledge thereof; provided that, if such Bank fails to give such notice
within 90 days after it obtains knowledge of such an event, such Bank shall,
with respect to compensation payable in respect of any costs resulting from such
event, only be entitled to payment for costs incurred on and after the date that
such Bank does give such notice. A certificate of any Bank claiming compensation
under this Section 2(d) and setting forth the additional amount or amounts to be
paid to it hereunder shall be conclusive in the absence of demonstrable error.
In determining such amount, such Bank may use any reasonable averaging and
attribution methods.

      (e) (i) For the purposes of this Section 2(e), the following terms have
the following meanings:

      "TAXES" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Company pursuant to this Agreement, and all liabilities with respect thereto,
excluding (i) in the case of each Bank and the Administrative Agent, taxes
imposed on its net income, and franchise or similar taxes imposed on it, by a
jurisdiction under the laws of which such Bank or the Administrative Agent (as
the case may be) is organized or in which its principal executive office is
located or, in the case of each Bank, in which its Applicable Booking Office is
located and (ii) in the case of each Bank, any United States withholding tax
imposed with respect to any payment by the Company pursuant to this Agreement,
but only up to the rate (if any) at which United States withholding tax would
apply to such payments to such Bank at the time such Bank first becomes a party
to this Agreement.

      "OTHER TAXES" means any present or future stamp or documentary taxes and
any other excise or property taxes, or similar charges or levies, which arise
from any payment made pursuant to this Agreement or from the execution or
delivery of, or otherwise with respect to, this Agreement or the Letter of
Credit.

                                       15
<PAGE>

      (ii) Any and all payments by the Company to or for the account of any Bank
or the Administrative Agent hereunder shall be made without deduction for any
Taxes or Other Taxes; provided that, if the Company shall be required by law to
deduct any Taxes or Other Taxes from any such payments, (A) the sum payable
shall be increased as necessary so that after making all required deductions for
any Taxes or Other Taxes (including deductions applicable to additional sums
payable under this Section) such Bank or the Administrative Agent (as the case
may be) receives an amount equal to the sum it would have received had no such
deductions been made, (B) the Company shall make such deductions, (C) the
Company shall pay the full amount deducted to the relevant taxation authority or
other authority in accordance with applicable law and (D) the Company shall
furnish to the Administrative Agent the original or a certified copy of a
receipt evidencing payment thereof.

      (iii) The Company agrees to indemnify each Bank and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section) paid by such Bank or the Administrative
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be paid within 30 days after such Bank or the Administrative Agent (as the case
may be) makes demand therefor. Such demand shall be made as promptly as
practicable, but in any event within 90 days after such Bank obtains actual
knowledge of such event; provided, however, that if any Bank fails to make such
demand within 90 days after such Bank obtains knowledge of such event, such Bank
shall, with respect to compensation payable in respect of such event, not be
entitled to compensation in respect of the costs and losses incurred between the
90th day after such Bank obtains actual knowledge of such event and the date
such Bank makes such demand.

      (iv) Each Bank organized under the laws of a jurisdiction outside the
United States shall provide the Company and the Administrative Agent with
Internal Revenue Service Form W-8BEN, W-8ECI, or other type of W-8, as
appropriate, or any successor form prescribed by the Internal Revenue Service:
(i) on or prior to the date of its execution and delivery of this Agreement in
the case of each Bank listed on the signature pages hereof and on or prior to
the date on which it becomes a Bank in the case of each other Bank, (ii) before
the end of each third calendar year thereafter, and (iii) at any time that a
change of circumstances occurs that makes any information on the form so
provided incorrect, certifying that such Bank is entitled to benefits under an
income tax treaty to which the United States is a party which exempts such Bank
from United States withholding tax or reduces the rate of withholding tax on
payments under this Agreement or certifying that the income receivable pursuant
to this Agreement is effectively connected with the conduct of a trade or
business in the United States. Further, each such Bank that is not an exempt
recipient listed in Section 6049(b)(4) of the Code shall provide the Company and
the Administrative Agent with Internal Revenue Service Form W-8 or

                                       16
<PAGE>

W-9, as appropriate, or other successor form prescribed by the Internal Revenue
Service, certifying that it is exempt from United States back-up withholding.

      (v) For any period with respect to which a Bank has failed to provide the
Company or the Administrative Agent with the appropriate forms pursuant to
Section 2(e)(iv) (unless such failure is due to a change in treaty, law or
regulation occurring subsequent to the date on which such form originally was
required to be provided), such Bank shall not be entitled to indemnification
under Section 2(e)(ii) or (iii) with respect to Taxes imposed by the United
States; provided that if a Bank, which is otherwise exempt from or subject to a
reduced rate of withholding tax, becomes subject to Taxes because of its failure
to deliver a form required hereunder, the Company shall take such steps as such
Bank shall reasonably request to assist such Bank to recover such Taxes.

      (vi) If the Company is required to pay additional amounts to or for the
account of any Bank pursuant to this Section, then such Bank will change the
jurisdiction of its Applicable Booking Office if, in the judgment of such Bank,
such change (A) will eliminate or reduce any such additional payment which may
thereafter accrue and (B) is not otherwise disadvantageous to such Bank.

      (f) If the payments claimed by any such Bank pursuant to Section 2(d) or
Section 2(e) are substantially in excess, as reasonably determined by the
Company, relative to the amount of such Bank's Participation, of the payments
claimed by the other Banks pursuant to such Sections, the Company shall have the
right, with the assistance of the Administrative Agent, to seek one or more
mutually satisfactory substitute Eligible Institutions to assume all of the
rights and obligations of such Bank in respect of its Participation pursuant to
an assignment and assumption agreement in form and substance satisfactory to the
Administrative Agent; provided that the aggregate amount of the Participation so
assigned to each such Eligible Institution (together with any Participation then
held by such Eligible Institution) shall not be less than $10,000,000.

      (g) The Company shall make each payment hereunder to the Administrative
Agent at 270 Park Avenue, New York, New York 10017, not later than 2:00 p.m.
(New York City time) on the date when due in lawful money of the United States
of America and in Federal or other funds immediately available in New York City.
Whenever any payment under this Section 2 shall be due on a day which is not a
Business Day, the date for payment thereof shall be extended to the next
succeeding day that is a Business Day. If the date for any payment of principal
is extended by operation of law or otherwise, interest thereon shall be payable
for such extended time.

      (h) Computations of the letter of credit commission, the fee referred to
in Section 2(c), and interest based on the Prime Rate shall be made by the
Administrative Agent on the basis of a year of 365 or 366 days, as the case may
be, for the actual number of days (including the first day but excluding the
last day) elapsed. Computations of all other interest hereunder shall be made by
the Administrative Agent on the basis of a year

                                       17
<PAGE>

of 360 days for the actual number of days (including the first day but excluding
the last day) elapsed.

      SECTION 3. Amendment and Restatement of Letter of Credit; Conditions to
Effectiveness; Transitional Provisions. (a) On the terms and conditions herein
set forth, the Issuing Bank agrees to execute and deliver to the Equity
Participant on the Restatement Effective Date, or, if all of the conditions
precedent to the effectiveness of this Amendment and Restatement shall not have
been satisfied by 3:00 p.m., New York City time, on the Restatement Effective
Date, on the next succeeding Business Day, an Amended and Restated Letter of
Credit, substantially in the form of Exhibit A hereto, amending and restating
the Existing Letter of Credit.

      (b) This Amendment and Restatement shall become effective on the date (the
"RESTATEMENT EFFECTIVE DATE") on which all of the following conditions shall
have been satisfied (or waived in accordance with Section 10):

            (i) receipt by the Administrative Agent of a counterpart of this
      Amendment and Restatement signed by each party hereto;

            (ii) receipt by the Administrative Agent of fees payable by the
      Company on or before the Restatement Effective Date in such amounts and
      for the accounts of such parties as heretofore mutually agreed pursuant to
      the Fee Letter;

            (iii) receipt by the Administrative Agent of evidence to its
      satisfaction that the Existing Letter of Credit has been (or will
      substantially simultaneously with the effectiveness hereof be) terminated
      without a drawing thereunder, and that all amounts payable by the Company
      under the Existing Reimbursement Agreement have been paid;

            (iv) receipt by the Administrative Agent of an opinion of Snell &
      Wilmer, special counsel for the Company, dated the Restatement Effective
      Date, substantially in the form of Exhibit B hereto, and covering such
      additional matters relating to the transactions contemplated hereby as the
      Banks may reasonably request;

            (v) receipt by the Administrative Agent of an opinion of Davis Polk
      & Wardwell, special counsel for the Administrative Agent, dated the
      Restatement Effective Date, substantially in the form of Exhibit C hereto,
      and covering such additional matters relating to the transactions
      contemplated hereby as the Administrative Agent may reasonably request;

            (vi) receipt by the Administrative Agent of copies, certified by the
      Secretary, an Associate Secretary or an Assistant Secretary of the
      Company, of the resolutions of the Board of Directors of the Company
      authorizing the execution,

                                       18
<PAGE>

      delivery and performance of this Amendment and Restatement and the
      transactions contemplated hereby;

            (vii) receipt by the Administrative Agent of a certificate of the
      Secretary, an Associate Secretary or an Assistant Secretary of the
      Company, dated the Restatement Effective Date, certifying the names and
      true signatures of the officers of the Company authorized to sign this
      Amendment and Restatement;

            (viii) receipt by the Administrative Agent of evidence to its
      satisfaction that each of the Terminating Participation Agreements has
      been terminated, and that no amounts payable thereunder by any party
      thereto are outstanding;

            (ix) receipt by the Administrative Agent of a certificate, dated the
      Restatement Effective Date, signed by the chief financial officer, vice
      president, finance, or treasurer of the Company to the effect that (x) (A)
      no Default or Event of Default; (B) no Reimbursement Default (as defined
      in the Existing Reimbursement Agreement) and (C) no Reimbursement Default
      (as defined in this Amendment and Restatement) shall have occurred and be
      continuing on the Restatement Effective Date or would result from the
      amendment and restatement of the Letter of Credit pursuant to subsection
      (a) of this Section 3; and (y) that the representations and warranties of
      the Company set forth in Section 6 of this Amendment and Restatement shall
      be true and correct on and as of the Restatement Effective Date as though
      made on and as of such date;

            (x) receipt by the Administrative Agent of certified copies of all
      approvals, authorizations, orders or consents of, or notices to or
      registrations with, any governmental body or agency, if any, required for
      the Company to enter into this Amendment and Restatement;

            (xi) receipt by the Administrative Agent of such other approvals,
      opinions or documents as the Administrative Agent may reasonably request;
      and

            (xii) receipt by the Administrative Agent of all documents the
      Administrative Agent may reasonably request relating to the existence of
      the Company, the corporate authority for and the validity of this
      Amendment and Restatement and any other matters relevant hereto;

provided that all documents (or copies thereof) to be delivered to the
Administrative Agent on or before the Restatement Effective Date shall be
provided to each Bank and shall be in form and substance satisfactory to the
Required Banks. Each Bank which is a party to a Terminating Participation
Agreement agrees with the Issuing Bank that, subject to the payment of all
amounts accrued and unpaid thereunder to (but not including) the Restatement
Effective Date payable by any party thereto, the Terminating Participation

                                       19
<PAGE>

Agreement to which it is a party shall terminate automatically on the
Restatement Effective Date without further action by any party thereto.

      (c) Promptly after this Amendment and Restatement becomes effective, the
Administrative Agent shall give notice thereof and of the Restatement Effective
Date to each party hereto. Immediately upon the effectiveness of this Amendment
and Restatement, the Issuing Bank will be obligated to extend the Letter of
Credit as provided in subsection (a) of this Section 3 and each party hereto
will be bound by the provisions of this subsection (c). The rights and
obligations of the parties hereto on and after the Restatement Effective Date
shall be governed by the provisions of this Amendment and Restatement and as the
same may be further amended and in effect from time to time thereafter. The
rights and obligations of the parties hereto with respect to the period prior to
the Restatement Effective Date will continue to be governed by the provisions of
this Agreement as in effect prior to the Restatement Effective Date.

      SECTION 4. Adjustment of Maximum Drawing Amount; Terms of Drawing. The
Maximum Drawing Amount shall be modified as specified in the third paragraph of
the Letter of Credit and drawings under the Letter of Credit shall be subject to
the other terms and conditions set forth in the Letter of Credit.

      SECTION 5. Obligations Absolute. The payment obligations of the Company
under this Agreement shall be absolute, unconditional and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement under all
circumstances whatsoever, including, without limitation, the following
circumstances:

            (i) any lack of validity or enforceability of the Letter of Credit
      or any of the Transaction Documents or Financing Documents;

            (ii) any amendment or waiver of or any consent to departure from all
      or any of the Transaction Documents or Financing Documents;

            (iii) the existence of any claim, set-off, defense or other rights
      which the Company may have at any time against the Equity Participant, the
      Owner Trustee or any transferee of the Letter of Credit (or any persons or
      entities for whom any of the foregoing may be acting), the Administrative
      Agent, any Bank, any Participant or any other person or entity, whether in
      connection with this Agreement, the Transaction Documents or Financing
      Documents, the transactions contemplated hereby or thereby or any
      unrelated transaction; provided that nothing herein shall prevent the
      assertion of such claim by separate suit or compulsory counterclaim;

            (iv) any statement or any other document presented under the Letter
      of Credit proving to be forged, fraudulent, invalid or insufficient in any
      respect or any statement therein being untrue or inaccurate in any respect
      whatsoever;

                                       20
<PAGE>

            (v) payment by the Issuing Bank under the Letter of Credit against
      presentation of a draft or certificate which does not comply with the
      terms of the Letter of Credit; or

            (vi) any other circumstance or happening whatsoever, whether or not
      similar to any of the foregoing.

      SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants as follows:

      (a) Corporate Existence. Each of the Company and each Material Subsidiary:
(i) is a corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation; (ii) has all requisite corporate power
necessary to own its assets and carry on its business as presently conducted;
(iii) has all governmental licenses, authorizations, consents and approvals
necessary to own its assets and carry on its business as presently conducted,
unless the failure to have any such license, authorization consent or approval
would not have a material adverse effect on the financial condition or financial
prospects of the Company and its Consolidated Subsidiaries, taken as a whole,
except as disclosed in the Financial Information or by written notice delivered
to the Banks more than 5 Business Days prior to the execution and delivery of
this Amendment and Restatement; and (iv) is qualified to do business in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would have a material
adverse effect on the financial condition or financial prospects of the Company
and its Consolidated Subsidiaries, taken as a whole. All of the issued and
outstanding common stock of the Company is owned by PWCC.

      (b) Noncontravention, Etc. The execution, delivery, and performance by the
Company of this Agreement are within the Company's corporate powers, have been
duly authorized by all necessary corporate action, and do not (i) contravene the
Company's charter or by-laws or (ii) contravene any Applicable Law or any
contractual restriction (including, but not limited to, the Company Indenture)
binding on or affecting the Company. The execution, delivery, and performance by
the Company of this Agreement do not cause the creation or imposition of any
Lien upon the assets of the Company or any Material Subsidiary, except as it may
be necessary for the Company to grant a Lien to the Administrative Agent for the
benefit of the Banks pursuant to Section 8(c).

      (c) Approvals. No authorization or approval or other action by, and no
notice to or filing or registration with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Company of this Agreement, except for (v) the 1986 Order which has been duly
issued by the ACC and is in full force and effect in the form originally issued,
(w) such other Governmental Actions as have been duly obtained, given or
accomplished, (x) the filing with the ACC of a copy of this Agreement within
five days of the execution hereof, in accordance with the 1986 Order

                                       21
<PAGE>

and (y) as may be required under Applicable Law not now in effect. The
execution, delivery, and performance by the Company of this Agreement do not
require the consent or approval of the Equity Participant or the Owner Trustee
(except as specified in this Agreement) or PWCC or any trustee or holder of any
indebtedness or other obligation of the Company, other than such consents and
approvals as have been duly obtained, given or accomplished. No Governmental
Action by any Federal, Arizona or New York Governmental Authority relating to
the Securities Act, the Securities Exchange Act, the Trust Indenture Act, the
Federal Power Act, the Atomic Energy Act, the Nuclear Waste Act, the Holding
Company Act, the Arizona Public Utility Act, energy or nuclear matters, public
utilities, the environment, health and safety or Unit 2 is or will be required
in connection with the participation by the Administrative Agent, any Bank or
any Participant in the consummation of the transactions contemplated by this
Agreement, except such Governmental Actions (A) as have been, duly obtained,
given or accomplished or (B) as may be required by Applicable Law not now in
effect.

      (d) Binding Agreement. This Agreement is a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, subject, however, to the application by a court of general principles of
equity and to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally.

      (e) Litigation. There is no pending or (to the knowledge of the Company)
threatened action or proceeding affecting the Company or any of its Subsidiaries
before any court, governmental agency or arbitrator, that, if adversely
determined, could have a material adverse effect on the financial condition or
financial prospects of the Company and its Consolidated Subsidiaries, taken as a
whole, except as disclosed in the Financial Information or by written notice
delivered to the Banks more than 5 Business Days prior to the execution and
delivery of this Amendment and Restatement.

      (f) Financial Statements. The balance sheet of the Company and its
Consolidated Subsidiaries as of December 31, 2001 and the related statements of
income and cash flows of the Company and its Consolidated Subsidiaries for the
fiscal year then ended, copies of which have been furnished to the Banks, fairly
present the financial condition of the Company and its Consolidated Subsidiaries
as of such date and the results of operations and cash flows of the Company and
its Consolidated Subsidiaries for such fiscal year, all in accordance with
generally accepted accounting principles consistently applied (except as
disclosed therein). The balance sheet of the Company and its Consolidated
Subsidiaries as of March 31, 2002 and the related statements of income and cash
flows of the Company and its Consolidated Subsidiaries for the quarter then
ended, copies of which have been furnished to the Banks, fairly present the
financial condition of the Company and its Consolidated Subsidiaries as of such
date and the results of operations and cash flows of the Company and its
Consolidated Subsidiaries for the quarter then ended, all in accordance with
generally accepted accounting principles consistently applied (except as
disclosed therein and subject to normal year-end audit

                                       22
<PAGE>

adjustments). Since March 31, 2002, there has been no material adverse change in
the financial condition or financial prospects of the Company and its
Consolidated Subsidiaries, taken as a whole.

      (g) ERISA. The Company and the ERISA Affiliates have fulfilled their
respective obligations under the minimum funding standards of ERISA and the Code
with respect to each Plan and are in compliance in all material respects with
the presently applicable provisions of ERISA and the Code, and have not incurred
any liability to the PBGC or any Plan or Multiemployer Plan, other than
liability to the PBGC for premiums prior to the due date for such premiums and
liability to any Plan maintained by the Company or an ERISA Affiliate or to any
Multiemployer Plan for contributions prior to the due date for such
contributions which shall be paid in accordance with the provisions of the
minimum funding standards of ERISA and the Code.

      (h) Taxes. The Company and its Subsidiaries have filed all United States
Federal income tax returns and all other material tax returns which are required
to be filed by them and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by the Company or any of its Subsidiaries,
except to the extent that (i) such taxes are being contested in good faith and
by appropriate proceedings and appropriate reserves for the payment thereof have
been maintained by the Company and its Subsidiaries in accordance with generally
accepted accounting principles or (ii) the failure to make such filings or such
payments is not likely to have a material adverse effect on the financial
condition or the financial prospects of the Company and its Consolidated
Subsidiaries, taken as a whole. The charges, accruals and reserves on the books
of the Company and its Material Subsidiaries as set forth in the most recent
financial statements of the Company delivered to the Banks pursuant to Section
6(f) or Section 7(g)(i) or Section 7(g)(ii) hereof in respect of taxes and other
governmental charges are, in the opinion of the Company, adequate.

      (i) Environmental. The operations and properties of the Company and its
Subsidiaries comply in all material respects with all environmental laws, the
noncompliance with which would have a material adverse effect on the financial
condition or financial prospects of the Company and its Consolidated
Subsidiaries taken as a whole, except as disclosed in the Financial Information
or by written notice delivered to the Banks more than 5 Business Days prior to
the execution and delivery of this Amendment and Restatement.

      (j) Investment Company. The Company is not an "investment company", or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.

      (k) No Material Misstatements or Omissions. The Financial Information did
not, and any documents filed with the Securities and Exchange Commission and
delivered to the Banks pursuant to Section 7(g)(i) or Section 7(g)(ii) after
December 31,

                                       23
<PAGE>

2001 will not, as of the date furnished, contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements made therein, in the light of the circumstances under which they were
or shall be made, not misleading.

      (l) No Amendments. Except as provided to the Banks prior to the
Restatement Effective Date, there has been no amendment or waiver of, or consent
with respect to, the payment obligations of the Company under any Transaction
Document or Financing Document since March 17, 1993.

      SECTION 7. Affirmative Covenants. So long as a drawing is available under
the Letter of Credit or the Company shall have any obligation to pay any amount
hereunder to or for the account of the Administrative Agent or any Bank, the
Company will, unless the Required Banks shall otherwise consent in writing:

      (a) Preservation of Corporate Existence, Business, Etc. (i) Preserve and
maintain its corporate existence and all rights and privileges (other than
"franchises" as described in Arizona Revised Statutes, Section 40-283 or any
successor provision) reasonably necessary in the normal conduct of its business,
unless the failure to maintain such rights and privileges would not have a
material adverse effect on the financial condition or financial prospects of the
Company and its Consolidated Subsidiaries taken as a whole, and use its best
efforts to preserve and maintain such franchises reasonably necessary in the
normal conduct of its business, except that (A) the Company from time to time
may make minor extensions of its lines, plants, services or systems prior to the
time a related franchise, certificate of convenience and necessity, license or
permit is procured, (B) from time to time communities served by the Company may
become incorporated and considerable time may elapse before such a franchise is
procured, (C) certain such franchises may have expired prior to the
renegotiation thereof, (D) certain minor defects and exceptions may exist which,
individually and in the aggregate, are not material and (E) certain franchises,
certificates, licenses and permits may not be specific as to their geographical
scope.

      (ii) Continue to conduct the same general type of business conducted on
July 22, 2002.

      (iii) Notwithstanding paragraphs (i) and (ii) above, the Company may
effect the Asset Transfer, whether or not the Nuclear Transfer occurs, and the
Nuclear Transfer.

      (b) Compliance with Laws, Etc. (i) Comply, and cause each Material
Subsidiary to comply, in all material respects with all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if the failure
to comply would have a material adverse effect on the financial condition or
financial prospects of the Company and its Consolidated Subsidiaries, taken as a
whole.

                                       24
<PAGE>

            (ii) Comply at all times with the 1986 Order and any Subsequent
      Order, unless the failure to so comply could not affect the validity or
      enforceability of the indebtedness of the Company pursuant to this
      Agreement.

      (c) Payment of Taxes and Claims. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent, all
taxes, assessments and governmental charges or levies imposed on it or its
property; provided that neither the Company nor any of its Subsidiaries shall be
required to pay or discharge any such tax, assessment, charge or levy (i) that
is being contested in good faith and by proper proceedings and as to which
adequate reserves are being maintained in accordance with generally accepted
accounting principles or (ii) if the failure to pay such tax, assessment, charge
or levy is not likely to have a material adverse effect on the financial
condition or financial prospects of the Company and its Consolidated
Subsidiaries, taken as a whole.

      (d) Maintenance of Insurance. Maintain, and cause each Material Subsidiary
to maintain, insurance, either with responsible and reputable insurance
companies or associations, or through its own program of self-insurance, in such
amounts and covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general areas in
which the Company or such Material Subsidiary operates.

      (e) Visitation Rights. Permit, and cause each of its Subsidiaries to
permit, at any reasonable time and from time to time, any Bank or any of its
agents or representatives to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, the Company and
any of its Subsidiaries, and to discuss the affairs, finances and accounts of
the Company and any of its Subsidiaries with any of their respective officers or
directors; provided that the Company and its Subsidiaries reserve the right to
restrict access to any of its properties in accordance with reasonably adopted
procedures relating to safety and security; and provided further that the costs
and expenses incurred by any Bank or its agents or representatives in connection
with any such examinations, copies, abstracts, visits or discussions shall be,
upon the occurrence and during the continuation of a Reimbursement Default, for
the account of the Company and, in all other circumstances, for the account of
such Bank.

      (f) Maintenance of Property. Keep, and cause each Material Subsidiary to
keep, all property useful and necessary in its business in good working order
and condition (ordinary wear and tear excepted), it being understood that this
covenant relates only to the working order and condition of such properties and
shall not be construed as a covenant not to dispose of properties.

      (g) Reporting Requirements. Furnish to each of the Banks:

                                       25
<PAGE>

            (i) as soon as available and in any event within 60 days after the
      end of each of the first three fiscal quarters of each fiscal year of the
      Company, (A) for each such fiscal quarter of the Company, statements of
      income and cash flows of the Company and its Consolidated Subsidiaries for
      such fiscal quarter and the related balance sheet of the Company and its
      Consolidated Subsidiaries as at the end of such fiscal quarter, setting
      forth in each case in comparative form the corresponding figures for the
      corresponding fiscal quarter in the preceding fiscal year and (B) for the
      period commencing at the end of the previous fiscal year and ending with
      the end of such fiscal quarter, statements of income and cash flows of the
      Company and its Consolidated Subsidiaries for such period setting forth in
      each case in comparative form the corresponding figures for the
      corresponding period in the preceding fiscal year; provided that so long
      as the Company remains subject to the reporting requirements of the
      Securities Exchange Act of 1934, as amended, the Company may provide, in
      satisfaction of the requirements of this first sentence of this Section
      7(g)(i), its report on Form 10-Q for such fiscal quarter. Each set of
      financial statements provided under this Section 7(g)(i) shall be
      accompanied by a certificate of an Authorized Officer, which certificate
      shall state that said financial statements fairly present the financial
      condition and results of operations and cash flows of the Company and its
      Consolidated Subsidiaries in accordance with generally accepted accounting
      principles, consistently applied (except as disclosed therein), as at the
      end of, and for, such period (subject to normal year-end audit
      adjustments);

            (ii) as soon as available and in any event within 120 days after the
      end of each fiscal year of the Company, statements of income, retained
      earnings and cash flows of the Company and its Consolidated Subsidiaries
      for such year and the related balance sheets of the Company and its
      Consolidated Subsidiaries as at the end of such year, setting forth in
      each case in comparative form the corresponding figures for the preceding
      fiscal year; provided that, so long as the Company remains subject to the
      reporting requirements of the Securities Exchange Act of 1934, as amended,
      the Company may provide, in satisfaction of the requirements of this first
      sentence of this Section 7(g)(ii), its report on Form 10-K for such fiscal
      year. Each set of financial statements provided pursuant to this Section
      7(g)(ii) shall be accompanied by an opinion thereon of independent
      certified public accountants of recognized national standing, which
      opinion shall state that said financial statements fairly present the
      financial condition and results of operations and cash flows of the
      Company and its Consolidated Subsidiaries as at the end of, and for, such
      fiscal year, in accordance with generally accepted accounting principles
      consistently applied (except as disclosed therein);

            (iii) as soon as possible and in any event within ten days after an
      Authorized Officer knows of the occurrence of any Reimbursement Default
      continuing on the date of such statement, a statement of an Authorized
      Officer

                                       26
<PAGE>

      setting forth details of such Reimbursement Default and the action which
      the Company has taken and proposes to take with respect thereto;

            (iv) as soon as possible, and in any event within ten days after an
      Authorized Officer knows that any of the events or conditions specified
      below with respect to any Plan or Multiemployer Plan have occurred or
      exist, a statement signed by an Authorized Officer setting forth details
      respecting such event or condition and the action, if any, which the
      Company or its ERISA Affiliate proposes to take with respect thereto (and
      a copy of any report or notice required to be filed with or given to the
      PBGC by the Company or an ERISA Affiliate with respect to such event or
      condition):

                  (A) any reportable event, as defined in Section 4043 of ERISA
            and the regulations issued thereunder, with respect to a Plan, as to
            which the PBGC has not by regulation or other ruling or notice of
            general applicability waived the requirement of Section 4043(a) of
            ERISA that it be notified within 30 days of the occurrence of such
            event; provided that a failure to meet the minimum funding standard
            of Section 412 of the Code or Section 302 of ERISA shall be a
            reportable event regardless of the issuance of any waivers in
            accordance with Section 412(d) of the Code;

                  (B) the filing under Section 4041(c) of ERISA of a notice of
            intent to terminate any Plan in a distress termination or the
            termination of any Plan in a distress termination;

                  (C) the institution by the PBGC of proceedings under Section
            4042 of ERISA for the termination of, or the appointment of a
            trustee to administer, any Plan, or the receipt by the Company or
            any ERISA Affiliate of a notice from a Multiemployer Plan that such
            action has been taken by the PBGC with respect to such Multiemployer
            Plan:

                  (D) the complete or partial withdrawal by the Company or any
            ERISA Affiliate under Part 1 of Subtitle E of Title IV of ERISA from
            a Multiemployer Plan, or the receipt by the Company or any ERISA
            Affiliate of notice from a Multiemployer Plan that it is in
            reorganization or insolvency pursuant to Section 4241 or 4245 of
            ERISA or that it intends to terminate or has terminated under
            Section 4041A of ERISA; and

                  (E) the institution of a proceeding by a fiduciary of any
            Multiemployer Plan against the Company or any ERISA Affiliate to
            enforce Section 515 of ERISA, which proceeding is not dismissed
            within 45 days;

                                       27
<PAGE>

            (v) promptly after (A) any amendment or modification of the 1986
      Order or (B) the promulgation, amendment or modification of any Subsequent
      Order by the ACC, a copy thereof;

            (vi) promptly after the sending or filing thereof, copies of all
      reports which the Company sends to its security holders as a group, and
      copies of all reports and registration statements which the Company or any
      of its Subsidiaries files with the Securities and Exchange Commission or
      any national securities exchange;

            (vii) as soon as practicable and in any event within 30 days after
      the execution thereof, a copy of each amendment, waiver or consent
      relating to the payment obligations of the Company under any Transaction
      Document or Financing Document; and

            (viii) such other information respecting the condition or
      operations, financial or otherwise, of the Company or any of its
      Subsidiaries as the Administrative Agent at the request of any Bank may
      from time to time reasonably request.

The Company will furnish to the Banks, at the time it furnishes each set of
financial statements pursuant to Section 7(g)(i) or 7(g)(ii) above, a
certificate of an Authorized Officer (x) to the effect that no Reimbursement
Default has occurred and is continuing (or, if any Reimbursement Default has
occurred and is continuing, describing the same in reasonable detail and
describing the action that the Company has taken and proposes to take with
respect thereto) and (y) setting forth in reasonable detail the computations
necessary to determine whether the Company is in compliance with Sections 7(h)
and 8(e) as of the end of the relevant fiscal quarter or fiscal year.

      (h) Consolidated Cash Coverage Ratio. Maintain for each twelve-month
period ending on the last day of each fiscal quarter (determined as of the last
day of such fiscal quarter) a Consolidated Cash Coverage Ratio of no less than
2.0:1.0.

      (i) Filing with ACC. File a copy of this Amendment and Restatement, as
executed by each of the parties hereto, with the ACC within five days of the
execution hereof.

      SECTION 8. Negative Covenants. So long as a drawing is available under the
Letter of Credit or the Company shall have any obligation to pay any amount
hereunder to or for the account of the Administrative Agent or any Bank, the
Company will not, without the written consent of the Required Banks:

      (a) Sale of Assets. Permit the Company nor any Material Subsidiary to, in
one or a series of transactions after December 31, 2001, sell, lease, transfer
or otherwise

                                       28
<PAGE>

dispose of assets to any Person other than the Company or any Subsidiary of the
Company (excluding individual dispositions occurring in the ordinary course of
business which involve assets with a book value not exceeding $5,000,000 and
excluding the Asset Transfer and the Nuclear Transfer) if, immediately after
giving effect to such transaction, the aggregate book value of the assets
disposed of in all such transactions after December 31, 2001, other than
excluded transactions, would equal or exceed 30% of the total of all assets
properly appearing on the December 31, 2001 balance sheet of the Company and its
Consolidated Subsidiaries included in its annual report on Form 10-K for the
year ended December 31, 2001.

      (b) Mergers, Etc. Merge or consolidate with or into any Person, or permit
any Material Subsidiary to do so, except that:

            (i) any Material Subsidiary may merge with any Wholly-Owned
      Subsidiary of the Company;

            (ii) any Material Subsidiary may merge into the Company; and

            (iii) the Company may merge with, and any Material Subsidiary may
      merge with, any other Person;

provided that, in each case, immediately after giving effect to such proposed
transaction, no Reimbursement Default would exist; and provided further that, in
the case of any such merger to which the Company is a party, the Company is the
surviving corporation and in the case of any such merger to which any Material
Subsidiary and any other Person are the parties (other than any such merger to
effect the Asset Transfer or the Nuclear Transfer), such Material Subsidiary is
the surviving corporation.

      (c) Negative Pledge. Permit the aggregate amount of all claims secured by
Liens (other than Permitted Liens) upon or with respect to any of its assets or
the assets of any of its Material Subsidiaries, whether now owned or hereafter
acquired, to exceed 55% of Total Assets, unless the Company shall simultaneously
(i) grant to the Administrative Agent, for the benefit of the Banks, Liens on
its assets as collateral for its obligations under this Agreement in a form and
on terms satisfactory to the Administrative Agent and the Required Banks in
their sole and absolute discretion and (ii) obtain the consent of the Equity
Participant thereto.

      (d) Assignment of Transaction Documents or Financing Documents. Enter into
any assignment of the Company's obligations under any of the Transaction
Documents or Financing Documents, except pursuant to the Nuclear Transfer.

      (e) Indebtedness. Permit Consolidated Indebtedness to exceed 65% of
Consolidated Capitalization at any time.

                                       29
<PAGE>

      "CONSOLIDATED CAPITALIZATION" means, at any date, the sum as of such date
of Consolidated Indebtedness and Consolidated Net Worth.

      "CONSOLIDATED INDEBTEDNESS" means, at any date, the Indebtedness of the
Company and its Consolidated Subsidiaries determined on a consolidated basis as
of such date.

      "CONSOLIDATED NET WORTH" means, at any date, the sum as of such date of
(a) the par value (or value stated on the books of the Company) of all classes
of capital stock of the Company and its Subsidiaries, excluding the Company's
capital stock owned by the Company and/or its Subsidiaries, plus (or minus in
the case of a surplus deficit) (b) the amount of the consolidated surplus,
whether capital or earned, of the Company, determined in accordance with
generally accepted accounting principles as of the end of the most recent
calendar month (excluding (x) cumulative charges of up to $300 million to
consolidated surplus resulting from, or in anticipation of, discontinuation of
Financial Accounting Standards Board Statement No. 71, accounting for all or
part of the business and (y) the effect on the Company's accumulated other
comprehensive income/loss of the ongoing application of Financial Accounting
Standards Board Statement No. 133).

      SECTION 9. Reimbursement Events of Default. If any of the following events
("REIMBURSEMENT EVENTS OF DEFAULT") shall occur and be continuing:

            (i) The Company shall fail to pay when due any amount payable under
      Section 2(a) or fail to pay any other amount payable under Section 2
      within five Business Days after the same becomes due and payable; or

            (ii) The Company shall fail to perform or observe (A) any term,
      covenant or agreement contained in Section 7(a)(ii), 7(g)(iv), 7(h), 8(a),
      8(b), 8(c) or 8(e), or (B) any term, covenant or agreement contained in
      this Agreement (other than those covered by clause (i) above or subclause
      (A) of this clause (ii) or Section 7(e) or Section 19) on its part to be
      performed or observed if the failure to perform or observe such term,
      covenant or agreement shall remain unremedied for 30 days after written
      notice thereof shall have been given to the Company by the Administrative
      Agent; or

            (iii) Any representation or warranty made by the Company herein or
      by the Company (or any of its officers) in any certificate delivered in
      connection with this Agreement shall prove to have been false or
      misleading in any material respect when made; or

            (iv) Any material provision of this Agreement shall at any time for
      any reason cease to be valid and binding upon the Company, or shall be
      declared to be null and void, or the validity or enforceability thereof
      shall be contested by the

                                       30
<PAGE>

      Company or any governmental agency or authority, or the Company shall deny
      that it has any or further liability or obligation under this Agreement;
      or

            (v) The Company shall fail to pay any principal of or premium or
      interest on any Indebtedness which is outstanding in a principal amount of
      at least $5,000,000 (but excluding Indebtedness owing hereunder) of the
      Company, when the same becomes due and payable (whether by scheduled
      maturity, required prepayment, acceleration, demand or otherwise), and
      such failure shall continue after the applicable grace period, if any,
      specified in the agreement or instrument relating to such Indebtedness; or
      the Company shall fail to perform or comply with any other term or
      covenant in any agreement or instrument relating to any such Indebtedness
      and such failure shall continue after the applicable grace period, if any,
      specified in such agreement or instrument, if the effect of such failure
      is to accelerate, or to permit the acceleration of, the maturity of such
      Indebtedness; or

            (vi) The Company shall fail to pay any principal of or premium or
      interest in respect of any operating lease in respect of which the payment
      obligations of the Company have a present value of at least $25,000,000,
      when the same becomes due and payable (whether by scheduled maturity,
      required prepayment, acceleration, demand or otherwise), and such failure
      shall continue after the applicable grace period, if any, specified in
      such operating lease, if the effect of such failure is to terminate, or to
      permit the termination of, such operating lease; or

            (vii) The Company shall generally not pay its debts as such debts
      become due, or shall admit in writing its inability to pay its debts
      generally, or shall make a general assignment for the benefit of
      creditors; or any proceeding shall be instituted by or against the Company
      seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
      winding up, reorganization, arrangement, adjustment, protection, relief,
      or composition of it or its debts under any law relating to bankruptcy,
      insolvency or reorganization or relief of debtors, or seeking the entry of
      an order for relief or the appointment of a receiver, trustee, custodian
      or other similar official for it or for any substantial part of its
      property and, in the case of any such proceeding instituted against it
      (but not instituted by it), either such proceeding shall remain
      undismissed or unstayed for a period of 60 days, or any of the actions
      sought in such proceeding (including, without limitation, the entry of an
      order for relief against, or the appointment of a receiver, trustee,
      custodian or other similar official for, it or for any substantial part of
      its property) shall occur; or the Company shall take any corporate action
      to authorize any of the actions set forth above in this clause (vii) or

            (viii) Any Material Subsidiary shall generally not pay its debts as
      such debts become due, or shall admit in writing its inability to pay its
      debts generally,

                                       31
<PAGE>

      or shall make a general assignment for the benefit of creditors; or any
      proceeding shall be instituted by or against any Material Subsidiary
      seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
      winding up, reorganization, arrangement, adjustment, protection, relief,
      or composition of it or its debts under any law relating to bankruptcy,
      insolvency or reorganization or relief of debtors, or seeking the entry of
      an order for relief or the appointment of a receiver, trustee, custodian
      or other similar official for it or for any substantial part of its
      property and, in the case of any such proceeding instituted against it
      (but not instituted by it), either such proceeding shall remain
      undismissed or unstayed for a period of 60 days, or any of the actions
      sought in such proceeding (including, without limitation, the entry of an
      order for relief against, or the appointment of a receiver, trustee,
      custodian or other similar official for it or for any substantial part of
      its property) shall occur; or any Material Subsidiary shall take any
      corporate action to authorize any of the actions set forth above in this
      clause (viii) and, in each case, the Required Banks determine that such
      circumstances could have a material adverse effect on the financial
      condition or financial prospects of the Company and its Consolidated
      Subsidiaries, taken as a whole; or

            (ix) Any judgment or order for the payment of money that exceeds any
      applicable insurance coverage by more than $5,000,000 shall be rendered
      against the Company and such judgment or order shall remain unsatisfied or
      unstayed for a period of 30 days; or

            (x) Any judgment or order for the payment of money that exceeds any
      applicable insurance coverage by more than $25,000,000 shall be rendered
      against any Material Subsidiary; such judgment or order shall remain
      unsatisfied or unstayed for 30 days; and the Required Banks determine that
      such judgment or order could have a material adverse effect on the
      financial condition or financial prospects of the Company and its
      Consolidated Subsidiaries, taken as a whole; or

            (xi) An event or condition specified in Section 7(g)(iv) shall occur
      or exist with respect to any Plan or Multiemployer Plan and, as a result
      of such event or condition, together with all other such events or
      conditions, the Company or any ERISA Affiliate shall incur or in the
      opinion of the Required Banks shall be reasonably likely to incur a
      liability to a Plan, a Multiemployer Plan or the PBGC (or any combination
      of the foregoing) which is, in the determination of the Required Banks,
      material in relation to the financial condition or the financial prospects
      of the Company and its Consolidated Subsidiaries, taken as a whole; or

            (xii) any change in Applicable Law or any Governmental Action shall
      occur which has the effect of making the transactions contemplated by the
      Transaction Documents unauthorized, illegal or otherwise contrary to
      Applicable Law; or

                                       32
<PAGE>

            (xiii) any event specified in subsection (vii), (viii) or (x) of
      Section 15 of the Facility Lease shall occur; or

            (xiv) the Company shall fail to make, or cause to be made, any
      payment specified in Section 15(i) of the Facility Lease equal to or
      exceeding $1,000,000 within the periods specified in that Section.

then, in every such event the Issuing Bank may, and if instructed to do so by
the Required Banks the Issuing Bank shall, by notice to the Company and the
Equity Participant, terminate the Letter of Credit as provided therein. The
Administrative Agent shall give notice to the Company under Section 9(ii)
promptly upon being requested to do so by the Required Banks and will promptly
notify each Bank of any such notice given at the request of the Required Banks.

      SECTION 10. Amendments and Waivers. No modification, amendment or waiver
of any provision of this Agreement or the Letter of Credit or any consent to the
assignment of the Company's obligations under any of the Transaction Documents
or the Financing Documents (except as provided in Section 8(d)) shall be
effective unless the same shall be in writing and signed by (or with the written
consent of) the Company and the Required Banks (and, if the rights or duties of
the Issuing Bank or the Administrative Agent are affected thereby, by it);
provided that no such modification, amendment, waiver or consent shall, unless
signed by (or with the written consent of) each Bank affected thereby, (i)
increase the Maximum Credit Amount or Maximum Drawing Amount or subject any Bank
to any additional obligation under this Agreement or the Letter of Credit, (ii)
reduce the principal of or rate of interest on any reimbursement obligation or
reduce the letter of credit commission payable under Section 2(b), (iii)
postpone the date fixed for any payment of principal of or interest on any
reimbursement obligation or any payment of such letter of credit commission,
(iv) extend the Stated Termination Date or the Termination Date or (v) change
the definition of Required Banks or the provisions of this Section 10 or any
provision of this Agreement that requires action by all the Banks. Any waiver of
any provision of this Agreement or the Letter of Credit shall be effective only
in the specific instance and for the specific purpose for which given.

      SECTION 11. Notices. (a) All notices, requests, demands and other
communications provided for hereunder shall, unless otherwise stated herein, be
in writing (including facsimile transmission or similar transmission) and
mailed, sent or delivered:

            (i) if to the Company, in the case of deliveries, to its street
      address at 400 North Fifth Street, Phoenix, Arizona 85004; in the case of
      mailings, to its mailing address at P.O. Box 53999, Phoenix, Arizona
      85072-3999; and in the case of facsimile transmission, to telecopy no.
      (602) 250-5640; in each case to the attention of the Treasurer;

                                       33
<PAGE>

            (ii) if to the Administrative Agent, in the case of deliveries or
      mailings, to its address at 1 Chase Manhattan Plaza, 8th Floor, New York,
      New York, 10081, Attention: Maggie Swales; and in the case of facsimile
      transmission, to telecopy no. 212-552-5777; and

            (iii) if to the Issuing Bank, in the case of deliveries or mailings,
      to its address at JPMorgan Chase Bank, c/o JPMorgan Treasury Services,
      Attention: Standby Letter of Credit Manager - Immediate Action Required,
      4th Floor, 10420 Highland Manor Drive, Tampa, Florida 33610; and in the
      case of facsimile transmission, to telecopy no. 813-432-5161;

            (iv) if to any other Bank, at such address or number as shall be
      designated by it in its Administrative Questionnaire;

or, as to each party, to such other person and/or to such other address or
number as shall be designated by such party in a written notice to each other
party. All such notices, requests, demands and other communications shall be
effective when mailed or sent, addressed as aforesaid, except that notices to
the Administrative Agent shall not be effective until received by the
Administrative Agent and any notice to the Equity Participant pursuant to
Section 9 shall not be effective until received by the Equity Participant.
Notices of any Reimbursement Default shall be sent by the Company to the
Administrative Agent by facsimile transmission.

      (b) As promptly as practicable after receipt by the Administrative Agent
of any notice or other communication delivered hereunder by the Company, the
Administrative Agent shall furnish a copy thereof to each Bank, to the extent
such notice or other communication is not otherwise required by the terms
thereof to be delivered by the Company to each Bank.

      (c) Notices and other communications to the Banks hereunder may be
delivered or furnished by electronic communications pursuant to procedures
approved by the Administrative Agent; provided that the foregoing shall not
apply to notices pursuant to Sections 2, 14 or 17 unless otherwise agreed by the
Administrative Agent and the applicable Bank. The Administrative Agent and the
Company may, each in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may be
limited to particular notices or communications.

      SECTION 12. No Waiver; Remedies. No failure on the part of the
Administrative Agent or any Bank to exercise, and no delay in exercising, any
right, power, or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other

                                       34
<PAGE>

right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.

      SECTION 13. Waiver of Right of Setoff. The Administrative Agent and each
Bank hereby waive any right to set off and apply any and all deposits (general
or special, time or demand, provisional or final) and collateral at any time
held and other indebtedness at any time owing by it to or for the credit or the
account of the Company if there shall be a drawing under the Letter of Credit at
any time during the pendency of any proceeding by or against the Company seeking
to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, custodian, trustee or other similar official for it
or for any substantial part of its property (collectively the "BANKRUPTCY
EVENTS"), against any and all of the obligations of the Company now or hereafter
existing in respect of any reimbursement obligation of the Company set forth in
Section 2(a), provided that any such waiver shall be deemed ineffective as and
to the extent that the Administrative Agent and each Bank receive, after any of
the bankruptcy events occur, an unqualified opinion of nationally-recognized
counsel with bankruptcy law experience, (which counsel shall be mutually
satisfactory to the Administrative Agent and the Equity Participant, each of
which shall use its best efforts to agree on such counsel), that non-waiver
would not, as a result of the application of bankruptcy or similar laws as then
in effect, lead to the Administrative Agent or any Bank being refused,
prevented, permanently enjoined or restrained from or delayed in fulfilling its
obligation under the Letter of Credit. This Section 13 shall not constitute a
waiver of any right of setoff if there shall be a drawing under the Letter of
Credit at any time other than that described in this Section 13.

      SECTION 14. Participations of the Banks. (a) The Issuing Bank hereby sells
to each other Bank, and each Bank hereby severally purchases from the Issuing
Bank, as of the Restatement Effective Date, a Participation in an amount equal
to such Bank's Participation Percentage of the Letter of Credit and in each
drawing thereunder, all on the terms and conditions set forth herein.

      (b) If at any time on or after the Restatement Effective Date the Company
shall fail to reimburse a drawing under the Letter of Credit in accordance with
Section 2(a), the Administrative Agent shall promptly (but in any event no later
than 1:00 p.m., New York City time, on the date payment is due from the Banks
under this Section 14(b)) advise each Bank thereof and of the amount due from
the Company and the amount of such Bank's Participation therein, and each Bank
shall pay, no later than 4:00 p.m. (New York City time) on such date such Bank's
Participation Percentage of such amount by transferring the same in immediately
available funds to the Administrative Agent for the account of the Issuing Bank
at the Administrative Agent's address specified in Section 11. With respect to
any such drawing, each Bank agrees that the Issuing Bank shall have no
responsibility to the Banks other than obtaining the draft and certificates
referred to in

                                       35
<PAGE>

the Letter of Credit and notifying each Bank thereof. The Administrative Agent
shall promptly credit each Bank's account with such Bank's Participation
Percentage of (i) all amounts representing principal of, or interest on, any
reimbursement obligations, in each case in respect of drawings under the Letter
of Credit of which such Bank has funded its Participation Percentage in
accordance with the foregoing provisions of this Section 14(b) and (ii) letter
of credit commissions payable to each Bank pursuant to Section 2(b) of this
Agreement and accruing on and after the Restatement Effective Date, but, in the
case of both clause (i) and clause (ii), only if, when and to the extent
received by the Administrative Agent from the Company. All such payments shall
be made if, when and to the extent the Administrative Agent receives payment
from the Company in respect of reimbursement for drawings under the Letter of
Credit and of the letter of credit commission pursuant to Section 2(b) of this
Agreement, and in the same funds in which such amounts are received, by credit
to an account at a bank located in the United States of America as each Bank
shall designate in writing to the Administrative Agent.

      (c) If the Administrative Agent should for any reason make any payment to
any Bank in anticipation of the receipt of funds from the Company and such funds
are not received by the Administrative Agent from the Company on the date
payment is due, then such Bank shall, on demand by the Administrative Agent,
forthwith return to the Administrative Agent any such amounts transferred to
such Bank by the Administrative Agent in respect of such Bank's Participation
plus interest thereon from the day such amounts were transferred by the
Administrative Agent to such Bank to but not including the day such amounts are
returned by such Bank at a rate per annum equal to the Federal Funds Rate. If
the Administrative Agent is required at any time to return to the Company or to
a trustee, receiver, liquidator, custodian or other similar official any portion
of the payments made by the Company to the Administrative Agent for the account
of any Bank, then such Bank shall, on demand by the Administrative Agent,
forthwith return to the Administrative Agent any such payments transferred to
such Bank by the Administrative Agent in respect of such Bank's Participation,
but without interest on such payments (unless the Administrative Agent is
required to pay interest on such amounts to the Person recovering such
payments).

      (d) Each Bank agrees that if it should receive any amount due to it under
this Agreement in respect of its Participation other than from the
Administrative Agent, such Bank will remit all of the same to the Administrative
Agent to distribute to the Banks pursuant to this Agreement, and such Bank's
Participation shall be adjusted to reflect such remittance. Each Bank further
agrees to send the Administrative Agent a copy of any notice sent by such Bank
to the Company hereunder.

          (e) Each Bank acknowledges and represents that it has made its own
independent appraisal of the Company, and the business, affairs and financial
condition of the Company, based on such documents and information as such Bank
has deemed appropriate, and each Bank will continue to be responsible for making
its own independent appraisal of such matters, based on such documents and
information as such

                                       36
<PAGE>

Bank shall deem appropriate at the time, and has not relied upon and will not
hereafter rely upon the Administrative Agent or any other Bank or any
information prepared, distributed or otherwise made available by the
Administrative Agent for such appraisal or other assessment or review of the
Company. Each Bank represents, and in granting a Participation to such Bank it
is specifically understood and agreed, that such Bank is acquiring its
Participation in the Letter of Credit for its own account in the ordinary course
of its commercial banking business and not with a view to, or for sale in
connection with, any distribution thereof.

      SECTION 15. Assignees; Participants. (a) Each Bank shall have the right,
with the prior written consent of the Company (which shall not be unreasonably
withheld, and shall not be required if a Reimbursement Event of Default has
occurred and is continuing) and the prior written consent of the Administrative
Agent, to assign all or a pro rata portion of all of its rights and obligations
under its Participation at any time and from time to time to one or more
Eligible Institutions (each an "ASSIGNEE"); provided that (i) each such Assignee
shall assume such rights and obligations and agree, for the benefit of each
other party hereto, to be bound by the provisions of, and perform the
obligations of a Bank under, this Agreement, pursuant to an assignment and
assumption agreement in form and substance satisfactory to the Administrative
Agent and (ii) the aggregate amount of the Participation or Participations
assigned to each such Assignee pursuant to this Section 15(a) shall not be less
than $10,000,000. Each Bank shall give prompt notice to the Administrative Agent
and the Company of each such assignment made by it.

      (b) (i) Each Bank shall also have the right, without the consent of the
Company, to grant participating interests in its Participation at any time and
from time to time to one or more other financial institutions or other entities
(each a "PARTICIPANT"); provided that (A) such Bank's obligations under this
Agreement shall remain unchanged, (B) such Bank shall remain solely responsible
to the other parties hereto for the performance of such obligations and (C) the
Company, the Administrative Agent and the other Banks shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Each such participation granted by a Bank
shall be evidenced by a participation agreement in form acceptable to such Bank.
Each such participation agreement shall provide that such Bank shall retain the
sole right to exercise its rights under this Agreement and to enforce the
obligations owed to it hereunder pursuant to its Participation including,
without limitation, the right to consent to any modification, amendment or
waiver of any provision of this Agreement or the Letter of Credit or any
assignment of the Company's obligations under any of the Transaction Documents
or the Financing Documents, subject to Section 8(d); provided that any such
participation agreement may provide that such Bank will not, without the consent
of the Participant, consent to any modification, amendment or waiver of this
Agreement or the Letter of Credit that (w) increases the Maximum Credit Amount
or Maximum Drawing Amount or subjects such Bank to any additional obligation
under this Agreement or the Letter of Credit, (x) reduces the principal of or
rate of interest on any reimbursement obligation or reduces the letter of credit
commission payable under

                                       37
<PAGE>

Section 2(b), (y) postpones the date fixed for any payment of principal of or
interest on any reimbursement obligation or any payment of such letter of credit
commission or (z) extends the Stated Termination Date or the Termination Date.

            (ii) Subject to clause (iii) below, the Company agrees that each
      Participant shall be entitled to the benefits of Sections 2(d) and 2(e) to
      the same extent as if it were a Bank and had acquired its interest by
      assignment pursuant to Section 15(a).

            (iii) A Participant shall not be entitled to receive any greater
      payment under Section 2(d) or 2(e) than the applicable Bank would have
      been entitled to receive with respect to the participating interest
      granted to such Participant, unless the granting of such interest to such
      Participant is made with the Company's prior written consent. A
      Participant organized under the laws of a jurisdiction outside the United
      States shall not be entitled to the benefits of Section 2(d) or 2(e)
      unless the Company is notified of the participating interest granted to
      such Participant and such Participant agrees, for the benefit of the
      Company, to comply with Section 2(d) or 2(e) as though it were a Bank.

      SECTION 16. Continuing Obligation; Binding Effect. (a) The obligations of
the Company under this Agreement shall continue until the later of (i) the
Termination Date and (ii) the date upon which all amounts due and owing to the
Administrative Agent or any Bank hereunder shall have been paid in full. This
Agreement shall be binding upon and inure to the benefit of each of the parties
hereto and their respective successors. Except as contemplated by Section 16(b),
the Company shall not have the right to assign its rights hereunder or any
interest herein to any Person without the prior written consent of the Issuing
Bank and each Bank. The Issuing Bank shall not have the right to assign its
rights as the Issuing Bank hereunder without the prior written consent of the
Company (which shall not be unreasonably withheld) and each Bank.

      (b) In connection with the Nuclear Transfer, the Company may, with the
consent of the Equity Participant and the Owner Trustee, cause PWEC to assume
the obligations of the Company under this Agreement. No such assumption by PWEC
shall release the Company from any of its obligations hereunder, and as between
the Company, on the one hand, and the Administrative Agent, the Issuing Bank and
the other Banks, on the other hand, the Company shall be directly, primarily and
unconditionally obligated to perform those obligations, unless and until all the
Banks consent in writing to such release; provided, however, that if less than
all the Banks consent to such release, the Company may, with the consent of the
Equity Participant, upon 10 days' prior written notice to the Administrative
Agent, terminate this Agreement, and this Agreement shall thereupon terminate,
subject to (i) receipt by the Administrative Agent for the account of the Banks
of all amounts representing principal of, or accrued interest on, any
outstanding reimbursement obligation of the Company under Section 2(a) and all
accrued fees and other amounts hereunder to (but not including) such date of
termination, whether or not

                                       38
<PAGE>

such amounts are otherwise due or payable, and (ii) receipt by the Issuing Bank
of the certificate specified in clause (vii) of the definition of "Termination
Date".

      SECTION 17. Extension of the Letter of Credit. At least 105 days but not
more than 180 days before the Stated Termination Date, the Company may request
the Administrative Agent in writing (each such request being irrevocable and
binding), with a copy to each Bank, to extend for not less than three years, nor
more than eight years, the Stated Termination Date, specifying the terms and
conditions, including fees, to be applicable to such extension. Within 45 days
after receiving such extension request (or such later date as the Company may
authorize in writing, but in no event later than 60 days before the Stated
Termination Date), each Bank shall notify the Company of its consent or
nonconsent to such extension request, and if any Bank shall give no such notice,
it shall be deemed not to have consented to such extension request. No such
requested extension shall be effective without the consent of all the Banks. The
consent of any Bank shall be in its sole discretion and shall be conditional
upon the preparation, execution and delivery of legal documentation in form and
substance satisfactory to such Bank and its counsel, incorporating substantially
the terms and conditions contained in the extension request as the same may be
modified by agreement among the Company, and the Banks, and evidence
satisfactory to it of the due authorization and validity thereof.

      SECTION 18. Limited Liability of the Banks. The Company assumes all risks
of the acts or omissions of the Equity Participant and any beneficiary or
transferee of the Letter of Credit with respect to its use of the Letter of
Credit. None of the Administrative Agent and the Banks, nor their respective
Affiliates nor any officer or director of any of the foregoing shall be liable
or responsible for: (a) the use which may be made of the Letter of Credit or any
acts or omissions of the Equity Participant or any beneficiary or transferee in
connection therewith; (b) the validity, sufficiency or genuineness of documents,
or of any endorsement thereon, even if such documents shall prove to be in any
or all respects invalid, insufficient, fraudulent or forged; (c) payment by the
Issuing Bank against presentation of documents which do not comply with the
terms of the Letter of Credit, including failure of any documents to bear any
reference or adequate reference to the Letter of Credit; or (d) any other
circumstances whatsoever in making or failing to make payment under the Letter
of Credit, except that the Company shall have a claim against the Issuing Bank,
and the Issuing Bank shall be liable to the Company, to the extent, but only to
the extent, of any direct, as opposed to consequential, damages suffered by the
Company which the Company proves were caused by (i) the willful misconduct or
gross negligence of the Issuing Bank in determining whether a draft or
certificate presented under the Letter of Credit complied with the terms of the
Letter of Credit or (ii) the Issuing Bank's willful failure to make lawful
payment under the Letter of Credit after the presentation to it by the Equity
Participant of a draft and certificate strictly complying with the terms and
conditions of the Letter of Credit. In furtherance and not in limitation of the
foregoing, the Issuing Bank may accept documents that appear on their face to be
in order, without responsibility for further investigation, regardless of

                                       39
<PAGE>

any notice or information to the contrary unless the Equity Participant and the
Company have notified the Issuing Bank in writing prior to a drawing under the
Letter of Credit that such documents do not comply with the Letter of Credit.

      SECTION 19. Cost, Expenses and Taxes. The Company agrees to pay not later
than 30 days after demand therefor all reasonable costs and expenses in
connection with the preparation, execution, delivery, filing, recording and
administration of this Agreement and any other documents which may be delivered
in connection with this Agreement and any waiver or consent under, or amendment
of, this Agreement or any of the Transaction Documents or Financing Documents,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Administrative Agent, and local counsel who may be retained by
said counsel, with respect thereto and with respect to advising the
Administrative Agent as to its rights and responsibilities under this Agreement;
all costs and expenses (including counsel fees and expenses) in connection with
(i) the enforcement of this Agreement and such other documents which may be
delivered in connection with this Agreement or (ii) any action or proceeding
relating to a court order, injunction or other process or decree restraining or
seeking to restrain the Issuing Bank from paying any amount under the Letter of
Credit; and all costs and expenses (including reasonable counsel fees and
expenses) in connection with each transfer of the Letter of Credit in accordance
with its terms. In addition, the Company shall pay any and all stamp,
documentary, filing, recording or other similar taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing and
recording of this Agreement and such other documents, and agrees to save the
Administrative Agent and each Bank harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees, provided that the Administrative Agent and each Bank
agree promptly to notify the Company of any such taxes and fees which are
incurred by the Administrative Agent or such Bank.

      SECTION 20. Administrative Agent; Issuing Bank. (a) Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement as are delegated to
the Administrative Agent by the terms hereof, together with all such powers as
are reasonably incidental thereto.

      (b) The Administrative Agent and its Affiliates may accept deposits from,
make loans or otherwise extend credit to, and generally engage in any kind of
business with, the Company, the Equity Participant and their respective
Subsidiaries and Affiliates and receive payment on such loans or extensions of
credit and otherwise act with respect thereto freely and without accountability
in the same manner as if this Agreement and the transactions contemplated hereby
were not in effect.

      (c) The Administrative Agent may consult with legal counsel (who may be
counsel for the Company), independent public accountants and other experts as it
may

                                       40
<PAGE>

select and shall not be liable for any action taken or omitted to be taken by it
in good faith in accordance with the advice of such counsel, accountants or
experts.

      (d) It is understood that the Issuing Bank will exercise and give the same
care and attention to the Letter of Credit as it gives to its other letters of
credit and loans for its own account and that the Issuing Bank shall have no
obligation to the Company or any other Bank and no duty or responsibility with
respect to this Agreement or the Letter of Credit, except as expressly provided
herein and in the Letter of Credit. Without limiting the generality of the
foregoing, neither the Administrative Agent nor the Issuing Bank shall be
required to take any action with respect to any Reimbursement Default, except as
expressly provided in Section 9 hereof. Neither the Administrative Agent nor the
Issuing Bank shall be liable for any action taken or not taken at the request or
with the approval of the Required Banks (or all the Banks, as applicable) or for
the performance or non-performance of the obligations of any other party under
this Agreement or any Transaction Document or Financing Document or any other
document contemplated thereby. It is further understood that: (i) except as
expressly limited by the provisions of this Agreement, the Issuing Bank retains
the sole right to exercise its rights and enforce the obligations of the Company
under this Agreement, and the Issuing Bank may use its sole discretion with
respect to exercising or refraining from exercising any rights or taking or
refraining from taking any actions which may be vested in it or which it may be
entitled to take or assert under this Agreement or any of the Transaction
Documents or Financing Documents (including, without limitation, the giving of
any notice to any Person of any Reimbursement Event of Default under this
Agreement except as provided in Section 9); and (ii) the Issuing Bank shall not,
in the absence of gross negligence or willful misconduct, be under any liability
to any other Bank with respect to anything which the Issuing Bank may do or
refrain from doing in the exercise of its best judgment or which it may deem to
be necessary or desirable. Neither the Administrative Agent nor the Issuing Bank
shall incur any liability by acting in reliance upon any written communication
or any telephone conversation which it reasonably believes to be genuine and
correct or to have been signed, sent or made by the proper Person. Neither the
Administrative Agent nor the Issuing Bank shall have any obligation to make any
claim on, or assert any lien upon, or assert any setoff against, any property
held by it and, if it elects to do so, it may in its discretion apply the same
against indebtedness of the Company other than the Company's obligations under
this Agreement; provided that, to the extent any funds received pursuant to any
of the foregoing are applied to the obligations of the Company under Section
2(a) or 2(b) hereof, each Bank shall be entitled to receive its pro rata share
thereof in accordance with Section 14(b) above. Any such setoff or other action
in respect of any reimbursement obligation of the Company set forth in Section
2(a) will be subject to Section 13.

      SECTION 21. Indemnification. (a) The Company indemnifies and holds
harmless the Administrative Agent, each Bank, and their respective officers and
directors from and against any and all claims, damages, losses, liabilities,
costs or expenses whatsoever

                                       41
<PAGE>

which the Administrative Agent or such Bank may incur (or which may be claimed
against the Administrative Agent or such Bank by any Person whatsoever):

            (i) by reason of any inaccuracy in any material respect, or any
      untrue statement or alleged untrue statement of any material fact
      contained or incorporated by reference in any offering document
      distributed by or on behalf of the Company in connection with obtaining
      purchasers of the Company's undivided interest in Unit 2 of the Palo Verde
      Nuclear Generating Station, or in any supplement or amendment to either
      thereof, or by reason of the omission or alleged omission to state therein
      a material fact necessary to make such statements, in the light of the
      circumstances under which they are or were made, not misleading;

            (ii) by reason of or in connection with the execution, delivery and
      performance of the Transaction Documents and Financing Documents, or any
      transaction contemplated by the Transaction Documents or the Financing
      Documents; or

            (iii) by reason of or in connection with the execution and delivery
      or transfer of, or payment or failure to make lawful payment under, the
      Letter of Credit; provided that the Company shall not be required to
      indemnify the Administrative Agent or any Bank pursuant to this Section 21
      for any claims, damages, losses, liabilities, costs or expenses to the
      extent, but only to the extent, caused by (A) the willful misconduct or
      gross negligence of the Issuing Bank in determining whether a draft or
      certificate presented under the Letter of Credit complied with the terms
      of the Letter of Credit or (B) the Issuing Bank's willful failure to make
      lawful payment under the Letter of Credit after the presentation to it by
      the Equity Participant of a draft and certificate strictly complying with
      the terms and conditions of the Letter of Credit.

Nothing in this Section 21(a) is intended to limit the Company's obligations
contained in Section 2. Without prejudice to the survival of any other
obligation of the Company hereunder, the indemnities and obligations of the
Company contained in this Section 21(a) shall survive the payment in full of all
amounts payable pursuant to Section 2 and the termination of the Letter of
Credit.

      (b) To the extent that the Administrative Agent or the Issuing Bank is not
reimbursed and indemnified by the Company under this Agreement, each Bank will
reimburse and indemnify the Administrative Agent and the Issuing Bank on demand
for and against such Bank's Participation Percentage of any and all claims,
demands, liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (including fees and
disbursements of counsel) of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Administrative Agent or the Issuing
Bank in any way relating to or arising out of this

                                       42
<PAGE>

Agreement, the Letter of Credit, or any of the Transaction Documents or
Financing Documents or any action taken or omitted to be taken by the
Administrative Agent or the Issuing Bank hereunder or thereunder, or the
transactions contemplated hereby and thereby or the enforcement of any of the
terms hereof and thereof; provided that such Bank shall not be liable for any
portion of such claims, demands, liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, out-of-pocket expenses or
disbursements resulting from the gross negligence or willful misconduct of the
Administrative Agent or the Issuing Bank or which are expressly excluded from
the indemnification by the Company by the proviso to Section 21(a)(iii) of this
Agreement. Each Bank's obligations under this Section 21(b) shall survive the
termination of this Agreement and the Letter of Credit. If the Administrative
Agent or the Issuing Bank is reimbursed by the Company for any amounts
previously received from any Bank pursuant to this Section 21(b), it will
promptly pay to such Bank its proportionate share of any amounts so received.

      SECTION 22. Confidentiality. Neither the Administrative Agent nor any Bank
shall disclose any Confidential Information to any Person without the consent of
the Company, other than (a) to the Administrative Agent's or such Bank's
respective Affiliates or any officer, director, employee, accountant and advisor
of any of the foregoing, and to actual or prospective Assignees and
Participants, and then only on a confidential basis, (b) as required by any law,
rule or regulation or judicial process and (c) as requested or required by any
state, federal or foreign authority or examiner regulating banks or banking or
otherwise regulating the business of the Administrative Agent or such Bank, as
the case may be.

      SECTION 23. Severability. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.

      SECTION 24. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.

      SECTION 25. Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.

      SECTION 26. Counterparts; Integration. This Amendment and Restatement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement and that certain Letter Agreement dated as of July
22, 2002 between the Issuing Bank and the Company constitute the entire
agreement and understanding among

                                       43
<PAGE>

the parties hereto and, subject to Section 3(c), supersede any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof.

      SECTION 27. WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE BANKS AND THE
ADMINISTRATIVE AGENT HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

                             SIGNATURE PAGES FOLLOW

                                       44
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Restatement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.

                         ARIZONA PUBLIC SERVICE COMPANY

                                By: /s/ Barbara M. Gomez
                                   ----------------------------------------
                                   Name:  Barbara M. Gomez
                                   Title: Treasurer

                                JPMORGAN CHASE BANK,
                                 as Administrative Agent and Issuing Bank

                                By: /s/ Peter M. Ling
                                   ----------------------------------------
                                   Name:  Peter M. Ling
                                   Title: Vice President

                                BANK HAPOALIM B.M.

                                By: /s/ James P. Surless
                                   ----------------------------------------
                                   Name:  James P. Surless
                                   Title: Vice President

                                By: /s/ Laura Anne Raffa
                                   ----------------------------------------
                                   Name:  Laura Anne Raffa
                                   Title: Senior Vice President & Corporate
                                          Manager
<PAGE>

                                BARCLAYS BANK PLC

                                By: /s/ Sydney G. Dennis
                                   -------------------------------------
                                   Name:  Sydney G. Dennis
                                   Title: Director

                                UNION BANK OF CALIFORNIA, N.A.

                                By: /s/ Robert J. Olson
                                   -------------------------------------
                                   Name:  Robert J. Olson
                                   Title: Senior Vice President

                                BANK ONE, NA

                                By: /s/ Dawn M. Lawler
                                   -------------------------------------
                                   Name:  Dawn M. Lawler
                                   Title: Director

<PAGE>

                                                                      SCHEDULE I

      The "LETTER OF CREDIT COMMISSION RATE" for any day is the rate set forth
below (in basis points per annum) under the column corresponding to the Status
that exists on such day:

<TABLE>
<CAPTION>
             STATUS                    LEVEL I        LEVEL II       LEVEL III        LEVEL IV        LEVEL V
--------------------------------       -------        --------       ---------        --------        -------
<S>                                    <C>            <C>            <C>              <C>             <C>
LETTER OF CREDIT COMMISSION RATE        87.5           100.0           112.5            137.5          162.5
</TABLE>

      For purposes of this Schedule, the following terms have the following
meanings:

      "LEVEL I STATUS" exists at any date if, at such date, the Ratings are A-
or higher by S&P or A3 or higher by Moody's.

      "LEVEL II STATUS" exists at any date if, at such date, (i) Level I Status
does not exist and (ii) the Ratings are BBB+ or higher by S&P or Baa1 or higher
by Moody's.

      "LEVEL III STATUS" exists at any date if, at such date, (i) neither Level
I Status nor Level II Status exists and (ii) the Ratings are BBB or higher by
S&P or Baa2 or higher by Moody's.

      "LEVEL IV STATUS" exists at any date if, at such date, (i) none of Level I
Status, Level II Status and Level III Status exists and (ii) the Ratings are
BBB- or higher by S&P or Baa3 or higher by Moody's.

      "LEVEL V STATUS" exists at any date if, at such date, no other Status
exists.

      "MOODY'S" means Moody's Investors Service, Inc.

      "RATING AGENCIES" means Moody's and S&P.

      "RATINGS" means the credit ratings assigned to the senior unsecured
long-term debt securities of the Company without third-party credit enhancement
by the Rating Agencies. If there is no rating assigned to debt securities, the
corporate credit rating will be used. Any rating assigned to any other debt
security of the Company shall be disregarded. The rating in effect at any date
is that in effect at the close of business on such date. In the case of split
ratings from S&P or Moody's, the rating to be used to determine which pricing
level applies is the higher of the two (e.g., BBB+/Baa2 results in Level II
Status); provided that if the split is more than one full rating category, the
rating category immediately above the lower of the two rating categories will be
used (e.g., BBB+/Baa3 results in Level III Status, as does A-/Baa3).

                                 Schedule I-1
<PAGE>

      "S&P" means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc.

      "STATUS" refers to the determination of which of Level I Status, Level II
Status, Level III Status, Level IV Status or Level V Status exists at any date.

                                 Schedule I-2
<PAGE>

                                                                     SCHEDULE II

<TABLE>
<CAPTION>
           BANK                 PARTICIPATION PERCENTAGE             PARTICIPATION AMOUNT
------------------------------  ------------------------             --------------------
<S>                             <C>                                  <C>
JPMorgan Chase Bank                    27.8260870%                      $17,746,281.68

Bank Hapoalim B.M.                     24.3478261%                      $15,527,996.47

Barclays Bank PLC                      17.3913043%                      $11,091,426.05

Union Bank of California, N.A.         17.3913043%                      $11,091,426.05

Bank One, NA                           13.0434783%                      $ 8,318,569.54
</TABLE>

                                  Schedule II
<PAGE>

                                                                       EXHIBIT A

                              AMENDED AND RESTATED
                    IRREVOCABLE TRANSFERABLE LETTER OF CREDIT
                                  No. P-010152
                          (formerly numbered as S-1002)

                                            Originally Issued August 18, 1986
                                            Reissued July 22, 2002

Emerson Finance Co.
8000 W. Florissant Avenue
P.O. Box 4100
St. Louis, Missouri 63136

Attn: President

Dear Sirs:

      We hereby establish, at the request of Arizona Public Service Company (the
"COMPANY"), in your favor, our Irrevocable Transferable Letter of Credit No.
S-1002 (the "LETTER OF CREDIT"), in a maximum amount at any date (the "MAXIMUM
CREDIT AMOUNT") equal to the amount shown opposite the period including such
date in the Table of Maximum Credit Amounts attached hereto as Schedule II-A,
effective immediately and expiring at 5:00 p.m. (New York City time) on the
Termination Date. Capitalized terms used herein and in Schedules II-A, II-B and
III and Exhibits 1, 2, 3 and 4 hereto shall have the meanings set forth in
Schedule I hereto. This Letter of Credit is issued in connection with the
leasing of an undivided interest in Unit 2 of the Palo Verde Nuclear Generating
Station to the Company pursuant to a Facility Lease dated as of August 1, 1986
(the "FACILITY LEASE") as amended and in effect on the date hereof, between the
Company and State Street Bank and Trust Company (as successor to The First
National Bank of Boston), as Owner Trustee under a trust agreement with you.

      We hereby irrevocably authorize you to draw on us, in accordance with the
terms and conditions hereinafter set forth, an amount not in excess of the
amount shown opposite the period including the date of such drawing (the "DATE
OF DRAWING") in the Table of Maximum Drawing Amounts attached hereto as Schedule
II-B as such amounts are modified from time to time in accordance with the next
paragraph. Such amounts, as modified in accordance with the next paragraph, are
hereinafter referred to collectively as the "MAXIMUM DRAWING AMOUNTS" and
individually as the "MAXIMUM DRAWING

                                  Exhibit A-1
<PAGE>

AMOUNT". A drawing in respect of a payment hereunder honored by us shall not
exceed the lesser of the Maximum Drawing Amount applicable on the Date of
Drawing and the Maximum Credit Amount applicable on the Date of Drawing. All
payments hereunder shall be made from our own general funds.

      The Maximum Drawing Amounts shall be modified from time to time as
follows:

      (a) upon payment by the Issuing Bank of each drawing under the Letter of
Credit, the Maximum Drawing Amounts applicable to each Date of Drawing
subsequent to such payment shall be automatically reduced by an amount equal to
the amount of the drawing so paid and shall not be reinstated; and

      (b) if adjustments are made to Modified Special Casualty Values,
corresponding adjustments shall be made to the Maximum Drawing Amounts shown in
Schedule II-B, (as theretofore reduced pursuant to clause (a) above), provided
that if any such adjustment of Modified Special Casualty Values would cause the
Maximum Drawing Amount for any period to exceed the Maximum Credit Amount for
such period, the Maximum Credit Amount shall apply for such period and provided
further that adjustments pursuant to this clause (b) shall be effective
automatically upon receipt by us of a notice from you in the form of Exhibit 1
hereto.

      Upon surrender of this Letter of Credit together with a notice in the form
of Exhibit 1 hereto, we will promptly issue an irrevocable transferable letter
of credit containing a revised Schedule II-B reflecting the adjustments
contained in such notice and in all other respects identical to this Letter of
Credit.

      Funds under this Letter of Credit are available to you against
presentation on or prior to the Termination Date of (a) your draft in the form
of Exhibit 2 attached hereto and (b) a completed certificate signed by you in
the form of Exhibit 3 attached hereto. Such draft and certificate shall be dated
the date of its presentation and shall be presented at our Tampa, Florida office
specified below, or at our Brooklyn, New York office specified below (or at any
other office in New York City which may be designated by us by written notice
(given in the manner set forth in the next paragraph) delivered to you at least
15 days prior to the applicable Date of Drawing). If we receive such draft and
certificate at our Tampa, Florida office specified below, all in strict
conformity with the terms and conditions of this Letter of Credit, prior to
10:00 a.m. (New York City time) on any Business Day, we will honor the draft on
the same Business Day. If we receive such draft and certificate at our Tampa,
Florida office specified below on or after 10:00 a.m. and prior to 5:00 p.m.
(New York City time) on any Business Day, or if we receive such draft and
certificate at our Brooklyn, New York office specified below prior to 5:00 p.m.
(New York City time) on any Business Day, in each case all in strict conformity
with the terms and conditions of this Letter of Credit, we will honor the draft
on the next Business Day. If requested by you, payment under this Letter of
Credit may be made by wire transfer of federal funds to your account with any
bank located in the United States of

                                  Exhibit A-2
<PAGE>

America or by deposit of immediately available funds into a designated account
that you maintain with us.

      Notwithstanding any provisions of Articles 13(b) and 14(d)(i) of the
Uniform Customs and of Section 5-108(b) of the New York Uniform Commercial Code
to the contrary, which provisions are hereby expressly waived, if the
presentation of such draft and certificate are not in strict conformity with the
terms and conditions of this Letter of Credit, we will give you prompt notice
prior to the time we would have been obliged to make payment as set forth in the
preceding paragraph by facsimile transmission addressed to you at the fax number
set forth in the next succeeding paragraph, effective upon confirmation, that we
have refused such non-conforming draft and certificate, and stating all
discrepancies in respect of which the Issuing Bank refuses such non-conforming
draft and certificate. If you correct such non-conforming demand by presentation
of the draft and certificate corrected to be in strict conformity with the terms
and conditions of the Letter of Credit within two Business Days of your receipt
of our notice of refusal, then we will honor the draft and make payment in
accordance with the terms provided herein based upon the time such corrected
draft and certificate are presented, provided that you may make only one such
corrected demand with respect to any such non-conforming demand, and provided
further that for purposes of determining whether the draft and certificate have
been timely presented, the corrected draft and certificate shall be deemed to
have been presented on the date the non-conforming draft and certificate were
presented.

      Notwithstanding any other provision of this Letter of Credit, we shall
have the right, upon the occurrence of any of the events listed in Schedule III
hereto, to terminate this Letter of Credit by delivering to you a written notice
indicating the date of such termination (the "DATE OF EARLY TERMINATION"),
provided that on or before the Date of Early Termination you will have the right
to draw once an amount not in excess of the lesser of the Maximum Credit Amount
and the Maximum Drawing Amount in accordance with the procedures described
herein. The written notice referred to in the preceding sentence shall be given
by telex or facsimile transmission addressed to you at Emerson Finance Co., 8000
W. Florissant Avenue, P.O. Box 4100, St. Louis, Missouri 63136, Attention:
President, Fax: 314-553-2463 (or to such other address or telex number
designated by you by written notice delivered to us at least 15 days prior to
the notice of early termination) and shall be effective upon receipt of the
appropriate answerback or confirmation of the facsimile transmission. We will
also forward a copy of such notice by overnight delivery service to the address
set forth above. The Date of Early Termination specified in such written notice
shall be:

      (a) in the case of events specified in paragraphs A and G of Schedule III,
not earlier than ten days after such notice is given, and

      (b) in the case of all other events specified in Schedule III, not earlier
than 30 days after such notice is given.

                                  Exhibit A-3
<PAGE>

      Except as set forth herein, this Letter of Credit shall be governed by the
Uniform Customs and Practice for Documentary Credits (1993 Revision)
International Chamber of Commerce Publication No. 500, other than the provisions
of Article 48 thereof. This Letter of Credit shall be deemed to be a contract
made under the laws of the State of New York and shall, as to matters not
governed by the Uniform Customs, be governed by and construed in accordance with
the laws of such State.

      All demands for payment, notices and other communications to us in respect
of this Letter of Credit shall be in writing, specifically referring to the
number of this Letter of Credit, and addressed and presented to us (and all
courier or physical deliveries should be addressed to us) at JPMorgan Chase
Bank, c/o JP Morgan Treasury Services, Standby Letter of Credit Manager -
Immediate Action Required, 4th Floor, 10240 Highland Manor Drive, Tampa, Florida
33610. Although we prefer physical presentations be made to our Tampa, Florida
location, our location at 4 Chase Metrotech Center, 10th Floor, Brooklyn, New
York 11245 is also available for your physical presentations. Should you use our
4 Chase Metrotech Center location for physical presentations, documents must be
directed to: Governmental Agency Unit, Attention: Gamal Boulos.

      Notwithstanding Article 48 of the Uniform Customs and Practice for
Documentary Credits referred to above, this Letter of Credit may be transferred
and assigned in its entirety more than once, but in each case only to the
successor Equity Participant under the Trust Agreement dated as of August 1,
1986 between yourself and State Street Bank and Trust Company as successor to
The First National Bank of Boston. Upon receipt by us at the address for
presentation of documents set forth above of a copy of the instrument effecting
such transfer and assignment, signed by the transferor and by the transferee, in
the form of Exhibit 4 hereto (which shall be conclusive evidence of such
assignee's authority without any inquiry by us into the terms of the Trust
Agreement) then, in such case, we will, upon surrender of this Letter of Credit,
issue an irrevocable transferable letter of credit in the name of the transferee
and providing for notices to be sent to the transferee at the address set forth
therein and in all other respects identical to this Letter of Credit and the
transferee, instead of the transferor, shall, without necessity of further act,
be entitled to all the benefits of, and rights under, this Letter of Credit in
the transferor's place.

      By your acceptance of this Letter of Credit, you hereby agree, and we
hereby confirm our agreement, to the terms and conditions of Section 13 of the
Reimbursement Agreement.

      This Letter of Credit sets forth in full our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein, except
only Schedules I, II-A, II-B and III and Exhibits 1, 2, 3 and 4 hereto and the
notices referred to herein; and any such reference shall not be deemed to
incorporate herein by reference any document, instrument or agreement except as
set forth above.

                                  Exhibit A-4
<PAGE>

      This Letter of Credit No. P-010152 (formerly numbered as S-1002) amends
and restates our Letter of Credit No. S-1002 dated as of August 15, 1986, as
heretofore amended.

                                        Very truly yours,

                                        JPMORGAN CHASE BANK

                                        By _____________________________
                                           Name:
                                           Title:

                                  Exhibit A-5
<PAGE>

                                                                       EXHIBIT 1
                                                             TO LETTER OF CREDIT

JPMorgan Chase Bank
[c/o JP Morgan Treasury Services
Standby Letter of Credit Manager -
Immediate Action Required
4th Floor
10240 Highland Manor Drive
Tampa, Florida 33610]

[Governmental Agency Unit
4 Chase Metrotech Center
10th Floor
Brooklyn, New York 11245
Attention: Gamal Boulos]

Dear Sirs:

      Reference is made to that certain amended and restated irrevocable
transferable Letter of Credit bearing Letter of Credit No. P-010152 (formerly
numbered as S-1002) dated July 22, 2002, which has been established by you in
favor of [name of Equity Participant] (the "EQUITY PARTICIPANT").

      The undersigned, a duly authorized representative of the Equity
Participant, hereby certifies that Modified Special Casualty Values have been
adjusted and the amounts shown on Schedule II-B to the Letter of Credit should
be modified, in accordance with the terms of clauses (a) and (b) of the third
paragraph of the Letter of Credit, to the amounts shown in Appendix A hereto.

      The Letter of Credit is returned herewith and we request that you issue an
irrevocable transferable letter of credit with the revised Schedule II-B
attached and in all other respects identical to the Letter of Credit.

      Capitalized terms used herein and not otherwise defined herein shall have
the meanings given to them in the Letter of Credit.

                                       _____________________________________
                                       [Name of Equity Participant]

                                       _____________________________________
                                       [Name and Title of Authorized
                                       Representative of Equity Participant]

                                   LC-Ex.1
<PAGE>

                                                                       EXHIBIT 2
                                                             TO LETTER OF CREDIT

                                                                         [Place]

                                                                    [Date], 20__

ON [Business Day on which payment is required in accordance with the provisions
of the fifth paragraph of the Letter of Credit]

PAY TO                               U.S.$       [not to exceed the
      [Name of beneficiary]                      lesser of the Maximum Drawing
                                                 Amount or the Maximum
                                                 Credit Amount] DOLLARS,

FOR VALUE RECEIVED AND CHARGE TO ACCOUNT OF LETTER OF

CREDIT NO. P-010152 (formerly numbered as S-1002)   OF

         JPMorgan Chase Bank
         [c/o JP Morgan Treasury Services
         Standby Letter of Credit Manager -
         Immediate Action Required
         4th Floor
         10240 Highland Manor Drive
         Tampa, Florida 33610]

         [Governmental Agency Unit
         4 Chase Metrotech Center
         10th Floor
         Brooklyn, New York 11245
         Attention: Gamal Boulos]

                                     [Name and address of Equity Participant]

                                     By________________________________________
                                       [Authorized Representative]

                                   LC-Ex.2
<PAGE>

                                                                       EXHIBIT 3
                                                             TO LETTER OF CREDIT

                                   CERTIFICATE

      The undersigned, a duly authorized representative of [name of Equity
Participant] (the "EQUITY PARTICIPANT"), as beneficiary under that certain
amended and restated irrevocable transferable Letter of Credit No. P-010152
(formerly numbered as S-1002) dated July 22, 2002, established by JPMorgan Chase
Bank (the "ISSUING BANK") and issued pursuant to that certain Amended and
Restated Reimbursement Agreement dated as of July 22, 2002 between Arizona
Public Service Company (the "COMPANY"), the Issuing Bank and the other Banks
named therein, hereby certifies as follows:

      1. An Event of Default under the Facility Lease has occurred and is
continuing.

      2. The amount of the accompanying draft does not exceed the Maximum
Drawing Amount available under the Letter of Credit on the date hereof, as
determined in accordance with the terms of the Letter of Credit.

      Capitalized terms used herein and not otherwise defined herein shall have
the meanings given to them in the Letter of Credit.

      IN WITNESS WHEREOF, the undersigned has executed this Certificate as of ,
20__ .

                                  _____________________________________________
                                  [Name of Equity Participant]

                                  _____________________________________________
                                  [Name and title of authorized representative
                                  signing certificate]

                                   LC-Ex.3
<PAGE>

                                                                       EXHIBIT 4
                                                             TO LETTER OF CREDIT

JPMorgan Chase Bank
[c/o JP Morgan Treasury Services
Standby Letter of Credit Manager -
Immediate Action Required
4th Floor
10240 Highland Manor Drive
Tampa, Florida 33610]

[Governmental Agency Unit
4 Chase Metrotech Center
10th Floor
Brooklyn, New York 11245
Attention: Gamal Boulos]

Dear Sirs:

      Reference is made to the certain amended and restated irrevocable
transferable Letter of Credit bearing Letter of Credit No. P-010152 (formerly
numbered as S-1002) dated July 22, 2002, which has been established by you in
favor of [name of Equity Participant (the "TRANSFEROR")].

      The Transferor has transferred and assigned (and hereby confirms to you
said transfer and assignment) all of its rights in and under said Letter of
Credit to [name of Transferee (the "TRANSFEREE")] and confirms that the
Transferor no longer has any rights under or interest in said Letter of Credit.

      The Letter of Credit is returned herewith and we request that you issue an
irrevocable transferable letter of credit in the name of the Transferee and
providing for notices to be sent to the Transferee at the address set forth
below and in all other respects identical to the Letter of Credit.

      Transferee hereby certifies that it is a duly authorized transferee under
the terms of said Letter of Credit and is accordingly entitled, upon
presentation of the drafts and certificates called for therein, to receive
payments thereunder. Notices under the Letter of Credit should be sent to us as
follows: [Name], [Address], [Telex Number], Attention: o, [Answerback].

                               ______________________________________________
                                   [Name of Transferor]

                                   LC-Ex.4-1
<PAGE>

                        ______________________________________________________
                          [Name and Title of Authorized
                          Representative of Transferor]

                        ______________________________________________________
                          [Name of Transferee]

                        ______________________________________________________
                          [Name and Title of Authorized
                          Representative of Transferee]

                                    LC-Ex.4-2
<PAGE>

                                                                      SCHEDULE I
                                                             TO LETTER OF CREDIT

      The following terms have the following meanings for purposes of the Letter
of Credit and the Schedules and Exhibits thereto. Terms defined in the Letter of
Credit have the meanings given to them therein. Terms defined by reference to
the Facility Lease have the meanings assigned to them therein from time to time.

      "ADMINISTRATIVE AGENT" means JPMorgan Chase Bank, in its capacity as
administrative agent for the Banks under the Reimbursement Agreement, and its
successors in such capacity.

      "APPLICABLE LAW" has the meaning assigned to it in the Facility Lease.

      "BANK" means (i) each bank or financial institution listed on the
signature pages of the Reimbursement Agreement, each Assignee that becomes a
Bank pursuant to Section 15(a) of the Reimbursement Agreement, and their
respective successors, and (ii) the Issuing Bank with respect to its
Participation.

      "BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York, Chicago, Illinois or the State of
California are authorized by law to close.

      "CAPITAL LEASE OBLIGATIONS" means as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property, which obligations are
required to be classified and accounted for as a capital lease on the balance
sheet of such Person under generally accepted accounting principles and, for the
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with generally accepted
accounting principles.

      "CODE" means the Internal Revenue Code of 1986, as amended, or any
successor statute.

      "EQUITY PARTICIPANT" means Emerson Finance Co., as Equity Participant, and
its successors and assigns.

      "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.

      "ERISA AFFILIATE" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the

                                   LC-Sch.I-1
<PAGE>

Code) as the Company or is under common control (within the meaning of Section
414(c) of the Code) with the Company.

      "GOVERNMENTAL ACTION" has the meaning assigned to it in the Facility
Lease.

      "GUARANTEE" means as to any Person, any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
of any other Person or in any manner providing for the payment of any
Indebtedness of any other Person or otherwise protecting the holder of such
Indebtedness against loss (whether by virtue of partnership arrangements,
agreements to keep well, to purchase assets, goods, securities or services, or
to take-or-pay or otherwise), provided that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.

      "INDEBTEDNESS" means as to any Person at any date (without duplication):
(a) indebtedness created, issued, incurred or assumed by such Person for
borrowed money or evidenced by bonds, debentures, notes or similar instruments;
(b) all obligations of such Person to pay the deferred purchase price of
property or services, excluding, however, trade accounts payable (other than for
borrowed money) arising in, and accrued expenses incurred in, the ordinary
course of business of such Person so long as such trade accounts payable are
paid within 180 days of the date incurred; (c) all Indebtedness secured by a
lien on any asset of such Person, to the extent such Indebtedness has been
assumed by, or is a recourse obligation of, such Person; (d) all Guarantees by
such Person; (e) all Capital Lease Obligations of such Person; and (f) the
amount of all reimbursement obligations of such Person (whether contingent or
otherwise) in respect of letters of credit, bankers' acceptances, surety or
other bonds and similar instruments in support of Indebtedness.

      "ISSUING BANK" means JPMorgan Chase Bank and its successors in their
capacity as issuer of the Letter of Credit.

      "MATERIAL SUBSIDIARY" means, at any time, a Subsidiary of the Company
which as of such time meets the definition of a "significant subsidiary"
included as of July 22, 2002 in Regulation S-X of the Securities and Exchange
Commission or whose assets at such time exceed 10% of the assets of the Company
and the Subsidiaries (on a consolidated basis).

      "MODIFIED SPECIAL CASUALTY VALUE" has the meaning assigned to it in the
Facility Lease.

      "MULTIEMPLOYER PLAN" means a plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Company or any ERISA
Affiliate within any of the preceding five plan years and which is covered by
Title IV of ERISA.

      "PARTICIPANT" has the meaning set forth in Section 15(b) of the
Reimbursement Agreement.

                                  LC-Sch.I-2
<PAGE>

      "PARTICIPATION" means a participating interest in the credit represented
by the Letter of Credit including, without limitation, the interest therein
retained by the Issuing Bank after giving effect to all participating interests
therein granted by it pursuant to Section 14(a) of the Reimbursement Agreement,
but prior to giving effect to any interest therein granted to any Participant
pursuant to Section 15(b) of the Reimbursement Agreement.

      "PARTICIPATION AMOUNT" means, with respect to any Bank, the amount set
forth in Schedule II to the Reimbursement Agreement opposite the name of such
Bank therein, as such amount may be changed by reason of an assignment by or to
such Bank in accordance with Section 15(a). Such amount shall be reduced from
time to time by such Bank's ratable share of each reduction of the Maximum
Credit Amount.

      "PARTICIPATION PERCENTAGE" means, with respect to any Bank at any time,
the percentage equivalent of a fraction (i) the numerator of which is the
Participation Amount of such Bank at such time and (ii) the denominator of which
is the Maximum Credit Amount at such time.

      "PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

      "PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.

      "PLAN" means an employee benefit plan within the meaning of Section 3(3)
of ERISA established or maintained by the Company or any ERISA Affiliate which
is covered by Title IV of ERISA, other than a Multiemployer Plan.

      "REIMBURSEMENT AGREEMENT" means the Reimbursement Agreement as originally
executed as of August 1, 1986, as amended or amended and restated from time to
time before July 22, 2002, as amended and restated as of July 22, 2002 and as
the same may be amended and restated from time to time thereafter.

      "REQUIRED BANKS" means, at any time, Banks holding Participation
Percentages aggregating more than 50% at such time.

      "STATED TERMINATION DATE" means July 22, 2005 or such later date to which
such Stated Termination Date shall have been extended pursuant to Section 17 of
the Reimbursement Agreement.

      "SUBSIDIARY" of any Person means any corporation of which more than 50% of
the issued and outstanding capital stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation (irrespective of whether
at the time capital stock of any other class or classes of such corporation
shall or might have voting power

                                  LC-Sch.I-3
<PAGE>

upon the occurrence of any contingency) is at the time directly or indirectly
owned or controlled by such Person and one or more of its other Subsidiaries or
by one or more of such Person's other Subsidiaries.

      "TERMINATION DATE" means the earliest of (i) the date on which the Issuing
Bank pays a drawing under the Letter of Credit for the lesser of the Maximum
Drawing Amount and the Maximum Credit Amount, (ii) if a drawing is not requested
by the Equity Participant after a notice of termination is given under the
Letter of Credit, the Date of Early Termination, (iii) if a drawing is requested
by the Equity Participant after a notice of termination is given under the
Letter of Credit, the date on which the Issuing Bank pays such drawing, (iv) the
date on which the Company delivers a certificate to the Issuing Bank certifying
that the Company has paid the amounts due under Section 9(c) of the Facility
Lease (so long as the Equity Participant shall have acknowledged such payment by
its express confirmation thereof in, and its countersignature to, such
certificate), (v) the date on which the Company delivers a certificate to the
Issuing Bank certifying that the Company has paid the amounts due under Section
9(d) of the Facility Lease (so long as the Equity Participant shall have
acknowledged such payment by its express confirmation thereof in, and its
countersignature to, such certificate), (vi) the latest of (x) the Stated
Termination Date, (y) if a draft and certificate all in strict conformity with
the terms and conditions of the Letter of Credit are presented on the Stated
Termination Date at such time and at such office as specified in the fifth
paragraph of the Letter of Credit, the date on which the Issuing Bank is
required to honor the draft in accordance with the provisions of such paragraph
pursuant to such presentation, and (z) if a corrected draft and certificate all
in strict conformity with the terms and conditions of the Letter of Credit are
presented on such date as specified in, and in accordance with the provisions
of, the sixth paragraph of the Letter of Credit, the date on which the Issuing
Bank is required to honor the draft in accordance with the provisions of such
paragraph pursuant to such presentation, and (vii) the date on which the Company
delivers a certificate to the Issuing Bank certifying that the Reimbursement
Agreement has been terminated pursuant to Section 16(b) thereof (so long as such
certificate shall have been countersigned by the Equity Participant).

      "TRANSACTION DOCUMENTS" means the Participation Agreement, the Refinancing
Agreement, the Indemnity Agreement, the Escrow Deposit Agreement, the Facility
Lease, the Trust Agreement, the Indenture, the Decommissioning Trust Agreement,
the Tax Indemnification Agreement, the Mortgage Release, the Assignment and
Assumption, the Purchase Documents, any ground lease contemplated by Section
10(b)(3)(xvii) of the Participation Agreement and the Notes, each as defined in
the Facility Lease.

                                  LC-Sch.I-4
<PAGE>

                                                                   SCHEDULE II-A
                                                             TO LETTER OF CREDIT

                         TABLE OF MAXIMUM CREDIT AMOUNTS
                               EMERSON FINANCE CO.

APPLICABLE PERIOD                         MAXIMUM CREDIT AMOUNT

From July 22, 2002 to and including              $63,775,699.77
January 10, 2003

From January 11, 2003 to and including           $61,992,600.93
July 10, 2003

From July 11, 2003 to and including              $60,512,412.71
January 10, 2004

From January 11, 2004 to and including           $58,584,204.49
July 10, 2004

From July 11, 2004 to and including              $56,998,753.97
January 10, 2005

From January 11, 2005 to and including           $55,207,639.45
July 10, 2005

From July 11, 2005 to and including              $54,073,073.44
July 22, 2005

                                  LC-Sch.II-A
<PAGE>

                                                                   SCHEDULE II-B
                                                             TO LETTER OF CREDIT

                        TABLE OF MAXIMUM DRAWING AMOUNTS
                               EMERSON FINANCE CO.

APPLICABLE PERIOD                         MAXIMUM DRAWING AMOUNT

From July 22, 2002 to and including               $63,775,699.77
January 10, 2003

From January 11, 2003 to and including            $61,992,600.93
July 10, 2003

From July 11, 2003 to and including               $60,512,412.71
January 10, 2004

From January 11, 2004 to and including            $58,584,204.49
July 10, 2004

From July 11, 2004 to and including               $56,998,753.97
January 10, 2005

From January 11, 2005 to and including            $55,207,639.45
July 10, 2005

From July 11, 2005 to and including               $54,073,073.44
July 22, 2005

                                  LC-Sch.II-B
<PAGE>

                                                                    SCHEDULE III
                                                             TO LETTER OF CREDIT

      The Issuing Bank shall have the right upon the occurrence of any of the
events listed below to terminate the Letter of Credit in accordance with the
terms of the Letter of Credit:

                  (A) The Company shall fail to pay when due any amount payable
            under Section 2(a) of the Reimbursement Agreement or fail to pay any
            other amount payable under Section 2 of the Reimbursement Agreement
            within five Business Days after the same becomes due and payable; or

                  (B) The Company shall fail to perform or observe (i) any term,
            covenant or agreement contained in Section 7(a)(ii), 7(g)(iv), 7(h),
            8(a), 8(b), 8(c) or 8(e) of the Reimbursement Agreement, or (ii) any
            term, covenant or agreement contained in the Reimbursement Agreement
            (other than those covered by clause (A) above or subclause (i) of
            this clause (B) or Section 7(e) or Section 19 of the Reimbursement
            Agreement) on its part to be performed or observed if the failure to
            perform or observe such term, covenant or agreement shall remain
            unremedied for 30 days after written notice thereof shall have been
            given to the Company by the Administrative Agent; or

                  (C) Any representation or warranty made by the Company in the
            Reimbursement Agreement or by the Company (or any of its officers)
            in any certificate delivered in connection with the Reimbursement
            Agreement shall prove to have been false or misleading in any
            material respect when made; or

                  (D) Any material provision of the Reimbursement Agreement
            shall at any time for any reason cease to be valid and binding upon
            the Company, or shall be declared to be null and void, or the
            validity or enforceability thereof shall be contested by the Company
            or any governmental agency or authority, or the Company shall deny
            that it has any or further liability or obligation under the
            Reimbursement Agreement; or

                  (E) The Company shall fail to pay any principal of or premium
            or interest on any Indebtedness which is outstanding in a principal
            amount of at least $5,000,000 (but excluding Indebtedness owing
            under the Reimbursement Agreement) of the Company, when the same
            becomes due and payable (whether by scheduled maturity, required
            prepayment, acceleration, demand or otherwise), and such failure
            shall continue after

                                    Sch.III-1
<PAGE>

            the applicable grace period, if any, specified in the agreement or
            instrument relating to such Indebtedness; or the Company shall fail
            to perform or comply with any other term or covenant in any
            agreement or instrument relating to any such Indebtedness and such
            failure shall continue after the applicable grace period, if any,
            specified in such agreement or instrument, if the effect of such
            failure is to accelerate, or to permit the acceleration of, the
            maturity of such Indebtedness; or

                  (F) The Company shall fail to pay any principal of or premium
            or interest in respect of any operating lease in respect of which
            the payment obligations of the Company have a present value of at
            least $25,000,000, when the same becomes due and payable (whether by
            scheduled maturity, required prepayment, acceleration, demand or
            otherwise), and such failure shall continue after the applicable
            grace period, if any, specified in such operating lease, if the
            effect of such failure is to terminate, or to permit the termination
            of, such operating lease; or

                  (G) The Company shall generally not pay its debts as such
            debts become due, or shall admit in writing its inability to pay its
            debts generally, or shall make a general assignment for the benefit
            of creditors; or any proceeding shall be instituted by or against
            the Company seeking to adjudicate it a bankrupt or insolvent, or
            seeking liquidation, winding up, reorganization, arrangement,
            adjustment, protection, relief, or composition of it or its debts
            under any law relating to bankruptcy, insolvency or reorganization
            or relief of debtors, or seeking the entry of an order for relief or
            the appointment of a receiver, trustee, custodian or other similar
            official for it or for any substantial part of its property and, in
            the case of any such proceeding instituted against it (but not
            instituted by it), either such proceeding shall remain undismissed
            or unstayed for a period of 60 days, or any of the actions sought in
            such proceeding (including, without limitation, the entry of an
            order for relief against, or the appointment of a receiver, trustee,
            custodian or other similar official for, it or for any substantial
            part of its property) shall occur; or the Company shall take any
            corporate action to authorize any of the actions set forth above in
            this clause (G) or

                  (H) Any Material Subsidiary shall generally not pay its debts
            as such debts become due, or shall admit in writing its inability to
            pay its debts generally, or shall make a general assignment for the
            benefit of creditors; or any proceeding shall be instituted by or
            against any Material Subsidiary seeking to adjudicate it a bankrupt
            or insolvent, or seeking liquidation, winding up, reorganization,
            arrangement, adjustment, protection, relief, or composition of it or
            its debts under any law relating to bankruptcy, insolvency or
            reorganization or relief of debtors, or seeking

                                    Sch.III-2
<PAGE>

            the entry of an order for relief or the appointment of a receiver,
            trustee, custodian or other similar official for it or for any
            substantial part of its property and, in the case of any such
            proceeding instituted against it (but not instituted by it), either
            such proceeding shall remain undismissed or unstayed for a period of
            60 days, or any of the actions sought in such proceeding (including,
            without limitation, the entry of an order for relief against, or the
            appointment of a receiver, trustee, custodian or other similar
            official for it or for any substantial part of its property) shall
            occur; or any Material Subsidiary shall take any corporate action to
            authorize any of the actions set forth above in this clause (H) and,
            in each case, the Required Banks determine that such circumstances
            could have a material adverse effect on the financial condition or
            financial prospects of the Company and its consolidated
            Subsidiaries, taken as a whole; or

                  (I) Any judgment or order for the payment of money that
            exceeds any applicable insurance coverage by more than $5,000,000
            shall be rendered against the Company and such judgment or order
            shall remain unsatisfied or unstayed for a period of 30 days; or

                  (J) Any judgment or order for the payment of money that
            exceeds any applicable insurance coverage by more than $25,000,000
            shall be rendered against any Material Subsidiary; such judgment or
            order shall remain unsatisfied or unstayed for 30 days; and the
            Required Banks determine that such judgment or order could have a
            material adverse effect on the financial condition or financial
            prospects of the Company and its consolidated Subsidiaries, taken as
            a whole; or

                  (K) An event or condition specified in Section 7(g)(iv) of the
            Reimbursement Agreement shall occur or exist with respect to any
            Plan or Multiemployer Plan and, as a result of such event or
            condition, together with all other such events or conditions, the
            Company or any ERISA Affiliate shall incur or in the opinion of the
            Required Banks shall be reasonably likely to incur a liability to a
            Plan, a Multiemployer Plan or the PBGC (or any combination of the
            foregoing) which is, in the determination of the Required Banks,
            material in relation to the financial condition or the financial
            prospects of the Company and its consolidated Subsidiaries, taken as
            a whole; or

                  (L) any change in Applicable Law or any Governmental Action
            shall occur which has the effect of making the transactions
            contemplated by the Transaction Documents unauthorized, illegal or
            otherwise contrary to Applicable Law; or

                                    Sch.III-3
<PAGE>

                  (M) any event specified in Sections 15(vii), (viii) or (x) of
            the Facility Lease shall occur; or

                  (N) the Company shall fail to make, or cause to be made, any
            payment specified in Section 15(i) of the Facility Lease equal to or
            exceeding $1,000,000 within the periods specified in that Section.

      Capitalized terms used herein and not otherwise defined herein shall have
the meanings given to them in the Letter of Credit.

                                  LC-Sch.III-4
<PAGE>

                          SCHEDULE OF OMITTED DOCUMENT

      Pursuant to Instruction 2 to Item 601, the registrant is not filing the
Amended and Restated Reimbursement Agreement among Arizona Public Service
Company ("APS"), the Banks Party thereto and JPMorgan Chase Bank, as
Administrative Agent and Issuing Bank, dated as of July 22, 2002 (the
"Additional Reimbursement Agreement") and relating to a second sale and
leaseback transaction entered into by APS in August of 1986. The Additional
Reimbursement Agreement is virtually identical to the filed agreement except
that the beneficiary of the letter of credit is a different equity participant
and the drawing amounts under the letter of credit are different, ranging from a
high of approximately $50.9 million beginning in July of 2002 to a low of
approximately $44.3 million ending in July of 2005.<PAGE>
                                                                  Exhibit 10.101

                           THREE-YEAR CREDIT AGREEMENT

                            Dated as of May 21, 2004

          ARIZONA PUBLIC SERVICE COMPANY, an Arizona corporation (the
"Borrower"), the banks, financial institutions and other institutional lenders
(the "Initial Lenders") and initial issuing banks (the "Initial Issuing Banks")
listed on the signature pages hereof, CITIGROUP GLOBAL MARKETS INC. and KEYBANK
NATIONAL ASSOCIATION, as joint lead arrangers (the "Arrangers"), KEYBANK
NATIONAL ASSOCIATION, as syndication agent, BANK OF AMERICA, N.A. and THE BANK
OF NEW YORK, as co-documentation agents, and CITIBANK, N.A. ("Citibank"), as
agent (the "Agent") for the Lenders (as hereinafter defined), agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

          SECTION 1.01. Certain Defined Terms.  As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):

          "Advance" means an advance by a Lender to the Borrower as part of a
     Borrowing or pursuant to Section 2.03(c) and refers to a Base Rate Advance
     or a Eurodollar Rate Advance (each of which shall be a "Type" of Advance).

          "Affiliate" means, as to any Person, any other Person that, directly
     or indirectly, controls, is controlled by or is under common control with
     such Person or is a director or officer of such Person. For purposes of
     this definition, the term "control" (including the terms "controlling",
     "controlled by" and "under common control with") of a Person means the
     possession, direct or indirect, of the power to direct or cause the
     direction of the management and policies of such Person, whether through
     the ownership of Voting Stock, by contract or otherwise.

          "Agent's Account" means the account of the Agent maintained by the
     Agent at Citibank at its office at 388 Greenwich Street, New York, New York
     10013, Account No. 36852248, Attention: Bank Loan Syndications.

          "Applicable Lending Office" means, with respect to each Lender, such
     Lender's Domestic Lending Office in the case of a Base Rate Advance and
     such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
     Advance.

          "Applicable Margin" means, as of any date, a percentage per annum
     determined by reference to the Public Debt Rating in effect on such date as
     set forth below:

<TABLE>
<CAPTION>
         Public Debt Rating            Applicable Margin for     Applicable Margin for
            S&P/Moody's                  Base Rate Advances    Eurodollar Rate Advances
         ------------------            ---------------------   ------------------------
<S>                                    <C>                     <C>
Level 1
A- or A3 or above                              0.000%                   0.625%
Level 2
Lower than Level 1 but at least BBB+           0.000%                   0.750%
or Baa1
Level 3
Lower than Levels 1 and 2 but at               0.000%                   0.875%
least BBB or Baa2
Level 4
Lower than Levels 1, 2, and 3 but at           0.125%                   1.125%
least BBB- or Baa3
Level 5
Lower than Levels 1, 2, 3 and 4 but            0.500%                   1.500%
at least BB+ and Ba1
Level 6
Lower than Level 5                             0.750%                   1.750%
</TABLE>

<PAGE>

          "Applicable Percentage" means, as of any date, a percentage per annum
     determined by reference to the Public Debt Rating in effect on such date as
     set forth below:

<TABLE>
<CAPTION>
         Public Debt Rating            Applicable
             S&P/Moody's               Percentage
         ------------------            ----------
<S>                                    <C>
Level 1
A- or A3 or above                        0.125%
Level 2
Lower than Level 1 but at least BBB+     0.150%
or Baa1
Level 3
Lower than Levels 1 and 2 but at         0.175%
least BBB or Baa2
Level 4
Lower than Levels 1, 2, and 3 but at     0.200%
least BBB- or Baa3
Level 5
Lower than Levels 1, 2, 3 and 4 but      0.300%
at least BB+ and Ba1
Level 6
Lower than Level 5                       0.400%
</TABLE>

          "Applicable Utilization Fee" means, as of any date that the sum of the
     aggregate Advances plus the Available Amount of all Letters of Credit
     exceed 50% of the aggregate Commitments, a percentage per annum determined
     by reference to the Public Debt Rating in effect on such date as set forth
     below:

<TABLE>
<CAPTION>
         Public Debt Rating               Applicable
             S&P/Moody's               Utilization Fee
         ------------------            ---------------
<S>                                    <C>
Level 1
A- or A3 or above                           0.125%
Level 2
Lower than Level 1 but at least BBB+        0.125%
or Baa1
Level 3
Lower than Levels 1 and 2 but at            0.125%
least BBB or Baa2
Level 4
Lower than Levels 1, 2, and 3 but at        0.125%
least BBB- or Baa3
Level 5
Lower than Levels 1, 2, 3 and 4 but         0.250%
at least BB+ and Ba1
Level 6
Lower than Level 5                          0.500%
</TABLE>

          "Assignment and Acceptance" means an assignment and acceptance entered
     into by a Lender and an Eligible Assignee, and accepted by the Agent, in
     substantially the form of Exhibit C hereto.

                                        2

<PAGE>

          "Authorized Officer" means the chairman of the board, chief executive
     officer, chief operating officer, chief financial officer, president, any
     vice president, treasurer, controller or any assistant treasurer of the
     Borrower.

          "Available Amount" of any Letter of Credit means, at any time, the
     maximum amount available to be drawn under such Letter of Credit at such
     time (assuming compliance at such time with all conditions to drawing).

          "Base Rate" means a fluctuating interest rate per annum in effect from
     time to time, which rate per annum shall at all times be equal to the
     higher of:

               (a) the rate of interest announced publicly by Citibank in New
          York, New York, from time to time, as Citibank's base rate; and

               (b) 1/2 of one percent per annum above the Federal Funds Rate.

          "Base Rate Advance" means an Advance that bears interest as provided
     in Section 2.07(a)(i).

          "Borrower Information" has the meaning specified in Section 8.08.

          "Borrowing" means a borrowing consisting of simultaneous Advances of
     the same Type made by each of the Lenders pursuant to Section 2.01.

          "Business Day" means a day of the year on which banks are not required
     or authorized by law to close in New York City or Phoenix, Arizona and, if
     the applicable Business Day relates to any Eurodollar Rate Advances, on
     which dealings are carried on in the London interbank market.

          "Commitment" means a Revolving Credit Commitment or a Letter of Credit
     Commitment.

          "Consolidated" refers to the consolidation of accounts in accordance
     with GAAP.

          "Consolidated Cash Coverage Ratio" means, with respect to the Borrower
     and its Consolidated Subsidiaries, for each twelve-month period ending on
     the last day of each fiscal quarter (determined as of the last day of such
     fiscal quarter), the ratio of:

               (a) an amount equal to:

                    (i) Consolidated net income of the Borrower and its
               Consolidated Subsidiaries for such period, plus

                    (ii) all material non-recurring items which decreased said
               net income for such period, minus

                    (iii) all material non-recurring items which increased said
               net income for such period, plus

                    (iv) income taxes deducted in determining said net income
               for such period, plus

                    (v) total "Interest Charges", as defined in clause (b)
               below, of the Borrower and its Consolidated Subsidiaries for such
               period, plus

                    (vi) depreciation and amortization, and nuclear fuel
               amortization for such period, minus

                                        3

<PAGE>

                    (vii) allowance for equity and borrowed funds used during
               construction for such period, minus

                    (viii) deferrals as described in Financial Accounting
               Standards Board Statement No. 71 for such period, plus or minus

                    (ix) other significant noncash items for such period as may
               be specified under Financial Accounting Standards Board
               Statements or other accounting guidelines, to

               (b) without duplication of any item, an amount equal to the sum
          (such amount being the "Interest Charges") of:

                    (i) interest on long-term debt for such period as reported
               in the consolidated income statement for such period, plus

                    (ii) interest on short-term debt for such period as reported
               in the consolidated income statement for such period, plus

                    (iii) imputed interest on the Sale Leaseback Obligation
               Bonds for such period, such amount being equal to the product of
               (A) the principal amount of Sale Leaseback Obligation Bonds
               outstanding during such period and (B) the rate of interest
               applicable to such Sale Leaseback Obligation Bonds during such
               period, plus

                    (iv) all rental payments in respect of operating leases
               (excluding any portion of such rental payments attributable to
               operating expenses and excluding any payments in respect of Sale
               Leaseback Obligation Bonds) with respect to which the payment
               obligations of the Borrower or a Consolidated Subsidiary of the
               Borrower have a present value of at least $25,000,000.

          "Consolidated Indebtedness" means, at any date, the Indebtedness of
     the Borrower and its Consolidated Subsidiaries determined on a Consolidated
     basis as of such date.

          "Consolidated Net Worth" means, at any date, the sum as of such date
     of (a) the par value (or value stated on the books of the Borrower) of all
     classes of capital stock of the Borrower and its Subsidiaries, excluding
     the Borrower's capital stock owned by the Borrower and/or its Subsidiaries,
     plus (or minus in the case of a surplus deficit) (b) the amount of the
     Consolidated surplus, whether capital or earned, of the Borrower,
     determined in accordance with GAAP as of the end of the most recent
     calendar month (excluding (x) cumulative charges of up to $300,000,000 to
     Consolidated surplus resulting from, or in anticipation of, discontinuation
     of Financial Accounting Standards Board Statement No. 71, accounting for
     all or part of the business and (y) the effect on the Borrower's
     accumulated other comprehensive income/loss of the ongoing application of
     Financial Accounting Standards Board Statement No. 133).

          "Consolidated Subsidiary" means, at any date, any Subsidiary or other
     entity the accounts of which would be consolidated with those of the
     Borrower on its Consolidated financial statements if such financial
     statements were prepared as of such date.

          "Convert", "Conversion" and "Converted" each refers to a conversion of
     Advances of one Type into Advances of the other Type pursuant to Section
     2.08, 2.09 or 2.12.

          "Default" means any Event of Default or any event that would
     constitute an Event of Default but for the requirement that notice be given
     or time elapse or both.

          "Domestic Lending Office" means, with respect to any Lender, the
     office of such Lender specified as its "Domestic Lending Office" opposite
     its name on Schedule I hereto or in the Assignment and

                                        4

<PAGE>

     Acceptance pursuant to which it became a Lender, or such other office of
     such Lender as such Lender may from time to time specify to the Borrower
     and the Agent.

     "Effective Date" has the meaning specified in Section 3.01.

          "Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender
     (that is not a natural person); and (iii) any other Person (that is not a
     natural person) approved by the Agent and, unless an Event of Default has
     occurred and is continuing at the time any assignment is effected in
     accordance with Section 8.07, the Borrower, such approval not to be
     unreasonably withheld or delayed; provided, however, that neither the
     Borrower nor an Affiliate of the Borrower shall qualify as an Eligible
     Assignee.

          "Environmental Action" means any action, suit, demand, demand letter,
     claim, notice of non-compliance or violation, notice of liability or
     potential liability, investigation, proceeding, consent order or consent
     agreement relating in any way to any Environmental Law, Environmental
     Permit or Hazardous Materials or arising from alleged injury or threat of
     injury to health, safety or the environment, including, without limitation,
     (a) by any governmental or regulatory authority for enforcement, cleanup,
     removal, response, remedial or other actions or damages and (b) by any
     governmental or regulatory authority or any third party for damages,
     contribution, indemnification, cost recovery, compensation or injunctive
     relief.

          "Environmental Law" means any federal, state, local or foreign
     statute, law, ordinance, rule, regulation, code, order, judgment, decree or
     judicial or agency interpretation, policy or guidance relating to pollution
     or protection of the environment, health, safety or natural resources,
     including, without limitation, those relating to the use, handling,
     transportation, treatment, storage, disposal, release or discharge of
     Hazardous Materials.

          "Environmental Permit" means any permit, approval, identification
     number, license or other authorization required under any Environmental
     Law.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
     amended from time to time, and the regulations promulgated and rulings
     issued thereunder.

          "ERISA Affiliate" means any Person that for purposes of Title IV of
     ERISA is a member of the Borrower's controlled group, or under common
     control with the Borrower, within the meaning of Section 414 of the
     Internal Revenue Code.

          "ERISA Event" means (a) (i) the occurrence of a reportable event,
     within the meaning of Section 4043 of ERISA, with respect to any Plan
     unless the 30-day notice requirement with respect to such event has been
     waived by the PBGC, or (ii) the requirements of subsection (1) of Section
     4043(b) of ERISA (without regard to subsection (2) of such Section) are met
     with respect to a contributing sponsor, as defined in Section 4001(a)(13)
     of ERISA, of a Plan, and an event described in paragraph (9), (10), (11),
     (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur
     with respect to such Plan within the following 30 days; (b) the application
     for a minimum funding waiver with respect to a Plan; (c) the provision by
     the administrator of any Plan of a notice of intent to terminate such Plan
     pursuant to Section 4041(a)(2) of ERISA (including any such notice with
     respect to a plan amendment referred to in Section 4041(e) of ERISA); (d)
     the cessation of operations at a facility of the Borrower or any ERISA
     Affiliate in the circumstances described in Section 4062(e) of ERISA; (e)
     the withdrawal by the Borrower or any ERISA Affiliate from a Multiple
     Employer Plan during a plan year for which it was a substantial employer,
     as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the
     imposition of a lien under Section 302(f) of ERISA shall have been met with
     respect to any Plan; (g) the adoption of an amendment to a Plan requiring
     the provision of security to such Plan pursuant to Section 307 of ERISA; or
     (h) the institution by the PBGC of proceedings to terminate a Plan pursuant
     to Section 4042 of ERISA, or the occurrence of any event or condition
     described in Section 4042 of ERISA that constitutes grounds for the
     termination of, or the appointment of a trustee to administer, a Plan.

                                        5

<PAGE>

          "Eurocurrency Liabilities" has the meaning assigned to that term in
     Regulation D of the Board of Governors of the Federal Reserve System, as in
     effect from time to time.

          "Eurodollar Lending Office" means, with respect to any Lender, the
     office of such Lender specified as its "Eurodollar Lending Office" opposite
     its name on Schedule I hereto or in the Assignment and Acceptance pursuant
     to which it became a Lender (or, if no such office is specified, its
     Domestic Lending Office), or such other office of such Lender as such
     Lender may from time to time specify to the Borrower and the Agent.

          "Eurodollar Rate" means, for any Interest Period for each Eurodollar
     Rate Advance comprising part of the same Borrowing, an interest rate per
     annum equal to the rate per annum (rounded upward to the nearest whole
     multiple of 1/16 of 1% per annum) appearing on Moneyline Telerate Markets
     Page 3750 (or any successor page) as the London interbank offered rate for
     deposits in U.S. dollars at approximately 11:00 A.M. (London time) two
     Business Days prior to the first day of such Interest Period for a term
     comparable to such Interest Period or, if for any reason such rate is not
     available, the average (rounded upward to the nearest whole multiple of
     1/16 of 1% per annum, if such average is not such a multiple) of the rate
     per annum at which deposits in U.S. dollars are offered by the principal
     office of each of the Reference Banks in London, England to prime banks in
     the London interbank market at 11:00 A.M. (London time) two Business Days
     before the first day of such Interest Period in an amount substantially
     equal to such Reference Bank's Eurodollar Rate Advance comprising part of
     such Borrowing to be outstanding during such Interest Period and for a
     period equal to such Interest Period, subject, however, to the provisions
     of Section 2.08.

          "Eurodollar Rate Advance" means an Advance that bears interest as
     provided in Section 2.07(a)(ii).

          "Events of Default" has the meaning specified in Section 6.01.

          "Federal Funds Rate" means, for any period, a fluctuating interest
     rate per annum equal for each day during such period to the weighted
     average of the rates on overnight Federal funds transactions with members
     of the Federal Reserve System arranged by Federal funds brokers, as
     published for such day (or, if such day is not a Business Day, for the next
     preceding Business Day) by the Federal Reserve Bank of New York, or, if
     such rate is not so published for any day that is a Business Day, the
     average of the quotations for such day on such transactions received by the
     Agent from three Federal funds brokers of recognized standing selected by
     it.

          "GAAP" has the meaning specified in Section 1.03.

          "Guaranteed Indebtedness" of any Person means, without duplication,
     all Indebtedness guaranteed directly or indirectly in any manner by such
     Person, or in effect guaranteed directly or indirectly by such Person
     through an agreement (i) to pay or purchase such Indebtedness or to advance
     or supply funds for the payment or purchase of such Indebtedness, or (ii)
     to purchase, sell or lease (as lessee or lessor) property, or to purchase
     or sell services, primarily for the purpose of enabling the debtor to make
     payment of such Indebtedness or to assure the holder of such Indebtedness
     against loss, or (iii) to supply funds to or in any other manner invest in
     the debtor (including any agreement to pay for property or services
     irrespective to whether or not such property is received or such services
     are rendered), or (iv) otherwise to assure a creditor against loss.

          "Hazardous Materials" means (a) petroleum and petroleum products,
     byproducts or breakdown products, radioactive materials,
     asbestos-containing materials, polychlorinated biphenyls and radon gas and
     (b) any other chemicals, materials or substances designated, classified or
     regulated as hazardous or toxic or as a pollutant or contaminant under any
     Environmental Law.

          "Hedge Agreement" means any interest rate swap, cap or collar
     agreement, interest rate future or option contract, currency swap
     agreement, currency future or option contract or other similar agreement.

                                        6

<PAGE>

          "Indebtedness" of any Person means, without duplication, (i) all
     indebtedness of such Person for borrowed money or for the deferred purchase
     price of property or services, excluding, however, trade accounts payable
     arising in, and accrued expenses incurred in, the ordinary course of
     business of such Person so long as such trade accounts payable are paid
     within 180 days of the date incurred, (ii) all indebtedness created or
     arising under any conditional sale or other title retention agreement with
     respect to property acquired by such Person (even though the rights and
     remedies of the seller or lender under such agreement in the event of
     default are limited to repossession or sale of such property), (iii) all
     obligations under leases which shall have been or should be, in accordance
     with GAAP, recorded as capital leases in respect of which such Person is
     liable as lessee, (iv) all obligations of such Person upon which interest
     charges are customarily paid, (v) all liabilities of such Person in respect
     of unfunded vested benefits under plans covered by Title IV of ERISA, (vi)
     all Guaranteed Indebtedness, and (vii) all Indebtedness referred to in
     clause (i), (ii) or (iii) above secured by (or for which the holder of such
     Indebtedness has an existing right, contingent or otherwise, to be secured
     by) any lien, security interest or other charge or encumbrance upon or in
     property (including, without limitation, accounts and contracts rights)
     owned by such Person, even though such Person has not assumed or become
     liable for the payment of such Indebtedness.

          "Information Memorandum" means the information memorandum dated April
     20, 2004 used by the Arrangers in connection with the syndication of the
     Commitments, as qualified in its entirety by the information provided in
     the SEC Reports.

          "Interest Period" means, for each Eurodollar Rate Advance comprising
     part of the same Borrowing, the period commencing on the date of such
     Eurodollar Rate Advance or the date of the Conversion of any Base Rate
     Advance into such Eurodollar Rate Advance and ending on the last day of the
     period selected by the Borrower pursuant to the provisions below and,
     thereafter, each subsequent period commencing on the last day of the
     immediately preceding Interest Period and ending on the last day of the
     period selected by the Borrower pursuant to the provisions below. The
     duration of each such Interest Period shall be one, two, three or six
     months, as the Borrower may, upon notice received by the Agent not later
     than 12:00 noon (New York City time) on the third Business Day prior to the
     first day of such Interest Period, select; provided, however, that:

               (a) the Borrower may not select any Interest Period that ends
          after the Termination Date;

               (b) Interest Periods commencing on the same date for Eurodollar
          Rate Advances comprising part of the same Borrowing shall be of the
          same duration;

               (c) whenever the last day of any Interest Period would otherwise
          occur on a day other than a Business Day, the last day of such
          Interest Period shall be extended to occur on the next succeeding
          Business Day, provided, however, that, if such extension would cause
          the last day of such Interest Period to occur in the next following
          calendar month, the last day of such Interest Period shall occur on
          the next preceding Business Day; and

               (d) whenever the first day of any Interest Period occurs on a day
          of an initial calendar month for which there is no numerically
          corresponding day in the calendar month that succeeds such initial
          calendar month by the number of months equal to the number of months
          in such Interest Period, such Interest Period shall end on the last
          Business Day of such succeeding calendar month.

          "Internal Revenue Code" means the Internal Revenue Code of 1986, as
     amended from time to time, and the regulations promulgated and rulings
     issued thereunder.

          "Issuing Bank" means an Initial Issuing Bank or any other Lender
     approved by the Borrower that may agree to issue Letters of Credit pursuant
     to an Assignment and Acceptance or other agreement in form satisfactory to
     the Borrower and the Agent, so long as such Lender expressly agrees to
     perform in accordance with their terms all of the obligations that by the
     terms of this Agreement are required to be

                                        7

<PAGE>

     performed by it as an Issuing Bank and notifies the Agent of its Applicable
     Lending Office (which information shall be recorded by the Agent in the
     Register), for so long as such Initial Issuing Bank or Lender, as the case
     may be, shall have a Letter of Credit Commitment.

          "L/C Cash Deposit Account" means an interest bearing cash deposit
     account to be established and maintained by the Agent, over which the Agent
     shall have sole dominion and control, upon terms as may be satisfactory to
     the Agent.

          "L/C Related Documents" has the meaning specified in Section
     2.06(b)(i).

          "Lenders" means the Initial Lenders, each Issuing Bank and each Person
     that shall become a party hereto pursuant to Section 8.07.

          "Letter of Credit" has the meaning specified in Section 2.01(b).

          "Letter of Credit Application" has the meaning specified in Section
     2.03(a).

          "Letter of Credit Commitment" means, with respect to each Issuing
     Bank, the obligation of such Issuing Bank to issue Letters of Credit for
     the account of the Borrower from time to time in (a) the maximum aggregate
     amount at any time outstanding set forth opposite the Issuing Bank's name
     on the signature pages hereto under the caption "Letter of Credit
     Commitment" or (b) if such Issuing Bank has entered into one or more
     Assignments and Acceptances or other agreements pursuant to which it became
     an Issuing Bank, the amount set forth for such Issuing Bank in the Register
     maintained by the Agent pursuant to Section 8.07(d) as such Issuing Bank's
     "Letter of Credit Commitment", in each case as such amount may be reduced
     prior to such time pursuant to Section 2.05.

          "Letter of Credit Facility" means, at any time, an amount equal to the
     least of (a) the aggregate amount of the Issuing Banks' Letter of Credit
     Commitments at such time, (b) $75,000,000 and (c) the aggregate amount of
     the Revolving Credit Commitments, as such amount may be reduced at or prior
     to such time pursuant to Section 2.05.

          "Lien" means any lien, security interest or other encumbrance of any
     kind, or any other type of preferential arrangement that has the practical
     effect of creating a security interest, including, without limitation, the
     lien or retained security title of a conditional vendor and any easement,
     right of way or other encumbrance on title to real property.

          "Material Adverse Change" means any material adverse change in the
     financial condition or financial prospects of the Borrower and its
     Subsidiaries taken as a whole.

          "Material Adverse Effect" means a material adverse effect on (a) the
     financial condition or financial prospects of the Borrower and its
     Subsidiaries taken as a whole, (b) the rights and remedies of the Agent or
     any Lender under this Agreement or any Note or (c) the ability of the
     Borrower to perform its obligations under this Agreement or any Note.

          "Material Subsidiary" means, at any time, a Subsidiary of the Borrower
     which as of such time meets the definition of a "significant subsidiary"
     included as of the date hereof in Regulation S-X of the Securities and
     Exchange Commission or whose assets at such time exceed 10% of the assets
     of the Borrower and the Subsidiaries (on a consolidated basis).

          "Moody's" means Moody's Investors Service, Inc.

          "Multiemployer Plan" means a multiemployer plan, as defined in Section
     4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate is making
     or accruing an obligation to make contributions, or has within any of the
     preceding five plan years made or accrued an obligation to make
     contributions.

                                        8

<PAGE>

          "Multiple Employer Plan" means a single employer plan, as defined in
     Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
     Borrower or any ERISA Affiliate and at least one Person other than the
     Borrower and the ERISA Affiliates or (b) was so maintained and in respect
     of which the Borrower or any ERISA Affiliate could have liability under
     Section 4064 or 4069 of ERISA in the event such plan has been or were to be
     terminated.

          "1984 Order" means Decision No. 54230, dated November 8, 1984, of the
     Arizona Corporation Commission.

          "1986 Order" means Decision No. 55017, dated May 6, 1986, of the
     Arizona Corporation Commission.

          "Note" means a promissory note of the Borrower payable to the order of
     any Lender, delivered pursuant to a request made under Section 2.16 in
     substantially the form of Exhibit A hereto, evidencing the aggregate
     indebtedness of the Borrower to such Lender resulting from the Advances
     made by such Lender.

          "Notice of Borrowing" has the meaning specified in Section 2.02(a).

          "Notice of Issuance" has the meaning specified in Section 2.03(a).

          "PBGC" means the Pension Benefit Guaranty Corporation (or any
     successor).

          "Permitted Lien" of the Borrower or any Material Subsidiary means any
     of the following:

               (i) Liens for taxes, assessments or other governmental charges or
          levies not at the time delinquent or thereafter payable without
          penalty or being contested in good faith by appropriate proceedings
          and for which adequate reserves in accordance with GAAP shall have
          been made;

               (ii) Liens imposed by or arising by operation of law, such as
          Liens of carriers, warehousemen, mechanics, materialmen and landlords
          incurred in the ordinary course of business, including, without
          limitation, landlord's liens arising under Arizona law under leases
          entered into by the Borrower in the 1986 sale and leaseback
          transactions with respect to Palo Verde Unit 2 and securing the
          payment of rent under such leases, in each case, for sums not overdue
          for a period of more than 30 days or being contested in good faith by
          appropriate proceedings and for which adequate reserves in accordance
          with GAAP shall have been made;

               (iii) Liens incurred in the ordinary course of business in
          connection with worker's compensation, unemployment insurance or other
          forms of governmental insurance or benefits or other similar statutory
          obligations;

               (iv) Liens to secure obligations on surety or appeal bonds;

               (v) rights of setoff and banker's Liens with respect to funds on
          deposit in a financial institution in the ordinary course of business;

               (vi) easements, restrictions, reservations, licenses, covenants,
          and other defects of title that are not, in the aggregate, materially
          adverse to the use of such property for the purpose for which it is
          used;

               (vii) Liens securing claims against any Person other than the
          Borrower or any Subsidiary of the Borrower neither assumed nor
          guaranteed by the Borrower or any Subsidiary of the Borrower nor on
          which the Borrower or any Subsidiary of the Borrower customarily pays
          interest, existing upon real estate or rights in or relating to real
          estate acquired by the Borrower or

                                        9

<PAGE>

          any Subsidiary of the Borrower for substation, transmission line,
          transportation line, distribution line or right of way purposes;

               (viii) rights reserved to or vested in any municipality or public
          authority by the terms of any right, power, franchise, grant, license
          or permit, or by any provision of law, to terminate such right, power,
          franchise, grant, license or permit or to purchase or recapture or to
          designate a purchaser of any of the property of the Borrower;

               (ix) rights reserved to or vested in others to take or receive
          any part of the power pursuant to firm power commitment contracts,
          purchased power contracts, tolling agreements and similar agreements,
          gas, oil or other minerals or timber generated, developed,
          manufactured or produced by, or grown on, or acquired with, any
          property of the Borrower;

               (x) rights reserved to or vested in any municipality or public
          authority to control or regulate any property of the Borrower, or to
          use such property in a manner that does not materially impair the use
          of such property for the purposes for which it is held by the
          Borrower;

               (xi) security interests granted in favor of the Unit 2 sale
          leaseback transaction lessors in the Borrower's Decommissioning Trust
          Agreement (PVNGS Unit 2) dated as of January 31, 1992 (such agreement,
          as amended or otherwise modified from time to time, being the "Unit 2
          Trust Agreement") to secure the Borrower's obligations in respect of
          the decommissioning of PVNGS Unit 2 or related facilities;

               (xii) Liens that may exist with respect to the Unit 2 Trust
          Agreement (other than as described in paragraph (xi) above) or with
          respect to either of the Borrower's Decommissioning Trust Agreement
          (PVNGS Unit 1) or Decommissioning Trust Agreement (PVNGS Unit 3), each
          dated as of July 1, 1991, as amended or otherwise modified from time
          to time, relating to the Borrower's obligation to set aside funds for
          the decommissioning and retirement from service of such Units;

               (xiii) pledges of pollution control bonds and related rights to
          secure the Borrower's reimbursement obligations in respect of letters
          of credit, bond insurance, and other credit or liquidity enhancements
          supporting pollution control bond transactions, provided that such
          pollution control bonds are not secured by any other assets of the
          Borrower or any Material Subsidiary;

               (xiv) interests of other participants under agreements governing
          jointly-owned electric generating facilities and transmission
          facilities and transfers of operational or other control of facilities
          to a regional transmission organization or other similar body and
          Liens on such facilities to cover expenses, fees and other costs of
          such an organization or body;

               (xv) Liens established on specified bank accounts of the Borrower
          to secure the Borrower's reimbursement obligations in respect of
          letters of credit supporting commercial paper issued by the Borrower
          and similar arrangements for collateral security with respect to
          refinancings or replacements of the same;

               (xvi) rights of transmission users or any regional transmission
          organizations or similar entities in transmission facilities; and

               (xvii) Liens on property of the Borrower sold to another Person
          pursuant to a conditional sales agreement where the Borrower retains
          title;

          provided, however, that no lien in favor of the PBGC shall, in any
          event, be a Permitted Lien.

                                       10

<PAGE>

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

          "Plan" means a Single Employer Plan or a Multiple Employer Plan.

          "Public Debt Rating" means, as of any date, the rating that has been
     most recently announced by either S&P or Moody's, as the case may be, for
     any class of non-credit enhanced long-term senior unsecured debt issued by
     the Borrower or, if any such rating agency shall have issued more than one
     such rating, the lowest such rating issued by such rating agency. For
     purposes of the foregoing, (a) if only one of S&P and Moody's shall have in
     effect a Public Debt Rating, the Applicable Margin, the Applicable
     Percentage and the Applicable Utilization Fee shall be determined by
     reference to the available rating; (b) if neither S&P nor Moody's shall
     have in effect a Public Debt Rating, the Applicable Margin, the Applicable
     Percentage and the Applicable Utilization Fee will be set in accordance
     with Level 6 under the definition of "Applicable Margin", "Applicable
     Percentage" or "Applicable Utilization Fee", as the case may be; (c) if the
     ratings established by S&P and Moody's shall fall within different levels
     above Level 6, the Applicable Margin, the Applicable Percentage and the
     Applicable Utilization Fee shall be based upon the higher rating unless the
     such ratings differ by two or more levels, in which case the applicable
     level will be deemed to be one level above the lower of such levels; (d) if
     any rating established by S&P or Moody's shall be changed, such change
     shall be effective as of the date on which such change is first announced
     publicly by the rating agency making such change; and (e) if S&P or Moody's
     shall change the basis on which ratings are established, each reference to
     the Public Debt Rating announced by S&P or Moody's, as the case may be,
     shall refer to the then equivalent rating by S&P or Moody's, as the case
     may be.

          "PWCC" means Pinnacle West Capital Corporation.

          "Ratable Share" of any amount means, with respect to any Lender at any
     time, the product of such amount times a fraction the numerator of which is
     the amount of such Lender's Revolving Credit Commitment at such time (or,
     if the Revolving Credit Commitments shall have been terminated pursuant to
     Section 2.05 or 6.01, such Lender's Revolving Credit Commitment as in
     effect immediately prior to such termination) and the denominator of which
     is the aggregate amount of all Revolving Credit Commitments at such time
     (or, if the Revolving Credit Commitments shall have been terminated
     pursuant to Section 2.05 or 6.01, the aggregate amount of all Revolving
     Credit Commitments as in effect immediately prior to such termination).

          "Reference Banks" means Citibank, KeyBank National Association, Bank
     of America, N.A. and The Bank of New York.

          "Register" has the meaning specified in Section 8.07(d).

          "Required Lenders" means at any time Lenders owed at least a majority
     in interest of the then aggregate unpaid principal amount of the Advances
     owing to Lenders, or, if no such principal amount is then outstanding,
     Lenders having at least a majority in interest of the Revolving Credit
     Commitments.

          "Revolving Credit Commitment" means as to any Lender (a) the amount
     set forth opposite such Lender's name on the signature pages hereof as such
     Lender's "Revolving Credit Commitment" or (b) if such Lender has entered
     into any Assignment and Acceptance, the amount set forth for such Lender in
     the Register maintained by the Agent pursuant to Section 8.07(d), as such
     amount may be reduced pursuant to Section 2.05.

          "S&P" means Standard & Poor's, a division of The McGraw-Hill
     Companies, Inc.

          "Sale Leaseback Obligation Bonds" means PVNGS II Funding Corp.'s (i)
     7.39% Secured Lease Obligation Bonds, Series 1993, due 2005; (ii) 8.00%
     Secured Lease Obligation Bonds, Series 1993, due

                                       11

<PAGE>

     2015; (iii) any other bonds issued by the Borrower in connection with a
     sale/leaseback transaction; and (iv) any refinancing or refunding of the
     obligations specified in subclauses (i) through (iii) above.

          "SEC Reports" means the Borrower's (i) Form 10-K Report for the year
     ended December 31, 2003, (ii) Form 10-Q Report for the quarter ended March
     31, 2004 and (iii) Form 8-K Reports filed on January 9, January 28, January
     29, February 4 and April 21, 2004.

          "Single Employer Plan" means a single employer plan, as defined in
     Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
     Borrower or any ERISA Affiliate and no Person other than the Borrower and
     the ERISA Affiliates or (b) was so maintained and in respect of which the
     Borrower or any ERISA Affiliate could have liability under Section 4069 of
     ERISA in the event such plan has been or were to be terminated.

          "Subsequent Order" means any decision, order or ruling of the Arizona
     Corporation Commission issued after the Effective Date relating to the
     incurrence or maintenance of Indebtedness by the Borrower and that amends,
     supersedes or otherwise modifies the 1984 Order, the 1986 Order or any
     successor decision, order or ruling.

          "Subsidiary" of any Person means any corporation, partnership, joint
     venture, limited liability company, trust or estate of which (or in which)
     more than 50% of (a) the issued and outstanding capital stock having
     ordinary voting power to elect a majority of the Board of Directors of such
     corporation (irrespective of whether at the time capital stock of any other
     class or classes of such corporation shall or might have voting power upon
     the occurrence of any contingency), (b) the interest in the capital or
     profits of such limited liability company, partnership or joint venture or
     (c) the beneficial interest in such trust or estate, is at the time
     directly or indirectly owned or controlled by such Person, by such Person
     and one or more of its other Subsidiaries or by one or more of such
     Person's other Subsidiaries.

          "Termination Date" means the earlier of (a) May 21, 2007 and (b) the
     date of termination in whole of the Commitments pursuant to Section 2.05 or
     6.01.

          "Unissued Letter of Credit Commitment" means, with respect to any
     Issuing Bank, the obligation of such Issuing Bank to issue Letters of
     Credit for the account of the Borrower in an amount equal to the excess of
     (a) the amount of its Letter of Credit Commitment over (b) the aggregate
     Available Amount of all Letters of Credit issued by such Issuing Bank.

          "Unused Commitment" means, with respect to each Lender at any time,
     (a) such Lender's Revolving Credit Commitment at such time minus (b) the
     sum of (i) the aggregate principal amount of all Advances made by such
     Lender (in its capacity as a Lender) and outstanding at such time, plus
     (ii) such Lender's Ratable Share of (A) the aggregate Available Amount of
     all the Letters of Credit outstanding at such time and (B) the aggregate
     principal amount of all Advances made by each Issuing Bank pursuant to
     Section 2.03(c) that have not been ratably funded by such Lender and
     outstanding at such time.

          "Voting Stock" means capital stock issued by a corporation, or
     equivalent interests in any other Person, the holders of which are
     ordinarily, in the absence of contingencies, entitled to vote for the
     election of directors (or persons performing similar functions) of such
     Person, even if the right so to vote has been suspended by the happening of
     such a contingency.

          SECTION 1.02. Computation of Time Periods.  In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".

          SECTION 1.03. Accounting Terms.  Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a basis
consistent (except for changes concurred in by the Borrower's

                                       12

<PAGE>

independent public accountants) with the most recent audited Consolidated
financial statements of the Borrower delivered to the Agent ("GAAP").

                                   ARTICLE II

             AMOUNTS AND TERMS OF THE ADVANCES AND LETTERS OF CREDIT

          SECTION 2.01. The Advances and Letters of Credit.  (a) The Advances.
Each Lender severally agrees, on the terms and conditions hereinafter set forth,
to make Advances to the Borrower from time to time on any Business Day during
the period from the Effective Date until the Termination Date in an amount not
to exceed such Lender's Unused Commitment. Each Borrowing shall be in an
aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess
thereof and shall consist of Advances of the same Type made on the same day by
the Lenders ratably according to their respective Revolving Credit Commitments.
Within the limits of each Lender's Revolving Credit Commitment, the Borrower may
borrow under this Section 2.01(a), prepay pursuant to Section 2.10 and reborrow
under this Section 2.01(a).

          (b) Letters of Credit.  Each Issuing Bank agrees, on the terms and
conditions hereinafter set forth, in reliance upon the agreements of the other
Lenders set forth in this Agreement, to issue letters of credit (each, a "Letter
of Credit") for the account of the Borrower from time to time on any Business
Day during the period from the Effective Date until 30 days before the
Termination Date in an aggregate Available Amount (i) for all Letters of Credit
issued by each Issuing Bank not to exceed at any time the lesser of (x) the
Letter of Credit Facility at such time and (y) such Issuing Bank's Letter of
Credit Commitment at such time and (ii) for each such Letter of Credit not to
exceed an amount equal to the Unused Commitments of the Lenders at such time. No
Letter of Credit shall have an expiration date (including all rights of the
Borrower or the beneficiary to require renewal) later than five Business Days
before the Termination Date. Within the limits referred to above, the Borrower
may from time to time request the issuance of Letters of Credit under this
Section 2.01(b). Each letter of credit listed on Schedule 2.01(b) shall be
deemed to constitute a Letter of Credit issued hereunder, and each Lender that
is an issuer of such a Letter of Credit shall, for purposes of Section 2.03, be
deemed to be an Issuing Bank for each such letter of credit, provided than any
renewal or replacement of any such letter of credit shall be issued by an
Issuing Bank pursuant to the terms of this Agreement. The terms "issue",
"issued", "issuance" and all similar terms, when applied to a Letter of Credit,
shall include any renewal, extension or amendment thereof.

          SECTION 2.02. Making the Advances.  (a) Except as otherwise provided
in Section 2.03(c), each Borrowing shall be made on notice, given not later than
(x) 12:00 noon (New York City time) on the third Business Day prior to the date
of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar
Rate Advances or (y) 12:00 noon (New York City time) on the date of the proposed
Borrowing in the case of a Borrowing consisting of Base Rate Advances, by the
Borrower to the Agent, which shall give to each Lender prompt notice thereof by
facsimile. Each such notice of a Borrowing (a "Notice of Borrowing") shall be in
writing or by facsimile in substantially the form of Exhibit B hereto,
specifying therein the requested (i) date of such Borrowing, (ii) Type of
Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing,
and (iv) in the case of a Borrowing consisting of Eurodollar Rate Advances,
initial Interest Period for each such Advance. Each Lender shall, in the case of
a Borrowing consisting of Base Rate Advances, before 2:00 P.M. (New York City
time) on the date of such Borrowing, and in the case of a Borrowing consisting
of Eurodollar Rate Advances, before 11:00 A.M. (New York City time) on date of
such Borrowing, make available for the account of its Applicable Lending Office
to the Agent at the Agent's Account, in same day funds, such Lender's ratable
portion of such Borrowing. After the Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article III, the Agent
will make such funds available to the Borrower at the Agent's address referred
to in Section 8.02.

          (b) Anything in subsection (a) above to the contrary notwithstanding,
(i) the Borrower may not select Eurodollar Rate Advances for any Borrowing if
the aggregate amount of such Borrowing is less than $10,000,000 or if the
obligation of the Lenders to make Eurodollar Rate Advances shall then be
suspended pursuant to Section 2.08 or 2.12 and (ii) at no time shall there be
more than eight different Interest Periods outstanding for Eurodollar Rate
Advances.

                                       13

<PAGE>

          (c) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. In the case of any Borrowing that the related Notice of Borrowing
specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall
indemnify each Lender against any loss, cost or expense reasonably incurred by
such Lender as a result of any failure to fulfill on or before the date
specified in such Notice of Borrowing for such Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(excluding loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Advance to be made by such Lender as part of such Borrowing
when such Advance, as a result of such failure, is not made on such date.

          (d) Unless the Agent shall have received notice from a Lender prior to
the time of any Borrowing that such Lender will not make available to the Agent
such Lender's ratable portion of such Borrowing, the Agent may assume that such
Lender has made such portion available to the Agent on the date of such
Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such ratable portion available to the Agent, such Lender and the
Borrower severally agree to repay to the Agent within one Business Day after
demand for such Lender and within three Business Days after demand for the
Borrower such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at (i) in the case of the Borrower, the interest
rate applicable at the time to Advances comprising such Borrowing and (ii) in
the case of such Lender, the Federal Funds Rate. If such Lender shall repay to
the Agent such corresponding amount, such amount so repaid shall constitute such
Lender's Advance as part of such Borrowing for purposes of this Agreement.

          (e) The failure of any Lender to make the Advance to be made by it as
part of any Borrowing shall not relieve any other Lender of its obligation, if
any, hereunder to make its Advance on the date of such Borrowing, but no Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on the date of any Borrowing.

          SECTION 2.03. Issuance of and Drawings and Reimbursement Under Letters
of Credit.  (a) Request for Issuance. (i) Each Letter of Credit shall be issued
upon notice, given not later than 11:00 A.M. (New York City time) on the third
Business Day prior to the date of the proposed issuance of such Letter of Credit
(or on such shorter notice as the applicable Issuing Bank may agree), by the
Borrower to any Issuing Bank, and such Issuing Bank shall give the Agent, prompt
notice thereof. Each such notice by the Borrower of issuance of a Letter of
Credit (a "Notice of Issuance") shall be by facsimile or telephone, confirmed
immediately in writing, specifying therein the requested (A) date of such
issuance (which shall be a Business Day), (B) Available Amount of such Letter of
Credit, (C) expiration date of such Letter of Credit (which shall not be later
than five Business Days before the Termination Date), (D) name and address of
the beneficiary of such Letter of Credit and (E) form of such Letter of Credit.
Each Letter of Credit shall be issued pursuant to such application for letter of
credit as such Issuing Bank may specify to the Borrower for use in connection
with such requested Letter of Credit (a "Letter of Credit Application"). If the
requested form of such Letter of Credit is acceptable to such Issuing Bank in
its sole discretion, such Issuing Bank will, upon fulfillment of the applicable
conditions set forth in Article III, make such Letter of Credit available to the
Borrower at its office referred to in Section 8.02 or as otherwise agreed with
the Borrower in connection with such issuance. In the event and to the extent
that the provisions of any Letter of Credit Application shall conflict with this
Agreement, the provisions of this Agreement shall govern. Without limitation of
the immediately preceding sentence, no such Letter of Credit Application may
impose any additional conditions on the issuance of a Letter of Credit nor
obligations of the Borrower to the Issuing Bank, other than as stated in this
Agreement.

          (b) Participations.  By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the applicable Issuing Bank or the Lenders, such
Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from
such Issuing Bank, a participation in such Letter of Credit equal to such
Lender's Ratable Share of the Available Amount of such Letter of Credit. The
Borrower hereby agrees to each such participation. In consideration and in
furtherance of the foregoing, each Lender hereby absolutely and unconditionally
agrees to pay to the Agent, for the account of such Issuing Bank, such Lender's
Ratable Share of each drawing made under a Letter of Credit funded by such
Issuing Bank and not reimbursed by the Borrower on the date made, or of any
reimbursement payment required to be refunded to the Borrower for any reason,
which amount will be advanced, and deemed to be an Advance to the

                                       14

<PAGE>

Borrower hereunder, regardless of the satisfaction of the conditions set forth
in Section 3.02. Each Lender acknowledges and agrees that its obligation to
acquire participations pursuant to this paragraph in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Revolving Credit Commitments, and that each such payment
shall be made without any offset, abatement, withholding or reduction
whatsoever. Each Lender further acknowledges and agrees that its participation
in each Letter of Credit will be automatically adjusted to reflect such Lender's
Ratable Share of the Available Amount of such Letter of Credit at each time such
Lender's Revolving Credit Commitment is amended pursuant to an assignment in
accordance with Section 8.07 or otherwise pursuant to this Agreement.

          (c) Drawing and Reimbursement.  The payment by an Issuing Bank of a
draft drawn under any Letter of Credit which is not reimbursed by the Borrower
on the date made shall constitute for all purposes of this Agreement the making
by any such Issuing Bank of an Advance regardless of the conditions set forth in
Section 3.02, which shall be a Base Rate Advance, in the amount of such draft,
without regard to whether the making of such an Advance would exceed such
Issuing Bank's Unused Commitment. Each Issuing Bank shall give prompt notice of
each drawing under any Letter of Credit issued by it to the Borrower and the
Agent. Upon written demand by such Issuing Bank, with a copy of such demand to
the Agent and the Borrower, each Lender shall pay to the Agent such Lender's
Ratable Share of such outstanding Advance pursuant to Section 2.03(b). Each
Lender acknowledges and agrees that its obligation to make Advances pursuant to
this paragraph in respect of Letters of Credit is absolute and unconditional and
shall not be affected by any circumstance whatsoever, including any amendment,
renewal or extension of any Letter of Credit or the occurrence and continuance
of a Default or reduction or termination of the Revolving Credit Commitments,
and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever. Promptly after receipt thereof, the Agent
shall transfer such funds to such Issuing Bank. Each Lender agrees to fund its
Ratable Share of an outstanding Advance on (i) the Business Day on which demand
therefor is made by such Issuing Bank, provided that notice of such demand is
given not later than 11:00 A.M. (New York City time) on such Business Day, or
(ii) the first Business Day next succeeding such demand if notice of such demand
is given after such time. If and to the extent that any Lender shall not have so
made the amount of such Advance available to the Agent, such Lender agrees to
pay to the Agent forthwith on demand such amount together with interest thereon,
for each day from the date of demand by any such Issuing Bank until the date
such amount is paid to the Agent, at the Federal Funds Rate for its account or
the account of such Issuing Bank, as applicable. If a Lender shall pay to the
Agent any amount for the account of any such Issuing Bank on any Business Day,
such amount so paid in respect of principal shall constitute an Advance made by
such Lender on such Business Day for purposes of this Agreement, and the
outstanding principal amount of the Advance made by such Issuing Bank shall be
reduced by such amount on such Business Day.

          (d) Letter of Credit Reports.  Each Issuing Bank shall furnish (A) to
the Agent and each Lender on the first Business Day of each month a written
report summarizing issuance and expiration dates of Letters of Credit issued by
such Issuing Bank during the preceding month and drawings during such month
under all such Letters of Credit and (B) to the Agent and each Lender on the
first Business Day of each calendar quarter a written report setting forth the
average daily aggregate Available Amount during the preceding calendar quarter
of all Letters of Credit issued by such Issuing Bank.

          (e) Failure to Make Advances.  The failure of any Lender to make the
Advance to be made by it on the date specified in Section 2.03(c) shall not
relieve any other Lender of its obligation hereunder to make its Advance on such
date, but no Lender shall be responsible for the failure of any other Lender to
make the Advance to be made by such other Lender on such date.

          SECTION 2.04. Fees. (a) Commitment Fee.  The Borrower agrees to pay to
the Agent for the account of each Lender a commitment fee on such Lender's
Unused Commitment from the Effective Date in the case of each Initial Lender and
from the later of the Effective Date and the effective date specified in the
Assignment and Acceptance pursuant to which it became a Lender in the case of
each other Lender until the Termination Date at a rate per annum equal to the
Applicable Percentage in effect from time to time, payable in arrears quarterly
on the last day of each March, June, September and December, commencing June 30,
2004, and on the Termination Date.

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<PAGE>

          (b) Letter of Credit Fees.  (i) The Borrower shall pay to the Agent
for the account of each Lender a commission on such Lender's Ratable Share of
the average daily aggregate Available Amount of all Letters of Credit
outstanding from time to time at a rate per annum equal to the Applicable Margin
for Eurodollar Rate Advances in effect from time to time plus the Applicable
Utilization Fee, if any, during such calendar quarter, payable in arrears
quarterly on the last day of each March, June, September and December,
commencing with the quarter ended June 30, 2004, and on the Termination Date;
provided that the Applicable Margin shall be 2% above the Applicable Margin in
effect upon the occurrence and during the continuation of an Event of Default if
the Borrower is required to pay default interest pursuant to Section 2.07(b).

          (ii) The Borrower shall pay to each Issuing Bank, for its own account,
     a fronting fee of 0.125% per annum on the Available Amount of each Letter
     of Credit issued by such Issuing Bank, payable in arrears quarterly on the
     last day of each March, June, September and December, commencing with the
     first such quarter in which any Letter of Credit is issued, and such other
     commissions, issuance fees, transfer fees and other fees and charges in
     connection with the issuance or administration of each Letter of Credit as
     the Borrower and such Issuing Bank shall agree promptly following receipt
     of an invoice therefor.

          (c) Agent's Fees.  The Borrower shall pay to the Agent for its own
account such fees as are agreed between the Borrower and the Agent pursuant to
the Fee Letter dated April 20, 2004, as amended from time to time.

          SECTION 2.05. Optional Termination or Reduction of the Commitments.
The Borrower shall have the right, upon at least three Business Days' notice to
the Agent, to terminate in whole or permanently reduce ratably in part the
Unused Commitments or the Unissued Letter of Credit Commitments of the Lenders,
provided that each partial reduction shall be in the aggregate amount of
$10,000,000 or an integral multiple of $1,000,000 in excess thereof.

          SECTION 2.06. Repayment of Advances and Letter of Credit Drawings.
(a) The Borrower shall repay to the Agent for the ratable account of the Lenders
on the Termination Date the aggregate principal amount of the Advances then
outstanding.

          (b) The obligations of the Borrower hereunder relating to any Letter
of Credit shall be unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances, including,
without limitation, the following circumstances (it being understood that any
such payment by the Borrower is without prejudice to, and does not constitute a
waiver of, any rights the Borrower might have or might acquire as a result of
the payment by any Lender of any draft or the reimbursement by the Borrower
thereof):

          (i) any lack of validity or enforceability of this Agreement, any
     Note, any Letter of Credit or any other agreement or instrument relating
     thereto (all of the foregoing being, collectively, the "L/C Related
     Documents");

          (ii) any change in the time, manner or place of payment of, or in any
     other term of, all or any of the obligations of the Borrower in respect of
     any L/C Related Document or any other amendment or waiver of or any consent
     to departure from all or any of the L/C Related Documents;

          (iii) the existence of any claim, set-off, defense or other right that
     the Borrower may have at any time against any beneficiary or any transferee
     of a Letter of Credit (or any Persons for which any such beneficiary or any
     such transferee may be acting), any Issuing Bank, any Agent, any Lender or
     any other Person, whether in connection with the transactions contemplated
     by the L/C Related Documents or any unrelated transaction;

          (iv) any statement or any other document presented under a Letter of
     Credit proving to be forged, fraudulent, invalid or insufficient in any
     respect or any statement therein being untrue or inaccurate in any respect;

                                       16

<PAGE>

          (v) payment by any Issuing Bank under a Letter of Credit against
     presentation of a draft or certificate that does not strictly comply with
     the terms of such Letter of Credit;

          (vi) any exchange, release or non-perfection of any collateral, or any
     release or amendment or waiver of or consent to departure from any
     guarantee, for all or any of the obligations of the Borrower in respect of
     the L/C Related Documents; or

          (vii) any other circumstance or happening whatsoever, whether or not
     similar to any of the foregoing, including, without limitation, any other
     circumstance that might otherwise constitute a defense available to, or a
     discharge of, the Borrower or a guarantor;

     provided, however, that nothing in this Section 2.06 shall limit the rights
     of the Borrower under Section 8.12.

          SECTION 2.07. Interest on Advances. (a) Scheduled Interest.  The
Borrower shall pay interest on the unpaid principal amount of each Advance owing
to each Lender from the date of such Advance until such principal amount shall
be paid in full, at the following rates per annum:

          (i) Base Rate Advances.  During such periods as such Advance is a Base
     Rate Advance, a rate per annum equal at all times to the sum of (x) the
     Base Rate in effect from time to time plus (y) the Applicable Margin in
     effect from time to time plus (z) the Applicable Utilization Fee, if any,
     in effect from time to time, payable in arrears quarterly on the last day
     of each March, June, September and December during such periods and on the
     date such Base Rate Advance shall be Converted or paid in full.

          (ii) Eurodollar Rate Advances.  During such periods as such Advance is
     a Eurodollar Rate Advance, a rate per annum equal at all times during each
     Interest Period for such Advance to the sum of (x) the Eurodollar Rate for
     such Interest Period for such Advance plus (y) the Applicable Margin in
     effect from time to time plus (z) the Applicable Utilization Fee, if any,
     in effect from time to time, payable in arrears on the last day of such
     Interest Period and, if such Interest Period has a duration of more than
     three months, on each day that occurs during such Interest Period every
     three months from the first day of such Interest Period and on the date
     such Eurodollar Rate Advance shall be Converted or paid in full.

          (b) Default Interest.  Upon the occurrence and during the continuance
of an Event of Default under Section 6.01(a), the Agent may, and upon the
request of the Required Lenders shall, require the Borrower to pay interest
("Default Interest") on (i) the unpaid principal amount of each Advance owing to
each Lender, payable in arrears on the dates referred to in clause (a)(i) or
(a)(ii) above, at a rate per annum equal at all times to 2% per annum above the
rate per annum required to be paid on such Advance pursuant to clause (a)(i) or
(a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any
interest, fee or other amount payable hereunder that is not paid when due, from
the date such amount shall be due until such amount shall be paid in full,
payable in arrears on the date such amount shall be paid in full and on demand,
at a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on Base Rate Advances pursuant to clause (a)(i) above,
provided, however, that following acceleration of the Advances pursuant to
Section 6.01, Default Interest shall accrue and be payable hereunder whether or
not previously required by the Agent.

          SECTION 2.08. Interest Rate Determination.  (a) Each Reference Bank
agrees to furnish to the Agent timely information for the purpose of determining
each Eurodollar Rate. If any one or more of the Reference Banks shall not
furnish such timely information to the Agent for the purpose of determining any
such interest rate, the Agent shall determine such interest rate on the basis of
timely information furnished by the remaining Reference Banks. The Agent shall
give prompt notice to the Borrower and the Lenders of the applicable interest
rate determined by the Agent for purposes of Section 2.07(a)(i) or (ii), and the
rate, if any, furnished by each Reference Bank for the purpose of determining
the interest rate under Section 2.07(a)(ii).

          (b) If, with respect to any Eurodollar Rate Advances, the Required
Lenders notify the Agent that the Eurodollar Rate for any Interest Period for
such Advances will not adequately reflect the cost to such Required Lenders of
making, funding or maintaining their respective Eurodollar Rate Advances for
such Interest

                                       17

<PAGE>

Period, the Agent shall forthwith so notify the Borrower and the Lenders,
whereupon (i) each Eurodollar Rate Advance will automatically, on the last day
of the then existing Interest Period therefor, Convert into a Base Rate Advance,
and (ii) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist.

          (c) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent will
forthwith so notify the Borrower and the Lenders and such Advances will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Base Rate Advances.

          (d) On the date on which the aggregate unpaid principal amount of
Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment
or prepayment or otherwise, to less than $10,000,000, such Advances shall
automatically Convert into Base Rate Advances.

          (e) Upon the occurrence and during the continuance of any Event of
Default, (i) each Eurodollar Rate Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate Advance and
(ii) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended.

          (f) If Moneyline Telerate Markets Page 3750 is unavailable and fewer
than two Reference Banks furnish timely information to the Agent for determining
the Eurodollar Rate for any Eurodollar Rate Advances,

          (i) the Agent shall forthwith notify the Borrower and the Lenders that
     the interest rate cannot be determined for such Eurodollar Rate Advances,

          (ii) with respect to Eurodollar Rate Advances, each such Advance will
     automatically, on the last day of the then existing Interest Period
     therefor, Convert into a Base Rate Advance (or if such Advance is then a
     Base Rate Advance, will continue as a Base Rate Advance), and

          (iii) the obligation of the Lenders to make Eurodollar Rate Advances
     or to Convert Advances into Eurodollar Rate Advances shall be suspended
     until the Agent shall notify the Borrower and the Lenders that the
     circumstances causing such suspension no longer exist.

          SECTION 2.09. Optional Conversion of Advances.  The Borrower may on
any Business Day, upon notice given to the Agent not later than 12:00 noon (New
York City time) on the third Business Day prior to the date of the proposed
Conversion and subject to the provisions of Sections 2.08 and 2.12, Convert all
Advances of one Type comprising the same Borrowing into Advances of the other
Type; provided, however, that any Conversion of Eurodollar Rate Advances into
Base Rate Advances shall be made only on the last day of an Interest Period for
such Eurodollar Rate Advances, any Conversion of Base Rate Advances into
Eurodollar Rate Advances shall be in an amount not less than the minimum amount
specified in Section 2.02(b) and no Conversion of any Advances shall result in
more separate Borrowings than permitted under Section 2.02(b). Each such notice
of a Conversion shall, within the restrictions specified above, specify (i) the
date of such Conversion, (ii) the Advances to be Converted, and (iii) if such
Conversion is into Eurodollar Rate Advances, the duration of the initial
Interest Period for each such Advance. Each notice of Conversion shall be
irrevocable and binding on the Borrower.

          SECTION 2.10. Prepayments of Advances. (a) Optional.  The Borrower
may, upon notice at least two Business Days' prior to the date of such
prepayment, in the case of Eurodollar Rate Advances, and not later than 11:00
A.M. (New York City time) on the date of such prepayment, in the case of Base
Rate Advances, to the Agent stating the proposed date and aggregate principal
amount of the prepayment, and if such notice is given the Borrower shall, prepay
the outstanding principal amount of the Advances comprising part of the same
Borrowing in whole or ratably in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid; provided, however, that
(x) each partial prepayment shall be in an aggregate principal amount of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) in
the event of any such prepayment of a

                                       18

<PAGE>

Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the
Lenders in respect thereof pursuant to Section 8.04(c).

          (b) Mandatory.  The Borrower shall prepay the aggregate principal
amount of the Advances, together with accrued interest to the date of prepayment
on the principal amount prepaid, without requirement of demand therefor, or
shall pay or prepay any other Indebtedness then outstanding at any time when and
to the extent required to comply with applicable Arizona laws, rules or
regulations, including the 1984 Order and the 1986 Order, or applicable
resolutions of the Board of Directors of the Borrower.

          SECTION 2.11. Increased Costs.  (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any new guideline or unanticipated
request from any central bank or other governmental authority (whether or not
having the force of law), there shall be any increase in the cost to any Lender
of agreeing to make or making, funding or maintaining Eurodollar Rate Advances
or agreeing to issue or of issuing or maintaining or participating in Letters of
Credit (excluding for purposes of this Section 2.11 any such increased costs
resulting from (i) Taxes or Other Taxes (as to which Section 2.14 shall govern),
(ii) changes in the basis of taxation of overall net income or overall gross
income by the United States or by the foreign jurisdiction or state under the
laws of which such Lender is organized or has its Applicable Lending Office or
any political subdivision thereof and (iii) reserve requirements included in the
calculation required by Section 2.11(d)), then the Borrower shall from time to
time, upon demand by such Lender (with a copy of such demand to the Agent), pay
to the Agent for the account of such Lender additional amounts that the Lender
reasonably determines sufficient to compensate such Lender for such increased
cost. A certificate as to the amount of such increased cost, submitted to the
Borrower and the Agent by such Lender, shall be conclusive and binding for all
purposes, absent manifest error.

          (b) If any Lender determines that compliance with any new law or
regulation or any new guideline or unanticipated request from any central bank
or other governmental authority (whether or not having the force of law) affects
or would affect the amount of capital required or expected to be maintained by
such Lender or any corporation controlling such Lender and that the amount of
such capital is increased by or based upon the existence of such Lender's
commitment to lend or to issue or participate in Letters of Credit hereunder and
other commitments of this type, then, upon demand by such Lender (with a copy of
such demand to the Agent), the Borrower shall pay to the Agent for the account
of such Lender, from time to time as specified by such Lender, additional
amounts that the Lender reasonably determines sufficient to compensate such
Lender or such corporation in the light of such circumstances, to the extent
that such Lender reasonably determines such increase in capital to be allocable
to the existence of such Lender's commitment to lend or to issue or participate
in Letters of Credit hereunder. A certificate as to such amounts submitted to
the Borrower and the Agent by such Lender shall be conclusive and binding for
all purposes, absent manifest error.

          (c) Each Lender will notify the Borrower of any change that will
entitle such Lender to compensation under Section 2.11(a) or (b) as promptly as
practicable, but in any event within 90 days after such Lender obtains knowledge
thereof; provided, however, that, if any Lender fails to give such notice within
90 days after it obtains knowledge of such change, such Lender shall, with
respect to compensation payable in respect of any costs resulting from such
change, only be entitled to payment for costs incurred from and after the date
that such Lender does give such notice plus, if such change shall have
retroactive effect, costs resulting from such change during the period of
retroactive effect thereof. Any Lender claiming any additional amounts payable
pursuant to this Section agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to change the
jurisdiction of its Eurodollar Lending Office if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
that may thereafter accrue and would not, in the reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender.

          (d) The Borrower shall pay to the Agent for the account of each Lender
that requests such a payment, so long as such Lender shall be required under
regulations of the Board of Governors of the Federal Reserve System to maintain
reserves with respect to Eurocurrency Liabilities, an additional amount
determined by such Lender up to but not exceeding an amount equal to the sum of
the products of the following for each Eurodollar Rate Advance for each day
during the applicable Interest Period therefor:

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<PAGE>

          (i) the principal amount of such Eurodollar Rate Advance outstanding
     on such day; multiplied by

          (ii) the remainder of (x) a fraction the numerator of which is the
     rate (expressed as a decimal) at which interest accrues on such Eurodollar
     Rate Advance for such Interest Period as provided in this Agreement (less
     the Applicable Eurodollar Margin and any Applicable Utilization Fee), and
     the denominator of which is one minus the effective rate (expressed as a
     decimal) at which such reserve requirements are imposed on such Lender on
     such day, minus (y) such numerator; multiplied by

          (iii) 1/360.

          Such additional amount shall be determined by such Lender and notified
to the Borrower through the Agent and shall be payable on each date on which
interest is payable on such Eurodollar Rate Advance. Any such determination,
when submitted by a Lender to the Borrower and accompanied by the calculations
showing the basis for such determination, shall be conclusive and binding for
all purposes absent manifest error.

          SECTION 2.12. Illegality.  Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or any central bank or other governmental authority asserts that it is unlawful,
for any Lender or its Eurodollar Lending Office to perform its obligations
hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar
Rate Advances hereunder, (a) each Eurodollar Rate Advance will automatically, on
the last day of the applicable Interest Period or, if required by applicable
law, immediately upon such demand, Convert into a Base Rate Advance and (b) the
obligation of the Lenders to make Eurodollar Rate Advances or to Convert
Advances into Eurodollar Rate Advances shall be suspended until the Agent shall
notify the Borrower and the Lenders that the circumstances causing such
suspension no longer exist.

          SECTION 2.13. Payments and Computations.  (a) The Borrower shall make
each payment hereunder, irrespective of any right of counterclaim or set-off,
not later than 1:00 P.M. (New York City time) on the day when due in U.S.
dollars to the Agent at the Agent's Account in same day funds. The Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal, interest, fees or commissions ratably (other than amounts payable
pursuant to Section 2.11, 2.14 or 8.04(c)) to the Lenders for the account of
their respective Applicable Lending Offices, and like funds relating to the
payment of any other amount payable to any Lender to such Lender for the account
of its Applicable Lending Office, in each case to be applied in accordance with
the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance
and recording of the information contained therein in the Register pursuant to
Section 8.07(c), from and after the effective date specified in such Assignment
and Acceptance, the Agent shall make all payments hereunder and under the Notes
in respect of the interest assigned thereby to the Lender assignee thereunder,
and the parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves.

          (b) All computations of interest based on the Base Rate shall be made
by the Agent on the basis of a year of 365 or 366 days, as the case may be, and
all computations of interest based on the Eurodollar Rate or the Federal Funds
Rate and of fees and Letter of Credit commissions shall be made by the Agent on
the basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest, fees or commissions are payable. Each determination by the
Agent of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.

          (c) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest, fees or commissions, as the
case may be; provided, however, that, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.

          (e) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Lenders hereunder that the
Borrower will not make such payment in full, the Agent may

                                       20

<PAGE>

assume that the Borrower has made such payment in full to the Agent on such date
and the Agent may, in reliance upon such assumption, cause to be distributed to
each Lender on such due date an amount equal to the amount then due such Lender.
If and to the extent the Borrower shall not have so made such payment in full to
the Agent, each Lender shall repay to the Agent forthwith on demand such amount
distributed to such Lender together with interest thereon, for each day from the
date such amount is distributed to such Lender until the date such Lender repays
such amount to the Agent, at the Federal Funds Rate.

          SECTION 2.14. Taxes.  (a) Any and all payments by the Borrower to or
for the account of any Lender or the Agent hereunder or under the Notes or any
other documents to be delivered hereunder shall be made, in accordance with
Section 2.13 or the applicable provisions of such other documents, free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender and the Agent, taxes imposed on
its overall net income, and franchise taxes imposed on it in lieu of net income
taxes, by the United States and the jurisdiction under the laws of which such
Lender or the Agent (as the case may be) is organized or does business or any
political subdivision thereof and, in the case of each Lender, taxes imposed on
its overall net income, and franchise taxes imposed on it in lieu of net income
taxes, by the jurisdiction of such Lender's Applicable Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Note or any other documents to be delivered
hereunder to any Lender or the Agent, (i) the sum payable shall be increased as
may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.14) such
Lender or the Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower shall
make such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.

          (b) In addition, the Borrower shall pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or under the Notes or any
other documents to be delivered hereunder or from the execution, delivery or
registration of, performing under, or otherwise with respect to, this Agreement
or the Notes or any other documents to be delivered hereunder (hereinafter
referred to as "Other Taxes").

          (c) The Borrower shall indemnify each Lender and the Agent for and
hold it harmless against the full amount of Taxes or Other Taxes (including,
without limitation, taxes of any kind imposed or asserted by any jurisdiction on
amounts payable under this Section 2.14) imposed on or paid by such Lender or
the Agent (as the case may be) and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto. This indemnification
shall be made within 30 days from the date such Lender or the Agent (as the case
may be) makes written demand therefor. Such demand shall be made as promptly as
practicable, but in any event within 90 days after such Lender or the Agent (as
the case may be) obtains actual knowledge of such event; provided, however, that
if any Lender or the Agent fails to make such demand within 90 days after such
Lender or the Agent (as the case may be) obtains knowledge of such event, such
Lender or the Agent shall, with respect to compensation payable in respect of
such event, not be entitled to compensation in respect of the costs and losses
incurred between the 90th day after such Lender or the Agent (as the case may
be) obtains actual knowledge of such event and the date such Lender or the Agent
makes such demand.

          (d) Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent, at its address referred to in Section 8.02,
the original or a certified copy of a receipt evidencing such payment to the
extent such a receipt is issued therefor, or other written proof of payment
thereof that is reasonably satisfactory to the Agent. In the case of any payment
hereunder or under the Notes or any other documents to be delivered hereunder by
or on behalf of the Borrower through an account or branch outside the United
States or by or on behalf of the Borrower by a payor that is not a United States
person, if the Borrower determines that no Taxes are payable in respect thereof,
the Borrower shall furnish, or shall cause such payor to furnish, to the Agent,
at such address, an opinion of counsel acceptable to the Agent stating that such
payment is exempt from Taxes. For purposes of this subsection (d) and subsection
(e), the terms "United States" and "United States person" shall have the
meanings specified in Section 7701 of the Internal Revenue Code.

                                       21

<PAGE>

          (e) Each Lender organized under the laws of a jurisdiction outside the
United States (i) on or prior to the date of its execution and delivery of this
Agreement in the case of each Initial Lender and on the date of the Assignment
and Acceptance pursuant to which it becomes a Lender in the case of each other
Lender, (ii) at any time that a change of circumstances occurs of which such
Lender is aware that makes any information on the form so provided incorrect and
(iii) from time to time thereafter as reasonably requested in writing by the
Borrower (but only so long as such Lender remains lawfully able to do so), shall
provide each of the Agent and the Borrower with two original Internal Revenue
Service Forms W-8BEN or W-8ECI or other relevant Form W-8, as appropriate, or
any successor or other form prescribed by the Internal Revenue Service,
certifying that such Lender is exempt from or entitled to a reduced rate of
United States withholding tax on payments pursuant to this Agreement or the
Notes. Further, each such Lender that is not an exempt recipient listed in
Section 6049(b)(4) of the Internal Revenue Code shall provide the Borrower and
the Agent with the appropriate Internal Revenue Service Form W-8 or Internal
Revenue Service Form W-9, as appropriate, or other successor form prescribed by
the Internal Revenue Service, certifying that it is exempt from United States
back-up withholding. If the form provided by a Lender at the time such Lender
first becomes a party to this Agreement indicates a United States interest
withholding tax rate in excess of zero, withholding tax at such rate shall be
considered excluded from Taxes unless and until such Lender provides the
appropriate forms certifying that a lesser rate applies, whereupon withholding
tax at such lesser rate only shall be considered excluded from Taxes for periods
governed by such form; provided, however, that, if at the date of the Assignment
and Acceptance pursuant to which a Lender assignee becomes a party to this
Agreement, the Lender assignor was entitled to payments under subsection (a) in
respect of United States withholding tax with respect to interest paid at such
date, then, to such extent, the term Taxes shall include (in addition to
withholding taxes that may be imposed in the future or other amounts otherwise
includable in Taxes) United States withholding tax, if any, applicable with
respect to the Lender assignee on such date. If any form or document referred to
in this subsection (e) requires the disclosure of information, other than
information necessary to compute the tax payable and information required on the
date hereof by Internal Revenue Service Form W-8BEN or W-8ECI, that the Lender
reasonably considers to be confidential, the Lender shall give notice thereof to
the Borrower and shall not be obligated to include in such form or document such
confidential information.

          (f) For any period with respect to which a Lender has failed to
provide the Borrower with the appropriate form, certificate or other document
described in Section 2.14(e) (other than if such failure is due to a change in
law, or in the interpretation or application thereof, occurring subsequent to
the date on which a form, certificate or other document originally was required
to be provided, or if such form, certificate or other document otherwise is not
required under subsection (e) above), such Lender shall not be entitled to gross
up under Section 2.14(a) and shall not be entitled to indemnification under
Section 2.14(a) or (c) with respect to Taxes imposed by the United States by
reason of such failure; provided, however, that should a Lender become subject
to Taxes because of its failure to deliver a form, certificate or other document
required hereunder, the Borrower shall take such steps as the Lender shall
reasonably request to assist the Lender to recover such Taxes.

          (g) Any Lender claiming any additional amounts payable pursuant to
this Section 2.14 agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Eurodollar Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.

          SECTION 2.15. Sharing of Payments, Etc.  If any Lender shall obtain
any payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of the Advances owing to it (other than as
payment of an Advance made by an Issuing Bank pursuant to the first sentence of
Section 2.03(c) or pursuant to Section 2.11, 2.14 or 8.04(c)) in excess of its
Ratable Share of payments on account of the Advances obtained by all the
Lenders, such Lender shall forthwith purchase from the other Lenders such
participations in the Advances owing to them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each Lender
shall be rescinded and such Lender shall repay to the purchasing Lender the
purchase price to the extent of such recovery together with an amount equal to
such Lender's ratable share (according to the proportion of (i) the amount of
such Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 2.15 may, to the fullest extent permitted by law,
exercise

                                       22

<PAGE>

all its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.

          SECTION 2.16. Evidence of Debt.  (a) Each Lender shall maintain in
accordance with its usual practice an account or accounts evidencing the
indebtedness of the Borrower to such Lender resulting from each Advance owing to
such Lender from time to time, including the amounts of principal and interest
payable and paid to such Lender from time to time hereunder in respect of
Advances. The Borrower agrees that upon notice by any Lender to the Borrower
(with a copy of such notice to the Agent) to the effect that a Note is required
or appropriate in order for such Lender to evidence (whether for purposes of
pledge, enforcement or otherwise) the Advances owing to, or to be made by, such
Lender, the Borrower shall promptly execute and deliver to such Lender a Note
payable to the order of such Lender in a principal amount up to the Revolving
Credit Commitment of such Lender.

          (b) The Register maintained by the Agent pursuant to Section 8.07(d)
shall include a control account, and a subsidiary account for each Lender, in
which accounts (taken together) shall be recorded (i) the date and amount of
each Borrowing made hereunder, the Type of Advances comprising such Borrowing
and, if appropriate, the Interest Period applicable thereto, (ii) the terms of
each Assignment and Acceptance delivered to and accepted by it, (iii) the amount
of any principal or interest due and payable or to become due and payable from
the Borrower to each Lender hereunder and (iv) the amount of any sum received by
the Agent from the Borrower hereunder and each Lender's share thereof.

          (c) Entries made in good faith by the Agent in the Register pursuant
to subsection (b) above, and by each Lender in its account or accounts pursuant
to subsection (a) above, shall be prima facie evidence of the amount of
principal and interest due and payable or to become due and payable from the
Borrower to, in the case of the Register, each Lender and, in the case of such
account or accounts, such Lender, under this Agreement, absent manifest error;
provided, however, that the failure of the Agent or such Lender to make an
entry, or any finding that an entry is incorrect, in the Register or such
account or accounts shall not limit or otherwise affect the obligations of the
Borrower under this Agreement.

          SECTION 2.17. Use of Proceeds.  The proceeds of the Advances shall be
available (and the Borrower agrees that it shall use such proceeds) solely for
general corporate purposes of the Borrower.

                                   ARTICLE III

                     CONDITIONS TO EFFECTIVENESS AND LENDING

          SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01.
Section 2.01 of this Agreement shall become effective on and as of the first
date (the "Effective Date") on which the following conditions precedent have
been satisfied:

          (a) Nothing shall have come to the attention of the Lenders during the
     course of their due diligence investigation to lead them to believe that
     the Information Memorandum was or has become misleading, incorrect or
     incomplete in any material respect; without limiting the generality of the
     foregoing, the Lenders shall have been given such access to the management,
     records, books of account, contracts and properties of the Borrower and its
     Subsidiaries as they shall have requested.

          (b) The Borrower shall have paid all accrued fees and agreed expenses
     of the Agent and the Lenders and the reasonable accrued fees and expenses
     of counsel to the Agent that have been invoiced at least one Business Day
     prior to the Effective Date.

          (c) On the Effective Date, the following statements shall be true and
     the Agent shall have received for the account of each Lender a certificate
     signed by a duly authorized officer of the Borrower, dated the Effective
     Date, stating that:

               (i) The representations and warranties contained in Section 4.01
          are correct on and as of the Effective Date, and

                                       23

<PAGE>

               (ii) No event has occurred and is continuing that constitutes a
          Default.

          (d) The Agent shall have received on or before the Effective Date the
     following, each dated such day, in form and substance satisfactory to the
     Agent and (except for the Notes) in sufficient copies for each Lender:

               (i) The Notes, payable to the order of the Lenders to the extent
          requested by any Lender pursuant to Section 2.16.

               (ii) Certified copies of the resolutions of the Board of
          Directors of the Borrower approving this Agreement and the Notes, and
          of all documents evidencing other necessary corporate action and
          governmental approvals, if any, with respect to this Agreement and the
          Notes.

               (iii) A certificate of the Secretary or an Associate Secretary of
          the Borrower certifying the names and true signatures of the officers
          of the Borrower authorized to sign this Agreement and the Notes and
          the other documents to be delivered hereunder.

               (iv) A favorable opinion of Snell & Wilmer L.L.P., counsel for
          the Borrower, substantially in the form of Exhibit D hereto and as to
          such other matters as any Lender through the Agent may reasonably
          request.

               (v) A favorable opinion of Shearman & Sterling LLP, counsel for
          the Arrangers, in form and substance satisfactory to the Arrangers.

          (e) The Borrower shall have terminated the commitments, and paid in
     full all advances, interest, fees and other amounts outstanding, under the
     364-Day Credit Agreement dated as of May 30, 2003, as amended, among the
     Borrower, the lenders parties thereto and Citibank, as agent, and each of
     the Lenders that is a party to such credit facility hereby waives, upon
     execution of this Agreement, the three Business Days' notice required by
     Section 2.04 of said Credit Agreement relating to the termination of
     commitments thereunder.

          SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance.
The obligation of each Lender to make an Advance (other than an Advance made by
any Issuing Bank or any Lender pursuant to Section 2.03(c)) on the occasion of
each Borrowing and the obligation of each Issuing Bank to issue a Letter of
Credit shall be subject to the conditions precedent that the Effective Date
shall have occurred and on the date of such Borrowing or such issuance (as the
case may be) the following statements shall be true (and each of the giving of
the applicable Notice of Borrowing or Notice of Issuance, and the acceptance by
the Borrower of the proceeds of such Borrowing shall constitute a representation
and warranty by the Borrower that on the date of such Borrowing or date of such
issuance such statements are true):

          (a) the representations and warranties contained in Section 4.01
     (other than Section 4.01(l), and in the case of a Borrowing the proceeds of
     which are used to refund commercial paper, Sections 4.01(e)(ii), (f)(ii)
     and (j)) are correct on and as of such date, before and after giving effect
     to such Borrowing or issuance and to the application of the proceeds
     therefrom, as though made on and as of such date,

          (b) no event has occurred and is continuing, or would result from such
     Borrowing or such issuance or from the application of the proceeds
     therefrom, that constitutes a Default,

          (c) before and after giving effect to such Borrowing or such issuance
     and to the application of the proceeds therefrom, as though made on and as
     of such date, to the extent that the applicable Borrowings are required to
     be treated as short-term debt pursuant to the 1984 Order, the aggregate
     amount of Authorized Short Term Debt (as such term is defined in the 1984
     Order) including the aggregate

                                       24

<PAGE>

     principal amount of all outstanding Advances that are required to be
     treated by the Borrower as short-term debt does not exceed 7% of the
     Borrower's total capitalization,

          (d) to the extent that the applicable Borrowings or issuances are
     required to be treated as long-term debt pursuant to the 1986 Order, the
     aggregate amount of Continuing Debt (as such term is defined in the 1986
     Order) including the aggregate principal amount of all outstanding Advances
     and Letters of Credit that are required to be treated by the Borrower as
     long-term debt has not exceeded, during any period of more than 30 days
     immediately prior to and including the date of the Borrowing or issuance,
     and will not exceed, during any period of more than 30 days at any time
     such Borrowing or Letter of Credit is outstanding, $2,698,917,000, and

          (e) before and after giving effect to such Borrowing or such issuance
     and to the application of the proceeds therefrom, as though made on and as
     of such date, the Indebtedness of the Borrower does not exceed that
     permitted by (i) applicable resolutions of the Board of Directors of the
     Borrower or (ii) applicable Arizona laws, rules or regulations;

     provided, however, that if the 1984 Order or the 1986 Order is superseded
     or modified by any Subsequent Order, the Borrower may, in consultation with
     the Lenders, revise the Notices of Borrowing or Notice of Issuance to the
     extent necessary to take into account any applicable limitations on the
     incurrence or maintenance of Indebtedness, so long as any revised Notice of
     Borrowing or Notice of Issuance (x) demonstrates that such Borrowing or
     issuance is authorized by the Subsequent Order and (y) is accompanied by a
     favorable opinion of Snell & Wilmer L.L.P. or such other counsel to the
     Borrower as the Borrower may select and the Agent and the Required Lenders
     may approve, concerning such Subsequent Order, in form and substance
     satisfactory to the Lenders.

          SECTION 3.03. Determinations Under Section 3.01.  For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Agent responsible for the transactions contemplated by this Agreement
shall have received notice from such Lender prior to the date that the Borrower
designates as the proposed Effective Date, specifying its objection thereto. The
Agent shall promptly notify the Lenders and the Borrower of the occurrence of
the Effective Date.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

          SECTION 4.01. Representations and Warranties of the Borrower.  The
Borrower represents and warrants as follows:

          (a) Each of the Borrower and each Material Subsidiary: (i) is a
     corporation or other entity duly organized and validly existing under the
     laws of the jurisdiction of its incorporation or organization; (ii) has all
     requisite corporate or if the Material Subsidiary is not a corporation,
     other comparable power necessary to own its assets and carry on its
     business as presently conducted; (iii) has all governmental licenses,
     authorizations, consents and approvals necessary to own its assets and
     carry on its business as presently conducted, unless the failure to have
     any such license, authorization, consent or approval would not have a
     Material Adverse Effect and except as disclosed to the Lenders in the SEC
     Reports or by means of a letter from the Borrower to the Lenders delivered
     prior to the execution and delivery of this Agreement; and (iv) is
     qualified to do business in all jurisdictions in which the nature of the
     business conducted by it makes such qualification necessary and where
     failure so to qualify would have a Material Adverse Effect.

          (b) The execution, delivery and performance by the Borrower of this
     Agreement and the Notes to be delivered by it, and the consummation of the
     transactions contemplated hereby, are within the Borrower's corporate
     powers, have been duly authorized by all necessary corporate action, and do
     not

                                       25

<PAGE>

     (i) contravene the Borrower's articles of incorporation or by-laws, (ii)
     contravene any law or any contractual restriction binding on or affecting
     the Borrower or (iii) cause the creation or imposition of any Lien upon the
     assets of the Borrower or any Material Subsidiary.

          (c) No authorization or approval or other action by, and no notice to
     or filing with, any governmental authority or regulatory body is required
     for the due execution, delivery and performance by the Borrower of this
     Agreement or the Notes to be delivered by it, except for the 1984 Order and
     the 1986 Order, both of which have been duly obtained and are in full force
     and effect (except to the extent that the 1986 Order modifies or supersedes
     the 1984 Order with respect to long-term debt).

          (d) This Agreement has been, and each of the Notes to be delivered by
     it when delivered hereunder will have been, duly executed and delivered by
     the Borrower. This Agreement is, and each of the Notes when delivered
     hereunder will be, the legal, valid and binding obligation of the Borrower
     enforceable against the Borrower in accordance with their respective terms,
     subject, however, to the application by a court of general principles of
     equity and to the effect of any applicable bankruptcy, insolvency,
     reorganization, moratorium or similar laws affecting creditors' rights
     generally.

          (e) (i) The Consolidated balance sheet of the Borrower and its
     Consolidated Subsidiaries as at December 31, 2003, and the related
     Consolidated statements of income and cash flows of the Borrower and its
     Consolidated Subsidiaries for the fiscal year then ended, accompanied by an
     opinion thereon of Deloitte & Touche LLP, independent public accountants,
     and the Consolidated balance sheet of the Borrower and its Consolidated
     Subsidiaries as at March 31, 2004, and the related Consolidated statements
     of income and cash flows of the Borrower and its Consolidated Subsidiaries
     for the three months then ended, duly certified by the chief financial
     officer of the Borrower, copies of which have been furnished to each
     Lender, fairly present in all material respects, subject, in the case of
     said balance sheet at March 31, 2004, and said statements of income and
     cash flows for the three months then ended, to year-end audit adjustments,
     the Consolidated financial condition of the Borrower and its Consolidated
     Subsidiaries as at such dates and the Consolidated results of the
     operations of the Borrower and its Consolidated Subsidiaries for the
     periods ended on such dates, all in accordance with GAAP (except as
     disclosed therein). (ii) Except as disclosed in the SEC Reports or by means
     of a letter delivered to the Lenders prior to the execution and delivery of
     this Agreement, since December 31, 2003, there has been no Material Adverse
     Change.

          (f) There is no pending or, to the knowledge of an Authorized Officer
     of the Borrower, threatened action, suit, investigation, litigation or
     proceeding, including, without limitation, any Environmental Action,
     affecting the Borrower or any of its Subsidiaries before any court,
     governmental agency or arbitrator that (i) purports to affect the legality,
     validity or enforceability of this Agreement or any Note or the
     consummation of the transactions contemplated hereby or (ii) would be
     reasonably likely to have a Material Adverse Effect (except as disclosed to
     the Lenders in the SEC Reports or by means of a letter from the Borrower to
     the Lenders delivered prior to the execution and delivery of this
     Agreement) and there has been no adverse change in the status, or financial
     effect on the Borrower or any of its Subsidiaries, of such disclosed
     litigation that would be reasonably likely to have a Material Adverse
     Effect.

          (g) No proceeds of any Advance will be used to acquire any equity
     security not issued by the Borrower of a class that is registered pursuant
     to Section 12 of the Securities Exchange Act of 1934.

          (h) The Borrower is not engaged in the business of extending credit
     for the purpose of purchasing or carrying margin stock (within the meaning
     of Regulation U issued by the Board of Governors of the Federal Reserve
     System), and no proceeds of any Advance will be used to purchase or carry
     any margin stock or to extend credit to others for the purpose of
     purchasing or carrying any margin stock.

          (i) The Borrower and its Subsidiaries have filed all United States
     Federal income tax returns and all other material tax returns which are
     required to be filed by them and have paid all taxes due pursuant to such
     returns or pursuant to any assessment received by the Borrower or any of
     its Subsidiaries, except to the extent that (i) such taxes are being
     contested in good faith and by appropriate proceedings and

                                       26

<PAGE>

     that appropriate reserves for the payment thereof have been maintained by
     the Borrower and its Subsidiaries in accordance with GAAP or (ii) the
     failure to make such filings or such payments is not likely to have a
     Material Adverse Effect. The charges, accruals and reserves on the books of
     the Borrower and its Material Subsidiaries as set forth in the most recent
     financial statements of the Borrower delivered to the Lenders pursuant to
     Section 4.01(e) or Section 5.01(h)(i) or (ii) hereof in respect of taxes
     and other governmental charges are, in the opinion of the Borrower,
     adequate.

          (j) The operations and properties of the Borrower and its Subsidiaries
     comply in all material respects with all Environmental Laws, the
     noncompliance with which would have a Material Adverse Effect, except as
     set forth in the SEC Reports or by means of a letter from the Borrower to
     the Lenders delivered prior to the execution and delivery of this
     Agreement.

          (k) Set forth on Schedule 4.01(k) hereto (as such schedule may be
     modified from time to time by the Borrower by written notice to the Agent)
     is a complete and accurate list of all the Subsidiaries of the Borrower
     and, as of the Effective Date, no such Subsidiary of the Borrower is a
     Material Subsidiary.

          (l) Set forth on Schedule 4.01(l) hereto is a complete and accurate
     list identifying any Indebtedness of the Borrower outstanding in a
     principal amount equal to or exceeding $5,000,000 and which is not
     described in the financial statements referred to in Section 4.01(e).

          (m) The Borrower is not an "investment company", or a company
     "controlled" by an "investment company", within the meaning of the
     Investment Company Act of 1940, as amended.

                                    ARTICLE V

                            COVENANTS OF THE BORROWER

          SECTION 5.01. Affirmative Covenants.  So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will:

          (a) Compliance with Laws, Etc.  (i) Comply, and cause each of its
     Material Subsidiaries to comply, in all material respects, with all
     applicable laws, rules, regulations and orders of governmental or
     regulatory authorities, such compliance to include, without limitation,
     compliance with ERISA and Environmental Laws, unless the failure to so
     comply would not have a Material Adverse Effect and (ii) comply at all
     times with the 1984 Order, the 1986 Order, any Subsequent Order, Arizona
     Revised Statutes, Section 40-302 and all similar or comparable Arizona
     laws, rules or regulations relating to the incurrence or maintenance of
     Indebtedness by the Borrower, unless the failure to so comply could not
     affect the validity or enforceability of the indebtedness of the Borrower
     pursuant to this Agreement.

          (b) Payment of Taxes, Etc.  Pay and discharge, and cause each of its
     Subsidiaries to pay and discharge, before the same shall become delinquent,
     all taxes, assessments and governmental charges or levies imposed upon it
     or upon its property; provided, however, that neither the Borrower nor any
     of its Subsidiaries shall be required to pay or discharge any such tax,
     assessment, charge or levy (i) that is being contested in good faith and by
     proper proceedings and as to which appropriate reserves are being
     maintained in accordance with GAAP or (ii) if the failure to pay such tax,
     assessment, charge or levy is not likely to have a Material Adverse Effect.

          (c) Maintenance of Insurance.  Maintain, and cause each of its
     Material Subsidiaries to maintain, insurance with responsible and reputable
     insurance companies or associations in such amounts and covering such risks
     as is usually carried by companies engaged in similar businesses and owning
     similar properties in the same general areas in which the Borrower or such
     Subsidiary operates; provided, however, that the Borrower and its
     Subsidiaries may self-insure to the same extent as other companies engaged
     in similar businesses and owning similar properties in the same general
     areas in which the Borrower or such Subsidiary operates and to the extent
     consistent with prudent business practice.

                                       27

<PAGE>

          (d) Preservation of Corporate Existence, Etc.  Preserve and maintain,
     and cause each of its Material Subsidiaries to preserve and maintain, its
     corporate existence, rights (charter and statutory) and franchises (other
     than "franchises" as described in Arizona Revised Statutes, Section 40-283
     or any successor provision) reasonably necessary in the normal conduct of
     its business, unless the failure to maintain such rights or privileges
     would not have a Material Adverse Effect, and use its commercially
     reasonable efforts to preserve and maintain such franchises reasonably
     necessary in the normal conduct of its business, except that (i) the
     Borrower from time to time may make minor extensions of its lines, plants,
     services or systems prior to the time a related franchise, certificate of
     convenience and necessity, license or permit is procured, (ii) from time to
     time communities served by the Borrower may become incorporated and
     considerable time may elapse before such a franchise is procured, (iii)
     certain such franchises may have expired prior to the renegotiation
     thereof, (iv) certain minor defects and exceptions may exist which,
     individually and in the aggregate, are not material and (v) certain
     franchises, certificates, licenses and permits may not be specific as to
     their geographical scope; provided, however, that the Borrower and its
     Subsidiaries may consummate any merger or consolidation permitted under
     Section 5.02(b).

          (e) Visitation Rights.  At any reasonable time and from time to time,
     permit and cause each of its Subsidiaries to permit the Agent or any of the
     Lenders or any agents or representatives thereof, to examine and make
     copies of and abstracts from the records and books of account of, and visit
     the properties of, the Borrower and any of its Subsidiaries, and to discuss
     the affairs, finances and accounts of the Borrower and any of its
     Subsidiaries with any of their officers or directors; provided, however,
     that the Borrower and its Subsidiaries reserve the right to restrict access
     to any of its properties in accordance with reasonably adopted procedures
     relating to safety and security; and provided further that the costs and
     expenses incurred by such Lender or agents or representatives in connection
     with any such examinations, copies, abstracts, visits or discussions shall
     be, upon the occurrence and during the continuation of a Default, for the
     account of the Borrower and, in all other circumstances, for the account of
     such Lender.

          (f) Keeping of Books.  Keep, and cause each of its Material
     Subsidiaries to keep, proper books of record and account, in which full and
     correct entries shall be made of all financial transactions and the assets
     and business of the Borrower and each such Subsidiary in accordance with
     GAAP.

          (g) Maintenance of Properties, Etc.  Keep, and cause each Material
     Subsidiary to keep, all property useful and necessary in its business in
     good working order and condition (ordinary wear and tear excepted), it
     being understood that this covenant relates only to the working order and
     condition of such properties and shall not be construed as a covenant not
     to dispose of properties.

          (h) Reporting Requirements.  Furnish to the Lenders:

               (i) as soon as available and in any event within 60 days after
          the end of each of the first three fiscal quarters of each fiscal year
          of the Borrower, (A) for each such fiscal quarter of the Borrower,
          statements of income and cash flows of the Borrower and its
          Consolidated Subsidiaries for such fiscal quarter setting forth in
          each case in comparative form the corresponding figures for the
          corresponding fiscal quarter in the preceding fiscal year and (B) for
          the period commencing at the end of the previous fiscal year and
          ending with the end of each fiscal quarter, statements of income and
          cash flows of the Borrower and its Consolidated Subsidiaries for such
          period setting forth in each case in comparative form the
          corresponding figures for the corresponding period in the preceding
          fiscal year; provided that so long as the Borrower remains subject to
          the reporting requirements of the Securities Exchange Act of 1934, as
          amended, the Borrower may provide, in satisfaction of the requirements
          of this first sentence of this Section 5.01(h)(i), its report on Form
          10-Q for such fiscal quarter. Each set of financial statements
          provided under this Section 5.01(h)(i) shall be accompanied by a
          certificate of an Authorized Officer, which certificate shall state
          that said financial statements fairly present in all material respects
          the financial condition and results of operations of the Borrower and
          its Consolidated Subsidiaries in accordance with GAAP (except as
          disclosed therein) as at the end of, and for, such period (subject to
          normal year-end audit adjustments) and shall set forth reasonably
          detailed calculations demonstrating compliance with Section 5.03;

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<PAGE>

               (ii) as soon as available and in any event within 105 days after
          the end of each fiscal year of the Borrower, statements of income and
          cash flows of the Borrower and its Consolidated Subsidiaries for such
          year and the related balance sheet of the Borrower and its
          Consolidated Subsidiaries as at the end of such year, setting forth in
          each case in comparative form the corresponding figures for the
          preceding fiscal year; provided that, so long as the Borrower remains
          subject to the reporting requirements of the Securities Exchange Act
          of 1934, as amended, the Borrower may provide, in satisfaction of the
          requirements of this first sentence of this Section 5.01(h)(ii), its
          report on Form 10-K for such fiscal year. Each set of financial
          statements provided pursuant to this Section 5.01(h)(ii) shall be
          accompanied by (A) an opinion thereon of independent certified public
          accountants of recognized national standing, which opinion shall state
          that said financial statements fairly present in all material respects
          the financial condition and results of operations of the Borrower and
          its Consolidated Subsidiaries as at the end of, and for, such fiscal
          year, in accordance with GAAP (except as disclosed therein) and (B) a
          certificate of an Authorized Officer, which certificate shall set
          forth reasonably detailed calculations demonstrating compliance with
          Section 5.03;

               (iii) as soon as possible and in any event within five days after
          any officer of the Borrower knows of the occurrence of each Default
          continuing on the date of such statement, a statement of an Authorized
          Officer of the Borrower setting forth details of such Default and the
          action that the Borrower has taken and proposes to take with respect
          thereto;

               (iv) promptly after the sending or filing thereof, copies of all
          reports and registration statements that the Borrower or any
          Subsidiary files with the Securities and Exchange Commission;

               (v) promptly after an Authorized Officer becomes aware of the
          commencement thereof, notice of all actions and proceedings before any
          court, governmental agency or arbitrator affecting the Borrower or any
          of its Subsidiaries of the type described in Section 4.01(f);

               (vi) promptly after (A) any amendment or modification of the 1984
          Order or the 1986 Order, (B) any amendment or modification of Arizona
          Revised Statutes, Section 40-302, or the promulgation, amendment or
          modification of any successor or similar statute, or (C) the
          promulgation, amendment or modification of any Subsequent Order by the
          Arizona Corporation Commission or any successor thereto, in any case
          if such amendment, modification or promulgation could affect the
          validity or enforceability of the indebtedness of the Borrower
          pursuant to this Agreement, a copy thereof; and

               (vii) such other information respecting the Borrower or any of
          its Subsidiaries as any Lender through the Agent may from time to time
          reasonably request.

          (i) Change in Nature of Business.  Conduct the same general type of
     business conducted on the date hereof.

          SECTION 5.02. Negative Covenants.  So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower will not:

          (a) Liens, Etc.  Create or suffer to exist, or permit any of its
     Material Subsidiaries to create or suffer to exist, any Lien on or with
     respect to any of its properties, whether now owned or hereafter acquired,
     or assign, or permit any of its Material Subsidiaries to assign, any right
     to receive income, other than:

               (i) Permitted Liens,

               (ii) Liens upon or in, or conditional sales agreements or other
          title retention agreements with respect to, any real or personal
          property acquired or held by the Borrower or any

                                       29

<PAGE>

          Subsidiary in the ordinary course of business to secure the purchase
          price of such property, or the construction of or improvements to such
          property, or to secure Indebtedness incurred solely for the purpose of
          financing the acquisition, construction or improvement of such
          property to be subject to such Liens (including any Liens placed on
          such property within 180 days after the latest of the acquisition,
          completion of construction or improvement of such property), or Liens
          existing on such property at the time of its acquisition (other than
          any such Liens created in contemplation of such acquisition that were
          not incurred to finance the acquisition of such property) or
          extensions, renewals, refundings or replacements of any of the
          foregoing for the same or a lesser amount, provided, however, that no
          such Lien shall extend to or cover any properties of any character
          other than the property being acquired, constructed or improved and
          proceeds, improvements and replacements thereof and no such extension,
          renewal, refunding or replacement shall extend to or cover any
          properties not theretofore subject to the Lien being extended,
          renewed, refunded or replaced,

               (iii) assignments of the right to receive income, and Liens on
          property, of a Person existing at the time such Person is merged into
          or consolidated with the Borrower or any Subsidiary of the Borrower or
          becomes a Subsidiary of the Borrower,

               (iv) Liens on the leased interests in Unit 2 of the Palo Verde
          Nuclear Generating Station and related rights if the Borrower
          reacquires ownership in any of those interests or acquires any of the
          equity or owner participants' interests in the trusts that hold title
          to such leased interests, whether or not it also directly assumes the
          Sale Leaseback Obligation Bonds, and Liens on the Borrower's interests
          in the trusts that hold title to such leased interests and related
          rights in the event that the Borrower acquires any of the equity or
          owner participants' interests in such trusts pursuant to a "special
          transfer" under the Borrower's existing Palo Verde Nuclear Generating
          Station Unit 2 sale and leaseback transactions and any Liens resulting
          or deemed to have resulted if the Unit 2 leases are required to be
          accounted for as capital leases in accordance with GAAP,

               (v) other assignments of the right to receive income and Liens
          securing Indebtedness or claims in an aggregate principal amount not
          to exceed 20% of the Borrower's total assets as stated on its balance
          sheet for the year ended December 31, 2003 provided pursuant to
          Section 4.01(e) hereof at any time outstanding, and

               (vi) the replacement, extension or renewal of any Lien permitted
          by clause (iii) or (iv) above upon or in the same property theretofore
          subject thereto or the replacement, extension or renewal (without
          increase in the amount or change in any direct or contingent obligor)
          of the Indebtedness secured thereby.

          (b) Mergers, Etc.  Merge or consolidate with or into any Person, or
     permit any of its Material Subsidiaries to do so, except that (i) any
     Material Subsidiary of the Borrower may merge or consolidate with or into
     any other Material Subsidiary of the Borrower, (ii) any Subsidiary of the
     Borrower may merge into the Borrower or any Material Subsidiary of the
     Borrower and (iii) the Borrower or any Material Subsidiary may merge with
     any other Person so long as the Borrower or such Material Subsidiary is the
     surviving corporation, provided, in each case, that no Default shall have
     occurred and be continuing at the time of such proposed transaction or
     would result therefrom.

          (c) Sales, Etc. of Assets.  Sell, lease, transfer or otherwise dispose
     of, or permit any of its Material Subsidiaries to sell, lease, transfer or
     otherwise dispose of, any assets, or grant any option or other right to
     purchase, lease or otherwise acquire any assets to any Person other than
     the Borrower or any Subsidiary of the Borrower, except (i) sales of
     inventory in the ordinary course of its business, (ii) in a transaction
     authorized by subsection (b) of this Section, (iii) individual dispositions
     occurring in the ordinary course of business which involve assets with a
     book value not exceeding $5,000,000 and (iv) sales of assets during the
     term of this Agreement having an aggregate book value not to exceed 20% of
     the total of all assets properly appearing on the December 31, 2003 balance
     sheet referred to in Section 4.01(e). No Lien on any asset will be
     considered a sale, lease, transfer or disposition under this provision, but
     will be governed exclusively under Section 5.02(a).

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<PAGE>

          SECTION 5.03. Financial Covenants.  So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will:

          (a) Debt to Capitalization Ratio.  Maintain a ratio of (i)
          Consolidated Indebtedness to (ii) the sum of Consolidated Indebtedness
          plus Consolidated Net Worth of not greater than 0.65 to 1.

          (b) Consolidated Cash Coverage Ratio.  Maintain for each twelve-month
     period ending on the last day of each fiscal quarter (determined as of the
     last day of such quarter) a Consolidated Cash Coverage Ratio of not less
     than 2.00 to 1.

                                   ARTICLE VI

                                EVENTS OF DEFAULT

          SECTION 6.01. Events of Default.  If any of the following events
("Events of Default") shall occur and be continuing:

          (a) The Borrower shall fail to pay any principal of any Advance when
     the same becomes due and payable; or the Borrower shall fail to pay any
     interest on any Advance or make any other payment of fees or other amounts
     payable under this Agreement or any Note within three Business Days after
     the same becomes due and payable; or

          (b) Any representation or warranty made by the Borrower herein or by
     the Borrower (or any of its officers) in any certificate or other document
     delivered in connection with this Agreement shall prove to have been
     incorrect in any material respect when made or deemed made; or

          (c) (i) The Borrower shall fail to perform or observe any term,
     covenant or agreement contained in Section 5.01(d) (as to the corporate
     existence of the Borrower), (h)(iii) or (h)(vi), 5.02 or 5.03, or (ii) the
     Borrower shall fail to perform or observe any other term, covenant or
     agreement contained in Section 5.01(e) if such failure shall remain
     unremedied for 15 days after written notice thereof shall have been given
     to the Borrower by the Agent or any Lender or (iii) the Borrower shall fail
     to perform or observe any other term, covenant or agreement contained in
     this Agreement on its part to be performed or observed if such failure
     shall remain unremedied for 30 days after written notice thereof shall have
     been given to the Borrower by the Agent or any Lender; or

          (d) (i) The Borrower or any of its Material Subsidiaries shall fail to
     pay any principal of or premium or interest on any Indebtedness that is
     outstanding in a principal or notional amount of at least $5,000,000 in the
     aggregate (but excluding Indebtedness outstanding hereunder), or fail to
     pay an amount, or post collateral as contractually required in an amount,
     of at least $5,000,000 in respect of any Hedge Agreement, of the Borrower
     or such Material Subsidiary (as the case may be), in each case, when the
     same becomes due and payable (whether by scheduled maturity, required
     prepayment, acceleration, demand or otherwise), and such failure shall
     continue after the applicable grace period, if any, specified in the
     agreement or instrument relating to such Indebtedness or Hedge Agreement;
     (ii) any event of default shall exist under any agreement or instrument
     relating to any such Indebtedness and shall continue after the applicable
     grace period, if any, specified in such agreement or instrument, if the
     effect of such event is to accelerate, or to permit the acceleration of,
     the maturity of such Indebtedness; or

          (e) The Borrower shall fail to pay any principal of or premium or
     interest in respect of any operating lease in respect of which the payment
     obligations of the Borrower have a present value of at least $25,000,000,
     when the same becomes due and payable (whether by scheduled maturity,
     required prepayment, acceleration, demand or otherwise), and such failure
     shall continue after the applicable grace period, if any, specified in such
     operating lease, if the effect of such failure is to terminate, or to
     permit the termination of, such operating lease; or

                                       31

<PAGE>

          (f) The Borrower or any of its Material Subsidiaries shall generally
     not pay its debts as such debts become due, or shall admit in writing its
     inability to pay its debts generally, or shall make a general assignment
     for the benefit of creditors; or any proceeding shall be instituted by or
     against the Borrower or any of its Material Subsidiaries seeking to
     adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
     reorganization, arrangement, adjustment, protection, relief, or composition
     of it or its debts under any law relating to bankruptcy, insolvency or
     reorganization or relief of debtors, or seeking the entry of an order for
     relief or the appointment of a receiver, trustee, custodian or other
     similar official for it or for any substantial part of its property and, in
     the case of any such proceeding instituted against it (but not instituted
     by it), either such proceeding shall remain undismissed or unstayed for a
     period of 30 days, or any of the actions sought in such proceeding
     (including, without limitation, the entry of an order for relief against,
     or the appointment of a receiver, trustee, custodian or other similar
     official for, it or for any substantial part of its property) shall occur;
     or the Borrower or any of its Material Subsidiaries shall take any
     corporate action to authorize any of the actions set forth above in this
     subsection (f); or

          (g) Unsatisfied judgments or orders for the payment of money in excess
     of $5,000,000 in the aggregate shall be rendered against the Borrower or
     unsatisfied judgments or orders for the payment of money in excess of
     $25,000,000 in the aggregate shall be rendered against any of the
     Borrower's Material Subsidiaries and there shall be any period of 30
     consecutive days during which a stay of enforcement of such judgment or
     order, by reason of a pending appeal or otherwise, shall not be in effect;
     provided, however, that any such judgment or order shall not be an Event of
     Default under this Section 6.01(g) if and for so long as and to the extent
     that (i) the amount of such judgment or order is covered by a policy of
     insurance between the defendant and the insurer covering payment thereof
     and (ii) such insurer, which shall be rated at least "A" by A.M. Best
     Company, has been notified of, and has not disputed the claim made for
     payment of, the amount of such judgment or order; or

          (h) (i) Any Person or two or more Persons acting in concert shall have
     acquired beneficial ownership (within the meaning of Rule 13d-3 of the
     Securities and Exchange Commission under the Securities Exchange Act of
     1934), directly or indirectly, of Voting Stock of PWCC (or other securities
     convertible into such Voting Stock) representing 30% or more of the
     combined voting power of all Voting Stock of PWCC; or (ii) during any
     period of up to 24 consecutive months, commencing after the date of this
     Agreement, individuals who at the beginning of such 24-month period were
     directors of PWCC shall cease for any reason (other than due to death or
     disability) to constitute a majority of the board of directors of PWCC
     (except to the extent that individuals who at the beginning of such
     24-month period were replaced by individuals (x) elected by a majority of
     the remaining members of the board of directors of PWCC or (y) nominated
     for election by a majority of the remaining members of the board of
     directors of the PWCC and thereafter elected as directors by the
     shareholders of PWCC); or (iii) PWCC shall cease for any reason to own,
     directly or indirectly 80% of the Voting Stock of the Borrower; or

          (i) The Borrower or any of its ERISA Affiliates shall incur, or, with
     respect to clause (i) of this Section 6.01(i), shall be reasonably likely
     to incur liability in excess of $5,000,000 in the aggregate as a result of
     one or more of the following: (i) the occurrence of any ERISA Event; (ii)
     the partial or complete withdrawal of the Borrower or any of its ERISA
     Affiliates from a Multiemployer Plan; or (iii) the reorganization or
     termination of a Multiemployer Plan; and, in any such case, such
     incurrence, in the determination of the Lenders, is material in relation to
     the financial condition or the financial prospects of the Borrower and its
     Subsidiaries, taken as a whole;

then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the
obligation of each Lender to make Advances (other than Advances by an Issuing
Bank or a Lender pursuant to Section 2.03(c)) and of the Issuing Banks to issue
Letters of Credit to be terminated, whereupon the same shall forthwith
terminate, and (ii) shall at the request, or may with the consent, of the
Required Lenders, by notice to the Borrower, declare the Advances, all interest
thereon and all other amounts payable under this Agreement to be forthwith due
and payable, whereupon the Advances, all such interest and all such amounts
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Borrower; provided, however, that in the event of an actual or deemed
entry of an order for relief with respect to the Borrower under the Federal
Bankruptcy Code, (A) the obligation of each Lender to make Advances (other than
Advances by an Issuing Bank or a Lender pursuant to

                                       32

<PAGE>

Section 2.03(c)) and of the Issuing Banks to issue Letters of Credit shall
automatically be terminated and (B) the Advances, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.

          SECTION 6.02. Actions in Respect of Letters of Credit upon Default.
If any Event of Default shall have occurred and be continuing, the Agent may
with 8the consent, or shall at the request, of the Required Lenders,
irrespective of whether it is taking any of the actions described in Section
6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such
demand the Borrower will, (a) pay to the Agent for the benefit of the Lenders in
same day funds at the Agent's office designated in such demand, for deposit in
the L/C Cash Deposit Account, an amount equal to the aggregate Available Amount
of all Letters of Credit then outstanding, provided, however, that in the event
of an actual or deemed entry of an order for relief with respect to the Borrower
under the Federal Bankruptcy Code, the Borrower will pay to the Agent on behalf
of the Lenders in same day funds , for deposit to the L/C Cash Deposit Account,
an amount equal to the aggregate Available Amount of all Letters of Credit then
outstanding, without presentment, demand, protest or any notice of any kind, all
of which are hereby expressly waived by the Borrower, or (b) make such other
arrangements in respect of the outstanding Letters of Credit as shall be
acceptable to the Required Lenders. If at any time the Agent determines that any
funds held in the L/C Cash Deposit Account are subject to any right or interest
of any Person other than the Agent and the Lenders or that the total amount of
such funds is less than the aggregate Available Amount of all Letters of Credit,
the Borrower will, forthwith upon demand by the Agent, pay to the Agent, as
additional funds to be deposited and held in the L/C Cash Deposit Account, an
amount equal to the excess of (a) such aggregate Available Amount over (b) the
total amount of funds, if any, then held in the L/C Cash Deposit Account that
are free and clear of any such right and interest. Upon the drawing of any
Letter of Credit, to the extent funds are on deposit in the L/C Cash Deposit
Account, such funds shall be applied to reimburse the Issuing Banks to the
extent permitted by applicable law, and if so applied, then such reimbursement
shall be deemed a repayment of the corresponding Advance in respect of such
Letter of Credit. After all such Letters of Credit shall have expired or been
fully drawn upon and all other obligations of the Borrower hereunder and under
the Notes shall have been paid in full, the balance, if any, in such L/C Cash
Deposit Account shall be promptly returned to the Borrower.

                                   ARTICLE VII

                                    THE AGENT

          SECTION 7.01. Authorization and Action.  Each Lender (in its
capacities as a Lender and Issuing Bank, as applicable) hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement as are delegated to the Agent by
the terms hereof, together with such powers and discretion as are reasonably
incidental thereto. As to any matters not expressly provided for by this
Agreement (including, without limitation, enforcement or collection of the
Notes), the Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding upon all Lenders
and all holders of Notes; provided, however, that the Agent shall not be
required to take any action that exposes the Agent to personal liability or that
is contrary to this Agreement or applicable law. The Agent agrees to give to
each Lender prompt notice of each notice given to it by the Borrower pursuant to
the terms of this Agreement.

          SECTION 7.02. Agent's Reliance, Etc.  Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Agent: (i) may treat the
Lender that made any Advance as the holder of the Indebtedness resulting
therefrom until the Agent receives and accepts an Assignment and Acceptance
entered into by such Lender, as assignor, and an Eligible Assignee, as assignee,
as provided in Section 8.07; (ii) may consult with legal counsel (including
counsel for the Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations (whether written or oral) made in or in connection with this
Agreement; (iv) shall not have any duty to ascertain or to inquire as to the
performance, observance or satisfaction of any of the terms, covenants or
conditions of this Agreement on the part of the

                                       33

<PAGE>

Borrower or the existence at any time of any Default or to inspect the property
(including the books and records) of the Borrower; (v) shall not be responsible
to any Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of, or the perfection or priority of any lien
or security interest created or purported to be created under or in connection
with, this Agreement or any other instrument or document furnished pursuant
hereto; and (vi) shall incur no liability under or in respect of this Agreement
by acting upon any notice, consent, certificate or other instrument or writing
(which may be by facsimile) believed by it to be genuine and signed or sent by
the proper party or parties.

          SECTION 7.03. Citibank and Affiliates.  With respect to its
Commitments, the Advances made by it and any Note issued to it, Citibank shall
have the same rights and powers under this Agreement as any other Lender and may
exercise the same as though it were not the Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include Citibank in its
individual capacity. Citibank and its Affiliates may accept deposits from, lend
money to, act as trustee under indentures of, accept investment banking
engagements from and generally engage in any kind of business with, the
Borrower, any of its Subsidiaries and any Person who may do business with or own
securities of the Borrower or any such Subsidiary, all as if Citibank were not
the Agent and without any duty to account therefor to the Lenders. The Agent
shall have no duty to disclose any information obtained or received by it or any
of its Affiliates relating to the Borrower or any of its Subsidiaries to the
extent such information was obtained or received in any capacity other than as
Agent.

          SECTION 7.04. Lender Credit Decision.  Each Lender acknowledges that
it has, independently and without reliance upon the Agent or any other Lender
and based on the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.

          SECTION 7.05. Indemnification.  (a) Each Lender severally agrees to
indemnify the Agent (to the extent not promptly reimbursed by the Borrower) from
and against such Lender's Ratable Share of any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by, or asserted against the Agent in any way relating to or arising out of this
Agreement or any action taken or omitted by the Agent under this Agreement
(collectively, the "Indemnified Costs"), provided that no Lender shall be liable
for any portion of the Indemnified Costs resulting from the Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Lender agrees to reimburse the Agent promptly upon demand for its Ratable Share
of any out-of-pocket expenses (including counsel fees) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the Agent is not
reimbursed for such expenses by the Borrower. In the case of any investigation,
litigation or proceeding giving rise to any Indemnified Costs, this Section 7.05
applies whether any such investigation, litigation or proceeding is brought by
the Agent, any Lender or a third party.

          (b) Each Lender severally agrees to indemnify the Issuing Banks (to
the extent not promptly reimbursed by the Borrower) from and against such
Lender's Ratable Share of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by, or asserted
against any such Issuing Bank in any way relating to or arising out of this
Agreement or any action taken or omitted by such Issuing Bank hereunder or in
connection herewith; provided, however, that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from such Issuing
Bank's gross negligence or willful misconduct. Without limitation of the
foregoing, each Lender agrees to reimburse any such Issuing Bank promptly upon
demand for its Ratable Share of any costs and expenses (including, without
limitation, fees and expenses of counsel) payable by the Borrower under Section
8.04, to the extent that such Issuing Bank is not promptly reimbursed for such
costs and expenses by the Borrower.

          (c) The failure of any Lender to reimburse the Agent or any Issuing
Bank promptly upon demand for its Ratable Share of any amount required to be
paid by the Lenders to the Agent as provided herein shall

                                       34

<PAGE>

not relieve any other Lender of its obligation hereunder to reimburse the Agent
or any Issuing Bank for its Ratable Share of such amount, but no Lender shall be
responsible for the failure of any other Lender to reimburse the Agent or any
Issuing Bank for such other Lender's Ratable Share of such amount. Without
prejudice to the survival of any other agreement of any Lender hereunder, the
agreement and obligations of each Lender contained in this Section 7.05 shall
survive the payment in full of principal, interest and all other amounts payable
hereunder and under the Notes. Each of the Agent and each Issuing Bank agrees to
return to the Lenders their respective Ratable Shares of any amounts paid under
this Section 7.05 that are subsequently reimbursed by the Borrower.

          SECTION 7.06. Successor Agent.  The Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower and may be removed
at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Agent approved, so long as no Event of Default has occurred and is
continuing, by the Borrower, which consent shall not be unreasonably withheld or
delayed. If no successor Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent, which shall be a commercial bank organized
under the laws of the United States of America or of any State thereof and
having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.

          SECTION 7.07. Other Agents.  Each Lender hereby acknowledges that
neither the documentation agent nor any other Lender designated as any "Agent"
on the signature pages hereof has any liability hereunder other than in its
capacity as a Lender.

                                  ARTICLE VIII

                                  MISCELLANEOUS

          SECTION 8.01. Amendments, Etc.  No amendment or waiver of any
provision of this Agreement or the Notes, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Lenders, do any of the following: (a)
waive any of the conditions specified in Section 3.01, (b) increase the
Commitments of the Lenders, (c) reduce the principal of, or interest on, the
Advances or any fees or other amounts payable hereunder due to such Lenders, (d)
postpone any date fixed for any payment of principal of, or interest on, the
Advances or any fees payable hereunder due to such Lenders, (e) change the
percentage of the Revolving Credit Commitments or of the aggregate unpaid
principal amount of the Advances, or the number of Lenders, that shall be
required for the Lenders or any of them to take any action hereunder or (f)
amend this Section 8.01; and provided further that (x) no amendment, waiver or
consent shall, unless in writing and signed by the Agent in addition to the
Lenders required above to take such action, affect the rights or duties of the
Agent under this Agreement or any Note and (y) no amendment, waiver or consent
shall, unless in writing and signed by the Issuing Banks in addition to the
Lenders required above to take such action, adversely affect the rights or
obligations of the Issuing Banks in their capacities as such under this
Agreement.

          SECTION 8.02. Notices, Etc.  (a) All notices and other communications
provided for hereunder shall be either (x) in writing (including facsimile
communication) and mailed, faxed or delivered or (y) as and to the extent set
forth in Section 8.02(b) and in the proviso to this Section 8.02(a), if to the
Borrower, at its address at P.O. Box 53999, Phoenix, Arizona 85072-3999,
Attention: Treasurer; if to any Initial Lender, at its Domestic Lending Office
specified opposite its name on Schedule I hereto; if to any other Lender, at its
Domestic Lending Office specified in the Assignment and Acceptance pursuant to
which it became a Lender; and if to the Agent, at its address at Two Penns Way,
New Castle, Delaware 19720, Attention: Bank Loan Syndications Department; or, as
to the Borrower or the Agent, at such other address as shall be designated by
such party in a written notice to the other parties and, as to each other party,
at such other address as shall be designated by such party in a written notice
to

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<PAGE>

the Borrower and the Agent, provided that materials required to be delivered
pursuant to Section 5.01(h)(i), (ii) and (iv) shall be delivered to the Agent as
specified in Section 8.02(b). All such notices and communications shall, when
mailed, faxed or e-mailed, be effective when deposited in the mails, faxed or
confirmed by e-mail, respectively, except that notices and communications to the
Agent pursuant to Article II, III or VII shall not be effective until received
by the Agent. Delivery by facsimile of an executed counterpart of any amendment
or waiver of any provision of this Agreement or the Notes or of any Exhibit
hereto to be executed and delivered hereunder shall be effective as delivery of
a manually executed counterpart thereof.

          (b) So long as Citibank or any of its Affiliates is the Agent,
materials required to be delivered pursuant to Section 5.01(h)(i), (ii) and (iv)
shall be delivered to the Agent in an electronic medium in a format acceptable
to the Agent and the Lenders by e-mail at oploanswebadmin@citigroup.com. The
Borrower agrees that the Agent may make such materials, as well as any other
written information, documents, instruments and other material relating to the
Borrower, any of its Subsidiaries or any other materials or matters relating to
this Agreement, the Notes or any of the transactions contemplated hereby
(collectively, the "Communications") available to the Lenders by posting such
notices on Intralinks or a substantially similar electronic system (the
"Platform"). The Borrower acknowledges that (i) the distribution of material
through an electronic medium is not necessarily secure and that there are
confidentiality and other risks associated with such distribution, (ii) the
Platform is provided "as is" and "as available" and (iii) neither the Agent nor
any of its Affiliates warrants the accuracy, adequacy or completeness of the
Communications or the Platform and each expressly disclaims liability for errors
or omissions in the Communications or the Platform. No warranty of any kind,
express, implied or statutory, including, without limitation, any warranty of
merchantability, fitness for a particular purpose, non-infringement of third
party rights or freedom from viruses or other code defects, is made by the Agent
or any of its Affiliates in connection with the Platform.

          (c) Each Lender agrees that notice to it (as provided in the next
sentence) (a "Notice") specifying that any Communications have been posted to
the Platform shall constitute effective delivery of such information, documents
or other materials to such Lender for purposes of this Agreement; provided that
if requested by any Lender the Agent shall deliver a copy of the Communications
to such Lender by email, facsimile or mail. Each Lender agrees (i) to notify the
Agent in writing of such Lender's e-mail address to which a Notice may be sent
by electronic transmission (including by electronic communication) on or before
the date such Lender becomes a party to this Agreement (and from time to time
thereafter to ensure that the Agent has on record an effective e-mail address
for such Lender) and (ii) that any Notice may be sent to such e-mail address.

          SECTION 8.03. No Waiver; Remedies.  No failure on the part of any
Lender or the Agent to exercise, and no delay in exercising, any right hereunder
or under any Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.

          SECTION 8.04. Costs and Expenses.  (a) The Borrower agrees to pay on
demand all costs and expenses of the Agent in connection with the
administration, modification and amendment of this Agreement, the Notes and the
other documents to be delivered hereunder, including, without limitation, the
reasonable fees and expenses of counsel for the Agent with respect thereto and
with respect to advising the Agent as to its rights and responsibilities under
this Agreement. The Borrower further agrees to pay on demand all costs and
expenses of the Agent and the Lenders, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Agent and each Lender in connection with the enforcement of rights under this
Section 8.04(a).

          (b) The Borrower agrees to indemnify and hold harmless the Agent and
each Lender and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel) incurred by or
asserted or awarded against any Indemnified Party, in each case arising out of
or in connection with or by reason of (including, without limitation, in
connection with any investigation, litigation or proceeding or preparation of a
defense in connection therewith) (i) the Notes, this Agreement, any of the
transactions contemplated herein or the actual or proposed use of the proceeds
of the Advances or (ii) the actual or alleged presence of Hazardous Materials on
any property of the Borrower or any of its

                                       36

<PAGE>

Subsidiaries or any Environmental Action relating in any way to the Borrower or
any of its Subsidiaries, except to the extent such claim, damage, loss,
liability or expense is found in a final, non-appealable judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct. In the case of an investigation, litigation or
other proceeding to which the indemnity in this Section 8.04(b) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by the Borrower, its directors, equityholders or creditors
or an Indemnified Party or any other Person, whether or not any Indemnified
Party is otherwise a party thereto, unless such litigation or proceeding is
brought by the Borrower and the Borrower prevails, and whether or not the
transactions contemplated hereby are consummated. The Borrower also agrees not
to assert any claim for special, indirect, consequential or punitive damages
against the Agent, any Lender, any of their Affiliates, or any of their
respective directors, officers, employees, attorneys and agents, on any theory
of liability, arising out of or otherwise relating to the Notes, this Agreement,
any of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances.

          (c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance is made by the Borrower to or for the account of a Lender other
than on the last day of the Interest Period for such Advance, as a result of a
payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or 2.12,
acceleration of the maturity of the Notes pursuant to Section 6.01 or for any
other reason, or by an Eligible Assignee to a Lender other than on the last day
of the Interest Period for such Advance upon an assignment of rights and
obligations under this Agreement pursuant to Section 8.07 as a result of a
demand by the Borrower pursuant to Section 8.07(a), the Borrower shall, upon
demand by such Lender (with a copy of such demand to the Agent), pay to the
Agent for the account of such Lender any amounts required to compensate such
Lender for any additional losses, costs or expenses that it may reasonably incur
as a result of such payment or Conversion, including, without limitation, any
loss (excluding loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such Advance.

          (d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.11, 2.14 and 8.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.

          SECTION 8.05. Right of Set-off.  Upon (i) the occurrence and during
the continuance of any Event of Default and (ii) the making of the request or
the granting of the consent specified by Section 6.01 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any and all of the obligations of the Borrower
now or hereafter existing under this Agreement and the Note held by such Lender,
whether or not such Lender shall have made any demand under this Agreement or
such Note and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such set-off and application, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of each Lender under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender may have.

          SECTION 8.06. Binding Effect.  This Agreement shall become effective
(other than Section 2.01, which shall only become effective upon satisfaction of
the conditions precedent set forth in Section 3.01) when it shall have been
executed by the Borrower and the Agent and when the Agent shall have been
notified by each Initial Lender that such Initial Lender has executed it and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Agent and each Lender and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Lenders.

          SECTION 8.07. Assignments and Participations.  (a) Each Lender may
and, if demanded by the Borrower (following a demand by such Lender pursuant to
Section 2.11 or 2.14) upon at least five Business Days' notice to such Lender
and the Agent, will assign to one or more Persons all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Revolving Credit Commitment, its Unissued Letter of Credit
Commitment, the Advances owing to it, its participations in Letters of Credit
and the Note or Notes held by it); provided, however, that (i) each such
assignment shall be of a constant, and not a varying, percentage of all rights
and obligations under this Agreement, (ii) except in the case of an assignment
to a Person

                                       37

<PAGE>

that, immediately prior to such assignment, was a Lender or an assignment of all
of a Lender's rights and obligations under this Agreement, the amount of the
Revolving Credit Commitment or Unissued Letter of Credit Commitment of the
assigning Lender being assigned pursuant to each such assignment (determined as
of the date of the Assignment and Acceptance with respect to such assignment)
shall in no event be less than $5,000,000 or an integral multiple of $1,000,000
in excess thereof unless the Borrower and the Agent otherwise agree, (iii) each
such assignment shall be to an Eligible Assignee, (iv) each such assignment made
as a result of a demand by the Borrower pursuant to this Section 8.07(a) shall
be arranged by the Borrower after consultation with the Agent and shall be
either an assignment of all of the rights and obligations of the assigning
Lender under this Agreement or an assignment of a portion of such rights and
obligations made concurrently with another such assignment or other such
assignments that together cover all of the rights and obligations of the
assigning Lender under this Agreement, (v) no Lender shall be obligated to make
any such assignment as a result of a demand by the Borrower pursuant to this
Section 8.07(a) unless and until such Lender shall have received one or more
payments from either the Borrower or one or more Eligible Assignees in an
aggregate amount at least equal to the aggregate outstanding principal amount of
the Advances owing to such Lender, together with accrued interest thereon to the
date of payment of such principal amount and all other amounts payable to such
Lender under this Agreement, and (vi) the parties to each such assignment shall
execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any Note subject to such
assignment and a processing and recordation fee of $3,500 payable by the parties
to each such assignment, provided, however, that in the case of each assignment
made as a result of a demand by the Borrower, such recordation fee shall be
payable by the Borrower except that no such recordation fee shall be payable in
the case of an assignment made at the request of the Borrower to an Eligible
Assignee that is an existing Lender, and (vii) any Lender may, without the
approval of the Borrower and the Agent, assign all or a portion of its rights to
any Lender or to any of its or their Affiliates that is not a natural person.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights (other than its rights under Sections 2.11, 2.14 and 8.04
to the extent any claim thereunder relates to an event arising prior to such
assignment) and be released from its obligations (other than its obligations
under Section 7.05 to the extent any claim thereunder relates to an event
arising prior such assignment) under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto). For the avoidance of doubt, no assignment by an Issuing Bank
pursuant to this Section 8.07(a) shall affect its rights and obligations in its
capacity as an Issuing Bank with respect to any Letters of Credit issued by it
and than outstanding.

          (b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of, or the perfection or priority of any lien or security interest created
or purported to be created under or in connection with, this Agreement or any
other instrument or document furnished pursuant hereto; (ii) such assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or the performance or
observance by the Borrower of any of its obligations under this Agreement or any
other instrument or document furnished pursuant hereto; (iii) such assignee
confirms that it has received a copy of this Agreement, together with copies of
the financial statements referred to in Section 4.01 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such assigning Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee confirms that it is an
Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers and discretion
under this Agreement as are delegated to the Agent by the terms hereof, together
with such powers and discretion as are reasonably incidental thereto; and (vii)
such assignee agrees that it will perform in accordance with their terms all of
the obligations that by the terms of this Agreement are required to be performed
by it as a Lender.

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<PAGE>

          (c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Note or Notes subject to such assignment, the Agent shall, if
such Assignment and Acceptance has been completed and is in substantially the
form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record
the information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower.

          (d) The Agent shall maintain at its address referred to in Section
8.02 a copy of each Assignment and Acceptance delivered to and accepted by it
and a register for the recordation of the names and addresses of the Lenders and
the Commitment of, and principal amount of the Advances owing to, each Lender
from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.

          (e) Each Lender may sell participations to one or more banks or other
entities (other than the Borrower or any of its Affiliates) in or to all or a
portion of its rights and/or obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Advances owing to it
and any Note or Notes held by it); provided, however, that (i) such Lender's
obligations under this Agreement (including, without limitation, its Commitment
to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender shall remain the holder of any such Note for all
purposes of this Agreement, (iv) the Borrower, the Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and (v) no participant
under any such participation shall have any right to approve any amendment or
waiver of any provision of this Agreement or any Note, or any consent to any
departure by the Borrower therefrom, except to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on, the Notes or
any fees or other amounts payable hereunder, in each case to the extent subject
to such participation, or postpone any date fixed for any payment of principal
of, or interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation.

          (f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 8.07, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any Borrower Information relating to the Borrower received by
it from such Lender as provided in Section 8.08.

          (g) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Bank") may grant to a special purpose funding vehicle (a
"SPC"), identified as such in writing from time to time by the Granting Bank to
the Agent and the Borrower, the option to provide to the Borrower all or any
part of any Advance that such Granting Bank would otherwise be obligated to make
to the Borrower pursuant to this Agreement; provided that (i) nothing herein
shall constitute a commitment by any SPC to make any Advance, (ii) if an SPC
elects not to exercise such option or otherwise fails to provide all or any part
of such Advance, the Granting Bank shall be obligated, as a principal and not as
a surety, to make such Advance pursuant to the terms hereof and (iii) all voting
rights under this Agreement, except with respect to the consent contemplated in
the last sentence of this Section 8.07(g), shall be exercised by the Granting
Bank, all payments hereunder shall continue to be made to the Granting Bank as
agent for its SPC and the Granting Bank will continue to be the sole Lender for
all purposes of this Agreement except as expressly provided in this Section
8.07(g). The making of an Advance by an SPC hereunder shall utilize the
Commitment of the Granting Bank to the same extent, and as if, such Advance were
made by such Granting Bank. Each party hereto hereby agrees that no SPC shall be
liable for any indemnity or similar payment obligation under this Agreement (all
liability for which shall remain with the Granting Bank). In furtherance of the
foregoing, each party hereto hereby agrees (which agreement shall survive the
termination of this Agreement) that, prior to the date that is one year and one
day after the payment in full of all outstanding commercial paper or other
senior indebtedness of any SPC, it will not institute against, or join any other
person in instituting against, such SPC any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under the laws of the United
States or any State thereof. In addition, notwithstanding anything to the
contrary contained in this Section 8.07, any SPC may (i) with notice to, but
without the prior written consent of, the Borrower

                                       39

<PAGE>

and the Agent and without paying any processing fee therefor, assign all or a
portion of its interests in any Advances to the Granting Bank or to any
financial institutions (consented to by the Borrower and Agent) providing
liquidity and/or credit support to or for the account of such SPC to support the
funding or maintenance of Advances and (ii) disclose on a confidential basis any
non-public information relating to its Advances to any rating agency, commercial
paper dealer or provider of any surety, guarantee or credit or liquidity
enhancement to such SPC. Notwithstanding the foregoing, neither such grant made
hereunder nor the holding of interest hereunder by any SPC shall increase any of
the Borrower's obligations and/or liabilities (including without limitation tax
liabilities and other indemnities) which the Borrower has but for such grant or
holding of interest ("SPC Liabilities") and the Granting Bank shall hold the
Borrower harmless and indemnify the Borrower from and against any and all SPC
Liabilities. This Section may not be amended without the written consent of each
SPC affected thereby.

          (h) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time create a security interest in all or any portion of
its rights under this Agreement (including, without limitation, the Advances
owing to it and any Note or Notes held by it) in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System.

          SECTION 8.08. Confidentiality.  Neither the Agent nor any Lender may
disclose to any Person any confidential, proprietary or non-public information
of the Borrower furnished to the Agent or the Lenders by the Borrower (such
information being referred to collectively herein as the "Borrower
Information"), except that each of the Agent and each of the Lenders may
disclose Borrower Information (i) to its and its affiliates' employees,
officers, directors, agents and advisors (it being understood that the Persons
to whom such disclosure is made will be informed of the confidential nature of
such Borrower Information and instructed to keep such Borrower Information
confidential on substantially the same terms as provided herein), (ii) to the
extent requested by any regulatory authority, (iii) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (iv)
to any other party to this Agreement, (v) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (vi) subject to an agreement containing
provisions substantially the same as those of this Section 8.08, to any assignee
or participant or prospective assignee or participant, (vii) to the extent such
Borrower Information (A) is or becomes generally available to the public on a
non-confidential basis other than as a result of a breach of this Section 8.08
by the Agent or such Lender, or (B) is or becomes available to the Agent or such
Lender on a nonconfidential basis from a source other than the Borrower
(provided that the source of such information was not known by the recipient
after inquiry to be bound by a confidentiality agreement with or other
contractual, legal or fiduciary obligation of confidentiality to the Borrower or
any other Person with respect to such information) and (viii) with the consent
of the Borrower.

          SECTION 8.09. Governing Law.  This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.

          SECTION 8.10. Execution in Counterparts.  This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by facsimile shall be effective as delivery of a manually executed
counterpart of this Agreement.

          SECTION 8.11. Jurisdiction, Etc.  (a) Each of the parties hereto
hereby submits to the nonexclusive jurisdiction of any New York State court or
federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the Notes, or for recognition or enforcement of
any judgment, and each of the parties hereto hereby agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State court or, to the extent permitted by law, in such federal court.
Nothing in this Agreement shall affect any right that any party may otherwise
have to bring any action or proceeding relating to this Agreement or the Notes
in the courts of any jurisdiction.

          (b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes in any New
York State or federal

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<PAGE>

court. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.

          SECTION 8.12. No Liability of the Issuing Banks  The Borrower assumes
all risks of the acts or omissions of any beneficiary or transferee of any
Letter of Credit with respect to its use of such Letter of Credit. Neither an
Issuing Bank nor any of its officers or directors shall be liable or responsible
for: (a) the use that may be made of any Letter of Credit or any acts or
omissions of any beneficiary or transferee in connection therewith; (b) the
validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (c) payment by such Issuing Bank
against presentation of documents that do not comply with the terms of a Letter
of Credit, including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; or (d) any other circumstances whatsoever in
making or failing to make payment under any Letter of Credit, except that the
Borrower shall have a claim against such Issuing Bank, and such Issuing Bank
shall be liable to the Borrower, to the extent of any direct, but not
consequential, damages suffered by the Borrower that the Borrower proves were
caused by (i) such Issuing Bank's willful misconduct or gross negligence as
determined in a final, non-appealable judgment by a court of competent
jurisdiction in determining whether documents presented under any Letter of
Credit comply with the terms of such Letter of Credit or (ii) such Issuing
Bank's willful failure to make lawful payment under a Letter of Credit after the
presentation to it of a draft and certificates strictly complying with the terms
and conditions of the Letter of Credit. In furtherance and not in limitation of
the foregoing, such Issuing Bank may accept documents that appear on their face
to be in order, without responsibility for further investigation, regardless of
any notice or information to the contrary.

          SECTION 8.13. Patriot Act.  Each Lender hereby notifies the Borrower
that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56 (signed into law October 26, 2001)) (the "Act"), it is required to
obtain, verify and record information that identifies each borrower, guarantor
or grantor (the "Loan Parties"), which information includes the name and address
of each Loan Party and other information that will allow such Lender to identify
such Loan Party in accordance with the Act.

                                       41

<PAGE>

          SECTION 8.14. Waiver of Jury Trial.  Each of the Borrower, the Agent
and the Lenders hereby irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the Notes or the
actions of the Borrower, the Agent or any Lender in the negotiation,
administration, performance or enforcement thereof.

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.

                                        ARIZONA PUBLIC SERVICE COMPANY

                                        By /s/ Barbara M. Gomez
                                           -------------------------------------
                                        Title: Vice President and Treasurer

                                        CITIBANK, N.A.,
                                        as Agent

                                        By /s/ Anita J. Brickell
                                           -------------------------------------
                                        Title: Vice President

Letter of Credit Commitment

$75,000,000                             KEYBANK NATIONAL ASSOCIATION

                                        By /s/ Keven D. Smith
                                           -------------------------------------
                                        Title: Vice President

$75,000,000                             CITIBANK, N.A.

                                        By /s/ Anita J. Brickell
                                           -------------------------------------
                                        Title: Vice President

Revolving Credit Commitment

                                        Joint Lead Arrangers

$37,500,000                             CITIBANK, N.A.

                                        By /s/ Anita J. Brickell
                                           -------------------------------------
                                        Title: Vice President

$37,500,000                             KEYBANK NATIONAL ASSOCIATION

                                        By /s/ Keven D. Smith
                                           -------------------------------------
                                        Title: Vice President

                                        Co-Documentation Agents

$30,000,000                             BANK OF AMERICA N.A.

                                        By /s/ Darryl Patterson
                                           -------------------------------------
                                        Title: Managing Director

$30,000,000                             THE BANK OF NEW YORK

                                        By /s/ Nathan S. Howard
                                           -------------------------------------
                                        Title: Vice President

                                       42

<PAGE>

                                        Lenders

$20,000,000                             BANK ONE, NA

                                        By /s/ Jane Bek Keil
                                           -------------------------------------
                                        Title: Director

$20,000,000                             BARCLAYS BANK PLC

                                        By /s/ Sydney G. Dennis
                                           -------------------------------------
                                        Title: Director

$20,000,000                             CREDIT SUISSE FIRST BOSTON, acting
                                        through its Cayman Islands Branch

                                        By /s/ Phillip Ho
                                           -------------------------------------
                                        Title: Director

                                        By /s/ Denise L. Alvarez
                                           -------------------------------------
                                        Title: Associate

$20,000,000                             LEHMAN BROTHERS BANK, FSB.

                                        By /s/ Gary T. Taylor
                                           -------------------------------------
                                        Title:

$20,000,000                             MELLON BANK, N.A.

                                        By /s/ Mark W. Rogers
                                           -------------------------------------
                                        Title: Vice President

$20,000,000                             UBS LOAN FINANCE LLC

                                        By /s/ Doris Mesa
                                           -------------------------------------
                                        Title: Associate Director

                                        By /s/ Joselin Fernandes
                                           -------------------------------------
                                        Title: Associate Director

$20,000,000                             UNION BANK OF CALIFORNIA

                                        By /s/ Dennis Blank
                                           -------------------------------------
                                        Title: Vice President

$20,000,000                             WELLS FARGO BANK, N.A.

                                        By /s/ Ling Li
                                           -------------------------------------
                                        Title: Vice President

$15,000,000                             BANCA DI ROMA SPA

                                        By /s/ Thomas C. Woodruff
                                           -------------------------------------
                                        Title: Vice President

                                                  By /s/ Luca Balestra
                                                    ----------------------------
                                                    SVP & Manager

                                       43

<PAGE>

$15,000,000                             U.S. BANK NATIONAL ASSOCIATION

                                        By      /s/ Scott J. Bell
                                           -------------------------------------
                                        Title:  Vice President

$325,000,000                            Total of the Revolving Credit
                                        Commitments

                                       44

<PAGE>

                                                                      SCHEDULE I
                                                  ARIZONA PUBLIC SERVICE COMPANY
                                                     THREE-YEAR CREDIT AGREEMENT
                                                      APPLICABLE LENDING OFFICES

<TABLE>
<CAPTION>
   Name of Initial Lender       Domestic Lending Office    Eurodollar Lending Office
   ----------------------       -----------------------    -------------------------
<S>                            <C>                         <C>
Banca di Roma SpA

Bank of America, N.A.          901 Main Street             901 Main Street
                               TX1-492-14-05               TX1-492-14-05
                               Dallas, TX 75202            Dallas, TX 75202
                               Attn: Eldred Sholars        Attn: Eldred Sholars
                               T: 214 209-4111             T: 214 209-4111
                               F: 214 290-9422             F: 214 290-9422

The Bank of New York           One Wall Street             One Wall Street
                               New York, NY 10019          New York, NY 10019
                               Attn: Kathy D'Elena         Attn: Kathy D'Elena
                               T: 212 635-7550             T: 212 635-7550
                               F: 212 635--7923            F: 212 635--7923

Bank One, NA

Barclays Bank PLC              200 Park Avenue             200 Park Avenue
                               New York, NY 10163          New York, NY 10163
                               Attn:                       Attn:
                               T: 212 412-                 T: 212 412-
                               F: 212 412 5306             F: 212 412 5306

Citibank, N.A.                 Two Penns Way               Two Penns Way
                               New Castle, DE 19720        New Castle, DE 19720

Credit Suisse First Boston,    One Madison Avenue          One Madison Avenue
acting through its Cayman      New York, NY 10010          New York, NY 10010
Islands Branch                 Attn: Ed Markowski          Attn: Ed Markowski
                               T: 212 538-3380             T: 212 538-3380
                               F: 212 538-6851             F: 212 538-6851

KeyBank National Association   Attn: Vicky Heineck         Attn: Vicky Heineck
                               T: 425 709-4576             T: 425 709-4576
                               F: 425 709-4587             F: 425 709-4587

Lehman Brothers Bank, FSB      745 Seventh Avenue,         745 Seventh Avenue,
                               16th Floor                  16th Floor
                               New York, NY 10019          New York, NY 10019
                               Attn: Marie Cowell          Attn: Marie Cowell
                               T: 212 526-6560             T: 212 526-6560
                               F: 212 526-6653             F: 212 526-6653

Mellon Bank, N.A.              525 William Penn Place      525 William Penn Place
                               Room 153-103                Room 153-103
                               Pittsburgh, PA 15259        Pittsburgh, PA 15259
                               Attn: Barbara Gago          Attn: Barbara Gago
                               T: 412 234-4710             T: 412 234-4710
                               F: 412 209-6114             F: 412 209-6114

UBS Loan Finance LLC           677 Washington Boulevard    677 Washington Boulevard
                               Stamford, CT 06901          Stamford, CT 06901
                               Attn: Wilfred Saint         Attn: Wilfred Saint

Union Bank of California       445 S. Figueroa Street      445 S. Figueroa Street
                               Los Angeles, CA 90071       Los Angeles, CA 90071
                               Attn: Efrain Soto           Attn: Efrain Soto
                               T: 213 236-4222             T: 213 236-4222
</TABLE>

<PAGE>

<TABLE>
<S>                            <C>                         <C>
                               F: 213 236-4096             F: 213 236-4096

U.S. Bank National             555 S.W. Oak Street, PL-7   555 S.W. Oak Street, PL-7
Association                    Portland, OR  97204         Portland, OR  97204
                               Attn: Lennie Regalado       Attn: Lennie Regalado
                               T: 503 275-5960             T: 503 275-5960
                               F: 503 275-4600             F: 503 275-4600

Wells Fargo Bank, N.A.         707 Wilshire Blvd.,         707 Wilshire Blvd.,
                               16th Floor                  16th Floor
                               MAC E2818-163               MAC E2818-163
                               Los Angeles, CA 90017       Los Angeles, CA 90017
                               Attn: Vanessa Sheh Meyer    Attn: Vanessa Sheh Meyer
                               T: 213 614-3494             T: 213 614-3494
                               F: 213 614-5242             F: 213 614-5242
</TABLE>

                                        2

<PAGE>

                                SCHEDULE 4.01(k)
                                  SUBSIDIARIES

APS Foundation, Inc.
Bixco, Inc.
Axiom Power Solutions, Inc.
PWENewco, Inc.

<PAGE>

                                SCHEDULE 4.01(1)
                                  INDEBTEDNESS

                                      none

<PAGE>

                                                             EXHIBIT A - FORM OF
                                                                 PROMISSORY NOTE

U.S.$ _______________                                    Dated: __________, 200_

          FOR VALUE RECEIVED, the undersigned, ARIZONA PUBLIC SERVICE COMPANY,
an Arizona corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
_________________________ (the "Lender") for the account of its Applicable
Lending Office on the Termination Date (as defined in the Credit Agreement
referred to below) the principal sum of U.S.$[amount of the Lender's Commitment
in figures] or, if less, the aggregate principal amount of the Advances made by
the Lender to the Borrower pursuant to the Three-Year Credit Agreement dated as
of May 21, 2004 among the Borrower, the Lender and certain other lenders parties
thereto, Citigroup Global Markets Inc. and KeyBank National Association, as
joint lead arrangers, KeyBank National Association, as syndication agent, Bank
of America, N.A. and The Bank of New York, as co-documentation agents, and
Citibank, N.A. as Agent for the Lender and such other lenders (as amended or
modified from time to time, the "Credit Agreement"; the terms defined therein
being used herein as therein defined) outstanding on such date.

          The Borrower promises to pay interest on the unpaid principal amount
of each Advance from the date of such Advance until such principal amount is
paid in full, at such interest rates, and payable at such times, as are
specified in the Credit Agreement.

          Both principal and interest are payable in lawful money of the United
States of America to Citibank, as Agent, at 388 Greenwich Street, New York, New
York 10013, Account No. 36852248 in same day funds. Each Advance owing to the
Lender by the Borrower pursuant to the Credit Agreement, and all payments made
on account of principal thereof, shall be recorded by the Lender and, prior to
any transfer hereof, endorsed on the grid attached hereto which is part of this
Promissory Note.

          This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit Agreement, among
other things, (i) provides for the making of Advances by the Lender to the
Borrower from time to time in an aggregate amount not to exceed at any time
outstanding the U.S. dollar amount first above mentioned, the indebtedness of
the Borrower resulting from each such Advance being evidenced by this Promissory
Note and (ii) contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.

                                        ARIZONA PUBLIC SERVICE COMPANY

                                        By
                                           -------------------------------------
                                           Title:

<PAGE>

                       ADVANCES AND PAYMENTS OF PRINCIPAL

<TABLE>
<CAPTION>
                      AMOUNT OF
       AMOUNT OF   PRINCIPAL PAID   UNPAID PRINCIPAL   NOTATION
DATE    ADVANCE      OR PREPAID          BALANCE        MADE BY
----   ---------   --------------   ----------------   --------
<S>    <C>         <C>              <C>                <C>

----   ---------   --------------   ----------------   --------

----   ---------   --------------   ----------------   --------

----   ---------   --------------   ----------------   --------

----   ---------   --------------   ----------------   --------

----   ---------   --------------   ----------------   --------

----   ---------   --------------   ----------------   --------

----   ---------   --------------   ----------------   --------

----   ---------   --------------   ----------------   --------

----   ---------   --------------   ----------------   --------

----   ---------   --------------   ----------------   --------

----   ---------   --------------   ----------------   --------
</TABLE>

                                        2

<PAGE>

                                                   EXHIBIT B - FORM OF NOTICE OF
                                                                       BORROWING

Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Two Penns Way
New Castle, Delaware 19720

                                     [Date]

          Attention: Bank Loan Syndications Department

Ladies and Gentlemen:

          The undersigned, Arizona Public Service Company, refers to the
Three-Year Credit Agreement, dated as of May 21, 2004 (as amended or modified
from time to time, the "Credit Agreement", the terms defined therein being used
herein as therein defined), among the undersigned, certain Lenders parties
thereto, Citigroup Global Markets Inc. and KeyBank National Association, as
joint lead arrangers, KeyBank National Association, as syndication agent, Bank
of America, N.A. and The Bank of New York, as co-documentation agents, and
Citibank, N.A., as Agent for said Lenders, and hereby gives you notice,
irrevocably, pursuant to Section 2.02 of the Credit Agreement that the
undersigned hereby requests a Borrowing under the Credit Agreement, and in that
connection sets forth below the information relating to such Borrowing (the
"Proposed Borrowing") as required by Section 2.02(a) of the Credit Agreement:

          (i) The Business Day of the Proposed Borrowing is __________, 200_.

          (ii) The Type of Advances comprising the Proposed Borrowing is [Base
     Rate Advances] [Eurodollar Rate Advances].

          (iii) The aggregate amount of the Proposed Borrowing is
     $_______________.

          [(iv) The initial Interest Period for each Eurodollar Rate Advance
     made as part of the Proposed Borrowing is _____ month[s].]

          The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Borrowing:

          (A) the representations and warranties contained in Section 4.01
     (other than Section 4.01(l) and, in the case of a Borrowing the proceeds of
     which are used to refund commercial paper, Sections 4.01(e)(ii), (f)(ii)
     and (j)) of the Credit Agreement are correct, before and after giving
     effect to the Proposed Borrowing and to the application of the proceeds
     therefrom, as though made on and as of such date;

          (B) no event has occurred and is continuing, or would result from such
     Proposed Borrowing or from the application of the proceeds therefrom, that
     constitutes a Default;

          (C) after giving effect to the Proposed Borrowing, to the extent that
     the Proposed Borrowing is required to be treated as short-term debt
     pursuant to the 1984 Order, the aggregate amount of Authorized Short Term
     Debt (as such term is defined in the 1984 Order) including the aggregate
     principal amount of all outstanding Advances that are required to be
     treated by the Borrower as short-term debt pursuant to the 1984 Order does
     not exceed 7% of the Borrower's total capitalization,

          (D) to the extent that the Proposed Borrowing is required to be
     treated as long-term debt pursuant to the 1986 Order, the aggregate amount
     of Continuing Debt (as such term is defined in the 1986 Order) including
     the aggregate principal amount of all outstanding Advances that are
     required to be treated by the Borrower as long-term debt pursuant to the
     1986 Order has not exceeded, during any period of more

<PAGE>

     than 30 days immediately prior to and including the date of the Borrowing,
     and will not exceed, during any period of more than 30 days at any time
     such Borrowing is outstanding, $2,698,917,000, and

          (E) after giving effect to the Proposed Borrowing, the Indebtedness of
     the Borrower does not exceed that permitted by (A) applicable resolutions
     of the Board of Directors of the Borrower or (B) applicable Arizona laws,
     rules or regulations.

                                        Very truly yours,

                                        ARIZONA PUBLIC SERVICE COMPANY

                                        By
                                           -------------------------------------
                                           Title:.

                                        2

<PAGE>

                                                             EXHIBIT C - FORM OF
                                                       ASSIGNMENT AND ACCEPTANCE

          Reference is made to the Three-Year Credit Agreement dated as of May
21, 2004 (as amended or modified from time to time, the "Credit Agreement")
among Arizona Public Service Company, an Arizona corporation (the "Borrower"),
the Lenders (as defined in the Credit Agreement), Citigroup Global Markets Inc.
and KeyBank National Association, as joint lead arrangers, KeyBank National
Association, as syndication agent, Bank of America, N.A. and The Bank of New
York, as co-documentation agents, and Citibank, N.A., as agent for the Lenders
(the "Agent"). Terms defined in the Credit Agreement are used herein with the
same meaning.

          The "Assignor" and the "Assignee" referred to on Schedule I hereto
agree as follows:

          1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, an interest in and to
the Assignor's rights and obligations under [the Credit Agreement as of the date
hereof] [the Credit Agreement as it relates to the the Letter of Credit
Facility] equal to the percentage interest specified on Schedule 1 hereto of
[all outstanding rights and obligations under the Credit Agreement together with
participations in Letters of Credit held by the Assignor on the date hereof]
[such Assignor's Unissued Letter of Credit Commitment]. After giving effect to
such sale and assignment, the Assignee's [Revolving Credit Commitment and the
amount of the Advances owing to the Assignee] [Letter of Credit Commitment] will
be as set forth on Schedule 1 hereto.

          2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of, or the perfection or priority of any lien or security interest
created or purported to be created under or in connection with, the Credit
Agreement or any other instrument or document furnished pursuant thereto; (iii)
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower or the performance or observance by
the Borrower of any of its obligations under the Credit Agreement or any other
instrument or document furnished pursuant thereto; and (iv) attaches the Note[,
if any] held by the Assignor [and requests that the Agent exchange such Note for
a new Note payable to the order of [the Assignee in an amount equal to the
Revolving Credit Commitment assumed by the Assignee pursuant hereto or new Notes
payable to the order of the Assignee in an amount equal to the Revolving Credit
Commitment assumed by the Assignee pursuant hereto and] the Assignor in an
amount equal to the Revolving Credit Commitment retained by the Assignor under
the Credit Agreement, [respectively,] as specified on Schedule 1 hereto.

          3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Credit Agreement as are delegated to the
Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations that by the terms of the Credit
Agreement are required to be performed by it as a Lender; and (vi) attaches any
U.S. Internal Revenue Service forms required under Section 2.14 of the Credit
Agreement.

          4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "Effective Date") shall
be the date of acceptance hereof by the Agent, unless otherwise specified on
Schedule 1 hereto.

<PAGE>

          5. Upon such acceptance and recording by the Agent, as of the
Effective Date, (i) the Assignee shall be a party to the Credit Agreement and,
to the extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.

          6. Upon such acceptance and recording by the Agent, from and after the
Effective Date, the Agent shall make all payments under the Credit Agreement and
the Notes in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest, fees and Letter of Credit
commissions with respect thereto) to the Assignee. The Assignor and Assignee
shall make all appropriate adjustments in payments under the Credit Agreement
and the Notes for periods prior to the Effective Date directly between
themselves.

          7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of New York.

          8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by facsimile shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.

          IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule
1 to this Assignment and Acceptance to be executed by their officers thereunto
duly authorized as of the date specified thereon.

                                        2

<PAGE>

                                   Schedule 1
                                       to
                            Assignment and Acceptance

<TABLE>
<S>                                             <C>
Percentage interest assigned:                         _____%

[Assignee's Revolving Credit Commitment:        $__________]

Aggregate outstanding principal amount of
   Advances assigned:                           $__________

Principal amount of Note payable to Assignee:   $__________

Principal amount of Note payable to Assignor:   $__________

[Assignee's Letter of Credit Commitment:        $__________]
</TABLE>

Effective Date*:  __________, 200_

                                        [NAME OF ASSIGNOR], as Assignor

                                        By
                                           -------------------------------------
                                        Title:

                                        Dated: __________, 200_

                                        [NAME OF ASSIGNEE], as Assignee

                                        By
                                           -------------------------------------
                                        Title:

                                        Dated: __________, 200_

                                        Domestic Lending Office:
                                                [Address]

                                        Eurodollar Lending Office:
                                                [Address]

----------
*    This date should be no earlier than five Business Days after the delivery
     of this Assignment and Acceptance to the Agent.

                                        3

<PAGE>

Accepted [and Approved]** this
____ day of __________, 200_

CITIBANK, N.A., as Agent

By
   ----------------------------------
Title:

[Approved this _____ day
of __________, 200_

ARIZONA PUBLIC SERVICE COMPANY

By                                   ]*
   ----------------------------------
Title:

----------
**   Required if the Assignee is an Eligible Assignee solely by reason of clause
     (iii) of the definition of "Eligible Assignee".

*    Required if the Assignee is an Eligible Assignee solely by reason of clause
     (iii) of the definition of "Eligible Assignee".

                                        4

<PAGE>

                                                                  EXECUTION COPY

                                U.S. $325,000,000

                           THREE-YEAR CREDIT AGREEMENT

                            Dated as of May 21, 2004

                                      Among

                         ARIZONA PUBLIC SERVICE COMPANY

                                   as Borrower

                        THE INITIAL LENDERS NAMED HEREIN

                               as Initial Lenders

                                 CITIBANK, N.A.

                    as Administrative Agent and Issuing Bank

                          KEYBANK NATIONAL ASSOCIATION

                      as Syndication Agent and Issuing Bank

                 BANK OF AMERICA, N.A. and THE BANK OF NEW YORK

                           as Co-Documentation Agents

                                       and

         CITIGROUP GLOBAL MARKETS INC. and KEYBANK NATIONAL ASSOCIATION

                             as Joint Lead Arrangers

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                          <C>
ARTICLE I
   SECTION 1.01. Certain Defined Terms                                         1
   SECTION 1.02. Computation of Time Periods                                  12
   SECTION 1.03. Accounting Terms                                             12

ARTICLE II
   SECTION 2.01. The Advances and Letters of Credit                           13
   SECTION 2.02. Making the Advances                                          13
   SECTION 2.03. Issuance of and Drawings and Reimbursement
                    Under Letters of Credit                                   14
   SECTION 2.04. Fees                                                         15
   SECTION 2.05. Optional Termination or Reduction of the Commitments         16
   SECTION 2.06. Repayment of Advances and Letter of Credit Drawings          16
   SECTION 2.07. Interest on Advances                                         17
   SECTION 2.08. Interest Rate Determination                                  17
   SECTION 2.09. Optional Conversion of Advances                              18
   SECTION 2.10. Prepayments of Advances                                      18
   SECTION 2.11. Increased Costs                                              19
   SECTION 2.12. Illegality                                                   20
   SECTION 2.13. Payments and Computations                                    20
   SECTION 2.14. Taxes                                                        21
   SECTION 2.15. Sharing of Payments, Etc.                                    22
   SECTION 2.16. Evidence of Debt                                             23
   SECTION 2.17. Use of Proceeds                                              23

ARTICLE III
   SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01        23
</TABLE>

<PAGE>

To each of the Lenders party
to the Credit Agreement
May 21, 2004
Page 2

<TABLE>
<S>                                                                          <C>
   SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance.         24
   SECTION 3.03. Determinations Under Section 3.01                            25

ARTICLE IV
   SECTION 4.01. Representations and Warranties of the Borrower               25

ARTICLE V
   SECTION 5.01. Affirmative Covenants                                        27
   SECTION 5.02. Negative Covenants                                           29
   SECTION 5.03. Financial Covenants                                          31

ARTICLE VI
   SECTION 6.01. Events of Default                                            31
   SECTION 6.02. Actions in Respect of Letters of Credit upon Default         33

ARTICLE VII
   SECTION 7.01. Authorization and Action                                     33
   SECTION 7.02. Agent's Reliance, Etc.                                       33
   SECTION 7.03. Citibank and Affiliates                                      34
   SECTION 7.04. Lender Credit Decision                                       34
   SECTION 7.05. Indemnification                                              34
   SECTION 7.06. Successor Agent                                              35
   SECTION 7.07. Other Agents.                                                35

ARTICLE VIII
   SECTION 8.01. Amendments, Etc.                                             35
</TABLE>

<PAGE>

To each of the Lenders party
to the Credit Agreement
May 21, 2004
Page 3

<TABLE>
<S>                                                                          <C>
   SECTION 8.02. Notices, Etc.                                                35
   SECTION 8.03. No Waiver; Remedies                                          36
   SECTION 8.04. Costs and Expenses                                           36
   SECTION 8.05. Right of Set-off                                             37
   SECTION 8.06. Binding Effect                                               37
   SECTION 8.07. Assignments and Participations                               37
   SECTION 8.08. Confidentiality                                              40
   SECTION 8.09. Governing Law                                                40
   SECTION 8.10. Execution in Counterparts                                    40
   SECTION 8.11. Jurisdiction, Etc.                                           40
   SECTION 8.12. No Liability of the Issuing Banks                            41
   SECTION 8.13. Waiver of Jury Trial                                         42
</TABLE>

<PAGE>

To each of the Lenders party
to the Credit Agreement
May 21, 2004
Page 4

Schedules

Schedule I - List of Applicable Lending Offices
Schedule 2.01(b) - Existing Letters of Credit
Schedule 4.01(k) - Subsidiaries
Schedule 4.01(1) - Existing Indebtedness

Exhibits
Exhibit A - Form of Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Opinion of Counsel for the Borrower

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