Document:

Exhibit

EXHIBIT 10.06

AMRAD TO ARTESIA
345 KV TRANSMISSION SYSTEM AND DC TERMINAL
PARTICIPATION AGREEMENT
between
EL PASO ELECTRIC COMPANY
and
TEXAS-NEW MEXICO POWER COMPANY

Execution Copy

TABLE OF CONTENTS

	
			
	SECTION
	TITLE
	PAGE

	 
	 
	 

	1
	Parties
	1

	2
	Recitals
	1

	3
	Agreement
	2

	4
	Definitions
	2

	5
	Ownership of and Cost Responsibility
	 

	 
	For the Components
	12

	6
	Capacity and Entitlement in the System
	13

	7
	Administration and Committees
	18

	8
	Performance and Completion of Construction-
	 

	 
	Transmission System Project Manager
	27

	8A
	Performance and Completion of Construction-
	 

	 
	DC Terminal Project Manager
	33

	9
	Transmission System Operating Agent
	34

	9A
	DC Terminal Operating Agent
	39

	10
	Operating Emergency
	39

	11
	Curtailment of Operating Capacity in
	 

	 
	the Transmission System
	41

	12
	Transmission System Spare Parts
	42

	12A
	DC Terminal Spare Parts
	43

	13
	Transmission System Construction Costs
	43

	13A
	DC Terminal Construction Costs
	50

	14
	Transmission System Operation and Maintenance
	 

	 
	Costs
	50

	14A
	DC Terminal Operation and Maintenance Costs
	52

TABLE OF CONTENTS
(Continued)

	
			
	SECTION
	TITLE
	PAGE

	 
	 
	 

	15
	Advancement of Funds for the Transmission System
	52

	15A
	Advancement of Funds for the DC Terminal
	56

	16
	Taxes
	56

	17
	Nonpartitionment
	57

	18
	Mortgage and Transfer of Interest
	58

	19
	Destruction
	61

	20
	Severance of Improvements
	63

	21
	Capital Betterments
	64

	22
	Transmission System Insurance
	65

	23
	Participants' Insurance
	67

	24
	Liability
	69

	25
	Authorizations and Approvals
	71

	26
	Defaults
	72

	27
	Actions Pending Resolution of Disputes
	75

	28
	Removal of Project Manager or Operating Agent
	75

	29
	Arbitration
	78

	30
	Relationship of Parties
	81

	31
	Uncontrollable Forces
	81

	32
	Governing Law
	84

	33
	Nondedication of Facilities
	83

	34
	General Provisions Governing Project Agreements
	83

TABLE OF CONTENTS
(Continued)

	
			
	SECTION
	TITLE
	PAGE

	 
	 
	 

	35
	Term and Termination
	84

	36
	Assignment of Interests
	84

	37
	Equal Opportunity
	84

	38
	Control, Communication, and Relaying
	89

	39
	Notices
	93

	40
	Execution
	94

AMRAD TO ARTESIA
345 KV TRANSMISSION SYSTEM AND DC TERMINAL
PARTICIPATION AGREEMENT

SECTION 1
PARTIES

1.1    The parties to this Participation Agreement are:  EL PASO ELECTRIC COMPANY, a Texas corporation hereinafter referred to as "EPE" and TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, hereinafter referred to as "TNP."

1.2    TNP and EPE are also referred to collectively as "Participants" and singularly as a "Participant."

SECTION 2
RECITALS

2.1    This Participation Agreement is made with reference to the following facts, among others:

2.2    The Participants recognize that it is in their mutual interest to participate and to do so jointly, in the ownership, construction, maintenance, and operation of the Transmission System and DC Terminal described in this Participation Agreement.

2.3    This Participation Agreement is made with the expectation that a DC Terminal Construction Agreement will be executed.

SECTION 3
AGREEMENT

3.1    In consideration of the mutual covenants herein, the Participants agree as follows:

SECTION 4
DEFINITIONS

4.1    The following terms, when used herein and in the appendices attached hereto, shall have the meanings specified below:

4.1.1    Account(s): Any bank account or accounts selected and established by the Transmission System Project Manager or Transmission System Operating Agent to receive and disburse funds, pursuant to Section 15 hereof, for Construction Work, Operating Work, Capital Betterments, Capital Replacement, and Capital Additions.

4.1.2    Accounting Practice: Generally accepted accounting principles in accordance with the FERC accounts as defined in Section 4.1.26 hereof.

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4.1.3    Administrative Committee: The committee established pursuant to Section 7 hereof.

4.1.4    Auditing Committee: The committee established pursuant to Section 7 hereof.

4.1.5    Capacity:  Electrical rating expressed in megawatts (MW).

4.1.6    Capital Additions: Any items of tangible property which are added to the Transmission System or DC Terminal and which do not substitute for any pre-existing structures, facilities, or equipment constituting a part of the Transmission System or DC Terminal and which, in accordance with sound accounting principles, would be capitalized.

4.1.7    Capital Betterments: Enlargement or improvement of any structures, facilities, or equipment constituting a part of the Transmission System or DC Terminal, or the substitution thereof of other structures, facilities, or equipment, where the substitution constitutes an enlargement or improvement as compared with that for which it is substituted and which, in accordance with sound accounting principles, would be capitalized.

4.1.8    Capital Replacements:  The substitution of any units of property constituting a part of the Transmission System or DC Terminal or

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other units of property where the substitution does not constitute an enlargement or improvement of the item for which it is substituted and which, in accordance with sound accounting principles, would be capitalized.

4.1.9    Common Facilities:  Those facilities required for a total switchyard or microwave repeater site in general including, but not limited to:  site preparation (grading, fencing, surfacing); grounding; trenching and conduit; yard lighting; control house and equipment therein; switchyard service power facilities; and power and control cables.

4.1.10    Component(s): Any element of the Transmission System or DC Terminal described in Appendix A hereto, including associated land and land rights.

4.1.11    Construction Agreement:  Any agreement entered into by the Transmission System or DC Terminal Project Manager for the design, engineering, construction, or installation of any Component for the Transmission System or DC Terminal including, without limitation, engineering, design, construction, supervisory, licensing, or consulting services in connection with the Construction Work.

4.1.12    Construction Costs:  The costs of constructing the Transmission System and DC Terminal as described in Section 13 hereof.

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4.1.13    Construction Funds:  Monies advanced to the Transmission System or DC Terminal Project Manager for Construction Work by or on behalf of the Participants in accordance with this Agreement or any other Project Agreements.

4.1.14    Construction Insurance: Policies of insurance to be procured and maintained or caused to be procured and maintained by the Transmission System or DC Terminal Project Manager.

4.1.15    Construction Schedule:  The schedule of Construction Work to be prepared semiannually and approved by the Engineering and Operating Committee within the milestones as established by the Administrative Committee and set forth in Appendix D hereto.

4.1.16    Construction Work:  All engineering, design, contract preparation, purchasing, rights-of-way acquisition, construction, excess material and equipment disposal, supervision, negotiation, preparation and performance of Construction Agreements, all reports required by regulatory authorities and the conduct of hearings, conferences, and other activities incidental to obtaining requisite permits, licenses, and certificates for the construction and operation of each Component prior to the completion of Construction Work for such Component.

4.1.17    Cost Responsibility:  The financial liability percentage of each Participant for Construction Costs and Operating Funds concerning each Component or Components of the Transmission System and DC Terminal described in Section 5 and shown in Appendix B hereto.

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4.1.18    Date of Firm Operation:  The date with respect to each Component on which the Engineering and Operating Committee determines such Component to be reliable for the transmission of power and such Component can be expected to operate continuously at any load up to its Operating Capacity.

4.1.19    DC Terminal:  The facilities, including associated land and land rights, as described in Appendix A hereto.

4.1.20    DC Terminal Operating Agent:  The party designated as agent for the Participants and responsible for the performance of Operating Work and making Capital Betterments, Capital Replacements, and Capital Additions as more particularly described in Section l4A hereof.

4.1.21    DC Terminal Project Manager:  The party designated as agent for the Participants and responsible for the performance of Construction Work as more particularly described in Section 8A hereof.

4.1.22    DC Terminal Spare Parts:  Spare parts or equipment, the cost of which is capitalized, which are stocked for the DC Terminal.

4.1.23    Energy:  Megawatt-hours (MWH).

4.1.24    Engineering and Operating Committee (E&O Committee): The committee established pursuant to Section 7 hereof.

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4.1.25    Entitlement:  The right, expressed in megawatts, of a Participant to utilize the components of the Transmission System or DC Terminal singularly or collectively for the transmission of power and energy as detailed in Section 6.2 and as identified in Appendix G.

4.1.26    FERC System of Accounts:  The Federal Energy Regulatory Commission's "Uniform System of Accounts Prescribed for Public Utilities and Licensees (Class A and Class B)" in effect as of the date of this Agreement and as such system of accounts may be amended from time to time.

4.1.27    Final Completion Report:  A complete summary of Construction Costs, a description of the Transmission System, and a summary of each Participant's contributions to Construction Costs.

4.1.28    Materials and Supplies:  Materials and supplies which are stocked as defined in FERC Account 154.

4.1.29    Operating Capacity:  That portion of the Components of the Transmission System and DC Terminal actually available for power transfers under normal system operating conditions as identified in Appendix F which may be modified by the E&O Committee.

4.1.30    Operating Emergency:  An unforeseen event or circumstance which changes the amount of Operating Capacity in the Transmission System and DC Terminal that would otherwise be made available to the

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Participants under normal system operating conditions as more particularly described in Section 10 hereof.

4.1.31    Operating Funds: Monies advanced to the Transmission System or DC Terminal Operating Agent for Operating Work or Capital Betterments, Capital Replacements or Capital Additions by or on behalf of the Participants in accordance with the Project Agreements.

4.1.32    Operating Insurance:  Policies of insurance to be procured and maintained or caused to be procured and maintained by the Transmission System or DC Terminal Operating Agent in accordance with the Project Agreements.

4.1.33    Operating Work:  Engineering, contract preparation, purchasing, repair, supervision, recruitment, training, expediting, inspection, operations accounting, testing, protection, operation, use, management, retirement, reconstruction, and maintenance associated with operating the Transmission System and DC Terminal including any work undertaken by the Transmission System or DC Terminal Operating Agent pursuant to Sections 14 and l4A hereof and any work necessitated by an Operating Emergency, but excluding all work undertaken to make any Capital Betterments, Capital Replacements or Capital Additions.

4.1.34    Participant:  Any Participant hereto and any successor assignee of such Participant under Section 36 hereof.

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4.1.35    Payroll Taxes: Taxes of a Participant based on remuneration paid to its employees.

4.1.36    Power:  Megawatts electric (MWe).

4.1.37    Project: The construction and operation of the Transmission System and DC Terminal pursuant to the Project Agreements.

4.1.38    Project Insurance:  Construction Insurance and Operating Insurance.

4.1.39    Project Agreements:  All documents executed by the Participants or between the Participants and SPS to construct or operate the Transmission System and DC Terminal as defined in Appendix A.

4.1.40    Transmission System:  The transmission facilities including associated land and land rights, as described in Appendix A hereto, to be constructed by the Transmission System Project Manager and operated by the Transmission System Operating Agent.

4.1.41    Transmission System Operating Agent:  The Participant responsible for the performance of Operating Work as more particularly described in Section 14 hereof, and making Capital Betterments, Capital Replacements, and Capital Additions as more particularly described in Section 21 hereof.

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4.1.42    Transmission System Project Manager:  The Participant responsible for the performance of Construction Work as more particularly described in Section 8 hereof.

4.1.43    Transmission System Spare Parts:  Spare Parts or equipment, the cost of which is capitalized, which are stocked for the Transmission System.

4.1.44    Units of Property:  Units of property as described in the Federal Energy Regulatory Commission's "Lists of Units of Property for Use in Connection with Uniform System of Accounts Prescribed for Public Utilities and Licensees," in effect as of the date of this Agreement, and as such list may be amended from time to time.

4.1.45    Willful Action:

4.1.45.1  Action taken or not taken by a Participant (including the Transmission System Project Manager or the Transmission System Operating Agent) at the direction of its directors, officers, or employees having management or administrative responsibility affecting its performance under any of the Project Agreements, which action is knowingly or intentionally taken or failed to be taken with conscious indifference to the consequences thereof or with intent or knowledge that injury, damage or delay of the Project would result or would probably result therefrom.

4.1.45.2  Action taken or not taken by a Participant (including the Transmission System Project Manager or Transmission System Operating

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Agent) at the direction of its directors, officers, or employees having management or administrative responsibility affecting its performance under any of the Project Agreements, which action has been determined by final arbitration award or final judgment or judicial decree to be a material default under any of the Project Agreements and which occurs or continues beyond the time specified in such arbitration award or judgment or judicial decree for curing such default or, if no time to cure is specified therein; occurs or continues beyond a reasonable time to cure such default.

4.1.45.3  Action taken or not taken by a Participant (including the Transmission System Project Manager or the Transmission System Operating Agent) at the direction of its directors, officers, or employees having management or administrative responsibility affecting its performance under any of the Project Agreements, which action is knowingly or intentionally taken or failed to be taken is a material default under any of the Project Agreements.

4.1.45.4  The phrase "employees having management responsibility" as used in this Section 4.1.47 means employees of a Participant (including the Transmission System Project Manager or the Transmission System Operating Agent) who are responsible for one or more of the executive functions of planning, organizing, coordinating, directing, controlling, and supervising such performance under any of the Project Agreements.

4.1.45.5  Willful Action does not include any act or failure to act which is merely involuntary, accidental, or negligent.

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SECTION 5
OWNERSHIP OF AND COST RESPONSIBILITY FOR THE COMPONENTS

5.1    Each Participant shall accept and hold title to an undivided interest as a tenant in common in the Transmission System and DC terminal in proportion to its Cost Responsibility in the system, as shown in Appendix B.

5.2    The ownership of and title to the components of the Transmission System and DC Terminal described in Appendix A of this Agreement, the control and communication system, as described in Appendix C, and all Capital Betterments, Capital Replacements, and Capital Additions shall vest simultaneously in the Participants so that the estate of each of them shall be deemed to be concurrent as to time, right, and priority.

5.3    The Participants shall be responsible for the Construction Costs, for the operation and maintenance (O&M) expenses, and for Capital Replacements, Capital Additions, and Capital Betterments of the Components of the Transmission System and the DC Terminal in accordance with their Cost Responsibilities.

5.4    In the event any Participant transfers or assigns any of its undivided rights, title, or interest in and to the Transmission System and DC Terminal in accordance with Section 18 hereof, the Participants and any successor shall jointly make, execute, and deliver a supplement to this Agreement, and, if appropriate, other Project Agreements, in recordable form which shall describe with such particularity and detail,

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as may be warranted under the circumstances, the rights, title, and interest of each Participant and any successor following such transfer or assignment.

5.5    The communication equipment as described in Appendix C hereto, shall be operated and maintained by EPE. Cost associated with expansion and modification of the existing communication facilities shall be shared by the Participants in proportion to their Cost Responsibility as detailed in Appendix B or in Section 38.

5.6    Each Participant, excluding any nonparticipating third parties, shall own and have nonexclusive rights to the engineering work, drawings, and specifications, and such work, drawings, and specifications related to the Transmission System and DC Terminal.  By mutual agreement of the Participants, the engineering work, drawings and specifications may be sold and the proceeds from such sale shall be distributed according to the Participants' Cost Responsibilities in this Project.

SECTION 6
CAPACITY AND ENTITLEMENT IN THE SYSTEM

6.1    System Capacity

6.1.1    All of the Components of the Transmission System and DC Terminal shall have an initial Operating Capacity to be determined by the E&O Committee.  The Participants agree to modify the Operating Capacity of the Components of the Transmission System and DC Terminal

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whenever found to be appropriate by the E&O Committee; such modification of the Operating Capacity will be considered whenever the Transmission System and DC Terminal is closely paralleled by any additional transmission lines that materially affects the Operating Capacity, by power plant construction, or upon written request by one of the Participants. All Operating Capacity ratings will be bi-directional as identified in Appendix F, subject to review by the E&O Committee.

6.1.2    Should the Operating Capacity of any of the Components of the Transmission System and DC Terminal change from time to time, as determined by the E&O Committee, increases or decreases in entitlement shall be reapportioned according to the Entitlement percentages of the Participants, presented in Appendix G.

6.1.3    Either Participant shall be able to exercise the option, at any time, to increase the Operating Capacity of the DC Terminal, Transmission System, or both. Either Participant may exercise its option by giving written notice to the other Participant.

6.1.3.1  In the event either Participant exercises its option to increase the Operating Capacity of the Dc Terminal, Transmission System, or both, the other Participant shall have a right of first refusal to participate in such increase of Operating Capacity up to its Entitlement.  Either Participant shall exercise its right of first refusal ("election") by giving the other Participant written notice of its election to participate within ninety (90) days of receipt of written notice from the Participant wishing to increase the Operating Capacity.

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In the event that such election is made, each Participant shall pay for, and shall own, a percentage share of the increased Operating Capacity equal to its Cost Responsibility in increasing the Operating Capacity.

In the event that a Participant elects not to participate in increasing the Operating Capacity of the DC Terminal, Transmission System, or both, the other Participant shall have the right to proceed with increasing the Operating Capacity at its own cost and expense, provided that such increase of Operating Capacity does not materially effect the operation of the electrical system or the Entitlement in this Transmission System and DC Terminal of the Participant electing not to increase the Operating Capacity.

In the event that only one Participant makes such increase in Operating Capacity, that Participant shall acquire the title to and use of the increased Operating Capacity itself.

6.2    Entitlement

6.2.1    Upon completion and placement into firm operation of the Transmission System and DC Terminal, each Participant shall be entitled to use the Transmission System and DC Terminal for:

6.2.1.1  Transmission of Power and Energy on a firm basis, as supplied by the Participant less losses, not to exceed the Operating Capacity of the Transmission System and DC Terminal multiplied by the

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Participants' respective Percentage Apportionment of Operating Capacity found in Appendix G.

6.2.1.2  Transmission of Power and Energy, as supplied by the Participant less losses, above that entitlement as determined in paragraph 6.2.1.1 above, provided that:

6.2.1.2.1  Such Capacity is not being used by the other Participant, as determined solely by the Participant having spare Capacity.

6.2.1.2.2  Appropriate agreement for such use has been reached.

6.2.1.2.3  Such use does not interfere with the other Participant's rights to use of its Entitlement and does not impair the capability of the system nor jeopardize continuity of service, all as determined solely by the Transmission System Operating Agent.

6.3    Interconnections and Additions

6.3.1    Besides the interconnections listed in Appendix A as preapproved interconnections, each Participant shall be entitled to interconnect the Transmission System and DC Terminal with its own or third parties transmission systems provided that:

6.3.1.1  Such Participant shall secure through the E&O Committee, the consent of the other Participant; to include arrangements for operation and control of facilities affecting the Transmission System and DC Terminal.

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6.3.1.2  Such Participant shall pay all costs of the interconnection, including, where applicable, a proportionate share of the cost of Common Facilities previously installed.

6.3.1.3  A Participant establishing additional interconnections shall not be deemed to acquire additional transmission entitlement, nor shall such interconnection reduce the Capacity Entitlements of the other  Participant.

6.3.2    Interconnections by third party(s) must be approved by the E&O Committee; all costs of such interconnections, including where applicable an apportionate share of the cost of Common Facilities previously installed, must be borne by third party(s) desiring such interconnection, and such interconnections must not reduce Capacity Entitlements of the Participants.

6.3.3    Third parties interconnecting with the system may engage in transactions with the Participants or other third parties at the point of interconnection to the extent that each has rights and in amounts such that it does not affect the rights of the Participants, is within the technical capability of the system, and provided that approval of the E&O Committee has been received.

6.4    No Participant shall construct or operate any portion of its separate transmission system, including interconnections with others, in such a manner as to unduly interfere with the rights of the other Participants.  The Participants hereby authorize and support the

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Transmission System or DC Terminal Operating Agent in such action it may deem prudent or necessary to restore the rights of the Participants.

6.5    Wheeling service to third parties.

6.5.1    Wheeling Service over the Transmission System and DC Terminal shall be afforded to third parties provided that such third party's wheeling service does not materially affect the system operation of the Participants and such wheeling service conforms with the wheeling criteria established by the E&O Committee.

6.5.2    The Participants will each dedicate portions of Entitlement and collect the corresponding revenues from this wheeling service based on either their existing apportionment percentage of Operating Capacity in the Transmission System and DC Terminal, or on any other mutually agreeable division.

SECTION 7
ADMINISTRATION AND COMMITTEES

7.1    As a means of securing effective cooperation and interchange of information and of providing consultation on a prompt and orderly basis between the Participants in connection with various administrative and technical matters which may arise from time to time in connection with the terms and conditions of this Agreement, the Participants establish the committees described in this Section 7.  The chairman for each of the committees shall be the representative of the Transmission System Project

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Manager or the Transmission System Operating Agent and shall be responsible for calling meetings and establishing agendas as required by the Participants.  The various committees must meet at least annually.  The responsibility and authority of each such committee shall be limited to matters in connection with the carrying out of the provisions of the Project Agreements and shall not extend to other affairs of the Participants. The following committees are hereby established and shall have the functions and responsibilities described herein.

7.1.1    An Administrative Committee consisting of one (l) representative appointed by each Participant which representative shall be an officer of said Participant or the authorized designee of the officer of the Participant.

7.1.2    An Engineering and Operating Committee consisting of two (2) representatives appointed by each Participant.

7.1.3    An Auditing Committee consisting of two (2) representatives appointed by each Participant.

7.2    Within thirty (30) days after the execution of this Participation Agreement, each Participant shall designate its representatives on the committees hereby established and give written notice thereof to the other Participant.

7.3    The Administrative Committee, the Engineering and Operating Committee, and the Auditing Committee shall keep written minutes and records of all meetings.

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7.4    Any action or determination of a committee must be unanimous and shall be effective when set forth in writing and signed by each Participant's representatives.

7.5    The committees shall· have no authority to modify any of the terms, covenants, or conditions of this Agreement except as specifically authorized in this Agreement.

7.6    The Administrative Committee shall have the following functions:

7.6.1    Provide liaison among the Participants at the management level.

7.6.2    Exercise, under the provisions of the Project Agreements, general supervision and guidance over, and assign other duties to, the Engineering and Operating Committee, the Auditing Committee, and any other standing or ad hoc committees established pursuant to Section 7.12 hereof.

7.6.3    Review, discuss, resolve, or make recommendations relating to disputes among the Participants and SPS arising under the Project Agreements.

7.6.4    At the request of any Participant on such terms and conditions as the Administrative Committee may deem appropriate, authorize the installation on the property comprising the Transmission System and DC

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Terminal of any structures, facilities, or equipment by any Participant or any third party for its or their own use, which structures, facilities, or equipment, shall not become a part of the Transmission System and DC Terminal.

7.6.5    Establish or modify milestone activity dates for inclusion as Appendix D to this Agreement.

7.6.6    Perform such other functions and duties as may be assigned to it in this Agreement.

7.7    The Engineering and Operating Committee shall have the following functions:

7.7.1    Provide liaison between the Participants, and the Transmission System or DC Terminal Project Manager, and the Transmission System or DC Terminal Operating Agent with respect to progress, performance, and completion of Construction Work and performance of Operating Work.

7.7.2    Be responsible for the approval of the annual capital expenditures budget, the annual operation and maintenance (O&M) budget, and the estimated quarterly cash requirements.  Such budgets and cash requirements shall be prepared by the Transmission System Project Manager or Transmission System and Operating Agent, as appropriate.

7.7.3    Be responsible for planning scheduled outages for maintenance.

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7.7.4    Develop the criteria for the review, approval or modification of the written statistical and administrative reports, written budgets, information and other similar records, and the form thereof, to be kept and furnished by the Transmission System or DC Terminal Operating Agent. However, such criteria shall not apply to accounting records used internally by the Transmission System or DC Terminal Operating Agent for the purpose of accumulating financial and statistical data, such as books of original entry, ledgers, work papers, and source documents.

7.7.5    Be responsible for the development and review of the procedures for Power and Energy accounting.

7.7.6    Be responsible for the development of the practices and procedures for the delivery of Power and Energy by the Components in accordance with the Participants' schedules.  Such practices and procedures shall provide for modifying said schedules to meet the needs of day-to-day or hour-by-hour operation, including emergencies on a Participant's system.

7.7.7    Defining those situations that would constitute an Operating Emergency and developing the methods and procedures to be utilized in calculating any resulting reduction in the Operating Capacity of any Component.

7.7.8    Establish procedures and calculations to be applied by the Transmission System or DC Terminal Operating Agent for determining losses on the Components.

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7.7.9    Determine the Date of Firm Operation for each Component, within the milestone dates of the Construction Schedule as established in Appendix D.

7.7.10    Be responsible for design concepts and any changes thereto; type and configuration of major Components of the Transmission System and the DC Terminal; and the projected cash flow for construction for the Transmission System and the DC Terminal.  The E&O Committee shall discharge its responsibility detailed above within a time frame that is consistent with the Project schedule and recognizing external commitments and constraints.  No such responsibility shall extend retroactively to decisions or commitments made before the effective date of this Agreement.

7.7.11    Review, approve, modify or otherwise act upon proposals concerning, but not limited to, bidders list for major equipment, the bid evaluation process, selection of architects, engineers, and/or constructors. The E&O Committee shall discharge its responsibility detailed above within a time frame that is consistent with the Project schedule and recognizing external commitments and constraints. No such right of approval shall be extended retroactively to decisions or commitments made before the effective date of this Agreement.

7.7.12    Review and modify, if required, the Operating Capacity of the Components at least annually.

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7.7.13    Review, approve, modify or otherwise establish a wheeling criteria for third parties and act upon proposals for wheeling service from third parties pursuant to Section 6.5.

7.7.14    Perform such other duties as may be assigned to it under the provisions of any Project Agreement or by the Administrative Committee.

7.8    The Auditing Committee shall have the following functions:

7.8.1    Review internal control and make audits on either an annual basis, or any other basis agreed to by the Audit Committee, of the records maintained by the Transmission System and DC Terminal Project Manager and the Transmission System and DC Terminal Operating Agent in performance of Transmission System and DC Terminal construction and of operation and maintenance, as well as of any other company records maintained by the DC Terminal Project Manager or the DC Terminal Operating Agent in support of its billings to the Participants.

7.8.2    Review and approve the format and contents of the Transmission System and DC Terminal Project Managers' and Transmission System and DC Terminal Operating Agents' accounting records and reports for Transmission System and DC Terminal construction and O&M.

7.8.3    Verify to the Participants that the Transmission System and DC Terminal Project Managers' and Transmission System and DC Terminal Operating Agents' billings to the Participants resulting from construction, operation, and maintenance of the Transmission System and

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DC Terminal are in accordance with this Agreement and with generally accepted Accounting Practices.

7.8.4    Review, approve, or modify the method for calculating the Participant's loadings as detailed in Appendix E when such Participant acts as construction agent for Capital Additions, Capital Betterments, or Capital Replacements.

7.8.5    Establish the minimum and maximum balances to be maintained in the accounts for construction funds and operating funds pursuant to Section 15.4 hereof.

7.8.6    Perform such other duties as may be assigned to it under the provisions of any Project Agreement or by the Administrative Committee.

7.9    Each Participant shall notify the other Participant promptly of any change in the designation of its representatives on the committees.  A Participant may designate an alternate to act as its representative on any committee in the absence of the regular member or to act on specified occasions with respect to specified matters.  Any alternate representative appearing at a committee meeting shall be deemed to have authority to act on behalf of the Participant he represents.

7.10    If the Engineering and Operating Committee or the Auditing Committee fail to reach agreement while performing the functions and duties delegated to it in this Agreement, then such disagreement shall be referred in writing within 30 days to the Administrative Committee for

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resolution. Pursuant to Paragraph E.7.2 of Appendix E, the Audit Committee shall have the option for an initial 60 day study period prior to the aforementioned 30 day limit for referring disagreements to the Administrative Committee.  Notwithstanding the terms and provisions of this Section 7.10, if in the Transmission System such disagreement will affect the Date of Firm Operation of the Transmission System or DC Terminal, then the Transmission System Project Manager shall have the right to directly refer the disputed issue to the Administrative Committee for Resolution.

7.11    If the Administrative Committee fails to reach agreement while performing the respective functions and duties assigned to it in this Agreement, then such disagreement shall be referred in writing within 30 days to chief executive officers of the Participants for resolution. If the dispute cannot be resolved by the chief executive officers within thirty (30) days, the dispute shall be resolved by arbitration pursuant to Section 29.

7.12    The Participants, acting through the Administrative Committee, shall have the right to establish standing or ad hoc committees. The authority and duties of any such committee shall be set forth in writing by the Administrative Committee.

7.13    Any expenses incurred by any member of the Administrative Committee, Audit Committee, E&O Committee, or any standing or ad hoc committees in connection with his duties on such committee shall be paid and borne by the Participant whom they represents, and shall not be directly included in Construction Costs or in costs for Operating Work.

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SECTION 8
PERFORMANCE AND COMPLETION OF CONSTRUCTION WORK –
TRANSMISSION SYSTEM PROJECT MANAGER

8.1    The Transmission System shall be designed and constructed in accordance with practices generally accepted in the electric utility industry as such practices may be affected by special operational design characteristics of the Transmission System. The Transmission System Project Manager shall be responsible for the design and construction of the Transmission System.

8.2    EPE shall be the Transmission System Project Manager.

8.3    The Participants hereby appoint EPE as their agent, and EPE shall undertake as the agent for the other Participant and as principal on its own behalf, to perform, or have performed, the Construction Work and to carry out the duties and the responsibilities required by the Transmission System Project Manager under the Project Agreements

8.4    The Transmission System Project Manager shall on behalf of the Participants:

8.4.1    Execute, administer, perform, and enforce all Construction Agreements in the name of the Transmission System Project Manager, acting as agent for the other Participant and as principal on its own, and their behalf, whether or not expressed or manifested, in which all Participants

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shall have undivided interests as tenants in common equal to their respective Cost Responsibility.

8.4.2    Furnish each member of the E&O Committee with copies of all contracts with the architect, engineer, constructor, contractors, and principal subcontractors, vendors, and consultants for their review pursuant to Section 7.7.11.

8.4.3    Arrange for placement of Construction Insurance pursuant to Section 22 hereof.

8.4.4    Determine which contractors, if any, shall be required to furnish any portion of the Construction Insurance, other insurance, and faithful performance and payment bonds.

8.4.5    Investigate, settle, or defend and pay any judgments pertaining to uninsured third party claims arising out of the construction of the Transmission System. The Administrative Committee shall investigate, settle, or defend and direct the Transmission System Project Manager to pay any judgments pertaining to uninsured third party claims arising out of the Transmission System when any one claim or combination of claims exceeds $100,000 per occurrence.

8.4.6    Comply with:  (a) any and all laws applicable to the performance of Construction Work, including without limitation all applicable laws, rules, and regulations for protection of the environment and all applicable provisions of any Worker's Compensation laws; and

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(b) the terms and conditions of any contract, permit, or license relating to the Transmission System.

8.4.7    Expend the funds advanced to the Transmission System Project Manager as required for construction of the Transmission System in accordance with the terms and conditions of the Project Agreements.

8.4.8    Keep and maintain records of monies received and expended, obligations incurred, credits accrued, the conduct of the Construction Work, and of contracts entered into in the performance of Construction Work as may be necessary or useful in performing the functions of the Transmission System Project Manager under the Project Agreements or required to permit an audit of the Construction Work, and, upon reasonable notice, make such records available for inspection and copying by the Auditing Committee at the Transmission System Project Manager's principal place of business and during normal business hours.

8.4.9    Not suffer any liens to remain in effect unsatisfied against the Transmission System, other than liens permitted by Section 18 hereof; provided, however, that the Transmission System Project Manager shall not be required to pay or discharge any such lien as long as a proceeding shall be commenced or pending in which the lawfulness or validity of such lien shall be contested in good faith.

8.4.10    Obtain or cause to be obtained necessary construction permits, temporary access rights, and other licenses and approvals requisite to the performance and completion of Construction Work and

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initiation of Operating Work; however, the Transmission System Project Manager is not required to pursue any approvals required solely by any Participant for owning, constructing, or operating the Transmission System.

8.4.11    As soon as practicable after the completion of Construction Work of each Component, and in no case later than twelve (12) months from the Date of Firm Operation of each Component, provide each Participant with a summary of the Construction Costs classified to appropriate FERC accounts.

8.4.12    As soon as practicable after the commencement of Construction Work, furnish the E&O Committee with an estimate of total Construction Costs broken down by major categories of equipment and services and a forecast of the cash requirements of each Participant to meet such Construction Costs. Such forecast shall set forth cash requirements for:  (a) each quarterly period commencing on the first day of January, April, July and October of the current year in which Construction Costs shall become due; and (b) each month of the first two quarterly periods immediately following the issuance of such forecast.  Such forecast shall be revised and furnished to each Participant every three (3) months thereafter until completion of Construction Work.

8.4.13    Furnish a Participant any information reasonably available pertaining to the construction of the Transmission System that shall assist said Participant in responding to a request for such information by any federal, state, or local regulatory authority, or lender.

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8.4.14    Keep the Participants fully and promptly advised of significant developments in connection with the progress, performance, and completion of Construction Work, as required by the Administrative Committee or the E&O Committee.

8.4.15    Prepare and distribute the Final Completion Report to each Participant as soon as practicable, but not later than twelve (12) months after completion of Construction Work performed by the Transmission System Project Manager on the final Component, unless such time is extended by the Administrative Committee.

8.4.16    Provide the Administrative Committee with all necessary and required records and information for its use in the performance of its responsibilities under the Project Agreements.

8.4.17    Construct the Transmission System so as to comply with the Project Agreements.

8.4.18    Provide for and enforce any and all warranties on equipment, facilities, materials, and services sold to or furnished for the Transmission System, except that any equipment warranties which expire more than one (1) year after the completion of Construction Work for the final Component to be constructed by the Transmission System Project Manager shall be enforced by the Transmission System Operating Agent.

8.4.19    Secure or cause to be secured the necessary land and land rights for the Transmission System.  Rights-of-way required for

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construction, operation, and maintenance of the Transmission System across patented lands shall be procured by the Transmission System Project Manager in the names of the Participants.  Such rights-of-way may be procured by purchase or exercise of the power of eminent domain of the fee interest in or by a grant of easement across any parcel of such lands as the Transmission System Project Manager shall in its sole discretion deem advantageous to the Participants. Prior to the exercise of the power of eminent domain, suitable notice, including a list of condemnees, will be given to the Participants.  Rights-of-way or easements across nonprivate lands will be acquired by the Transmission System Project Manager in the names of the Participants.

8.4.19.1  In the case of rights-of-way or easements across military lands, the Project Manager will include in its application package to the military the 115 KV associated transmission line contemplated by TNP even though it is not part of this Project.

8.4.20    Dispose of excess material and equipment after completion of Construction Work in the best interest of all Participants and distribute proceeds from such disposal to the Participants in proportion to their Cost Responsibilities for the associated Component.

8.5    Each Participant shall provide to the extent possible all assistance required by the Transmission System Project Manager in the performance of its obligations hereunder and such Participant shall be reimbursed for its costs and expenses incurred in providing such assistance on such terms and conditions as may be agreed upon by such

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Participant and the Transmission System Project Manager.  Each Participant shall, within sixty (60) days after the execution of this Participation Agreement, submit to the Transmission System Project Manager any special requirement it may have regarding accounting, records, or information in order that all required records may be maintained in the same manner throughout the construction and final completion of the Transmission System. The Transmission System Project Manager shall accommodate said special requirements as specified by the committee established in Section 7 hereof.

8.6    The Project Manager shall construct the Transmission System with the objective of having the respective Components available for energization, for tests, and for operation in accordance with Appendix C, hereto, unless and until Appendix C is revised by the Administrative Committee.

SECTION 8A
PERFORMANCE AND COMPLETION OF CONSTRUCTION WORK­
DC TERMINAL PROJECT MANAGER

8A.1    The performance and completion of the Construction Work and the duties of the DC Terminal Project Manager shall be defined in the DC Terminal Construction Agreement executed between Southwestern Public Service Company (SPS) and the Participants attached hereto for reference, but is not made part of this Agreement.

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SECTION 9
TRANSMISSION SYSTEM OPERATING AGENT

9.1    The Participants hereby appoint EPE and as the Transmission System Operating Agent.  EPE shall undertake as the agent for the Participants and as principal on its own and their behalf, to perform or have performed the Operating Work, Capital Betterments, Capital ·Replacement and Capital Additions, and to carry out the duties and responsibilities required by the Transmission System Operating Agent under the Project Agreements.

9.2    The Transmission System Operating Agent shall on behalf of the Participants:

9.2.1    Execute, administer, enforce, and perform or have performed the Operating Work, Capital Betterments Capital Replacement and Capital Additions as approved by the E&O Committee so as to comply with the Project Agreements and in a manner consistent with generally accepted practices in the electric utility industry, recognizing that such practices may be affected by the design and operational characteristics of the Transmission System, the rights and obligations of the Participants under this Participation Agreement, and other special circumstances affecting the Operating Work and Capital Betterments, Capital Replacement and Capital Additions.

9.2.2    Furnish from its own resources, or contract for and obtain from any other sources as approved by the E&O Committee, the services and

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studies necessary for performance of Operating Work, Capital Betterments, Capital Replacements, or Capital Additions.

9.2.3    Execute, administer, perform, and enforce Project Agreements in the name of the Transmission System Operating Agent, acting as agent for the Participants and as principal on its own behalf, whether or not expressed or manifested, for Operating Work, Capital Betterments, Capital Replacement, and Capital Additions, including without limitation any and all warranties on equipment, facilities, materials, and services furnished pursuant to any such contracts.

9.2.4    Administer, perform, and enforce all other contractual obligations and arrangements, including all warranties applicable thereto, entered into by the Transmission System Project Manager and continuing beyond the period ending one (1) year after the completion of Construction Work for the final Component.

9.2.5    Furnish or recruit the necessary personnel and provide for such training as may be required to qualify them to perform the Operating Work or Capital Betterments, Capital Replacements and Capital Additions, and to meet all requirements established by law.

9.2.6    Comply with:  (a) any and all laws applicable to the performance of Operating Work, Capital Betterments, Capital Replacements, and Capital Additions, including, without limitation, all applicable laws, rules, and regulations for protection of the environment and all applicable provisions of any Worker's Compensation Laws; and (b) the

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terms and conditions of any contract, permit, or license relating to the Transmission System.

9.2.7    Purchase and procure, as approved by the E&O Committee, in the name of the Participants, with undivided interests as tenants in common in accordance with the Project Agreements, the equipment, apparatus, machinery, tools, materials and supplies, and Transmission System Spare Parts necessary for the performance of Operating Work, Capital Betterments, Capital Replacements, and Capital Additions.

9.2.8    Expend the Operating Funds advanced to the Transmission System Operating Agent in accordance with the terms and conditions of the Project Agreements.

9.2.9    Keep and maintain adequate records of monies received and expended, obligations incurred, credits accrued, the conduct of Operating Work, making Capital Betterments, Capital Replacements, and Capital Additions, and of Project Agreements entered into in the performance of Operating Work, Capital Betterments, Capital Replacements, and Capital Additions as may be necessary or useful in performing the functions of the Transmission System Operating Agent under the Project Agreements.  And, upon reasonable notice, make such records available for inspection and copying during normal business hours by the Auditing Committee at the Transmission System Operating Agent's principal place of business.

9.2.10    Not suffer any liens to remain in effect unsatisfied against the Transmission System, other than liens permitted by Section 18 hereof;

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provided, however, that the Transmission System Operating Agent shall not be required to pay or discharge any lien as long as a proceeding shall be commenced or pending in which the lawfulness or validity of such lien shall be contested in good faith.

9.2.11    Arrange for the placement and maintenance of Operating Insurance as provided in Section 22 hereof.

9.2.12    Investigate, settle, or defend, and pay any judgments pertaining to uninsured third party claims arising out of the operation of the Transmission System.  The Administrative Committee shall investigate, settle, or defend, and direct the Transmission System Operating Agent to pay and judgments pertaining to uninsured third party claims arising out of the Transmission System when any one claim or a combination of claims exceeds $100,000 per occurrence.

9.2.13    Keep the Participants fully and promptly advised of material changes in conditions or other material developments affecting the performance of Operating Work, or Capital Betterments, or Capital Replacements or Capital Additions, and furnish the other Participant with copies of any notices given or received pursuant to the Project Agreements.

9.2.14    Provide the Administrative, Engineering and Operating, Auditing, and any standing and ad hoc committees, with all written statistical and administrative reports, accounting records, written budgets, information, and other records relating to Operating Work,

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Capital Betterments, Capital Replacements, and Capital Additions necessary or useful in the performance of their respective responsibilities under the Project Agreements.

9.2.15    Prepare recommendations covering the matters which are to be reviewed and approved by the Engineering and Operating Committee pursuant to Section 7.7 hereof.

9.2.16    Carry out and follow the practices and procedures and directions which have been approved and issued by the Administrative Committee, the Engineering and Operating Committee, or the Auditing Committee pursuant to the Project Agreements.

9.2.17    In the event of an Operating Emergency, take such action as required by Section 10 hereof.

9.2.18    Keep the Participants informed whenever maintenance is required and whenever work on its own system external to the Transmission System will affect Transmission System operations.

9.2.19    Assure proper coordination of Operating Work with the operations of facilities external to the Transmission System.

9.2.20    As soon as practical after the Date of Firm Operation of the Transmission System and quarterly thereafter on or before the first day of March, June, September, and December furnish the E&O Committee with a budget of total O&M expenses and costs and expenses associated with

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Capital Betterments, Capital Replacements, and Capital Additions, broken down by major categories, for the remainder of the current calendar year (or for the next calendar year in the case of December submissions) and a forecast of the cash requirements of each Participant to meet such costs and expenses. Such forecast shall set forth the cash requirements:  (a) for each quarterly period commencing on the first day of January, April, July, and October of the current year in which such costs and expenses shall become due; and (b) for each month of the first two quarterly periods immediately following the issuance of such forecast.

SECTION 9A
DC TERMINAL OPERATING AGENT

9A.1    The duties and responsibilities of the DC Terminal Operating Agent shall be assigned and coordinated through the Operating Committee established in the Interconnection Agreement between the Participants and SPS.

SECTION 10
OPERATING EMERGENCY

10.1    In the event of an Operating Emergency:

10.1.1    The Transmission System Operating Agent will follow the procedures established by the E&O Committee as established in Section 7.7.7 for handling an Operating Emergency and for determining any

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reduction in the Operating Capacity of the Transmission System or DC Terminal.

10.1.2    If, for a particular Operating Emergency, no procedures have been established by the E&O Committee, the Transmission System Operating Agent shall take, at its sole discretion, such action as it may deem prudent or necessary, to terminate the Operating Emergency, to preserve and maintain the safety, integrity, and operability of the Transmission System and DC Terminal, to maintain the maximum Operating Capability of each Component, to protect the health and safety of the public, or to minimize any adverse environmental effects, and such other action as required by Section 10 hereof.

10.2    As soon as practicable after the commencement of an Operating Emergency, the Transmission System Operating Agent shall advise the Participants of the occurrence of the Operating Emergency, its nature, and the steps taken or to be taken to terminate the Operating Emergency.

10.3    The costs incurred and amounts expended and charged to maintenance expenses by the Transmission System Operating Agent for repair and restoration, of the Transmission System as a result of an Operating Emergency shall be allocated to the Participants in proportion to their Cost Responsibility for the Component(s) being repaired or restored and shall be billed to the appropriate Participants in accordance with Section 15 hereof.

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10.4    Costs proposed to be incurred and amounts to be expended by the Transmission System Operating Agent for Capital Betterments, Capital Replacements, Capital Additions as a result of an Operating Emergency, if unbudgeted, shall be submitted to the E&O Committee for review and approval and allocated to the Participants in proportion to their Cost Responsibility in the Component(s) to which such Capital Betterments, Capital Replacements, and Capital Additions are to be made, and the Transmission System Operating Agent shall bill the appropriate Participants therefor.

SECTION 11
CURTAILMENT OF OPERATING CAPACITY IN THE
TRANSMISSION SYSTEM OR DC TERMINAL

11.1    In the event it becomes necessary to curtail the Operating Capacity of the Transmission System or DC Terminal either due to scheduled maintenance or upon the occurrence of a situation deemed by either the Transmission System or DC Terminal Operating Agent to constitute an Operating Emergency, pursuant to the criteria established by the E&O Committee or DC Terminal Operating Agent, the Transmission System Operating Agent shall as soon as practicable notify the dispatchers of the other Participant.

11.2    Upon occurrence of a situation for which no E&O Committee criteria apply, the Transmission System Operating Agent may, in its sole discretion, declare an Operating Emergency and as soon as practicable shall notify the dispatchers of the Participants thereof.  In the event

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that an Operating Emergency is declared pursuant to this section, the Transmission System Operation Agent shall as soon as practicable provide fully documented reports in support of its action to the Participants and, the E&O Committee shall at its earliest convenience review and develop criteria for future occurrences of the same nature.

11.3    In the event an Operating Emergency is declared, whether pursuant to Section 11.1 or 11.2, the Transmission System Operating Agent shall determine the amount of reduction, if any, in the Operating Capacity of each Component of the Transmission System in accordance with guidelines developed by the E&O Committee pursuant to Section 7.7.7 hereof.

11.4    In the event that Operating Capacity in any Component is reduced pursuant to Section 11.3, revised Entitlements shall be calculated for each Participant, which Entitlements shall remain in effect until the Operating Emergency is ended.

SECTION 12
TRANSMISSION SYSTEM SPARE PARTS

12.1    The Transmission System Project Manager shall purchase Transmission System Spare Parts for the initial Transmission System Spare Parts inventory in accordance with policies and budgets prepared or approved by the Engineering and Operating Committee.

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12.2    The Transmission System Operating Agent shall maintain the Transmission System Spare Parts inventory in accordance with policies approved by the E&O Committee.

12.3    The Transmission System Operating Agent shall purchase replacement Transmission System Spare Parts in accordance with the policies and budgets approved by the E&O Committee.

SECTION 12A
DC TERMINAL SPARE PARTS

12A.1    The policies and procedures for the purchase of DC Terminal Spare Parts and the DC Terminal Spare Parts inventory shall be as they are defined in the DC Terminal Construction Agreement.

SECTION 13
TRANSMISSION SYSTEM CONSTRUCTION COSTS

13.1    Construction Costs of the Transmission System shall include all payments made and obligations incurred by the Transmission System Project Manager for, or in connection with, Construction Work.

13.2    All Construction Costs for each Component shall be shared by the Participants in proportion to their respective Cost Responsibility described in Appendix B hereto.  Construction Costs shall be advanced by the Participants, and disbursed and accounted for by the Transmission System Project Manager, in accordance with Section 15 hereof.

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13.3    Construction Costs shall consist of payments made and obligations incurred in accordance with the Project Agreements for, or in connection with, Construction Work (excluding allowance for funds used during construction and, ad valorem taxes or payments in lieu thereof) and shall consist of the following:

13.3.1    All costs of labor, services and studies performed in connection with Construction Work, if authorized and approved by the Transmission System Project Manager, and within the annual budget approved by the E&O Committee.

13.3.2    Payroll and other expenses of the Transmission System Project Manager's employees while performing the Construction Work, including applicable allocated labor loading charges as allocated in accordance with Appendix E, Sections El through E4.

13.3.3    Overhead costs associated with Construction Work (including the allowance for the Transmission System Project Manager's administrative and general expenses described in Section 13.3.14 hereof), costs of temporary facilities, land and land rights, structures and improvements, and equipment for the Transmission System as set forth in the Electric Plant Instructions of the FERC System of Accounts.

13.3.4    All costs and expenses, including those of outside consultants and attorneys, incurred by the Transmission System Project Manager or the other Participant with respect to the securing of licenses, permits, certificates and any other authorizations required by

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law (excluding those authorizations and approvals specified in Section 25.2), compliance with any applicable laws, rules or regulations respecting the environment, conservation of the public health and safety, negotiation for the acquisition of land, land rights, and to the preparation of agreements and permits relating to Construction Work with entities other than the Participants. A Participant anticipating such costs and expenses shall submit an estimate thereof to the Transmission System Project Manager for authorization and approval. Any Participant incurring such costs and expenses after such authorization and approval shall bill the Transmission System Project Manager who will subsequently bill the Participants in proportion to their cost responsibility.

13.3.5    Applicable costs of materials, supplies, tools, machines, equipment, apparatus, and Transmission System Spare Parts in connection with Construction Work, including rental charges, transportation, and stores' expenses applicable to such costs.

13.3.6    All costs of Construction Insurance, other than costs of Worker's Compensation insurance included in Section 13.3.2 hereof.

13.3.7    All costs of any loss, damage or liability arising out of or caused by Construction Work which are not satisfied under the coverage of Construction Insurance, and the expenses incurred in settlement of injury and damage claims, including attorneys' fees and costs of litigation, including the costs of labor and related supplies and expenses incurred in injury and damage activities (all as referred to in FERC Account 925 and FERC Accounts Electric Plant Instruction 3(8), but excluding any

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costs or expenses which have already been included in Section 13.3.2 hereof), because of any claim arising out of or attributable to the construction of the Project, the past or future performance or nonperformance of the obligations and duties of any Participant (including the Transmission System Project Manager) or the past or future performance or nonperformance of Construction Work, including but not limited to any claim resulting from death or injury to persons or damages to property.  However such costs shall not be retroactive from the effective day of this Agreement.

13.3.8    All federal, state or local taxes of any character except corporate income tax imposed upon Construction Work, except any tax assessed directly against an individual Participant or against the Transmission System Project Manager unless such tax was assessed to such individual Participant or to the Transmission System Project Manager in behalf of either or both of the Participants.

13.3.9    All costs and expenses of enforcing or attempting to enforce the provisions of Construction Insurance policies, payment and performance bonds, contracts executed as Transmission System Project Manager and warranties extended to facilities constituting a part of the Project, except any costs or expenses which have already been included in Section 13.3.2 hereof.

13.3.10 All costs and expenses, including those of attorneys and consultants, incurred by the Transmission System Project Manager or a Participant with respect to environmental matters such as lawsuits,

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hearings and environmental studies related thereto.  All Participants anticipating such costs and expenses shall submit an estimate thereof to the Transmission System Project Manager for authorization and approval. Any Participant incurring such costs and expenses after such authorization and approval shall bill the Transmission System Project Manager who will subsequently bill the Participants in proportion to their cost responsibility.

13.3.11    The expenses incurred in auditing Construction Costs of the Project as approved by the Audit Committee.

13.3.12    Miscellaneous costs and expenses not specifically referenced in this Section 13.4 that are incidental to and necessary for the Transmission System as approved by the E&O Committee.

13.3.13    The Engineering and Supervision allowance (E&S) is applicable to any Participant who incurs expenses in conjunction with the performance of construction work.  These loadings shall be applied only once to any item billed by a Participant performing the Engineering and Supervision for the Construction Work.  The E&S rate shall be five percent (5%) and shall be applied to total construction cost incurred and not previously billed.  The total construction cost to which this E&S rate is applied to shall not include:

13.3.13.1  Any E&S charges as provided for in Section 13.3.13.

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13.3.13.2  Any allowance for A&G expenses as provided for in Section 13.3.14.

13.3.14    The Administrative and General (A&G) allowance is applicable to any Participant that incurs costs in conjunction with performance of Construction Work. Said expenses shall be allocated monthly at the rate of one and five tenths percent (1.5%) (or such other rate as may be specified by the Administrative Committee) of Construction Costs incurred and not previously billed, excluding from such Constructions Costs:

13.3.14.1    Any Engineering and Supervision overhead charges referred to in Section 13.3.13.

13.3.14.2    Any allowance for administrative and general expenses provided for in this Section 13.3.14.

13.3.14.3    Expenses described in Section 13.3.7 hereof, to the extent such costs represent damage awards or settlements.

13.3.14.4    The expenses incurred in auditing construction costs of the project, as approved by the Auditing Committee.

13.3.14.5    Any cost that the Participants would have incurred in the absence of this Project.

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13.4    In cases where the allocation of a cost item is made between Construction Work and other work, such allocation shall be made on a fair and equitable basis.

13.5    The Transmission System Project Manager shall develop, or cause to have developed, and shall employ a project control system which recognizes and contains the elements of scheduling, reporting, forecasting and analysis with the variables of time and money.  The accounting classifications employed must be converted to the FERC accounts for the Final Completion Report, and any supplement thereto, of total cost of Construction Work.

13.6    Travel and other related expenses of employees of the Transmission System Project Manager whose salary costs are considered administrative and general expenses recoverable through the administrative and general expense allowance specified in Section 13.3.14 hereof shall only charge directly to Construction Work as Construction Costs when performing work directly related to Construction Work.

13.7    The Project Manager or any Participant shall not be entitled to a fee, price, percentage, or any other compensation over and above the costs of services rendered by the Project Manager or any Participant in the performance of Construction Work.

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SECTION 13A
DC TERMINAL CONSTRUCTION COSTS

13A.1    Construction Costs of the DC Terminal shall include all payments made and obligations in connection with Construction Work as shall be defined in the DC Terminal Construction Agreement between SPS and the Participants.

SECTION 14
TRANSMISSION SYSTEM OPERATION AND MAINTENANCE COSTS

14.1    Operation and maintenance costs of the Transmission System shall include all payments made and obligations incurred in accordance with this Agreement by the Transmission System Operating Agent for or in connection with the performance of Operating Work, as follows:

14.1.1    Transmission System O&M expenses chargeable to FERC Accounts 560, 561, 562, 563, 564, 566, 567, 568, 569, 570, 571, 572, and 573. Payroll Expenses shall include those applicable allocated labor loading charges as detailed in Appendix E.

14.1.2    Payroll taxes chargeable to FERC Account 408 and expenses chargeable to FERC Account 926 shall be added to the monthly billing in proportion to the dollar amount of direct labor billed in accordance with Appendix E.

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14.1.3    The expenses chargeable to FERC Account 925 incurred in complying with Worker's Compensation laws, except uninsured Worker's Compensation claims or portions thereof, shall be allocated each month to the Participants in proportion to the dollar amount of direct labor billed in that month in accordance with Appendix E.

14.1.4    Expenses incurred in connection with uninsured Worker's Compensation claims arising out of Transmission System O&M in accordance with Appendix E.

14.1.5    The expenses chargeable to FERC Accounts 924 and 925 in connection with the Transmission System Operating Agent's performance of the provisions of Section 22 hereof (insurance, excluding salaries of administrative employees whose services are compensated for under Section 14.1.6) in accordance with Appendix E, and excluding expenses incurred in connection with Workmen's Compensation and Occupational Health and Disease covered under Section 14.1.3 and Section 14.1.4.

14.1.6    Those O&M expenses associated with the control, communication and relaying as described in Section 38 hereof.

14.2    Cost of facilities external to the Transmission System:  Each Participant shall be responsible for all costs incurred by it to supply Power and Energy to the Transmission System or to receive Power and Energy from the Transmission System.

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14.3    The costs of Operating Work for each Component shall be shared by the Participants in proportion to their respective Cost Responsibility in the Component(s).

14.4    The costs of Operating Work shall be advanced by the Participants to the Transmission System Operating Agent and disbursed and accounted for by the Transmission System Operating Agent in accordance with Section 15 hereof.

SECTION l4A
DC TERMINAL OPERATION AND MAINTENANCE COSTS

14A.1    Operation and maintenance costs of the DC Terminal shall be defined and coordinated through the Operating Committee established in the Interconnection Agreements between the Participants and SPS.

SECTION 15
ADVANCEMENT OF FUNDS FOR THE TRANSMISSION SYSTEM

15.1    Each Participant shall advance its share of Construction Funds and Operating Funds prior to the date when funds are required by the Transmission System to pay for Construction Work, Operating Work, Capital Betterments, Capital Replacements, and Capital Additions, so that the Transmission System Operating Agent in its capacity as such will not have to advance any funds on behalf of a Participant.

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15.2    Each Participant shall pay monthly, in advance, on or before a due date as specified by the Transmission System Project Manager, its share (equal to its Cost Responsibility in the Components) of all Construction Costs in accordance with the monthly budget or revisions thereof, as estimated for Construction Work, prepared by the Transmission System Project Manager and furnished to each Participant pursuant to Section 8.4.12 hereof.  Following completion of all Construction Work, the Transmission System Project Manager shall compute the total Construction Costs of the Transmission System or DC Terminal and each Participant shall promptly settle any balance of its share of such total Construction Costs in accordance therewith. ln the event of expenditures which are not anticipated in the budget, the Transmission System Project Manager may issue special requests with appropriate documentation to explain such request for funds to cover such costs, and each Participant shall pay, upon approval of the E&O Committee, on or before a due date specified by the Transmission System Project Manager on the request.

15.3    Each Participant shall pay monthly, in advance, on or before the due date specified by the Transmission System Operating Agent, its share (equal to its Cost Responsibility) of the operating and maintenance expenses and the costs and expenses of Capital Betterments, Capital Replacements, and Capital Additions, in accordance with the monthly operating budget, or revisions thereof, prepared by the Transmission System Operating Agent and furnished to each Participant pursuant to Section 9.2.20 hereof.  Following completion of all Operating Work scheduled in a given year, the Transmission System Operating Agent shall compute the total Operating Costs of the Transmission System,

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respectively, and each Participant, or the Transmission System Operating Agent, shall promptly settle any balance of its share of such total Operating Costs in accordance therewith.  In the event of expenditures which are not anticipated in the budget, the Transmission System Operating Agent may issue special requests with appropriate documentation to explain such request for funds to cover such costs, and each Participant shall pay such additional amounts, upon approval of the E&O Committee, on or before a due date specified by the Transmission System Operating Agent in the request.

15.4    The Transmission System Project Manager and the Transmission System Operating Agent, with the approval of the Auditing Committee, shall establish Account(s) for Construction Funds and Operating Funds and notify the Participants in writing of the establishment of the Account(s) not later than five (5) days following its establishment.

15.5    The Auditing Committee shall establish minimum and maximum balances for Construction Funds and Operating Funds so that the Transmission System Project Manager and the Transmission System Operating Agent will have funds to pay for expenditures or obligations incurred by the Transmission System Project Manager and the Transmission System Operating Agent pursuant to this Participation Agreement.  Such minimum and maximum balances may be revised by the Auditing Committee at any time.

15.6    All funds required to be advanced by the Participants in accordance with this Participation Agreement, shall be made payable to

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the Account of the Transmission System Project Manager or Transmission System Operating Agent, or may be credited to the Account for Construction or Operating Funds by bank transfers.

15.7    In the event any amount invoiced by the Transmission System Project Manager or Transmission System Operating Agent, or any portion thereof, is disputed by a Participant, the Participant shall pay to the Transmission System Project Manager or Transmission System Operating Agent the undisputed amount on or before the due date.  On or before the tenth (10th) day after the resolution of the dispute, the Participant shall pay the amount resolved to be due, plus interest computed in the manner described in Section 26.3.  In the event that interest is paid, such interest shall be allocated among the Participants on a prorata basis considering the proportion in which the Participants (including the Transmission System Project Manager or Transmission System Operating Agent) have contributed funds to such account(s) from the date the payment was due until the date the payment is made.

15.8    Funds not advanced to the Transmission System Project Manager or the Transmission System Operating Agent on or before the due date as specified in this Section 15 shall accrue interest computed in the manner described in Section 26.3; provided, however, that the accrual of interest shall not commence until twenty (20)days after the due date for any advance of funds for which less than twenty (20) days advance notice was provided to the Participants, such advance notice to be determined by the date of mailing of the notice.

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SECTION 15A
ADVANCEMENT OF FUNDS FOR THE DC TERMINAL

15A.1    The policies, duties and responsibilities concerning the advancement of Construction and Operating Funds for the DC Terminal shall be defined in the DC Terminal Construction Agreement and the Interconnection Agreements between SPS and the Participants.

SECTION 16
TAXES

16.1    The Participants shall use their best efforts to have any taxing or other authority levying any taxes or assessments, or payments in lieu thereof, or making any valuations for the purpose of levying any taxes or assessments or payments in lieu thereof, on the Transmission System or DC Terminal, or any beneficial interest or rights therein, assess and levy such taxes or assessments or payments in lieu thereof directly against the ownership interest of each Participant in the Transmission System and DC Terminal.

16.2    All taxes or assessments or payments in lieu thereof levied against each Participant's ownership interest in the Transmission System or DC Terminal, excepting those taxes or assessments or payments in lieu thereof levied against an individual Participant on behalf of any or all of the other Participants, shall be the sole responsibility of the Participant upon whose ownership interest said taxes or assessments or payments in lieu thereof are levied.

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16.3    If any property taxes or payments in lieu thereof or any other taxes or assessments are levied or assessed in a manner other than as specified in Section 16.1 hereof, it shall be the responsibility of the Administrative Committee to establish equitable practices and procedures for the apportionment among the Participants of such taxes and assessments or payments in lieu thereof.

16.4    No Participant, who is exempt from any taxes or payments in lieu thereof assessed against any or all of the other Participants, shall be obligated to make any contribution toward such taxes to the extent of the exemption as long as said exemption is extended to the Project.

SECTION 17
NONPARTITIONMENT

17.1    Each Participant hereby waives any rights it may have to partition any Component of the Transmission System or DC Terminal or the Project Agreements, whether by partitionment in kind or by sale and division of the proceeds, and further agrees that it shall not resort to any action in law or in equity to partition such Component of the Transmission System or DC Terminal or the Project Agreements, and it waives the benefits of all laws that may now or hereafter authorize such partition for a term:  (a) which shall be coterminous with this Participation Agreement, or (b) which shall be for such lesser period as may be required under applicable law.

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SECTION 18
MORTGAGE AND TRANSFER OF INTEREST

18.1    Each Participant shall have the right at any time, and from time to time, to mortgage, create, or provide for a security interest in or convey in trust all or a part of its ownership share in the Transmission System and DC Terminal together with an equal interest in the Project Agreements to a trustee or trustees, or mortgagee or mortgagees, under deed of trust, mortgage, or indenture, or to a secured Participant or Participants under a security agreement, as security for its present or future bonds or other obligations or securities, and to any successors or assigns thereof, without need for the prior written consent of any other Participant and without such mortgagee, trustee, or secured Participant assuming or becoming in any respect obligated to perform any of the obligations of the Participants.

18.2    Each Participant shall have the right, without the need for the prior written consent of any other Participant, to assign its right, title and interest in the Transmission System or DC Terminal and the Project Agreements to any entity into which such Participant may be merged or consolidated and which assumes the obligations of such Participant hereunder, but such assignment shall not relieve the Participant from said obligations; in such event the other Participants shall not be afforded a first right of refusal under Section 18.4.

18.3    Each Participant shall have the right at any time, and from time to time, without the need for the prior written consent of any other

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Participant, to assign, convey, or both, its right, title and interest in the Transmission System or DC Terminal and the Project Agreements to a trustee or trustees for the purpose of enabling the Participant to finance its obligations hereunder, and such trustee or trustees shall be entitled, without the prior written consent of any other Participant, to mortgage or grant a security interest in the said assets to accomplish such financing, provided that such transfers will not relieve the Participant from any of its obligations hereunder, and such trustees agree to be bound by this Agreement; provided further that such transfer will not materially interfere with the construction and operation of the Project, including the acquisition of necessary right-of-way under the power of eminent domain, and the obtaining of any necessary regulatory approvals.

18.4    Except as otherwise specifically provided in this Section 18, in case a Participant shall wish to transfer or otherwise relinquish all or part of its ownership in the Transmission System or DC Terminal and the Project Agreements, the other Participant shall have a right of first refusal to purchase the offering Participant's interest as follows:

18.4.1    The Participant desiring to transfer or relinquish shall serve written notice of its intention upon the other Participant, containing the proposed date, the terms and conditions of a bona fide offer received by that Participant (or the original cost less depreciation, in case of relinquishment), and the terms and conditions of the proposed transfer to the other Participant (which shall be at least

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as favorable or be the same as the terms and conditions of the bona fide offer).

18.4.2    Within 90 days after receipt of such notice, the other Participant may signify its desire to purchase the interest proposed to be transferred.  The election shall be by written notice to the other Participant.

18.4.3    When an election has been made to purchase, the Participants shall proceed in good faith and with diligence to obtain all required authorizations and approvals, and the transferor shall obtain the release of any liens and encumbrances upon the interest to be transferred.  The purchase shall be consummated according to a schedule which is acceptable to both Participants.

18.4.4    If the other Participant elects not to purchase the offering Participant's interest, thereafter, the offering Participant shall have the right, subject to Section 5.4, to transfer or assign all or part of its interest in the ownership of the Transmission System or DC Terminal to any person partnership, corporation, governmental corporation, municipality, or agency engaged in the generation, transmission or distribution of energy.

18.5    Each Participant shall have the right to have any mortgagee, trustee or secured party named on all or any of the Construction or Operating Insurance policies as loss payee or additional insured as its interest may appear, by notice to the Transmission System and DC Terminal

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Project Managers or Transmission System and DC Terminal Operating Agents given in writing no less than ninety (90) days prior to the procurement or renewal of the policies.

SECTION 19
DESTRUCTION AND LOSS OF RIGHT-OF-WAY

19.1    In any Components of the Transmission System or DC Terminal or equipment involved in control or communications, or relaying should be damaged or destroyed, the Participants shall, unless otherwise agreed, repair or reconstruct such Components. Similarly, if any Capital Betterments, Capital Replacements, or Capital Additions to the Transmission System, DC Terminal or equipment involved in control, communications, or relaying should be damaged or destroyed, the Participants shall, unless otherwise agreed, repair or reconstruct such Components. The Participants shall share the costs of such repair or reconstruction in proportion to their Cost Responsibility for the Components so damaged or destroyed.  If a Participant elects not to participate in the reconstruction or repair of said Components or facilities, such election shall be deemed a decision to transfer or relinquish its ownership interest in the Transmission System and DC Terminal and said interest may be disposed by means pursuant to Section 18.4 hereof.  If, pursuant to Section 18.4, there is no buyer for the Participant's interest, then the Participant not choosing to reconstruct or repair shall retain the status of Participant, but its Entitlement in the Transmission System or DC Terminal shall be reduced in

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proportion to the fraction of the total replacement value of the System represented by the total cost of reconstruction or repairs.

19.2    In the event of loss of right-of-way upon lands not subject to eminent domain by the Participants, the Participants shall decide within a reasonable time whether to relocate and reconstruct the Transmission System and DC Terminal, pursuant to Section 19.1, or whether to terminate the Project.  If a Participant elects not to participate in relocation and reconstruction of the System, said such election shall be deemed a decision to transfer or relinquish its ownership interest in the Transmission System and DC Terminal and said interest may be disposed of pursuant to Section 18.4 hereof.  If, pursuant to Section 18.4, there is no buyer for the Participant's interest, then the Participant not choosing to relocate and reconstruct shall retain the status of Participant, but its Entitlement in the Transmission System and DC Terminal shall be reduced in proportion to the fraction of the total replacement value of the Transmission System and DC Terminal represented by the total cost of relocation and reconstruction. The term "loss of right-of-way" shall include, but not be limited to such a determination by a legally constituted body having jurisdiction in the matter, or a unanimous decision by the Participants that conditions that must be met to retain said right-of-way are such that to do so no longer is in the best interests of its customers.

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SECTION 20
SEVERANCE OF IMPROVEMENTS

20.1    The Participants agree that all facilities, structures, improvements, equipment, and property of whatever kind and nature constructed, placed, or affixed on the rights-of-way, easements, patented, fee and leased lands as part of, or as a Capital Betterment or Capital Replacement or Capital Addition to the Transmission System and DC Terminal shall be deemed to be and remain personal property of the Participant(s), not affixed to the realty.

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SECTION 21
CAPITAL BETTERMENTS, CAPITAL REPLACEMENTS AND CAPITAL ADDITIONS

21.1    The Participants recognize that from time to time it may be necessary or desirable to make Capital Betterments, Capital Replacements and Capital Additions, or that Capital Betterments, Capital Replacements and Capital Additions, may be required by laws and regulations applicable to the Transmission System and DC Terminal. Any such Capital Betterments, Capital Replacements and Capital Additions shall, upon request by a Participant, be described in a supplement to this Participation Agreement executed in recordable form.

21.2    All known Capital Betterments, Capital Replacements, and Capital Additions shall be included in the annual capital expenditures budget. After such budget has been approved by the Engineering and Operating Committee, each Participant shall be obligated for the Construction Costs incurred for such Capital Betterments, Capital Replacements and Capital Additions as specified in Section 13 in proportion to its Cost Responsibility in the Component or control, communication or relaying equipment to which the Capital Betterments, Capital Replacements and Capital Additions is made, and shall advance such funds as provided in Section 15.

21.3    At any time the Engineering and Operating Committee may authorize Capital Betterments, Capital Replacements and Capital Additions, not included in the annual capital expenditures budget if any such Capital Betterment, Capital Replacement and Capital Addition is required to comply with any lawful order, rule, or regulation of a state, federal, or local regulatory agency or

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if the cost of any such Capital Betterment, Capital Replacements and Capital Additions is less than $100,000. All other Capital Betterments, Capital Replacements and Capital Additions not included in the annual capital expenditures may only be authorized by the Administrative Committee.

21.4    The Transmission System Operating Agent shall be responsible for the design and construction of all Capital Betterments, Capital Replacements and Capital Additions, subject to the approval of the E&O Committee for the Transmission System.

21.5    Units of property retired from service, whether considered original construction or Capital Betterments, Capital Replacements and Capital Additions, shall be disposed of by the Transmission System Operating Agent after notice to the Participants on the best available terms as soon as practicable, and the proceeds, if any, received therefrom shall be credited or distributed to the Participants in proportion to their Cost Responsibility in the Component of which the units of property retired from service are a part.

SECTION 22
TRANSMISSION SYSTEM INSURANCE

22.1    The Transmission System Project Manager and the Transmission System Operating Agent shall cause to be in effect at all times Construction and Operating Insurance with such coverages, amounts, terms and conditions so as to provide Project Insurance that is normal in an electric utility project of this size and character.

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22.2    The Transmission System Project Manager and the Transmission System Operating Agent, acting as the agent for the Participants and as principal on its own and their behalf, shall procure and maintain in force, or cause to be procured and maintained in force, comprehensive general liability for bodily injury and property damage covering the Participant's ownership in the Transmission System and also covering liability arising out of either the Participant's (including the Transmission System Project Manager and Transmission System Operating Agent) performance or nonperformance of the Construction Work, Operating Work, Capital Betterments, Capital Replacements, or Capital Additions.

22.3    The Transmission System Project Manager and the Transmission System Operating Agent shall require general contractors to procure and maintain comprehensive general and automobile liability insurance for bodily injury and property damage covering all their operations, including completed operations coverage and use of any motor vehicle in connection with the Construction Work or Operating Work. All Participants shall be named as additional insureds and such policies shall be primary as to any similar insurance carried by any Participant and such policies shall contain a cross-liability clause.

22.4    The Transmission System Project Manager and the Transmission System Operating Agent may require general contractors to procure and maintain such other insurance as the Transmission System Project Manager or Transmission System Operating Agent may deem necessary or desirable.

22.5    The general contractors shall provide certificates of insurance to the Transmission System Project Manager and the Transmission System Operating

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Agent.  Such certificates shall provide for not less than thirty (30) days notice of cancellation, change, or nonrenewal.

22.6    The Transmission System Project Manager and the Transmission System Operating Agent shall establish the insurable values, limits, deductibles, retentions, and other special terms and conditions with respect to the Project Insurance.

SECTION 23
PARTICIPANT'S INSURANCE

23.1    Each Participant shall maintain comprehensive automobile liability insurance for bodily injury and property damage, covering all automotive equipment used by it in connection with the Transmission System and DC Terminal.

23.2    If applicable, each Participant shall maintain aircraft liability insurance for bodily injury and property damage, covering all aircraft, whether fixed or rotary wing type, used by it in connection with the Transmission System and DC Terminal.

23.3    Each Participant shall maintain Worker's Compensation and Employers' Liability insurance covering its employees engaged in any work in connection with the Transmission System and DC Terminal. Such insurance shall comply with all statutory provisions of the state of Texas.

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23.4    In the event that any Participant shall be or elect to become self‐insured for any or all of the insurance coverages required of a Participant, then it shall notify the others of such self-insurance and such self-insurance shall provide coverages equal to commercially available policies in order to comply with this section hereof.

23.5    Each Participant shall be named an additional insured, individually and jointly with the other Participants, on all policies of Project Insurance, and the policies of Project Insurance shall carry cross‐liability endorsements.

23.6    At the direction of the Transmission System Project Manager or Transmission System Operating Agent, if any Participant furnishes services, materials, parts, or equipment in connection with the planning, designing, engineering, procurement, construction, maintenance, operation, or use of property of the Transmission System and DC Terminal, such Participant shall be named as an insured as its interest may appear in any of the Project Insurance policies, and either the Transmission System Project Manager or the Transmission System Operating Agent may waive on behalf of each Participant its right of recovery against any such Participant for insured loss for damage to any property covered by Project Insurance as required in Sections 22 and 23 hereof, provided that no such waiver shall impair the right to recover any sums otherwise payable to any Participant under the Project Insurance.

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SECTION 24
LIABILITY

24.1    Except for any judgement for liability resulting from Willful Action, and subject to the provisions of Sections 24.3 and 24.4 hereof, no Participants, its directors or members of its other governing body, officers, or employees, shall be liable to any other Participant for any uninsured loss, damage, claim, cost, charge, or expense of any kind or nature incurred by the other Participant (including direct, indirect, or consequential loss, damage, claim, cost, charge, or expense; and whether or not resulting from the negligence of a Participant, its directors, or members of its other governing body, officers, employees, or any other person or entity whose negligence would be imputed to such Participant) as a result of (i) the Construction Work, the Operating Work, and making, operation, or maintenance of Capital Betterments, Capital Replacements, or Capital Additions, or the use or ownership of the Transmission System or DC Terminal or (ii) the performance or nonperformance of the obligations of a Participant under the Project Agreements other than the obligation to pay sums which have become due, and each Participant releases each other Participant, its directors or members of its other governing body, officers and employees, from any such liability.

24.2    Except as provided in Sections 24.3 and 24.4 hereof, the costs and expenses of discharging all work liability imposed upon one or more of the Participants for which payment is not made by Project Insurance, shall be shared among and paid by all Participants in proportion to their respective Cost Responsibilities.

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24.3    Each Participant shall be responsible for any direct, indirect or consequential damage, loss, claim, cost, charge, or expense that is not covered by Project Insurance and results from its own Willful Action as defined in Section 4.1.39 hereof, and shall indemnify and hold harmless the other Participant, its directors or members of its governing body, officers and employees, from such damage, loss, claim, cost, charge or expense.

24.4    Notwithstanding the provisions of Section 24.3 hereof, the aggregate liability of any Participant to the other Participants for all uninsured, indirect, or consequential damages, losses, claims, costs, charges or expenses resulting from Willful Action shall not exceed $10,000,000 per occurrence.  Each Participant releases each other Participant, its directors or members of its governing body, officers and employees from any such liability in excess of $10,000,000 per occurrence.

24.5    The provisions of this Section 24 shall not be construed so as to relieve any insurer of its obligation to pay any insurance proceeds in accordance with the terms and conditions of valid and collectible Project Insurance policies, nor shall they be construed to provide any third party benefits. In the event any insurer providing insurance to a Participant refuses to pay any judgment obtained by a second Participant against the first Participant or any of its directors, officers, or employees, on account of liability referred to in this Section 24, the Participant or any of its directors, officers, or employees against whom the judgment is obtained shall execute, at the request of the Participant

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obtaining the judgment and in consideration of the covenant given in Section 24.1 hereof, such documents as may be necessary to effect assignment of its or their contractual rights against the nonpaying insurer.

24.6    Except for liability resulting from Willful Action, any Participant whose electric customer shall have a claim or bring action against any other Participant for any death, injury, loss, or damage arising out of or in connection with interruptions to or curtailment of electric service to such customer caused by the operation or failure of operation of the Transmission System or DC Terminal or any portion thereof shall indemnify and hold harmless such other Participant, its directors, officers, and employees from and against any liability for such death, injury, loss or damage.

SECTION 25
AUTHORIZATIONS AND APPROVALS

25.1    The Transmission System Operating Agent, shall be responsible for obtaining and continuing in effect all licenses, permits, and authorizations required to operate and maintain the Transmission System and to construct or install any budgeted and approved Capital Betterments, Capital Replacements, Capital Additions, and is authorized subject to receiving approval of the E&O Committee, on behalf of each Participant to submit and prosecute any applications therefore, including the preparation and submission of any supplementary or supporting documentation or other evidence and appearance at any hearing.  The

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Transmission System Operating Agent shall furnish each Participant upon request with copies of all documents submitted and all licenses, permits, and authorizations received, and shall otherwise keep each Participant informed of the status of all licenses, permits, and authorizations in effect and any pending or proposed applications therefor or for changes thereto. Each Participant shall cooperate with the Transmission System Operating Agent in the preparation, submission, and execution of such information, records, statements, or other material required to obtain and continue in effect any such licenses, permits, or authorizations and any changes thereto.

25.2    Except as provided in Section 25.1 hereof, each Participant shall be responsible for obtaining, at its own expense, its required authorizations and approvals, if any, relating to its participation in the ownership, the construction or reconstruction, and the operation of the Transmission System and to its performance of the provisions of the Project Agreements, from federal, state, or local regulatory authorities having jurisdiction to issue such authorizations and approvals, and each Participant shall keep the Transmission System Project Manager and Transmission System Operating Agent informed of its applications therefor.

SECTION 25
DEFAULTS

26.1    Each Participant hereby agrees that it shall pay all monies and carry out all other duties and obligations agreed to be paid, or

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performed, or both, by it pursuant to all of the terms and conditions set forth and contained in this Agreement, and a default by a Participant in the covenants and obligations to be kept and performed pursuant to the terms and conditions set forth and contained in the Project Agreements, shall be an act of default under this Participation Agreement.

26.2    In the event of a default by either Participant in any of the terms and conditions of this Agreement, then, within ten (10) days after written notice has been given by the nondefaulting Participant to the defaulting Participant of the existence and nature of the default, the nondefaulting Participant shall remedy such default either by advancing the necessary funds and/or commencing to render the necessary performance with the nondefaulting Participant contributing to such remedy as required.

26.3    In the event of a default by any Participant in any of the terms and conditions of the Project Agreements and the giving of notice as provided in Section 26.2 hereof, the defaulting Participant shall take all steps necessary to cure such default as promptly and completely as possible and shall pay promptly upon demand to the nondefaulting Participant the total amount of money and/or the reasonable equivalent in money of nonmonetary performance, if any, paid and/or made by such nondefaulting Participant in order to cure any default by the defaulting Participant, together with interest on such money and/or the costs of nonmonetary performance accrued at the prime rate of interest as established by the Chase Manhattan Bank on the last business date of each applicable month, prorated by days from the original date of the

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expenditure of such money by each such nondefaulting Participant to the date of such reimbursement by the defaulting Participant.

26.4    In the event a material default by any Participant in the payment or performance of any obligation under this Participation Agreement shall continue for a period of three (3) months or more without having been cured by the defaulting Participant or without such Participant having commenced or continued action in good faith to cure such default, then, at any time thereafter and while said default is continuing, the nondefaulting Participant, by written notice to the defaulting Participant, may either suspend the right of the defaulting Participant:  (a) to be represented on and participate in the actions of any committee, and (b) to receive all or any part of its entitlement, or make all payments due and all future payments and become sole owner of the Project.

26.4.1    A defaulting Participant shall be liable to the nondefaulting Participant for all costs incurred by such nondefaulting Participant plus interest as provided in Section 26.3 hereof.  The proceeds paid by any defaulting Participant to remedy any such default shall be distributed to the nondefaulting Participant in proportion to the cost actually paid by the nondefaulting Participant to remedy the default involved herein.

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SECTION 27
ACTIONS PENDING RESOLUTION OF DISPUTES

27.1    If a dispute should arise which is not resolved within 30 days from the date the disputed issue is referred to the Administrative Committee, then pending the resolution of the dispute by the procedures set forth herein, the Transmission System Project Manager or Operating Agent shall proceed with Construction Work, Operating Work, or Capital Betterments, Capital Replacements and Capital Additions in a manner consistent with the Project Agreements and consistent with generally accepted practices in the electric utility industry to avoid capacity reductions or increased cost, and the Participants shall advance the funds required to perform such Construction Work, Operating Work, or Capital Betterments, Capital Replacements and Capital Additions in accordance with the applicable provisions of the Project Agreements.

SECTION 28
REMOVAL OF TRANSMISSION SYSTEM PROJECT MANAGER OR OPERATING AGENT

28.1    The Transmission System Project Manager and the Transmission System Operating Agent shall serve during the term of and pursuant to this Participation Agreement unless either one resigns by giving written notice to the Participants at least one (1) year in advance of the date resignation or until receipt by either one of notice of its removal following a determination that it is in default of this Participation Agreement as provided in Section 28.2.2 hereof.    Upon the effective date of such resignation or removal, the Participants shall designate a new

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Transmission System Project Manager or a new Transmission System Operating Agent by written agreement.

28.2    The following provisions shall apply solely in regard to violations or allegations of violations of the Project Agreements by the Transmission System Project Manager or the Transmission System Operating Agent of a Component or Components of the Transmission System on the basis of which removal of either one is sought:

28.2.1    In the event any Participant shall be of the opinion that an action taken or not taken by the Transmission System Project Manager or the Transmission System Operating Agent constitutes a violation of this Participation Agreement, it may give written notice thereof to the Transmission System Project Manager or the Transmission System Operating Agent as the case may be and the other Participant, with a statement of the reasons for its opinion. Thereupon, the Transmission System Project Manager or the Transmission System Operating Agent may prepare a statement of the reasons justifying its action or failure to take action.  If agreement in settling the dispute is not reached between the Transmission System Project Manager or the Transmission System Operating Agent and the Participant which gave such notice, then the matter shall be submitted to the chief executive officers for determination.  If the chief executive officers cannot resolve the dispute, the matter shall be submitted to arbitration in the manner provided in Section 29 hereof.  During the continuance of such arbitration proceedings, the Transmission System Project Manager or the Transmission System Operating Agent shall proceed with the Construction Work, Operating Work, Capital Betterments,

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Capital Additions, or Capital Replacements in a manner consistent with the Project Agreements and generally accepted practice in the electric utility industry, and the Participants shall advance the funds required to perform such work in accordance with the Project Agreements.

28.2.2    If it is determined by arbitration that the Transmission System Project Manager or the Transmission System Operating Agent is violating the Project Agreements, then it shall act with due diligence to end such violation and shall, within six (6) months or within such lesser time following the determination as may be prescribed in the determination, take action or commence action in good faith to terminate such violation.    In the event that the Transmission System Project Manager or the Transmission System Operating Agent has failed either to correct, or to commence action to correct, the violation within such allowed period (which itself may be a subject of dispute for determination as above provided) shall be deemed to be in default under the Project Agreements and shall be subject to removal upon receipt of notice, executed by all the other Participant, in accordance with Section 28.1 hereof.

28.2.3    The provisions of Section 28 hereof shall not apply to disputes as to whether or not an action or non-action of the Transmission System Project Manager or the Transmission System Operating Agent, in its capacity as such, is a violation or a default under the Project Agreements.

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SECTION 29
ARBITRATION

29.1    If a dispute between any of the Participants should arise under the Project Agreements and after following the procedures defined in Sections 7.10 and 7.11, the Participants' chief executive officers have not resolved the dispute, any chief executive officer shall call for submission of the dispute to arbitration which shall be binding upon all of the Participants.

29.2    The Participant shall give written notice to the other Participant, setting forth in such notice in adequate detail the nature of the dispute including the specific issues to be resolved by arbitration, the amount or amounts, if any, involved in such dispute, and the remedy sought by such arbitration proceedings and, within twenty (20) days from receipt of such notice.  Thereafter, the Participant first submitting its or their notice in the matter at issue shall have ten (10) days in which to submit a written rebuttal statement.

29.3    Within forty (40) days following delivery of the written notice by the Participant, pursuant to Section 29.2 hereof, the Participants, acting through their representatives on the Administrative Committee, shall meet for the purpose of selecting arbitrators.  Each Participant, shall designate an arbitrator.  The arbitrators so selected shall meet within twenty (20) days following their selection and shall select

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additional arbitrators, the number of which shall be one (1) less than the total number of arbitrators selected by the Participants. If the arbitrators selected by the Participants, as herein provided, shall fail to select such additional arbitrator(s) within said twenty (20) day period, then the arbitrators shall request from the American Arbitration Association (or a similar organization if the American Arbitration Association should not at the time exist) a list of arbitrators who are qualified and eligible to serve as hereinafter provided.  The arbitrators selected by the Participants shall take turns striking names from the list of arbitrators furnished by the American Arbitration Association, and the last name(s) remaining on said list shall be the additional arbitrator(s). All arbitrators shall be persons skilled and experienced in the field which gives rise to the dispute, and no person shall be eligible for appointment as an arbitrator who is an officer or employee of any of the parties to the dispute or is otherwise interested in the matter to be arbitrated.

29.4    Except as otherwise provided in this Section 29, the arbitration shall be governed by the rules and practice of the American Arbitration Association (or the rules and practice of a similar organization if the American Arbitration Association should not at that time exist) from time to time in force, except that if such rules and practice, as modified herein, shall conflict with State or Federal law, as the case may be, then in force which are specifically applicable to such arbitration proceedings, such law shall govern.

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29.5    Included in the issues which may be submitted to arbitration pursuant to this Section 29 is the issue of whether the right to arbitrate a particular dispute is permitted under the Project Agreements.

29.6    The arbitrators shall hear evidence submitted by the respective Participants and may call for additional information, which additional information shall be furnished by the Participant(s) having such information.  The decision of a majority of the arbitrators shall be binding upon all the Participants.

29.7    The award of the arbitrators shall contain findings with respect to the issues involved in the dispute and relative to the materiality of the default, the period of time within which the defaulting party must remedy the default or commence remedial action, and the remedies which may be exercised by the non-defaulting Participants in the event the default is not remedied within such period of time.

29.8    This agreement to arbitrate shall be specifically enforceable, and the award and findings of the arbitrators shall be final and binding upon the Participants to the extent permitted by applicable law. Any award may be filed with the clerk of any court having jurisdiction over the Participant against whom the award is rendered and, upon such filing, such award, to the extent permitted by the laws of the jurisdiction in which said award is filed, shall be specifically enforceable or shall form the basis of a declaratory judgement or other similar relief.

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29.9    The fees and expenses of the arbitrators shall be shared equally by the Participants, unless the decision of the arbitrators shall specify some other apportionment of such fees and expenses. All other expenses and costs of the arbitration shall be borne by the Participant incurring same.

SECTION 30
RELATIONSHIP OF PARTICIPANTS

30.1    The covenants, obligations, and liabilities of the Participants are intended to be several and not joint or collective and nothing herein contained shall ever be construed to create an association, joint venture, trust, or partnership or to impose a trust or partnership covenant, obligation, or liability on or with regard to any one or more of the Participants.  Each Participant shall be individually responsible for its own covenants, obligations, and liabilities as herein provided.  No Participant or group of Participants shall be under the control of or shall be deemed to control any other Participant or the Participants as a group. No Participant shall be the agent of or have a right or power to bind any other Participant without its express written consent, except as expressly provided in the Project Agreements.

SECTION 31
UNCONTROLLABLE FORCES

31.1    No Participant shall be considered to be in default in the performance of any of its obligations under the Project Agreements (other

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than obligations of said Participant to pay costs and expenses), when a failure of performance shall be due to uncontrollable force.  The term "uncontrollable force" shall be any cause beyond control of the Participant affected, including, but not restricted to, failure of or threat of failure of facilities, flood, earthquake, tornado, storm, fire, lightning, epidemic, war, riot, civil disturbance or disobedience, labor dispute, labor or material shortage, sabotage, restraint by court order or public authority, and action or nonaction by or failure to obtain the necessary authorizations or approvals from any governmental agency or authority, which by exercise of due diligence such Participant could not reasonably have been expected to avoid and which by exercise of due diligence, it shall be unable to overcome.  Nothing contained herein shall be construed so as to require a Participant to settle any strike or labor dispute in which it may be involved.  Any Participant rendered unable to fulfill any of its obligations under the Project Agreements by reason of any uncontrollable force shall give prompt written notice of such fact to the other Participants and shall exercise due diligence to remove such inability with all reasonable dispatch.  The term "Participant" as used in this Section 31 shall include the Transmission System Project Manager and the Transmission System Operating Agent in their capacities as such.

SECTION 32
GOVERNING LAW

32.1    This Agreement shall be governed by and construed and enforceable in accordance with the laws of the State of Texas.

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SECTION 33
NONDEDICATION OF FACILITIES

33.1    The Participants do not intend to dedicate, and nothing in this Participation Agreement shall be construed as constituting a dedication by any Participant of its properties or facilities, or any part thereof, to any other Participant or to the customers of any Participant.

SECTION 34
GENERAL PROVISIONS GOVERNING PROJECT AGREEMENTS

34.1    Each Participant agrees, upon request by the other Participants to make, execute, and deliver any and all documents reasonably required to implement the Project Agreements.

34.2    In the event that any of the terms, covenants, or conditions of this Participation Agreement or any of the Project Agreements, or the application of any such term, covenant, or condition, shall be held invalid as to any person or circumstance by any court having jurisdiction in the premises, all other terms, covenants, or conditions of such agreements and their application shall not be affected thereby, but shall remain in force and effect.

34.3    This Agreement shall be subject to filing with, and to such changes or modifications as may from time to time be directed by, competent regulatory authority, if any, in the exercise of its jurisdiction.

83

SECTION 35
TERM AND TERMINATION

35.1    This Participation Agreement shall become effective when duly executed by all of the Participants and after the Agreement is approved by the Board of Directors of each Participant, and shall have a term of thirty (30) years from its effective date or until all property comprising the Transmission System has been disposed of and all costs to end the Project have been paid.

SECTION 36
ASSIGNMENT OF INTERESTS

36.1    Any Participant who acquires in its name an interest in any real or personal property or contract which is part of the Transmission System or DC Terminal, shall transfer and assign an undivided interest therein to the other Participant so that the ownership and rights of the Participants in such property or contract shall be as provided for in this Participation Agreement.

SECTION 37
EQUAL OPPORTUNITY

37.1    During the term of this Participation Agreement, the Transmission System Project Manager and the Transmission System Operating Agent (hereinafter in this Section 37 referred to collectively as the "Contractor") agree as follows:

84

37.1.1    The Contractor will not discriminate against any applicant for employment because of race, color, religion, sex, national origin, age (except on the basis of a bonafide occupational qualification, retirement plan, or statutory requirement), mental or physical handicap (in regard to any position for which such mentally or physically handicapped applicant or employee is qualified) or being a disabled veteran or a veteran of the Vietnam era (in regard to any position for which such disabled veteran or veteran of the Vietnam era is qualified). The Contractor will take affirmative action to employ, advance in employment, and otherwise treat qualified individuals without discrimination based upon race, color, religion, sex, national origin, age, mental or physical handicap, or being a disabled veteran or a veteran of the Vietnam era.  Such affirmative action shall apply to all employment practices, including, but not limited to: employment, upgrading, demotion or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship.  The Contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices setting forth the provisions of this nondiscrimination clause.

37.1.2    The Contractor will, in all solicitations or advertisements for employees placed by or on behalf of the Contractor, state that all qualified applicants will receive consideration for employment without regard to race, color, religion, sex, national origin, age, mental or physical handicap, or being a disabled veteran or a veteran of the Vietnam era.

85

37.1.3    The Contractor will comply with all applicable provisions of the Equal Employment Opportunity Act of 1972 (2000e USC 42), the Age Discrimination in Employment Act of 1967 (623 USC 29), the Rehabilitation Act of 1973 (793 USC 29) and the Vietnam Era Veterans Readjustment Assistance Act of 1974 (2012 USC 38), as amended, and with all the applicable rules, regulations or orders of the Secretary of Labor pertaining thereto.

37.1.4    The Contractor will furnish all information and reports required by the Equal Employment Opportunity Act of 1972 (2000e USC 42), the Age Discrimination in Employment Act of 1967 (623 USC 29), the Rehabilitation Act of 1973 (793 USC 29), and the Vietnam Era Veterans Readjustment Assistance Act of 1974 (2012 USC 38), as amended, and any applicable rules, regulations or orders of the Secretary of Labor pertaining thereto, and will permit access to its books, records and accounts by the administering agency and the Secretary of Labor for purposes of investigation to ascertain compliance with such rules, regulations or orders.

37.1.5    The Contractor will send to each labor union or representative of workers with which it has a collective bargaining agreement or other contract or understanding, a notice advising the said labor union or workers' representative of the Contractor's commitments under this section, and shall post copies of the notice in conspicuous places available to employees and applicants for employment.

86

37.1.6    In the event of the Contractor's noncompliance with the requirements of this Equal Opportunity Section, actions for noncompliance may be taken in accordance with the applicable rules, regulations, or orders of the Secretary of Labor issued pursuant to the Equal Employment Opportunity Act of 1971 (2000e USC 42), the Age Discrimination in Employment Act of 1967 (623 USC 29), the Rehabilitation Act of 1973 (793 USC 29), or the Vietnam Era Veterans Readjustment Assistance Act of 1974 (2012 USC 38), as amended.

37.1.7    The Contractor will include the provisions of Sections 37.1 through 37.1.7 in every subcontract or purchase order unless exempted by the rules, regulations or orders of the Secretary of Labor, so that such provisions will be binding upon each subcontractor and vendor.  The Contractor will take such action with respect to any subcontract or purchase order as any administering agency may direct as a means of enforcing such provisions, including sanctions for noncompliance. Provided, however, that in the event a Contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by an administering agency, the Contractor may request the United States to enter into such litigation to protect the interests of the United States.

37.2    Certification of Nonsegrated Facilities – The Contractor certifies that it does not maintain or provide for its employees any segregated facilities at any of its establishments, and that it does not permit its employees to perform their services at any location, under its control, where segregated facilities are maintained.  The Contractor

87

certifies further that it will not maintain or provide for its employees any segregated facilities at any of its establishments, and that it will not permit its employees to perform their services at any location, under its control, where segregated facilities are maintained.  The Contractor agrees that a breach of this certification is a violation of the Equal Opportunity Clause in this contract.  As used in this certification, the term "segregated facilities" means any waiting rooms, work areas, restrooms and washrooms, restaurants and other eating areas, timeclocks, locker rooms and other storage or dressing areas, parking lots, drinking fountains, recreation or entertainment areas, transportation, and housing facilities provided for employees which are segregated by explicit directive or are in fact segregated on the basis of race, color, religion, or national origin, because of habit, local custom, or otherwise.  The Contractor agrees that (except where it has obtained identical certifications from proposed subcontractors for a specific time period) it will obtain identical certifications from proposed subcontractors prior to the award of subcontracts exceeding $10,000 which are not exempt from the provisions of the Equal Opportunity Clause, and that it will retain such certifications in its files.

37.3    If Federal or Texas law changes with respect to the matters identified in this Section 37, the Transmission System and DC Terminal Project Managers and the Transmission System and DC Terminal Operating Agents shall comply with such other similar applicable law which is mandatory, or in the case of elective changes in the law, the Participants and SPS may amend this Section 37 by a unanimous vote of the Administrative Committee.

88

37.4    During the term of this Participation Agreement, similar provisions as of those in Section 37 hereof, shall apply to the DC Terminal Project Manager and Operating Agent as shall be defined in the Constructor's O&M Project Agreements between SPS and the Participants.

SECTION 38
CONTROL, COMMUNICATION, AND RELAYING

38.1    Each Participant shall accept and hold title to an undivided interest as a tenant in common in the control and relaying equipment in proportion to its Cost Responsibility as shown in Appendix B, Section B.2.

38.1.1    The ownership of and title to the control and relaying equipment described in Appendix C of this Agreement, and all Capital Betterments, Capital Replacements, and Capital Additions thereto, shall vest simultaneously in the Participants so that the estate of each of them shall be deemed to be concurrent as to time, right, and priority.

38.1.2    The Participants shall be responsible for the Construction Costs, for the operation and maintenance (O&M) expenses, and for Capital Betterments, Capital Replacements, and Capital Additions of the control and relaying equipment in accordance with their Cost Responsibilities as detailed in Appendix B, Section B.2, except as provided in Section 38.1.3 herein.

89

38.1.3    The Participants shall be responsible for only those O&M expenses and for Capital Betterments, Capital Replacements, and Capital Additions for control and relaying equipment located at the Amrad Switchyard ("Amrad") as are necessary for this Project; nonproject related O&M expenses and Capital Betterments, Capital Replacements, and Capital Additions for control and relaying equipment at Amrad shall be borne 100% by EPE.

38.2    Each Participant shall accept and hold title to an undivided interest as a tenant in common in the common facilities associated with a new microwave repeater station to be constructed at Amrad ("Amrad Common Facilities") in proportion to its Cost Responsibility as shown in Appendix B, Section B.2.

38.2.1    The ownership of and title to the Amrad Common Facilities, and all Capital Betterments, Capital Replacements, and Capital Additions thereto, shall vest simultaneously in the Participants so that the estate of each of them shall be deemed to be concurrent as to time, right and priority.

38.2.2    The Participants shall be responsible for the Construction Costs, for the O&M expenses, and for Capital Betterments, Capital Replacements, and Capital Additions for the Amrad Common Facilities in accordance with their Cost Responsibilities as detailed in Appendix B, Section B.2, except as provided in Section 38.2.3 herein.

90

38.2.3    The Participants shall be responsible for only those O&M expenses and for Capital Betterments, Capital Replacements, and Capital Additions for the Amrad Common Facilities as are necessary for this Project; nonproject O&M expenses, and Capital Betterments, Capital Replacements, and Capital Additions for the Amrad Common Facilities shall be borne 100% by EPE.

38.3    EPE shall accept and hold title, and shall be the sole owner of the communication facilities located at Amrad, the communication facilities located at Eddy County Interchange, and any communication facilities located at any repeater site between Amrad and Eddy County Interchange.

38.3.1    The Participants shall be responsible for the Construction Costs, the O&M expenses and for Capital Betterments, Capital Replacements, and Capital Additions for communication facilities located at Amrad, Eddy County Interchange, and any repeater sites, in accordance with their Cost Responsibilities as detailed in Appendix B, Section B.2, except as provided in Section 38.3.2 herein.

38.3.2    The Participants shall be responsible for only those O&M expenses and for Capital Betterments, Capital Replacements, and Capital Additions for the communication facilities located at Amrad, Eddy County Interchange, and any repeater sites, as are necessary for this Project; nonproject O&M expenses and Capital Betterments, Capital Replacements, and Capital Additions for the communication facilities located at Amrad shall be borne 100% by EPE.

91

38.3.3    EPE shall operate and maintain the communication facilities located at Amrad, Eddy County Interchange, and any repeater sites between those two switchyards.

38.4    EPE shall accept and hold title, and shall be the sole owner of, the expansion and modifications to EPE's Newman microwave system.

38.4.1    The Participants shall be responsible for the Construction Costs for the expansion and modifications of EPE's Newman microwave system as described in Appendix C, the O&M expenses and for Capital Betterments, Capital Replacements, and Capital Additions to EPE's Newman microwave system in accordance with their Cost Responsibility as detailed in Appendix B, Section B.2, except as provided in Section 38.4.2 herein.

38.4.2    The Participants shall be responsible for only those O&M expenses and for Capital Betterments, Capital Replacements, and Capital Additions for EPE's Newman microwave system as are necessary for this Project; nonproject O&M expenses and Capital Betterments, Capital Replacements, and Capital Additions for EPE's Newman microwave system shall be borne 100% by EPE.

34.4.3    EPE shall operate and maintain its Newman microwave system.

92

SECTION 39
NOTICES

39.1    Except as set forth in Section 39.2 hereof, any notice, demand, or request provided for in this Participation Agreement or any other Project Agreement shall be in writing and shall be deemed properly served, given, or made if delivered in person or sent by registered or certified mail, postage prepaid, to the persons specified below:

El Paso Electric Company
c/o Secretary
Post Office Box 982
El Paso, Texas  79960

Texas-New Mexico Power Company
c/o Vice President Rates and Regulation
501 West Sixth Street
Fort Worth, Texas  76102

39.2    Communications of a routine nature, including requests for funds and related matters, shall be given in such a manner as the Administrative Committee shall arrange.

39.3    Any Participant may, at any time, by written notice to all other Participants, designate different or additional persons or different addresses for the giving of notices hereunder.

93

SECTION 40
EXECUTION

IN WITNESS WHEREOF, the Participants have caused this Participation Agreement to be executed as of the 8th day of December, 1981.

EL PASO ELECTRIC COMPANY

By     /s/Donald G. Isbell    

Title     Vice President    

TEXAS-NEW MEXICO POWER COMPANY

By     /s/James M. Tarpley    

Title     Vice President    

94

APPENDICES

TITLE

		
	A
	Description of the Transmission System and DC Terminal

		
	B
	Participant's Responsibility for Costs (Percent of Costs)

		
	C
	Control, Communication, and Relaying

		
	D
	Construction Schedule

		
	E
	Payroll, Administrative & General, and Engineering & Supervision Additives for EPE

		
	F
	Criteria for Determining the Operating Capacity of the Transmission System and DC Terminal

		
	G
	Percentage Apportionment of Operating Capacity

APPENDIX A
DESCRIPTION OF THE AMRAD T0 ARTESIA
345 KV TRANSMISSION SYSTEM
AND DC TERMINAL

A.1    The Transmission System is comprised of one 345 KV line connecting EPE's Amrad Substation to SPS's Eddy County Interchange Substation, a distance of approximately 125 miles, a new 345 KV AMRAD Substation, a 200 MVA 345/115 KV transformer at Amrad, and additions to EPE's existing 115 KV Substation at Amrad.

A.1.1    The DC Terminal is a back-to-back AC to DC to AC conversion station located at the Eddy County Interchange Substation for the purpose of controlling power flows across the Transmission System and isolating the Western Systems Coordinating Council (WSCC) from the Southwest Power Pool (SWPP).

A.2    Substation Components of the Transmission System and DC Terminal are described as follows:

A.2.1    The Amrad Substation will be expanded to provide termination for this Project. Facilities associated with this expansion shall be as follows:

A.2.1.1  One (1) 200 MVA 345/115 KV Auto Transformer.

A-1

A.2.1.2  Four (4) 115 KV power circuit breakers and associated disconnect switches, bus work, any other appurtenant facilities and common facilities to be arranged in a breaker and one-half layout, but operated as a ring bus.

A.2.1.3    Three (3) 345 KV power circuit breakers, associated disconnect switches, bus work, any other appurtenant facilities and common facilities to be arranged in a ring bus and operated as a ring bus.

A.2.2    The Components of the DC Terminal include but are not limited to the following:

A.2.2.1  Thyristor Valves/Bridges, System Control facilities, converter transformers, smoothing reactors, power capacitors, AC and DC filters, valve cooling equipment, auxiliary power supply systems, reactive power supplies, protective equipment, monitoring equipment, measuring equipment, and communication equipment.

A.2.2.2  The associated buildings, fences, common facilities, and appurtenant facilities.

A.3    Each Participant has plans for substation modifications and transmission associated with this Project but not specifically part of this Project, and each is hereby granted preapproved points of interconnection for these associated lines:

A-2

A.3.1    For EPE, one 345 KV transmission line connecting the new Amrad 345/115 KV Substation to EPE's proposed Caliente Substation.

A.3.2    For TNP, one 115 KV transmission line connecting the new Amrad 345/115 KV Substation to one of two proposed points.

A.3.2.1  TNP Method One of Interconnection would terminate TNP's 115 KV line at a new substation constructed on TNP's existing line between the Holloman and Alamogordo Substations.

A.3.2.2  TNP Method Two of Interconnection would terminate TNP's 115 KV line at EPE's Holloman Substation.

A.3.2.3  The election for TNP to use Method One or Method Two of Interconnection shall be made at TNP's sole discretion.

A.4    Substation modifications made in connection with each Participant's associated transmission lines are not part of this Project, but are listed here for reference and completeness as follows:

A.4.1    If TNP Method One of Interconnection is decided upon and used, TNP would be the sole owner of a new substation on TNP's existing Holloman to Alamogordo Line. Facilities associated with this new substation are:

A-3

A.4.1.1  Three (3) 115 KV power circuit breakers and associated disconnect switches, bus work, grounding, any other appurtenant facilities and common facilities required for a complete substation.

A.4.2    If TNP Method Two of Interconnection is decided upon and used, EPE's Holloman Substation would be expanded to provide a termination for the line facilities associated with this expansion are as follows:

A.4.2.1  Two (2) 115 KV power circuit breakers and associated disconnect switches, bus work, and any other appurtenant facilities and common facilities required to complete a four (4) breaker ring bus to be operated as a ring bus.

A-4

APPENDIX B

PARTICIPANT'S RESPONSIBILITY FOR COSTS (PERCENT OF COSTS)

		
	B.l
	Participant's Responsibility for Costs (Percent of Cost) for Components of the Transmission System; DC Terminal; any Capital Additions, Capital Replacements, or Capital Betterments to the Transmission System and DC Terminal; any associated transmission lines.

	
				
	 
	 
	EPE
	TNP

	 
	 
	 
	 

	B.1.1
	Amrad 200 MVA 345/115 KV
	 
	 

	 
	Autotransformer
	     50.00 
	        50.00 

	 
	Associated Operation and
	 
	 

	 
	Maintenance costs
	     50.00 
	        50.00 

	 
	Associated Lightning Arrestors
	     50.00 
	        50.00 

	 
	 
	 
	 

	B.1.2
	Amrad 115 KV Switchyard Expansion
	 
	 

	 
	Four (4) 115 KV power circuit
	 
	 

	 
	breakers and the associated
	 
	 

	 
	four (4) bays
	     62.50 
	        37.50 

	 
	Lightning Arrestors
	     62.50 
	        37.50 

	 
	Disconnect switches
	     62.50 
	        37.50 

	 
	Potential Devices
	     62.50 
	        37.50 

	 
	Additional Substation Grounding
	     62.50 
	        37.50 

	 
	Additional Fencing
	     62.50 
	        37.50 

	 
	Additional Bus Work &
	 
	 

	 
	Bus Supports
	     62.50 
	        37.50 

	 
	Additional Station Service
	 
	 

	 
	Equipment
	     62.50 
	        37.50 

	 
	Additional Common Facilities
	     62.50 
	        37.50 

	 
	Any Appurtenant Equipment
	     62.50 
	        37.50 

	 
	All Operation Costs
	     62.50 
	        37.50 

	 
	All Maintenance Costs
	     62.50 
	        37.50 

	 
	Other project related modifications
	 
	 

	 
	necessary for interconnection to
	 
	 

	 
	existing Amrad facilities
	     62.50 
	        37.50 

	 
	The existing EPE circuit breaker
	 
	 

	 
	and its associated bay
	   100.00 
	0.00 

	 
	 
	 
	 

	B.1.3
	New Amrad 345 KV Substation
	 
	 

	 
	Three (3) 345 KV Power
	 
	 

	 
	Circuit Breakers
	     72.22 
	        27.78 

	 
	Disconnect Switches
	     72.22 
	        27.78 

	 
	Substation Grounding System
	 
	 

	 
	Potential Devices
	     72.22 
	        27.78 

	 
	Control House
	     72.22 
	        27.78 

	 
	Bus Work, Bus Supports,
	 
	 

	 
	Bus Fittings
	     72.22 
	        27.78 

	 
	Line Deadend Tower
	     72.22 
	        27.78 

	 
	Lighting Arrestors
	     72.22 
	        27.78 

	 
	Other Common Facilities
	     72.22 
	        27.78 

	 
	Other Appurtenant Equipment
	     72.22 
	        27.78 

	 
	All Operation Costs
	     72.22 
	        27.78 

	 
	All Maintenance Costs
	     72.22 
	        27.78 

B-1

	
				
	 
	 
	EPE
	TNP

	 
	 
	 
	 

	B.1.4
	Eddy County Interchange
	 
	 

	 
	back-to-back DC Terminal
	     66.67 
	        33.33 

	 
	All Components
	66.67
	        33.33 

	 
	All Associated Facilities
	66.67
	        33.33 

	 
	All Construction Costs
	66.67
	        33.33 

	 
	All Operation Costs
	66.67
	        33.33 

	 
	All Maintenance Costs
	66.67
	        33.33 

	 
	 
	 
	 

	B.1.5
	Amrad to Eddy County Interchange
	 
	 

	 
	345 KV Transmission Line
	     66.67 
	        33.33 

	 
	All Components
	66.67
	        33.33 

	 
	All Construction Costs
	66.67
	        33.33 

	 
	All Maintenance Costs
	66.67
	        33.33 

	 
	Line Reactors, if required
	66.67
	        33.33 

	 
	Circuit Switcher for Reactor
	66.67
	        33.33 

		
	B.2
	Participant's Responsibility for Costs (Percent of Cost) for control microwave, and relaying equipment as provided for in Section 38.

	
				
	B.2.l
	 Construction work and Equipment 
	 
	 

	 
	 for control, microwave expansion
	 
	 

	 
	 and modification, relaying as
	 
	 

	 
	 described in Appendix C
	66.7
	33.3

B-2

	
						
	 
	 
	EPE
	

	TNP
	

	 
	 
	 
	 

	B.2.2
	O&M expenses directly related
	 
	 

	 
	 to the Project
	66.7
	

	33.3
	

	 
	 
	 
	 

	B.2.3
	Capital Betterments, Capital 
	 
	 

	 
	Replacements and Capital
	 
	 

	 
	Additions associated with
	 
	 

	 
	control microwave and relaying
	66.7
	

	33.3
	

		
	B.3
	Associated transmission lines and substation modifications are listed here for reference only, they are not part of this Project.

	
				
	B.3.1
	EPE's Associated Transmission:
	 
	 

	 
	One (1) 345 KV transmission line
	 
	 

	 
	from Amrad to EPE's proposed
	 
	 

	 
	Caliente 345/115 KV Substation
	100.00
	0.00

	 
	 
	 
	 

	B.3.2
	TNP's Associated Transmission:
	 
	 

	 
	One (1) 115 KV transmission line
	 
	 

	 
	 from Amrad to the Holloman
	 
	 

	 
	area using either TNP Method
	 
	 

	 
	One of Interconnection or
	 
	 

	 
	TNP Method Two of Interconnection
	0.00
	100.00

B-3

	
				
	 
	 
	EPE
	TNP

	 
	 
	 
	 

	B.3.2.1
	If TNP Method One of Interconnection
	 
	 

	 
	is decided upon and used:
	 
	 

	 
	New 3 Beaker Ring Bus
	0.00
	100.00

	 
	All Components
	0.00
	100.00

	 
	 
	 
	 

	B.3.2.2
	If TNP Method Two of Interconnection
	 
	 

	 
	is decided upon and used the
	 
	 

	 
	expansion of EPE's Holloman
	 
	 

	 
	substation would include two (2)
	 
	 

	 
	115 KV power circuit breakers
	0.00
	100.00

	 
	Lightning Arrestors
	50.00
	50.00

	 
	Disconnect Switches
	50.00
	50.00

	 
	Additional Substation Grounding
	50.00
	50.00

	 
	Additional Fencing
	50.00
	50.00

	 
	Additional Bus Work and
	 
	 

	 
	Bus Supports
	50.00
	50.00

	 
	Additional Station Service
	 
	 

	 
	Equipment
	50.00
	50.00

	 
	Additional Common Facilities
	50.00
	50.00

	 
	Any Appurtenant Equipment
	50.00
	50.00

	 
	All Operation Costs
	50.00
	50.00

	 
	All Maintenance Costs
	50.00
	50.00

B-4

	
						
	 
	 
	EPE
	

	TNP
	

	 
	 
	 
	 

	B.4
	Participant's Cost Responsibility
	 
	 

	 
	for costs and expenses not
	 
	 

	 
	included in this Appendix B and
	 
	 

	 
	not otherwise specifically
	 
	 

	 
	allocated in any Project Agreement
	66.7
	

	33.3
	

B-5

APPENDIX B (CONTINUED)

DERIVATION OF SUBSTATION COMPOSITE PERCENTAGES

B-6

APPENDIX B (CONTINUED)

DERIVATION OF SUBSTATION COMPOSITE PERCENTAGES

B-7

APPENDIX C
CONTROL, COMMUNICATION EXPANSION AND
MODIFICATION, AND RELAYING

C.l    The Transmission System will be protected by primary and back-up relaying scheme using a hot-standby communication system.  Microwave repeater stations will be installed where required.

C.2    If required, transfer trip schemes will be provided for the DC Terminal and for the 345/115 KV transformer associated with the line.

C.3    All AC terminations will incorporate breaker failure schemes. 

C.4    Expansion and modification of EPE existing Newman microwave system required for the Transmission System and DC Terminal will consist of the following:

C.4.1    Establishment of a new microwave transmitter and receiver at Amrad in a hot-standby configuration.

C.4.2    Expansion of the existing Newman microwave facilities to handle the hot-standby system at Amrad.

C.4.3    A microwave repeater, if necessary, between the Amrad site and Newman.

C-1

APPENDIX D
CONSTRUCTION MILESTONE DATES

D.1    It is intended that the Engineering and Operating Committee established pursuant to Section 7.7 of this Agreement shall develop the Milestones and their respective target dates for completion for inclusion in this Agreement from time to time as the dates are agreed upon.

	
							
	D.2
	Activity
	Target Date

D-1

APPENDIX E
PAYROLL, ADMINISTRATIVE AND GENERAL,
AND ENGINEERING AND SUPERVISION ADDITIVES FOR EPE

E.1 Time-Off allowances, including vacations, holidays, sick pay, accident pay, and jury pay will be added to the direct labor portion of Construction Costs, costs of Operating Work, and costs of Capital  Additions, Capital Betterments, and Capital Replacements, exclusive of such time-off allowances, in the same manner as that used internally by the Project Manager or Operating Agent.

E.2     Legally required payroll taxes, and workmen's compensation, will be added to the direct labor portion of Construction Costs, costs of Operating Work, and costs of Capital Additions, Capital Betterments, and Capital Replacements on a prorata allocation of total labor charges of the Project Manager or Operating Agent.

E.3     Employee welfare and miscellaneous, pension and insurance, costs (FERC Account 926) will be added to the direct labor portion of Construction Costs, costs of Operating Work and costs of Capital Additions, Capital Betterments, and Capital Replacements on a prorata allocation of total labor charges of the Project Manager or Operating Agent.

E-1

E.4     Transportation expenses will be added to the direct labor portion of Construction Costs, costs of Operating Work and costs of Capital Additions, Capital Betterments, and Capital Replacements in the same manner as that used internally by the Project Manager or Operating Agent.

E.5    Stores expenses will be added to the direct material portion of Construction Costs, costs of Operating Work and costs of Capital Additions, Capital Betterments, and Capital Replacements in the same manner as that used internally by the Project Manager or Operating Agent. 

E.6     Supervision, Engineering, and Accounting expenses will be added to the direct labor portion of costs of Operating Work; costs of Capital Additions, Capital Betterments, and Capital Replacements; costs of construction to install Capital Additions, Capital Betterments, and Capital Replacements in the same manner as that used internally by the Project Manager or Operating Agent. During the Construction Work of the Transmission System and DC Terminal the Project Manager shall collect the E&S allowance pursuant to Section 13.3.13.

E.7     Revisions to the methods used in calculating rates for the additives described in Sections E.1 through E.6 will be made as needed. Any Participant may challenge the method if such Participant deems the method to result in an inappropriate allocation of costs to the project. In such case, the procedure will be as follows:

E.7.1    The Participant will inform the Audit Committee in writing of its concerns and will propose alternatives.

E-2

E.7.2    In the event the Audit Committee fails to reach agreement on the challenged method within 60 days of presentment, the challenge shall be resolved pursuant to the provision of Section 7.10 and 7.11 of the Participation Agreement.

E.7.3    Revisions shall become effective as determined by the Project Manager or Operating Agent, notwithstanding any dispute under this Section E.7. Upon final resolution of the dispute, the disputed methods shall be appropriately adjusted retroactively.

E-3

APPENDIX F
CRITERIA FOR DETERMINING OPERATING
CAPACITY OF THE TRANSMISSION SYSTEM
AND DC TERMINAL

F.1     The operating capacity of the Transmission System is limited to the current carrying capacity of the DC Terminal.

F.2     The E&O Committee will direct the Operating Agent to operate the DC Terminal at some current carrying level up to its design rating.

F.2.1    The operating capacity of the Transmission System can be raised by the Participant's purchasing ·the appropriate additional equipment for the DC Terminal, and amending this Participation Agreement and any other Project Agreement as necessary.

F.2.2    The operating capacity of the Transmission System can be lowered by the E&O Committee by unanimous vote or by the Operating Agent for Operating Emergencies, or scheduled maintenance.

F.3     The operation of the transmission System will require a source of vars to maintain adequate voltage at each end of the line. It is expected that within the conditions of this Participation Agreement this var supply is completely accounted for; therefore, the Transmission System and DC Terminal shall not require any additional var generation from the systems it connects and shall not be voltage limited in its operating capacity.

F-1

APPENDIX G
PERCENTAGE APPORTIONMENT OF OPERATING CAPACITY

G.1     In all cases, except those specific cases listed below, the apportionment of Operating Capacity of any component in the Transmission System, DC Terminal, or associated transmission lines is made using the same percentage as the percent of costs shown in Appendix B of this Agreement.

G.1.1    The operating capacity of the Amrad 200 MVA 345/115 KV autotransformer shall be apportioned fifty percent (50%) to TNP and fifty percent (50%) to EPE.

G-1

SUPPLEMENTAL AGREEMENT TO THE
AMRAD TO ARTESIA 345 KV TRANSMISSION SYSTEM
AND DC TERMINAL
PARTICIPATION AGREEMENT
BETWEEN EPE AND TNP

This Agreement supplements the AMRAD TO ARTESIA 345 KV TRANSMISSION SYSTEM AND DC TERMINAL PARTICIPATION AGREEMENT ("Participation Agreement") between EPE and TNP dated December 8, 1981.

WHEREAS, because of Federal Communication Commission licensing requirements, only one party may license, own and operate microwave equipment; and

WHEREAS, pursuant to the Participation Agreement, EPE will license, own and operate such microwave equipment relating to the Project; and

WHEREAS, TNP will contribute 1/3 of the cost and EPE will contribute 2/3 of the cost of such microwave equipment; and 

WHEREAS, the installed cost of such microwave equipment is not presently known; and

WHEREAS, the Participant's desire to adjust the percentage ownership in the Amrad 200 MVA 345/115 KV autotransformer to reflect TNP's contribution in the microwave equipment and its attendant lack of ownership therein.

1

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, receipt of which is hereby acknowledged, the Participants hereby agree that:

Upon final determination of the costs associated with the microwave equipment 
and the Amrad 200 MVA 345/115 KV autotransformer, the Participants will amend 
Appendix B to increase TNP's ownership in the Amrad 200 MVA 345/115 KV 
autotransformer in an amount equal to the TNP's share of the installed cost of the 
microwave equipment.

Executed in duplicate as of December 8, 1981.

EL PASO ELECTRIC COMPANY

By         /s/Donald G. Isbell    

TEXAS-NEW MEXICO POWER COMPANY

By         /w/James M. Tarpley    

2

EPE - TNP
SECOND SUPPLEMENTAL AGREEMENT
TO THE
AMRAD TO ARTESIA 345 KV TRANSMISSION SYSTEM
AND
DC TERMINAL PARTICIPATION AGREEMENT

Execution Copy

EPE - TNP
SECOND SUPPLEMENTAL AGREEMENT TO
AMRAD TO ARTESIA 345 KV TRANSMISSION
SYSTEM AND DC TERMINAL PARTICIPATION AGREEMENT

SECTION 1: PARTIES
The Parties to this Second Supplemental Agreement are El Paso Electric Company, a Texas corporation ("EPE") and Texas-New Mexico Power Company, a Texas corporation ("TNP"), sometimes individually called "Participant" and collectively "Participants."
SECTION 2: RECITALS
		
	2.1
	TNP and EPE have heretofore entered into an agreement entitled "Amrad to Artesia 345 KV Transmission System and DC Terminal Participation Agreement," dated December 8, 1981, and an agreement entitled "Supplemental Agreement to the Amrad to Artesia 345 KV Transmission System and DC Terminal Participation Agreement Between EPE and TNP," dated December 8, 1981, (collectively, the "Participation Agreement").

		
	2.2
	The Parties now wish to amend and supplement the Participation Agreement to incorporate the Parties' agreement on certain transmission facilities associated with the Amrad to Artesia 345 KV Transmission System and DC Terminal Project. This Agreement shall become a part

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of the agreement between TNP and EPE settling FERC Docket Nos. ER86-368, ER86-638 and ER86-709 ("Settlement Agreement").
SECTION 3: EFFECTIVE DATE
This Second Supplemental Agreement shall become effective upon execution by both Participants and approval of the Settlement Agreement by the Federal Energy Regulatory Commission ("FERC").
SECTION 4: AGREEMENT
In consideration of the premises and mutual covenants set forth herein, the Participants agree that the Participation Agreement is hereby amended and supplemented as follows:
		
	4.1.
	A new Section 5A is added to the Participation Agreement to read as follows: 

"SECTION 5A: NONPROJECT FACILITIES
		
	5A.l
	Each Participant is contemplating possible substation and transmission modifications associated with this Project but not specifically part of this Project ("Nonproject Facilities"). No Participant is required to pursue and construct these Nonproject Facilities. It is expressly understood that Nonproject Facilities are described only for informational purposes and to identify the Nonproject Facilities

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for purposes of preapproval for interconnection. No Participant shall rely, for any purpose or reason, on the performance or nonperformance of the other Participant to pursue and construct Nonproject Facilities. Notwithstanding the foregoing, each Participant is hereby granted the preapproved right to construct and interconnect at Amrad Substation the following Nonproject Facilities: 
		
	5A.l.l.
	For EPE, (a) one 345 KV transmission line (and associated substation modifications) connecting the new Amrad 345/115 KV Substation and the proposed Caliente Substation of EPE and (b) a possible new substation located at the point TNP's 115 KV Amrad to Alamogordo Line interconnects with TNP's 115 KV Holloman to Alamogordo Line which is located between the Holloman and Alamogordo Substations, as further described in Section 5A.3.

5A.l.2.    For TNP, one 115 KV transmission

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line (and associated substation modifications) connecting the new Amrad 345/115 KV Substation to a point on TNP's existing 115 KV Holloman to Alamogordo Line which is located between the Holloman and Alamogordo Substations ("TNP's 115 KV Amrad to Alamogordo Line").
		
	5A.2
	Each Participant agrees to cooperate fully with the other Participant regarding the construction, operation and maintenance of Nonproject Facilities to include associated metering facilities.

		
	5A.3
	EPE may elect to construct, at the sole expense of EPE, a new substation and associated facilities to be located at the point that TNP's 115 KV Amrad to Alamogordo Line interconnects with TNP's existing 115 KV Holloman to Alamogordo Line which is located between the Holloman and Alamogordo Substations (the "EPE Mule Peak Substation").  If EPE builds the EPE Mule Peak Substation, EPE shall be responsible for operation and maintenance of the EPE Mule Peak Substation, at the sole expense of EPE. If,

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as a direct result of the operations of the EPE Mule Peak Substation, TNP needs to install additional equipment that would not be required but for the construction, operation and maintenance by EPE of the EPE Mule Peak Substation, EPE shall reimburse TNP for the reasonable cost of material and labor associated with the purchase and installation of such required equipment.
		
	5A.4
	Section B.3 of Appendix B to this Participation Agreement contains the Participants' respective responsibility for the costs of Nonproject Facilities."

		
	4.2.
	Appendix A to the Participation Agreement is cancelled and a new Appendix A in the form attached to this Second Supplemental Agreement is adopted.

		
	4.3.
	Appendix B to the Participation Agreement is cancelled and a new Appendix B in the form attached to this Second Supplemental Agreement is adopted.

		
	4.4.
	Appendix D to the Participation Agreement is cancelled and a new Appendix D in the form attached to this Second Supplemental Agreement is adopted.

SECTION 5: FULL FORCE AND EFFECT
Except as provided herein, the Participation Agreement, as amended and supplemented by this Second Supplemental

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Agreement, shall remain in full force and effect.
SECTION 6: SIGNATURE CLAUSE
The signatories hereto represent that they have been appropriately authorized to enter into this Second Supplemental Agreement on behalf of the Participant for whom they sign. This Second Supplemental Agreement is hereby executed as of the 29th day of April, 1987.

	
						
	 
	 
	 
	TEXAS-NEW MEXICO POWER COMPANY

	 
	 
	 
	 
	 
	 

	 
	 
	 
	By 
	/s/James M. Tarpley

	 
	 
	 
	 
	President and

	 
	 
	 
	 
	Chief Operating Officer

	 
	 
	 
	 
	 
	 

	ATTEST:
	 
	 
	 
	 
	 

	
	 
	 
	 

	 
	 
	 

	Secretary
	 
	 
	 

	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 

	 
	 
	 
	EL PASO ELECTRIC COMPANY

	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 

	 
	 
	 
	By
	/s/Evern R. Wall

	 
	 
	 
	 
	President and

	 
	 
	 
	 
	Chairman of the Board

	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 

	ATTEST:
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 

	/s/Theta S. Fields
	 
	 
	 
	 

	Secretary
	 
	 
	 
	 

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APPENDIX A
DESCRIPTION OF THE AMRAD TO ARTESIA
345 KV TRANSMISSION SYSTEM
AND DC TERMINAL
		
	A.1
	The Amrad to Artesia 345 KV Transmission System (the "Transmission System") is comprised of (a) one 345 KV line connecting the Amrad Substation of EPE to the Eddy County Interchange Substation of Southwestern Public Service Company ("SPS"), a distance of approximately 125 miles, (b) a new 345 KV Amrad Substation, (c) a 200 MVA 345/115 KV transformer at Amrad, and (d) additions to the existing 115 KV Substation at Amrad.

		
	A.2
	The DC Terminal (the "DC Terminal") is a back-to-back AC to DC to AC conversion station located at the Eddy County Interchange Substation of SPS for the purpose of controlling power flows across the Transmission System and isolating the Western Systems Coordinating Council ("WSCC") from the Southwest Power Pool ("SWPP").

		
	A.3
	Construction, operation and maintenance of the Transmission System, DC Terminal and related substation components are sometimes referred to in this Appendix A as the "Project".

		
	A.4
	Substation Components of the Transmission System and

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DC Terminal are described as follows:
		
	A.4.1.
	The Amrad Substation of EPE shall be expanded to provide termination for this Project.  Facilities associated with the expansion shall be as follows:

		
	A.4.1.1.
	One 200 MVA 345/115 KV Auto Transformer.

		
	A.4.1.2.
	Four 115 KV power circuit breakers and associated disconnect switches, bus work, any other appurtenant facilities and common facilities to be arranged in a breaker and one-half layout, but operated as a ring bus.

		
	A.4.1.3.
	Three 345 KV power circuit breakers, associated disconnect switches, bus work, any other appurtenant facilities and common facilities to be arranged in a ring bus and operated as a ring bus.

		
	A.4.2.
	The Components of the DC Terminal include, but are not limited to, the following:

		
	A.4.2.1.
	Thyristor Valves/Bridges, System Control facilities, converter transformers, smoothing reactors, power capacitors, AC and DC filters, valve cooling equipment, auxiliary power supply systems, reactive power supplies, protective 

A-2
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equipment, monitoring equipment, measuring equipment, and communication equipment.
		
	A.4.3.
	The associated buildings, fences, common facilities, and appurtenant facilities.

A-3
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APPENDIX B
PARTICIPANTS' RESPONSIBILITY FOR
COSTS (PERCENT OF COSTS)
		
	B.1
	Participants' Responsibility for Costs (Percent of Cost) for Components of the Transmission System; DC Terminal; any Capital Additions, Capital Replacements, or Capital Betterments to the Transmission System and DC Terminal; and associated Nonproject Transmission Facilities.

	
				
	 
	 
	EPE
	TNP

	 
	 
	 
	 

	B.1.1
	Amrad 200 MVA 345/115 KV
	 
	 

	 
	Autotransformer
	50.00
	50.00

	 
	Associated Operation and
	 
	 

	 
	Maintenance Costs
	50.00
	50.00

	 
	Associated Lightning
	50.00
	50.00

	 
	Arrestors
	 
	 

	B.1.2
	Amrad 115 KV Switchyard
	 
	 

	 
	Expansion
	 
	 

	 
	Four (4) 115 KV power circuit
	 
	 

	 
	breakers and the associated
	 
	 

	 
	four (4) bays
	62.50
	37.50

	 
	Lighting Arrestors
	62.50
	37.50

	 
	Disconnect Switches
	62.50
	37.50

	 
	Potential Devices
	62.50
	37.50

	 
	Additional Substation
	 
	 

	 
	Grounding
	62.50
	37.50

	 
	Additional Fencing
	62.50
	37.50

	 
	Additional Bus Work & Bus
	 
	 

	 
	Supports
	62.50
	37.50

	 
	Additional Station Service
	 
	 

	 
	Equipment
	62.50
	37.50

	 
	Additional Common Facilities
	62.50
	37.50

	 
	Any Appurtenant Equipment
	62.50
	37.50

	 
	All Operation Costs
	62.50
	37.50

	 
	All Maintenance Costs
	62.50
	37.50

B-1
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	EPE
	

	TNP
	

	 
	Other project related
	 
	 

	 
	modifications necessary
	 
	 

	 
	for interconnection to
	 
	 

	 
	existing Amrad facilities
	62.50
	

	37.50
	

	 
	The existing EPE circuit
	 
	 

	 
	breaker and its associated
	 
	 

	 
	bay
	100.00
	

	100.00
	

	 
	 
	 
	 

	B.1.3
	New Amrad 345 KV Substation
	 
	 

	 
	 
	 
	 

	 
	Three (3) 345 KV Power
	 
	 

	 
	Circuit Breakers
	72.22
	

	27.78
	

	 
	Disconnect Switches
	72.22
	

	27.78
	

	 
	Substation Grounding System
	72.22
	

	27.78
	

	 
	Potential Devices
	72.22
	

	27.78
	

	 
	Control House
	72.22
	

	27.78
	

	 
	Bus Work, Bus Supports,
	 
	 

	 
	Bus Fittings
	72.22
	

	27.78
	

	 
	Line Deadend Tower
	72.22
	

	27.78
	

	 
	Lightning Arrestors
	72.22
	

	27.78
	

	 
	Other Common Facilities
	72.22
	

	27.78
	

	 
	Other Appurtenant Equipment
	72.22
	

	27.78
	

	 
	All Operation Costs
	72.22
	

	27.78
	

	 
	All Maintenance Costs
	72.22
	

	27.78
	

	 
	 
	 
	 

	B.1.4
	Eddy County Interchange
	 
	 

	 
	Back-to-Back DC Terminal
	66.67
	

	33.33
	

	 
	 
	 
	 

	 
	All Components
	66.67
	

	33.33
	

	 
	All Associated Facilities
	66.67
	

	33.33
	

	 
	All Construction Costs
	66.67
	

	33.33
	

	 
	All Operation Costs
	66.67
	

	33.33
	

	 
	All Maintenance Costs
	66.67
	

	33.33
	

	 
	 
	 
	 

	B.1.5
	Amrad to Eddy County Interchange
	 
	 

	 
	 
	 
	 

	 
	345 KV Transmission Line
	66.67
	

	33.33
	

	 
	All Components
	66.67
	

	33.33
	

	 
	All Construction Costs
	66.67
	

	33.33
	

	 
	All Maintenance Costs
	66.67
	

	33.33
	

	 
	Line Reactors, if required
	66.67
	

	33.33
	

	 
	Circuit Switcher for Reactor
	66.67
	

	33.33
	

		
	B.2
	Participant's Responsibility for Costs (Percent of Cost) for control microwave and relaying equipment as provided for in Section 38.

B-2
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	EPE
	

	TNP
	

	B.2.1
	Construction work and
	 
	 

	 
	equipment for control,
	 
	 

	 
	microwave expansion and
	 
	 

	 
	modification, relaying as
	 
	 

	 
	described in Appendix C
	66.70
	

	33.30
	

	B.2.2
	O&M Expenses directly
	 
	 

	 
	related to the Project
	66.70
	

	33.30
	

	B.2.3
	Capital Betterments, Capital
	 
	 

	 
	Replacements and Capital
	 
	 

	 
	Additions associated with
	 
	 

	 
	control microwave and
	 
	 

	 
	relaying
	66.70
	

	33.30
	

		
	B.3
	Associated nonproject transmission lines and substation modifications are listed below for information and reference only, as set forth in Section 5A of the Participation Agreement. It is expressly understood that they are not part of this Project. 

	
				
	B.3.1
	EPE's Associated Transmission:
	 
	 

	 
	 
	 
	 

	 
	One (1) 345 KV transmission
	 
	 

	 
	line from Amrad to EPE's
	 
	 

	 
	proposed Caliente 345/115
	 
	 

	 
	KV Substation
	100.00
	0.00

	 
	 
	 
	 

	 
	One Substation located at
	 
	 

	 
	the point TNP's 115 KV
	 
	 

	 
	Amrad to Alamogordo Line
	 
	 

	 
	interconnects with TNP's
	 
	 

	 
	115 KV Holloman to
	 
	 

	 
	Alamogordo Line which is
	 
	 

	 
	located between the
	 
	 

	 
	Holloman and Alamogordo
	 
	 

	 
	Substations
	100.00
	0.00

	 
	 
	 
	 

	B.3.2
	TNP's Associated Transmission:
	 
	 

	 
	 
	 
	 

	 
	One (1) 115 KV transmission
	 
	 

	 
	line from the Amrad 345 KV
	 
	 

	 
	Substation to the point of
	 
	 

	 
	interconnection on TNP's 115
	 
	 

	 
	KV Holloman to Alamogordo Line
	 
	 

	 
	which is located between
	 
	 

	 
	the Holloman and Alamogordo
	 
	 

	 
	Substations
	0.00
	100.00

B-3
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	EPE
	

	TNP
	

	B.4
	Participant's Cost Responsibility
	 
	 

	 
	for costs and expenses not included
	 
	 

	 
	in this Appendix B and not otherwise
	 
	 

	 
	specifically allocated in any Project
	 
	 

	 
	Agreement.
	66.7
	

	33.3
	

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APPENDIX D
CONSTRUCTION MILESTONE DATES

		
	D.1
	The Engineering and Operating Committee established pursuant to Section 7.7 of this Agreement has developed certain milestones and target dates for completion of certain aspects of this Agreement. These dates are set forth in the minutes of the Engineering and Operating Committee.

		
	D.2
	It is understood and agreed that the Transmission System and DC Terminal were completed on the target date for completion.

D-1
Execution Copy

EPE - TNP
THIRD SUPPLEMENTAL AGREEMENT
TO THE
AMRAD TO ARTESIA 345 KV TRANSMISSION SYSTEM
AND
DC TERMINAL PARTICIPATION AGREEMENT

Execution Copy

EPE-TNP
THIRD SUPPLEMENTAL AGREEMENT TO
AMRAD TO ARTESIA 345 KV TRANSMISSION
SYSTEM AND DC TERMINAL PARTICIPATION AGREEMENT
Section 1: PARTIES
The Parties to this Third Supplemental Agreement are El Paso Electric Company, a Texas corporation ("EPE") and Texas-New Mexico Power Company, a Texas corporation ("TNP"), sometimes individually called "Participant" and collectively "Participants."
Section 2: RECITALS
		
	2.1
	TNP and EPE have heretofore entered into an agreement for the construction and operation of a 345 KV transmission line from Amrad to Artesia and associated DC terminal (Project) entitled "Amrad to Artesia 345 KV Transmission System and DC Terminal Participation Agreement," dated December 8, 1981, an agreement entitled "Supplemental Agreement to the Amrad to Artesia 345 KV Transmission System and DC Terminal Participation Agreement Between EPE and TNP," dated December 8, 1981, and an agreement entitled "EPE-TNP Second Supplemental Agreement to Amrad to Artesia 345 KV Terminal System and DC Terminal Participation Agreement" dated April 29, 1987, (collectively, the "Participation Agreement").

		
	2.2
	Upon completion of the Project microwave system, the Supplemental Agreement provided for an adjustment of the Participants' respective percentage ownership in the Amrad 200 MVA 345/115 KV autotransformer to reflect TNP's contribution to the microwave equipment related to the Project and TNP's lack of ownership therein. Such adjustment in 

Execution Copy

ownership will have no affect on the Parties' present rights to utilize the capability of the Amrad 200 MVA 345/115 KV autotransformer on a 50-50 basis.
		
	2.3
	The Parties now wish to amend and supplement the Participation Agreement to reflect an adjustment of the Parties' respective percentage ownership in the Amrad 200 MVA 345/115 KV autotransformer.

Section 3: EFFECTIVE DATE
This Third Supplemental Agreement shall become effective upon execution by both Participants.
Section 4: AGREEMENT
In consideration of the premises and mutual covenants set forth herein, the Participants agree that the Participation Agreement is hereby amended and supplemented as follows:
Section B.1.1 of Appendix B is deleted in its entirety and a new Section B.1.1 is added to read as follows:
	
						
	 
	 
	EPE
	

	TNP
	

	B.1.1
	Amrad 200 MVA/115 KV Autotransformer
	30.84
	

	69.16
	

	 
	Associated Operation and Maintenance Costs
	50.00
	

	50.00
	

	 
	Associated Lighting Arrestors
	50.00
	

	50.00
	

Section 5: FULL FORCE EFFECT
Except as provided herein, the Participation Agreement, as amended and supplemented by this Third Supplemental Agreement, shall remain in full force and effect.
/
/

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Section 6: SIGNATURE CLAUSE
The signatories hereto represent that they have been appropriately authorized to enter into this Third Supplemental Agreement on behalf of the Participant for whom they sign. This Third Supplemental Agreement is hereby executed as of the 7th day of December, 1987.

	
			
	EL PASO ELECTRIC COMPANY
	 

	 
	 
	 

	 
	 
	 

	By 
	[Illegible]
	 

	 
	Vice President
	 

	 
	 
	 

	 
	 
	 

	TEXAS-NEW MEXICO POWER COMPANY

	 
	 
	 

	 
	 
	 

	By 
	/s/ J. V. Chambers
	 

	 
	Vice President
	 

Execution Copy
3Exhibit

EXHIBIT 10.08
INTERCONNECTION AGREEMENT
of

July 19, 1966

Between

EL PASO ELECTRIC COMPANY
And
PUBLIC SERVICE COMPANY OF NEW MEXICO

TABLE OF CONTENTS

INTERCONNECTION AGREEMENT

	
				
	 
	 
	 
	Page

	 
	Explanatory Recitals
	 
	1

	 
	 
	 
	 

	Section 1
	Cooperation in Development
	 
	2

	 
	and Operation
	 
	 

	Section 2
	Facilities to be Provided
	 
	2

	Section 3
	Service Schedules
	 
	4

	Section 4
	Committees
	 
	5

	Section 5
	Conditions of Interconnected
	 
	8

	 
	Operations
	 
	 

	Section 6
	Metering
	 
	13

	Section 7
	Settlements
	 
	14

	Section 8
	General Provisions
	 
	15

	Section 9
	Term
	 
	20

	Section 10
	Applicable Law
	 
	21

	 
	 
	 
	 

	 
	SERVICE SCHEDULE A
	 
	 

	 
	 
	 
	 

	 
	TRANSMISSION SERVICE AND CONTINGENT CAPACITY EXCHANGE

	 
	 
	 
	 

	 
	 
	 
	Page

	Section 1
	Purpose
	 
	1

	Section 2
	Term
	 
	1

	Section 3
	Transmission Service for El Paso
	 
	2

	Section 4
	Transmission Service for New Mexico
	 
	2

	Section 5
	Contingent Capacity for New Mexico
	 
	4

	 
	 
	 
	 

	 
	SERVICE SCHEDULE B
	 
	 

	 
	 
	 
	 

	 
	ENERGY INTERCHANGE AND SPINNING RESERVE INTERCHANGE

	 
	 
	 
	 

	 
	 
	 
	Page

	Section 1
	Purpose
	 
	1

	Section 2
	Term
	 
	2

	Section 3
	Supply of Energy Interchange
	 
	3

	Section 4
	Supply of Spinning Reserve
	 
	5

	Section 5
	Definitions
	 
	7

	Section 6
	Settlements for Energy Interchange
	 
	11

	Section 7
	Settlements for Spinning Reserve
	 
	12

	 
	 
	 
	 

	 
	SERVICE C
	 
	 

	 
	 
	 
	 

	 
	RESERVE CAPACITY AND RECIPROCAL EMERGENCY ASSISTANCE

	 
	 
	 
	 

	 
	 
	 
	Page

	Section 1
	Purpose
	 
	1

	Section 2
	Term
	 
	2

	Section 3
	Definition
	 
	2

	Section 4
	Reserve Capacity
	 
	7

	Section 5
	Reciprocal Emergency Assistance
	 
	9

	Section 6
	Responsibility of Committees
	 
	10

INTERCONNECTION AGREEMENT
This INTERCONNECTION AGREEMENT, entered into as of 19th day  July  of 1966, between El Paso Electric Company (herein called "El Paso"), a Texas Corporation, and Public Service Company of New Mexico (herein called "New Mexico"), a New Mexico Corporation,
WITNESSETH:
WHEREAS, El Paso owns and operates an electric system serving in parts of the State of Texas and the State of New Mexico, and New Mexico owns and operates an electric system serving in a part of the State of New Mexico; and 
WHEREAS, the parties are presently interconnected by means of the 115 KV transmission system of the Bureau of Reclamation's Rio Grande Project and are members of the New Mexico Power Pool operating under that certain Agreement, identified by the Bureau of Reclamation as Contract No. 14-06-500-254, dated October 3, 1956; and,
WHEREAS, the parties, together with others, are planning to participate in the ownership and operation of two 755 MW (nameplate) generating units to be installed at the Four Corners Generating Station of Arizona Public Service Company under terms and conditions of that certain Letter of Intent dated April 26, 1965, as amended by Supplement No. l dated May 12, 1965, and Supplement No. 2 dated June 11, 1965, hereinafter referred to as the Four Corners Project; and,
WHEREAS, the parties desire to establish a direct interconnection between their respective systems to provide for delivery of El Paso's en-

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titlement of power from the Four Corners Project over New Mexico's existing and proposed transmission system and to make possible a substantial degree of coordination in the development and operation of their respective electric systems;
NOW THEREFORE, IT IS AGREED:

SECTION l
COOPERATION IN DEVELOPMENT AND OPERATION

		
	1.1
	The provisions of this Interconnection .Agreement relate to the establishment of a direct interconnection between the electric systems of the parties, to cooperation in development and operation of the two systems, to sale or exchange of power and interchange of energy between the parties, to mutual emergency assistance, and to transmission service between the parties. Each party will comply with said provisions and assume and fulfill the responsibilities herein assigned to it.

		
	1.2
	The parties, through authorized representation, will regularly consult with each other and cooperate as to planning of system power sources and transmission networks, and as to maintaining coordination in operations and realizing the benefits attainable therefrom.

SECTION 2
FACILITIES TO BE PROVIDED
		
	2.
	Interconnection Sites - Interconnection points between the two parties will be as follows:

		
	(A)
	Albuquerque - At New Mexico's 345 KV bus at its West Mesa 

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Switching Station.
		
	(B)
	Las Cruces - At the point at which El Paso's 115 KV System is connected to the 115 KV System of the United States Bureau of Reclamation.

		
	(C)
	Four Corners Project - At the 345 KV Switchyard, wherein El Paso and New Mexico, among others, respectively own undivided interests as tenants in common, and

		
	(D)
	Future Provision - at a point on El Paso's 115 KV transmission system, at or near Hatch, New Mexico, to be mutually agreed upon.

		
	2.2
	Facilities to be Provided by El Paso - El Paso will construct, own and operate· and maintain a 345 KV transmission line from its Newman Generating Station in Texas to the Albuquerque interconnection site, a distance of approximately 240 miles. El Paso will provide and maintain terminal facilities including breakers, disconnects, metering and relaying equipment, reactors and other appurtenances at the Newman Station, and the required line reactors at the West Mesa Switching Station. Said facilities shall be constructed and placed in service by El Paso on or before April l, 1969, unless completion at such time be prevented by uncontrollable forces.

		
	2.3
	Facilities to be Provided by New Mexico - New Mexico at the present time has a 230 KV transmission line extending from its West Mesa Switching Station to the existing 230 KV bus structure of the Four Corners Generating Station of Arizona Public Service 

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Company. In addition, New Mexico, in connection with the Four Corners Project and this Interconnection Agreement will construct, own, and operate the following additional facilities:
		
	(i)
	Two 345 KV transmission lines with necessary terminal and accessory facilities extending from its West Mesa Substation to a point of interconnection to the 345 KV switchyard of the Four Corners Project, a distance of approximately 160 miles for each transmission line. New Mexico agrees to complete the first 345 KV transmission line on or before April 1, 1969, and the second 345 KV transmission line on or before April l, 1970, unless construction at such times be prevented by uncontrollable forces.

		
	(ii)
	New Mexico will provide a line bay in its 345 KV West Mesa Switching Station together with related terminal facilities (breakers, disconnects, metering and relaying equipment and appurtenances) for attachment of El Paso's 345 KV line and suitable space at the West Mesa Switching Station for El Paso's line reactors.

SECTION 3
SERVICE SCHEDULES
		
	3.1
	It is contemplated by the parties that they will from time to time effect specific arrangements for various reciprocal services and for interim sales of power, and that such specific arrangements will be incorporated in service schedules which, upon their execution by authorized representatives, will become parts of this Interconnection Agreement for the respective periods to which, by their terms, they are applicable.

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	3.2
	The following service schedules, agreed to initially are hereby made parts hereof:

Service Schedule A - Transmission Service and Contingent
Capacity Exchange
Service Schedule B - Energy Interchange and Spinning
Reserve Interchange
Service Schedule C - Reserve Capacity & Reciprocal
Emergency Assistance

SECTION 4
COMMITTEES
		
	4.1
	As a means of securing effective cooperation in system planning and of dealing on a prompt and orderly basis with the various operating and technical problems which arise in connection with delivery of power, reciprocal services and system coordination under changing conditions, the parties will establish a "Coordination Committee" and an "Operating Committee," each charged with certain responsibilities hereunder.

		
	4.2
	Coordination Committee - The Coordination Committee shall consist of two representatives, one designated by each party, and each such representative shall be authorized by the party by whom he is designated to act on its behalf with respect to those matters herein provided to be responsibilities of the Coordination Committee. The functions and responsibilities of the Coordination Committee shall be:

		
	(i)
	to establish general policies to be followed in coordination of the operation of the electric systems of the parties (consistent with the provisions of this agreement),

		
	(ii)
	to review periodically the prospective aggregate power requirements of the two systems, to arrange 

-5-

for investigations with respect to additional power sources and related transmission facilities, including possible additional interconnections with other systems, in order to provide for such aggregate power requirements in a manner consistent with overall effectiveness and economy, and to present recommendations as to such matters to the parties,    
		
	(iii)
	to exercise general supervision and guidance over the Operating Committee,

		
	(iv)
	to consider and act upon matters referred to the Coordination Committee by the Operating Committee, and

		
	(v)
	to do such other things as are provided for herein and as may be specified from time to time by the parties; provided that the Coordination Committee shall have no authority to modify any of the provisions of this agreement except as provided in Section C6.3. Any decision or agreement by the Coordination Committee shall be effective when signed by both members of the Committee. Each party will notify the other party promptly of the designation of its representatives on the Coordination Committee and of any subsequent change in such designation. Either party may designate an alternate or substitute to act as its representative on the Coordination Committee on specified occasions or with respect to specified matters.

-6-

		
	4.3
	Operating Committee - The Operating Committee shall consist of four representatives, two designated by each party, and each such representative shall be authorized on behalf of the party designating him to act with respect to those matters herein provided to be responsibilities of the Operating Committee. The functions and responsibilities of the Operating Committee shall be:

		
	(i)
	to establish procedures and standard practices (consistent with the provisions hereof) for the guidance of load dispatchers and other operating employees as to matters affecting  interconnected  operations of the respective systems, delivery of power, interchange of energy, reciprocal emergency assistance, and other similar operating matters.

		
	(ii)
	to establish procedures and standard practices as to determinations of costs and expenses and energy losses in connection with inter-system transactions hereunder, 

		
	(iii)
	to establish detailed arrangements for metering, communication and control facilities, 

		
	(iv)
	to bring to the attention of the Coordination Committee matters needing its attention, and

		
	(v)
	to do such other things as are provided for herein; provided that the Operating Committee shall have no authority to modify any of the provisions of this agreement except as provided in Sections c6.1 and c6.2. 

-7-

The establishment of any procedure or practice and any other action or determination by the Operating Committee, within the scope of the Operating Committee's responsibility, shall be effective when signed by at least one designated representative of each of the parties. Each party will notify the other party promptly of the designations of its representatives on the Operating Committee and of any subsequent changes in such designations.
		
	4.4
	Disagreements - If the Operating Committee shall disagree as to any action to be taken or decision to be made, or as to the need for taking any action or making any decision, or as to whether any matter is within the scope of the Operating Committee's responsibilities hereunder, the question or questions at issue shall be referred to the Coordination Committee for its action or instructions.

SECTION 5
CONDITIONS OF INTERCONNECTED OPERATIONS
		
	5.1
	Parallel Operations - The electrical systems of the parties shall to the extent feasible normally be operated in parallel

		
	(i)
	at the aforesaid interconnection sites, and

		
	(ii)
	at indirect· interconnection points through facilities of third parties, where third party arrangements require such parallel operation, or where third party arrangements permit such parallel operation and the Operating Committee shall determine that such parallel operation is a desirable practice. It is the intent of 

-8-

the parties that their respective systems shall operate in parallel with the Rio Grande Project Power System of the United States. It is the intent of the parties that their systems shall normally be operated as fully interconnected as may be necessary or convenient to achieve operating economies and to protect quality and reliability of service to consumers. Deviations from normal parallel operation may be made as directed by the Operating Committee, or as provided for in standard practices adopted by the Operating Committee, or as may under special temporary conditions be arranged between the respective load dispatchers.
		
	5.2
	Outage Schedules - The parties will cooperate in scheduling the times and durations of removal from service of major generating units and important transmission circuits for inspection, maintenance or repair, to the end that hazard to or interference with service to consumers will be minimized. The arranging of such coordinated schedules shall be a responsibility of the Operating Committee.

		
	5.3
	Communication and Control Facilities - The types and arrangement of inter-system communication facilities for load dispatcher and system operations, of equipment for the line load control, and of relay equipment for control of interconnection circuits shall be in accordance with recommendations of the Operating Committee, and the operating procedures in connection therewith shall be in accordance with standard practices from time to time established by the Operating Committee.

-9-

		
	5.4
	Electrical Disturbances - Each party will, insofar as practicable, so construct, operate and maintain its system and facilities as to avoid or minimize the likelihood of a disturbance originating from its system which might cause impairment of service in the system of the other party.

		
	5.5
	Frequency - Insofar as interconnected system frequency is within the control of the parties, it shall be a responsibility of the Operating Committee to establish operating arrangements for maintaining frequency within limits satisfactory for the types of loads served by the two systems.

		
	5.6
	Voltage - Variations and fluctuations in voltage at the interconnection sites shall be kept within limits which will minimize adverse effects upon operation of either system or upon service supplied by either system. The respective responsibilities of the parties with respect to voltage control shall be in accordance with standard practices established from time to time by the Operating Committee.

		
	5.7
	Reactive Kilovolt-Amperes - Except as may be provided in a service schedule hereunder or as may be arranged in specific cases by the Operating Committee, neither party shall be entitled to receive kilovars from the other party or obligated to supply kilovars to the other party. Each party will cooperate with the other party to minimize unintended flow of kilovars between the systems. It shall be within the responsibility of the Operating Committee to adopt standard practices for scheduling flow of kilovars between the systems under conditions when there may be a mutual advantage from such flow and for controlling or limiting unscheduled kilovar flow.

-10-

		
	5.8
	Scheduling of Power Deliveries - The Operating Committee shall arrange for all power transactions hereunder to be accounted for on the basis of amounts scheduled between the respective load dispatchers. Arrangements made therefor· by the Operating Committee shall provide that the respective load dispatchers will maintain in duplicate a running record of deviations from aggregate schedules, and that such cumulative deviations will be compensated for by opposite deviations made as promptly as practicable, provided that such compensatory deviations are to be made under generally similar load and resource conditions or to be subject to adjustment factors to take account of differences in load and resource conditions between the time when initial deviations occur and the time when compensatory deviations are made.

		
	5.9
	Temporary Interchange Arrangements - In cases ·where, from time to time, there may be a mutual advantage from sale or interchange of power between the parties upon a basis  not provided for in any service schedule then in effect and the circumstances are such that arrangements must be made promptly in order to realize such advantage, or in cases of emergency or of temporary and unusual operating conditions, temporary arrangements for individual transactions or classes of transactions may be made by the Operating Committee; provided, however, that no continuing commitment involved in any arrangement so made at any time by the Operating Committee shall extend for a longer period than thirty (30) days.

-11-

		
	5.10
	    Substitute Power Deliveries - It shall be within the responsibility of the Coordination Committee to approve and put into effect arrangements whereby in specific cases or classes of cases and under specific conditions an amount of power or energy provided in any service schedule hereunder to be delivered by one party to the other party, or to be received by one party from the other party, may be delivered to or received from a third party for the account of the party originating such substitute transaction. In such a substitute transaction the arrangements shall be such that only the party originating the transaction shall be involved in money settlements with the third party.

		
	5.11
	Operating Data - Each party will make available to the other party operating data with respect to effective capacities of generating units and transmission circuits, incremental costs of power sources, current and estimated future loads of its electric system and sections thereof, and similar matters, to the extent that such data may from time to time be needed by the Coordination Committee or the Operating Committee in the discharge of their responsibilities hereunder or may be needed in connection with load dispatching and energy accounting for transactions hereunder.

-12-

SECTION 6
METERING

		
	6.1
	Metering Facilities - Arrangements with respect to locations, type and ownership of metering facilities required for purposes of control of or settlements for power transactions hereunder shall be in accordance with any specific provisions of the service schedules covering such power transactions, and otherwise shall be a responsibility of the Operating Committee. The owner of a metering installation, the registrations of which are important in connection with settlements for transactions hereunder, upon request of the other party, will make available suitable space and facilities for installation of check metering.     

		
	6.2
	Testing and Reading of Meters - Metering equipment owned by either party, the registrations of which are involved in settlements for transactions hereunder, shall be inspected and tested by the owner at annual intervals or at such shorter intervals as may be directed by the Operating Committee, and any inaccuracy disclosed by such tests shall be corrected promptly by the owner. Additional inspections and tests at particular installations shall be made by the owner upon request of the other party. Representatives of the other party shall be afforded opportunity to be present at all official inspections and tests. If at any test a meter shall be found to be inaccurate by more than one per cent, fast or slow, an adjustment shall be made in settlements between the parties to compensate for the effect of such inaccuracy over 

-13-

a period equal to one-half of the time elapsed since the meter was installed, or one-half of the time elapsed since the previous test, whichever is later. All adjustments due to inaccurate meters shall be limited to the preceding six months. If at any time a meter should fail to register, its registration for billing purposes shall be based upon records of check meters if available; or otherwise upon the best obtainable data. Arrangements with respect to meters belonging to others than the parties hereto, the registrations of which may be involved in settlements for transactions hereunder, shall be a responsibility of the Operating Committee.

SECTION 7
SETTLEMENTS

		
	7.1
	Accounting Period - The accounting period for transactions hereunder shall be one month. Such one-month period shall be a calendar month unless the Coordination Committee shall specify a different one-month period.

		
	7.2
	Billing and Payment - Except as otherwise provided in a service schedule, bills for amounts payable for any month shall be due on the 19th day of the succeeding month or on the 5th day after receipt of bill, whichever be later. To such extent as may be approved by the Coordination Committee, bills for a current month may be rendered on the basis of estimated data with corrective adjustment being made with the bill rendered for the succeeding month. Payment shall be made at such office of the party to which payment is due as that party shall designate by written notice. Amounts 

-14-

not paid on or before the due date shall be payable with interest accrued at the rate of 0.5 per cent compounded monthly from the due date to the date of payment.
		
	7.3
	Disputed Bills - In case a portion of any bill be in dispute, the undisputed amount shall be paid when due, and the remainder, if any, upon determination of the correct amount, shall be paid promptly after such determination with interest accrued at the rate of 0.5 per cent compounded monthly from the original due date.   

SECTION 8
GENERAL PROVISIONS
		
	8.1
	Uncontrollable Forces - No party shall be considered to be in default in respect of any obligation under this agreement if prevented from fulfilling such obligation by reason of uncontrollable forces, the term "uncontrollable forces" being deemed to mean any cause which is beyond the control of the party affected, including, but not limited to injunction, fire, strike, riot, explosion, flood, accident, break-down, Acts of God or a public enemy, or other acts or conditions beyond Company's control, or interruption, irregular or defective service as the result of the ordinary negligence of any employee, servant or agent of the Company, or as a result of the voluntary cooperation by the Company in any method of operation, or in any program recommended or requested by civil or military authorities during a national, state or local emergency, the Company shall not be liable to the other party hereunder. Furthermore, each party 

-15-

shall not be liable for damages occasioned by interruption of service when such interruptions are necessary to make repairs or changes in the Company's equipment and facilities.  Each party hereby expressly waives its right to assert claims against the other party for damages caused by any interruption, irregularity, defect or failure described in this paragraph. Nothing contained herein shall be construed to obligate a party to forestall or settle a strike against its will.
		
	8.2
	Arbitration - In the event the parties acting through their representatives on the Coordination Committee, are unable to reach agreement with respect to a matter arising hereunder in regard to which such agreement is necessary or in the event any dispute between the parties should arise under this agreement, either of the parties may call for submission of such matter or dispute to arbitration in the manner hereinafter set forth, which call shall be binding upon the parties.

The party calling for arbitration shall give written notice to the other party, setting forth in such notice in adequate detail the nature of the dispute, the amount or amounts, if any, involved in such dispute, and the remedy sought by such arbitration proceedings, and, within twenty (20) days from receipt of such notice the other party involved may, by written notice to the first party, prepare its own statement of the matter at issue and set forth in adequate detail additional related matters or issues to be arbitrated. Thereafter, the party first submitting its statement of the matter at issue shall have ten (10) days in which to submit a rebuttal statement, copies of 

-16-

which shall be given to the other party.
Within ten (10) days following the submission of the rebuttal statement, the parties, acting through their representatives on the Coordination Committee, shall meet for the purpose of selecting arbitrators. Each party shall designate an arbitrator. The arbitrators so selected shall meet within twenty (20) days following their selection and shall select an additional arbitrator. If the arbitrators selected by the parties, as herein provided, shall fail to select an additional arbitrator within said twenty (20) day period, then the arbitrators shall request a list of arbitrators from the American Arbitration Association. The arbitrators selected by the parties shall take turns striking names from the list of arbitrators furnished by the American Arbitration Association and the last name remaining on said list shall be the additional arbitrator. The arbitrators shall be persons skilled and experienced in the field which gives rise to the dispute and no person shall be eligible for appointment as an arbitrator who is an officer, employee, shareholder of, or otherwise interested in any of the parties to the dispute or in the matter to be arbitrated.
Except as otherwise provided in this Sub-section 8.2 the arbitration shall be governed by the rules and practice of the American Arbitration Association (or the rules and practice of a similar organization if the American Arbitration Association should not at that time exist) from time to time in force, except that if such rules and practice, as modified herein, shall conflict with the New Mexico Rules of Civil Procedure or any other provision of New Mexico law then in force, such New Mexico rules and provisions shall govern.

-17-

In addition to the questions which may be submitted to arbitration pursuant to this Sub-section 8.2, the parties shall submit to arbitration in the manner herein provided all questions as to whether the right to arbitrate exists.
The arbitrator shall hear evidence submitted by the respective parties and may call for additional information, which additional information will be furnished by the party having such information.
This agreement to arbitrate shall be specifically enforceable, and the award of the arbitrator shall be final and binding upon the parties to the extent provided by the laws of New Mexico. Any award may be filed with the Clerk of any Court having jurisdiction over the parties or any of them against whom the award is rendered, and, upon such filing, such award, to the extent permitted by the laws of the jurisdiction in which said award is filed, shall be specifically enforceable or shall form the basis of a declaratory judgment or other similar relief.
The fees and expenses of the arbitrators shall be shared equally by the parties unless the decision of the arbitrators shall specify some other apportionment of such fees and expenses. All other expenses and costs of the arbitration shall be borne by the party incurring the same.
In the event that any party shall attempt to institute or to carry out the provisions herein set forth in regard to arbitration, and such party shall not be able to obtain a valid and enforceable arbitration decree, such party shall be entitled to seek legal remedies in a Court having jurisdiction in the premises, and the provisions in this agreement referring to decisions of a Board of Arbitration shall be then deemed applicable to final decisions of such Court.

-18-

		
	8.3
	Waivers - A waiver at any time by a party of its rights with respect to a default under this agreement, or with respect to any other matter arising in connection with this agreement, shall not be deemed a waiver with respect to any subsequent default or matter. No delay, short of the statutory period of limitations, in asserting or enforcing any right hereunder shall be deemed a waiver of such right.

		
	8.4
	Notices - Any formal notice, demand or request provided for in this agreement, or given or made in connection with this agreement, shall be deemed to be properly given or made if personally delivered or telegraphed or sent by registered or certified mail, postage prepaid, to the person specified below:

	
		
	To or upon New Mexico –

	 
	 

	 
	The Secretary of the Company

	 
	Post Office Box 2267

	 
	Albuquerque, New Mexico

	 
	 

	To or upon El Paso –

	 
	 

	 
	The Secretary of the Company

	 
	Post Office Box 982

	 
	El Paso, Texas

A party may at any time change by written notice the designation or the address of the person so specified. This paragraph does not apply to notices and requests of a routine character in connection with delivery or receipt of power or in connection with operation of facilities, which shall be given in such manner as the Operating Committee from time to time shall arrange.
		
	8.5
	Regulatory Authorities - This contract, including the tariff made a part hereof, shall at all times be subject to such changes or modifications as shall be ordered from time to time by any legally 

-19-

constituted regulatory body having jurisdiction to require such changes or modifications.
		
	8.6
	Successors and Assigns - This agreement, including service schedules hereunder, shall be binding upon and inure to the benefits of the respective successors and assigns of the parties.

SECTION 9
TERM
		
	9.1
	Effective Date - This agreement shall become effective upon the date of obtaining any necessary approval by or effecting any necessary filing with such regulatory authority or authorities as may initially have jurisdiction hereover.

		
	9.2
	Duration - This agreement, after becoming effective, shall continue in effect indefinitely unless and until terminated as hereinafter provided. In case at any time

		
	(i)
	No service schedule is in effect hereunder, and

		
	(ii)
	No new service schedule has been executed to become effective at a future date, and

		
	(iii)
	No new service schedule is the subject of bona fide negotiation between the parties,

this agreement shall be terminable as of such time, and either party may declare it to be terminated by notice given thirty (30) days in advance of the termination date specified in such notice.

-20-

SECTION 10
APPLICABLE LAW

This agreement shall be construed and interpreted in accordance with the laws of the State of New Mexico.

IN WITNESS WHEREOF, the parties have caused this agreement to be executed by their duly authorized officers and their corporate seals to be affixed, all as of the day and year first herein written.

PUBLIC SERVICE COMPANY OF NEW MEXICO

BY     /s/ [ILLEGIBLE]    
PRESIDENT

Attest:

/s/ [ILLEGIBLE]    

EL PASO ELECTRIC COMPANY

BY     /s/ [ILLEGIBLE]    
PRESIDENT
Attest:

/s/ [ILLEGIBLE]    
SECRETARY

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SERVICE SCHEDULE A
TRANSMISSION SERVICE AND CONTINGENT CAPACITY EXCHANGE

	
				
	 
	 
	 
	Page

	Section 1
	Purpose
	 
	1

	 
	 
	 
	 

	Section 2
	Term
	 
	1

	 
	 
	 
	 

	Section 3
	Transmission Service for El Paso
	 
	2

	 
	 
	 
	 

	Section 4
	Transmission Service for New Mexico
	 
	2

	 
	 
	 
	 

	Section 5
	Contingent Capacity for New Mexico
	 
	4

SERVICE SCHEDULE A
TRANSMISSION SERVICE AND CONTINGENT CAPACITY EXCHANGE

This Service Schedule A is agreed upon as a part of the Interconnection Agreement between El Paso Electric Company and Public Service Company of New Mexico.

SECTION 1
PURPOSE
		
	A1.1
	The purpose of this Service Schedule is, (i) to provide capacity in New Mexico transmission facilities for use by El Paso in transmitting electric power and energy between the Four Corners Project and the Albuquerque Interconnection Site: (ii) to provide for future use by New Mexico of existing and proposed El Paso transmission facilities under terms of the Interconnection Agreement; and (iii) to provide for contingent capacity by El Paso to New Mexico.

SECTION 2
TERM
		
	A2.1
	This Service Schedule shall become effective concurrently with the Interconnection Agreement and shall remain in effect unless terminated, modified, or superseded by mutual agreement, for a period of 35 years from the date of firm operation of Unit 5 of the Four Corners Project; provided, however, that transmission service as provided under Sections 3 and 4 of this Service Schedule, shall not be initiated prior to the date of initial start-up of Unit No. 4 of the Four Corners Project.

-1-

SECTION 3

TRANSMISSION SERVICE FOR EL PASO
		
	A3.1
	Commencing with the date of initial start-up of Unit No. 4 of the Four Corners Project, New Mexico will provide capacity in its transmission system, between the Four Corners Project and the Albuquerque Interconnection Site in amounts which El Paso may from time to time require up to a maximum of seven percent (7%) of the actual net capability of the Four Corners Project, or such greater amount as may be mutually agreed upon between the parties.

		
	A3.2
	New Mexico shall accept power and energy scheduled by El Paso at the points described in Section A3.1 hereof and shall transmit and deliver such power and energy, less applicable positive or negative transmission losses,  to the Albuquerque Interconnection Site, or to the Four Corners Project, for the account of El Paso in amounts up to a maximum input rate of seven percent (7%) of the net actual generating capability of the Four Corners Project or such greater amount as may be agreed upon. The Operating Committee shall establish suitable procedure for the scheduling and accounting of New Mexico's deliveries to El Paso under this Service Schedule and shall determine transmission losses to be supplied by El Paso.

SECTION 4
TRANSMISSION SERVICE FOR NEW MEXICO
		
	A4.1
	Upon receipt of advance written notice of at least twelve months from New Mexico, El Paso will provide capacity in its transmission system between the Albuquerque Interconnection Site Point (A) and El Paso's 115 KV transmission system at or near 

-2-

El Paso's existing point of connection to the U. S. Bureau of Reclamation near Las Cruces, New Mexico, Point (B), and/or at or near Hatch, New Mexico, Point (D), as may be mutually agreed upon by the parties. The amount of capacity will be specified in the notice but shall not exceed 25,000 kilowatts. In subsequent notices, New Mexico may increase its use of El Paso's transmission system up to a maximum or 25,000 kilowatts or may reduce or terminate its use of capacity in El Paso's transmission system.
		
	A4.2
	In the event New Mexico requests transmission service:

		
	(i)
	In amounts exceeding 25,000 kilowatts, to either interconnection points "B" or "D", individually and in cumulative, or

		
	(ii)
	to other interconnection point or points not specified herein,

either condition subject to mutual consent, then, to the extent additional plant investment by El Paso is required for New Mexico's sole use, New Mexico, unless otherwise agreed upon by the parties, will pay a monthly wheeling charge of 11⁄4% of such additional investment during the period such facilities are to be used by New Mexico, but for not less than five years. In the event New Mexico requests transmission service to a point at or near Hatch, which service will require an investment by El Paso to increase the transmission capacity of existing lines prior to the time that such additional capacity will be required for El Paso's needs, then New Mexico will, unless otherwise agreed upon by the parties, pay a monthly wheeling charge of 11⁄4% of the required additional plant investment for a period to be mutually agreed upon.

-3-

		
	A4.3
	El Paso shall accept power and energy scheduled by New Mexico at the Albuquerque point of interconnection and shall transmit and deliver such power and energy, less applicable transmission losses, to points of' delivery designated by New Mexico in amounts up to the maximum capacity reserved for New Mexico's use under Sections A4.1 and/or A4.2 hereof. The Operating Committee shall establish suitable procedures for the scheduling and accounting of El Paso's deliveries to New Mexico under this service schedule and shall determine transmission losses to be supplied by New Mexico.

SECTION 5
CONTINGENT CAPACITY FOR NEW MEXICO
		
	A5.l
	As consideration for transmission service supplied hereunder to El Paso by New Mexico, El Paso agrees to provide contingent capacity for New Mexico in the amounts and under terms and conditions hereinafter set forth.

		
	A5.2
	Contingent Contract Demand - The amount of contingent capacity which, during any month El Paso is obligated to deliver or make available to New Mexico hereunder shall be amount hereinafter referred to as Contingent Contract Demand." The Contingent Contract Demand shall be equal to one-half of the difference between New Mexico's obligation to provide transmission service, as described in Section 3 of this Service Schedule, and any amount of transmission service being supplied to New Mexico by El Paso pursuant to Section 4 of this Service Schedule. El Paso's obligation hereunder to maintain and make available to New Mexico, the amount of contingent capacity represented by the Contingent Contract Demand shall be contingent to the extent herein provided, upon availability to El Paso in day-to-day and hour-to-hour operation of its electric system of the particular generating units named in

-4-

		
	 
	paragraph A5·3. When one or more of said generating units are not so available, El Paso's obligation to provide contingent capacity shall be limited to the contingent capacity to be supplied from the particular unit or units available for operation by El Paso.

		
	A5.3
	Units Upon Which Capacity is Contingent - The particular units referred to in paragraph A5.2 and the contingent capacity to be supplied from each such unit shall, unless otherwise agreed upon by the parties be as follows:

One-half of the Contingent Contract Demand from Unit No. 6 of El Paso's Rio Grande Generating Station and one-half of the Contingent Contract Demand from Unit No. 7 of El Paso's Rio Grande Generating Station; provided, however, that it is the intent of the parties that the Contingent Contract Demand shall be supplied from generating units normally operated by El Paso in the conduct of its own day-to-day operations and the units named herein for contingent capacity shall be subject to change to newer generating units by mutual agreement of the parties as additional generating capacity is added to El Paso's resources.
		
	A5.4
	Delivery and Scheduling of Contingent Capacity - El Paso will deliver contingent capacity in amounts which New Mexico may from time to time require up to a maximum rate of delivery equal to the Contingent Contract Demand. Such deliveries shall be made at the Albuquerque Interconnection Site and/or the delivery points specified in Section A4.1 hereof; provided, that for purposes hereof, deliveries shall be measured from the 115 KV switchyard of the Rio Grande Generating Station, or the high voltage switchyard of any replacement 

-5-

units, and adjusted for appropriate transmission losses, either· positive or negative, applicable to the actual delivery point. The Operating Committee shall establish suitable procedures for the scheduling and accounting of El Paso's deliveries of contingent power and shall determine losses to be applicable to such deliveries.
		
	A5.5
	Energy Rate for Contingent Capacity - For energy supplied in connection with contingent capacity deliveries, El Paso will charge and New Mexico will pay on a monthly basis, an amount equal to the kilowatthours supplied multiplied by one hundred and ten percent (110%) of El Paso's base cost, as defined in paragraph B5.5 of Service Schedule·B, on Units 6 and 7 of its Rio Grande Generating Station or such other units as may be agreed upon by the parties; Provided, that energy deliveries made during the interim period as defined in a Paragraph A5.7 shall be paid for by New Mexico at a rate equal to 110% of El Paso's actual base cost as previously defined, but not restricted to Units 6 and 7 of El Paso's Rio Grande Generating Station.

		
	A5.6
	Scheduling of Shutdowns - In order to minimize adverse effects upon New Mexico's system due to suspension of delivery of contingent capacity arising from unavailability of the generating units specified in Paragraph A5.3 hereof, El Paso will cooperate with New Mexico in scheduling planned shutdowns of said generating units for inspection, maintenance or repairs so that such shutdowns, to the extent reasonably possible, will be at times least likely to interfere with service to customers or to necessitate reliance upon reserve power sources with high operating costs and El Paso will give New Mexico any possible advance notice of forced shutdown of any of said generating units.

-6-

		
	A5.7
	Interim Delivery of Contingent Capacity - By mutual agreement of the parties, New Mexico may, by written notice or notices to El Paso, elect to receive contingent capacity deliveries during all or part of the period beginning with the effective date of this Service Schedule, and extending to the date of firm operation of Unit No. 4 of the Four Corners Project, and in such event said deliveries shall be considered in lieu of equivalent contingent capacity deliveries for a two year period following the date of firm operation of Unit No. 5 of the Four Corners Project, or for such longer period as may be required to offset contingent capacity deliveries by El Paso to New Mexico during the Interim Period. The notices to be provided by New Mexico, under terms of this Paragraph, shall specify the quantities and period for which advance deliveries of contingent capacity are requested and the equivalent reduction in contingent capacity deliveries during the latter period. Prior to the time that El Paso's transmission facilities to the Albuquerque Interconnection Site have been completed and placed in service, any advance deliveries of contingent capacity to New Mexico shall be made at the point at which the 115 KV transmission system of El Paso is attached to the 115 KV transmission system of the United States Bureau of Reclamation's Rio Grande Project at or near Las Cruces, New Mexico.

This Service Schedule A is agreed upon as of' the date of the Interconnection Agreement.
EL PASO ELECTRIC COMPANY

BY     /s/ [ILLEGIBLE]    
PRESIDENT
Attest:

/s/ [ILLEGIBLE]    
PUBLIC SERVICE COMPANY OF NEW MEXICO 

BY     /s/ [ILLEGIBLE]    
PRESIDENT
Attest:

/s/ [ILLEGIBLE]    

-7-

SERVICE SCHEDULE B
ENERGY INTERCHANGE AND SPINNING RESERVE INTERCHANGE

	
				
	 
	 
	 
	Page

	Section l
	Purpose
	 
	1

	Section 2
	Term
	 
	2

	Section 3
	Supply of Energy Interchange
	 
	3

	Section 4
	Supply of Spinning Reserve
	 
	5

	Section 5
	Definitions
	 
	7

	Section 6
	Settlements of Energy Interchange
	 
	11

	Section 7
	Settlements for Spinning Reserve
	 
	12

SERVICE SCHEDULE B
ENERGY INTERCHANGE AND
SPINNING RESERVE INTERCHANGE

This Service Schedule B is agreed upon as part of the Interconnection Agreement between El Paso Electric Company and Public Service Company of New Mexico.
SECTION 1
PURPOSE
		
	B1.1
	The purpose of this service schedule is to provide for energy interchange and spinning reserve interchange between the power systems of the parties and to establish terms and conditions for such interchange.

		
	B1.2
	The type of energy interchange primarily intended to be provided for herein is that type commonly known as economy energy interchange, which can be supplied from power sources available at the time which would not otherwise be fully utilized and which can be utilized by the receiver to reduce generation from more expensive units, to avoid starting generating units not in active service, to reduce or avoid more expensive energy purchases, and to avoid curtailing deliveries of secondary or interruptible power. It is not the intent of the parties that use of energy interchange hereunder shall be rigidly limited to situations where the energy received is a replacement or substitution for energy from an alternative source immediately available to the receiver. On the other hand, except in accordance with Service Schedule "C" or other reserve capacity arrangement, it is not intended by

-1-

the parties that energy interchange shall be utilized by the receiver as a substitute for providing adequate power resources by power purchase or installation of generating facilities, or that either party shall be obligated to supply to the other party,  as energy interchange hereunder, power or energy which it believes would be utilized by the receiver for such purpose.
		
	B1.3
	The type of interchange intended to be provided for herein as spinning reserve interchange is the occasional operation by one party of more spinning reserve capacity (synchronized generating capacity in excess of load being carried) than would be called for by conditions in its own system in order to make up for a deficiency of such spinning reserve capacity being operated at the time by the other party, when circumstances are such that an unbalance in proportions of spinning reserve is in the interest of overall economy or overall reliability in the combined systems of the parties. It is not intended by the parties that spinning reserve interchange hereunder shall be utilized by the receiver as a substitute for providing adequate power resources by power purchase or installation of generating facilities.

SECTION 2
TERM
		
	B2.1
	This Service Schedule shall become effective concurrently with the Interconnection Agreement and shall continue in effect for an initial period of five (5) years from the effective date, and thereafter until terminated by either party by notice to the other 

-2-

party given at least three (3) years in advance of the date of the termination designated in the notice; provided, however, that in the event of termination at any time of the Interconnection Agreement, this Service Schedule shall terminate simultaneously.
SECTION. 3
SUPPLY OF ENERGY INTERCHANGE
		
	B3.1
	Each party will keep the other party currently informed with respect to unutilized generating capacity in its system and other unutilized power sources which might be used for supplying energy interchange and with respect to the approximate base cost of such sources. Such information may be furnished by communications between load or system supervisors or through such other channels as the Operating Committee may arrange. The information shall be made available on a tentative basis sufficiently in advance to permit orderly formulation of load schedules.

		
	B3.2
	Each party will supply energy interchange when and as requested by the other party in amounts up to the otherwise unutilized capacity of its available power sources and transmission connections, subject to the following conditions:

		
	(a)
	That in the judgment of supplier, such supply will not result in impairment of or jeopardy to service in its system;

		
	(b)
	That no opportunities are available at the time for sale to third parties which would afford a better market; and

-3-

		
	(c)
	That, when energy interchange is being supplied, the supply may be discontinued at the supplier's discretion; and

		
	(d)
	That the net combined savings estimated from the energy interchange transaction will not be less than 0.25 mills per KWH or such other minimum as the Operating Committee may from time to time establish.   

		
	B3.3
	Insofar as practicable, the supplier in energy interchange transactions will utilize for such purpose those otherwise unutilized power sources available at the time which have the lowest base cost.

		
	B3.4
	Each party shall be the judge as to the conditions under which it is economical and practicable for it to receive energy interchange, but neither party will refuse to receive energy interchange which would yield significant mutual savings without first giving careful consideration to all other factors involved, including such factors as minimum load on those generating units needed to be kept in operation, local area hazards arising from dependence upon transmission, minimum limits on purchases of power from certain sources, and minimum limits on purchases of fuel.

		
	B3.5
	Insofar as practicable, hourly schedules for energy interchange transactions shall be arranged between load or system supervisors on a tentative basis at least one day in advance, subject, if unforeseen circumstances arise, to later modification by verbal communication between load or system supervisors. The establishing of standard practices for scheduling of energy interchange shall be a responsi- 

-4-

bility of the Operating Committee.
		
	B3.6
	Each party in the daily operation of its system will endeavor to carry out as consistently as possible any energy interchange scheduled, subject to unforeseen contingencies interfering with the scheduled operation of its power sources or affecting adequacy of service in its system.

		
	B3.7
	The delivery point for energy interchange shall be at the interconnection sites, subject to the provisions of Paragraph 5.10 of the Interconnection Agreement with respect to substitute power deliveries. Settlements in respect of energy interchange hereunder shall be based upon the amounts of energy interchange scheduled, hour by hour, between the respective load or system supervisors, except as the Operating Committee may arrange otherwise for any particular situations, including cases where schedules are inter- fered with by unforeseen contingencies.

SECTION 4
SUPPLY OF SPINNING RESERVE
		
	B4.1
	The daily scheduling of spinning reserve capacity in the systems of the parties shall be in accordance with standard practices established by the Operating Committee as to aggregate amount of spinning reserve, during heavy load hours and during other hours, to be provided in the combined systems, and as to the apportionment of this aggregate amount among specific generating units in the two systems. In day-to-day operation such apportionment shall be guided by considerations of 

-5-

		
	(i)
	location of spinning reserve at points which are effective in securing overall reliability of service in the combined systems.

		
	(ii)
	economical sources for carrying spinning reserve, and

		
	(iii)
	availability and dependability of transmission capacity into local areas.

		
	B4.2
	The Operating Committee in establishing standard practices with respect to scheduling of spinning reserve, shall give consideration to the following factors:

		
	(a)
	As a normal minimum the aggregate amount of spinning reserve capacity to be scheduled for any period should be at least the greater of

		
	(i)
	an amount estimated to be sufficient to provide regulating margin and an allowance for actual aggregate power loads in excess of the loads estimated in the daily load schedules, or

		
	(ii)
	an amount reasonably related to the loss in aggregate load carrying ability which would result from forced shutdown of the largest single generating unit or transmission circuit scheduled to be in operation, due allowance being made for emergency assistance, if any, expected to be immediately available from third party systems;

		
	(b)
	The cost of starting up, for spinning reserve purposes, cold units not ordinarily operated, which might indicate the advisability of an occasional temporary scaling down of customary spinning reserve standards;

-6-

		
	(c)
	The extent to which either party deems it advisable for its system to be dependent upon spinning reserve in the system of the other party.

SECTION 5
DEFINITIONS
		
	B5.1
	As used in this service schedule, the terms set forth below shall have the meanings indicated.

		
	B5.2
	"Energy interchange" in relation to the supplying party means energy which such party obtains by increasing generation or energy purchases, or by decreasing energy deliveries to third parties, simultaneously with and for the purpose of delivering equivalent energy to the other party as energy interchange.

		
	B5.3
	"Energy interchange" in relation to the receiving party means energy which such party utilizes by decreasing or avoiding generation or other energy purchases, or by increasing deliveries to third parties, simultaneously with and as a result of receipt of equivalent energy interchange.

		
	B5.4
	"Base Cost" in general means a cost assigned for purposes of settlements hereunder to energy supplied as energy interchange. It is to be expressed in mills per kilowatt-hour delivered at interconnection points and is to comprise

		
	(i)
	the base cost of such energy at power resources as defined in paragraphs B5.5 and B5.6,

		
	(ii)
	the base cost of energy obtained by decreasing energy sales to third parties as defined in paragraph B5.7, and

		
	(iii)
	the base cost transmission allowance, if any, provided in paragraph B5.8.

-7-

		
	B5.5
	"Base Cost" as applied specifically to energy from thermal generating stations, in terms of net output at high voltage station buses, means the sum of

		
	(i)
	incremental fuel cost of the station or unit from which energy is obtained, such incremental cost being estimated over the applicable range of variation in output, plus

		
	(ii)
	Additional cost, if any be incurred, of starting up a station or unit specifically for supply of energy interchange, plus

		
	(iii)
	an allowance for other incremental costs, including incremental accrued maintenance and any other elements of incremental costs. The normal allowance for such other incremental costs at steam generating stations, until the Operating Committee shall provide for determination in some other manner, shall be as follows:

	
				
	Type of
Generating Unit
	 
	Other Incremental Costs
Mills per Kilwatt-hour

	 
	 
	Gas & Oil
	Coal

	Over 1350 psig
	 
	0.15
	0.20

	750 to 1350 psig
	 
	0.25
	-

	Under 750 psig
	 
	0.65
	-

	 
	 
	 
	 

		
	B5.6
	"Base cost" as applied specifically to purchased energy means the incremental or out-of-pocket costs actually resulting from the increased taking from the purchased energy source.

		
	B5.7
	"Base cost" as applied specifically to decrease in energy sales to third parties means the out-of-pocket loss actually resulting from the decrease in such sales.

-8-

		
	B5.8
	"Loss Allowance," positive or negative, means an allowance for incremental transmission loss incurred or avoided from the incremental source of energy interchange to point of interchange delivery, which allowance shall be five percent unless and until the Operating Committee shall establish some different allowance or range of allowances.

		
	B5.9
	"Base Value" in general means a value assigned for purposes of settlements hereunder to energy received as energy interchange. It is to be expressed in mills per kilowatt-hour received at interconnection points and is to comprise

		
	(i)
	the base value at power sources of energy displaced as defined in paragraph B5.10,

		
	(ii)
	the base value at delivery points of energy resold as defined in paragraph B5.11, and

		
	(iii)
	the base value transmission allowance, if any, provided in paragraph B5.8.

		
	B5.10
	"Base value" as applied specifically to an alternative source of generation or purchased energy has a meaning corresponding to that of' "base cost" in the case of the supplying party (as defined in paragraphs B5.5 through B5.7) except that the incremental costs involved are those avoided rather than those incurred, after allowance for subsequent additional cost, if any be incurred, for starting up a station or unit specifically resulting from having received energy interchange.

		
	B5.11
	"Base value" as applied specifically to energy interchange which is resold as such means the incremental or in-pocket gain received for such resold energy at the point of resale.

-9-

		
	B5.12
	"Ceiling value" as applied to energy interchange received means a maximum value which shall be used instead of base value in cases where base value is not determined or is higher. Until and unless the Operating Committee shall establish a different value, ceiling values shall be the higher of the following:

(a)    9 mills per kilowatthour
(b)    120 percent of suppliers base cost
		
	B5.13
	"Emergency capacity" of a power source as of any day means the amount of power which that source can be depended upon to supply under emergency conditions of infrequent occurrence. It is to be determined as to all power sources in terms of net kilowatt input into transmission and distribution feeders at power sources and as to classes of power sources on the following basis:

		
	(a)
	As to thermal generating units, the capacity of such units at those kilowatt ratings which the owner is willing and able to use for 5 hours of continuous operation;

		
	(b)
	As to third party sources of purchased power, 104% of the capacity contractually available on that day in the case of firm power sources, and the amount actually being received in the case of secondary or interruptible sources.

		
	B5.14
	"Peak-prepared-for" means, as to either party for any day, the sum in kilowatts during the peak period of that day of

		
	(i)
	emergency capacity of its generating facilities actually in operation, plus

		
	(ii)
	the emergency capacity from third party sources as defined in paragraph B5.13(b) above and actually

-10-

available, the peak period for that day being that hour when the combined load of the parties' systems is at a maximum for that day.
		
	B5.15
	"Peak spinning reserve" means, as to either party for any day, the kilowatts of peak-prepared for less the kilowatts of load carried by that party's sources of power, not including energy interchange generated for the other party, during the aforesaid peak period for that day.

		
	B5.16
	"Peak spinning reserve quota" means, as to a party for any day, the aggregate peak spinning reserve of the parties' systems multiplied by a factor equal to the "reserve responsibility ratio" of that party derived as provided in paragraph C3.8 of Service Schedule "C", but not to exceed the responsibility ratio multiplied by the largest single hazard of the combined systems for which the Operating Committee has agreed to supply spinning reserve protection. Unless otherwise agreed upon by the parties the peak spinning reserve quota shall not apply during the interim period defined in Paragraph A5.7 of Service Schedule A and any interchange of spinning reserve during the interim period shall be accounted for as provided in Paragraph B7.1 hereof.

SECTION 6
SETTLEMENTS FOR ENERGY INTERCHANGE
		
	B6.1
	Settlements with respect to energy interchange transactions hereunder shall be by payment by the receiving party to the supplying party of an amount equivalent to the base cost to the supplying party plus one-half of the aggregate saving indicated by subtracting such base cost from the base value to the receiving party or from the ceiling value as the case may be. The data for computing such settlements shall be recorded on the basis of clock hour intervals, and computations for such settlements shall be carried out monthly.

-11-

		
	B6.2
	The monthly bill for the aggregate net amount of money resulting from energy interchange shall be rendered by the party to whom such aggregate net amount is due. The bill shall show the aggregate gross transactions in each direction in kilowatthours and in money amounts.

		
	B6.3
	Payment of bills with respect to energy interchange transactions hereunder shall be made monthly on the basis provided in Article 7 of the Interconnection Agreement.

		
	B6.4
	If circumstances arise such that the parties consider it desirable that certain specific energy interchanges or other non-firm intersystem energy transactions should be carried out and settled for on some special arrangement (such for instance as by non-concurrent return of energy either in equivalent amount or in some ratio other than unity of energy returned to energy supplied),  it shall be within the responsibility of the Operating Committee to work out such arrangement and such form of settlement. Any such arrangements so worked out by the Operating Committee shall not be effective for a longer period than 30 days unless approved by the parties.

SECTION 7
SETTLEMENTS FOR SPINNING RESERVE
		
	B7.1
	Settlement with respect to surplus or deficiency of peak spinning reserve compared with peak spinning reserve quota shall be based upon a charge per kilowatt per day payable by the party with a deficiency to the party with a surplus. Such charge shall be established from time to time by the Operating Committee on the basis of the estimated average incremental costs per kilowatt per day of providing spinning reserve capacity over the heavy load period of the day. Unless and until the Operating Committee shall establish a difference charge, such charge shall be 6.0 mills per kilowatt  per day of peak spinning reserve

-12-

deficiency, provided that during the interim period, spinning reserve interchange shall be calculated at a rate equal to actual cost of starting up units specifically for spinning reserve.
		
	B7.2
	The monthly bill for the aggregate net amount of money resulting from spinning reserve interchange shall be rendered by the party to whom such aggregate net amount is due. The bill shall show the aggregate gross transactions in each direction in kilowatt-days and in money amounts.

B7.3         Payment of bills with respect to spinning reserve interchange hereunder shall be made monthly on the    basis provided in Article 7 of the Interconnection Agreement.
This Service Schedule B is agreed upon as of the date of the Interconnection Agreement.

EL PASO ELECTRIC COMPANY

BY     /s/ [ILLEGIBLE]    
PRESIDENT
Attest:

/s/ [ILLEGIBLE]    
PUBLIC SERVICE COMPANY OF NEW MEXICO 

BY     /s/ [ILLEGIBLE]    
PRESIDENT
Attest:

/s/ [ILLEGIBLE]    

-13-

SERVICE SCHEDULE C
RESERVE CAPACITY AND RECIPROCAL EMERGENCY ASSISTANCE

	
				
	 
	 
	 
	Page

	Section l
	Purpose
	 
	1

	Section 2
	Term 
	 
	2

	Section 3
	Definitions 
	 
	2

	Section 4
	Reserve Capacity 
	 
	7

	Section 5
	Reciprocal Emergency Assistance 
	 
	9

	Section 6
	Responsibilities of Committees 
	 
	10

SERVICE SCHEDULE C
RESERVE CAPACITY AND
RECIPROCAL EMERGENCY ASSISTANCE
This Service Schedule C is agreed upon as part of the Interconnection Agreement between El Paso Electric Company and Public Service Company of New Mexico.
SECTION 1
PURPOSE
C1.1        The purpose of this Service Schedule C is
		
	(i)
	to establish minimum generating reserve requirements for the combined operations of the parties and the responsibility of each party to provide its proportionate share,

		
	(ii)
	to establish arrangements for either party to purchase reserve generating capacity from the other party, and

		
	(iii)
	to establish conditions and terms for reciprocal emergency assistance between the parties under emergency conditions when power supply to consumers is threatened or curtailed in either system.

		
	C1.2
	It is not contemplated by the parties that purchase of reserve generating capacity under terms of this service schedule are likely to be used ordinarily by either party to offset a capacity deficiency in its system of continuing character or of major magnitude, or as an alternate to increasing its power resources by other means. However, the provisions for purchase of reserve generating capacity are intended to be applicable to any disparity in margin of reserve capacity which may from time to time exist, including conditions of zero margin or negative margin on one of the systems.

-1-

SECTION 2
TERM
		
	C2.1    
	This service schedule shall become effective concurrently with the Interconnection Agreement and shall continue in effect for an initial period of five (5) years from the effective date, and thereafter until terminated by either party by notice to the other party given at least three (3) years in advance of the date of the termination designated in the notice; provided however, that in event of termination at any time of the Interconnection Agreement this service schedule shall terminate simultaneously.

SECTION 3
DEFINITIONS
		
	C3.1
	For the purpose of this service schedule the terms set forth below shall have the meanings indicated.

		
	C3.2
	"Daily system demand", as applied to the interconnected system of either party for any day, means the aggregate power requirements for supplying its firm power customers, but not including any power sale by one party to the other. Furthermore, it does not include the power requirements for supplying

		
	(i)
	any interruptible or secondary power loads which the party has the right to discontinue at its discretion and which it is the party's practice to discontinue when need arises, or

		
	(ii)
	any load which the party is supplying contingent upon the availability for operation in its system of one or more particular generating units.

Daily system demand is to be expressed in terms of net kilowatt input into transmission and distribution feeders at power sources or such other points as the Operating Committee may specify for 

-2-

the clock hour during which such aggregate power requirements are a maximum.
		
	C3.3
	"Monthly system demand," as applied to the interconnected system of either party for any month, means the average of the three highest daily system demands occurring during the twelve- month period comprising the current month and the preceding eleven months, said three demands to be selected so that not more than one of the three is from the same calendar week and not more than two of the three are from the same calendar month.

		
	C3.4
	"Accredited capacity" of a power source of either party means the amount of power which that source can contribute to meeting the power requirements of that party's interconnected system, provided that in determining the aggregate accredited capacity of a party no reduction shall be made because of the first 45 days of any period of temporary unavailability of a generating unit or other power source arising from outage for inspection, repair or rehabilitation, and provided further that the Operating Committee at its discretion may waive the omission of such generating unit or other power source from accredited capacity for a longer period of unavailability than 45 days. Accredited capacity is to be determined as to all power sources in terms of net kilowatt input into transmission and distribution feeders at power sources, or at such other points as the Operating Committee may specify, and as to classes of power sources on the following basis:

(a)    Thermal generating stations, on the basis
(i)    of all essential equipment being available for service.

-3-

(ii)    of condensing water temperatures being those normally available as an average during the month of the year when combined system load is maximum, and
(iii)    at those kilowatt ratings for individual generating units which the owner is willing to use for regular day-to-day operation on a 24-hour schedule for base load units and on a 10-hour schedule for peaking units;
		
	(b)
	Purchased or contract power, on the basis of the capacity available under contracts in regular day-to-day operation during the heavy load hours of the purchaser's system.

		
	C3.5
	"System capacity," as applied to the interconnected system of either party for any month, means the summation of the accredited capacities of its power sources after

(i)    deducting a number of kilowatts equal to the contract demand of any firm power sales to the other party, and after
(ii)    deducting a number of kilowatts equal to the contract demand of any capacity which the party is supplying to the other party or to third parties contingent upon the availability for operation in its system of one or more particular generating units.
(iii)    the Contingent Contract Demand will constitute:
		
	(a)
	a deduction in the determination of the system capacity of El Paso.

		
	(b)
	an addition in the determination of the system capacity of New Mexico.

-4-

		
	C3.6
	"Reserve Margin", as applied to the Interconnected System of either party for any month, means the excess of that party's system capacity over its monthly system demand adjusted by adding thereto the amount of reserve capacity contractually available from third party systems; provided, however, that reserve capacity contractually available to both systems shall be accounted for by appropriate reduction in the largest single combined hazard for which reserve margin is to be provided pursuant to Section C3.9 hereof;  and,  provided further, that the Operating Committee shall establish suitable procedures for determining adjustments for reserve capacity available from third party systems.

		
	C3.7
	"Largest single hazard," as applied to the interconnected system of either party for any month, means the maximum amount of reduction in its system capacity which would result from the outage of any single generating unit or any single transmission circuit. In case a party is supplying capacity contingent upon the availability of one particular unit in its system, the hazard from the outage of such unit shall be the accredited capacity of that generating unit minus the contract demand of such contingent capacity. In case a party is supplying capacity contingent upon the availability of two or more particular generating units, the hazard from the outage of any one such unit shall be the accredited capacity of that unit minus a number of kilowatts equal to the contract demand of such contingent capacity divided by the number of supplier's generating units upon the availability of which the supply of such capacity is contingent.

-5-

		
	C3.8
	"Reserve responsibility ratio," as applied to the interconnected system of either party for any month, means the following ratio:

		
	(a)
	largest single hazard of that system plus 25% of the monthly system demand of that system, divided by

		
	(b)
	Sum of the largest single hazards of each of the systems plus 25% of the sum of the monthly system demands of each of the systems.

		
	C3.9
	"Reserve responsibility," as applied to the interconnected system of either party means a number of kilowatts equal to the reserve responsibility ratio of the system multiplied by the largest single hazard of the combined systems for which the parties shall have agreed upon in advance to jointly provide reserve generating capacity, provided that if either party should in the future establish a largest single hazard which is greater than the parties have mutually agreed upon to jointly provide reserve generating capacity, then in such event the reserve responsibility of the party establishing the greater hazard shall be increased by the difference between its largest single hazard and the largest hazard for which the parties have agreed to jointly provide generating capacity; and, provided further, that the provisions of this Service Schedule C regarding reserve responsibility shall not apply prior to the date of firm operation of Unit No. 4 of the Four Corners Project.

		
	C3.10
	"Reserve deficiency," as applied to the interconnected system of a party, means the number of kilowatts by which that party's reserve responsibility exceeds its reserve margin.

-6-

		
	C3.11
	"Reserve power," means power which a party is entitled to receive to protect or restore service in its system up to the amount of such system's reserve deficiency, under the conditions set out in paragraph C4.l.

		
	C3.12
	"Emergency assistance," means power which a party needs to receive in order to protect or restore service in its system which it is not entitled to call for as reserve power (either because it needs more power than its reserve power entitlement or because it is not the party having a reserve deficiency and paying a reserve capacity charge).

SECTION 4
RESERVE CAPACITY
		
	C4.1
	Reserve Power - During any period when one of the parties has a reserve deficiency and is paying a capacity charge thereon as provided in paragraph C4.2, such party shall be entitled to receive from the other party, at an active interconnection point, reserve power under the following conditions:

		
	(a)
	When the supply of such reserve power will not require the suppling party to curtail supply of interruptible or secondary power to third parties or to start up cold generating equipment;

		
	(b)
	After all of the reserve power available under the conditions of subparagraph (a) above has been supplied and it is necessary in order to protect or restore service to the combined firm load requirements to curtail deliveries of interruptible or secondary power or to start up cold generating equipment, or both, the entitle- 

-7-

ment to receive additional reserve power and the obligation to supply such additional reserve power shall be on the basis of each party curtailing delivery of interruptible or secondary power in proportion to its reserve responsibility ratio;
		
	(c)
	After all of the reserve power available under conditions of subparagraphs (a) and (b) above has been supplied and there are still insufficient aggregate power resources available in the systems to meet aggregate firm load requirements, curtailment of firm load by the parties shall be in accordance with operating procedures to be established by the Operating Committee.

		
	C4.2
	Reserve Capacity Charge - From and after the date of commercial operation of Unit No. 4 of the Four Corners Project, a party having a reserve deficiency in any month will pay to the other party a reserve capacity charge for that month in an amount equal to its reserve deficiency in kilowatts multiplied by the applicable rate set out below.

		
	$0.7917
	per kilowatt per month for the first 10,000 kilowatts, plus

		
	$0.8750
	per kilowatt per month for the next 10,000 kilowatts, plus

		
	$0.9583
	per kilowatt per month for all additional kilowatts.

		
	C4.3
	Reserve Capacity Surcharge - If in any month the reserve margin of one party's interconnected system shall be negative, such party will pay a surcharge to the other party of $0.25 per kilowatt-month on the 

-8-

kilowatts of negative reserve margin; provided, however, that such surcharge shall be inapplicable during any specified period as to which the parties may have agreed in advance to its waiver.
		
	C4.4
	Energy Charge for Reserve Power - The energy received in connection with use of reserve power by the receiving party, shall be accounted for as energy interchange, and settlements therefor shall be made as provided for in Service Schedule B.

		
	C4.5
	Payment of Bills - Payment of bills with respect to reserve capacity transactions hereunder shall be made monthly on the basis provided in Article 7 of the Interconnection Agreement.

SECTION 5
RECIPROCAL EMERGENCY ASSISTANCE
		
	C5.1
	Either party will, upon request of the other party, supply as emergency assistance such power as the requesting party may need in order to protect or restore service to its firm power customers, subject to the availability of such power and subject to the condition that such supply will not result in impairment of or serious jeopardy to firm power service in the supplier's system. A party from whom emergency assistance is requested will to the extent required call upon all power sources available to it and will give such emergency assistance priority over interruptible or secondary deliveries to third parties.

		
	C5.2
	There shall be no demand charge in connection with emergency assistance, and the energy received in connection therewith shall be accounted for as energy interchange and settlements therefor shall be made as provided for in Service Schedule B.

-9-

		
	C5.3
	Payment of bills with respect to energy interchange transactions hereunder shall be made monthly on the basis as provided in Article 7 of the Interconnection Agreement.

SECTION 6
RESPONSIBILITIES OF COMMITTEES
		
	C6.1
	The Operating Committee shall determine from time to time what portions,· if any, of either party's interconnected system are so ineffectively interconnected that they cannot suitably be included as part of the party's interconnected system for purposes of this service schedule.

		
	C6.2
	The Operating Committee, in addition to the general responsibilities assigned to it in the Interconnection Agreement, shall establish rules and standard practices for determining system demands,  accredited capacities and reserve capacity deficiencies, consistent with the definitions in Section C3, shall approve the accredited capacities assigned to power sources before they become effective for computing settlements hereunder and shall review at least quarterly the accredited capacities then in effect.   

		
	C6.3
	It shall be within the scope of the responsibilities of the Coordination Committee to review· and make revisions of the following provisions hereof; provided, however, that revisions of the charges referred to in subparagraphs (b) and (c) shall be subject to the approval of the parties.

		
	(a)
	The provisions of paragraph C3.8 in respect to the relative weight to be given to the system demand and to the largest single hazard;

-10-

		
	(b)
	The provisions of C4.2 in respect of the rates per kilowatt-month for the reserve capacity charge;

		
	(c)
	The provisions of paragraph C4.3 in respect of the reserve capacity surcharge.

This Service Schedule C is agreed upon as of the date of the Interconnection Agreement.

EL PASO ELECTRIC COMPANY

BY     /s/ [ILLEGIBLE]    
PRESIDENT
Attest:

/s/ [ILLEGIBLE]    
PUBLIC SERVICE COMPANY OF NEW MEXICO 

BY     /s/ [ILLEGIBLE]    
PRESIDENT
Attest:

/s/ [ILLEGIBLE]    

-11-

SERVICE SCHEDULE E
INTERRUPTIBLE TRANSMISSION SERVICE

This Service Schedule E is entered into as of March 1, 1979, and is agreed upon as a part of the Interconnection Agreement between El Paso Electric Company and Public Service Company of New Mexico, dated July 19, 1966, as amended April 6, 1977.

SECTION 1
PURPOSE

In order for either Party to utilize certain power and energy available to it, each Party shall make available to the other such transmission capacity determined to be surplus by the providing Party, as may be requested by the other Party. The transmission capacity shall be provided hereunder on an interruptible basis, and such capacity shall be provided only when it will not result in impairment of or jeopardy to service in the system of the Party providing service.

SECTION 2
TERM

This Service Schedule shall become effective upon execution by both Parties, subject to its acceptance for filing by the Federal Energy Regulatory Commission, and shall remain in effect concurrently with the Interconnection Agreement dated July 19, 1966, as amended, unless modified or superseded by some other agreement between the Parties; however, 

-1-

either Party may cancel this Service Schedule E by giving not less than sixty (60) days written notice to the other Party of such intent to cancel.

SECTION 3
SERVICE

3.1    Wheeling for El Paso: All deliveries made under this section shall be considered as originating from the source selected by El Paso. Power and energy delivered by El Paso to New Mexico for transmission by New Mexico to a designated Point of Delivery shall include power and energy to compensate for transmission losses. Under this Service Schedule E, New Mexico shall accept for transmission such power and energy as El Paso may request, up to the amount which in New Mexico's sole opinion is available in New Mexico's transmission system.

3.2    Wheeling for New Mexico: All deliveries made under this section shall be considered as originating from the source selected by New Mexico. Power and energy delivered by New Mexico to El Paso for transmission by El Paso to a designated Point of Delivery shall include power and energy to compensate for transmission losses. Under this Service Schedule E, El Paso shall accept for transmission such power and energy as New Mexico may request, up to the amount which in El Paso's sole opinion is available in El Paso's transmission system.

3.3    Surplus transmission capacity and amounts to be wheeled shall be agreed upon by the respective dispatchers of the Parties from time to time in advance of scheduling usage.

-2-

SECTION 4
LOSSES

Unless and until the Operating Committee shall assign a different loss factor, losses shall be assigned to the receiving Party at the rate of three percent (3%) of the power and energy scheduled for transmission hereunder.

SECTION 5
RATE

It is agreed by the Parties that as consideration for the interruptible wheeling service as provided herein, the Party receiving transmission service shall compensate the Party providing transmission service at the rate of one (1) mill per kWh scheduled for transmission hereunder.

SECTION 6
OTHER PROVISIONS

Other terms and conditions of this Service Schedule shall be as set forth in the Interconnection Agreement of July 19, 1966, as amended between the Parties.

-3-

IN WITNESS THEREOF, the Parties have caused this Service Schedule E to be executed by their duly authorized officers and their corporate seals to be affixed, all as of the day and year first herein written.

	
						
	 
	 
	 
	 
	 
	 

	ATTEST:
	 
	 
	EL PASO ELECTRIC COMPANY
	 

	 
	 
	 
	 
	 
	 

	/s/ [ILLEGIBLE]
	 
	 
	BY
	/s/ [ILLEGIBLE]
	 

	Secretary
	 
	 
	 
	Vice-President
	 

	 
	 
	 
	 
	 
	 

	ATTEST:
	 
	 
	PUBLIC SERVICE COMPANY OF NEW MEXICO 

	 
	 
	 
	 
	 
	 

	/s/ [ILLEGIBLE]
	 
	 
	BY
	/s/ [ILLEGIBLE]
	 

	Secretary
	 
	 
	 
	Vice President
	 

	 
	 
	 
	 
	 
	 

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SERVICE SCHEDULE F
SHORT-TERM ENERGY SALE

This Service Schedule F is entered into as of January 28, 1983, and is agreed upon as part of the Interconnection Agreement between El Paso Electric Company (El Paso) and Public Service Company of New Mexico (New Mexico), dated July 19, 1966, as amended April 6, 1977.

SECTION 1
PURPOSE

1.1.     New Mexico will have, in addition to energy already reserved for other customers, surplus energy available during the mid-1980s. El Paso will have the ability to reduce the generation of gas-fired energy from their generation resources through the purchase of more economical energy during the period March 1983 through January 1984. The  parties now desire by this  Service Schedule F to establish terms and conditions under which nonfirm energy may be sold by New Mexico to El Paso thereby making more efficient  use of the parties' electrical system resources.

SECTION 2
TERM

2.1    This Service Schedule F shall become effective upon its execution by the parties subject to its acceptance for filing by the Federal Energy Regulatory Commission. This Service Schedule F shall continue 

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in force and effect until January 31, 1984, and from month to month thereafter, until terminated by either party in accordance with Section 2.3. Such termination shall not relieve El Paso of its obligation to make payments, in accordance with Section 7 hereof, for energy purchased prior to the termination date.

2.2    The date of initial service, upon which date deliveries of energy to El Paso shall commence (hereinafter referred to as the "Date of Initial Service"), shall be March 1, 1983; provided, that El Paso is satisfied that the Texas Public Utility Commission will allow full pass through of El Paso's expenses incurred hereunder through its jurisdictional fuel adjustment clause. In the event El Paso notifies New Mexico prior to March 1, 1983, that it has been unable to obtain such rate treatment for its expenses hereunder, the Date of Initial Service shall be changed to a later date satisfactory to both parties or, in the event the parties fail to agree, this Service Schedule shall be renegotiated to provide the parties the respective benefits presently anticipated to be obtained hereunder and allowing rate treatment satisfactory to El Paso.

2.3    Either party may unilaterally terminate this Service Schedule F upon at least 30 days written notice to the other party specifying a termination date, provided that such termination date shall not be earlier than January 31, 1984. In the event both parties give notice of termination, in accordance with the above, the earliest date selected shall be the termination date.

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SECTION 3
SERVICE

3.1    New Mexico shall make available to El Paso, and El Paso shall purchase during the term hereof, energy, in the amount of approximately four hundred (400) gigawatt hours, at a minimum rate of delivery of fifty (50) megawatts each hour, subject to the conditions set forth in Sections 3 and 4 hereof. For purposes of this Service Schedule F, the energy assocated with a delivery rate of fifty (50) megawatts per hour shall be deemed to be "Block Energy."

3.2    Should Block Energy schedules be reduced by either party pursuant to Section 4.1.2 or Section 4.2.2, respectively, the parties will use their best efforts to reschedule and deliver that Block Energy not previously delivered, during similar hours within the next succeeding thirty (30) days. In the event the parties are unable to reschedule deliveries of Block Energy not previously delivered within the above stated thirty (30) day period, the Operating Committee, pursuant to Section 5.9 of the Interconnection Agreement, may mutually agree to reschedule Block Energy not previously delivered prior to the date of termination of this Service Schedule F. New Mexico shall have no obligation to deliver rescheduled Block Energy during any hour if the costs to New Mexico to deliver such energy exceeds the rate for energy stated in Section 7.1.1 of this Service Schedule F.

3.3    A party's obligation to schedule or deliver Block Energy, including that under Section 3.2, shall cease upon the termination of this Service Schedule F.

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SECTION 4
INTERRUPTIBILITY

4.1     New Mexico may curtail or interrupt deliveries to El Paso in accordance with the following:

4.1.1    Immediately, upon verbal notice to El Paso, if the scheduled energy is required to serve New Mexico's firm customer load, or without notice if due  to  Uncontrollable  Forces,  as  defined  in  Section 8.1 of the Interconnection Agreement.

4.1.2    Upon providing a minimum of two hours verbal notice to El Paso, if New Mexico's cost to generate or procure energy for delivery hereunder is more than the rate specified in Section 7.1.1 hereof and provided that all New Mexico economy energy sales to third parties are reduced to zero.

4.2                   El Paso may curtail or interrupt its scheduled deliveries of Block Energy from New Mexico in accordance with the following:

4.2.1    Immediately, without notice, if due to Uncontrollable Forces, as defined in Section 8.1 of the  Interconnection Agreement.

4.2.2    Upon providing a minimum of two hours verbal notice to New Mexico, if system operating conditions, other than Uncontrollable Forces, limit El Paso's ability to import energy hereunder and provided 

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that all of El Paso's economy energy imports have been reduced to zero. El Paso's rights to curtail or interrupt its scheduled receipts hereunder are limited to a maximum aggregate reduction of schedules of one (1) gigawatt hour each calendar month, except, if unexpected system operating conditions limiting El Paso's ability to import energy persist, El Paso may continue to curtail or interrupt deliveries of Block Energy hereunder, over and above one (1) gigawatt hour each calendar month, provided all of El Paso's imports from  third  parties have been reduced to zero.

4.3     In the event Block Energy schedules are curtailed or interrupted pursuant to Section 4.1 or 4.2 hereof, Block Energy schedules shall be reinitiated two hours after notification by the party originating the reduction of schedule that it is prepared to resume the schedule unless the system dispatchers mutually agree to a lesser period. Such notification to resume Block Energy schedules shall be given by the originating party as soon as possible after any such curtailment or interruption.

SECTION 5
ADDITIONAL ENERGY DELIVERIES

5.1     The rate of delivery for any hour may be increased by mutual agreement of the system dispatchers to provide deliveries of additional energy to El Paso by New Mexico. Such energy shall not be considered a part of the Block Energy to be provided pursuant to Section 3. In such event, either party may reduce the increased schedule upon verbal notice to the other party provided, however, that  New  Mexico's aggregate 

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schedule to El Paso shall not be reduced to less than the hourly rate of fifty (50) megawatts each hour, except as provided in Section 4 hereof.

SECTION 6
POINT OF DELIVERY

6.1     The Point of Delivery for transactions hereunder shall be Public Service Company of New Mexico's West Mesa 345 kV switching station, located near Albuquerque, New Mexico.

6.2     Other delivery points may be mutually agreed upon by the parties' respective system dispatchers if energy deliveries cannot be made available by Public Service Company of New Mexico, or accepted by El Paso, at West Mesa.

SECTION 7
RATES

7.1    Commencing on the Date of Initial Service, and in consideration of the faithful performance of the convenants of this Service Schedule, El Paso shall pay New Mexico:

7.1.1    For all energy delivered hereunder at a rate of delivery of 50 MW or less per hour, twenty-four ($24.00) dollars per megawatt hour.

7.1.2    For all energy delivered hereunder at a rate of delivery in excess of 50 MW per hour, (a) twenty-three dollars ($23.00) per megawatt 

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hour, and (b) if the state of New Mexico imposes any new tax upon electrical energy generated within the state of New Mexico which is appropriately assessed upon the energy described in this Section 7.1.2, El Paso shall pay to Hew Mexico the amount of such tax up to a limit of the rate of one ($1.00) dollar per megawatt hour.

7.2     The charges specified in Sections 7.1.l and 7.1.2 hereunder shall not be subject to change during the term of this Service Schedule F.

7.3  The monthly billings and payments shall be addressed as follows:

		
	7.3.l
	El Paso Electric Company

Post Office Box 982
El Paso, Texas 79960

Attention: General Accounting Department

Public Service Company of New Mexico
Alvarado Square
Albuquerque,  New Mexico 87103

Attention: Cash Management

SECTION 8
OTHER PROVISIONS

8.1     Other terms and conditions of this Service Schedule F, as applicable, shall be as set  forth  in the Interconnection Agreement of July 19, 1966, as amended between the parties.

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IN WITNESS THEREOF, the parties have caused this Service Schedule F to be executed by their duly authorized officers all as of the day and year first herein written.

EL PASO ELECTRIC COMPANY

BY     /s/ [ILLEGIBLE]    
Vice President

PUBLIC SERVICE COMPANY OF NEW MEXICO 

BY     /s/ [ILLEGIBLE]    
Sector Vice President

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SERVICE SCHEDULE G
TRANSMISSION SERVICE FOR EPE

This Service Schedule G is agreed upon as a part of the Interconnection Agreement between El Paso Electric Company (EPE) and Public Service Company of New Mexico (PNM).

G.1    PURPOSE

G.1.1    The purpose of this Service Schedule is to provide the terms and conditions under which PNM agrees to reserve and provide firm transmission capacity in the PNM transmission system for EPE.

G.2    DEFINITIONS

G.2.1    The following terms, when used herein, whether in the singular or in the plural, shall have the meanings specified;

G.2.2    ANPP: The Arizona Nuclear Power Project, consisting of three electrical generating units, associated 500 kV switchyard, and certain 500 kV transmission lines within the state of Arizona.

G.2.3    FCAP: The planned Four Corners-Ambrosia-Pajarito transmission line together with related termination facilities.

G.2.4    Springerville-Luna-El Paso Transmission Project: EPE's planned 345 kV transmission line emanating from Tucson Electric Power 

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Company's and PNM's Springerville 345 kV switching station and looped in and out of the Luna 345 kV switching station, then onto and terminating in the vicinity of El Paso, Texas.

G.3    TERM

G.3.1    Subject to the acceptance of the Federal Energy Regulatory Commission (FERC), and unless otherwise agreed by the Parties in writing, service under this Service Schedule shall commence on  the earlier of the commercial operation date of ANPP Unit 2 or May 1, 1985.

G.3.2    This Service Schedule shall remain in effect until the earlier of the in-service date of FCAP or May 1, 1995, unless terminated earlier pursuant to section G.4.2 or section G.5.2; provided that if EPE's reserved transmission capacity is reduced to zero (O) megawatts at anytime after June 1, 1987, this Service Schedule shall terminate.

G.4         SERVICE TO BE PROVIDED

G.4.1    Period I: Commencing the earlier of the commercial operation date of ANPP Unit 2 or May 1, 1985, until the in-service date of EPE's Springerville-Luna-El Paso Transmission Project, but no later than June 1, 1987, PNM shall reserve one hundred (100) megawatts in aggregate of firm bidirectional transmission capacity for EPE to schedule as EPE requires between the San Juan and West Mesa 345 kV switchyards, the Four Corners and West Mesa 345 kV switchyards, and the Greenlee and Luna 345 kV switchyards; provided, however, EPE's scheduled usage of PNM's 

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transmission capacity between the Greenlee and Luna 345 kV switchyards may not exceed fifty (50) megawatts.

G.4.2    Period II: Commencing on the earlier of the in-service date of EPE's Springerville-Luna-El Paso Transmission Project or June 1, 1987, until the in-service date of FCAP, PNM shall reserve fifty (50) megawatts in aggregate of firm bidirectional transmission capacity for EPE to schedule as EPE desires between the San Juan and West Mesa 345 kV switchyards and the Four Corners and West Mesa 345 kV switchyards. EPE shall have the option during Period II to increase the amount of reserved transmission capacity by an addition of up to fifty (50) megawatts with two (2) years advance notice to PNM. PNM shall be obligated to reserve the additional firm transmission capacity only to the extent it is available. EPE shall have the option to reduce or terminate service under this Service Schedule upon two (2) years advance written notice to PNM, such reduction or termination to be effective no earlier than June 1, 1987.

G.5    PAYMENT FOR SERVICE

G.5.1    EPE's average scheduled usage of transmission capacity reserved by PNM hereunder coincident with PNM's monthly system peak is estimated to be approximately fifty percent of such reserved transmission capacity on an annual basis. PNM and EPE have agreed that transmission service hereunder shall take such diversity into consideration and therefore, EPE shall pay $1.50/kW-month for such reserved transmission capacity; provided, however, that in each contract year, EPE shall use 

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its best efforts to limit the sum of its megawatt wheeling schedules for the transmission capacity reserved hereunder during the PNM system peak hour of each month to twelve (12) times the reserved transmission capacity times the diversity value used in PNM' s rate filing to derive the $1.50/kW-month.

G.5.2    At any time subsequent to the initial rate acceptance by the FERC, PNM may unilaterally file with the FERC for an increase in such rate under Section 205 of the Federal Power Act; provided, however, that any increase in rate shall not become effective prior to June 1, 1987. After final approval by the FERC of any rate change hereunder or 180 days after the rates have been placed into effect, whichever occurs sooner, EPE shall, for a period of thirty (30) days, have an option to terminate or reduce service under this Service Schedule immediately.

G.6    LOSSES

G.6.1    PNM shall be reimbursed by the return of energy by EPE for actual average system losses as such losses result from EPE's use of PNM's transmission system hereunder. The methodology for determining such losses shall be agreed upon by the Operating Committee prior to January 1, 1985. In the event the Operating Committee is unable to mutually agree by such time, the loss methodology issue shall be resolved in accordance with Section 4.4 (Disagreements) of the PNM/EPE Interconnection Agreement.

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G.7    MISCELLANEOUS

G.7.1    Other terms and conditions of this Service Schedule G shall be as set forth in the PNM/EPE Interconnection Agreement; provided, however, in the event of a conflict between this Service Schedule G and the PNM/EPE Interconnection Agreement, this Service Schedule G shall govern.

G.7.2    In the event this Service Schedule G shall be terminated, the obligations of the Parties with respect to payment for transmission service received prior to the termination date shall continue until all payments due under this Service Schedule G have been made.

Executed in duplicate this 18th day of March, 1983.

	
						
	 
	 
	 
	 
	 
	 

	 
	 
	 
	PUBLIC SERVICE COMPANY OF NEW MEXICO

	 
	 
	 
	 
	 
	 

	 
	 
	 
	BY
	/s/ [ILLEGIBLE]
	 

	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 

	ATTEST:
	 
	 
	EL PASO ELECTRIC COMPANY
	 

	 
	 
	 
	 
	 
	 

	 
	 
	 
	BY
	/s/ [ILLEGIBLE]
	 

	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 

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November 15, 1993
M. PHYLLIS BOURQUE
SENIOR VICE PRESIDENT
MARKETING & ENERGY MANAGEMENT

Mr. Curtis L. Hoskins
Executive Vice President &
Chief Operating Officer
El Paso Electric Company
303 North Oregon Street-Mills Building
El Paso, TX 79901

Dear Mr. Hoskins:

Subject: Amendment to Service Schedule G

Section 5.1 of the TRANSITION AGREEMENT BETWEEN EL PASO ELECTRIC COMPANY (EPE) AND PUBLIC SERVICE COMPANY OF NEW MEXICO (PNM) dated September 2, 1993 (Transition Agreement), contemplates that PNM and EPE would amend SERVICE SCHEDULE G dated March 18, 1983 (Service Schedule G), as follows:

To be effective on the date of execution of this letter, Section G.3.2 of Service Schedule G shall be deleted in its entirety and shall be replaced to read as follows:

"G.3.2 This Service Schedule shall remain in effect until September 1, 1995, unless extended by mutual agreement of the Parties.·

Except as otherwise provided herein, the terms and conditions of Service Schedule G shall remain in full force and effect.

Your signature in the space provided below shall indicate EPE's agreement to and acceptance of this amendment to Service Schedule G.

SERVICE SCHEDULE H
BLOCK ENERGY SALE
This Service Schedule H is entered into as of March 16, 1984, and is agreed upon as part of the Interconnection Agreement between El Paso Electric Company (El Paso) and Public Service Company of New Mexico (New Mexico) dated July 19, 1966, as amended.
SECTION 1
PURPOSE
New Mexico will have, in addition to energy already reserved for other customers, surplus energy available during 1984. El Paso will have the ability to reduce the generation of gas-fired energy from their generation resources through the purchase of more economical energy during the term of this Service Schedule H. The parties now desire by this Service Schedule H to establish terms and conditions under which nonfirm energy may be sold by New Mexico to El Paso thereby making more efficient use of the parties' electrical system resources.
SECTION 2
TERM
2.1       This Service Schedule H shall become effective upon its execution by the parties subject to its acceptance for filing by the Federal Energy Regulatory Commission (FERC). This Service Schedule H shall continue in force and effect until terminated by either party in accordance with Section 2.3. Such termination shall not relieve El Paso of its obligation to make payments, in accordance with Section 7 hereof, for energy purchased prior to the termination date.
2.2   The "Date of Initial Service," upon which date deliveries of 

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Execution Copy
March 1, 1984

energy to El Paso shall commence, shall be April 1, 1984.
2.3       Either party may unilaterally terminate this Service Schedule H upon at least thirty (30) days written notice to the other party specifying a termination date, provided that such termination date shall not be earlier than December 31, 1984. In the event both parties give notice of termination, in accordance with the above, the earliest date shall be selected as the termination date.
SECTION 3
SERVICE
3.1      New Mexico shall make available to El Paso, and El Paso shall purchase during the term hereof, energy in the amount of approximately four hundred and ninety-five (495) gigawatt-hours, at a minimum rate of delivery of seventy-five (75) megawatts each hour, subject to the conditions set forth in Sections 3 and 4 hereof. For purposes of this Service Schedule H, the energy associated with a delivery rate of seventy‐five (75) megawatts (MW) each hour shall be deemed to be "Block Energy."
3.2      Should Block Energy schedules be reduced by either party pursuant to Section 4.1.2 or Section 4.2.2, respectively, the parties will use their best efforts to reschedule and deliver that Block Energy not previously delivered, during similar hours within the next succeeding thirty (30) days. In the event the parties are unable to reschedule Block Energy not previously delivered within the above stated thirty (30) day period, the Operating Committee, pursuant to Section 5.9 of the Interconnection Agreement, may mutually agree to reschedule such Block Energy prior to the date of termination of this Service Schedule H. 

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Execution Copy
March 1, 1984

New Mexico shall have no obligation to deliver rescheduled Block Energy during any hour if New Mexico's Cost to Supply (as defined in Section 4.1.2) such energy exceeds $26.00/MWH during any Peak Hour or $20.00/MWH during any other hour than a Peak Hour. 
3.3      In the event New Mexico provides notice of a pending curtailment or interruption to El Paso pursuant to Section 4.1.2, El Paso, at its option, may require New Mexico to continue energy schedules to El Paso in an amount not to exceed seventy-five (75) MW for a period not to exceed the lesser of: (1) eight hours, unless the parties' respective system dispatchers agree to a longer period, or (2) the reinitiation of Block Energy schedules pursuant to Section 4.3. For all such energy delivered to El Paso after the two-hour notice period, El Paso agrees to pay New Mexico's incremental fuel cost or New Mexico's purchased power cost from third parties, whichever is greater; plus either: (1) $1.00/MWH, if such energy is scheduled by El Paso at the Four Corners 345 KV or San Juan 345 KV switchyards or (2) $2.50/MWH, if such energy is scheduled by El Paso at the West Mesa 345 KV switchyard. The parties' respective system dispatchers shall agree in advance of each hour's deliveries as to the price for all such deliveries during that next hour, provided that El Paso may terminate its receipt of energy under this Section 3.3 for that next hour.
3.4      A party's obligation to schedule or deliver Block Energy, including that under Section 3.2, shall cease upon the termination of this Service Schedule H.

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Execution Copy
March 1, 1984

SECTION 4
INTERRUPTIBILITY
4.1    New Mexico may curtail or interrupt scheduled deliveries of Block Energy to El Paso in accordance with the following:
4.1.1    Immediately, upon verbal notice to El Paso, if the scheduled energy is required to serve New Mexico's firm customer loads, or without notice, if due to Uncontrollable Forces, as defined in Section 8.1 of the Interconnection Agreement.
4.1.2    Upon providing a minimum of two-hours verbal notice to El Paso, if New Mexico's Cost to Supply Block Energy‐hereunder is greater than: (1) $26.00/MWH during any Peak Hour or (2) $20.00/MWH during any hour other than a Peak Hour; provided, however, that Block Energy schedules to El Paso shall have priority over all economy energy sales by New Mexico and over all other block energy sales by New Mexico with the following exceptions: (i) a maximum of 85 MW of other block energy sales during each hour for the period from the Date of Initial Service through April 30, 1984; and (ii) a maximum of 50 MW of other block energy sales during each hour for the period May 1, 1984, through the term of this Service Schedule H. For the purposes of this Service Schedule H, the term "Cost to Supply" shall mean the weighted average of New Mexico's incremental fuel cost or New Mexico's purchased power cost from third parties (as such costs are incurred by New Mexico to supply Block Energy to El Paso), plus $1.00/MWH. Calculations by New Mexico of its Cost to Supply shall be made in increments not to exceed 25 MW. New Mexico's right to curtail or interrupt deliveries to El Paso under this Section 4.1.2, shall not apply to that portion of Block Energy schedules 

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Execution Copy
March 1, 1984

in which New Mexico's Cost to Supply is less than $26.00/MWH during any Peak Hour or $20.00/MWH during any hour other than a Peak Hour.
4.1.3    Immediately, upon verbal notice to El Paso, if due to transmission system limitations; provided, however, that (1) any curtailments to El Paso arising from this Section 4.1.3 shall be on a pro rata basis with other simultaneous block energy sales by New Mexico which affect the transmission system used for deliveries hereunder, and (2) all economy energy sales by New Mexico which contribute to such transmission system limitations have been interrupted. Block Energy deliveries hereunder may be interrupted or curtailed by New Mexico prior to interrupting or curtailing service to New Mexico's firm customer loads.     
4.2    El Paso may curtail or interrupt its scheduled receipts of Block Energy from New Mexico in accordance with the following:
4.2.1    Immediately, without notice, if due to Uncontrollable Forces, as defined in Section 8.1 of the Interconnection Agreement.
4.2.2    Upon providing a minimum of two-hours verbal notice to New Mexico, if system operating conditions, other than Uncontrollable Forces, limit El Paso's ability to import energy hereunder and provided that all of El Paso's economy energy imports have been reduced to zero. El Paso's rights to curtail or interrupt its scheduled receipts of Block Energy hereunder are limited to a maximum aggregate reduction of schedules of one and one-half (1.5) gigawatt-hours each calendar month, except, if unexpected system operating conditions limiting El Paso's ability to import energy persist, El Paso may continue to curtail or interrupt its scheduled receipts of Block Energy hereunder, over and 

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Execution Copy
March 1, 1984

above one and one-half (1.5) gigawatt-hours each calendar month, provided all of El Paso's imports from third parties have been reduced to zero. Notwithstanding any other provision of this Service Schedule H, El Paso shall have no obligation under this Service Schedule H to reduce its importation of energy from remote generating sources owned by El Paso in order to accept Block Energy from New Mexico.
4.3    In the event Block Energy schedules are curtailed or interrupted pursuant to Section 4.1 or 4.2 hereof, Block Energy schedules shall be reinitiated two hours after notification by the party originating the reduction of schedule that it is prepared to resume the schedule unless the system dispatchers mutually agree to a lesser period. Such notification to resume Block Energy schedules shall be given by the originating party as soon as possible after any such curtailment or interruption.
SECTION 5
ADDITIONAL ENERGY DELIVERIES
The rate of delivery for any hour may be increased by mutual agreement of the system dispatchers to provide deliveries of additional energy ("Additional Energy") to El Paso by New Mexico. Such energy shall not be considered a part of the Block Energy to be provided pursuant to Section 3. Either party may reduce the increased schedule upon verbal notice to the other party provided, however, that New Mexico's aggregate schedule to El Paso shall not be reduced to less than the hourly rate of seventy-five (75) megawatts, except as provided in Section 4 hereof.

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Execution Copy
March 1, 1984

SECTION 6
POINT OF DELIVERY
6.1    The Point of Delivery for transactions hereunder shall be New Mexico's West Mesa 345 KV switchyard located near Albuquerque, New Mexico; provided, however, that El Paso shall have the option to designate the Four Corners 345 KV or San Juan 345 KV switchyards as the Point of Delivery for all, or any portion, of the energy to be delivered under this Service Schedule H.
6.2    Other Points of Delivery may be mutually agreed upon by the parties' respective system dispatchers.
SECTION 7
RATES
7.1    Except as may be otherwise provided for in Sections 7.2, 7.3 and 7.4, El Paso shall pay New Mexico for the energy delivered hereunder, as follows:
7.1.1    During Peak Hours: (a) $24.50/MWH for the first 25 MWH delivered in each hour; (b) $26.00/MWH for the second 25 MWH delivered in each hour; and (c) $27.00/MWH for the third 25 MWH delivered in each hour; provided, however, that the applicable price for any Block Energy scheduled by El Paso at the Four Corners 345 KV or San Juan 345 KV switchyards pursuant to Section 6.1 shall be reduced by $1.50/MWH. Peak Hour deliveries of Additional Energy shall be priced as the parties' respective system dispatchers mutually agree. For the purpose of this Service Schedule H, "Peak Hours" shall be defined as any hour during the period Monday through Friday from 7 a.m. Mountain Standard Time (MST) to 11 p.m. MST, and Peak Hours shall exclude Memorial Day, Independence Day, 

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Execution Copy
March 1, 1984

Labor Day, Thanksgiving Day, Christmas Day and New Year's Day, as observed. 
7.1.2    During hours other than Peak Hours: (a) $22.00/MWH for the first 25 MWH delivered in each hour; (b) $20.00/MWH for the second 25 MWH delivered in each hour; (c) $18.50 MWH for the third 25 MWH delivered in each hour; and (d) $16.50 MWH for any Additional Energy deliveries in each hour; provided however, that the applicable price for any Block Energy and Additional Energy scheduled by El Paso at the Four Corners 345 KV or San Juan 345 KV switchyards pursuant to Section 6.1 shall be reduced by $1.50/MWH.
7.2    Should Block Energy schedules be interrupted or curtailed by New Mexico pursuant to Sections 4.1.1 and 4.1.3, Block Energy rates of delivery shall be reduced according to the following priority: first, the highest-priced 25 MW; second, the median-priced 25 MW; and third, the lowest-priced 25 MW.
7.3    Should Block Energy schedules be interrupted or curtailed by El Paso pursuant to Section 4.2 hereunder, Block Energy rates of delivery shall be reduced according to the following priority: first, the lowest‐priced 25 MW; second, the median-priced 25 MW; and third, the highest- priced 25 MW.
7.4    Should Block Energy schedules be interrupted or curtailed by New Mexico during any hour pursuant to Section 4.1.2 hereof, El Paso shall have the right to curtail all, or any part, of the remaining Block Energy schedules during such hour; provided, however, that any continuing Block Energy schedules shall be priced at $26.00/MWH during Peak Hours and at $20.00/MWH during any hour other than a Peak Hour.

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Execution Copy
March 1, 1984

7.5    The prices specified in this Service Schedule H shall not be subject to change during the term of this Service Schedule H, absent subsequent written agreement of the parties hereto.
7.6 The monthly billings and payments shall be addressed as follows:

		
	7.6.1
	El Paso Electric Company

Post Office Box 982
El Paso, Texas 79960
Attention: General Accounting Department

		
	7.6.2
	Public Service Company of New Mexico

Alvarado Square
Albuquerque, New Mexico 87158
Attention: Cash Management

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Execution Copy
March 1, 1984

SECTION 8
OTHER PROVISIONS
Other terms and conditions of this Service Schedule H, as applicable, shall be as set forth in the Interconnection Agreement of July 19, 1966, as amended between the parties.
IN WITNESS WHEREOF, the parties have caused this Service Schedule H to be executed by their duly authorized officers as of the day and year first herein written.

EL PASO ELECTRIC COMPANY

BY     /s/ [ILLEGIBLE]    
Vice President

PUBLIC SERVICE COMPANY OF NEW MEXICO 

BY     /s/ [ILLEGIBLE]    
Senior Vice President

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Execution Copy
March 1, 1984

SERVICE SCHEDULE I
TRANSMISSION SERVICE FOR EPE

TO THE
INTERCONNECTION AGREEMENT
BETWEEN

PUBLIC SERVICE COMPANY OF NEW MEXICO

AND

EL PASO ELECTRIC COMPANY

1.0    Parties:

This Service Schedule I (Service Schedule I) is entered into as part of the Interconnection Agreement between El Paso Electric Company (EPE) and Public Service Company of New Mexico (PNM) dated July 19, 1966, as amended (EPE/PNM Interconnection Agreement) . EPE and PNM are sometimes referred to individually as "Party" and collectively as "Parties."

2.0    Purpose:

The purpose of this Service Schedule I is to provide the terms and conditions under which PNM agrees to reserve and provide firm transmission capacity in the PNM transmission system for EPE along with interruptible transmission service.     

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3.0        Recitals:

		
	3.1
	As a result of negotiations that have been ongoing with respect to the operation of the northern New Mexico (NNM) and southern New Mexico (SNM) transmission systems, EPE and PNM have developed and are signatories to the following agreements:

		
	3.1.1
	Phase Shifter Support Principles dated February 22, 1994 (Support Principles);

		
	3.1.2
	Resolution of Remaining Merger Issues Letter Agreement dated January 17, 1995 (Merger Issues Letter) supplemented and extended by an April 18, 1995 letter;

		
	3.1.3
	Interim Agreement #2 dated May 5, 1995;

		
	3.1.4
	EPE/PNM Operating Procedure #10, Incremental Energy Cost, dated May 5, 1995 and subsequently suspended by letter agreement with an effective date of August 3, 1995;

		
	3.1.5
	Amendment No. 2 to the West Mesa Reactor Switch Agreement dated May 5, 1995;

		
	3.1.6
	Letter Agreement between EPE and PNM dated May 5, 1995 which memorializes PNM's recognition of the Interconnection Agreement between EPE and Tucson Electric Power Company;

		
	3.1.7
	Contingent Capacity Bank Settlement Letter Agreement dated November 21, 1994; and,

		
	3.18.8
	Contingent Contract Demand Letter Agreement 

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dated November 21, 1994.

		
	3.2
	EPE, PNM and third parties have also developed and are signatories to the following other agreements, related in part to the development of a common understanding of the operation of the NNM and SNM transmission systems:

		
	3.2.1
	Airport Substation Letter Agreement among PNM, EPE and Texas-New Mexico Power Company (TNP), dated November 21, 1994;

		
	3.2.2
	Pre-PST Transmission System Operating Procedure between PNM, EPE, TNP and Plains·Electric Generation and Transmission Cooperative, Inc. (Plains) with an effective date of May 8, 1995;

		
	3.2.3
	Amendment No. 5 to the SWNMT Participation Agreement among EPE, PNM and TNP, dated November 21, 1994 (SWNMT Amendment No. 5);

		
	3.2.4
	A letter agreement between PNM and TNP dated November 21, 1994 regarding suspension of Schedule G to the PNM-TNP Interconnection Agreement; and,

		
	3.2.5
	Long Term Firm Transmission Service Agreement between EPE and Plains dated September 21, 1994 (EPE/Plains Agreement).

		
	3.3
	Execution of the agreements set forth in Sections 3.1 and 3.2 enables PNM and EPE to enter into this Service Schedule I in conjunction with the following other agreements:

		
	3.3.1
	The Post-PST New Mexico Transmission System 

-3-

Operating Procedure (Post-PST Operating Procedure) which provides the basis for the operation of the SNM and NNM transmission systems under normal and outage conditions; and, 

		
	3.3.2
	The Operating Agent Transfer Letter Agreement (Transfer Letter Agreement) among PNM, TNP and EPE to recognize the PNM transfer to EPE of operating agent status of all 345 KV SWNMT project facilities including the Hidalgo and Luna substations (SWNMT Project Facilities).

		
	3.4
	Execution of this Service Schedule I, the Post-PST Operating Procedure and the Transfer Letter Agreement fulfills the obligations set forth and agreed to by the Parties in Interim Agreement #2 and provides the basis under which PNM will agree to transfer to EPE operating agent status of the SWNMT Project Facilities.

4.    Effective Date and Termination:

		
	4.1
	This Service Schedule I shall become effective on September 1, 1995, the in-service date of EPE's phase shifting transformer (PST), hereinafter referred to as the "Effective Date", subject to acceptance for filing by the Federal Energy Regulatory Commission (FERC).

		
	4.2
	This Service Schedule I shall remain in effect until the earlier of May 1, 1998, or the in-service date of the least cost system addition distinct from PNM's Ojo Line Extension (OLE) project (or its replacement), as contemplated by PNM and EPE in Paragraph 5 of the Support Principles, and shall continue in effect from year to year thereafter until terminated by either EPE or PNM giving one year's prior written notice to the 

-4-

other. 

5.0    Services to be Provided:

		
	5.1
	Beginning on the Effective Date, PNM shall provide, and EPE shall purchase, 20 MW of firm point to point transmission service at PNM's firm transmission rate. PNM shall take receipt of EPE power at the Four Corners Generating Station (Four Corners) and deliver such power to EPE at the 345 KV bus of PNM's West Mesa switching station (West Mesa).

		
	5.2
	In the event that EPE's PST is either unavailable or by-passed, PNM shall provide, if ·available, and at PNM's sole discretion, interruptible transmission service upon request by EPE in accordance with the following:

		
	5.2.1
	PNM shall notify EPE of any amounts of interruptible transmission service required and EPE shall have the option of either lowering SNM imports to 750 MW or scheduling and paying for thirty percent (30%) of the difference between 750 MW and actual imports into SNM.

		
	5.3
	Except as otherwise provided in Section 5.2, PNM shall provide, if available, and at PNM's sole discretion, interruptible transmission service to EPE upon request.

6.0    Payment for Service

		
	6.1
	The initial rate for firm transmission service provided pursuant to Section 5.1 shall be PNM's firm transmission rate as currently accepted for filing by the FERC. That rate is currently $3.00/KW-MO.

-5-

		
	6.2
	The initial rate for interruptible transmission service provided pursuant to Sections 5.2 and 5.3 shall be PNM's non-firm transmission rate as currently accepted for filing by the FERC. That rate is currently $3.00/MWH.

		
	6.3
	The Parties acknowledge that PNM's existing transmission rates set forth in Sections 6.1 and 6.2 have been challenged at the FERC pursuant to Section 206 of the Federal Power Act. If the FERC directs a change in PNM's filed transmission rates, the Parties agree to conform to these rates as of the effective date of FERC's final order to PNM.

		
	6.4
	Nothing contained in this Service Schedule I shall be construed as affecting in any way the right of the Party furnishing service to unilaterally make application to the FERC for a change in rates, charges, classifications of service or in any rule, regulation, or contract relating hereto under Section 205 of the Federal Power Act and pursuant to the FERC's Rules and Regulations promulgated thereunder. Nor shall anything contained herein be construed as affecting in any way the right of the receiving Party to seek a modification of such rates or other terms under Section 206 of the Federal Power Act and pursuant to the FERC's Rules and Regulations promulgated thereunder.

7.0        Transmission Losses

PNM and EPE shall, in conjunction with this Service Schedule I, execute and maintain in full force and effect Operating Procedure 9. Such Operating Procedure 9 shall establish the loss percentages for transmission service provided by PNM to EPE and EPE to PNM and the method for scheduling the return of such transmission losses and updating loss percentages 

-6-

from time to time.

8.0        Miscellaneous Provisions

		
	8.1
	Upon the Effective Date of this Service Schedule I, the Post-PST Operating Procedures and Transfer Letter Agreement, and in recognition of the execution of the contractual agreements set forth in Sections 3.1 and 3.2 , the Parties agree that the following agreements are to be terminated and shall be of no further force or effect:

8.1.1    Interim Agreement #2;

		
	8.1.2
	Service Schedule G to the EPE/PNM Interconnection Agreement;

		
	8.1.3
	Amendment to Service Schedule G, dated November 15, 1993;

		
	8.1.4
	The Support Principles; and, 

		
	8.1.5
	The Merger Issues Letter.

		
	8.2
	PNM shall make the appropriate filing of this Service Schedule I with the FERC and shall at the same time file notices of termination of Interim Agreement #2, Service Schedule G to the PNM/EPE Interconnection Agreement (as amended), the Support Principles and the Merger Issues Letter. EPE shall file a certificate of concurrence in such filing.

		
	8.3
	PNM and EPE shall use their best efforts to exchange all data between their respective power operations departments required to effectively implement the operation and control of the NNM and SNM transmission 

-7-

systems.

		
	8.3.1
	This shall include but not be limited to upgrades to the existing data exchange equipment or installation or upgrades to the communication facilities between the Parties.

		
	8.3.2
	Any such upgrades to either the data exchange equipment or communication facilities shall be accomplished under separate contractual arrangements.

		
	8.4
	Other terms and conditions of this Service Schedule I shall be as set forth in the PNM/EPE Interconnection Agreement; provided, however, in the event of a conflict between this Service Schedule I and the PNM/EPE Interconnection Agreement, this Service Schedule I shall govern.

		
	8.5
	In the event this Service Schedule I shall be terminated, the obligations of the Parties with respect to payment for transmission service received prior to the termination date shall continue until all payments due under this Service Schedule I have been satisfied.

-8-

9.0        Signature Clause:

The signatories hereto represent that they have been appropriately authorized to enter into this Service Schedule I on behalf of the Party for whom they sign. This Service Schedule I is hereby executed as of the 8th day of September, 1995.

	
			
	EL PASO ELECTRIC COMPANY
	 

	 
	 
	 

	BY
	/s/ [ILLEGIBLE]

	Its:
	Vice President

	 
	Power Supply

	 
	 
	 

	PUBLIC SERVICE COMPANY OF NEW MEXICO 

	 
	 
	 

	BY
	/s/ [ILLEGIBLE]

	Its:
	Senior Vice President

	 
	Bulk Power Business Unit

-9-

AMENDMENT NUMBER ONE TO
SERVICE SCHEDULE I
TO THE INTERCONNECTION AGREEMENT BETWEEN
PUBLIC SERVICE COMPANY OF NEW MEXICO
AND
EL PASO ELECTRIC COMPANY
1.0    Parties

This Amendment Number One ("Amendment 1") to Service Schedule I is entered into as part of the Interconnection Agreement between El Paso Electric Company ("EPE") and Public Service Company of New Mexico ("PNM"), dated July 19, 1966, as amended. EPE and PNM are sometimes referred to individually as "Party" and collectively as "Parties".

2.0    Purpose

The purpose of this Amendment 1 is to implement the terms of the Stipulation and Agreement dated December 17th, 1996 (Stipulation) by providing for a modification in the rate for the firm transmission capacity in the PNM transmission system under Service Schedule I, a rate modification for the interruptible transmission service provided under Service Schedule I, and provide for the collection of certain taxes.

3.0    Term

Such Amendment 1 shall be effective as of December 1, 1996 provided that the Commission grants the Joint Motion to Permit Interim Implementation of Rate Schedules and Collection of Settlement Rates filed on December 17th, 1996 and subject to the Commission approval of the Stipulation and shall extend through the term of Service Schedule I, unless superseded or modified in accordance with Service Schedule I; Provided, however, in the event that the Stipulation does not become effective in accordance with Article 12 of the Stipulation, then Amendment Number Two filed by PNM in the July 15, 1996 Compliance filing, Docket No. ER96-1462-000 shall become effective the first day of the second month following the date of such Commission rejection, subject to modification to reflect the outcome of that proceeding.

4.0        Rate Modification

Section 6.1 of Service Schedule I is hereby amended to read in its entirety as follows:

		
	"(6.1)
	The rate for firm transmission service provided pursuant to Section 5.1 shall be two dollars and seven cents per kilowatt month ($2.07/kW-month), which shall 

be subject to adjustment pursuant to Section 6.4 of Service Schedule I. Each month's bill for transmission service hereunder shall be calculated as $2.07/kW‐month times the amount of transmission capacity reserved for EPE (20MW)."

Section 6.2 of Service Schedule I is hereby amended to read in its entirety as follows:

		
	"(6.2)
	The rate for interruptible transmission service provided pursuant to Sections 5.2 and 5.3 shall be $2.84/MWH which shall be subject to adjustment pursuant to Section 6.4 of Service Schedule I. Each month's bill for transmission service hereunder shall be calculated as $2.84/MWH times the amount of energy transmitted for EPE by PNM, as measured in MWH's."

5.0      Transmission Service

Section 5.2.1 shall be deleted in its entirety and replaced with the following:

		
	"5.2.1
	PNM shall notify EPE of any amounts of interruptible transmission service required and EPE shall have the option of either lowering SNM imports to 785 MW or scheduling and paying for thirty percent (30%) of the difference between 785 MW and actual imports into SNM."

6.0      New Mexico Gross Receipts Tax

Section 8.6 shall be added to Service Schedule I and reads in its entirety as follows:

		
	"(8.6)
	Billings under this Amended Service Schedule I shall be increased by an amount equal to the sum of the taxes payable under the New Mexico Gross Receipts and Compensating Tax Act, New Mexico Supervision and Inspection Fee (one-half of one percent of its gross receipts transacted in New Mexico) and all other new taxes fees, and charges (exclusive of all ad valorem, state and federal income taxes) payable and levied or assessed by any State taxing authority based upon revenues received from the service rendered. Nothing, herein shall prevent EPE from opposing any State taxing authority's determination that revenue related taxes are applicable to services provided under Service Schedule I."

7.0      Other Provisions

		
	(a)
	Except for the change in Sections 6.1, 6.2, and 8.6, reflected herein, all other terms and conditions of Service Schedule I shall remain in full force and effect.

		
	(b)
	The signatories hereto represent that they have been appropriately authorized to enter into Amendment 1 on behalf of the Party for whom they sign.

Amendment 1 is hereby executed as of the 31st day of December, 1996.

	
					
	EL PASO ELECTRIC COMPANY
	 
	PUBLIC SERVICE COMPANY OF NEW MEXICO

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	By: 
	/s/ [ILLEGIBLE]
	 
	By: 
	/s/ [ILLEGIBLE]

	Its: 
	Vice President, Power
	 
	Its:
	Sr. Vice President, 

	 
	Generation
	 
	 
	Bulk Power Services

AMENDMENT NUMBER ONE TO
THE INTERCONNECTION AGREEMENT BETWEEN
EL PASO ELECTRIC COMPANY AND PUBLIC SERVICE
COMPANY OF NEW MEXICO, July 19, 1966;
AND TO SERVICE SCHEDULE A AND SERVICE SCHEDULE B
OF THAT AGREEMENT

This Agreement is made the 5th day of   April   1977, and between Public Service Company of New Mexico, a New Mexico corporation, (hereinafter called "PNM") and El Paso Electric Company, a Texas corporation, (hereinafter called "El Paso"). PNM and El Paso are sometimes hereinafter referred to collectively as the "Parties."

WITHNESSETH:

WHEREAS, PNM and El Paso heretofore entered into an Interconnection Agreement dated July 19, 1966; and

WHEREAS, attached to said Interconnection Agreement is Service Schedule A, entitled "Transmission Service and Contingent Capacity Exchange," dated July 19, 1966; and

WHEREAS, attached to said Interconnection Agreement is Service Schedule B, entitled "Energy Interchange and Spinning Reserve Interchange," dated July 19, 1966.

-1-

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein,

IT IS AGREED that the Agreement between the Parties dated July 19, 1966, is amended and supplemented to the extent set forth herein.

Section A
AMENDMENT TO GENERAL PROVISIONS

Section 8 of the Interconnection Agreement of July 19, 1966 is amended by deleting Section 8.5 and substituting Section 8.5, therefore.

8.5    Regulatory Authorities - Nothing contained herein shall be construed as ·affecting in any way the right of the Party furnishing service under this rate schedule to unilaterally make application to the Federal Power Commission for a change in rates, charges, classification, or service, or any rule, charges, or contract relating thereto, under Section 205 of the Federal Power Act and pursuant to the Commission's Rules and Regulations promulgated thereunder.

Section B
AMENDMENTS TO SERVICE SCHEDULE A

Section 5 of Service Schedule A to the Interconnection Agreement of July 19, 1966 is amended by deleting Sections A5.3 and A5.5 and substituting Sections A5.3 and A5.5, therefore.

-2-

A5.3    Units Upon Which Capacity is Contingent - The particular units referred to in paragraph A5.2 and the contingent capacity to be supplied from each such unit shall, unless otherwise agreed upon by the Parties, be as follows:

One-fourth of the Contingent Contract Demand from Unit No. 7 of El Paso's Rio Grande Generating Station and three-fourths of the Contingent Contract Demand from Unit No. 8 of El Paso's Rio Grande Generating Station; provided, however, that it is the intent of the Parties that the Contingent Contract Demand shall be supplied from generating units normally operated by El Paso in the conduct of its own day-to-day operations and the units named herein for contingent capacity shall be subject to change to newer generating units by mutual agreement of the Parties as additional generating capacity is added to El Paso's resources.

A5.5    Energy Rate for Contingent Capacity - For energy supplied in connection with contingent capacity deliveries, El Paso will charge and New Mexico will pay on a monthly basis:

		
	(i)
	an amount equal to the kilowatt-hours supplied multiplied by one hundred percent (100%) of El Paso's base cost, as defined in paragraph B5.5 of Service Schedule B, on Units 7 and 8 of its Rio Grande Generating Station or such other units as may be agreed upon by the Parties; plus,

-3-

		
	(ii)
	an amount equal to the kilowatt-hours supplied multiplied by one-half (1⁄2) mill per kilowatt-hour.

Section C
AMENDMENT TO SERVICE SCHEDULE B

Section 5 of Service Schedule B to the Interconnection Agreement of July 19, 1966 is amended by deleting Sections B5.5 and B5.12 and substituting Sections B5.5 and B5.12, therefore.

B5.5    "Base Cost" as applied specifically to energy from thermal generating stations, in terms of net output at high voltage station buses, means the sum of

		
	(i)
	incremental fuel cost of the station or unit from which energy is obtained, such incremental cost being estimated over the applicable range of variation in output, plus

		
	(ii)
	additional cost, if any be incurred, of starting up a station or unit specifically for supply of energy interchange, plus

		
	(iii)
	an allowance for other incremental costs, including incremental accrued maintenance and any·other elements of incremental costs. Until and unless the Operating Committee shall establish different values brought about by escalation or unforeseen factors, the normal allowance for such other incremental costs at steam generating stations shall be·as follows:

-4-

	
				
	Generating Unit
	 
	Other Incremental Costs
Mills Per Kilowatt-Hour

	 
	 
	 
	 

	Rio Grande Unit #7
	 
	.30
	 

	Rio Grande Unit #8
	 
	.30
	 

	 
	 
	 
	 

	Other Units
	 
	Gas & Oil
	Coal

	 
	 
	 
	 

	Units over 1350 psig
	 
	0.27
	0.36

	750 to 1350 psig
	 
	0.45
	-

	Under 750 psig
	 
	1.17
	-

B5.12    "Ceiling value" as applied to energy interchange received means a maximum value which shall be used instead of base value in cases where base value is not determined. Until and unless the Operating Committee shall establish a different value, ceiling value shall be one- hundred thirty percent (130%) of supplier's base cost.

Section D

This Amendment amends and supplements the Interconnection Agreement between the Parties of July 19, 1966 and Service Schedule A and Service Schedule B thereof, and which Agreement is by reference made a part hereof unless specifically modified or supplemented herein.

-5-

IN WITNESS WHEREOF, the Parties have caused this Amendment Number One to be executed the day and year first above written.

	
						
	 
	 
	 
	 
	 
	 

	ATTEST:
	 
	 
	EL PASO ELECTRIC COMPANY
	 

	 
	 
	 
	 
	 
	 

	/s/ [ILLEGIBLE]
	 
	 
	BY
	/s/ [ILLEGIBLE]
	 

	Secretary
	 
	 
	 
	Sr. Vice President
	 

	 
	 
	 
	 
	 
	 

	ATTEST:
	 
	 
	PUBLIC SERVICE COMPANY OF NEW MEXICO

	 
	 
	 
	 
	 
	 

	/s/ [ILLEGIBLE]
	 
	 
	BY
	/s/ [ILLEGIBLE]
	 

	Secretary
	 
	 
	 
	Vice President
	 

	 
	 
	 
	 
	 
	 

-6-

ATTACHMENT #3

EPE/PNM
OPERATING PROCEDURE NO. 5

March 9, 1979

PNM CAPACITY ENTITLEMENT ASSOCIATED
WITH CONTINGENT CAPACITY

Public Service Company's hourly capacity entitlement is three (3) times the hourly contingent schedule up to a maximum of the agreed upon contingent capacity.

APPROVED BY:
EL PASO ELECTRIC COMPANY

/s/ [ILLEGIBLE]    

/s/ [ILLEGIBLE]    

APPROVED BY:
PUBLIC SERVICE COMPANY OF NEW MEXICO

/s/ [ILLEGIBLE]    

/s/ [ILLEGIBLE]    

-7-

EL PASO ELECTRIC COMPANY - PUBLIC SERVICE COMPANY OF NEW MEXICO

OPERATING PROCEDURE NO. 8

October 24. 1978

		
	SUBJECT:
	LEAD TIME REQUIRED AND MINIMUM COMMITMENT TO CALL ON CONTINGENT CAPACITY

Public Service Company of New Mexico (PNM) will provide at least two hours advanced notice to El Paso Electric Company (EPE) when contingent capacity is required.  If the capacity is available with less than the minimum notice it may be scheduled as agreed by the operators.

Consistent with standard operating practices, a ten minute ramp time will be used.

The minimum commitment for contingent capacity will be six hours, unless otherwise mutually agreed between the operators.

	
			
	APPROVED BY:
	 
	APPROVED BY:

	 
	 
	 

	EL PASO ELECTRIC COMPANY
	PUBLIC SERVICE COMPANY OF NEW MEXICO

	 
	 
	 

	/s/ [ILLEGIBLE]
	 
	/s/ [ILLEGIBLE]

	 
	 
	 

	/s/ [ILLEGIBLE]
	 
	/s/ [ILLEGIBLE]

-8-

AMENDMENT ONE
TO
OPERATING PROCEDURE 9
BETWEEN
PUBLIC SERVICE COMPANY OF NEW MEXICO
AND
EL PASO ELECTRIC COMPANY

1.0    Parties

This Amendment One (Amendment 1) to PNM/EPE Operating Procedure 9 is entered into between El Paso Electric Company (EPE) and Public Service Company of New Mexico (PNM). EPE and PNM are sometimes referred to individually as "Party" and collectively as "Parties".

2.0    Purpose

The purpose of Amendment 1 is to change the transmission loss factor for both firm and interruptible transmission service.

3.0    Term

Such Amendment 1 shall be effective as of December 1, 1996 provided that the Commission grants the Joint Motion to Permit Interim Implementation of Rate Schedules and Collection of Settlement Rates filed on December _17_, 1996 and subject to the Commission approval of the Stipulation and Agreement dated December _17_, 1996 (Stipulation) and shall extend through the term of Operating Procedure 9, unless superseded or modified in accordance with Operating Procedure 9; Provided, however, in the event the Commission rejects the Stipulation or approves it with conditions or modifications that are unacceptable that are not cured, the Operating Procedure 9 filed by PNM in the Docket No. ER96‐1462-000 shall become effective the first day of the second month following the date of such Commission rejection, subject to modification to reflect the outcome of that proceeding.

4.0      Transmission Losses

Section Al., Firm Losses Owed to PNM by EPE for Four Corners to West Mesa Deliveries, is amended to read in its entirety as follows:   

1.    Four Corners to West Mesa

For firm deliveries to EPE at PNM's West Mesa Switching Station (West Mesa) each hour's firm losses shall be 

calculated as 3.0% of hourly West Mesa metered kilowatt hours delivered toward EPE on the West Mesa/Arroyo 345kV transmission line facility less:

		
	i.
	PNM's hourly scheduled amounts delivered directly to EPE at West Mesa;

		
	ii.
	PNM's hourly scheduled transmission service use under Service Schedule A calculated as any use of PNM's wheeling rights available under Service Schedule A (up to 25MW for any one hour) reduced by any PNM use of Contingent Capacity available under Service Schedule A delivered to West Mesa. Provided, however, at no time shall PNM's hourly net schedule be less than zero;

		
	iii.
	Third party hourly scheduled deliveries to EPE at West Mesa (e.g. Western to Holloman, Plains to EPE, APS to TNP, COF to TNP) and,

		
	iv.
	Hourly interruptible schedules from Four Corners to EPE at West Mesa over PNM's system.

Section C.3 is amended to read in its entirety as follows:

		
	3.
	For hourly schedules from Four Corners to West Mesa over PNM's system, PNM shall be compensated for transmission losses calculated as 3% of the hourly schedule.

5.0      Other Provision's

		
	(a)
	Except for the changes to Sections A1. and C3. reflected herein, all other terms and conditions of Operating Procedure 9 shall remain in full force and effect.

		
	(b)
	The Signatories hereto represent that they have been appropriately authorized to enter into Amendment 1 on behalf of the Party for whom they sign.

Amendment 1 is hereby executed as of this 18th day of December       , 1996.

	
					
	EL PASO ELECTRIC COMPANY
	 
	PUBLIC SERVICE COMPANY OF NEW MEXICO

	 
	 
	 
	 
	 

	By: 
	/s/ [ILLEGIBLE]
	 
	By: 
	/s/ [ILLEGIBLE]

	Its: 
	Assistant Vice President
	 
	Its:
	 

El Paso Electric Company - Public Service Company of New Mexico

Operating Procedure No. 10

El Paso Electric Company ("EPE") and Public Service Company of New Mexico ("PNM") agree that this Operating Procedure No. 10 shall supercede and replace Operating Procedure No. 5 (PNM CAPACITY ENTITLEMENT ASSOCIATED WITH CONTINGENT CAPACITY) and Operating Procedure No. 8 (LEAD TIME REQUIRED AND MINIMUM COMMITMENT TO CALL ON CONTINGENT CAPACITY) and that Operating Procedures No. 5 and 8 shall no longer be in force or effect.

SUBJECT:    PNM'S USE AND SCHEDULING OF CONTINGENT CAPACITY

Section 1.    Scheduling of Contingent Capacity Energy

A.    Public Service Company of New Mexico (PNM) will provide El Paso Electric Company (EPE) its best estimate of pre-schedules for the Contingent Capacity in accordance with the convention for submitting daily data as stated in the Southwest Reserve Sharing Group (SRSG) Operating Procedure No. 2, Section 4.1, as may be amended from time to time. These pre-schedules shall include estimated energy required and points of delivery for each hour. Hourly fluctuations in the pre-schedule shall be limited to the amount of Contingent Capacity allocated from each unit and each Contingent Capacity unit's ramp-rate over 20 minute period.

B.    Real-time changes to the pre-schedules will be allowed when such changes are within a 20% bandwidth of the pre-scheduled amount or a two-hour notice is given. Changes that are within a 20% bandwidth are to be communicated to EPE's merchant function 45 minutes prior to the hour in which the requested change is to become effective. Changes to the pre-schedule that fall outside of the 20% bandwidth are to be made at least one hour and 45 minutes prior to the hour in which the change is be effective. During emergency conditions, PNM can call upon their portion of spinning reserves as described in Section 2 below.

C.    If EPE does not require the operation of a Contingent Capacity unit for its own purposes, and PNM requires Contingent capacity from that unit(s), PNM shall schedule at least the minimum operating output of that unit(s), up to its Contingent Capacity allocation of that unit(s), as Contingent Capacity. Necessary time for start up will be allowed and unless otherwise agreed to by EPE's merchant function PNM will schedule at least the minimum amount, up to its Contingent Capacity allocation of the unit(s), for a minimum of 6 hours. Under such conditions, PNM shall be responsible for all start up costs.

The minimum operating output of the Contingent Capacity units shall be as determined from time to time by EPE's merchant function.

		
	Section 2.
	Contingent Capacity Used For Spinning Reserves

A.    PNM may use the unloaded portion of each Contingent Capacity unit as spinning reserves up to the lessor of:

1.    EPE shall provide as the sum of Contingent Capacity energy and spinning reserve up to three (3) times the hourly contingent schedule, up to the maximum of the agreed upon Contingent Capacity.

1

For example, if PNM is scheduling 20 MW of Contingent Capacity in the operating hour, PNM has a total entitlement of 60 MW (3 x 20 MW) in that operating hour: 20 MW of Contingent Capacity energy and 40 MW of spinning reserves, or;

2.    PNM's right to spinning reserves will be based on each Contingent Capacity unit's ramp-rate over a 10-minute period, bounded by PNM's allocation from each unit.

For example, if PNM's Contingent Capacity is 70 MW, the allocation will be 18 MW from Rio Grande 7 (25%) and 52 MW Rio Grande 8 (75%). If PNM's schedule is 20 MW (5 MW from RG7; 15 MW from RG8) and the ramp rate for RG7 and RG8 are both 2.0, the total amount of spinning reserve available over a 10 minute period is 40 MW (20 MW from each unit). However, PNM's allocation from RG7 is bound by its entitlement of 18 MW from RG7. Therefore, PNM's spinning reserve under this scenario would be 33 MW. This example can be broken down as follows:                     

PNM's unscheduled Contingent Capacity from each unit is:

RG7: 18 MW Entitlement - 5 MW Schedule = 13 MW
RG8: 52 MW Entitlement - 15 MW Schedule = 37 MW.

The available amount of Contingent Capacity from each unit based on ramp-rates is:

RG7: 2.0 MW/minx 10 minutes= 20 MW
RG8: 2.0 MW/minx 10 minutes= 20 MW.

Therefore, PNM's spinning reserve under this scenario would be 13 MW from RG7 and 20 MW from RG8, for a total of 33 MW.

	
					
	Accepted and Agreed to:
	 
	Accepted and Agreed to:

	El Paso Electric Company
	 
	Public Service Company of New Mexico

	 
	 
	 
	 
	 

	By:
	 
	 
	By
	 

	 
	 
	 
	 
	 

	Title:
	 
	 
	Title:
	 

	 
	 
	 
	 
	 

	Date:
	 
	 
	Date:
	 

2

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