AMENDMENT NUMBER NINE

TO COAL SALES AGREEMENT

among

SAN JUAN COAL COMPANY, PUBLIC SERVICE COMPANY OF NEW MEXICO

and

TUCSON ELECTRIC POWER COMPANY

December 31, 1995

AMENDMENT NUMBER NINE

TO COAL SALES AGREEMENT

This Amendment Number Nine to Coal Sales Agreement is executed as of

the 31st day of December, 1995, by and among SAN JUAN COAL COMPANY, a Delaware

corporation ("SJCC"), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico

corporation ("PNM") and TUCSON ELECTRIC POWER COMPANY, an Arizona corporation

("TEP") (collectively, the "Utilities").

A. SJCC and the utilities are parties to that certain Coal Sales

Agreement, dated August 19, 1990, as amended (as so amended, the "Coal Sales

Agreement").

B. The Coal Sales Agreement at Paragraph 5.2 as amended contemplates

that no later than December 31, 1995, an appropriate amendment thereto will be

executed to provide for delivered ash limits with respect to coal from the La

Plata leases.

C. SJCC and the utilities have agreed to extend the date by which said

amendment must be executed and wish to set forth said agreement and certain

related matters in this Amendment Number Nine to Coal Sales Agreement.

In consideration of the mutual covenants and agreements contained

herein, the parties hereby amend the Coal Sales Agreement as follows:

1. The date "December 31, 1995," appearing in paragraph 5.2 of the

Coal Sales Agreement (as amended) is hereby deleted, and the date "December 31,

1999" is inserted in place thereof.

2. This Amendment Number Nine to Coal Sales Agreement may be executed

in several counterparts, each of which shall be an original and all of which

shall constitute but one and the same instrument.

3. Except as expressly amended hereby, the Coal Sales Agreement and

all prior amendments are in all respects hereby confirmed and ratified.

IN WITNESS WHEREOF, this Amendment Number Nine to Coal Sales

Agreement has been executed as of the day and year first set forth above.

SAN JUAN COAL COMPANY, a
Delaware Corporation

                                       By:
                                           ---------------------

                                       Its: Senior Vice President
- ------------------------                    ---------------------
       Secretary

PUBLIC SERVICE COMPANY OF NEW
Mexico, a New Mexico
corporation

TUCSON ELECTRIC POWER COMPANY,
an Arizona corporation

BHP Minerals International Inc., a Delaware corporations (formerly

BHP-Utah International Inc.). the guarantor of the obligations of SJCC under the

Coal Sales Agreement pursuant to guaranty dated August 18, 1990 (the

"Guaranty"), hereby consents to the foregoing Amendment Number Nine to Coal

Sales Agreement and agrees that all references in the Guaranty to the Coal Sales

Agreement shall be deemed to be references to the Coal Sales Agreement as

amended by all prior amendments thereto and by Amendment Number Nine to Coal

Sales Agreement, dated December 31, 1995.

                                        By:

- ---------------------                       ---------------------------
       Secretary                             Group General Manager and
                                             Senior Vice President, New
                                             Mexico operations

When Recorded, Return to: Gregg R. Neilsen Snell & Wilmer 3100 Valley Bank Center Phoenix, Arizona 85073

CERTAIN RIGHTS OF THE LESSOR UNDER THIS FACILITY LEASE HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF, CHEMICAL BANK, AS INDENTURE TRUSTEE UNDER A TRUST INDENTURE, MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS DATED AS OF JULY 31, 1986. THIS FACILITY LEASE HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. SEE SECTION 22 (e) OF THIS FACILITY LEASE FOR INFORMATION CONCERNING THE RIGHTS OF HOLDERS OF VARIOUS COUNTERPARTS HEREOF.

THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

Dated as of July 31, 1996

between

THE FIRST NATIONAL BANK OF BOSTON,

not in its individual capacity, but solely as Owner Trustee under a Trustee Agreement, dated as of July 31, 1986 with Chase Manhattan Realty Leasing Corporation,

Lessor

and

PUBLIC SERVICE COMPANY OF NEW MEXICO

Lessee

Sale and Leaseback of a 1.13333% Undivided Interest in Palo Verde Nuclear Generating Station Unit 1 and a .377777% Undivided Interest in Certain Common Facilities

                                TABLE OF CONTENTS

                                                                          Page

SECTION 1         Definitions............................................  1

SECTION 2         Lease of Undivided
                  Interest; Term; Personal
                  Property...............................................  1

           a      Lease of Undivided
                  Interest...............................................  1

           b      Term...................................................  1

           c      Personal Property......................................  1

           d      Description............................................  2

SECTION 3         Rent; Adjustments to
                  Rent...................................................  2

           a      Basic Rent.............................................  2

           b      Supplement Rent........................................  3

           c      Form of Payment........................................  4

           d      Adjustments to Rent....................................  4

           e      Further Adjustments....................................  5

           f      Computation of
                  Adjustments............................................  6

           g      Sufficiency of Basic
                  Rent and Supplemental
                  Rent...................................................  7

           h      Rent Differential......................................  7

SECTION 4         Net Lease..............................................  8

SECTION 5         Return of the Undivided
                  Interest............................................... 11

           a      Return of the Undivided
                  Interest............................................... 11

           b      Disposition Services................................... 13

SECTION 6         Warranty of the Lessor................................. 13

           a      Quiet Enjoyment........................................ 13

           b      Disclaimer of Other
                  Warranties............................................. 13

           c      Enforcement of Certain
                  Warranties............................................. 13

SECTION 7         Liens  ................................................ 15

SECTION 8         Operation and Maintenance;
                  Capital Improvements................................... 16

           a      Operation and
                  Maintenance............................................ 16

           b      Inspection............................................. 17

           c      Capital Improvements................................... 18

           d      Reports................................................ 19

           e      Title to Capital
                  Improvements........................................... 19

           f      Funding of the Cost of
                  Capital Improvements................................... 21

SECTION 9         Event of Loss; Deemed
                  Loss Event............................................. 23

           a      Damage or Loss......................................... 24

           b      Repair................................................. 24

           c      Payment of Casualty
                  Value.................................................. 24

           d      Payment of Special
                  Casualty Value......................................... 25

           e      Requisition of Use..................................... 26

           f      Termination of
                  Obligation............................................. 26

           g      Application of Payments
                  on an Event of Loss.................................... 27

           h      Application of Payments
                  Not Relating to an Event
                  of Loss................................................ 28

           I      Other Dispositions..................................... 28

SECTION 10        Insurance.............................................. 29

           a      Required Insurance..................................... 29

           b      Permitted Insurance.................................... 31

SECTION 11        Rights to Assign or
                  Sublease............................................... 31

           a      Assignment or Sublease
                  by the Lessee.......................................... 31

           b      Assignment by Lessor as
                  Security for Lessor's
                  Obligations............................................ 32

SECTION 12        Lease Renewal.......................................... 32

SECTION 13        Notices for Renewal or
                  Purchase; Purchase
                  Options................................................ 33

           a      Notice, Determination of
                  Values, Appraisal
                  Procedure.............................................. 33

           b      Purchase Option at
                  Expiration of the Lease
                  Term................................................... 34

           c      Special Purchase Event................................. 34

           d      Purchase of the
                  Undivided Interest;
                  Payment, Etc........................................... 34

SECTION 14        Termination for
                  Obsolescence........................................... 35

           a      Termination Notice..................................... 35

           b      Right of Lessor to
                  Retain Undivided
                  Interest upon
                  Termination............................................ 35

           c      Events on the
                  Termination Date....................................... 36

           d      Early Termination
                  Notice................................................. 37

           e      Events on the Early
                  Termination............................................ 38

SECTION 15        Events of Default...................................... 38

SECTION 16        Remedies............................................... 42

           a      Remedies............................................... 42

           b      No Release............................................. 48

           c      Remedies Cumulative.................................... 48

           d      Exercise of Other Rights
                  or Remedies............................................ 49

           e      Special Cure Right of
                  Lessee................................................. 50

SECTION 17        Notices................................................ 51

SECTION 18        Successors and Assigns................................. 51

SECTION 19        Right to Perform for
                  Lessee................................................. 52

SECTION 20        Additional Covenants................................... 52

SECTION 21        Lease of Real Property
                  Interest............................................... 53

SECTION 22        Amendments and
                  Miscellaneous.......................................... 53

           a      Amendments in Writing.................................. 53

           b      Survival............................................... 53

           c      Severability of
                  Provisions............................................. 54

           d      True Lease............................................. 54

           e      Original Lease......................................... 54

           f      Governing Law.......................................... 55

           g      Headings............................................... 55

           h      Concerning the Owner Trustee........................... 55

           i      Disclosure............................................. 56

           j      Counterpart Execution.................................. 56

APPENDIX A Definitions

SCHEDULE 1 Casualty Values

SCHEDULE 2 Special Casualty Values

SCHEDULE 3 Termination Values

SCHEDULE 4 [Intentinally Omitted]

SCHEDULE 5 Real Estate Description

SCHEDULE 6 Undivided Interest Description

6091.50.2831.47:1

FACILITY LEASE, dated as of July 31, 1986, between THE FIRST NATIONAL BANK OF BOSTON, a national banking association, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement, dated as of July 31, 1986, with Chase Manhattan Realty Leasing Corporation (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the Lessee).

WITNESSETH:

WHEREAS, the Lessor owns the Undivided interest and the Real Property Interest;

WHEREAS, the Lessee desires to lease the Undivided Interest and the Real Property Interest from the Lessor on the terms and conditions set forth herein; and

WHEREAS, the Lessor is willing to lease the Undivided Interest and the Real Property Interest to the Lessee on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Definitions.

For purposes hereof, capitalized terms used herein shall have the meanings assigned to such terms in Appendix A hereto. References in this Facility Lease to sections, paragraphs and clauses are to sections, paragraphs and clauses in this Facility Lease unless otherwise indicated.

SECTION 2. Lease of Undivided Interest; Term; Personal Property.

(a) Lease of Undivided Interest. Upon the terms and subject to the conditions of this Facility Lease, the Lessor hereby leases to the Lessee, and the Lessee hereby leases from the Lessor, the Undivided Interest.

(b) Term. The term of this Facility Lease shall begin on August 1, 1986, and shall end on the last day of the Lease Term.

(c) Personal Property. It is the express intention of the Lessor and the Lessee that title to the undivided Interest and every portion thereof be, and hereby is, severed, and shall be and remain severed, from title to the real estate constituting the Real Property Interest and the PVNGS Site. The Lessor and the Lessee intend that the Undivided Interest shall constitute personal property to the maximum extent permitted by Applicable Law.

(d) Description. The Real Property Interest is described on Schedule S hereto. The Undivided Interest is described on Schedule 6 hereto.

SECTION 3. Rent; Adjustments to Rent.

(a) Basic Rent. The Lessee shall pay to the Lessor, as basic rent (herein referred to as Basic Rent) for the Undivided Interest, the following amounts:

(i) on January 15, 1987, an amount equal to .0257526% of the Facility Cost for each day from, and including, August 1, 1986 to, but excluding, January 15, 1987, plus or minus the Rent Differential, if any, referred to in Section 3(h);

(ii) on July 15, 1987 and on each Basic Rent Payment Date thereafter to and including January 15, 2015, an amount equal to 4.635455% of Facility Cost, plus or minus the Rent Differential, if any, referred to in Section 3(h); and

(iii) if the Lessee shall elect the Renewal Term, on July 15, 2015 and on each Basic Rent Payment Date thereafter during the Renewal Term, an amount equal to one-half of an amount determined by dividing the aggregate amount of all payments of Basic Rent payable with respect to the Basic Lease Term pursuant to clause (ii) of this
Section 3(a) (taking into account any adjustments pursuant to Sections 3(d) and 3(e) and any increases or decreases pursuant to
Section 3(h)), by 56.

If an interest payment on any Note shall be due on a date other than a Basic Rent Payment Date, the Lessee shall pay additional Basic Rent on such date equal to such interest payment and such payment of additional Basic Rent shall be credited against the Basic Rent due on the Basic Rent Payment Date next succeeding. the date that such additional Basic Rent shall have been paid.

(b) Supplemental Rent. The Lessee shall pay the following amounts(herein referred to as Supplemental Rent):

(i) when due or, where no due date is specified, on demand, any amount (other than Basic Rent, Casualty Value, Termination Value and Special Casualty Value) which the Lessee assumes the obligation to pay or agrees to pay to the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee or any Indemnitee under this Facility Lease, any other Transaction Document or the Collateral Trust Indenture, any amount which is to be paid under
Section 6.9, 7.6 or 8.7 of the Indenture and any amount that the Lessee is required to pay, or provide for the payment of, under
Section 8.5 of the Indenture;

(ii) when due, any amount payable hereunder as Casualty Value, Termination Value or Special Casualty Value, and an amount equal to any premium or prepayment penalty with respect to the Notes;

(iii) on demand and in any event on the Basic Rent Payment Date next succeeding the date such amounts shall be due and payable hereunder, to the extent permitted by Applicable Law, interest (computed on the same basis as interest on the Notes is computed) at a rate per annum equal to (A) the Overdue Interest Rate, on that portion of the payment of Basic Rent or Supplemental Rent distributable pursuant to clause "first" of Section 5.1 or clause "second" of Section 5.3 of the Indenture (determined prior to the computation of interest on overdue payments referred to in such clauses), and (B) the Penalty Rate, on the balance of any such payment of Basic Rent or Supplemental Rent (including, in the case of both clause (i) and clause (ii) above, but without limitation, to the extent permitted by Applicable Law, interest payable pursuant to this clause (iii)) not paid when due (without regard to any period of grace) for any period for which the same shall be overdue.

The Lessor shall have all rights, powers and remedies provided for in this Facility Lease, at law, in equity or otherwise, in the case of non-payment of Basic Rent or Supplemental Rent.

(c) Form of Payment. Subject to Section 11(b), each payment of Rent under this Facility Lease shall be made in immediately available funds no later than 11:00 a.m., local time at the place of receipt, on the date each such payment shall be due and payable hereunder and shall be paid either (A) in the case of payments other than Excepted Payments, to the Lessor at its address determined in accordance with Section 17, or at such other address as the Lessor may direct by notice in writing to the Lessee, or (B) in the case of Excepted Payments, to such Person as shall be entitled to receive such payment at such address as such Person may direct by notice in writing to the Lessee. If the date on which any payment of Rent is due hereunder shall not be a Business Day, the payment otherwise due thereon shall be due and payable on the preceding Business Day, with the same force and effect as if paid on the nominal date provided in this Facility Lease.

(d) Adjustments to Rent. Basic Rent and the schedules of Casualty Values, Termination Values and Special Casualty Values attached hereto shall be adjusted (upward or downward) to preserve Net Economic Return if there is any Change in Tax Law other than a Change in respect of a minimum tax; provided, however, that the aggregate amount of such downward adjustments shall not exceed the aggregate amount of such upward adjustments. Adjustments under this paragraph (d) shall be (1) made not more than once a year and (2) limited in the aggregate to the extent necessary such that the aggregate amount of Basic Rent theretofore and thereafter payable throughout the Basic Lease Term (computed for such purposes only without regard to any adjustments theretofore made pursuant to Section 3(e)) shall not be more than the following percentages of Basic Rent pay able throughout the Basic Lease Term (calculated as aforesaid): (i) 22% in the event that the Outstanding Notes have not been reoptimized in accordance with their terms and (ii) 15.5% if the Outstanding Notes have been reoptimized in full in accordance with their terms.

The provisions of this Section 3(d) to the contrary notwithstanding, if any Change in Tax Law is, or becomes, applicable to the transaction contemplated by this Facility Lease in consequence of the transfer of the Owner Participant's beneficial interest in the Trust (whether or not permitted by Section 15 of the Participation Agreement) or if such Change in Tax Law would not have been applicable to such transaction had no such transfer occurred, then no adjustment shall be, or be required to be, made pursuant to this paragraph (d); provided, however, that this sentence shall not apply to the initial transfer of the Owner Participant's beneficial interest in the Trust to one of its Affiliates.

(e) Further Adjustments. Basic Rent and the schedules of Casualty Values, Special Casualty Values and Termination Values attached hereto shall be appropriately adjusted (upward or downward) to preserve Net Economic Return if there is (i) any issuance of the Fixed Rate Note, (ii) any Supplemental Financing, (iii) the payment of Transaction Expenses in an amount which is other than 2.0% of the Purchase Price or (iv) any change in the Pricing Assumptions.

(f) Computation of Adjustments. Upon the occurrence of an event requiring an adjustment to Basic Rent payable pursuant to clause (ii) of Section
3(a), and the schedules of Casualty Values, Special Casualty Values and Termination Values attached hereto, pursuant to paragraph (d) or (e) of this
Section 3, the Owner Participant shall make the necessary computations and furnish to the Lessee, the Loan Participant, the Lessor and the Indenture Trustee the revised amounts and percentages, which amounts and percentages shall be implemented upon delivery thereof and effective as of the date of occurrence of the event requiring such adjustment (taking into account any payment of Basic Rent already made) and shall remain effective until changed in consequence of any verification procedure set forth below. Such revised amounts and percentages shall be subject to verification (at the Lessee's request within 90 days after the Owner Participant furnishes the revised amounts to the Lessee, the Loan participant the Lessor and the Indenture Trustee) by the Owner Participant's nationally recognized independent public accountants, in which case such accountants shall either (i) confirm to the Lessee in writing that such revised amounts were computed on a basis consistent with the original calculations, or
(ii) compute and provide to the Lessee, the Lessor, the Owner Participant, the Loan Participant and the Indenture Trustee revised amounts and percentages which are on such a basis. The revised amounts and percentages, as so confirmed or computed if applicable, shall be conclusive and binding upon the Lessee, the Lessor, the Owner Participant, the Loan Participant and the Indenture Trustee. The cost of any such verification shall be borne by the Lessee unless such accountants shall require an adjustment to the revised amounts and percentages originally provided by the Owner Participant which differs by more than 10% from the adjustment so provided, in which case such cost shall be divided and paid by the Lessee and the Owner Participant in equal amounts. Each adjustment pursuant to paragraph (d) or (e) of this Section 3 may, but need not, be evidenced by the execution and delivery of a supplement to this Facility Lease in form and substance satisfactory to the Lessee and the Owner Participant, but shall be effective as provided herein without regard to the date on which such supplement to this Facility Lease is so executed and delivered. Any adjustment referred to in this Section 3 shall satisfy the provisions of Revenue Procedure 75-21, Revenue Procedure 75-28 and any other applicable statute, regulation, revenue procedure revenue ruling or technical information release relating to the subject matter of Revenue procedure 75-21 or Revenue Procedure 75-28, but, in the case of any upward adjustment, shall be no less than the adjustment otherwise required pursuant to this Section 3.

(g) Sufficiency of Basic Rent and Supplemental Rent. Notwithstanding any other provision of this Facility Lease, any other Transaction Document or any Financing Document, (i) the amount of Basic Rent payable on each Basic Rent Payment Date shall be at least equal to the aggregate amount of principal, premium, if any, and accrued interest payable on all Notes then Outstanding and
(ii) each payment of Casualty Value, Special Casualty Value and Termination Value shall in no event be less (when added to all other amounts, other than Excepted Payments, required to be paid by the Lessee under this Facility Lease in respect of any Event of Loss or Deemed Loss Event or termination of this Facility Lease) than an amount sufficient, as of the date of payment, to pay in full all principal of, and premium, if any, and interest then due on all Notes Outstanding on and as of such date of payment (taking into account any assumption of the Notes by the Lessee).

(h) Rent Differential. So long as the Initial Series Note shall be outstanding, each installment of Basic Rent shall be increased or decreased, as the case may be, by the Rent Differential. For purposes hereof, "Rent Differential" shall mean, as of any Basic Rent Payment Date, the difference between (i) the aggregate amount of interest due and payable on each Basic Rent Payment Date on the Initial Series Note, and (ii) the aggregate amount of interest that would have been due and payable on such Basic Rent Payment Date on such Note if such Note had at all times during the relevant period borne interest at a rate equal to 10.0% per annum (computed on the basis of the actual number of days elapsed in a year of 365 or 366 days, as the case may be). If, as of any Basic Rent Payment Date, (A) the amount determined in accordance with clause (i) of the immediately preceding sentence shall exceed the amount determined in accordance with clause (ii) of such sentence, the amount of Basic Rent due on such Basic Rent Payment Date shall be increased by the Rent Differential, and (B) the amount determined in accordance with such clause (ii) shall exceed the amount determined in accordance with such clause (i), the amount of Basic Rent due on such Basic Rent Payment Date shall be decreased by the Rent Differential.

SECTION 4. Net Lease.

This Facility Lease (as originally executed and as modified, supplemented and amended from time to time) is a net lease, and the Lessee hereby acknowledges and agrees that the Lessee's obligation to pay all Rent hereunder, and the rights of the Lessor in and to such Rent, shall be absolute, unconditional and irrevocable and shall not be affected by any circumstances of any character, including, without limitation, (i) any set-off, abatement, counterclaim, suspension, recoupment, reduction, rescission, defense or other right or claim which the Lessee may have against the. Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant, the Operating Agent, any ANPP Participant, any vendor or manufacturer of any equipment or assets included in the Undivided Interest, Unit 1, any Capital Improvement, the Real Property Interest, the PVNGS Site, PVNGS, or any part of any thereof, or any other Person for any reason whatsoever, (ii) any defect in or failure of the title, merchantability, condition, design, compliance with specifications, operation or fitness for use of all or any part of the Undivided Interest, Unit 1, any Capital Improvement, the Real Property Interest, the PVNGS Site or PVNGS, (iii) any damage to, or removal, abandonment, decommissioning, shutdown, salvage, scrapping, requisition taking, loss, theft or destruction of all or any part of the Undivided Interest, Unit 1, any Capital Improvement, the Real Property Interest, the PVNGS Site or PVNGS, or any interference, interruption or cessation in the use or possession thereof or of the Undivided Interest by the Lessee or by any other Person (including, but without limitation, the Operating Agent for any other ANPP Participant) for any reason whatsoever or of whatever duration, (iv) any restriction, prevention or curtailment of or interference with any use of all or any part of the Undivided Interest, Unit 1, any Capital Improvement, the Real Property Interest, the PVNGS Site or PVNGS, (v) any insolvency, bankruptcy, reorganization or similar proceeding by or against the Lessee, the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant, the Operating Agent, any other ANPP Participant or any other Person, (vi) the invalidity, illegality or unenforceability of this Facility Lease, any other Transaction Document, any Financing Document, the ANPP Participation Agreement or any other instrument referred to herein or therein or any other infirmity herein or therein or any lack of right, power or authority of the Lessor, the Lessee, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant or any other Person to enter into this Facility Lease, any other Transaction Document or any Financing Document, or any doctrine of force majeure, impossibility, frustration, failure of consideration, or any similar legal or equitable doctrine that the Lessee's obligation to pay Rent is excused because the Lessee has not received or will not receive the benefit for which the Lessee bargained, it being the intent of the Lessee to assume all risks from all causes whatsoever that the Lessee does not receive such benefit,
(vii) the breach or failure of any warranty or representation made in this Facility Lease or any other Transaction Document or any Financing Document by the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant or any other Person, (viii) any amendment or other change of, or any assignment of rights under, this Facility Lease, any other Transaction Document, any Financing Document or any ANPP Project Agreement, or any waiver, action or inaction under or in respect of this Facility Lease, any other Transaction Document, any Financing Document or any ANPP Project

Agreement, or any exercise or non-exercise of any right or remedy under this Facility Lease, any other Transaction Document, any Financing Document or any ANPP Project Agreement, including, without limitation, the exercise of any foreclosure or other remedy under the Indenture, the Collateral Trust Indenture or this Facility Lease, or the sale of Unit 1, any Capital Improvement, the Undivided Interest, the Real Property Interest, the PVNGS Site or PVNGS, or any part thereof or any interest therein, or (ix) any other circumstance or happening whatsoever whether or not similar to any of the foregoing. The Lessee acknowledges that by conveying the leasehold estate created by this Facility Lease to the Lessee and by putting the Lessee in possession of the Undivided Interest and the Real Property Interest, the Lessor has performed all of the Lessor's obligations under and in respect of this Facility Lease, except the covenant under Section 6(a) hereof that the Lessor and Persons acting for the Lessor will not interfere with the Lessee's quiet enjoyment of the Undivided Interest and the Real Property Interest. The Lessee hereby waives, to the extent permitted by Applicable Law, any and all rights which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender this Facility Lease or to effect or claim any diminution or reduction of Rent payable by the Lessee hereunder, including without limitation the provisions of Arizona Revised Statutes Section 33-343, except in accordance with the express terms hereof. If for any reason whatsoever this Facility Lease shall be terminated in whole or in part by operation of law or otherwise, except as specifically provided herein, the Lessee nonetheless agrees to pay to the Lessor or other Person entitled thereto an amount equal to each installment of Basic Rent and all Supplemental Rent at the time such payment would have become due and payable in accordance with the terms hereof had this Facility Lease not been terminated in whole or in part. Each payment of Rent made by the Lessee hereunder shall be final and the Lessee shall not seek or have any right to recover all or any part of such payment from the Lessor or any other Person for any reason whatsoever. All covenants, agreements and under takings of the Lessee herein shall be performed at its cost, expense and risk unless expressly otherwise stated. Nothing in this Section 4 shall be construed as a guaranty by the Lessee of any residual value in the Undivided Interest or as a guaranty of the Notes. Any provisions of Section 7(b)(2) or 8(c) of the Participation Agreement to the contrary notwithstanding, if the Lessee shall fail to make any payment of Rent to any Person when and as due (taking into account appli cable grace periods), such Person shall have the right at all times, to the exclusion of the ANPP Participants, to demand, collect, sue for, enforce obligations relating to and otherwise obtain all amounts due in respect of such Rent.

SECTION 5. Return of the Undivided Interest.

(a) Return of the Undivided Interest. On the Lease Termination Date, the Lessee will surrender possession of the Undivided Interest and the Real Property Interest to the Lessor (or to a Person specified by the Lessor to the Lessee in writing not less than 6 months prior to the Lease Termination Date) with full rights as a "Transferee" and the sole "Participant" with respect to the Undivided Interest and the Real Property Interest within the meaning of
Section 15.10 of the ANPP Participation Agreement, and will furnish to the Lessor: (i) copies certified by a senior officer of the Lessee of all Governmental Action necessary to effect such surrender (including, but without limitation, appropriate amendments to the License permitting the Lessor (without the Lessor being required to change its business) or such Person to possess the Undivided Interest and the Real Property Interest with or without the continued involvement of the Lessee as Agent), which Governmental Action shall be in full force and effect; and (ii) an opinion of counsel (which may be Mudge Rose Guthrie Alexander & Ferdon, Snell & Wilmer or another counsel experienced with NRC and other nuclear matters reasonably satisfactory to the Owner Participant) to the effect that (A) the Lessee has obtained all Governmental Action and action under the ANPP Participation Agreement necessary to effect such surrender by the Lessee and receipt of possession by the Lessor (or to the Person so specified by the Lessor) and (B) such Governmental Action is in full force and effect. At the time of such return the Lessee shall pay or have paid all amounts due and payable, or to become due and payable, by it as an ANPP Participant under each and every ANPP Project Agreement allocable or chargeable (whether or not payable during or after the Lease Term) to the Undivided Interest or the Real Property Interest in respect of any period or periods ending on or prior to the Lease Termination Date (including, but without limitation, all amounts payable with respect to any and all discretionary Capital Improvements to Unit 1 or the PVNGS Site approved or authorized (without the concurrence of the Owner Participant) within the 3-year period preceding the end of the Lease Term, whether or not implementation thereof has been completed on or prior to the Lease Termination Date), and the Undivided Interest and the Real Property Interest shall be free and clear of all Liens (other than Permitted Liens described in clauses (i), (v) (other than those arising by, through or under the Lessee alone), (vi), (vii) (other than as aforesaid), (viii) (other than as aforesaid), (ix) and (x) of the definition of such term) and in the condition and state of repair required by Section 8. In the event that on or prior to the Lease Termination Date there shall have occurred a default by any ANPP Participant (other than the Lessee) under the ANPP Participation Agreement and such default shall not have been cured by the defaulting ANPP Participant, then
(i) the Lessee agrees to indemnify and hold the Lessor (and each successor, assign and transferee thereof) harmless against any and all obligations under the ANPP Participation Agreement with respect to contributions or payments required to be made thereby as a result of such default and (ii) the Lessor (and each successor, assign and transferee thereof) agrees to reimburse the Lessee for all amounts paid by the Lessee pursuant to the foregoing clause (i) to the extent, but only to the extent, that the Lessor (or such successor, assign or transferee) shall have actually received proceeds from the sale of the Generation Entitlement Share of the defaulting ANPP Participant as a result of the payment made by the Lessee pursuant to the foregoing clause (i), and, to the extent the Lessor (or such successor, assign or transferee) shall have received such proceeds, the amount to be reimbursed to the Lessee pursuant to this clause
(ii) shall include interest at the Prime Rate from the date of any payment by the Lessee pursuant to the foregoing clause (i) through the date of reimbursement of such amount pursuant to this clause (ii).

(b) Disposition Services. The Lessee agrees that if it does not exercise its option to renew or purchase as provided in Sections 12 and 13, respectively, then during the last thirty-six months of the Lease Term, the Lessee will fully cooperate with the Lessor in connection with the Lessor's efforts to lease or dispose of the Undivided Interest and the Real Property Interest including using the Lessee's reasonable efforts to lease or dispose of the Undivided Interest and the Real Property Interest. The Lessor agrees to reimburse the Lessee for reasonable out-of-pocket costs and expenses of the Lessee incurred at the request of the Lessor or the Owner Participant in connection with such cooperation and such efforts.

SECTION 6. Warranty of the Lessor.

(a) Quiet Enjoyment. The Lessor warrants that until the Lease Termination Date, so long as no Event of Default shall have occurred and be continuing, the Lessee's use and possession of Unit 1, including the Undivided Interest, shall not be interrupted by the Lessor or any Person claiming by, through or under the Lessor, and their respective successors and assigns.

(b) Disclaimer of Other Warranties. The warranty set forth in
Section 6(a) is in lieu of all other warranties of the Lessor or the Owner Participant, whether written, oral or implied, with respect to this Facility Lease, Unit 1, any Capital Improvement, the Undivided Interest, PVNGS, the Real Property Interest or the PVNGS Site. As among the Owner Participant, the Loan Participant, the Indenture Trustee, the Collateral Trust Trustee, the Lessor and the Lessee, execution by the Lessee of this Facility Lease shall be conclusive proof of the compliance of Unit 1 (including any Capital Improvement), the Undivided Interest and the Real Property Interest with all requirements of this Facility Lease, and the Lessee acknowledges and agrees that (i) NEITHER THE LESSOR NOR THE OWNER PARTICIPANT IS A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND AND (ii) THE LESSOR LEASES AND THE LESSEE TAKES THE UNDIVIDED INTEREST AND THE REAL PROPERTY INTEREST, AND SHALL TAKE EACH CAPITAL IMPROVEMENT, AND ANY PART THEREOF, AS IS AND WHERE IS, and neither the Lessor nor the Owner Participant shall be deemed to have made, and THE LESSOR AND THE OWNER PARTICIPANT EACH HEREBY DISCLAIMS, ANY OTHER REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN OR CONDITION OF UNIT 1, ANY CAPITAL IMPROVEMENT, THE UNDIVIDED INTEREST, THE REAL PROPERTY INTEREST, THE PVNGS SITE OR PVNGS, OR ANY PART THEREOF, THE MERCHANTABILITY THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR PURPOSE, TITLE TO UNIT 1, ANY CAPITAL IMPROVEMENT, THE UNDIVIDED INTEREST, THE REAL PROPERTY INTEREST, THE PVNGS SITE OR PVNGS, OR ANY PART THEREOF, THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT OR THE ABSENCE OF ANY LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, NOR SHALL THE LESSOR OR THE OWNER PARTICIPANT BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LIABILITY IN TORT, STRICT OR OTHERWISE), it being agreed that all

such risks, as among the Owner Participant, the Loan Participant, the Collateral Trust Trustee, the Indenture Trustee, the Lessor and the Lessee, are to be borne by the Lessee. The provisions of this Section 6(b) have been negotiated, and, except to the extent otherwise expressly provided in Section 6(a), the foregoing provisions are intended to be a complete exclusion and negation of any representations or warranties by the Lessor, the Owner Participant, the Loan Participant, the Collateral Trust Trustee or the Indenture Trustee, express or implied, with respect to Unit 1 (including any Capital Improvement), the Undivided Interest, PVNGS, the Real Property Interest or the PVNGS Site that may arise pur suant to any law now or hereafter in effect, or otherwise.

(c) Enforcement of Certain Warranties. The Lessor authorizes' the Lessee ('directly or through agents, including the Operating Agent), at the Lessee's expense, to assert for the Lessor's account, during the Lease Term, all of the Lessor's rights (if any) under any applicable warranty and any other claims (under this Facility Lease or any Purchase Document) that the Lessee or the Lessor may have against any vendor or manufacturer with respect to Unit 1 (including any Capital Improvement) or the Undivided Interest, and, the Lessor agrees to cooperate, at the Lessee's expense, with the Lessee and the Operating Agent in asserting such rights. Any amount receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) by the Lessee as payment under any such warranty or other claim against any vendor or manufacturer (or, if such warranty or claim relates to the Undivided Interest and the Retained Assets, the portion of such received amount appropriately allocable to the Undivided Interest) shall be applied in accordance with Sections 9(g), (h) and (i).

SECTION 7. Liens.

The Lessee will not directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to the Undivided Interest, the Real Property Interest, the Lessor's title thereto or any interest of the Lessor or Lessee therein (and the Lessee will promptly, at its own expense, take such action as may be necessary duly to discharge any such Lien), except Permitted Liens. - 15 SECTION 8. Operation and Maintenance; Capital Improvements.

(a) Operation and Maintenance. The Lessee agrees that it will exercise its rights, powers, elections and options as an ANPP Participant under the ANPP Project Agreements to cause the operating Agent to (A) maintain Unit 1 in such condition that Unit 1 will have the capacity and functional ability' to perform, on a continuing basis (ordinary wear and tear excepted), in normal commercial operation, the functions and substan tially at the ratings at which it is, from time to time, rated, (B) operate, service, maintain and repair Unit 1 and replace all necessary or useful parts and components thereof so that the condition and operating efficiency will be maintained and preserved, ordinary wear and tear excepted, in all material respects in accordance with (1) prudent utility practice for items of similar size and nature, (2) such operating standards as shall be required to take advantage of and enforce all available warranties and (3) the terms and conditions of all insurance policies maintained in effect at any time with respect thereto, (C) use, possess, operate and

maintain Unit 1 in compliance with all material applicable Governmental Actions (including the License) affecting PVNGS or Unit 1 or the use, possession, operation and maintenance thereof and (D) otherwise act in accordance with the standards set forth in the ANPP Participation Agreement. The Lessee will comply with all its obligations under Applicable Law affecting Unit 1, the Undivided Interest, PVNGS, the Real Property Interest and the PVNGS Site, and the use, operation and maintenance thereof. The Lessee agrees to (i) exercise its rights under the ANPP Participation Agreement so that there will always be an Operating Agent under the ANPP Participation Agreement and (ii) maintain in full force and effect a license from the NRC adequate to possess the Undivided Interest and the Real Property Interest under the circumstances contemplated by the ANPP Participation Agreement. The Lessee will keep and maintain proper books and records (i) relating to all Operating Funds (as defined in the ANPP Participation Agreement) provided by it to the Operating Agent under the ANPP Participation Agreement and (ii) upon receipt of the requisite information from the Operating Agent, relating to the application of such Operating Funds to the operation and maintenance of Unit 1 and the acquisition, construction and installation of Capital Improvements, all in accordance with the Uniform System of Accounts. The Lessor shall not be obliged in any way to maintain, alter, repair, rebuild or replace Unit 1, any Capital Improvement, the Undivided Interest or the Real Property Interest, or any part thereof, or, except as provided in Section 8(f), to pay the cost of alteration, rebuilding, replacement, repair or maintenance of Unit 1, any Capital Improvement, the Undivided Interest or the Real Property Interest, or any part thereof, and the Lessee expressly waives the right to perform any such action at the expense of the Lessor pursuant to any law at any time in effect.

(b) Inspection. The Lessor and the Owner Participant and their respective authorized representatives shall have the right to inspect PVNGS (subject, in each event, to the ANPP Participation Agreement, Applicable Law, applicable confidentiality undertakings and procedures established by the Operating Agent) at a their expense. The Lessor and the Owner Participant and their respective authorized representatives shall have the right to inspect, at their expense, the books and records of the Lessee relating to PVNGS, and make copies of and extracts therefrom (subject as aforesaid) and may, at their expense, discuss the Lessee's affairs, finances and accounts with its executive officers and its independent public accountants (and by this provision, the Lessee authorizes such accountants, in the presence of the Lessee, to discuss with the Lessor and the Owner Participant and their respective authorized representatives the affairs, finances and accounts of the Lessee), all at such times and as often as may be reasonably requested. None of the Lessor, the Owner Participant, the Indenture Trustee and the Collateral Trust Trustee shall have any duty whatsoever to make any inspection or inquiry referred to in this
Section 8(b) and shall not incur any liability or obligation by reason of not making any such inspection or inquiry.

(c) Capital Improvements. If and to the extent required by the ANPP Participation Agreement, the Lessee shall, at its sole expense, promptly participate in the making of any Capital Improvement to Unit 1. Of the net proceeds of (i) any sale or other disposition of property removed from Unit 1 receivable (without regard to any right of setoff or other similar right of any

Person against the Lessee) by, or credited to the account of the Lessee in accordance with the ANPP Participation Agreement and (ii) any insurance proceeds receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) for the account of the Lessor or the Lessee in respect of the loss or destruction of, or damage or casualty to, any such property, 11.1111% in the case of Unit 1, or 3.7037% in the case of Common Facilities, of either such amount shall be applied as provided in Section 9(g),
(h), or (i), as the case may be. A 1.133333%, in the case of Unit 1, or .377777%, in the case of Common Facilities, undivided interest in property at any time removed from Unit 1 shall remain the property of the Lessor, no matter where located, until such time as a Capital Improvement constituting a replacement of such property shall have been installed in Unit 1 or such removed property has been disposed of by the Operating Agent in accordance with the ANPP Participation Agreement. Simultaneously with such disposition by the Operating Agent, title to a 1.133333%, in the case of Unit 1, or .377777%, in the case of Common Facilities, undivided interest in the removed property shall vest in the Person designated by the Operating Agent, free and clear of any and all claims or rights of the Lessor. Unless subparagraph (3) of Section 8(e) shall be applicable, upon the incorporation of a Capital Improvement in Unit 1, without further act, (i) title to a 14133333%, in the case of Unit 1, or .377777%, in the case of Common Facilities, undivided interest in such Capital Improvement shall vest in the Lessor and (ii) such applicable undivided interest in such Capital Improvement shall become subject to this Facility Lease and be deemed to be part of the Undivided Interest for all purposes hereof to the same extent that the Lessor had a like undivided interest in the property originally incorporated or installed in Unit 1. The Lessee warrants and agrees that the Lessor's 1.133333% undivided interest in all Capital Improvements shall be free and clear of all Liens, except Permitted Liens other than the type specified in clauses (ii), (iii) and (xii) of the definition thereof.

(d) Reports. To the extent permissible, the Lessee shall prepare and file in timely fashion, or, where the Lessor shall be required to file, the Lessee shall prepare and deliver to the Lessor within a reason-able time prior to the date for filing, any reports with respect to Unit 1, the Undivided Interest or the Real Property Interest or the condition or operation thereof that shall be required to be filed with any governmental or regulatory authority. On or before March 1 of each year (commencing on March 1, 1987) and on the Lease Termination Date, the Lessee shall furnish the Lessor and the Owner Participant with a report stating the total cost of all Capital Improvements and describing separately and in reasonable detail each Capital Improvement (or related group of Capital Improvements) made during the period from the date hereof to December 31, 1986 in the case of the first such report or during the period from the end of the period covered by the last previous report to the December 31 prior to such report in the case of subsequent reports. On or before March 1 in each year (commencing March 1, 1987) and at such other times as the Lessor or the Owner Participant shall reasonably request in writing (which request shall provide a reasonable period for response) , the Lessee will report in writing to the Lessor with respect to (i) the most recent annual capital expenditure budget submitted by the Operating Agent to the Lessee in accordance with the ANPP Participation Agreement and (ii) the then plans (if any) which the Lessee may have for the financing of the same under Section 8(f).

(e) Title to Capital Improvements. Title to a 1.133333%, in the case of Unit 1, or .377777%, in the case of Common Facilities, undivided interest in each Capital Improvement to Unit 1 or the Common Facilities, as the case may be, shall vest as follows:

(1) in the case of each Nonseverable Capital Improvement, whether or not the Lessor shall have financed or provided financing (in whole or in part) for such undivided interest in such Capital Improvement by an Additional Equity Investment or a Supplemental Financing, or both, effective on the date such Capital Improvement shall have been incorporated or installed in Unit 1 or the Common Facilities, as the case may be, the Lessor shall, without further act, acquire title to such undivided interest in such Capital Improvement;

(2) in the case of each Severable Capital Improvement, if the Lessor shall have financed (by an Additional Equity Investment or a Supplemental Financing, or both) 1.133333%, in the case of Unit 1, or .377777%, in the case of Common Facilities, of the cost of such Capital Improvement, the Lessor shall, without further act, acquire title to such undivided interest in such Capital Improvement; and

(3) in the case of each Severable Capital Improvement, if the Lessor shall not have financed (by an Additional Equity Investment or a supplemental Financing, or both) 1.133333%, in the case of Unit 1, or .377777%, in the case of Common Facilities, of the cost of such Capital Improvement, the Lessee shall retain title to such undivided interest in such Capital Improvement Immediately upon title to such 1.133333%, in the case of Unit 1, or .377777%, in the case of Common Facilities, undivided interest in any Capital Improvement vesting in the Lessor pursuant to subparagraph (1) or sub-paragraph (2) of this Section 8(e), such undivided interest in such Capital Improvement shall, without further act, become subject to this Facility Lease and be deemed part of the Undivided Interest for all purposes hereof.

(f) Funding of the Cost of Capital Improvements. Before placing in service any Capital Improvement to Unit 1 or the Common Facilities the cost of which exceeds $100,000,000 in respect of the inter ests of all ANPP Participants, the Lessee shall give the Lessor and the Owner Participant reasonable advance notice thereof. The Owner Participant shall have the option, in its sole discretion, of financing through the Lessor' 1.133333%, in the case of Unit 1, or .377777%, in the case of Common Facilities, of the cost of any such Capital Improvement, or any other Capital Improvement presented to the Owner Participant for financing, including or not including the making of an investment by the Owner Participant (an Additional Equity Investment) and the issuance of one or more Additional Notes, all on terms acceptable to the Lessee and the Owner Participant. If the Owner Participant does not finance, or arrange the financing of, 1.133333%, in the case of Unit 1, or .377777%, in the case of Common Facilities, of the cost of such Capital Improvement, the Lessee may cause the Lessor to issue, if and to the extent permitted by the Indenture, to one or more Persons (other than any Person affiliated with the Lessee within the meaning of Section 318 of the Code)one or more Additional Notes and to use the proceeds thereof to pay the applicable percentage of the cost of such Capital Improvement, subject to satisfaction of the following conditions:

(i) there shall be no more than one Supplemental Financing in any calendar year;

(ii) the sum of the Supplemental Financing Amounts in any calendar year shall equal or exceed 1.133333% of $5,000,000;

(iii) the Lessee may include in any request for a Supplemental Financing only Capital Improvements not previously financed in any Supplemental Financings and which have been installed or affixed no earlier than three calendar years before the beginning of the calendar year in which such Supplemental Financing occurs;

(iv) the total amount of all Supplemental Financings during the Basic Lease Term shall not exceed one-ninth of $100,000,000;

(v) unless waived by the Owner Participant, the Bonds issued and outstanding under the Collateral Trust Indenture shall be rated no less than "investment grade", as determined by Standard & Poor's Corporation and Moody's Investors Service, Inc.;

(vi) the Supplemental Financing Amount shall not exceed that portion of the cost of Capital Improvements which, when financed, will constitute an addition to the Owner Participant's basis under section 1012 of the Code;

(vii) in the opinion of independent tax counsel to the Owner Participant, such Supplemental Financing shall not result in adverse tax consequences to the Owner Participant or adversely affect the status of this Facility Lease as a "true lease" for Federal, New York State or New York City tax purposes, and the Owner Participant and the Lessee shall have agreed upon the amount and manner of payment of the indemnity (if any) payable by the Lessee as a consequence of such Supplemental Financing;

(viii) the Additional Notes shall have a final maturity date no later than January 15, 2015;

(ix) the Lessee shall have made such representations, warranties and covenants regarding the tax characteristics of the Lessor's undivided interest in each Capital Improvement as the Owner Participant reasonably requests, and the Tax Indemnification Agreement shall have been appropriately modified;

(x) appropriate adjustments to Basic Rent and the schedules of Casualty Values, Special Casualty Values and Termination Values shall have been agreed to by the Owner Participant to support the amortization of the Additional Notes issued in respect of such Supplemental Financing and to preserve Net Economic Return; (xi) the Lessee shall pay to the Lessor an amount equal to all out-of-pocket costs and expenses reasonably incurred by the Lessor or the Owner Participant and not financed as a part of such Supplemental Financing or reflected in adjustments to Basic Rent;

(xii) no Default or Event of Default shall have occurred and be continuing; and

(xiii) the Lessee shall enter into such agreements and shall have provided such tax indemnities, representations warranties, covenants, opinions, certificates and other documents as the Owner Participant shall reasonably request.

SECTION 9. Event of Loss; Deemed Loss Event.

(a) Damage or Loss. In the event that Section 16.2 of the ANPP Participation Agreement (as in effect on the date hereof) shall become applicable, or an Event of Loss, a Requisition of Use or a Requisition of Title shall occur, or Unit 1 or any substantial part thereof shall suffer destruction, damage, loss, condemn nation, confiscation, theft or seizure for any reason whatsoever, such fact shall promptly, and in any case within five Business Days following such event, be reported by the Lessee to the Lessor and the Owner Participant.

(b) Repair. The Lessee shall promptly make any and all payments required of the Lessee under the provisions of the ANPP Participation Agreement relating to damage or destruction or the like to Unit 1 or any portion thereof; provided, however, that the Lessee shall in no event be obligated to make or join in any agreement under Section 16.2 of the ANPP Participation Agreement (as in effect on the date hereof) concerning repair's to or reconstruction of Unit 1.

(c) Payment of Casualty Value. On the Basic Rent Payment Date next following receipt by the Lessee of a written notice from the Lessor that an Event of Loss has occurred, the Lessee shall pay to the Lessor all Basic Rent due on such Basic Rent Payment Date, plus an amount equal to the excess of (i) Casualty Value determined as of such Basic Rent Payment Date, over (ii) the unpaid principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such date. An Event of Loss shall not be deemed to have occurred unless and until the Lessor delivers the notice specified in the preceding sentence. Upon compliance in full by the Lessee with the foregoing provisions of this Section
(c) and assumption by the Lessee of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to Section 3.9(b) of the Indenture, the Lessor shall (so long as no Default or Event of Default shall have occurred and be continuing), and at any time after the occurrence of an Event of Loss, the Lessor may:

(1) in the case of an Event of Loss arising from a Final Shutdown, if the Lessee shall have declined, but one or more of the other ANPP Participants shall have elected, to reconstruct or restore Unit 1, as permitted by the ANPP Participation Agreement, Transfer the Undivided Interest and the Real Property Interest to such electing ANPP Participants, as required by and in the proportions set forth in the ANPP Participation Agreement, in which case the Lessee shall be entitled to receive the portion of the "salvage value" purchase price allocable to the Undivided Interest; or

(2) if clause (1) shall not be applicable, Transfer the Undivided Interest and the Real Property Interest to the Lessee.

If the Lessee shall not have assumed all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the Indenture, but the Owner Participant shall have received under
Section 5.2 of the Indenture all amounts required to be paid by the Lessee pursuant to this Section 9(c) (including interest, if any, thereon pursuant to
Section 3(b)(iii) hereof), the Lessor shall retain the Undivided Interest and the Real Property Interest subject to the terms of this Facility Lease and
Section 7(b,)(4) of the Participation Agreement; provided, however, that (i) the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on all Notes then Outstanding and (ii) this Facility Lease shall become a security agreement for all purposes of Applicable Law.

(d) Payment of Special Casualty Value. If a Deemed Loss Event occurs, the party hereto having knowledge thereof shall promptly notify the other thereof (provided that the failure by the Lessor to furnish to the Lessee the foregoing notification shall not impair the right of the Lessor to exercise the option referred to below) and, at the Lessor's option, exercisable by delivery of written notice to the Lessee, on the day (specified in Schedule 2) of the month next following the month during which such notice is delivered to the Lessee, the Lessee shall pay to the Lessor an amount equal to the excess of
(i) Special Casualty Value deter mined as of the date such payment is due over
(ij) the principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such day. Upon compliance in full by the Lessee with the foregoing provisions of this Section 9(d) and assumption by the Lessee of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to
Section 3.9(b) of the Indenture, the Lessor shall (so long as no Default or Event of Default shall have occurred and be continuing) , and at any time after the occurrence of a Deemed Loss Event, the Lessor may, Transfer the Undivided Interest and the Real Property Interest to the Lessee. If the Lessee shall not have assumed all the' liabilities and obligations of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the Indenture, but the Owner Participant shall have received under Section 5.2 of the Indenture all amounts required to be paid by the Lessee pursuant to this Section 9(d) (including interest, if any, thereon pursuant to Section 3(b)(iii)), the Lessor shall retain the Undivided Interest and the Real Property Interest subject to the terms of this Facility Lease and Section 7(b) (4) of the Participation Agreement; provided, however, that (i) the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on all Notes Outstanding and (ii) this Facility Lease shall become a security agreement for all purposes of Applicable Law.

(e) Requisition of Use. In the case of a Requisition of Use not constituting an Event of Loss, this Facility Lease shall continue, and each and every obligation of the Lessee hereunder and under each Transaction Document shall remain in full force and effect. So long as no Default or Event of Default shall have occurred and be continuing, the Lessee shall be entitled to all sums received by reason of any such Requisition of Use for the period ending on the Lease Termination Date, and the Lessor shall be entitled to all sums received by reason of any such Requisition of Use for the period after the Lease Termination Date.

(f) Termination of Obligation. Until the Lessee shall have made the payments specified in Section 9(c) or 9(d), the Lessee shall make all payments of Rent when due; and the Lessee shall thereafter be required to make all payments of Supplemental Rent as and when due. In the event that the Lessee shall assume all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to Section 3.9(b) of the Indenture, upon receipt by the Owner Participant under Section 5.2 of the Indenture of the payments specified in Section 9(c) or 9(d) and payment by the Lessee of all other Rent due and owing through and including the date of payment (including Basic Rent due on or accrued through such date, as the case may be), the Lease Term shall end and the Lessee's obligation to pay further Basic Rent shall cease.

(g) Application of Payments on an Event of Loss. Any payments receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) at any time by the Lessor or the Lessee (other than insurance placed by the Owner Trustee or the Owner Participant pursuant to
Section 10(b)) from any Governmental Authority, insurer or other Person (except the Lessee, the Owner Trustee or the Owner Participant) as a result of the occurrence of an Event of Loss shall be applied as follows:

(i) all such payments received at any time by the Lessee shall be promptly paid to the Lessor for application pursuant to the following provisions of this Section 9(g), except that the Lessee may retain any amounts that would at the time be payable to the Lessee as reimbursement under the provisions of clause (ii) below;

(ii) so much of such payments as shall not exceed the amount required to be paid by the Lessee pursuant to Section 9(c) (ignoring, for this purpose, clause (ii) of the first sentence thereof) shall be applied in reduction of the Lessee's obligation to pay such amount if not already paid by the Lessee or, if already paid by the Lessee, shall be applied to reimburse the Lessee for its payment of such amount; and

(iii) the balance, if any, of such payments remaining thereafter shall be divided between the Lessor and the Lessee as their interests may appear.

(h) Application of Payments Not Relating to an Event of Loss. Payments receivable (without regard to anyright of setoff or other similar right of any Person against the Lessee) at any time by the Lessor (other than insurance placed by the Owner Trustee or the Owner Participant pursuant to
Section 10(b)) or the Lessee from any Governmental Authority, insurer or other Person with respect to any destruction, damage, loss, condemnation, confiscation, theft or seizure of or Requisition of Title to or Requisition of Use of the Undivided Interest or any part thereof not constituting an Event of Loss shall be applied first to reimburse the Lessee for all amounts expended in respect of the repair, replacement or reconstruction of the Undivided Interest or any part thereof as provided in Section 9(b), and second the balance, if any, of such payments shall be divided between the Lessor and the Lessee as their interests may appear.

(i) Other Dispositions. Notwithstanding the foregoing provisions of this Section 9, 50 long as a Default or Event of Default shall have occurred and be continuing, any amount that would otherwise be payable to or for the account of, or that would otherwise be retained by, the Lessee pursuant to Section 10 or this Section 9 shall be paid to the Lessor as security for the obligations of the Lessee under this Facility Lease and, at such time thereafter as no Default or Event of Default shall be continuing, such amount shall be paid promptly to the Lessee unless this Facility Lease shall have theretofore been declared to be in default, in which event such amount shall be disposed of in accordance with the provisions hereof, of the Indenture and of the Trust Agreement.

(j) Assumption of Notes; Creation of Lien on Undivided Interest. In connection with an Event of Loss, a Deemed Loss Event or the exercise of the Cure Option, (i) the Lessee agrees to use its best efforts to comply with the conditions respecting its assumption of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes set forth in Section 3.9(b) of the Indenture, and (ii) the Lessor agrees that, if the Lessee fails to assume all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the Indenture, not later than two Business Days prior to the date on which the Lessee is required to make the payments specified in Section 9(c) or 9(d), the Lessor will cause the Undivided Interest and the Real Property Interest to be subjected to the Lien of the Indenture by executing and delivering to the Indenture Trustee the Undivided Interest Indenture Supplement.

SECTION 10. Insurance.

(a) Required Insurance. The Lessee will use its best efforts to cause the Operating Agent to carry and maintain insurance required under the ANPP Participation Agreement and will make all payments required of the Lessee under the ANPP Participation Agreement in respect of such insurance. The Lessee will at all times maintain, directly or through the Operating Agent, policies of casualty and liability insurance with respect to the Undivided Interest and the Real Property Interest in such amounts and with such coverage as shall be adequate in accordance with prudent utility practice. Any policies of insurance in respect of destruction, damage, loss, theft or other casualty to the Undivided Interest, the Real Property Interest, Unit 1 or any part thereof shall name the Lessor (and, to the extent practicable, the Owner Participant) as an additional insured, as its interest (or their interests) may appear, and any policies with respect to nuclear liability insurance with respect to the Undivided Interest, the Real Property Interest, Unit 1, or any part thereof, shall include all Indemnitees as insureds through an omnibus definition of "insured" or through endorsement; provided, however, that if the Operating Agent, as trustee, shall become the loss payee under any policy of insurance constituting Project Insurance, then the Lessor and the Owner Participant shall be and be made beneficiaries of the trust arrangement under which the Operating Agent acts as trustee. The Lessee shall, on or before March 1 of each year, commencing March 1, 1987, furnish to the Lessor and the Owner Participant (A) a report signed by the broker or brokers for the PVNGS insurance (or if insurance is placed directly by the Operating Agent, a certificate signed by the Operating Agent) (i) showing the insurance then main tained by the ANPP Participants with respect to PVNGS, (ii) stating that no premiums are then delinquent, and (iii)

stating that the insurance maintained by the ANPP Participants with respect to PVNGS is in accordance with the terms of (1) the ANPP Participation Agreement and (2) this Section 10, (B) a report signed by the broker or brokers for the Lessee's insurance (or if insurance is placed directly by the Lessee, a certificate signed by the Lessee) showing the separate insurance, if any, then maintained by the Lessee with respect to its interest in PVNGS and stating that no premiums under such insurance are delinquent; (C) a certificate signed by the Lessee stating that the insurance maintained by the ANPP participants and by the Lessee, identified on the reports to be delivered pursuant to clauses (A) and (B), is in accordance with prudent utility practice within the nuclear industry, the ANPP Participation Agreement and this Section 10; and (D) upon the request of the Lessor or the Owner Participant, copies (to the extent permitted by the issuers of such policies) of policies so maintained. Any report by an insurance broker with respect to clause (A)(iii)(1) may be made in reliance upon a schedule provided by the Lessee (a copy of which shall be attached) identifying the insurance (by coverage, limits, insureds and other pertinent details) required to be maintained under the ANPP Participation Agreement. Any report with respect to clause (A)(iii)(2) may be made in reliance upon a similar schedule provided by the Lessee (a copy of which shall be attached) identifying the insurance required to be maintained under this Section 10. All insurance pro ceeds paid in respect of damage, destruction, loss, theft or other casualty to the Undivided Interest or the Real Property Interest shall be applied as provided in Section 9(g), (h) or (i), as the case may be, subject, however, to any priority allocations of such proceeds to decontamination and debris removal set forth in the insurance policies or required under Applicable Law. In the event that either the Operating Agent or the Lessee delivers a certificate pursuant to clause (A) or (B) of the foregoing, the Owner Participant shall be entitled to receive (if it so requests and if the insurer will issue the same) a report from any insurer listed in such certificate.

(b) Permitted Insurance. Nothing in this Section 10 shall prohibit the Lessee from placing, at its expense, insurance on or with respect to the cost of purchasing replacement power, naming the Lessee as insured and/or loss payee, unless such insurance would conflict with or otherwise limit the availability of insurance to be provided or maintained in accordance with
Section 10(a). Nothing in this Section 10 shall prohibit the Lessor or the Owner Participant from placing at its expense other insurance on or with respect to Unit 1, the Undivided Interest or the Real Property Interest or the operation of Unit 1, naming the Lessor or the Owner Participant as insured and/or loss payee, unless such insurance would conflict with or otherwise limit the insurance to be provided or maintained in accordance with Section 10(a).

SECTION 11. Rights to Assign or Sublease.

(a) Assignment or Sublease by the Lessee. Without the prior written consent of the Lessor, the Lessee shall not assign, sublease, transfer or encumber (except for Permitted Liens) its leasehold interest in the Undivided Interest or the Real Property Interest under this Facility Lease. The Lessee shall not, without the prior written consent of the Lessor and the Owner Participant, part with the possession of, or suffer or allow to pass out of its possession, the Undivided Interest, the Real Property Interest or any interest therein, except to the extent required pursuant to the ANPP Participation Agreement or expressly permitted by the provisions of this Facility Lease or any other Transaction Document.

(b) Assignment by Lessor as Security for Lessor's Obligations. To secure the indebtedness evidenced by the Notes, the Lessor will assign to the Indenture Trustee its right, title and interest to receive certain payments of Rent (not including, in any event, Excepted Payments), to the extent provided in the Indenture and may assign to the Indenture Trustee its right, title and interest in the Undivided Interest and the Real Property Interest as contemplated by Section 9(j). The Lessee hereby (a) consents to such assignment pursuant to the terms of the Indenture, (b) agrees to pay directly to the Indenture Trustee at the Indenture Trustee's Office (so long as the lien of the Indenture has not been satisfied and discharged and the Lessor is obligated thereunder) all amounts of Rent (other than Excepted Payments) due or to become due to the Lessor that shall be required to be paid to the Indenture Trustee pursuant to the Indenture, (c) agrees that the right of the Indenture Trustee to any such payments shall be absolute and unconditional and shall not be affected by any circumstances whatsoever, including, without limitation, those circumstances set forth in Section 4 and (d) agrees that, to the extent provided in the Indenture and until the Indenture is discharged in accordance with its terms, the Indenture Trustee shall have all the rights of the Lessor hereunder with respect to Assigned Payments as if the Indenture Trustee had originally been named herein as the Lessor.

SECTION 12. Lease Renewal.

Subject to the notice requirements set forth in Section 13(a), at the end of the Basic Lease Term, provided that no Default, Event of Default, Event of Loss or Deemed Loss Event shall have occurred and be continuing and the Notes shall have been paid in full, the Lessee shall have the right to renew the term of this Facility Lease for a period commencing January 15, 2015, and ending on the later of January 15, 2017 and the end of the Maximum Option Period (the Renewal Term), during which the Basic Rent payable shall be the rental provided in Section 3(a)(iii) and one-half of the rental provided in Section 21.

SECTION 13. Notices for Renewal or Purchase; Purchase Options.

(a) Notice; Determination of values; Appraisal Procedure. Not later than three years nor earlier than five years prior to the expiration date of the Basic Lease Term, and not later than three years nor earlier than five years prior to the expiration date of the Renewal Term, as the case may be, the Lessee shall give to the Lessor written notice of its election either to (A) return the Undivided Interest and the Real Property Interest to the Lessor pursuant to
Section 5, or (B) exercise the renewal option permitted by Section 12 (in the case of the notice delivered in respect of the expiration date of the Basic Lease Term) or the purchase option permitted by Section 13(b). If the notice specified in clause (B) of the preceding sentence is given three years prior to the expiration of the Basic Lease Term, then not later than two years prior to the expiration date of the Basic Lease Term, the Lessee will give the Lessor written notice of its election either to exercise the renewal option permitted by Section 12 or the purchase option permitted by Section 13(b). Any such election shall be irrevocable as to the Lessee but no such election shall be binding on the Lessor if, on the effective date thereof, an Event of Default shall have occurred and be continuing or an Event of Loss or a Deemed Loss Event shall have occurred. Promptly after giving notice, (i) in case the renewal option has been elected, the Maximum Option Period shall be determined by the Appraisal Procedure, or (ii) in case the purchase option permitted by Section 13(b) has been elected, the Lessee and the Owner Participant shall agree upon the Fair Market Sales Value of the Undivided Interest and the Real Property Interest, or, if within three months after the date of the Lessee's notice the Lessee and the Owner Participant shall be unable so to agree, such value shall be determined by the Appraisal Procedure.

(b) Purchase Option at Expiration of the Lease Term. Subject to the notice requirements set forth in Section 13(a), unless a Default or an Event of Default shall have occurred and be continuing or an Event of Loss or Deemed Loss Event shall have occurred, on the date of the expiration of the Basic Lease Term or the Renewal Term (if elected), the Lessee shall have the right to purchase the Undivided Interest and the Real Property Interest for a purchase price equal to the Fair Market Sales Value thereof.

(c) Special Purchase Event. If, at or before the Refunding Date, the Owner Participant shall reasonably determine (in consultation with Owner Participant's Special Counsel and Owner Participant's Special New Mexico Counsel) that the "weighted annual lease payment factor" (as such term is defined in the New Mexico Order and as the same may be reasonably interpreted by the Owner Participant, in consultation with counsel as aforesaid) for all "Lease Transactions" (as so defined) exceeds 11.5% or there is a material risk that the same will exceed 11.7% and so notifies the Lessor and the Lessee, or if the Lessee, in its reasonable judgment, determines that such a material risk exists, then the Lessee shall purchase the Undivided Interest and the Real Property Interest from the Lessor, on a Business Day specified by the Lessor to the Lessee by not less than 30 days prior notice, for a purchase price equal to the greater of (i) the Fair Market Sales Value thereof and (ii) Casualty value as of the Basic Rent Payment Date first preceding the date of such purchase or as of the date of such purchase, if such date shall be a Basic Rent Payment Date plus, if such purchase date shall not be a Basic Rent Payment Date, a pro ration of Basic Rent to the date of purchase.

(d) Purchase of the Undivided Interest; Payment, Etc. If the Lessee shall have elected or be required to purchase the Undivided Interest and the Real Property Interest pursuant to Section 13(b) or 13(c), payment by the Lessee of the purchase price for the Undivided Interest and the Real Property Interest shall be made in immediately available funds, whereupon the Lessor shall Transfer the Undivided Interest and the Real Property Interest to the Lessee.

SECTION 14. Termination for Obsolescence.

(a) Termination Notice. Notwithstanding any provision herein contained to the contrary, unless a Default or an Event of Default shall have occurred and be continuing or an Event of Loss or a Deemed Loss Event shall have occurred, the Lessee shall have the option (provided that the Lessee shall have delivered to the Lessor an Officers' Certificate to the effect that the Lessee's Board of Directors has adopted and there is in effect a resolution determining that Unit 1 is (A) uneconomic to the Lessee or (B) economically obsolete for any reason; and provided that the Lessee shall be disposing of all its other leased interests in Unit 1), on at least 360 days' prior written notice a (Termination Notice) to the Lessor, the Owner Participant and the Indenture Trustee (which notice shall be irrevocable)) to terminate this Facility Lease on any Basic Rent Payment Date after January 15, 1998, and prior to January 15, 2012 (the Termination Date). If the Lessee shall give the Lessor a Termination Notice, the Lessee shall, as agent for the Lessor, use its best efforts to obtain cash bids for the purchase of the Undivided Interest and the Real Property Interest, together with the interest of the Lessor under the Assignment and Assumption. The Lessor shall also have the right to obtain such cash bids, either directly or through agents other than the Lessee. The Lessee shall certify to the Lessor within ten days after the Lessee's receipt of each bid (and, in any event, prior to the Termination Date) the amount and terms thereof and the name and address of the party (which shall not be the Lessee or any Affiliate of the Lessee) submitting such bid.

(b) Right of Lessor to Retain Undivided Interest upon Termination. The Lessor may elect to retain, rather than sell, the Undivided Interest and the Real Property Interest by giving notice to the Lessee and the Indenture Trustee prior to the Termination Date. It shall be a condition precedent to the Lessor's right to retain the Undivided Interest and the Real Property Interest that on or prior to the Termination Date the Lessor shall have paid (or made provision for payment) to the Indenture Trustee, the unpaid principal amount of all Notes Outstanding on such date and all premium, if any, and interest accrued and unpaid on the date of payment. If the Lessor elects to retain the Undivided Interest and the Real Property Interest pursuant to this Section 14(b), the Lessee shall pay to the Lessor on the Termination Date the Basic Rent and any other Rent due or accrued, as the case may be, to and including the Termination Date, together with an amount equal to the excess, if any, of the Termination Value as of the Termination Date over the highest bona fide offer received pursuant to Section 14(a).

(c) Events on the Termination Date. If the Lessor has not elected to retain the Undivided Interest and the Real Property Interest as provided in
Section 14(b), on the Termination Date the Lessor shall (upon receipt of the sale price and all additional payments specified in the next sentence) Transfer the Undivided Interest and the Real Property Interest for cash to the bidder (which shall not be the Lessee or an Affiliate of the Lessee) that shall have submitted the highest bid on or before the Termination Date. The total sale price realized at such sale shall be retained by the Lessor (subject, however, to the terms of the Indenture and the requirement that there shall have been paid, or provision for payment made, to the Indenture Trustee the unpaid principal amount of all Notes Outstanding on the Termination Date and all premium, if any, and interest accrued and unpaid on the date of payment) and, in addition, on the Termination Date the Lessee shall pay to the Lessor (A) the excess, if any, of the Termination Value as of the Termination Date over the net sale price of the Undivided Interest and the Real Property Interest and (B) any Basic Rent due or accrued, as the case may be, to and including the Termination Date and shall pay to the Person or Persons entitled thereto all Supplemental Rent (other than Termination Value). Upon compliance by the Lessee with the applicable provisions of this Section 14, the obligation of the Lessee to pay Basic Rent due hereunder for any period after the Termination Date shall cease and the Basic Lease Term shall end on the Termination Date; provided, however, that, in the event of termination of this Facility Lease pursuant to this
Section 14, the obligations of the Lessee under the ANPP Participation Agreement (except as therein expressly provided) and the Assignment and Assumption shall continue in full force and effect and shall not be impaired by reason of any such termination. If, other than as a result of the Lessor's election to retain the Undivided Interest and the Real Property Interest as provided in Section
14(b), on or as of the Termination Date no such sale shall occur or the Lessee shall not have complied in full with this Section 14, this Facility Lease shall continue in full force and effect in accordance with its terms without prejudice to the Lessee's right to exercise its rights under this Section 14 thereafter, except that the Lessee shall not be entitled to deliver another Termination Notice during the 3-year period following such Termination Date. The Lessor shall be under no duty to solicit bids, to inquire into the efforts of the Lessee to obtain bids or otherwise take any action in connection with any such sale other than, if the Lessor has not elected to retain the Undivided Interest and the Real Property Interest, to Transfer the Undivided Interest and the Real Property Interest to the purchaser named in the highest bid certified by the Lessee to the Lessor or obtained by the Lessor, against receipt of the payments provided for herein (but only if such purchaser has obtained all Governmental Action by the NRC necessary in connection therewith).

(d) Early Termination Notice. In the event that the Lessee shall fail to exercise its renewal option or purchase option within the time limit provided by Section 13(a), the Lessor shall have the option, on any Basic Rent Payment Date thereafter, on at least 120 days prior written notice (an Early Termination Notice) to the Lessee and the Indenture Trustee, to terminate this Facility Lease on the Basic Rent Payment Date specified in such notice (the Early Termination Date). Any Early Termination Notice may be revoked by the Lessor at any time on or prior to the Early Termination Date.

(e) Events on the Early Termination Date. On the Early Termination Date the Lessor shall, at its option, (i) Transfer the Undivided Interest and the Real Property Interest to the bidder (other than the Lessee or any Affiliate of the Lessee) selected by the Lessor or (ii) retain the Undivided Interest and the Real Property Interest. It shall be a condition precedent to the Lessor's right to sell or retain the Undivided Interest and the Real Property Interest that on or prior to the Early Termination Date the Lessor shall have paid (or made provision for payment) to the Indenture Trustee the unpaid principal amount of all Notes Outstanding on such date and all premium, if any, and interest accrued and unpaid on the date of payment. The total sale price realized at any such sale shall be retained by the Lessor and, in addition, on the Early Termination Date the Lessee shall pay to the Lessor any Basic Rent due or accrued, as the case may be, to and including the Early Termination Date, and shall pay to the Person or Persons entitled thereto all Supplemental Rent (other than Termination Value). Upon compliance by the Lessee with the applicable provisions of this Section 14, the obligation of the Lessee to pay Basic Rent due hereunder for any period after the Early Termination Date shall cease and the Lease Term shall end on the Early Termination Date; provided, however, that in the event of the termination of this Facility Lease pursuant to this Section 14, the obligations of the Lessee under the ANPP Participation Agreement (except as therein expressly provided) and the Assignment and Assumption shall continue in full force and effect and shall not be impaired by reason of any such termination.

SECTION 15. Events of Default.

The term Event of Default, wherever used herein, shall mean any of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary, or come about or be effected by operation of law, or be pursuant to or in compliance with any Applicable Law or Governmental Action)

(i) the Lessee shall fail to make, or cause to be made, (x) payment of Casualty Value, Termination Value, Special Casualty Value or payment due pursuant to exercise of the Cure Option when due, (y) any payment of Basic Rent within 5 Business Days after the same shall become due or (z) any payment of Supplemental Rent (other than Casualty Value, Termination Value, Special Casualty Value or payment due pursuant to exercise of the Cure Option) within 20 days after the same shall become due or demanded, as the case may be; or

(ii) the Lessee shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it under Section 10
( b ) ( 3 ) ( i ) , 1 0 ( b )( 3 ) ( i i),10(b) (3) (iii) or 10(b) (3) (v) of the Participation Agreement or Section 7, 10 (other than failure of the Lessee to cause to be delivered the insurance certificates (other than a certificate of the Lessee) described therein) or 11 of this Facility Lease; or

(iii) the Lessee shall fail to perform or observe any covenant or agreement to be performed or observed by it under Section 10(b)(3)(viii) of the Participation Agreement and such failure shall continue for a period of 30 days after there shall have been given to the Lessee by the Lessor or the Owner Participant a notice specifying such failure and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or

(iv) the Lessee shall fail to perform its agreements set forth in
Section 5(a) hereof; or

(v) the Lessee shall fail to perform or observe any covenant, condition or agreement (other than covenants, conditions or agreements referred to in clauses (i) through (iv) above) to be performed or observed by it under this Facility Lease or any other Transaction Document, and such failure shall continue for a period of 30 days after there shall have been given to the Lessee by the Lessor or the Owner Participant a notice specifying such failure and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or

(vi) any representation or warranty made by the Lessee in this Facility Lease, any other Transaction Document (other than the Tax Indemnification Agreement) or any agreement, document or certificate delivered by the Lessee in connection herewith or therewith shall prove to have been incorrect in any material respect when any such representation or warranty was made or given and shall remain material and materially incorrect at the time in question; or

(vii) the Lessee shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking of possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall take any corporate action to authorize any of the foregoing; or an involuntary case or other proceeding shall be commenced against the Lessee seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed or unstayed for a period of 60 consecutive days; or

(viii) final judgment for the payment of money in excess of $1,000,000 shall be rendered against the Lessee and the Lessee shall not have discharged the same or provided for its discharge in accordance with its terms or bonded the same or procured a stay of execution thereof within 60 days from the entry thereof; or

(ix) (1) a default by the Lessee under the ANPP Participation Agreement in consequence of which the Lessee's right to receive its Generation Entitlement Share in PVNGS is suspended by the other ANPP Participants, or (2) the giving by any ANPP Participant of a notice under
Section 23.2 (or any comparable successor provision) of the ANPP Participation Agreement respecting a default thereunder by the Lessee and the lapse of 20 Business Days from the giving of such notice without the Lessee having cured such default; provided, however, that for purposes of this clause (2) if the Lessee shall have, in good faith, disputed the existence or nature of a default and such dispute shall have become the subject of an arbitration under Section 24 (or any comparable successor provision) of the ANPP Participation Agreement, such 20 Business Day period shall commence on the date of the final determination of the board of arbitrators under such Section 24; or

(x) (1) the Lessee shall fail to pay when due (whether by scheduled maturity, required (prepayment, acceleration, demand or otherwise) any Debt (which term shall mean (A) indebtedness for borrowed money, (B) obligations as lessee under leases and (C) obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clause (A) or (B) above, in each case if the principal amount (or equivalent) thereof (or in the case of any operating lease, an equivalent on the assumption such lease were a lease required to be capitalized in accordance with generally accepted accounting principles) is greater than $20,000,000 ($5,000,000 in the case of any PVNGS operating lease)) of the Lessee, and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt, but only if the Lessee shall have received notice of such failure or a Responsible Officer of the Lessee shall have actual knowledge of such failure; or (2) any other default under any agreement or instrument relating to any such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt, but only if the Lessee shall have received notice of such default or event or a Responsible Officer of the Lessee shall have actual knowledge of such default or event.

SECTION 16. Remedies.

(a) Remedies. Upon the occurrence of any Event of Default and so long as the same shall be continuing, the Lessor may, at its option, declare this Facility Lease to be in default by written notice to such effect given to the Lessee, and may exercise one or more of the following remedies as the Lessor in its sole discretion shall elect:

(i) the Lessor may, by notice to the Lessee, rescind or terminate this Facility Lease;

(ii) the Lessor may (x) demand that the Lessee, and thereupon the Lessee shall, return possession of the Undivided Interest and the Real Property Interest promptly to the Lessor in the manner and condition required by, and otherwise in accordance with the provisions of, this Facility Lease as if the Undivided Interest and the Real Property Interest were being returned at the end of the Lease Term and the Lessor shall not be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith and (y) subject to Applicable Law, enter upon the PVNGS Site and take immediate possession of (to the exclusion of the Lessee) the Undivided Interest and the Real Property Interest, by summary proceedings or otherwise, all without liability to the Lessee for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise;

(iii) the Lessor may sell the Undivided Interest and the Real Property Interest, or any part thereof, together with any interest of the Lessor under the Assignment and Assumption, at public or private sale in a commercially reasonable manner, as the Lessor may determine, free and clear of any rights of the Lessee in the Undivided Interest and the Real Property Interest and without any duty to account to the Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent required by clause (v) or (vi) below if the Lessor shall elect to exercise its rights thereunder) , in which event the Lessee's obligation to pay Basic Rent hereunder for periods commencing after the date of such sale shall be terminated or proportionately reduced, as the case may be (except to the extent that Basic Rent is to be included in computations under clause (v) or (vi) below if the Lessor shall elect to exercise its rights thereunder);

(iv) the Lessor may hold, keep idle or lease to others all or any part of the Undivided Interest and the Real Property Interest, as the Lessor in its sole discretion may determine, free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or for any proceeds with respect to such action or inaction, except that the Lessee's obligation to pay Basic Rent for periods commencing after the Lessee shall have been deprived of use of the Undivided Interest and the Real Property Interest pursuant to this clause

(iv) shall be reduced by an amount equal to the net proceeds, if any, received by the Lessor from leasing the Undivided Interest and the Real Property Interest to any Person other than the Lessee for the same periods or any portion thereof; Lessee shall pay to the Lessor, on the Basic Rent Payment Date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent due after the Basic Rent Payment Date speci fied in such notice), any unpaid

Rent due through the Basic Rent Payment Date specified in such notice plus whichever of the following amounts the Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the interest rate specified in Section 3(b)(iii) from the Basic Rent Payment Date specified in such notice to the date of actual payment) (and, in the case of (D) below, upon receipt of such payment the Lessor shall (or may prior to the receipt of such payment) Transfer to the Lessee the Undivided Interest and the Real Property Interest):

(A) an amount equal to the excess, if any, of (1) Casualty Value, computed as of the Basic Rent Payment Date specified in such notice, over (2) the Fair Market Rental Value of the Undivided Interest and the Real Property Interest (determined on the basis of the then -actual condition of Unit 1) until the end of the remaining useful life of Unit 1, after discounting such Fair Market Rental Value semi-annually to present value as of the Basic Rent Payment Date specified in such notice at a rate of 10% per annum;

(B) an amount equal to the excess, if any, of (1) such Casualty Value over (2) the Fair Market Sales Value of the Undivided Interest and the Real Property Interest (determined on the basis of the then actual condition of Unit 1) as of the Basic Rent Payment Date specified in such notice;

(C) an amount equal to the excess, if any, of (1) the present value as of the Basic Rent Payment Date specified in such notice of all installments of Basic Rent until the end of the Basic Lease Term or the Renewal Term, as the case may be, discounted semi-annually at a rate of 10% per annum, over (2) the present value as of such Basic Rent Payment Date of the Fair Market Rental Value of the Undivided Interest and the Real Property Interest (determined on the basis of the then actual condition of Unit 1) until the end of the Basic Lease Term or the Renewal Term, as the case may be, discounted semi-annually at a rate of 10% per annum; or

(D) an amount equal to higher of (1) the Casualty Value (Special Casualty Value if the Event of Default is an event specified in clause (v), (viii) or (x)(2) of Section 15 hereof), computed as of the Basic Rent Payment Date specified in such notice or (2) the Fair Market Sales Value of the Undivided. Interest and the Real Property Interest;

(vi) if the Lessor shall have sold all the Undivided Interest and the Real Property Interest pursuant to clause (iii) above, the Lessor, in lieu of exercising its rights under clause (v) above with respect to the Undivided Interest and the Real Property Interest may, if it shall so elect, demand that the Lessee pay to the Lessor and the Lessee shall pay to the Lessor on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (in lieu of Basic Rent due for periods commencing after the next Basic Rent Payment Date following the date of such sale), any unpaid Basic Rent due through such Basic Rent Payment Date, plus the amount of any deficiency of the Sale Proceeds under the Casualty Value, computed as of such Basic Rent Payment Date, together with interest at the interest rate specified in Section 3(b)(iii) on the amount of such Rent and such deficiency from the date of such sale until the date of actual payment; or

(vii) in the case of an Event of Default specified in clause (iv) of
Section 15, the Lessor may demand, by written notice to the Lessee specifying a payment date which shall be not earlier than the date 30 days after the last Basic Rent Payment Date of the Lease Term, that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on such last payment date, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due through such last Basic Rent Payment Date plus an amount (not less than zero) equal to the Fair Market Sales Value (determined without regard to the obligation of the Lessee under Section 10(b)(3)(xi) of the Participation Agreement) of the Undivided Interest and the Real Property Interest (determined on the basis of the actual condition of Unit 1) determined as of such last Basic Rent Payment Date (together with interest on such amount at the interest rate specified in
Section 3(b)(iii) from such last Basic Rent Payment Date to the date of actual payment) and upon receipt of such payment the Lessor shall (or may prior to the receipt of such payment) Transfer to the Lessee the Undivided Interest and the Real Property Interest); provided, however, that the Lessor may not exercise the foregoing remedy if the Lessor shall have failed to Transfer the Undivided Interest and the Real Property Interest to the bidder (which shall not be the Lessee or an Affiliate of the Lessee) that shall have submitted the highest cash bid on or before the date on which such Event of Default arose excluding, however, any such cash bid which the Lessor or the Owner Participant determines was not submitted in good faith, or as to which the bidder fails to certify to the Lessor such information as the Lessor or Owner Participant may reasonably request in order to determine whether or not such bid was submitted in good faith (and the Lessor agrees that it will, if and to the extent so requested by the Lessee on or after the date 90 days preceding such last Basic Rent Payment Date, use reasonable efforts (at the expense of the Lessee) for a period ending on the day 90 days after such last Basic Rent Payment Date, to find a Person willing to submit such cash bid; provided, however, that the failure of the Lessor to do so shall not relieve the Lessee of its obligations under this clause (vii)).

(b) No Release. No rescission or termination of this Facility Lease, in whole or in part, or repossession of the Undivided Interest or the Real Property Interest or exercise of any remedy under paragraph (a) of this Section 16 shall, except as specifically provided therein, relieve the Lessee of any of its liabilities and obligations hereunder. In addition, the Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before, after or during the exercise of any of the foregoing remedies, including all reasonable legal fees and other costs and expenses incurred by the Lessor or the Owner Participant by reason of the occurrence of any Event of Default or the exercise of the Lessor's remedies with respect thereto. At any sale of the Undivided Interest, the Real Property Interest or any part thereof pursuant to this Section 16, the Owner Participant, the Lessor or the Indenture Trustee may bid for and purchase such property.

(c)Remedies Cumulative. No remedy under paragraph (a) of this
Section 16 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy provided under such paragraph (a) or otherwise available to the Lessor at law or in equity; provided, however, that notwithstanding anything to the contrary set forth in this Facility Lease, the remedy set forth in Section l6(a)(vii) shall be the sole and exclusive remedy under this Section 16 in the case of an Event of Default specified in clause
(iv) of Section 15, unless the Lessee is in default of its payment obliga tions under Section 16(a)(vii), in which case the Lessor may exercise its other remedies under Section 16(a); (except that the maximum amount payable by the Lessee in the event of the exercise by the Lessor of any of the remedies provided for in Section 16(a)(v) or (vi) shall not exceed the total amount payable by the Lessee under Section 16(a)(vii) minus the amount provided in subclause (2) of clause (A), (B) or (C) of such Section 16(a)(v), if the Lessor elects a remedy speci fied in said clause (A), (B) or (C), or the deficiency referred to in Section 16(a)(vi), if the Lessor elects the remedy specified in
Section 16(a)(vi) hereof). No express or implied waiver by the Lessor of any Default or Event of Default hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Default or Event of Default. The failure or delay of the Lessor in exercising any right granted it hereunder upon any occurrence of any of the contingencies set forth herein shall not constitute a waiver of any such right upon the continuation or recurrence of any such contingencies or similar contingencies and any single or partial exercise of any particular right by the Lessor shall not exhaust the same or constitute a waiver of any other right provided herein. To the extent permitted by Applicable Law, the Lessee hereby waives any rights now or hereafter conferred by statute or otherwise which may require the Lessor to sell, lease or otherwise use the Undivided Interest or Unit 1 in mitigation of the Lessor's damages as set forth in paragraph (a) of this Section 16 or which may otherwise limit or modify any of the Lessor's rights and remedies provided in this Section 16.

(d) Exercise of Other Rights or Remedies. In addition to all other rights and remedies provided in this Section 16, the Lessor may, except to the extent expressly limited by provisions of this Section 16, exercise any other right or remedy that may be available to it under Applicable Law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof.

(e) Special Cure Right of Lessee. In the event a "Notice of Default" is given under Section 15(iii), the Lessee may, on or prior to the occurrence of an Event of Default resulting therefrom, give written notice to the Lessor stating that the Lessee has elected to exercise the option (the Cure Option) provided in this Section 16(e), which election shall be irrevocable as to the Lessee. Promptly after the giving of such notice, the Lessee and the Owner Participant shall agree upon the Fair Market Sales Value of the Undivided Interest and the Real Property Interest or; if they shall be unable so to agree within one month after the date of the Lessee's notice, such value shall be determined by the Appraisal Procedure. On the Basic Rent Payment Date next following the date that such Fair Market Sales Value shall have been determined, the Lessee shall pay to the Lessor all Rent due on such Basic Rent Payment Date, plus an amount equal to the excess of (i) the greater of such Fair Market Sales Value and the Casualty Value determined as of such Basic Rent Payment Date over

(ii) the unpaid principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such date. Upon compliance in full by the Lessee with the foregoing provisions of this paragraph (e) and assumption by the Lessee of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to Section 3.9(b) of the Indenture, the Lessor shall (so long as no Default or Event of Default shall have occurred and be continuing) Transfer the Undivided Interest and the Real Property Interest to the Lessee. If the Lessee shall not have assumed all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the Indenture, but the Owner Participant shall have received under Section 5.2 of the Indenture all amounts required to be paid by the Lessee pursuant to this paragraph (e) (including interest, if any, thereon pursuant to Section
3(b)(iii)), the Lessor shall retain the Undivided Interest and the Real Property Interest subject to the terms of this Facility Lease and Section 7(b) (4) of the Participation Agreement; provided, however, that the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on all Notes then Outstanding and this Facility Lease shall become a secu rity agreement for all purposes of Applicable Law. The Lessee agrees to Use its best efforts to comply with the conditions respecting its assumption set forth in Section 3.9(b) of the Indenture and, failing such assumption, agrees to accept a transfer of the Owner Participant's right, title and interest in the Trust Estate pursuant to Section 7(b)(4) of the Participation Agreement.

SECTION 17. Notices.

All communications and notices provided for in this Facility Lease shall be in writing and shall be given in person (with signed receipt of an officer of the Owner Participant in the case of a delivery to the Owner Participant) or by means of telex, telecopy, or other wire transmission, or mailed by registered or certified mail, or delivered by express delivery service, addressed as provided in the Participation Agreement. All such communications and notices given in such manner shall be effective on the date of receipt of such communication or notice.

SECTION 18. Successors and Assigns.

This Facility Lease, including all agreements, covenants, indemnities, representations and warranties, shall be binding upon and inure to the benefit of the Lessor and its successors and permitted assigns, and the Lessee and its successors and, to the extent permitted hereby, assigns.

SECTION 19. Right to Perform for Lessee.

If the Lessee shall fail to make any payment of Rent to be made by it, or shall fail to perform or comply with any of its other agreements contained herein, or fail to make any payment to be made by it under any ANPP Project Agreement, or shall fail to perform or comply with any of its other agreements contained in any ANPP Project Agreement, either the Lessor or the Owner Participant may, but shall not be obligated to, tender such payment, or effect such performance or compliance, and the amount of such payment and the amount of all costs and expenses (including, without limitation, attorneys' and other professionals' fees and expenses) of the Lessor or the Owner Participant, as the case may be, incurred in connection with such payment or the performance of or compliance with such agreement, as the case may be, together with interest thereon at the Penalty Rate, shall be deemed Supplemental Rent, payable by the Lessee upon demand. In the event that the Lessor or the Owner Participant shall cure any default by the Lessee under the ANPP Participation Agreement, then (so long as an event of Default has occurred and is continuing) the Lessor, together with each other Person contributing to such cure, shall be entitled (to the full extent enforceable in accordance with Applicable Law) to receive the Generation Entitlement Share of the Lessee under the ANPP Participation Agreement (not limited to Unit 1), with each contributor to receive a percentage of such Generation Entitlement Share equal to the percentage of the cure contributed thereby.

SECTION 20. Additional Covenants.

The Lessee agrees to comply with and to pay, as Supplemental Rent, all amounts payable by it under the provisions of Section 13 of the Participation Agreement and under the provisions of the Tax Indemnification Agreement, which provisions are incorpo rated herein by this reference as fully as if set forth in full at this place. The Lessee agrees to comply with its covenants and agreements set forth in Sections 10(b), 14 and 16 of the Participation Agreement and Articles III, IV, V and VI of the Assignment and Assumption which covenants and agreements are incorporated herein by this reference as fully as if set forth in full at this place.

SECTION 21. Lease of Real Property Interest.

Pursuant to the Deed and the Assignment of Beneficial Interest, the Lessee has sold to the Lessor the Real Property Interest. The Lessor hereby grants to the Lessee a leasehold interest in the Real Property Interest, such leasehold to be coterminous with the lease of the Undivided Interest hereunder and to be at a rent per annum equal to 4.635455% of the Real Estate Investment, payable by the Lessee to the Lessor in arrears in equal semiannual installments on each Basic Rent Payment Date during the Lease Term.

SECTION 22. Amendments and Miscellaneous.

(a) Amendments in Writing. The terms of this Facility Lease may not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever except by written instrument signed by the Lessor and the Lessee.

(b) Survival. (1) All indemnities, representations and warranties contained in this Facility Lease and the other Transaction Documents and the Financing Documents and in any agreement, document or certificate delivered pursuant hereto or thereto or in connection herewith or therewith shall survive, and continue in effect following, the execution and delivery of this Facility Lease and the expiration or other termination of this Facility Lease.

(2) The obligations of the Lessee to pay Supplemental Rent and the obligations of the Lessee under Sections 5, 16, 19 and 20 hereof shall survive the expiration or termination of this Facility Lease. The extension of any applicable statute of limitations by the Owner Trustee, the Indenture Trustee, the Lessee, the Owner Participant, the Loan Participant or any Indemnitee shall not affect such survival. The obligations of the Lessee under Section 20 are expressly made for the benefit of, and shall be enforceable by, any Indemnitee, separately or together, without declaring this Facility Lease to be in default and notwithstanding any assignment by the Lessor of this Facility Lease or any of its rights thereunder or any disposition of all or any part of any interest in the Undivided Interest, the Real Property Interest, Unit 1 or any other property referred to in this Facility Lease or in this Facility Lease or any other Transaction Document or Financing Document. All payments required to be made pursuant to Section 20 shall be made directly to, or as otherwise requested by, the Indemnitee entitled thereto upon written demand by such Indemnitee.

(c) Severability of Provisions. Any provision of this Facility Lease which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Applicable Law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect.

(d) True Lease. This Facility Lease shall constitute an agreement of lease and nothing herein or elsewhere shall be construed as conveying to the Lessee any right, title or interest in or to the Undivided Interest or the Real Property Interest, except as lessee only.

(e) Original Lease. The single executed original of this Facility Lease marked "THIS COUNTERPART IS THE ORIGINAL COUNTERPART" and containing the receipt of the Indenture Trustee thereon shall be the "Original" of this Facility Lease. To the extent that this Facility Lease constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Facility Lease may be created through the transfer or possession of any counterpart other than the "Original".

(f) Governing Law. This Facility Lease shall be governed by and construed in accordance with the law of the State of New York, except to the extent that pursuant to the law of the State of Arizona the law of the State of Arizona is mandatorily applicable hereto.

(g) Headings. The division of this Facility Lease into sections, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Facility Lease.

(h) Concerning the Owner Trustee. FNB is entering into this Facility Lease solely as Owner Trustee under the Trust Agreement and not in its individual capacity. Anything herein to the contrary notwithstanding, all and each of the representations, warranties, undertakings and agreements herein made on the part of the Owner Trustee are made and intended not as personal representations, warranties, undertakings and agreements by or for the purpose or with the intention of binding FNB personally but are made and intended for the purpose of binding only the Trust Estate, and this Facility Lease is executed and delivered by the Owner Trustee solely in the exercise of the powers expressly conferred upon it as trustee under the Trust Agreement; and no personal liability or responsibility is assumed hereunder by or shall at any time be enforceable against FNB or any successor in trust or the Owner Participant on account of any representation, warranty, undertaking or agreement hereunder of the Owner Trustee, either expressed or implied, all such personal liability, if any, being expressly waived by the Lessee, except that the Lessee or any Person claiming by, through or under it, making claim hereunder, may look to the Trust Estate for satisfaction of the same and the Owner Trustee or its successor in trust, as applicable, shall be personally liable for its own gross negligence or willful misconduct. If a successor owner trustee is appointed in accordance with the terms of the Trust Agreement, such successor owner trustee shall, without any further act, succeed to all the rights, duties, immunities and obligations of the Owner Trustee hereun der and the predecessor owner trustee shall be released from all further duties and obligations hereunder.

(i) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401, the beneficiary of the Trust Agreement is Chase Manhattan Realty Leasing Corporation, a New York corporation whose address is One Chase Manhattan Plaza (20th Floor), New York, New York 10081, Attention of Leasing Administrator. The address of the beneficiary is also therein described. A copy of the Trust Agreement is available for inspection at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

(j) Counterpart Execution. This Facility Lease may be executed in any number of counterparts and by each of the parties hereto or thereto on separate counterparts, all such counterparts together constituting but one and the same instrument.

 Basic Rent           Percentage of      Basic Rent        Percentage of
Payment Date          Facility Cost     Payment Date       Facility Cost
------------          -------------     ------------       -------------

   15JAN87             109.10599          15JAN98            105.02054
   15JUL87             114.76002          15JUL98            103.97373
   15JAN88             113.17994          15JAN99            102.04367
   15JUL88             117.70456          15JUL99            100.81532
   15JAN89             116.07167         15JAN100             98.74684
   15JUL89             119.65174         15JUL100             97.31725
   15JAN90             117.95016         15JAN101             95.09237
   15JUL90             120.53475         15JUL101             93.43984
   15JAN91             118.69682         15JAN102             91.07806
   15JUL91             120.25014         15JUL102             89.28211
   15JAN92             118.20917         15JAN103             86.84308
   15JUL92             118.72285         15JUL103             84.92967
   15JAN93             116.54349         15JAN104             82.40638
   15JUL93             116.42005         15JUL104             80.36623
   15JAN94             114.56122         15JAN105             77.75328
   15JUL94             114.08476         15JUL105             75.57905
   15JAN95             112.43357         15JAN106             72.87080
   15JUL95             111.75470         15JUL106             70.55479
   15JAN96             110.14794         15JAN107             67.74535
   15JUL96             109.41227         15JUL107             65.27947
   15JAN97             107.71163         15JAN108             62.36264
   15JUL97             106.82849         15JUL108             59.73841

                                                                 SCHEDULE 1
                                                                         to
                                                                      LEASE

Basic Rent             Percentage of        Basic Rent            Percentage of
Payment Date           Facility Cost        Payment Date          Facility Cost
- ------------           -------------        ------------          -------------

15JAN109               56.70765
15JUL109               53.91617

15JAN110               50.76464
15JUL110               47.79658

15JAN111               44.51710
15JUL111               41.36264

15JAN112               37.94767
15JUL112               34.59656

15JAN113               31.03819
15JAN113               27.47963

15JAN114               23.76956
15JUL114               21.85439

15JAN115               20.00000

Basic Rent          Percentage of          Basic Rent           Percentage of
Payment Date        Facility Cost          Payment Date         Facility Cost
- ------------        -------------          ------------         -------------

15AUG86             104.099993             15JAN90              119.27824
15SEP86             103.18569              15FEB90              119.43084
15OCT86             103.65043              15MAR90              119.58739
15NOV86             104.12325              15APR90              118.85885
15DEC86             104.25292              15MAY90              118.98243
                                           15JUN90              117.38007
15JAN87             110.52963              15JUL90              117.48130
15FEB87             110.99000              15AUG90              117.57940
15MAR87             111.45839              15SEP90              116.81803
15APR87             110.27755              15OCT90              116.89414
15MAY87             110.71365              15NOV90              116.97322
15JUN87             108.65107              15DEC90              116.89842
15JUL87             109.06029
15AUG87             109.45859              15JAN91              119.94867
15SEP87             108.52150              15FEB91              120.00169
15OCT87             108.89348              15MAR91              120.05744
15NOV87             109.27223              15APR91              119.44437
15DEC87             109.34400              15MAY91              119.46653
                                           15JUN91              117.99211
15JAN88             114.66863              15JUL91              117.99154
15FEB88             115.00952              15AUG91              117.98593
15MAR88             115.35674              15SEP91              117.25913
15APR88             114.64228              15OCT91              117.23086
15MAY88             114.65149              15NOV91              117.20427
15JUN88             112.75517              15DEC91              117.06632
15JUL88             113.04087
15AUG88             113.32361              15JAN92              119.40380
15SEP88             112.45267              15FEB92              119.34830
15OCT88             112.71259              15MAR92              119.29420
15NOV88             112.97776              15APR92              118.77580
15DEC88             112.99499              15MAY92              118.68865
                                           15JUN92              117.32935
15JAN89             117.49595              15JUL92              117.21979
15FEB89             117.73796              15AUG92              117.10314
15MAR89             117.73796              15SEP92              116.39871
15APR89             117.12413              15OCT92              116.25944
15MAY89             117.33793              15NOV92              116.12050
15JUN89             115.59881              15DEC92              115.90990
15JUL89             115.79155
15AUG89             115.98287              15JAN93              117.56857
15SEP89             115.17614              15FEB93              117.39844
15OCT89             115.34705              15MAR93              117.22832
15NOV89             115.52210              15APR93              116.79146
15DEC89             115.49943              15MAY93              116.62105

                                                                    SCHEDULE 2
                                                                            to
                                                                         LEASE

Basic Rent          Percentage of          Basic Rent             Percentage of
Payment Date        Facility Cost          Payment Date           Facility Cost
- ------------        -------------          ------------           -------------

15JUN93             115.39274              15NOV96                106.46442
15JUL93             115.22233              15DEC96                10622464
15AUG93             115.04340
15SEP93             114.40251              15JAN97                106.54943
15OCT93             114.22358              15FEB97                106.29766
15NOV93             114.04465              15MAR97                106.04588
15DEC93             113.83133              15APR97                105.79411
                                           15MAY97                105.54233
15JAN94             114.91015              15JUN97                104.83831
15FEB94             114.72228              15JUL97                104.58654
15MAR94             114.53440              15AUG97                104.32218
15APR94             114.26601              15SEP97                103.94549
15MAY94             114.07813              15OCT97                103.68113
15JUN94             113.04848              15NOV97                103.41677
15JUL94             112.86060              15DEC97                103.15240
15AUG94             112.66333
15SEP94             112.13060              15JAN98                103.41930
15OCT94             111.93333              15FEB98                103.14172
15NOV94             111.73605              15MAR98                102.86414
15DEC94             111.53878              15APR98                102.58656
                                           15MAY98                102.30898
15JAN95             112.17156              15JUN98                101.60285
15FEB95             111.96443              15JUL98                101.32527
15MAR95             111.75729              15AUG98                101.03381
15APR95             111.55016              15SEP98                100.63964
15MAY95             111.34302              15OCT98                100.34818
15JUN95             110.51294              15NOV98                100.05672
15JUL95             110.30581              15DEC98                99.76526
15AUG95             110.08832
15SEP95             109.66372              15JAN99                99.97051
15OCT95             109.44623              15FEB99                99.66448
15NOV95             109.22874              15MAR99                99.35845
15DEC95             109.01125              15APR99                99.05241
                                           15MAY99                98.74638
15JAN96             109.39052              15JUN99                98.03656
15FEB96             109.16216              15JUL99                97.73053
15MAR96             108.93379              15AUG99                97.40920
15APR96             108.70542              15SEP99                96.99494
15MAY96             108.47706              15OCT99                96.67361
15JUN96             107.77372              15NOV99                96.35228
15JUL96             107.54535              15DEC99                96.03094
15AUG96             107.30557
15SEP96             106.94399              15JAN100               96.17040
15OCT96             106.70421              15FEB100               95.83299

                                                                    SCHEDULE 2
                                                                            to
                                                                         LEASE

Basic Rent          Percentage of           Basic Rent           Percentage of
Payment Date        Facility Cost           Payment Date         Facility Cost
- ------------        -------------           ------------         -------------

15MAR100            95.49559                15AUG103               79.14289
15APR100            95.15819                15SEP103               78.64881
15MAY100            94.82079                15OCT103               78.21004
15JUN100            94.10556                15NOV103               77.77126
15JUL100            93.76816                15DEC103               77.33249
15AUG100            93.41388
15SEP100            92.97666                15JAN104               77.24112
15OCT100            92.62239                15FEB104               76.79259
15NOV100            92.26812                15MAR104               76.34407
15DEC100            91.91385                15APR104               75.89555
                                            15MAY104               75.44709
15JAN101            91.98295                15JUN104               74.71978
15FEB101            91.61096                15JUL104               74.28869
15MAR101            91.23898                15AUG104               73.82803
15APR101            90.86699                15SEP104               73.31576
15MAY101            90.49501                15OCT104               72.85509
15JUN101            89.77244                15NOV104               72.39443
15JUL101            89.40045                15DEC104               71.93376
15AUG101            89.00987
15SEP101            88.54651                15JAN105               71.79757
15OCT101            88.15593                15FEB105               71.32668
15NOV101            87.76535                15MAR105               70.85579
15DEC101            87.37476                15APR105               70.38490
                                            15MAY105               69.91403
15JAN102            87.36846                15JUN105               69.18425
15FEB102            86.96239                15JUL105               68.73164
15MAR102            86.55632                15AUG105               68.24801
15APR102            86.15026                15SEP105               67.71661
15MAY102            85.74426                15OCT105               67.23297
15JUN102            85.01636                15NOV105               66.74934
15JUL102            84.62523                15DEC105               66.26571
15AUG102            84.20767
15SEP102            83.72773                15JAN106               66.08259
15OCT102            86.31017                15FEB106               65.58823
15NOV102            82.89261                15MAR106               65.09388
15DEC102            82.47505                15APR106               64.59952
                                            15MAY106               64.10516
15JAN103            82.42598                15JUN106               63.37272
15FEB103            81.99878                15JUL106               62.89753
15MAR103            81.57158                15AUG106               62.38980
15APR103            81.14438                15SEP106               61.83828
15MAY103            80.71726                15OCT106               61.33055
15JUN103            79.99225                15NOV106               60.82282
15JUL103            79.58167                15DEC106               60.31509

                                                                    SCHEDULE 2
                                                                            to
                                                                         LEASE

Basic Rent          Percentage of          Basic Rent          Percentage of
Payment Date        Facility Cost          Payment Date        Facility Cost
- ------------        -------------          ------------        -------------

15JAN107            60.08285               15JUN110              37.08524
15FEB107            59.56387               15JUL110              36.50803
15MAR107            59.04489               15AUG110              35.89146
15APR107            58.52591               15SEP110              35.24859
15MAY107            58.00692               15OCT110              34.63202
15JUN107            57.27166               15NOV110              34.01544
15JUL107            56.77277               15DEC110              33.39887
15AUG107            56.23975
15SEP107            55.66708               15JAN111              32.94594
15OCT107            55.13407               15FEB111              32.31573
15NOV107            54.60106               15MAR111              31.68553
15DEC107            54.06805               15APR111              31.05532
                                           15MAY111              30.42512
15JAN108            53.78438               15JUN111              29.67637
15FEB108            53.23957               15JUL111              29.07045
15MAR108            52.69475               15AUG111              28.42323
15APR108            52.14993               15SEP111              27.75454
15MAY108            51.60511               15OCT111              27.10732
15JUN108            50.86681               15NOV111              26.46011
15JUL108            50.34306               15DEC111              25.81290
15AUG108            49.78352
15SEP108            49.18861               15JAN112              25.29813
15OCT108            48.62907               15FEB112              24.63662
15NOV108            48.06953               15MAR112              23.97510
15DEC108            47.50999               15APR112              23.31359
                                           15MAY112              22.65208
15JAN109            47.17248               15JUN112              21.89937
15FEB109            46.60056               15JUL112              21.26330
15MAR109            46.02864               15AUG112              20.58394
15APR109            45.45671               15SEP112              19.88810
15MAY109            44.88479               15OCT112              19.20874
15JUN109            44.14324               15NOV112              18.52938
15JUL109            43.59340               15DEC112              17.85002
15AUG109            43.00602
15SEP109            42.38774               15JAN113              17.27048
15OCT109            41.80036               15FEB113              16.57612
15NOV109            41.21299               15MAR113              15.88176
15DEC109            40.62562               15APR113              15.18740
                                           15MAY113              14.49304
15JAN110            40.23173               15JUN113              13.73610
15FEB110            39.63137               15JUL113              13.06842
15MAR110            39.03100               15AUG113              12.35533
15APR110            38.43064               15SEP113              11.63096
15MAY110            37.83027               15OCT113              10.91787

                                                                   SCHEDULE 2
                                                                           to
                                                                        LEASE

Basic Rent          Percentage of          Basic Rent             Percentage of
Payment Date        Facility Cost          Payment Date           Facility Cost
- ------------        -------------          ------------           -------------

15NOV113            10.20479
15DEC113            9.49170

15JAN114            8.84431
15FEB114            8.11549
15MAR114            7.38666
15APR114            6.65783
15MAY114            5.92901
15JUN114            5.16757
15JUL114            4.46671
15AUG114            3.71824
15SEP114            2.96389
15OCT114            2.21541
15NOV114            1.46694
15DEC114            0.71846

15JAN115            0.00000

                                                                    SCHEDULE 3
                                                                            to
                                                                         LEASE

 Payment    of Facility      Payment     of Facility     Payment    of Facility
  Date          Cost          Date          Cost          Date         Cost
- ----------  -----------    ----------    -----------   ----------   -----------

15JAN87      109.01599       15JAN98       105.02054     15JAN109      56.70765
15JUL87      114.76002       15JUL98       103.97373     15JUL109      53.91617

15JAN88      113.17994       15JAN99       102.04367     15JAN110      50.76464
15JUL87      117.70456       15JUL99       100.81532     15JUL110      47.79658

15JAN89      116.07167       15JAN100      98.74684      15JAN111      44.51710
15JUL89      119.65174       15JUL100      97.31725      15JUL111      41.36264

15JAN90      117.95016       15JAN101      95.09237      15JAN112      37.94767
15JUL90      120.53475       15JUL101      93.43984      15JUL112      34.59656

15JAN91      118.69682       15JAN102      91.07806      15JAN113      31.03819
15JUL91      120.25014       15JUL102      89.28211      15JUL113      27.47963

15JAN92      118.20917       15JAN103      86.84308      15JAN114      23.76956
15JUL92      118.72285       15JUL103      84.92967      15JUL114      21.85439

15JAN93      116.54349       15JAN104      82.40638      15JAN115      20.00000
15JUL93      116.42005       15JUL104      80.36623

15JAN94      114.56122       15JAN105      77.75328
15JUL94      114.08476       15JUL105      75.57905

15JAN95      112.43357       15JAN106      72.87080
15JUL95      111.75470       15JUL106      70.55479

15JAN96      110.14794       15JAN107      67.74535
15JUL96      109.41227       15JUL107      65.27947

15JAN97      107.71163       15JAN108      62.36264
15JUL97      106.82849       15JUL108      59.73841

                                                                    SCHEDULE 5
                                                                        to

FACILITY LEASE

REAL ESTATE INTEREST DESCRIPTION

The Real Estate Interest is a (i) .333333% a undivided interest in the land described in I below, a (ii) .377777% undivided interest in the rights and interests described in II below, and (iii) a .377777% undivided interest in the right and interests described in III below.

I. PVNGS PLANT SITE

PARCEL NO. 1: Lot Four (4); the Southwest quarter of the Northwest quarter; and the West half of the Southwest quarter, all in Section Two (2), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona

PARCEL NO. 2: All of Section Three (3), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona

PARCEL NO. 3: The East half of Section Four (4), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona

PARCEL NO. 4: The West half of Section Twenty-six (26), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 5: Section Twenty-seven (27), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the Northwest quarter of Section 27

PARCEL NO. 6: The Southeast quarter of Section Twenty-eight (28), Township One
(1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT 50% of all oil, gas and other mineral deposits and geothermal resources recovered from or developed on the property, as reserved in instrument recorded May 10, 1974 in Docket 10647, page 136.

PARCEL NO. 7: The East half of Section Thirty-three (33), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO.8: All of Section Thirty-four (34), Township One (1) North, Range Six
(6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 9: The West half of Section Thirty-five (35), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 10: The Southeast quarter of Section Nine (9), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the Northwest quarter thereof.

PARCEL NO. 11: All of Section Ten (10), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the East half of the Southeast quarter thereof; and EXCEPT the North half of the South half of the Northwest quarter of the Northwest quarter thereof.

PARCEL NO. 12: That part of the East half of the Southwest quarter of Section Twenty-three (23), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona, more particularly described as follows:

BEGINNING at the Southeast corner of the said East half of the Southwest quarter of Section 23; thence West, an assumed bearing along the South line of the said East half of the Southwest quarter of Section 23, for a distance of 762.04 feet; thence North 0 degrees 03 minutes 39 seconds West; parallel to the East line of the said East half of the Southwest quarter of Section 23, for a distance of a 1946.46 feet to a point on the South right-of-way line of the 200 foot wide HASSAYAMPA-SALOME HIGHWAY, as recorded in Book 12 of Road Maps, page 82, Maricopa County Recorder, Maricopa County, Arizona; thence continuing North 0 degrees 03 minutes 39 seconds West for a distance of 234.15 feet to a point a on the North right-of-way line of said highway; thence South 58 degrees 43 minutes 35 seconds East, along said North right-of-way line for a distance of 892.17 feet to a point on the said East line of the East half of the Southwest quarter of Section 23; thence South 0 degrees 03 minutes 39 seconds East, along said East line for a distance of 234.15 feet to a point on the said South right-of-way line; thence continuing South 0 degrees 03 minutes 39 sec onds East for a distance of 1483.31 feet to the true point of beginning;

EXCEPT the East 305 feet of the South 305 feet thereof; and

EXCEPT one-half of the minerals and mineral rights and mineral estates of every kind and nature, as set forth in Deed recorded in Docket 11652, page 52, Maricopa County Records.

PARCEL NO. 13: The North half of the South half of the Northwest quarter of the Northwest quarter of Section Ten (10), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

II. HASSAYAMPA PUMPING STATION AND EFFLUENT PIPELINE

All real property, leases, licenses, easements, rights-of-way and other property held by Title USA Company of Arizona Trust No. 530 established by that certain Trust Agreement dated October 15, 1975, as amended, but excluding therefrom all improvements.

III. MISCELLANEOUS REAL PROPERTY INTERESTS

Those ANPP Project Agreements (as defined in the ANPP Participation Agreement), in addition to the Trust Agreement for Title USA Company of Arizona Trust 530, consisting of leases, licenses, easements, and permits, which provide land and land rights for (a) the pipeline to supply waste water effluent to PVNGS from the 91st Avenue sewage treatment plant serving the Phoenix Metropolitan area and (b) railroad access to the Nuclear Plant Site (as defined in the ANPP Participation Agreement).

SCHEDULE 6
to
FACILITY LEASE

UNDIVIDED INTEREST DESCRIPTION

The Undivided Interest is a (i) 1.133333% undivided interest in and to the property described under A below and (ii) a .377777% undivided interest in and to the property described in B below.

A. Unit 1 of the Palo Verde Nuclear Generating Station (PVNGS), located in Maricopa County, Arizona, approximately 55 miles west of the City of Phoenix, Arizona, and approximately 16 miles west of the City of Buckeye, Arizona, consisting of:

I. Unit 1 Combustion Engineering "System 80" pressurized water reactor nuclear steam supply system (the NSSS). The NSSS is comprised of a reactor vessel containing 241 fuel assemblies with approximately 100 tons of enriched uranium (fuel assemblies, however, are not part of Unit 1 and are not included in the Undivided Interest being sold), two steam generators, four reactor coolant pumps and various additional systems and subsystems. The licensed thermal rating of the NSSS is 3800 MW.

II. Unit 1 GE TC6F-43, 1800 RPM tandem-compound, six flow, reheat turbine-generator including turbine, generator, moisture separator-reheater, exciter, controls, and auxiliary subsystems. The turbine-generator is conductor cooled and rated at 1,554 MVA at 24,000 V, 3 phase, 60 Hz, 1.5 in Hg ABS back pressure, and approximately 1,363 MW maximum gross electric output.

III. Unit 1 146 ft. inside diameter, steel-lined, prestressed concrete cylindrical containment building with a hemispherical dome designed for 60 psig. The containment building houses the reactor system.

IV. Unit 1 auxiliary systems and equipment including engineered safeguards systems, reactor auxiliary systems and turbine-generator auxiliary systems associated with items I, II, and III above, extending to and including the Unit 1 start-up transformer.

V. Unit 1 cooling tower system consisting of three (3) mechanical draft cooling towers, including a closed cycle circulating water system, make-up water systems and essential spray ponds.

VI. Unit 1 radioactive waste treatment system, including liquid, gaseous, and solid waste subsystems, controls, instrumentation, storage, handling and shipment facilities.

VII. Unit 1 emergency diesel-generator system, including a diesel-generator building which contains two diesel generators, fuel oil systems, storage tanks, control and instrumentation systems and other equipment.

VIII. Unit 1 internal communication systems, including associated interconnections and computer data links.

BUT EXCLUDING:

I. Nuclear fuel for Unit 1, including spare fuel assemblies.

When Recorded, Return to: Greg R. Nielsen Snell & Wilmer 3100 Valley Bank Center Phoenix, Arizona 85073

CERTAIN RIGHTS OF THE LESSOR UNDER THE FACILITY LEASE AS AMENDED BY THIS AMENDMENT NO. 1 THERETO HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF, CHEMICAL BANK, AS INDENTURE TRUSTEE UNDER A TRUST INDENTURE, MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS DATED AS OF JULY 31, 1986, AS AMENDED. THIS AMENDMENT NO.1 HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. SEE SECTION 3(f) OF THIS AMENDMENT NO. 1 FOR INFORMATION CONCERNING THE RIGHTS OF HOLDERS OF VARIOUS COUNTERPARTS HEREOF.

THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

AMENDMENT NO.1
Dated as of November 18, 1986
to
FACILITY LEASE
Dated as of July 31, 1986
between
THE FIRST NATIONAL BANK OF BOSTON
not in its individual capacity,
but solely as Owner Trustee
under a Trust Agreement, dated as
of July 31, 1926 with Chase
Manhattan. Realty Leasing
Corporation
Lessor
and
PUBLIC SERVICE COMPANY OF NEW MEXICO,
Lessee

6091.CHASE.DEBT.146:1

AMENDMENT NO. 1, dated as of November 18, 1986 (Amendment No.
1), to the Facility Lease dated as of July 31, 1986 between THE FIRST NATIONAL BANK OF BOSTON, a national banking association, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement, dated as of July 31, 1985, with Chase Manhattan Realty Leasing Corporation, a New York corporation (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the Lessee).

W I T N E S S E T H

WHEREAS, the Lessee and The Lessor have heretofore entered into a Facility Lease dated as of July 31, 1986 (the Facility Lease), providing for the lease by the Lessor to the Lessee of the Undivided Interest and the Real Property Interest;

WHEREAS, Section 3(e) of the Facility Lease provides for an adjustment to Basic Rent and to the schedules of Casualty Values, Special Casualty Values and Termination Values in the event, among other things, of the refunding (by issuance of the Fixed Rate Notes) of the Initial Series Note;

WHEREAS, the Fixed Rate Notes are being issued pursuant to Supplemental Indenture No. 1, dated as of November 18, 1986, to the Indenture;

WHEREAS, Section 3(d) of the Facility Lease provides for an adjustment to Basic Rent and to the schedules of Casualty Values, Special Casualty Values and Termination Values in the event of a Change in Tax Law; and

WHEREAS, a Change in Tax Law has occurred;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Definitions.

For purposes hereof, capitalized terms used herein and not otherwise defined herein or in the recitals shall have the meanings assigned to such terms in Appendix A to the Facility Lease.

6091.CHASE.DEBT. 146:1

SECTION 2. Amendments

(a) Section 3(a)(i) of the Facility Lease is amended to read in its entirety as follows:

"(i) on January 15, 1987, an amount equal to .02643205% of the Facility Cost for each day from, and including August 1, 1986 to, but excluding January 15, plus or minus the Rent Differential, if any, referred to in
Section 3(h):"

(b) (1) Section 3(a) (ii) of the Facility Lease is amended to read in its entirety as follows:

"(ii) on. July 15, 1987 and on each Basic Rent Payment Date thereafter to and including January 15, 2015, an amount equal to 4.757769% of Facility Cost;".

(2) Section 3(a) (iii) is amended to delete from the parenthetical contained therein the phrase" and any increases and decreases pursuant to Section 3(h)".

(c) Section 3(e) (iii) of the Facility Lease is hereby amended to replace "2.0% of the Purchase Price" with "2.2% of the Purchase Price".
Section 3(e) (iv) is hereby amended to insert (x) "(other than a change in items 4, 5, 8 (as to the basis for amortization of Transaction Expenses), 14, 13 and 17, but without limiting the effect of Section 3(d) hereof)" immediately following the word "change" and (y) the word "Current" before the phrase "Pricing Assumptions." Section 3(e) of the Facility Lease is hereby further amended to insert at the end thereof the following new sentence: "Current Pricing Assumptions shall mean the assumptions attached to the letter from the Lessee to the Owner Participant dated November 25, 1986, as such letter may be replaced from time to time with the written consent of the Owner Participant."

(d) Schedule 1 to the Facility Lease (Schedule of Casualty Values) is hereby replaced with Schedule 1 hereto.

(e) Schedule 2 to the Facility Lease (Schedule of Special Casualty Values) is hereby replaced with Schedule 2 hereto.

6O91.CHASE.DEBT.146:1

(f) Schedule 3 to The Facility Lease (Schedule of Termination Values) is hereby replaced with Schedule 3 hereto.

(g) Section 3(h) of the Facility Lease is hereby amended to read in its entirety as follows:

"(h) Rent Differential. The installment of Basic Rent due January 15, 1987 shall be increased or decreased, as the case may be, by the Rent Differential. For purposes hereof, Rent Differential shall mean the difference between (i) the aggregate amount of interest paid or payable on the Initial Series Notes on or before November 25, 1986 and (ii) the aggregate amount of interest that would have been paid on such Initial Series Notes if such Notes had at all times from the date of issuance thereof to November 25, 1986 borne interest at a rate equal to 9.9024175% per annum (computed on the basis of a 360-day year of twelve 30-day months). If (A) the amount determined in accordance with clause (i) of the immediately preceding sentence shall be greater than the amount determined in accordance with clause (ii) of such sentence, the amount of Basic Rent due on January 15, 1987 shall be increased by the Rent Differential, and (B) the amount determined in accordance with such clause (ii) shall exceed the amount determined in accordance with such clause (i), the amount of Basic Rent due on January 15, 1987 shall be decreased by the Rent Differential."

SECTION 3. Miscellaneous.

(a) Partial Prepayment of Rent. In accordance with the last sentence of section 3(a) of the Facility Lease, the Lessee shall pay an amount equal to $336,986.30 on November 25, 1986, such amount (i) being equal to the interest payment due on the Initial Series Note on such date and (ii) to be credited against Basic Rent due on January 15, 1987.

(b) Effective Date of Amendments. The amendments set forth in
Section 2 hereof shall be and become effective upon the execution hereof by the parties hereto.

6091.CHASE.DEBT.146:1

(c) Counterpart Execution. This Amendment No. 1 may be executed in any number of counterparts and by each of the parties hereto on separate counterparts; all much counterparts shall together constitute but one and the same instrument.

(d) Governing Law. This Amendment No. 1 has been negotiated and delivered in the State of New York and shall be governed by, and be construed in accordance with, the laws of the State of New York, except to the extent that pursuant to the law of The State of Arizona such law is mandatory applicable hereto.

(e) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401, the beneficiary of the Trust Agreement is Chase Manhattan Realty Leasing Corporation, a New York corporation. The address of the beneficiary is One Chase Manhattan Plaza, New York, New York 10005. A copy of the Trust Agreement is available for inspection at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

(f) Amendment No. 1. The single executed original of this Amendment No. 1 marked "THE COUNTERPART IS THE ORIGINAL COUNTERPART" and containing the receipt of the Indenture Trustee thereon shall be the "Original" of this Amendment No. 1. To The extent that this Amendment No. 1 constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Amendment No. 1 may be created or continued through the transfer or possession of any counterpart other than the "Original".

6091.CHASE.DEBT.146:1

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 1 to Facility Lease to be duly executed in New York, New York by an officer there-unto duly authorized.

THE FIRST NATIONAL BANK OF BOSTON
not in its individual capacity,
but solely as Owner Trustee
under a Trust Agreement, dated
as of July 31, 1936, with chase
Manhattan Realty Leasing
Corporation

PUBLIC SERVICE COMPANY OF
NEW MEXICO,

6O9l.CHASE.DEBT.146:l

State of New York )
)ss:
County of New York)

The foregoing instrument was acknowledged before me this 24th day of November, 1986, by B.D. LACKEY, Vice President and Corporate Controller of PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation, on behalf of the corporation.

      /s/ Delia T. Santiago
     -----------------------
         Notary Public
         Delia T. Santago
 Notary Public State of New York
         No 41-3451160
   Qualified In Queens County
Commission Expires March 30, 1987

State of New York )
) ss:
County of New York)

The foregoing instrument was acknowledged before me this 24th day of November, 1986, by Martin P. Henry, Assistant Vice President of THE FIRST NATIONAL BANK OF BOSTON, a national banking association, on behalf of the banking association as Owner Trustee under the Trust Agreement dated as of July 31, 1986 with Chase Manhattan Realty Leasing Corporation.

 /s/ David A. Spivak
------------------------
     Notary Public

David A. Spivak Notary Public, State of New York No. 31-4693488 Qualified in New York County Commission Expires March 10, 1987

 Basic                                       Basic
  Rent           Percentage                   Rent            Percentage
 Payment          of Facility                Payment          of Facility
  Date              Cost                      Date               Cost
 -------          -----------                -------          -----------

15JAN87            108.39224                  15JAN98        102.28809
15JUL87            107.23024                  15JUL98        100.70917
15JAN88            101.51081                  15JAN99         99.63607
15JUL88            107.60714                  15JUL99         97.93951
15JAN89            110.72584                  15JAN100        96.69628
15JUL89            109.72664                  15JUL100        94.89680
15JAN90            112.19177                  15JAN101        93.52454
15JUL90            111.06507                  15JUL101        91.63860
15JAN91            112.87839                  15JAN102        90.12880
15JUL91            111.69339                  15JUL102        88.15050
15JAN92            112.92483                  15JAN103        86.51027
15JUL92            111.68018                  15JUL103        84.43301
15JAN93            112.35208                  15JAN104        82.66793
15JUL93            111.01255                  15JUL104        80.48337
15JAN94            111.08451                  15JAN105        78.58288
15JUL94            109.60551                  15JUL105        76.28283
15JAN95            109.08161                  15JAN106        74.23710
15JUL95            107.62209                  15JUL106        71.81301
15JAN96            106.87515                  15JAN107        69.61205
15JUL96            105.47391                  15JUL107        67.05595
15JAN97            104.68407                  15JAN108        64.69021
15JUL97            103.20804                  15JUL108        61.99287

6091.CHASE.DEBT.146:l

SCHEDULE 1
to
AMENDMENT NO.1

 Basic                                       Basic
  Rent           Percentage                   Rent            Percentage
 Payment          of Facility                Payment          of Facility
  Date              Cost                      Date               Cost
 -------          -----------                -------          -----------

15JAN109               59.45078
15JUL109               56.60203

15JAN110               53.87142
15JUL110               50.86047

15JAN111               47.92842
15JUL111               44.74379

15JAN112               41.59654
15JUL112               38.22608

15JAN113               34.84909
15JUL113               31.27985

15JAN114               27.65763
15JUL114               23.87600

15JAN115               20.00000

6091.CHASE.DEBT.146:l

SCHEDULE 2
to
AMENDMENT NO. 1

                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------

15AUG86                  104.27687            11JAN89           110.51760
15SEP86                  103.32804            15FEB89           110.68360
15OCT86                  103.76229            15MAR89           110.85374
15NOV86                  104.20441            15APR89           110.27364
15DEC86                  104.30295            15MAY89           110.42615
                                              15JUN89           109.30420
15JAN87                  108.37051            15JUL89           109.44686
15FEB87                  108.74577            15AUG89           109.57477
15MAR87                  109.12807            15SEP89           109.04477
15APR87                  108.15899            15OCT89           109.16270
15MAY87                  108.51711            15NOV89           109.28411
15JUN87                  106.84559            15DEC89           109.27124
15JUL87                  107.18467
15AUG87                  107.50988            15JAN90           111.81873
15SEP87                  101.74809            15FEB90           111.91504
15OCT87                  107.05454            11MAR90           112.01453
15NOV87                  107.36708            15APR90           111.49867
15DEC87                  107.42871            15MAY90           111.58039
                                              15JUN90           110.52636
15JAN88                  108.41911            11JUL90           110.59665
15FEB88                  108.66143            15AUG90           110.65880
15MAR88                  108.90895            15SEP90           110.14733
15APR88                  108.24364            15OCT90           110.19806
15MAY88                  108.46860            15NOV90           110.25136
15JUN88                  107.25568            15DEC90           110.19663
15JUL88                  107.46881
15AUG88                  107.66817
15SEP88                  107.10979
15OCT88                  107.29730
15NOV88                  107.48926
15DEC88                  107.51542

6091.CHASE.DEBT.146:l

SCHEDULE 2
to
AMENDMENT NO. 1

                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------

15JAN91                  112.29286           15JAN94           109.57539
15FEB91                  112.33172           15FEB94           109.42999
15MAR91                  112.37308           15MAR94           109.28510
15APR91                  111.92973           15APR94           109.01130
15MAY91                  111.95239           15MAY94           108.84777
15JUN91                  110.97827           15JUN94           108.08218
15JUL91                  110.98863           15JUL94           107.90562
15AUG91                  110.11543           15AUG14           107.73011
15SEP91                  110.51243           15SEP94           107.28037
15OCT91                  110.50706           15OCT94           107.09027
15NOV91                  110.50366           15NOV94           106.90017
15DEC91                  110.41809           15DEC94           106.69743

15JAN92                  112.07912           15JAN95           107.16923
15FEB92                  112.05940           15FEB95           106.97064
15MAR92                  112.04153           15MAR95           106.77204
11APR92                  111.66699           15APR95           106.56219
15MAY92                  111.63146           15MAY95           106.36360
15JUN92                  110.73818           15JUN95           105.69371
15JUL92                  110.69141           15JUL95           105.49511
15AUG92                  110.63926           15AUG95           105.28762
15SEP92                  110.18044           15SEP95           104.90076
15OCT92                  110.11712           15OCT95           104.69328
15NOV92                  110.05513           15DEC95           104.48579
15DEC92                  109.93623           15DEC95           104.27831

15JAN93                  111.19851
15FEB93                  111.11931
15MAR93                  111.04133
15APR93                  110 72175
15MAY93                  110.62612
15JUN93                  109.79976
15JUL93                  109.69206
15AUG93                  109.57771
15SEP93                  109.13192
15OCT93                  109.00545
15NOV93                  108.87964
15DEC93                  108.71924

6091.CHASE.DEBT.146.1

SCHEDULE 2
to
AMENDMENT NO.1

                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------

15JAN96                 104.51184            15JAN99            95.63381
15FEB96                 104.29506            15FEB99            95.34538
15MAR96                 104.07829            15MAR99            95.05694
15APR96                 103.64474            15APR99            94.76851
15MAY96                 103.08893            15MAY99            94.48007
15JUN96                 103.08893            15JUN99            93.91569
15JUL96                 102.87215            15JUL99            93.62726
15AUG96                 102.64567            15AUG99            93.32418
15SEP96                 102.31721            15SEP99            92.94856
15OCT96                 102.09072            15OCT99            92.64548
15NOV96                 101.86424            15NOV99            92.34241
15DEC96                 101.63776            15DEC99            92.03933

15JAN97                 101.82213            15JAN100           92.05232
15FEB97                 101.58551            15FEB100           91.73903
15MAR97                 101.34889            15MAR100           91.42574
15APR97                 101.11227            15APR100           91.11244
15MAY97                 101.87564            15MAY100           90.79915
15JUN97                 100.32043            15JUN100           90.23230
15JUL97                 100.08381            15JUL100           89.91901
15AUG97                  99.83518            15AUG100           89.59431
15SEP97                  99.49429            15SEP100           89.20709
15OCT97                  99.24566            15OCT100           88.88238
15NOV97                  98.99704            15NOV100           88.55767
15DEC97                  98.74841            15DEC100           88.23297

15JAN98                  98.87984
15FEB98                  98.61859
15MAR98                  98.35735
15APR98                  98.09611
15MAY98                  97.83487
15JUN98                  97.27602
15JUL98                  97.01478
15AUG98                  96.74028
15SEP98                  96.38332
15OCT98                  96.10882
15NOV98                  95.83432
15DEC98                  95.55982

6091.CHASE.DEBT

SCHEDULE 2
to
AMENDMENT NO.1

                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------

15JAN101                  88.19119            15JAN104          74.98028
15FEB101                  87.85568            15FEB104          74.57432
15MAR101                  87.50217            15MAR104          74.16836
15APR101                  87.18466            15APR104          73.76240
15MAY101                  86.84914            15MAY104          73.35645
15JUN101                  86.28309            15JUN104          72.77247
15JUL101                  85.94758            15JUL104          72.36651
15AUG101                  85.59993            15AUG104          71.94734
15SEP101                  85.19988            15SEP104          71.49457
15OCT101                  84.85223            15OCT104          71.07541
15NOV101                  84.50458            15NOV104          70.65624
15DEC101                  84.15692            15DEC104          70.23707

15JAN102                  84.05837            15JAN105          70.01508
15FEB102                  83.69956            15FEB105          69.58389
15MAR102                  83.34075            15MAR105          69.15270
15APR102                  82.98193            15APR105          68.72151
15MAY102                  82.62312            15MAY105          68.29032
15JUN102                  82.05737            15JUN105          67.69316
15JUL102                  81.69856            15JUL105          67.26197
15AUG102                  81.32745            15AUG105          66.81677
15SEP102                  80.91417            15SEP105          66.34036
15OCT102                  80.54306            15OCT105          65.89515
15NOV102                  80.17196            15NOV105          65.44994
15DEC102                  79.80085            15DEC105          65.00473

15JAN103                  79.65508
15FEB103                  79.27288
15MAR103                  78.89068
15APR103                  78.50847
15MAY103                  78.12627
15JUN103                  77.55465
15JUL103                  77.17245
15AUG103                  77.77780
15SEP103                  76.34724
15OCT103                  75.95260
15NOV103                  75.55795
15DEC103                  75.16331

6091.CHASE.DEBT

SCHEDULE 2
to
AMENDMENT NO.1

                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------

15JAN106                  64.74147            15JAN109          46.88549
15FEB106                  64.28351            15FEB109          46.33693
15MAR106                  63.82555            15MAR109          45.78837
15APR106                  63.36759            15APR109          45.23980
15MAY106                  62.90964            15MAY109          44.69124
15JUN106                  62.29843            15JUN109          44.03206
15JUL106                  61.84047            15JUL109          43.48830
15AUG106                  61.36763            15AUG109          42.92193
15SEP106                  60.86610            15SEP109          42.33510
15OCT106                  60.39326            15OCT109          41.76873
15NOV106                  59.92042            15NOV109          41.20236
15DEC106                  59.44759            15DEC109          40.63600

15JAN107                  59.14089            15JAN110          40.18753
15FEB107                  58.65452            15FEB110          39.60498
15MAR107                  58.16816            15MAR110          39.02243
15APR107                  57.68179            15APR110          38.43988
15MAY107                  57.19542            15MAY110          37.85732
15JUN107                  56.56925            15JUN110          37.18000
15JUL107                  56.08404            15JUL110          36.60430
15AUG107                  55.58188            15AUG110          36.00284
15SEP107                  55.05365            15SEP110          35.38392
15OCT107                  54.55149            15OCT110          34.78247
15NOV107                  54.04933            15NOV110          34.18101
15DEC107                  53.54716            15DEC110          33.57955


15JAN108                  53.19582
15FEB108                  52.67929
15MAR108                  52.16275
15APR108                  51.64622
15MAY108                  51.12968
15JUN108                  50.48754
15JUL108                  49.97390
15AUG108                  49.44059
15SEP108                  48.88395
15OCT108                  48.35064
15NOV108                  47.81733
15DEC108                  47.28402

6091.CHASE.DEBT.

SCHEDULE 2
to
AMENDMENT NO.1

                         Percentage                            Percentage
 Payment                of Facility          Payment          of Facility
  Date                      Cost               Date               Cost
 -------                -----------          -------          -----------

15JAN111                  33.07824            15JAN114          9.02244
15FEB111                  32.45960            15FEB114          8.28170
15MAR111                  31.84096            15MAR114          7.54095
15APR111                  31.22233            15APR114          6.80021
15MAY111                  30.60369            15MAY114          6.05946
15JUN111                  29.90703            15JUN114          5.29694
15JUL111                  29.29748            15JUL114          4.57315
15AUG111                  28.65877            15AUG114          3.80841
15SEP111                  28.00574            15SEP114          3.03971
15OCT111                  27.36703            15OCT114          2.27497
15NOV111                  26.72832            15NOV114          1.51023
15DEC111                  26.08961            15DEC114          0.74549

15JAN112                  25.53238            15JAN115          (-.00001)
15FEB112                  24.87545
15MAR112                  24.21851
15APR112                  23.56157
15MAY112                  22.90463
15JUN112                  22.18738
15JUL112                  21.54195
15AUG112                  20.86371
15SEP112                  20.17443
15OCT112                  19.49619
15NOV112                  18.81794
15DEC112                  18.13969

15JAN113                  17.52326
15FEB113                  16.82565
15MAR113                  16.12805
15APR113                  15.43044
15MAY113                  14.73283
15JUN113                  13.99364
15JUL113                  13.31020
15AUG113                  12.58999
15SEP113                  11.86219
15OCT113                  11.14197
15NOV113                  10.42176
15DEC113                   9.70154

6091.CHASE.DEBT.

SCHEDULE 3
to
AMENDMENT NO.1

 Basic                                       Basic
  Rent                  Percentage           Rent            Percentage
 Payment                of Facility         Payment          of Facility
  Date                     Cost               Date               Cost
 -------                -----------         -------          -----------

15JAN87                   108.37051          15JAN99          95.63381
15JUL87                   107.18467          15JUL99          93.62726

15JAN88                   108.41911          15JAN100         92.05232
15JUL88                   107.46881          15JUL100         89.91901

15JAN89                   110.51760          15JAN101         88.19119
15JUL89                   109.44686          15JUL101         85.94758

15JAN90                   111.81873          15JUL102         84.05837
15JUL90                   110.59665          15JUL102         81.69856

15JAN91                   112.29286          15JAN103         79.65508
15JUL91                   110.69141          15JUL103         77.17245

15JAN92                   112.07912          15JUL104         74.98028
15JUL92                   110.69141          15JUL104         72.36651

15JAN93                   111.19851          15JAN105         70.01508
15JUL93                   109.69206          15JUL105         67.26197

15JAN94                   109.57539          15JAN106         64.74147
15JUL94                   107.90562          15JUL106         61.84047

15JAN95                   107.16923          15JAN107         59.14089
15JUL95                   105.49511          15JUL107         56.08404

15JAN96                   104.51184          15JAN108         53.19582
15JUL96                   102.87215          15JUL108         49.97390

15JAN97                   101.82213          15JAN109         46.88549
15JUL97                   100.08381          15JUL109         43.48830

15JAN98                    98.87984          15JAN110         40.18753
15JUL98                    97.01478          15JUL110         36.60430

6091.CHASE.DEBT.

SCHEDULE 3
to
AMENDMENT NO.1

Basic                                       Basic
 Rent                  Percentage           Rent            Percentage
Payment                of Facility         Payment          of Facility
 Date                     Cost               Date               Cost
-------                -----------         -------          -----------

15JAN111                   33.07824
15JUL111                   29.29748

15JAN112                   25.53238
15JUL112                   21.54195

15JAN113                   17.52326
15JUL113                   13.31020

15JAN114                    9.02244
15JUL114                    4.57315

15JAN115                    0.0

6091.CHASE.DEBT

When Recorded, Return to: Greg R. Nielsen Snell & Wilmer 3100 Valley Bank Center Phoenix, Arizona 85073

CERTAIN RIGHTS OF THE LESSOR UNDER THE FACILITY LEASE AS HERETOFORE AMENDED AND AS FURTHER AMENDED BY THIS AMENDMENT NO. 2 THERETO HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF, CHEMICAL BANK, AS INDENTURE TRUSTEE UNDER A TRUST INDENTURE, MORTGAGE, SECURITY AGREEMENT AND ASSIGMIENT OF RENTS DATED AS OF JULY 31, 1986, AS HERETOFORE AMENDED. THIS AMENDMENT NO. 2 HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. SEE SECTION 3(e) OF THIS AMENDMENT NO. 2 FOR INF0RMATION CONCERNING THE RIGHTS OF HOLDERS or VARIOUS COUNTERPARTS HEREOF.

THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

AMENDMENT NO.2
Dated as of December 11, 1986
to

FACILITY LEASE
Dated as of July 31, 1986,
as heretofore amended,
between

THE FIRST NATIONAL BANK OF BOSTON
not in its individual capacity,
but solely as Owner Trustee
under a Trust Agreement, dated as
of July 31, 1986 with Chase
Manhattan Realty Leasing
Corporation

Lessor

and

PUBLIC SERVICE COMPANY OF NEW MEXICO,

Lessee

Original Facility Lease Recorded on August 1, 1986, as Instrument No. 86-404570 and Amendment No.1 to the Facility Lease Recorded on November 25, 1986, as Instrument No. 86-650771, all in Maricopa County Recorder's Office.

AMENDMENT N0. 2, dated as of December 11, 1986 (Amendment No. 2), to the Facility Lease dated as of July 31, 1986, as heretofore amended, between THE FIRST NATIONAL BANK OF BOSTON, a national banking association, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement, dated as of July 31, 1986, with Chase Manhattan Realty Leasing Corporation, a New York corporation (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the Lessee).

WITNESSETH:

WHEREAS, the Lessee and the Lessor have heretofore entered into a Facility Lease dated as of July 31, 1986, as heretofore amended (the Facility Lease), providing for the lease by the Lessor to the Lessee of the Undivided Interest and the Real Property Interest;

WHEREAS, the Lessee and the Lessor desire to execute this Amendment No. 2, to eliminate an overpayment of rent by the Lessee;

WHEREAS, the Indenture Trustee has consented to this Amendment No. 2 pursuant to the Request, Instruction and Consent effective on December 15, 1986;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Definitions.

For purposes hereof, capitalized terms used herein and not otherwise defined herein or in the recitals shall have the meanings assigned to such tents in Appendix A to the Facility Lease.

SECTION 2. Amendments.

(a) Section 3(a) of the Facility Lease is hereby amended by inserting the phrase "and the Real Property Interest" immediately following the term "Undivided Interest".

(b) Section 21 of the Facility Lease is hereby amended to read in its entirety as follow:

"Pursuant to the Deed and the Assignment of Beneficial Interest, the Lessee has sold to the Lessor the Real Property Interest. The Lessor hereby grants to the Lessee a leasehold interest in the Real Property Interest, such leasehold to be coterminous with the lease of the Undivided Interest hereunder and to be at a rent per annum equal to the respective percentages of the Real Estate Investment for the applicable period set forth or derived from the respective percentages of Facility Cost in clauses (i), (ii) and (iii) respectively, of Section 3 (a) hereof (which rent is included as part of Basic Rent payable pursuant to
Section 3(a) hereof)."

SECTION 3. Miscellaneous.

(a) Effective Date of Amendments. The amendments set forth in section .2 hereof shall be and become effective upon the execution hereof by the parties hereto.

(b) Counterpart Execution. This Amendment No. 2 may be executed in any number of counterparts and by each of the parties hereto on separate counterparts; all such counterparts shall together constitute but one and the same instrument.

(c) Governing Law. This Amendment No. 2 has been negotiated and delivered in the State of New York and shall be governed by, and be construed in accordance with, the laws of the State of New York, except to the extent that pursuant to the law of the State of Arizona such law is mandatorily applicable hereto.

(d) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401, the beneficiary of the Trust Agreement is Chase Manhattan Realty Leasing Corporation, a New York corporation. The address of the beneficiary is One chase Manhattan Plaza, New York, New York 10005. A copy of the Trust Agreement is available for inspection at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

(e) Amendment No.2. The single executed original of this Amendment No. 2 marked "THIS COUNTERPART IS THE ORIGINAL COUNTERPART" and containing the receipt of the Indenture Trustee thereon shall be the "Original" of this Amendment No. 2. To the extent that this Amendment No. 2 constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Amendment No. 2 may be created or continued through the transfer or possession of any counterpart other than the "Original".

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 2 to Facility Lease to be duly executed in New York, New York by an officer thereunto duly authorized.

THE FIRST NATIONAL BANK OF BOSTON,
not in its individual capacity,
but solely as owner Trustee
under a Trust Agreement, dated
as of July 31, 1966, with Chase
Manhattan Realty Leasing
Corporation

PUBLIC SERVICE COMPANY OF NEW MEXICO,

By  /s/ A. J. Robison
    --------------------------------
    Senior Vice President and
    Chief Financial Officer

State of New York     )
                      ) ss:
County of New York    )

The foregoing instrument was acknowledged before me 15th day of December, 1986, by A.J. ROBINSON, Senior vice president and Chief Financial Officer of PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation on behalf of the corporation.

      /s/ Delia T. Santiago
     -----------------------
         Notary Public
         Delia T. Santago
 Notary Public State of New York
         No 41-3451160
   Qualified In Queens County
Commission Expires March 30, 1987

State of New York     )
                      ) ss:
County of New York    )

The foregoing instrument was acknowledged before me this 15th day of December, 1986, by Martin P. Henry, Assistant Vice President of the NATIONAL BANK OF BOSTON, a national banking association, on behalf of the banking association as Owner Trustee under the Trust Agreement dated as of July 31, 1986 with Chase Manhattan Realty Leasing Corporation.

 /s/ David A. Spivak
------------------------
     Notary Public

David A. Spivak Notary Public, State of New York No. 31-4693488 Qualified in New York County Commission Expires March 10, 1987

When Recorded, Return to: Greg R. Nielsen, Esq.

Snell & Wilmer
3100 Valley Bank Center
Phoenix, Arizona 85073

CERTAIN RIGHTS OF THE LESSOR UNDER TIE FACILITY LEASE AS HERETOFORE AMENDED AND AS FURTHER AMENDED BY THIS AMENDMENT NO. E THERETO HAVE BEEN ASSIGNED TO, AND ARE SUBJECCT TO A SECURITY INTEREST IN FAVOR OF, CHEMICAL BANK, AS INDENTURE TRUSTEE UNDER A TRUST INDENTRURE, MORTAGAGE, SECURITY AGREEMENT AND ASSIGNEMNT OF RENTS DATED AS OF JULYY 31, 1986, AS HERETOFORE AMENDED. THIS AMENDMENT NO. 3 HAS BEEN EXECUTED IN SERVERAL COUNTERPARTS. SEE SECTION 3(e) OF THIS AMENDMENT NO. 3 FOR INFORMATION CONCERNING THE RIGHTS OF HOLDRS OF VAROUS COUNTERPARTS HEREOF.

THIS COUNTERPART IS NOT THE ORIGINIAL COUNTERPART.

between

THE FIRST NATIONAL BANK OF BOSTON,
not in its individual capacity,
but solely as Owner Trustee
under a Trust Agreement, dated as
of July 31, 1986,
with Chase Manhattan Realty
Leasing Corporation,

Lessor
and

PUBLIC SERVICE COMPANY OF NEW MEXICO,
Lessee

Original Facility Lease Recorded on, August 1, 1986, as Instrument No. 86-404570, Amendment No. 1 Recorded on November 25, 1986, as instrument No. 86-650771, and Amendment No. 2 Recorded on December 17, 1986, as Instrument No. 86-695945, all in Maricopa County Recorder's Office.

6091CHASE.DEBT.160:1

AMENDMENT NO. 3, dated as of April 8, 1987 (Amendment No. 3), to the Facility Lease dated as of July 31, 1986, as heretofore amended, between THE FIRST NATIONAL BANK OF BOSTON, a national banking association, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement, dated as of July 31, 1986, with Chase Manhattan Realty Leasing Corporation, a New York corporation (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the Lessee).

WITNESSETH

WHEREAS, the Lessee and Lease the Lessor have heretofore entered into a Facility dated as of July 31, 1986, as heretofore amended (the Facility Lease), providing for the lease by the Lessor to the Lessee of the Undivided Interest and the Real Property Interest;

WHEREAS, the Lessee and the Lessor desire to amend the Facility Lease as set forth in Section 2 hereof; and

WHEREAS, the Indenture Trustee has consented to this Amendment No. 3 pursuant to the Request, Instruction and Consent effective on April 8, 1987;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Definitions.

For purposes hereof, capitalized terms used herein and not otherwise defined herein or in the recitals shall have the meanings assigned to such terms in Appendix A to the Facility Lease.

6091.CHASE.DEBT.160:l

Section 2. Amendments.

(a) Section 5(a) of the Facility Lease is hereby amended to read in its entirety as follows:

"(a) Return of the undivided Interest. On the Lease Termination Date, the Lessee will (1) surrender possession of the Undivided Interest and the Real Property Interest to the Lessor (or to a Person specified by the Lessor to the Lessee in writing not less than 6 months prior to the Lease Termination Date) (i) with full rights as a "Transferee" and the sole "Participant" with respect to the Undivided Interest and the Real Property Interest within the meaning of Section 15.10 of the ANPP Participation Agreement and (ii) without a Price-Anderson Event (as hereinafter defined) having arisen prior to, or arising upon, or immediately following, such surrender and (2) furnish to the Lessor: (i) copies certified by a senior officer of the Lessee of all Governmental Action necessary to effect such surrender (including, but without limitation, appropriate amendments to the License permitting the Lessor (without the Lessor being required to change its business) or such Person to possess the Undivided Interest and the Real Property Interest with or without the continued involvement of the Lessee as Agent), which Governmental Action shall be in full force and effect; and (ii) an opinion of counsel (which may be nudge Rose Guthrie Alexander & Ferdon, Snell & Wilmer or another counsel experienced with NRC and other nuclear matters reasonably satisfactory to the Owner Participant) to the effect that (A) the Lessee has obtained all Governmental Action and action under the ANPP Participation Agreement necessary to effect such surrender by the Lessee and receipt of possession by the Lessor (or by the Person so specified by the Lessor) and (3) such Governmental Action is in full force and effect. At the time of such return the Lessee shall pay or have paid all amounts due and payable, or to become due and payable, by it as an ANPP Participant under each and every ANPP Project

609l.CHASE.DEBT.160:l

Agreement allocable or chargeable (whether or not payable during or after the Lease Term) to the Undivided Interest or the Real Property Interest in respect of any period or periods ending on or prior to the Lease Termination Date (including, but without limitation, all amounts payable with respect to any and all discretionary Capital Improvements to Unit 1 or the PVNGS Site approved or authorized (without the concurrence of the Owner Participant) within the 3-year period preceding the end of the Lease Term, whether or not implementation thereof has been completed on or prior to the Lease Termination Date), and the Undivided Interest and the Real Property Interest shall be free and clear of all Liens (other than Permitted Liens described in clauses (i),
(V) (other than those arising by, through or under the Lessee alone),
(vi), (vii) (other than as aforesaid), (viii) (other than as aforesaid)1
(ix) and (x) of the definition of such term) and in the condition and state of repair required by Section 8. In the event that on or prior to the Lease Termination Date there shall have occurred a default by any ANPP Participant (other than the Lessee) under the ANPP Participation Agreement and such default shall not have been cured by the defaulting ANPP Participant, then (i) the Lessee agrees to indemnify and hold the Lessor (and each successor, assign and transferee thereof) harmless against any and all obligations under the ANPP Participation Agreement with respect to contributions or payments required to be made thereby as a result of such default and (ii) the Lessor (and each successor, assign and transferee thereof) agrees to reimburse the Lessee for all amounts paid by the Lessee pursuant to the foregoing clause (i) to the extent, but only to the extent, that the Lessor (or such successor, assign or transferee) shall have actually received proceeds from the sale of the Generation Entitlement share of the defaulting ANPP Participant as a result of the payment made by the Lessee pursuant to the foregoing clause (i), and, to the extent the Lessor (or such successor, assign or transferee) shall have received such proceeds, the amount to be

6091.CHASE.DEBT.160:l

reimbursed to the Lessee pursuant to this clause (ii) shall include interest at the Prime Rate from the date of any payment by the Lessee pursuant to the foregoing clause (i) through the date of reimbursement of such amount pursuant to this clause (ii). For purposes of this
Section 5(a) a "Price-Anderson Event" shall mean any Change in, or new interpretation by Governmental Authority having jurisdiction of, Applicable Law, including without limitation the Price-Anderson Act, the Atomic Energy Act and the regulations of the NRC, in each case as in effect on the Closing Date, but only if such change is specified in clauses (2) (i) through (iv) of the definition of "Deemed Loss Event" (other than a change which is specified in clause (A) of the definition of "Acceptable Change")."

(b) A new section 8(g) of the Facility Lease is inserted therein, to read in its entirety as follows:

"(g) Useful Life. If the Lessee shall not theretofore have exercised its option under section 13 to purchase the Undivided Interest and the Real Property Interest, then (i) if the Lessee shall not theretofore have exercised its option to renew the Lease pursuant to
Section 12, on January 15, 2014, the Lessee shall initiate the Appraisal Procedure to determine the remaining Economic Useful Life of Unit 1 as of July 15, 2014 and (ii) on the Rent Payment Date occurring one year prior to the end of the Renewal Term, if any, the Lessee shall initiate the Appraisal Procedure to determine the remaining Economic Useful Life of Unit 1 as of the date six months prior to the end of the Renewal Term. The Lessee and the Lessor agree to use their best efforts to ensure that such determination of remaining economic useful life is made no later than July 15, 2014 (in the case of the first such determination) and six months prior to the end of the Renewal Term (in the case of the second such determination) "

6091.CHASE.DEBT. 160:1

(c) Section 15(iv) of the Facility Lease is hereby amended to read in its entirety as follows:

"(iv) (1) the Lessee shall fail to perform its agreements set forth in Section 5(a) hereof or (2) the remaining Economic Useful Life of Unit 1, as determined under Section 8(g) if required thereby to be so determined, shall be (x) as of the data six months prior to the end of the Basic Lease Term, less than five and one-half years or (y) as of the date six months prior to the end of the Renewal Term, three and one-half years; or"

(d) Section 16(a) (vii) of the Facility Lease is hereby amended to read in its entirety as follows:

"(vii) in the case of an Event of Default specified in clause
(iv) of Section 15, the Lessor may demand, by written notice to the Lessee specifying a payment date which shall be (A) in the case of an Event of Default specified in subclause (1) of said clause (iv), not earlier than the data 30 days after the last Basic Rent Payment Date of the Lease Term, and (B), in the case of an Event of Default specified in subclause (2) of said clause (iv), the last Basic Rent Payment Date of the Lease Term, that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on such payment date, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due through such last Basic Rent Payment Date plus an amount (not less than zero) equal to the Fair Market Sales Value (determined without regard to the obligation of the Lessee under Section l0(b)(3)(xi) of the Participation Agreement) of the Undivided Interest and the Real Property Interest (determined on the basis of the actual condition of Unit 1) determined as of such last Basic Rent Payment Date (together with interest on such amount at the interest rate specified in Section 3(b) (iii) from such last Basic Rent Payment Date to the date of actual payment) and upon receipt of such payment the Lessor shall (or may prior to the receipt of such payment)

609l.CHASE.DEBT. 160:1

Transfer to the Lessee the Undivided Interest and the Real Property Interest); provided, however, that the Lessor may not exercise the foregoing remedy if the Lessor shall have failed to Transfer the Undivided Interest and the Real Property Interest to the bidder (which shall not be the Lessee or an Affiliate of the Lessee) that shall have submitted the highest cash bid on or before the date on which such Event of Default arose excluding, however, any such cash bid which the Lessor or the Owner Participant determines was not submitted in good faith, or as to which the bidder fails to certify to the Lessor such information as the Lessor or Owner Participant may reasonably request in order to determine whether or not such bid was submitted in good faith (and the Lessor agrees that it will, if and to the extent so requested by the Lessee on or after the date 90 days preceding such last Basic Rent Payment Date, use reasonable efforts (at the expense of the Lessee) for a period ending on the day 90 days after such last Basic Rent Payment Date, to find a Person willing to submit such cash bid; provided, however, that the failure of the Lessor to do so shall not relieve the Lessee of its obligations under this clause (vii))."

(e) The definition of "Acceptable Change" set forth in Appendix A to the Facility Lease is hereby amended to read in its entirety as follows:

"Acceptable Change shall mean any change in or new interpretation by Governmental Authority having jurisdiction of the Price-Anderson Act or the Atomic Energy Act (or the regulations of the NRC relating thereto) if, after giving effect to such change or new interpretation:

(A) (a) the "aggregate liability" for a single "nuclear incident" of "persons indemnified" shall not exceed $6.563 billion (assuming 101 operating nuclear facilities participating in the deferred premium or similar plan referred to in clause (c) below and subject to adjustment in an amount not exceeding (X) $63 million for each increase or decrease in said number of operating nuclear facilities and (V)

6091.CHASE.DEBT.l60:l

the aggregate of all changes in such "aggregate liability" to reflect the effects of inflation contemplated pursuant to clause (c) below);

(b) the "aggregate liability" for a single "nuclear incident" of "persons indemnified" shall not exceed the sum of, without duplication, (X) the amount of insurance coverage available from commercial insurance underwriters on terms substantially equivalent (in the reasonable opinion of the owner Participant) to the terms in effect on the closing Date under Applicable Law and required to be maintained by each licensee with respect to any single nuclear facility, and (IC) the maximum aggregate amount payable with respect to a single. "nuclear incident" by all licensees of nuclear facilities participating in any deferred premium or similar plan required under Applicable Law, by more than $40 million.

(c) the amount payable by all licensees of a single nuclear facility with respect to such facility under any deferred premium or similar plan required under Applicable Law shall not exceed $63 million per "nuclear incident" (subject to an annual adjustment upward for each calendar year after the enactment of a change in the Price-Anderson Act (if such change increases the standard deferred premium) by an amount equal to, if specified by such change or otherwise by Applicable law, (X) the annual percentage change during the immediately prior calendar year in the implicit price deflator for the Gross National Product published by the United States Department of Commerce or (Y) the annual percentage change in the consumer price index since the immediately prior calendar year; provided, however, that (i) in the event that Applicable Law shall not specify an inflation adjustment, then the inflation adjustment permitted by this parenthetical shall be that specified in the preceding subclause (X) and (ii) in the event that Applicable Law shall specify a standard deferred premium below $63 million, the inflation adjustment factor shall not be available to increase the standard deferred premium permissible under this clause (c) beyond $63 million until such lower deferred premium (as so inflated) equals or exceeds $63 million);

6091.CHASE.DEBT.160:l

(d) the amount payable by all licensees of a single nuclear facility with respect to such facility in any one year with respect to any one "nuclear incident" under any deferred premium or similar plan required under Applicable Law shall not exceed $12 million;

(e) insurance or other financial protection shall be in effect under which the providers of such insurance or other financial protection shall agree to pay any amount payable by any licensee under any deferred premium or similar plan upon a default in such payment by such licensee up to a maximum aggregate amount for all such defaults in payment of not less than $30 million;

(f) a provision shall be included (X) which authorizes (whether or not subject to appropriation acts) the NRC or other Governmental Authority to barrow from the United States Treasury (1) to make payments on behalf of any licensees under any deferred premium or similar plan and (2) to make payments to claimants in the event that funds available to pay valid claims in any year are insufficient as a result of any limitation on the amount of deferred premiums that may be required of a licensee under Applicable Law (in both cases the reimbursement obligation of such licensees in any calendar year shall not exceed $12 million, plus interest), or CY) which makes the exclusive source of payments for public liability claims the funds provided by financial protection required by Applicable Law and, where appropriate, funds provided as a result of NRC or other Governmental Authority borrowings or (Z) which establishes another mechanism under which the maximum potential liability of all Persons during any calendar year as a result of a "nuclear incident" shall not exceed the amount of insurance or other financial protection required to be available during such calendar year to pay all amounts which may become payable by any such person, when and as they become payable, in respect of such liability;

609l.CHASE.DEBT.160:l

(g) there shall be no claim, liability or expense excluded (1) from the limitation of liability established by the Price-Anderson Act (as in effect on the closing Date) (through modification of the definitions of "aggregate liability", "persons indemnified", "nuclear incident" or otherwise) or (2) under commercially available insurance or other financial protection required under Applicable Law (as in effect on the closing Date) (other than an exclusion of the coats of investigating and settling claims and defending suits for damages), except, for purposes of subclauses (1) and (2) of this clause (g), to the extent excluded pursuant to Applicable Law as in effect on the closing Date;

(h) subject only to clause (b) above, policies of insurance, including policies in respect of any deferred premium or similar plan, shall provide, or shall have been amended or modified to provide, in both timing and amount, and make available, or shall have been mended or modified to make available, financial protection required under Applicable Law; and

(i) neither the Owner Trustee nor the Owner Participant shall be (in the opinion of independent counsel to the Owner Participant) exposed to any other increase in its real or potential liability with respect to a Nuclear incident", either during or subsequent to the Lease Term; or

(B) at all times from the date of such Change to, but not including, the Lease Termination Date,

(a) a provision shall be included,. with language reasonably satisfactory to the Owner Participant, which exempts the Owner Trustee and the Owner Participant from all real or potential liability in respect of a "nuclear incident" so long as neither the owner Trustee nor

6091.CHASE.DEBT.l6O:l

the Owner Participant is in actual possession and control of Unit 1 or the Undivided Interest, unless (in the opinion of independent counsel to the Owner Participant) (x) a court could reasonably hold that the statute incorporating such provision is unconstitutional or (y) there shall have occurred a subsequent change in, or new interpretation by Governmental Authority having jurisdiction of, the exemption from liability provided by such provision as to interests of the Owner Trustee and the Owner Participant in Unit 1 which change or new interpretation renders ineffective such exemption;

(b) the "aggregate liability" for a single "nuclear incident" of "persons indemnified" shall not exceed $13 billion (assuming 101 operating nuclear facilities participating in the deferred premium or similar plan referred to in clause (c) of paragraph (A) above and subject to adjustment in an amount not exceeding (X) $126 million for each increase or decrease in said number of operating nuclear facilities and (Y) the aggregate of all changes in such "aggregate liability" to reflect the effects of inflation contemplated pursuant to clause (C) of paragraph (A) above (but without giving effect to clause (ii) of the proviso set forth in such clause)); and

(c) the amount payable by all licensees of a single nuclear facility in respect of such facility in any one year and with respect to any one "nuclear incident" under any deferred premium or similar plan required by Applicable Law shall not exceed $36 million (subject to adjustment as provided in subclause CY) of the preceding clause (b)).

For purposes at this definition, "nuclear facility" shall mean and refer to a facility designed for producing substantial amounts of electricity and having a rated capacity of 100,000 electrical kilowatts or more."

6091.CHASE.DEBT.l6O:1

(f) A new definition is hereby added to Appendix A to the Facility Lease, to read in its entirety as follows:

"Decommissioning shall mean the ecommissioning and retirement from service of Unit 1, and the related possession, maintenance and disposal of radioactive material used in or produced incident to the possession and operation of Unit 1, including, without limitation, (i) placement and maintenance of Unit 1 in a state of protective storage,
(ii) in-place entombment and maintenance of Unit 1, (iii) dismantlement of Unit 1, (iv) any other form of decommissioning and retirement from service required by or acceptable to the NRC and (v) all activities undertaken incident to the implementation thereof and to the obtaining of NRC authority therefor, including, without limitation, maintenance, storage, custody, removal, decontamination, and disposition of materials, equipment and fixtures, razing of Unit 1, removal and disposition of debris from the PYNGS site, and restoration of the PVNCS Site related to Unit 1 for unrestricted use."

(g) A new definition is hereby added to Appendix A to the Facility Lease, to read in its entirety as follows:

"Decommissioning Costs shall mean all costs, liabilities and expenses relating or allocable to, or incurred in connection with, the Decommissioning of Unit 1, including, without limitation, (i) any and all costs of activities undertaken to terminate NRC licensing authority and requirements to own, operate and possess Unit 1 and to possess radioactive material used in or produced incident to the possession and operation of Unit 1; and (ii) any and all costs of activities undertaken, prior to termination of all NRC licensing authority and requirements with respect to Unit 1 and the radioactive material used in or produced incident to the possession and operation of Unit 1, to possess, maintain, and dispose of radioactive material used in or produced incident to the possession and operation of Unit 1."

6091.CHASE.DEBT.l60:l

(h) A new definition is hereby added to Appendix A to the Facility Lease, to read in its entirety as follows:

"Economic Useful Life shall mean that period (commencing on the date as of which the determination of Economic Useful Life is to be made as provided in Section 8(g) of the Facility Lease and ending on the date upon which either of the states of affairs described in clauses (i) and (ii) below ceases to apply, or can reasonably be expected to cease to apply, to Unit 1) during which (i) Unit 1 will be useful to, and usable by, any owner or lessee thereof as a facility for the generation of electric power and (ii) Unit 1 is an economic and commercially practical facility for the generation of electric power capable of producing (after taking into account costs of capital) a reasonable economic return to the owner thereof. For the purposes of determinations under clauses (i) and (ii) above, the following factors, among others, shall be taken into account (as such factors obtain on the date of determination and as such factors are reasonably expected to obtain in the future): (a) provisions of the ANPP Project Agreements (including, without limitation, the ANPP Participation Agreement and the Material Project Agreements (or substitutes for such Material Project Agreements in effect on the date of determination)); (b) the actual condition and performance of Unit it (c) the actual condition and performance of such other facilities constituting PVNGS (including, without limitation, the Common Facilities) as are integral to the operation of Unit 1; (d) the actual condition of, and access of the ANPP Participants to, the ANPP Switchyard and such other transmission facilities as are available and necessary to permit the transmission of the maximum amount of power generated by PVNGS; (e) the cost of obtaining, handling, storing and disposing of nuclear fuel for Unit it (f) the projected cost (including,

6091.CHASE.DEBT.l60:l

without limitation, costs attributable to obligations to fund any reserve fund maintained (or funded) by licensed owners and/or lessees of Unit 1 to the extent dedicated to (or attributable to and freely available with respect to) Unit 1 (the Unit 1 Fund)) or the Decommissioning or retirement from service of Unit 1 including, without limitation, Decommissioning Costs (taking into account the balance (plus projected investment earnings thereon) of the Unit 1 Fund): (g) the cost of Capital improvements to Unit 1 then planned to be made, or reasonably expected to be made; (h) the cost of acquiring or leasing the Unit 1 Retained Assets; (i) the current status of all Governmental Action with respect to Unit 1 (including, without limitation, the License) required to permit licensed owners and/or lessees to possess and (in the case of the operating Agent) to operate Unit 1 and such other facilities constituting PVNGS (including, without limitation, the Common Facilities) as are integral to the operation of Unit 1; and (j) the relative cost of producing an amount of electric power and energy equivalent to the generating capacity of Unit 1 from other facilities then available in the region serviced, or reasonably expected to be serviced, by PVNGS."

SECTION 3. Miscellaneous.

(a) Effective Date of Amendments. The amendments set forth in section 2 hereof shall be and became effective upon the execution hereof by the parties hereto.

(b) Counterpart Execution. This Amendment No. 3 may be executed in any number of counterparts and by each of the parties hereto on separate counterparts: all such counterparts shall together constitute but one and the same instrument.

(c) Governing Law. This Amendment No. 3 has been negotiated and delivered in the State of New York and shall be governed by, and be construed in accordance with, the laws of the state of New York, except to the extent that pursuant to the law of the State of Arizona such law is mandatorily applicable hereto.

6091.CHASE.DEBT.16O:l

(d) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401, the beneficiary of the Trust Agreement is Chase Manhattan Realty Leasing Corporation, a New York corporation. The address of the beneficiary is One Chase Manhattan Plaza, New York, New York 10081. A copy of the Trust Agreement is available for inspection at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

(e) Amendment No. 3. The single executed original of this Amendment No. 3 marked "THIS COUNTERPART IS THE ORIGINAL COUNTERPART" and containing the receipt of the Indenture Trustee thereon shall be the "Original" of this Amendment No. 3. To the extent that this Amendment No. 3 constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Amendment No. 3 may be created or continued through the transfer or possession of any counterpart other than the "Original".

609l.CHASE.DEBT.l60:l

IN WITNESS WHUBOF, each of the parties hereto has caused this Amendment No. 3 to Facility Lease to be duly executed by an officer thereunto duly authorized.

THE FIRST NATIONAL BANK OF BOSTON, not in
its individual capacity, but solely as
Owner Trustee under a Trust Agreement,
dated as of July 31, 1986, with Chase
Manhattan Realty Leasing Corporation

PUBLIC SERVICE COMPANY OF NEW MEXICO

6091.CHASE.DEBT.l60:l

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 3 to Facility Lease to be duly executed by an officer thereunto duly authorized.

THE FIRST NATIONAL BANK OF BOSTON, not in
its individual capacity, but solely as
Owner Trustee under a Trust Agreement,
dated as of July 31, 1986, with Chase
Manhattan Realty Leasing Corporation

PUBLIC SERVICE COMPANY OF NEW MEXICO

6091 CHASE. DEBT. 160:1

State of New Mexico )
) ss:
County of Bernalillo )

The foregoing instrument was acknowledged before me this 8th day of April, l987, by B. D. Lackey, the Vice President and Corporate Controller of PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation, on behalf of the corporation.

Commonwealth of Massachusetts )
) ss:
County of Suffolk )

The foregoing instrument was acknowledged before me this 8th day of April, 1987, by James E. Mogavero, Assistant Cashier of THE FIRST NATIONAL BANK OF BOSTON, a national banking association, on behalf of the banking association as Owner Trustee under the Trust Agreement dated as of July 31, 1986 with Chase Manhattan Realty Leasing Corporation.

  /s/ Carol Malley
---------------------
    Notary Public

CAROL MALLEY
Notary Public

6091.CHASE.DEBT.160:l

State of New Mexico )
)ss:
County of Bernalillo )

The foregoing instrument was acknowledged before me this 8th day of April, 1987, by B. D. lackey, the Vice President and Corporate Controller of PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation, on behalf of the corporation.

Commonwealth of Massachusetts )
)ss:
County of Suffolk )

The foregoing instrument was acknowledged before me this 8th day of April, 1987, by James E. Mogavero, Assistant cashier of THE FIRST NATIONAL BANK OF BOSTON, a national banking association, on behalf of the banking association as Owner Trustee under the Trust Agreement dated as of July 31, 1986 with Chase Manhattan Realty Leasing corporation.

  /s/ Carol Malley
---------------------
    Notary Public

CAROL MALLEY
Notary Public

609l.CHASE.DEBT.160:l

When Recorded, Return to: Greg R. Nielsen, Esq.

Snell & Wilmer
3100 Valley Bank Center
Phoenix, Arizona 85073

CERTAIN RIGHTS OF THE LESSOR UNDER THE FACILITY LEASE AS AMENDED BY THIS AMENDMENT NO. 1 THERETO HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF, CHEMICAL BANK, AS INDENTURE TRUSTEE UNDER A TRUST INDENTURE, MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS DATED AS OF DECEMBER 15, 1986. THIS FACILIY LEASE HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. SEE SECTION 22(e) OF THIS AMENDMENT NO1 FOR INFORMATION CONCERNING THE RIGHTS OF HOLDERS OF VARIOUS COUNTERPARTS HEREOF.

THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

FACILITY LEASE

Dated as of August 12, 1986

between

THE FIRST NATIONAL BANK OF BOSTON,
not in its individual capacity ,a
but solely as Owner Trustee
under a Trust Agreement, dated as
of August 12, 1986,
with Burnham Leasing Corporation,

Lessor

and

PUBLIC SERVICE COMPANY OF NEW MEXICO,

Lessee

6091.BURNHAM.1106.47:1

                                TABLE OF CONTENTS

                                                                          Page
                                                                          ----

SECTION 1         Definitions............................................  1

SECTION 2         Lease of Undivided
                  Interest; Term; Personal
                  Property...............................................  1

           a      Lease of Undivided
                  Interest...............................................  1

           b      Term...................................................  1

           c      Personal Property......................................  2

           d      Description............................................  2

SECTION 3         Rent; Adjustments to
                  Rent...................................................  2

           a      Basic Rent.............................................  2

           b      Supplement Rent........................................  3

           c      Form of Payment........................................  4

           d      Adjustments to Rent....................................  4

           e      Further Adjustments....................................  5

           f      Computation of
                  Adjustments............................................  6

           g      Sufficiency of Basic
                  Rent and Supplemental
                  Rent...................................................  7

SECTION 4         Net Lease..............................................  8


                                     --i--
6091.BURNHAM.1106.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

SECTION 5         Return of the Undivided
                  Interest............................................... 11

           a      Return of the Undivided
                  Interest............................................... 11

           b      Disposition Services................................... 12

SECTION 6         Warranty of the Lessor................................. 13

           a      Quiet Enjoyment........................................ 13

           b      Disclaimer of Other
                  Warranties............................................. 13

           c      Enforcement of Certain
                  Warranties............................................. 14

SECTION 7         Liens  ................................................ 15

SECTION 8         Operation and Maintenance;
                  Capital Improvements................................... 15

           a      Operation and
                  Maintenance............................................ 15

           b      Inspection............................................. 16

           c      Capital Improvements................................... 17

           d      Reports................................................ 18

           e      Title to Capital
                  Improvements........................................... 18

           f      Funding of the Cost of
                  Capital Improvements................................... 20


                                     --ii--

6091.BURNHAM.1106.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

SECTION 9         Event of Loss; Deemed
                  Loss Event............................................. 22

           a      Damage or Loss......................................... 22

           b      Repair................................................. 23

           c      Payment of Casualty
                  Value.................................................. 23

           d      Payment of Special
                  Casualty Value......................................... 24

           e      Requisition of Use..................................... 25

           f      Termination of
                  Obligation............................................. 25

           g      Application of Payments
                  on an Event of Loss.................................... 26

           h      Application of Payments
                  Not Relating to an Event
                  of Loss................................................ 27

           i      Other Dispositions..................................... 27

           j      Assumption of Notes;
                  Creation of Lien on
                  Undivided Interest .................................... 27

SECTION 10        Insurance.............................................. 28

           a      Required Insurance..................................... 28

           b      Permitted Insurance.................................... 29

SECTION 11        Rights to Assign or
                  Sublease............................................... 30

                                    --iii--
6091.BURNHAM.1106.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

           a      Assignment or Sublease
                  by the Lessee.......................................... 30

           b      Assignment by Lessor as
                  Security for Lessor's
                  Obligations............................................ 31

SECTION 12        Lease Renewal.......................................... 31


SECTION 13        Notices for Renewal or
                  Purchase; Purchase
                  Options................................................ 31

           a      Notice, Determination of
                  Values, Appraisal
                  Procedure.............................................. 31

           b      Purchase Option at
                  Expiration of the Lease
                  Term................................................... 32

           c      Special Purchase Event................................. 32


SECTION 14        Termination for
                  Obsolescence........................................... 33

           a      Termination Notice..................................... 33

           b      Right of Lessor to
                  Retain Undivided
                  Interest upon
                  Termination............................................ 34

           c      Events on the
                  Termination Date....................................... 34

           d      Early Termination
                  Notice................................................. 35

                                     --iv--
6091.BURNHAM.1106.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----
           e      Events on the Early
                  Termination............................................ 36

SECTION 15        Events of Default...................................... 36

SECTION 16        Remedies............................................... 40

           a      Remedies............................................... 40

           b      No Release............................................. 44

           c      Remedies Cumulative.................................... 45

           d      Exercise of Other Rights
                  or Remedies............................................ 46

           e      Special Cure Right of
                  Lessee................................................. 46

SECTION 17        Notices................................................ 47

SECTION 18        Successors and Assigns................................. 47

SECTION 19        Right to Perform for
                  Lessee................................................. 47

SECTION 20        Additional Covenants................................... 48

SECTION 21        Lease of Real Property
                  Interest............................................... 49

SECTION 22        Amendments and
                  Miscellaneous.......................................... 49

           a      Amendments in Writing.................................. 49

           b      Survival............................................... 49

                                     --v--
6091.BURNHAM.1106.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

           c      Severability of
                  Provisions............................................. 50

           d      True Lease............................................. 50

           e      Original Lease......................................... 50

           f      Governing Law.......................................... 50

           g      Headings............................................... 50

           h      Concerning the Owner Trustee........................... 50

           i      Disclosure............................................. 51

           j      Counterpart Execution.................................. 51



SCHEDULE 1 Casualty Values

SCHEDULE 2 Special Casualty Values

SCHEDULE 3 Termination Values

SCHEDULE 4 Description of Undivided Interest

SCHEDULE 5 Description of Real Property Interest

APPENDIX A Definitions
                                     --vi--

6091.BURNHAM.1106.47:1

FACILITY LEASE

THE FACILITY LEASE, dated as of August 12, 1986, between THE FIRST NATIONAL BANK OF BOSTON, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement, dated as of August 12, 1986, with Burnham Leasing Corporation, as Lessor (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the Lessee).

WITNESSETH:

WHEREAS, the Lessor owns the Undivided Interest and the Real Property Interest;

WHEREAS, the Lessee desires to lease the Undivided Interest and the Real Property Interest from the Lessor on the terms and conditions set forth herein; and

WHEREAS, the Lessor is willing to lease the Undivided Interest and the Real Property Interest to the Lessee on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and of other consideration, the receipt and sufficiency of which are hereby acknowledged, the par-ties hereto agree as follows:

SECTION 1. Definitions.

For purposes hereof, capitalized terms used herein shall have the meanings assigned to such terms in Appendix A hereto. References in this Facility Lease to sections, paragraphs and clauses are to sections, paragraphs and clauses in this Facility Lease unless otherwise indicated.

SECTION 2. Lease of Undivided Interest; Term; Personal Property.

(a) Lease of Undivided Interest. Upon the terms and subject to the conditions of this Facility Lease, the Lessor hereby leases to the Lessee, and the Lessee hereby lessee from the Lessor, the Undivided Interest.

6091. BURNHAM. 1106.47:1

(b) Term. The term of this Facility Lease shall begin on the Closing Date and shall end on the last day of the Lease Term.

(c) Personal Property. It is the express intention of the Lessor and the Lessee that title to the Undivided Interest and every portion thereof shall be severed, and shall be and remain severed, from title to the real estate constituting the Real Property Interest and the PVNGS Site. The Lessor and the Lessee intend that the Undivided Interest shall constitute personal property to the maximum extent permitted by Applicable Law.

(d) Description. The Real Property Interest is described in Schedule 4. The Undivided Interest is described in Schedule 5.

SECTION 3. Rent; Adjustments to Rent.

(a) Basic Rent. The Lessee shall pay to the Lessor, as basic rent (herein referred to as Basic Rent) for the Undivided Interest and the Real Property Interest, the following amounts:

(i) On January 15, 1987, an amount equal to 0.0244547% of Facility Cost times the actual number of day. from and including the Closing Date to, but excluding, January 15, 1987, plus or minus the Rent Differential, if any, referred to in
Section 3(h);

(ii) On July 15, 1987 and on each Basic Rent Payment Date thereafter to and including January 15, 2016, an amount equal to 4.40184%, of Facility Cost, plus or minus the Rent Differential, if any, referred to in Section 3(h); and (iii) if the Lessee shall elect the Fixed Rate Renewal Term, on July 15, 2016, and on each Basic Rent Payment Date thereafter during the Fixed Rate Renewal Term, an amount equal to one-half of an amount determined by dividing the sum of all payments of Basic Rent payable with respect to the Basic Lease Term pursuant to clause (ii) of this Section 3(a) (taking into account any adjustment pursuant to Sections 3(d) and ace) and any increases and decreases pursuant to Section 3(h)), by 58.

6091.BURNHAM. 1106.47:1

If an interest payment on any Note shall be due on a date other than a Basic Rent Payment Date, the Lessee shall pay additional Basic Rent on such date in an amount equal to such interest payment and such payment of additional Basic Rent shall be credited against the Basic Rent due on the Basic Rent Payment Date next succeeding the date that such additional Basic Rent shall have been paid.

(b) Supplemental Rent. The Lessee shall pay the following amounts (herein referred to as Supplemental Rent):

(1) When due or, where no due date is specified, on demand, any amount (other than Basic Rent, Casualty Value, Termination Value and Special Casualty Value) which the Lessee assumes the obligation to pay or agrees to pay to the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee or any Indemnitee under this Facility Lease, any other Transaction Document or the Collateral Trust Indenture;

(ii) When due any amount payable hereunder as Casualty Value, Termination Value or Special Casualty Value, and an amount equal to any premium or prepayment penalty with respect to the Notes;

(iii) On demand and in any event on the Basic Rent Payment Date next succeeding the date such amounts shall be due and payable hereunder, to the extent permitted by Applicable Law, interest (computed on the same basis as interest on the Notes is computed) at a rate per annum equal to (A) the Overdue Interest Rate, on that portion of the payment of Basic Rent or Supplemental Rent distributable pursuant to clause "first" of
Section 5.1 or clause "second" of Section 5.3 of the Indenture (determined prior to the computation of interest on overdue payments referred to in such clauses) , and (B) the Penalty Rate, on the balance of any such payment of Basic Rent or Supplemental Rent

6091.BURNHAM.1106.47:1

(including, in the case of both clause (i) and clause (ii)
above, but without limitation, to the extent permitted by Applicable Law, interest payable pursuant to this clause (iii)) not paid when due (without regard to any period of grace) for any period for which the same shall be overdue.

The Lessor shall have all rights, powers and remedies provided for in this Facility Lease, at law, in equity or otherwise, in the case of non-payment of Basic Rent or Supplemental Rent.

(c) Form at Payment. Subject to Section 11(b), each payment of Rent under this Facility Lease shall be made in immediately available funds no later than 11:00 a.m., local time at the place of receipt, on the date each such payment shall be due and payable hereunder and shall be paid either (A) in the case of payments other than Excepted Payments, to the Lessor at its address determined in accordance with section 17, or at such other address as the Lessor may direct by notice in writing to the Lessee, or (B) in the case of Excepted Payments, to such Person as shall be entitled to receive such payment at such address as such Person may direct by notice in writing to the Lessee. If the date on which any payment of Rent is due hereunder shall not be a Business flay, the payment otherwise due thereon shall be due and payable on the preceding Business Day, with the same force and effect as if paid on the nominal date provided in this Facility Lease.

(d) Adjustments to Rent for Changes in Tax law. Basic Rent shall be adjusted (upward or downward) to preserve Net Economic Return if there is any Change in Tax Law. Any adjustments under this Section 3(d) shall be made not more than once a year and shall be limited in the aggregate to the extent, if any, necessary such that the Basic Rent (excluding any Rent Differential) payable on the Basic Rent Payment Date immediately following such adjustment shall not vary from the Basic Rent (excluding any Rent Differential) which would have been payable on such Basic Rent Payment Date had no adjustments (other than adjustments to reflect actual Transaction Expenses) been made pursuant to this
Section 3(d) or pursuant to Section 3(e), (i) prior to the Refunding Date, by more than 14% and (ii) on at after the Refunding Date, by more than the percentage that would cause the Weighted Factor to equal

6091.BURNHAM.1106.47:1

11.08%; provided1 however, that if, by reason of the limitation set forth in clause (i) above, any adjustment made prior to the Refunding Date is less than the adjustment that would have been required to preserve Net Economic Return, then after the Refunding Date there will be a further upward adjustment to Basic Rent in order to preserve Net Economic Return, subject to the limitation set forth in clause (ii) above, and if, by reason of the limitation set forth in clause (i) or (ii) above, any upward adjustment contemplated by this Section 3(d) was less than the adjustment that would have been required to preserve Net Economic Return, then the amount of any subsequent downward adjustments otherwise required hereunder shall be reduced to the extent necessary to cause the aggregate effect of such upward adjustment and such subsequent downward adjustments to preserve Net Economic Return; and provided further, however, that no downward adjustments shall be made pursuant to this section 3(4) in excess of any upward adjustments made pursuant to this section 3(d) unless and until the excess of the aggregate amount of all such downward adjustments aver the aggregate of all such upward adjustments would exceed 1%.

For purposes of determining whether a statutory or regulatory change constitutes a Change in Tax Law, the original Owner Participant shall be deemed to be the Owner Participant notwithstanding any transfer of its interest as such (whether or not permitted by Section 15 of the Participation Agreement), provided1 however, that a successor Owner Participant shall be treated as the Owner Participant for such purposes if the transfer to such successor Owner Participant was permitted by Section 15 of the Participation Agreement and if both the original Owner Participant and such successor Owner Participant are members of the same affiliated group of corporations that files a consolidated return for Federal income tax purposes.

The schedules of casualty Values, special Casualty Values and Termination Values attached hereto shall be appropriately adjusted in the event of any adjustment to Basic Rent under this section 3(d).

(e) Further Adjustments. Basic Rent and the schedules of Casualty Values, Special Casualty Values and Termination Values attached hereto shall be adjusted (upward or downward) to preserve Net Economic Return if (i) in

6O9S1.BURNHAM. 1106.47:1

consequence of any releveraqing or refunding of the Notes or the issuance of Additional Notes the unpaid principal amount of Notes Outstanding shall be greater or less than the unpaid principal amount of Motes Outstanding immediately prior to such transaction, (ii) in consequence of events described in clause (i) above, the schedule of amortization of principal of Notes Outstanding after such transaction shall be other than the schedule of amortization of principal of Notes immediately prior to such transaction or the interest rate applicable to such Notes shall be other than contained in the Pricing Assumptions, (iii) Transaction Expenses are paid by the Lessor in amounts greater or less than an amount equal to 0.8% of Facility Cost, or (iv) there is any change in the Pricing Assumptions.

(f) Computation of Adjustments. Upon the occurrence of an event requiring an adjustment to Basic Rent payable pursuant to clause (ii) of Section
3(a), and the schedules of Casualty Values, special Casualty Values and Termination Values attached hereto, pursuant to paragraph (d) or (e) of this
Section 3, the Owner Participant shall make the necessary computations and furnish to the Lessee, the Loan Participant, the Lessor and the Indenture Trustee the revised amounts and percentages, which amounts and percentages shall be implemented upon delivery thereof and effective as of the date of occurrence of the event requiring such adjustment (taking into account any payment of Basic Rent already made) and shall remain effective until changed in consequence of any verification procedure set forth below. Such revised amounts and percentages shall be subject to verification (at the Lessee's request made within 45 days after the Owner Participant shall have furnished the revised amounts to the Lessee) by the Owner Participant's nationally recognized independent public accountants (to whom the Owner Participant shall have provided all information necessary to perform such verification), in which case such accountants shall either (i) confirm to the Lessee in writing that such revised amounts were computed on a basis consistent with the original calculations, or (ii) if such accountants shall for any reason be unable to provide such confirmation, compute and provide to the Lessee, the Lessor, the Owner Participant, the Loan Participant and the Indenture Trustee revised amounts and percentages on such a basis. The revised amounts and percentages, as so confirmed or computed if applicable, shall be conclusive and binding upon the Lessee, the Lessor, and the

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Owner Participant. The cost of any such verification shall be borne by the Lessee, unless such accountants shall require an adjustment to the revised amounts and percentages originally provided by the Owner Participant which differs by more than 10% from the amount of the adjustment so provided, in which case such cost shall be divided and paid by the Lessee and the Owner Participant in equal amounts. Each adjustment pursuant to paragraph (d) or (e) of this
Section 2 may, but need not, be evidenced by the execution and delivery of a supplement to this Facility Lease in form and substance satisfactory to the Lessee and the Owner Participant, but shall be effective as provided herein without regard to the date on which such supplement to this Facility Lease is so executed and delivered. Any adjustment referred to in this Section 3 shall satisfy the provisions of Revenue Procedure 75-21, Revenue Procedure 75-28 and any other applicable statute, regulation, revenue procedure, revenue ruling or technical information release relating to the subject matter of Revenue Procedure 75-21 or Revenue Procedure 75-2a, but, in the case of any upward adjustment, shall be no less than the adjustment otherwise required pursuant to this Section 3.

(g) Sufficiency of Basic Rent and Supplemental Rent. Notwithstanding any other provision of this Facility Lease, any other Transaction Document or any Financing Document, (i) the amount of Basic Rent payable on each Basic Rent Payment Date shall be at least equal to the aggregate amount of principal, premium, if any, and accrued interest payable on such Basic Rent Payment Date on all Notes then Outstanding, and (ii) unless the Lessee shall have assumed the Notes or acquired the Owner Participant's beneficial interest in the Trust following the grant of a security interest in the Undivided Interest and the Real Property Interest, in each case in accordance with the terms of the Indenture, each payment of Casualty Value, Special Casualty Value and Termination Value shall in no event be less (when added to all other amounts other than Excepted Payments required to be paid by the Lessee under this Facility Lease in respect of any Event of Loss or Deemed Loss Event or the termination of this Facility Lease) than an amount sufficient, as of the date of payment, to pay in full all principal of, and premium, if any, and interest then due on all Notes Outstanding on and as of such date of payment.

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(h) Rent Differential. Prior to the Refunding Date, each installment (if any) of Basic Rent shall be increased or decreased, as the case may be, by the Rent Differential. For purposes hereof, Rent Differential shall mean, as of any Basic Rent Payment Date, the difference between (i) the aggregate amount of interest due and payable on such Basic Rent Payment Date on the Notes then Outstanding, and (ii) the aggregate amount of interest that would have been due and payable on such Basic Rent Payment Date on such Notes if such Notes had at all times during the relevant period borne interest at a rate equal to 10.5% per annum (computed on the basis of a 36O-day year of twelve 30-day months). If, as of any Basic Rent Payment Date, (A) the amount determined in accordance with clause (y) of the immediately preceding sentence shall be greater than the amount determined in accordance with clause (ii) of such Sentence, the amount of Basic Rent due on such Basic Rent Payment Date shall be increased by the Rent Differential, and (B) the amount determined in accordance with such clause (ii) shall exceed the amount determined in accordance with such clause (i), the amount of Basic Rent due on such Basic Rent Payment Date shall be decreased by the Rent Differential.

SECTION 4. Net Lease.

This Facility Lease (as originally executed and as modified, supplemented and amended from time to time) is a net lease, and the Lessee hereby acknowledges and agrees that the Lessee's obligation to pay all Rent hereunder, and the rights of the Lessor in and to such Rent, shall be absolute, unconditional and irrevocable and shall not be affected by any circumstances of any character, including, without imitation, (i) any set-off, abatement, counterclaim, suspension, recoupement, reduction, rescission, defense or other right or claim which the Lessee may have against the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant, the Operating Agent, any ANPP Participant, any vendor or manufacturer of any equipment or assets included in the Undivided Interest, Unit 2, any Capital Improvement, the Real Property Interest, the PVNGS site, PVNGS, or any part of any thereof, or any other person for any reason whatsoever, (ii) any defect in or failure of the title, merchantability, condition, design, compliance with specifications, operation or fitness for use of all or any part

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of the Undivided Interest, Unit 2, any Capital Improvement, the Real Property Interest, the WNGS Site or PVNGS, (iii) any damage to, or removal, abandonment, shutdown, salvage, scrapping, requisition, taking, loss, theft or destruction of all or any part of the Undivided Interest, Unit 2, any Capital Improvement, the Real Property Interest, the PVNGS Site or PVNGS, or any interference, interruption or cessation in the use or possession thereof or of the Undivided Interest by the Lessee or by any other Person (including, but without limitation, the Operating Agent or any other ANPP Participant) for any reason whatsoever or of whatever duration, (iv) any restriction, prevention or curtailment of or interference with any use of all or any part of the Undivided Interest, Unit 2, any Capital Improvement, the Real Property Interest, the PVNGS Site or PVNGS, (v) any insolvency, bankruptcy, reorganization or similar proceeding by or against the Lessee, the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant, the Operating Agent, any other ANPP Participant or any other Person, (vi) the invalidity, illegality or unenforceability of this Facility Lease, any other Transaction Document, any Financing Document, the ANPP Participation Agreement or any other instrument referred to herein or therein or any other infirmity herein or therein or any lack of right, power or authority of the Lessor, the Lessee, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant or any other Person to enter into this Facility Lease, any other Transaction Document or any Financing Occurrence, or any doctrine of force majeure, impassability, frustration, failure of consideration, or any similar legal or equitable doctrine that the Lessee's obligation to pay Rent is excused because the Lessee has not received or will not receive the benefit for which the Lessee bargained, it being the intent of the Lessee to assume all risks from all causes whatsoever that the Lessee does not receive such benefit, (vii) the breach or failure of any warranty or representation made in this Facility Lease or any other Transaction Document or any Financing Document by the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant or any other Person, (viii) any amendment or other change of, or any assignment of rights under, this Facility Lease, any other Transaction Document, any Financing Document or any ANPP Project Agreement, or any waiver, action or inaction under or in respect of this Facility Lease, any other Transaction Document, any Financing Document or any

6091. BURNHAM. 1106.47:1

ANPP Project Agreement, or any exercise or non-exercise of any right or remedy. under this Facility Lease, any other Transaction Document, any Financing Document or any ANPP Project Agreement, including, without limitation, the exercise of any foreclosure or other remedy under the Indenture, the Collateral Trust Indenture or this Facility Lease, or the sale of Unit 2, any Capital Improvement, the Undivided Interest, the Real Property Interest, the PVNGS Site or PVNGS, or any part thereof or any interest therein, or (ix) any other circumstance or happening whatsoever whether or not similar to any of the foregoing. The Lessee acknowledges that by conveying the leasehold estate created by this Facility Lease to the Lessee and by putting the Lessee in possession of the Undivided Interest and the Real Property Interest, the Lessor has performed all of the Lessor's obligations under and in respect of this Facility Lease, except the covenant contained in section 6(a) hereof that the Lessor and Persons acting for the Lessor will not interfere with the Lessee's quiet enjoyment of the Undivided Interest and the Real Property Interest. The Lessee hereby waives, to the extent permitted by Applicable Law, any and all rights which it may flow have or which at any time hereafter may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender this Facility Lease or to effect or claim any diminution or reduction of Rent payable by the Lessee here-under, including, without limitation, the provisions of Arizona Revised Statutes Section 33-343, except in accordance with the express terms hereof. If for any reason whatsoever this Facility Lease shall be terminated in whole or in part by operation of law or otherwise, except as specifically provided herein, the Lessee nonetheless agrees to pay to the Lessor or other Person entitled thereto an amount equal to each installment of Basic Rent and all Supplemental Rent at the time such payment would have become due and payable in accordance with the terms hereof had this Facility Lease not been terminated in whole or in part. Each payment of Rent made by the Lessee hereunder shall be final and the Lessee shall not seek or have any right to recover all or any part of such payment from the Lessor or any other Person for any reason whatsoever. All covenants, agreements and undertakings of the Lessee herein shall be performed at its cost, expense and risk unless expressly otherwise stated. Nothing in this Section 4 or elsewhere shall be construed as a guaranty by the Lessee of any residual value in the Undivided Interest or as a

6091.BURNHAM. 1106.47:1

guaranty of the Notes. Any provisions of Section 7(b)(2) or 8(C) of the Participation Agreement to the contrary notwithstanding, if the Lessee shall fail to make any payment of Rent to any Person when and as due (taking into account applicable grace periods), such Person shall have the right at all times, to the exclusion of the ANPP Participants, to demand, collect, sue for, enforce obligations relating to and otherwise obtain all amounts due in respect of such Rent.

SECTION 5. Return and Disposition.

(a) Return of the Undivided Interest and the Real Property Interest. On the Lease Termination Date, the Lessee will surrender possession of the Undivided Interest, at which time Unit 2 shall have a net rated power level of at least 630 megawatts electric, and the Real Property Interest to the Lessor (or to a Person specified by the Lessor to the Lessee in writing not less than 6 months prior to the Lease Termination Date) and will furnish to the Lessor:. (i) copies certified by a senior officer of the Lessee of all Governmental Action necessary to effect such surrender and receipt of possession ion (including, but without limitation, appropriate amendments to the License), which Governmental Action shall be in full force and effect; and (ii) an opinion of counsel (which may be nudge Rose Guthrie Alexander & Ferdon, Snell & Wilmer or another counsel experienced with NRC and other nuclear matters reasonably satisfactory to the Owner Participant) to the effect that (A) the Lessee has obtained all Governmental Action and action under the ANPP Participation Agreement necessary to effect such surrender by the Lessee and receipt of possession by the Lessor (or the Person so specified by the Lessor) and (B) such Governmental Action is in full force and effect. At the time of such return the Lessee shall pay or have paid all amounts due and payable, or to become due and payable, by it as an ANPP Participant under each and every ANPP Project Agreement allocable or chargeable (whether or not payable during or after the Lease Term) to the Undivided Interest or the Real Property Interest in respect of any period or periods ending on or prior to the Lease Termination Date (including, but without limitation, unless the Lessor shall have transferred the Undivided Interest and the Real Property Interest to another Person, all amounts payable with respect to any and all Capital Improvements to Unit 2 or the PVNGS Site approved or authorized (without the concurrence of the Owner Participant) prior to the end

6O91.BURNHAM.l106.47:1

of the Lease Term, whether or not implementation thereof has been completed on or prior to the Lease Termination Date), and the undivided Interest and the Real Property Interest shall be free and clear of all Liens (other than Permitted Liens described in clauses (i), (iv), (v) (other than those arising by, through or under the Lessee alone), (vi), (vii) (other than as aforesaid), (viii) (other than as aforesaid), (ix), (x), (xi) and (xiii) of the definition of such term) and in the condition and state of repair required by Section A. The Lessor shall not abandon the Undivided Interest. In the event that on or prior to the Lease Termination Date there shall have occurred a default by any ANPP Participant (other than the Lessee) under the ANPP Participation Agreement and such default shall not have been cured by the defaulting ANPP Participant, then (i) the Lessee agrees to indemnify and hold the Lessor (and each successor, assign and transferee thereof) harmless against any and all obligations under the ANPP Participation Agreement with respect to contributions or payments required to be made thereby as a result of such default and (ii) the Lessor (and each successor, assign and transferee thereof) agrees to reimburse the Lessee for all amounts paid by the Lessee pursuant to the foregoing clause (i) to the extent, but only to the extent, that the Lessor (or such successor, assign or transferee) shall have actually received proceeds from the sale of the Generation Entitlement Share of the defaulting ANPP Participant as a result of the payment made by the Lessee pursuant to the foregoing clause (i), and, to the extent the Lessor (or such successor, assign or transferee) shall have received such proceeds, the amount to be reimbursed to the Lessee pursuant to this clause
(ii) shall include interest at. the Prime Rate from the date of any payment by the Lessee pursuant to the foregoing clause (i) through the date of reimbursement of such amount pursuant to this clause (ii).

(b) Disposition. If the Lessee does not exercise its option to renew or purchase as provided in Sections 12 and 13, respectively, then during the last thirty-six months of the Lease Term, the Lessor will attempt to lease or dispose of the Undivided Interest and the Real Property Interest. The Lessee will fully cooperate with the Lessor in connection with the Lessor's efforts to lease or dispose of the Undivided Interest and the Real Property Interest including using the Lessee's reasonable efforts to lease or dispose of the Undivided Interest and the Real Property Interest.

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The Lessor agrees to reimburse the Lessee for reasonable out-of-pocket costs and expenses of the Lessee incurred at the request of the Lessor or the Owner Participant in connection with such cooperation and such efforts. The Lessor agrees that it may not exercise the remedy contained in Section 16(a) (vii) hereof as a result of the failure of the Lessee to comply with Section (5) a hereof if the Lessor shall have failed to Transfer the Undivided Interest and the Real Property Interest to a purchaser (which shall not be the Lessee or an Affiliate of the Lessee) that shall have (i) submitted a bid on or before the date on which such Event of Default arose which is the highest bona fide cash bid so submitted and is in an amount not less than the fair market value of the Undivided Interest and the Real Property Interest and (ii) tendered payment in full to the Owner Participant prior to the date upon which payment by the Lessee would otherwise be required from the Lessee under section 16(a) (vii).

SECTION 6. Warranty of the Lessor.

(a) Quiet Enjoyment. The Lessor warrants that until the Lease Termination Date, so long as the Lessee is in compliance with each and every provision of this Facility Lease and each other Transaction Document, the Lessee's use and possession of Unit 2, including the Undivided Interest, shall not be interrupted by the Lessor or any Person claiming by, through or under the Lessor, and their respective successors and assigns.

(b) Disclaimer of Other Warranties. The warranty set forth in
Section 6(a) is in lieu of all other warranties of the Lessor or the Owner Participant, whether written, oral or implied, with respect to this Facility Lease, Unit 2, any Capital Improvement, the Undivided Interest, PVNGS, the Real Property Interest or the PVNGS Site. As among the Owner Participant, the Loan Participant, the Indenture Trustee, the Collateral Trust Trustee, the Lessor and the Lessee, execution by the Lessee of this Facility Lessee shall be conclusive proof of the compliance of Unit 2 (including any Capital Improvement) , the Undivided Interest and the Real Property Interest with all requirements of this Facility Lease, and the Lessee acknowledges and agrees that (i) NEITHER THE LESSOR NOR THE OWNER PARTICIPANT IS A MANUFACTURER OR A DEALER IN PROPERTY OR SUCH KIND AND (ii) THE LESSOR LEASES AND THE LESSEE TAKES THE UNDIVIDED INTEREST

6091.BURNHAM.1106.47:1

AND THE REAL PROPERTY INTEREST, AND SHALL TAKE EACH CAPITAL IMPROVEMENT, AND ANY PART THEREOF, AS IS AND WHERE IS, and neither the Lessor nor the Owner Participant shall be deemed to have made, and THE LESSOR AND THE OWNER PARTICIPANT EACH HEREBY DISCLAIMS, ANY OTHER REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN OR CONDITION OF UNIT 2, ANY CAPITAL IMPROVEMENT, THE UNDIVIDED INTEREST, THE REAL PROPERTY INTREST, THE PVNGS SITE OR PYNGS, OR ANY PART TKEREOF, THE MERCKANTABIUTY IS OF OR THE FITNESS THEREOF FOR ANY PARTICULA PURPOSE, TITLE TO UNIT 2, ANY CAPITAL IMPROVEMENT, THE UNDIVIDED INTEREST, THE REAL PROPERTY INTEREST, THE PVNGS SITE OR PVNGS, OR ANY PART THEREOF, THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT OR THE ABSENCE OF ANY LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, NOR SHALL THE LESSOR OR THE OWNER PARTICIPANT BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LIABILITY IN TORT, STRICT OR OTHERWISE), it being agreed that all such risks, as among the Owner Participant, the Loan Participant, the Collateral Trust Trustee, the Indenture Trustee, the Lessor and the Lessee, are to be borne by the Lessee. The provisions of this Section 6(b) have been negotiated, and, except to the extent otherwise expressly provided in Section 5(a), the foregoing provisions are intended to be a complete exclusion and negation of any representations or warranties by the Lessor, the Owner Participant, the Loan Participant, the Collateral Trust Trustee or the Indenture Trustee, express or implied, with respect to Unit 2 (including any Capital Improvement), the Undivided Interest, PVNGS, the Real Property Interest or the PVNGS Site that may arise pursuant to any law now or hereafter in effect, or otherwise.

(c) Enforcement of Certain Warranties. The Lessor authorizes the Lessee (directly or through agents, including the Operating Agent), at the Lessee's expense, to assert for the Lessor's account, during the Lessee Term, all of the Lessor's rights (if any) under any applicable warranty and any other claims (under this Facility Lease or any Purchase Document) that the Lessee or the Lessor may have against any vendor or manufacturer with respect to Unit 2 (including any Capital Improvement) or the Undivided Interest, and the Lessor agrees to cooperate, at the Lessee's expense, with the Lessee and the Operating

6091.BURNHAM.1106.47:1

Agent in asserting such rights. Any amount receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) by the Lessee as payment under any such warranty or other claim against any vendor or manufacturer (or, if such warranty or claim relates to the Undivided Interest and the Retained Assets, the portion of such received amount appropriately allocable to the Undivided Interest) shall be applied in accordance with Sections 9(g), (h) and (i).

SECTION 7. Liens.

The Lessee will not directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to the Undivided Interest, the Real Property Interest, the Lessor's title thereto or any interest of the Lessor or Lessee therein (and the Lessee will promptly, at its own expense, take such action as may be necessary duly to discharge any such Lien), except Permitted Liens.

SECTION 8. Operation and Maintenance; Capital Improvements.

(a) Operation and Maintenance. The Lessee agrees that it will exercise its rights, powers, elections and options as an ANPP Participant under the ANPP Project Agreements to cause the Operating Agent to (A) maintain Unit 2 in such condition that Unit 2 will have the capacity and functional ability to perform, on a continuing basis (ordinary wear and tear excepted), in normal commercial operation, the functions and substantially at the ratings at which it is, from time to time, rated, (B) operate, service, maintain and repair Unit 2 and replace all necessary or useful parts and components thereof so that the condition and operating efficiency of Unit 2 will be maintained and preserved, ordinary wear and tear excepted, in all material respects in accordance with (1) prudent utility practice for items of similar size and nature, (2) such operating standards as shall be required to take advantage of and enforce all available warranties and (3) the terms and conditions of all insurance policies maintained in effect at any time with respect thereto, (C) use, possess, operate and maintain Unit 2 in compliance with all material applicable Governmental Actions (including the License) affecting PVNGS or Unit 2 or the use, possession, operation and maintenance thereof and (D) otherwise act in

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accordance with the standards set forth in the ANPP Participation Agreement. The Lessee will comply with all its obligations under Applicable Law affecting Unit 2, the Undivided Interest, PVNGS, the Real Property Interest and the PVNGS Site, and the use, operation and maintenance thereof. The Lessee agrees to (i) exercise its rights under the ANPP Participation Agreement so that there will always be an Operating Agent under the ANPP Participation Agreement and (ii) maintain in full force and effect a license from the NRC adequate to possess the Undivided Interest and the Real Property Interest under the circumstances contemplated by the ANPP Participation Agreement. The Lessee will keep and maintain proper books and records (i) relating to all Operating Funds (as defined in the ANPP Participation Agreement) provided by it to the Operating Agent under the ANPP Participation Agreement and (ii) upon receipt of the requisite information from the Operating Agent, relating to the application of such Operating Fund. to the operation and maintenance of Unit 2 and the acquisition, construction and installation of Capital Improvements, all in accordance with the Uniform System of Accounts. The Lessor shall not be obliged in any way to maintain, alter, repair, rebuild or replace Unit 2, any Capital Improvement, the Undivided Interest or the Real Property Interest, or any part thereof, or, except as provided in Section 8(f), to pay the cost of alteration, rebuilding, replacement, repair or maintenance of Unit 2, any Capital Improvement, the Undivided Interest or the Real Property Interest, or any part thereof, and the Lessee expressly waives the right to perform any such action at the expense of the Lessor pursuant to any law at any time in effect.

(b) Inspection. The Lessor and the Owner Participant and their respective authorized representatives shall have the right to inspect PVNGS (subject, in each event, to the ANPP Participation Agreement, Applicable Law, applicable confidentiality undertakings and procedures established by the Operating Agent) at their expense. The Lessor and the Owner Participant, and their respective authorized representatives, shall have the right to inspect, at their expense, the books and records of the Lessee relating to PVNGS, and make copies of and extracts therefrom (subject as aforesaid) and may, at their expense, discuss the Lessee's affairs, finances and accounts with its executive officers, all at such times and as often as may be reasonably requested. None of the Lessor, the Owner Participant, the Indenture Trustee and the Collateral

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Trust Trustee shall have any duty whatsoever to make any inspection or inquiry referred to in this Section a(b) and shall not incur any liability or obligation by reason of not making any such inspection or inquiry.

(c) Capital Improvements. If and to the extent required by the ANPP Participation Agreement, the Lessee shall, at its sole expense, promptly participate in the making of any Capital Improvement to Unit 2. Of the net proceeds of (i) any sale or other disposition of property removed from Unit 2 receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) by, or credited to the account of, the Lessee in accordance with the ANPP; Participation Agreement and (ii) any insurance proceeds receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) for the account of the Lessor or the Lessee in respect of the loss or destruction of, or damage or casualty to, any such property, the Lessor's Portion, in the case of property not constituting Common Facilities, or the Common Facilities Interest, in the case of Common Facilities, (of either) such amount shall be applied as provided in Section
9(g), (h) or (i)1 as the case may be. The Unit 2 Interest, in the case of property not constituting Common Facilities, or the Unit 2 Common Facilities Interest, in the case of Common Facilities, in property at any time removed from Unit 2 or the Common Facilities shall remain the property of the Lessor, no matter where located, until such time as a Capital Improvement constituting a replacement of such property shall have been installed in unit 2 or the Common Facilities or such removed property has been disposed of by the Operating Agent in accordance with the ANPP Participation Agreement. Simultaneously with such disposition by the Operating Agent, title to the Unit 2 Interest, in the case of property not constituting Common Facilities, or the Unit 2 Common Facilities Interest, in the case of Common Facilities, in the removed property shall vest in the person designated by the Operating Agent, free and clear of any and all claims or rights of the Lessor. Unless subparagraph (3) of Section 8(e) shall be applicable, upon the incorporation of a Capital Improvement in Unit 2 or the Common Facilities, without further act, (i) title to a Unit 2 Interest, in the case of property not constituting Common Facilities, or the Unit 2 Common Facilities Interest, in the case of Common Facilities, in such Capital Improvement shall vest in the Lessor and (ii) such applicable undivided interest

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in such Capital Improvement shall become subject to this Facility Lease and be deemed to be part of the Undivided Interest for all purposes hereof to the same extent that the Lessor had a like undivided interest in the property originally incorporated or installed in Unit 2 or the Common Facilities. The Lessee warrants and agrees that the Lessor's interest in all Capital Improvements shall be free and clear of all Liens, except Permitted Liens other than the types specified in clauses (iii), (xii) and (xiii) of the definition thereof.

(d) Reports. To the extent permissible, the Lessee shall prepare and file in timely fashion, or, where the Lessor shall be required to file, the Lessee shall prepare and deliver to the Lessor within a reasonable time prior to the date for filing, any reports with respect to Unit 2, the Undivided Interest or the Real Property Interest or the condition or operation thereof that shall be required to be filed with any governmental or regulatory authority. On or before March 1 of each year, commencing March 1, 1987, and on the Lease Termination Date, the Lessee shall furnish the Lessor and the Owner Participant with a report stating the total cost of all Capital Improvements and describing separately and in reasonable detail each Capital Improvement (or related group of Capital Improvements) made during the period from the date hereof to December 31, 1926 in the case of the first such report or during the period from the end of the period covered by the last previous report to the December 31 prior to such report in the case of subsequent reports. On or before March 1 in each year (commencing March 1, 1987) and at such other times as the Lessor or the Owner Participant shall reasonably request in writing (which request shall provide a reasonable period for response), the Lessee will report in writing to the Lessor with respect to (i) the most recent annual capital expenditure budget submitted by the Operating Agent to the Lessee in accordance with the ANPP Participation Agreement and (ii) the then plans (if any) which the Lessee may have for the financing of the same under Section 8(f).

(e) Title to capital Improvements. Title to the Unit 2 Interest, in the case of property not constituting Common Facilities, or the Unit 2 Common Facilities Interest, in the case of Common Facilities, in each Capital Improvement to Unit 2 or the Common Facilities, as the case may be, shall vest as follows:

6091.BURNHAM.1106.47:1

(1) in the case of each Nonseverable Capital Improvement, whether or not the Lessor shall have financed or provided financing (in whole or in part) for such undivided interest in such Capital Improvement by an Additional Equity Investment or a Supplemental Financing, or both, effective on the date such Capital Improvement shall have been incorporated or installed in Unit 2 or the Common Facilities, as the case may be, the Lessor shall, without further act, acquire title to such undivided interest in such Capital Improvement;

(2) in the case of each Severable Capital Improvement, if the Lessor shall have financed (by an Additional Equity Investment or a Supplemental Financing, or both) a Unit 2 interest, in the case of property not constituting Common Facilities, or a unit 2 Common Facilities Interest, in the case of Common Facilities, of the cost of such Capital Improvement, the Lessor shall, without further act, acquire title to such undivided interest in such Capital Improvement; and

(3) in the case of each Severable Capital Improvement, if the Lessor shall not have financed (by either an Additional Equity Investment or a Supplemental Financing, or both) a Unit 2 Interest, in the case of property not constituting Common Facilities, or a Unit 2 Common Facilities Interest, in the case of Common Facilities, of the cost of such Capital Improvement, the Lessee shall retain title to such undivided interest in such Capital Improvement.

Immediately upon title to such a Unit 2 Interest, in the case of property not constituting Common Facilities, or such a Unit 2 Common Facilities Interest, in the case of Common Facilities, in any Capital Improvement vesting in the Lessor pursuant to sub-paragraph (1) or sub-paragraph (2) of this Section S (e) , such undivided interest in such Capital Improvement shall, without further act, become subject to this Facility Lease and be deemed part of the Undivided Interest and Unit 2 or the Common Facilities, as the case may be, for all purposes hereof.

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(f) Funding of the Cost of Capital Improvements. Before placing in service any Capital Improvement to Unit 2 or the Common Facilities the cost of which exceeds $100,000,000 in respect of the interests of all ANPP Participants, the Lessee shall give the Lessor and the owner Participant reasonable advance notice thereof. The Owner Participant shall have the option, in its sole discretion, of financing through the Lessor a Unit 2 Interest, in the case of property not constituting Common Facilities6 or a Unit 2 Common Facilities interest, in the case of Common Facilities, of the cost of any such Capital Improvement, or any other Capital Improvement presented to the Owner Participant for financing, including or not including the making of an investment by the Owner Participant (an Additional Equity Investment) and the issuance of Additional Notes, all on terms acceptable to the Lessee and the Owner Participant. If the Owner Participant does not finance, or arrange the financing of, a Unit 2 Interest, in the case of property not constituting Common Facilities, or a Unit 2 Common Facilities Interest, in the case of Common Facilities, of the cost of such Capital Improvement, the Lessee may cause the Lessor to issue, if and to the extent permitted by the Indenture, to one or more Persons (other than the Lessee or any Person affiliated with the Lessee within the meaning of section 318 of the Code) Additional Notes and to use the proceeds thereof to pay the applicable percentage of the cost of such Capital Improvement, subject, however, to satisfaction of the following conditions:

(i) there shall be no more than one Supplemental Financing in any calendar year;

(ii) the sum of the supplemental Financing Amounts in any calendar year shall equal or exceed the Lessor's Portion of $5,000,000;

(iii) the Lessee may include in any request for a Supplemental Financing only Capital Improvements not previously financed in any Supplemental Financing and which have been installed or affixed no earlier than three calendar years before the beginning of the calendar year in which such Supplemental Financing occurs;

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(iv) the total amount of all Supplemental Financing during the Basic Lease Term shall not exceed the Lessor's Portion of $100, 000,0007

(v) unless waived by the Owner Participant, the Bonds issued and outstanding under the Collateral Trust Indenture shall be rated no less than "investment grade", as determined by Standard & Poor's Corporation and Moody's Investors Service, Inc.,

(vi) the sum of the Supplemental Financing Amount and any Additional Equity Investment shall not exceed that portion of the cost of Capital Improvements which, when financed, will constitute an addition to the Owner Participant's basis under section 1012 or 1016 of the Code;

(vii) in the opinion of independent tax counsel to the Owner Participant, such Supplemental Financing shall not result in adverse tax consequences to the Owner Participant or adversely affect the status of this Facility Lease as a "true lease" for Federal tax purposes, and the Owner Participant and the Lessee shall have agreed upon the amount and manner of payment of the indemnity, if any, payable by the Lessee as a consequence of such Supplemental Financing;

(viii) the Additional Motes shall have a final maturity date no later than January 15, 2016;

(ix) the Lessee shall have made such representations, warranties and covenants regarding the tax characteristics of the Lessor's undivided interest in each Capital Improvement as the Owner Participant reasonably requests, and the Tax Indemnification Agreement shall have been appropriately modified;

(x) appropriate adjustments to Basic Rent and the schedules of Casualty Values, Special Casualty Values and Termination Values shall have been agreed to by the Owner Participant;

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(xi) the Lessee shall pay to the Lessor an amount equal to all out-of-pocket costs and expenses reasonably incurred by the Lessor or the Owner Participant and not financed as a part of such Supplemental Financing or reflected in adjustments to Basic Rent;

(xii) no Default or Event of Default shall have occurred and be continuing:

(xiii) the Lessee shall enter into such agreements and shall have provided such tax indemnities, representations, warranties, covenants, opinions, certificates and other documents as the Owner Participant shall reasonably request; and

(xiv) in the reasonable opinion of the Owner Participant, such Supplemental Financing shall not result in any adverse accounting or financial consequences to the Owner Participant.

(g) Useful Life. If the Lessee shall not theretofore have exercised its option under Section 13 to purchase the Undivided Interest and the Real Property Interest, then (i) if the Lessee shall not theretofore have exercised its option to renew the Lease pursuant to Section 12, on January .15, 2015, the Lessee shall initiate the Appraisal Procedure to determine the remaining Economic Useful Life of Unit 2 as of July 15, 2015 and (ii) on the Rent Payment Date occurring one year prior to the end of the Renewal Term, if any, the Lessee shall initiate the Appraisal Procedure to determine the remaining Economic Useful Life of Unit 2 as of the date six months prior to the end of the Renewal Term. The Lessee and the Lessor agree to use their best efforts to ensure that such determination of remaining economic useful life is made no later than July 15, 2015 (in the case of the first such determination) and six months prior to the end of the Renewal Term (in the case of the second such determination)

SECTION 9. Event of Loss; Deemed Loss Event.

(a) Damage or Loss. In the event that Section 16.2 of the ANPP Participation Agreement (as in effect on the date hereof) or any similar provision of the ANPP Participation Agreement (as in effect on such date) shall

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become applicable, or an Event of Loss, a Requisition of Use or a Requisition of Title shall occur, or Unit 2 or the Common Facilities or any substantial part thereof shall suffer destruction, damage, loss, condemnation, confiscation, theft or seizure for any reason whatsoever, such fact shall promptly, and in any case within five Business Days following any such event, be reported by the Lessee to the Lessor and the Owner Participant.

(b) Repair. The Lessee shall promptly make any and all payments required of the Lessee under the provisions of the ANPP Participation Agreement relating to damage or destruction or the like to Unit 2 or the Common Facilities or any portion thereof; provided, however, that the Lessee shall in no event be obligated to make or join in any agreement under Section 16.2 of the ANPP Participation Agreement (as in effect on the date hereof) concerning repairs to or reconstruction of Unit 2 or the Common Facilities.

(a) Payment of Casualty Value. Except as otherwise provided in the definition of the term "Final Shutdown", an Event of Loss shall not occur unless. and until the Owner Participant delivers to the Lessor and the Lessee a written notice identifying the applicable event and declaring that such event constitutes an Event of Loss hereunder. On the Basic Rent Payment Date next following receipt by the Lessee of a written notice from the Lessor that an Event of Loss has occurred, the Lessee shall pay to the Lessor all Basic Rent due on such Basic Rent Payment Date, plus an amount equal to the excess of (i) Casualty Value determined as of such Basic Rent Payment Date over (ii) the unpaid principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such date. (a) Upon compliance in full by the Lessee with the foregoing provisions of this Section 9(c) and assumption by the Lessee of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to Section 3.9(b) of the Indenture, the Lessor shall (so long as no Default or Event of Default shall have occurred and be continuing), and (b) at any time after the occurrence of an Event of Loss the Lessor may:

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(i) if Section 16.2 of the ANPP Participation Agreement (as in effect on the date hereof) or any similar provision of the ANPP Participation Agreement (as in effect on such date) shall be applicable and the Lessee shall have declined, but one or more of the other ANPP Participants shall have elected, to reconstruct or restore Unit 2, as permitted by the ANPP Participation Agreement, Transfer the Undivided Interest and the Real Property Interest to such electing ANPP Participants, as required by, and in the proportions set forth in, the ANPP Participation Agreement, in which case the Lessee shall be entitled to receive the "salvage value" purchase price allocable to the Undivided Interest and he Real Property Interest; or

(ii) if clause (i) above shall not be applicable, Transfer the Undivided Interest and the Real Property Interest to the Lessee.

If the Lessee shall not have assumed all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the Indenture, but the Owner Participant shall have received under
Section 5.2 of the Indenture all amounts required to be paid by the Lessee pursuant to this section 9(c) (including interest, if any, thereon pursuant to section 3(b) (iii) hereof, the Lessor shall retain the Undivided Interest and the Real Property Interest, subject to the terms of this Facility Lease and section 7(b) (4) of the Participation Agreement; provided, however, that (i) the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on all Notes then outstanding and (ii) this Facility Lease shall become a security agreement for all purposes of Applicable Law.

(d) Payment of special Casualty Value. A Deemed Loss Event shall not occur unless and until the Owner Participant delivers to the Lessee a written notice identifying the applicable event and declaring that such event constitutes a Deemed Loss Event hereunder. On the fifteenth day of the month during which a Deemed Loss Event shall have occurred (or, if such Deemed Loss Event shall occur after the fifteenth day of such month, the fifteenth day of the next following month), the Lessee shall pay to the Lessor (x) an amount equal to the excess of (i) special Casualty Value determined as of the date such payment is due over

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(ii) the principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such day, plus (y) if such fifteenth day is a Basic Rent Payment Date, all Basic Rent due on such Basic Rent Payment Date. (a) Upon compliance in full by the Lessee with the foregoing provisions of this Section 9(d) and assumption by the Lessee of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to Section 3.9(b) of the Indenture, the Lessor shall (so long as no Default or Event of Default shall have occurred and be continuing), and (b) at any time after the occurrence of a Deemed Loss Event, the Lessor may, Transfer the Undivided Interest and the Real Property Interest to the Lessee. If the Lessee shall not have assumed all the liabilities and obligations of the Owner Trustee under the Indenture and the Notes in accordance with section 3.9(b) of the Indenture, but the Owner Participant shall have received under Section 5.2 of the Indenture all amounts required to be paid by the Lessee pursuant to this section 9(d) (including interest, if any, thereon pursuant to Section 3(b) (iii)), the Lessor shall retain the Undivided Interest and the Real Property Interest, subject to the terms of this Facility Lease and
Section 7(b)(4) of the Participation Agreement; provided, however, that (i) the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on all Notes Outstanding and
(ii) this Facility Lease shall become a security agreement for all purposes of Applicable Law.

(e) Requisition of Use. In the case of a Requisition of Use not constituting an Event of Loss, this Facility Lease shall continue, and each and every obligation of the Lessee hereunder and under each Transaction Document shall remain in full force and effect, So long as no Default or Event of Default shall have occurred and be continuing, the Lessee shall be entitled to all sums received by reason of any such Requisition of Use for the period ending on the Lease Termination Date, and the Lessor shall be entitled to all sums received by reason of any such Requisition of Use for the period after the Lease Termination Date.

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(f) Termination or Continuation of Obligations. Until the Lessee shall have made the payments specified in Section 9(c) or 9(d), the Lessee shall make all payments of Rent when due; and the Lessee shall thereafter be required to make all payments of Supplemental Rent as and when due. In the event that the Lessee shall assume all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to Section 3.9(b) of the Indenture, upon receipt by the Owner Participant under Section 5.2 of the Indenture of the payments specified in Section 9(c) or 9 (d) and payment by the Lessee of all other Rent due and owing through and including the date of payment (including Basic Rent due on or accrued through such date, as the case may be), the Lease Term shall end and the Lessee's obligation to pay further Basic Rent shall cease. So long as no Event of Default shall have occurred and be continuing, if as a consequence of a Deemed Loss Event, a Special Purchase Event, an exercise of the Cure Option or otherwise, the Lessee is required to purchase the Undivided Interest and the Real Property Interest, this Facility Lease shall not be terminated nor shall the use or possession of the Undivided Interest or the Real Property Interest be transferred by the Lessee to the Lessor or to any other Person prior to the actual purchase of the Undivided Interest and the Real Property Interest by the Lessee.

(g) Application of Payments on an Event of Loss. My payments received at any time by the Lessor or the Lessee (other than insurance placed by the Owner Trustee or the Owner Participant pursuant to Section 10(b)) from any Governmental Authority, insurer or other Person (except the Lessee) as a result of the occurrence of an Event of Loss shall be applied as follows:

(i) all such payments shall be promptly paid to the Lessor for application pursuant to the following provisions of this Section 9(g), except that the Lessee may retain any amounts that would at the time be payable to the Lessee as reimbursement under the provisions of clause (ii) below;

(ii) so much of such payments as shall not exceed the amount required to be paid by the Lessee pursuant to Section
9(c) (ignoring, for this purpose, clause (ii) of the first sentence thereof) shall be applied in reduction of the Lessee's obligation to pay

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such amount if not already paid by the Lessee or, if already paid by the Lessee, shall be applied to reimburse the Lessee for its payment of such amount; and

(iii) the balance, if any, of such payments remaining thereafter shall be divided bet'4een the Lessor and the Lessee, as their interests may appear.

(xi) Application of Payments Not Relating to an Event of Loss. Payments received at any time by the Lessor (other than insurance placed by the Owner Trustee or the Owner Participant pursuant to Section 10(b)) or the Lessee from any Governmental Authority, insurer or other Person with respect to any destruction, damage, loss, condemnation, confiscation, theft or seizure of or requisition of title to or requisition of use of, Unit 2 or the Common Facilities, or any part thereof, not constituting an Event of Loss shall be applied first to reimburse the Lessee for all amounts expended in respect of the repair, replacement or reconstruction of Unit 3 or the Common Facilities, or any part thereof, as provided in Section 9(b), and second the balance, if any, of such payments shall be divided between the Lessor and the Lessee as their interests may appear.

(i) Disposition at rise of Event of Default. Notwithstanding the foregoing provisions of this Section 9, if an Event of Default shall have occurred and be continuing, any amount that would otherwise be payable to or for the account of, or that would otherwise be retained by, the Lessee pursuant to
Section 10 or this Section 9 shall be paid to the Lessor as security for the obligations of the Lessee under this Facility Lease and, at such time thereafter as the Lessee shall have cured any such Event of Default, such amount shall be paid promptly to the Lessee unless this Facility Lease shall have theretofore been declared to be in default, in which event such amount shall be disposed of in accordance with the provisions hereof and of the Indenture.

(j) Assumption of Notes; Creation of Lien on Undivided Interest. In connection with a declared Event of Loss, a declared Deemed Loss Event or the exercise of the Cure Option, (i) the Lessee agrees to use its best efforts to comply with the conditions respecting its assumption of all the obligations and liabilities of the

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Owner Trustee under the Indenture and the Outstanding Notes set forth in Section 3.9(b) of the Indenture, and (ii) the Lessor agrees that, if the Lessee fails to assume all the obligations and liabilities of the Owner Trustee under the Indenture and the Outstanding Notes in accordance with Section 3.9(b) of the Indenture, not later than two Business Days prior to the date on which the Lessee is required to make the payments specified in Section 9(c), 9(d) or
16(e), the Lessor will cause the Undivided Interest and the Real Property Interest to be subjected to the Lien of the Indenture by executing and delivering to the Indenture Trustee the Undivided Interest Indenture Supplement.

SECTION 10. Insurance.

(a)Required Insurance. The Lessee will use its best efforts to cause the Operating Agent to carry and maintain insurance required under the ANPP Participation Agreement and will make all payments required of the Lessee under the ANPP Participation Agreement in respect of such insurance. The Lessee will at all times maintain, directly or through the Operating Agent, policies of casualty and nuclear liability and other liability in5urance with respect to the Undivided Interest and the Real Property Interest in such amounts and with such coverage as shall be adequate in accordance with prudent utility practice. Any policies of insurance in respect of destruction, damage, loss, theft or other casualty to the Undivided Interest, the Real Property Interest, Unit 2, the Caution Facilities or any part thereof shall name the Lessor (and, to the extent practicable, the Owner Participant) as an additional insured, as its Interest (or their interests) may appear, and any policies with respect to nuclear liability insurance with respect to the Undivided Interest, the Real Property Interest, Unit 2, the Common Facilities, or any part thereof, shall include all Indemnitees as insureds, through an omnibus definition of "insureds" or through endorsement; provided, however, that if the Operating Agent, as trustee, shall become the loss payee under any policy of insurance constituting Project Insurance, then the Lessor and the Owner Participant shall be and be made beneficiaries of the trust arrangement under which the Operating Agent acts as trustee. The Lessee shall, on or before March 1 of each year, commencing March 1, 1987, furnish to the Lessor and the Owner Participant (A) a report signed by

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the broker or brokers for the PVNGS insurance (or if insurance is placed directly by the Operating Agent, by the Operating Agent) (i) showing the insurance then maintained by the ANPP Participants with respect to PVNGS, (ii) stating that no premiums are then delinquent, and (iii) stating that the insurance maintained by the ANPP Participants with respect to PVNGS is in accordance with the terms of (1) the ANPP Participation Agreement and (2) this
Section 10 (B) a report signed by the broker or brokers for the Lessees insurance (or if insurance is placed directly by the Lessee, a certificate signed by the Lessee) showing the separate insurance, if any, then maintained by the Lessee with respect to its interest in PVNGS and stating that no premiums under such insurance are delinquent; (C) a certificate signed by the Lessee stating that the insurance maintained by the ANPP Participants and by the Lessee, identified on the reports to be delivered pursuant to clauses (A) and (B), is in accordance with prudent utility practice within the nuclear industry, the ANPP Participation Agreement and this Section 10; and (0) upon the request of the Lessor or the Owner Participant, copies (to the extent permitted by the issuers of such policies) of policies so maintained. Any report by an insurance broker with respect to clause (A) (iii) (1) may be made in reliance upon a schedule provided by the Lessee (a copy of which shall be attached) identifying the insurance (by coverage, limits, insureds and other pertinent details) required to be maintained under the ANPP Participation Agreement. Any report with respect to clause (A) (iii) (2) may be made in reliance upon a similar schedule provided by the Lessee (a copy of which shall be attached) identifying the insurance required to be maintained under this Section 10. All insurance proceeds paid in respect of damage, destruction, loss, theft or other casualty to the Undivided Interest or the Real Property Interest shall be applied as provided in Section 9(g), (h) or (i), as the case may be, subject, however, to any priority allocations of such proceeds to decontamination and debris removal set forth in the insurance policies or required under Applicable Law. In the event that either the Operating Agent or the Lessee delivers a certificate pursuant to clause (A) or (B) above, the Owner Participant shall be entitled to receive (if it so requests and if the insurer will issue the same) a report from any insurer listed in such certificate.

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(b) Permitted Insurance. Nothing in this Section 10 shall prohibit the Lessee from placing, at its expense, insurance on or with respect to the cost of purchasing replacement power, naming the Lessee as insured and/or loss payee, unless such insurance would conflict with or otherwise limit the availability of insurance to be provided or maintained in accordance with
Section 10(a). Nothing in this Section 10 shall prohibit the Lessor or the Owner Participant from placing at its expense other insurance on or with respect to Unit 2, the Common Facilities, the Undivided Interest or the Real Property Interest or the operation of Unit 2, naming the Lessor or the Owner Participant as insured and/or loss payee, unless such insurance would conflict with or otherwise limit the insurance to be provided or maintained in accordance with
Section 10(a).

SECTION 11. Rights to Assign or Sublease.

(a) Assignment or Sublease by the Lessee. Without the prior written consent of the Lessor, the Lessee shall not encumber (except for Permitted Liens), or assign, sublease or transfer its leasehold interest in the Undivided Interest or the Real Property Interest under this Facility Lease, except that the Lessee may assign its leasehold interest under this Facility Lease in the Undivided Interest or the Real Property Interest to a wholly owned subsidiary of the Lessee or of the Lessee's parent if such subsidiary's obligations under this Facility Lease and any other Transaction Documents which may be assumed by such subsidiary shall be guaranteed by the original Lessee under this Facility Lease pursuant to a valid and enforceable guarantee satisfactory in all respects to the Lessor and the Owner Participant. The Lessee shall not, without the prior written consent of the Lessor and the Owner Participant, part with the possession of, or suffer or allow to pass out of its possession, the Undivided Interest, the Real Property Interest or any interest therein, except to the extent required pursuant to the ANPP Participation Agreement or expressly permitted by the provisions of this Facility Lease (including, without limitation, the first sentence of this Section 11(a)), or any other Transaction Document.

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(b) Assignment by Lessor as Security for Lessor's Obligations. To secure the indebtedness evidenced by the Notes, the Lessor will assign to the Indenture Trustee (x) its right, title and interest to receive certain payments of Rent (not including, in any event, Excepted Payments), to the extent provided in the Indenture and (y) if and when required by Section 9(j), its right, title and interest in the Undivided Interest and the Real Property Interest. The Lessee hereby (a) consents to such assignment pursuant to clause (x) of the first sentence of this paragraph (b) and the terms of the Indenture, (b) agrees to pay directly to the Indenture Trustee at the Indenture Trustee's Office (50 long as the lien of the Indenture has not been satisfied and discharged and the Lessor is obligated thereunder) all amounts of Rent (other than Excepted Payments) due or to become due to the Lessor that shall be required to be paid to the Indenture Trustee pursuant to the Indenture, Cc) agrees that the right of the Indenture Trustee to any such payments shall be absolute and unconditional and shall not be affected by any circumstances whatsoever, including, without limitation, those circumstances set forth in Section 4, and (4) agrees that, to the extent provided in the Indenture and until the Indenture is discharged in accordance with its terms, the Indenture Trustee shall have all the right. of the Lessor hereunder with respect to Assigned Payments as if the Indenture Trustee had originally been named herein as the Lessor.

SECTION 12. Lease Renewal.

Subject to the notice requirements set forth in Section 13(a), at the end of the Basic Lease Term, provided, that no Default or Event of Default shall have occurred and be continuing hereunder, or Event of Loss or Deemed Loss Event shall have occurred, and all Notes shall have been paid in full, the Lessee shall have the right to renew the term of this Facility Lease for a period commencing January 15, 2016, and ending on January 15, 2018 (the Fixed Rate Renewal Term), during which period the Basic Rent payable shall be the rental provided in Section 3(a)(iii).

SECTION 13. Notices for Renewal or Purchase; Purchase Options.

(a) Notice; Determination of Values; Appraisal Procedure. Not later than (i) three years nor earlier than five years prior to the expiration date of the Basic Lease Term or (ii) two years, six-months prior to the expiration date of the Renewal Term, as the case may be, the Lessee shall give to the Lessor written notice of its election either to (A) return the Undivided

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Interest and the Real Property Interest to the Lessor pursuant to Section 5 or (B) (x) in the case of clause (i) above, (I) exercise the renewal option permitted by Section 12 or (II) exercise the purchase option permitted by
Section 13(b) or (y) in the case of clause (ii) above, exercise such purchase option. If the notice specified in clause (B) (x) of the preceding sentence is given then not later than two years prior to the expiration date of the Basic Lease Term the Lessee will give the Lessor written notice of its election either to exercise the purchase option permitted by Section 13(b) or the renewal option permitted by Section 12. Any such election shall be irrevocable as to the Lessee, but no such election shall be binding on the Lessor if, on the effective date thereof, an Event of Default shall have occurred and be continuing or an Event of Loss or a Deemed Loss Event shall have occurred. Promptly after giving notice pursuant to clause (B) (x) (II) or (B) (y) of the first sentence of this
Section 13(a), the Lessee and the Owner Participant shall agree upon the Fair Market Sales value of the Undivided Interest and the Real Property Interest, or, if within three months after the date of the Lessee's notice the Lessee and the Owner Participant shall be unable so to agree, such values shall be determined by the Appraisal Procedure.

(b) Purchase Option at Expiration of the Term Subject to the notice requirements set forth in Section 13(a), unless an Event of Default shall have occurred and be continuing, or an Event of Loss or a Deemed Loss Event shall have been declared, on the date of the expiration of the Basic Lease Term or the Renewal Term (if elected) the Lessee shall have the right to purchase the Undivided Interest and the Real Property Interest for a purchase price equal to the Fair Market Sales Value thereof.

(C) Special Purchase Event. If, or before the Refunding Date, the Owner Participant shall reasonably determine (in consultation with Milbank, Tweed, Hadley & McCloy and Rodey, Dickason, Sloan, Akin & Robb, P.A.), or if the Lessee, in its reasonable judgment, shall determine, that there is a material risk that the Weighted Factor will exceed ll.25%, then, unless (subject to
Section 3(h) hereof in all events) by unilateral action of the Lessor the Basic Rent shall have been reduced such that the Weighted Factor does not exceed 11.25%, the Lessee shall purchase the Undivided Interest and the Real Property

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Interest from the Lessor, on a Business Day specified by the Lessor to. the Lessee by not less than 30 days (or, if there is a material risk that the Weighted Factor will exceed 11.25% within a shorter period, a number of days one day less than such shorter period) prior notice, for a purchase price equal to the greater of (i) the Fair Market Sales Value thereof and (ii) Casualty Value as of the Basic Rent Payment Date first preceding the date of such purchase or as of the date of such purchase, if such date shall be a Basic Rent Payment Date, plus, if such purchase date shall not be a Basic Rent Payment Date, a proration of Basic Rent to the date of purchase.

(d) Purchase of the Undivided Interest; Payment, Etc. If the Lessee shall have elected or be required to purchase the Undivided Interest and the Real Property Interest pursuant to section 13(b) or 13(c), payment by the Lessee of the purchase price for the Undivided Interest and the Real Property Interest shall be made in immediately available fund., whereupon the Lessor shall Transfer the Undivided Interest and the Real Property Interest to the Lessee.

SECTION 14. Termination for Obsolescence.

(a) Termination Notice. Notwithstanding any provision herein contained to the contrary, unless a Default or an Event of Default shall have occurred and be continuing, or an Event of Loss or Deemed Loss Event shall have occurred, the Lessee shall, if the Lessee's Board of Directors has adopted and there is in effect on or after January 15, 1997 and on or prior to January 15, 2013 a resolution determining that Unit 2 is (A) uneconomic to the Lessee or (B) economically obsolete for any reason, give prompt written notice (a Termination Notice) to the Lessor, the Owner Participant and the Indenture Trustee (which notice shall be irrevocable) of such resolution and shall terminate this Facility Lease on the first Basic Rent Payment Date occurring after the later of January 1, 1997 and the date of such resolution (the Termination Date). If the Lessee shall give the Lessor a Termination Notice, the Lessee shall, as agent for the Lessor, use its best efforts to obtain cash bids for the purchase of the Undivided Interest and the Real Property Interest, together with the interest of the Lessor under the Assignment and Assumption. The Lessor shall also have the right to obtain such cash bids, either directly or through agents other than the

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Lessee. The Lessee shall certify to the Lessor within ten days after the Lessee's receipt of each bid (and, in any event, prior to the Termination Date) the amount and terms thereof and the name and address of the party (which shall not be the Lessee or any Affiliate of the Lessee) submitting such bid.

(b) Right of Lessor to Retain Undivided Interest upon Termination. The Lessor may elect to retain, rather than sell, the Undivided Interest and the Real Property Interest by giving notice to the Lessee and the Indenture Trustee prior to the Termination Date. It shall be a condition precedent to the Lessor's right to retain the Undivided Interest and the Real Property Interest that on or prior to the Termination Date the Lessor shall have paid (or made provision for payment) to the Indenture Trustee, the unpaid principal amount of all Notes Outstanding on such date and all premium, if any, and interest accrued and unpaid on the date of payment. If the Lessor elects to retain the Undivided Interest and the Real Property Interest pursuant to this section L4(b), the Lessee shall pay to the Lessor on the Termination Date the Basic Rent and any other Rent due or accrued, as the case may be, to and including the Termination Date, together with an amount equal to the excess, if any, of the Termination Value as of the Termination Date aver the highest bona tide offer received pursuant to section 14(a).

(C) Events on the Termination Date. If the Lessor has not elected to retain the Undivided Interest and the Real Property Interest as provided in section 14(b), on the Termination Date the Lessor shall (upon receipt of the sale price and all additional payments specified in the next sentence) Transfer the Undivided Interest and the Real Property Interest for cash to the bidder (which shall not be the Lessee or an Affiliate of the Lessee) that shall have submitted the highest bid on or before the Termination Date. The total sale price realized at such sale shall be retained by the Lessor (subject, however, to the terms of the Indenture and the requirement that there shall have been paid, or provision for payment made, to the Indenture Trustee the unpaid principal amount of all Notes outstanding on the Termination Date and all premium, if any, and interest accrued and unpaid on the date of payment) and, in addition, on the Termination Date the Lessee shall pay to the Lessor (A) the excess, if any, of the Termination Value as of the Termination Date over the net

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sale price of the Undivided Interest and the Real Property Interest and (B) any Basic Rent due or accrued, as the case may be, to and including the Termination Date and shall pay to the Person or Persons entitled thereto all Supplemental Rent (other than Termination Value). Upon compliance by the Lessee with the applicable provisions of this Section 14, the obligation of the Lessee to pay Basic Rent due hereunder for any period after the Termination Date shall cease and the Basic Lease Term shall end on the Termination Date; provided however, that, in the event of termination of this Facility Lease pursuant to this
Section 14, the obligations of the Lessee under the ANPP Participation Agreement (except as therein expressly provided in section 15.10 thereof) and the Assignment and Assumption shall continue in full force and effect and shall not be impaired by reason of any such termination. If, other than as a result of the Lessor's election to retain the Undivided Interest and the Real Property Interest as provided in section 14(b), on or as of the Termination Date no such sale shall occur or the Lessee shall not have complied in full with this Section 14, this Facility Lease shall continue in full force and effect in accordance with its terms without prejudice to the Lessee's right to exercise its rights under this section 14 thereafter, except that the Lessee shall not be entitled to deliver another Termination Notice during the 3-year period following such Termination Date. The Lessor shall be under no duty to solicit bids, to inquire into the efforts of the Lessee to obtain bids or otherwise take any action in connection with any such sale other than, if the Lessor has not elected to retain the Undivided Interest and the Real Property Interest, to Transfer the Undivided Interest and the Real Property Interest to the purchaser named in the highest bid certified by the Lessee to the Lessor or obtained by the Lessor, against receipt of the payments provided for herein (but only if such purchaser has obtained all requisite Governmental Action in connection therewith)

(d) Early Termination Notice. In the event that the Lessee shall fail to exercise its renewal option or purchase option within the time limit provided by Section 13(a), the Lessor shall have the option, on any Basic Rent Payment Date thereafter, on at least 120 days prior written notice (an Early Termination Notice) to the Lessee and the Indenture Trustee, to terminate this Facility Lease on the Basic Rent Payment Date specified in such notice (the Early Termination Date). Any Early Termination Notice may be revoked by the Lessor at any time on or prior to the Early Termination Date.

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(e) Events on the Early Termination Date. On the Early Termination Date the Lessor shall, at its option, (i) Transfer the Undivided Interest and the Real Property Interest to the bidder (other than the Lessee or any Affiliate of the Lessee) selected by the Lessor or (ii) retain the Undivided Interest and the Real Property Interest. It shall be a condition precedent to the Lessor's right to sell or retain the Undivided Interest and the Real Property Interest that on or prior to the Early Termination Date the Lessor shall have paid (or made provision for payment) to the Indenture Trustee on such date the unpaid principal amount of all Notes outstanding on such date and all premium, if any, and interest accrued and unpaid on the date of payment. The total sale price realized at any such sale shall be retained by the Lessor and, in addition, on the Early Termination Date the Lessee shall pay to the Lessor any Basic Rent due or accrued, as the case may be, to and including the Early Termination Date, and shall pay to the Person or Persons entitled thereto all Supplemental Rent (other than Termination Value). Upon compliance by the Lessee with the applicable provisions of this Section 14, the obligation of the Lessee to pay Basic Rent due hereunder for any period after the Early Termination Date shall cease and the Lease Term shall end on the Early Termination Date; provided, however, that in the event of the termination of this Facility Lease pursuant to this Section 14, the obligations of the Lessee under the ANPP Participation Agreement (except as therein expressly provided in Section 15.10 thereof) and the Assignment and Assumption shall continue in full force and effect and shall not be impaired by reason of any such termination.

SECTION 15. Events of Default.

The term Event of Default, wherever used herein, shall mean any of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary, or come about or be effected by operation of law, or be pursuant to or in compliance with any Applicable Law or Governmental Action):

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(i) the Lessee shall fail to make, or cause to be made,
(x) payment of Casualty Value, Termination Value, Special Casualty Value or payment due pursuant to exercise of the Cure Option when due, (y) any payment of Basic Rent within S Business Days after the same shall become due or (z) any payment of Supplemental Rent (other than Casualty Value, Termination Value, Special Casualty Value or payment due pursuant to exercise of the Cure Option) within 20 days after the same shall become due or demanded, as the case may be: or

(ii) the Lessee shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it under Section 10(b) (3) (i) , 10(b) (3) (ii), 10(b) (3) (iii) or 10(b) (3) (iv) of the Participation Agreement or section 7,
10 (other than failure of the Lessee to cause to be delivered the insurance certificates (other than the Certificate of the Lessee) described therein provided that the Owner Participant shall have received within S Business Days after its request therefor other confirmation reasonably satisfactory to it of the existence in full force and effect of the insurance referred to in Section 10), or it of this Facility Lease; or

(iii) the remaining Economic Useful Life of Unit 2, as determined under Section 8(g) if required thereby to be so determined, shall be (x) as of the date six months prior to the end of the Basic Lease Term, less than five and one-half years or (y) as of the date six months prior to the end of the Renewal Term, three and one-half years: or

(iv) the Lessee shall fail to perform or observe any covenant or agreement to be performed or observed by it under
Section 10(b) (3) (viii) of the Participation Agreement and such failure shall continue for a period of 30 days after there shall have been given to the Lessee by the Lessor or the Owner Participant a notice specifying such failure and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or

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(v) the Lessee shall fail to perform its agreements set forth in the first sentence of Section 5(a); or

(vi) the Lessee shall fail to perform or observe any covenant, condition or agreement (other than those referred to in clauses (i) through (v) above) to be performed or observed by it under this Facility Lease or any other Transaction Document, and such failure shall continue for a period of 30 days after there shall have been given to the Lessee by the Lessor or the Owner Participant a notice specifying such failure and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder: or

(vii) any representation or warranty made by the Lessee in this Facility Lease, any other Transaction Document (other than the Tax Indemnification Agreement) or any agreement, document or certificate delivered by the Lessee in connection herewith or therewith shall prove to have been incorrect in any material respect when any such representation or warranty was made or given and shall remain material and materially incorrect at the time in question: or

(viii) the Lessee (which term shall include, for purposes of this clause (viii) and clauses (ix), (x) and (xi) below, any predecessor Lessee that guarantees the obligations of the Lessee hereunder pursuant to Section 11(a) hereof) shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking of possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall take any corporate action

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to authorize any of the foregoing; or an involuntary case or other proceeding shall be commenced against the Lessee seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed or unstayed for a period of 60 consecutive days; or

(ix) final judgment for the payment of money in excess of $1,000,000 shall be rendered against the Lessee and the Lessee shall not have discharged the same or provided for its discharge in accordance with its terms or bonded the same or procured a stay of execution thereof within 6O day. from the entry thereof:
or

(x) (1) a default by the Lessee under the ANPP Participation Agreement in consequence of which the Lessee's right to receive its Generation Entitlement Share in PVNGS is suspended by the other ANPP Participants, or (2) the giving by any ANPP Participant of a notice under Section 23.2 (or any comparable successor provision) of the ANPP Participation Agreement respecting a default thereunder by the Lessee and the lapse of 20 Business Days from the giving of such notice without the Lessee having cured such default: provided, however, that for purposes of this clause (2) if the Lessee shall have in good faith disputed the existence or nature of a default and such dispute shall have become the subject of an arbitration under
Section 24 (or any comparable successor provision) of the ANPP Participation Agreement, such 20 Business Day period shall commence on the date of the final determination of the board of arbitrators under such Section 24; or

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(xi) (1) the Lessee shall fail to pay when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) any Debt and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt, but only if the Lessee shall have received notice of such failure or a Responsible Officer of the Lessee shall have actual knowledge of such failure; or (2) any other default under any agreement or instrument relating to any such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt, but only if the Lessee shall have received notice of such default or event or a Responsible officer of the Lessee shall have actual knowledge of such default or event.

SECTION 16. Remedies.

(a) Remedies. Upon the occurrence of any Event of Default and so long as the same shall be continuing, the Lessor may, at its option, declare this Facility Lease to be in default by written notice to such effect given to the Lessee, and may, except as hereinbelow expressly otherwise set forth, exercise one or more of the following remedies as the Lessor in its sole discretion shall elect:

(i) the Lessor may, by notice to the Lessee, rescind or terminate this Facility Lease;

(ii) the Lessor may (x) demand that the Lessee, and thereupon the Lessee shall, return possession of the Undivided Interest and the Real Property Interest promptly to the Lessor in the manner and condition required by, and otherwise in accordance with the provisions of, this Facility Lease as if the undivided Interest oand the Real Property Interest were being returned at the end of the Lease Term and the Lessor shall not be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith and (y) subject to Applicable Law, enter upon the PVNGS Site and take immediate possession of (to the exclusion of the Lessee)

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the Undivided Interest and the Real Property Interest, by summary proceedings or otherwise, all without liability to the Lessee for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise:

(iii) the Lessor may sell the Undivided Interest and the Real Property Interest, or any part thereof, together with any interest of the Lessor under the Assignment and Assumption, at public or private sale in a commercially reasonable manner, as the Lessor may determine, free and clear of any rights of the Lessee in the undivided Interest and the Real Property Interest and without any duty to account to the Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent required by clause (v) or (vi) below if the Lessor shall elect to exercise its rights thereunder), in which event the Lessee's obligation to pay Basic Rent hereunder for periods commencing after the date of such sale shall be terminated or proportionately reduced, as the case may be (except to the extent that Basic Rent is to be included in computations under clause (V) or (vi) below if the Lessor shall elect to exercise its rights thereunder);

(iv) the Lessor may hold, keep idle or lease to others all or any part of the Undivided Interest and the Real Property Interest, as the Lessor in its sole discretion may determine, free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or for any proceeds with respect to such action or inaction, except that the Lessee's obligation to pay Basic Rent for periods commencing after the Lessee shall have been deprived of use of the Undivided Interest and the Real Property Interest pursuant to this clause (iv) shall be reduced by an amount equal to the net proceeds, if any, received by the Lessor from leasing the Undivided Interest and the Real Property Interest to any Person other than the Lessee for the same periods or any portion thereof;

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(v) except in the case of an Event of Default specified in clause (iii) or clause (v) of Section 15 (subject, however, to the proviso to the first sentence of Section 16(c) hereof), the Lessor may, whether or not the Lessor shall have exercised or shall thereafter at any time exercise its rights under clause
(i), (ii), (iii) or (iv) above, demand, by written notice to the Lessee specifying a payment date which shall be a Basic Rent Payment Date not earlier than 10 days after the date of such notice, that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on the Basic Rent Payment Date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent due after the Basic Rent Payment Date specified in such notice), any unpaid Rent due through the Basic Rent Payment Date specified in such notice plus whichever of the following amounts the Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the interest rate specified in Section 3(b)
(iii) from the Basic Rent Payment Date specified in such notice to the date of actual payment) (and, in the case of (D) below, upon receipt of such payment the Lessor shall (or may prior to the receipt of such payment) Transfer to the Lessee the Undivided Interest and the Real Property Interest):

(A) an amount equal to the excess, if any, of
(1) Casualty Value, computed as of the Basic Rent Payment Date specified in such notice, over (2) the Fair Market Rental Value of the Undivided Interest and the Real Property Interest (determined on the basis of the then actual condition of Unit 2) until the end of the remaining useful life of Unit 2, after discounting such Fair Market Rental value semi-annually to present value as of the Basic Rent Payment Date specified in such notice at a rate of ; of per annum;

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(B) an amount equal to the excess, if any, of
(1) such Casualty Value over (2) the Fair Market Sales Value of the Undivided Interest and the Real Property Interest (determined on the basis of the then actual condition of Unit 2) as of the Basic Rent Payment Date specified in such notice;

(C ) an amount equal to the excess, if any, of
(1) the present value as of the Basic Rent Payment Date specified in such notice of all installments of Basic Rent until the end of the Basic Lease Term or the Renewal Term, as the case may be, discounted semi-annually at a rate of 10% per annum, over (2) the present value as of such Basic Rent Payment Date of the Fair Market Rental Value of the Undivided Interest and the Real Property Interest (determined on the basis of the then actual condition of Unit 2) until the end of the Basic Lease Term or the Renewal Term, as the case may be, discounted semi-annually at a rate of 10% per annum; or

(D) an amount equal to higher of (1) the Casualty Value, computed as of the Basic Rent Payment Date specified in such notice or (2) the Fair Market Sales Value of the Undivided Interest and the Real Property Interest;

(vi) if the Lessor shall have sold all the Undivided Interest and the Real Property Interest pursuant to clause (iii) above, the Lessor, in lieu of exercising its rights under clause
(V) above with respect to the Undivided Interest and the Real Property Interest may, if it shall so elect, but not in the case of an Event of Default specified in clause (iii) or clause (v) of Section 15 (except as provided in the proviso to the first sentence of Section 16(c) hereof), demand that the Lessee pay to

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the Lessor and the Lessee shall pay to the Lessor on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (in lieu of Basic Rent due for periods commencing after the next Basic Rent Payment Date following the date of such sale), any unpaid Basic Rent due through such Basic Rent Payment Date, plus the amount of any difference between the sale Proceeds and Casualty Value, computed as of such Basic Rent Payment Date, together with interest at the interest rate specified in section 3(b) (iii) on the amount of such Rent and such deficiency from the date of such sale until the date of actual payment:

(vii) subject to section 5(b) hereof, in the case of an Event of Default specified in clause (iii) or clause (v) of
Section 15, the Lessor may demand, by written notice to the Lessee specifying a payment date which shall be, in the case of an Event of Default specified in said clause (iii), the last Basic Rent Payment Date of the Lease Term, or, in the case of an Event of Default specified in said clause (V), the date thirty day. after the last Basic Rent Payment Date, that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on such payment date, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due through such Basic Rent Payment Date plus an amount (not less than zero) equal to the Fair Market Sales Value of the Undivided Interest and the Real Property Interest determined as of such Basic Rent Payment Date (together with interest on such amount at the interest rate specified in section 3(b) (iii) from the payment date specified in such notice to the date of actual payment) and upon receipt of such payment the Lessor shall (and may prior to receipt of such payment) Transfer to the Lessee the Undivided Interest and the Real Property Interest.

(b) No Release. No rescission or termination of this Facility Lease, in whole or in part, or repossession of the Undivided Interest or the Real Property Interest or exercise of any remedy under paragraph (a) of this
Section 16 shall, except as specifically provided therein, relieve the Lessee of

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any of its liabilities and obligations hereunder. In addition, the Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before, after or during the exercise of any of the foregoing remedies, including all reasonable legal fees and other costs and expenses incurred by the Lessor or the Owner Participant by reason of the occurrence of any Event of Default or the exercise of the Lessor's remedies with respect thereto. At any sale of the Undivided Interest, the Real Property Interest or any part thereof pursuant to this section 16, the Owner Participant, the Lessor or the Indenture Trustee may bid for and purchase such property.

(C) Remedies Cumulative. Except as expressly set forth therein, no remedy under paragraph (a) of this section 16 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy provided under such paragraph (a) or otherwise available to the Lessor at law or in equity; provided, that if the Lessee is in default of its payment obligations under
Section 16(a)(vii), the Lessor may exercise its other remedies under section
16(a) (except that the maximum amount payable by the Lessee in the event of the exercise by the Lessor of any of the remedies provided for in Section 16(a) (V) or (vi) shall not exceed the total amount payable by the Lessee under Section
16(a) (vii) minus the amount provided in subclause (2) of clause (A), (B) or (C) of such Section 16(a) (v), if the Lessor elects a remedy specified in said clause (A), (B) or (C) , or the difference referred to in Section 16(a)(vi), if the Lessor elects the remedy specified in section 16(a) (vi) hereof. No express or implied waiver by the Lessor of any Default or Event of Default hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Default or Event of Default. The failure or delay of the Lessor in exercising any right granted it hereunder upon any occurrence of any of the contingencies set forth herein shall not constitute a waiver of any such right upon the continuation or recurrence of any such contingencies or similar contingencies and any single or partial exercise of any particular right by the Lessor shall not exhaust the same or constitute a waiver of any other right provided herein. To the extent permitted by Applicable Law, the Lessee hereby waives any rights now or hereafter conferred by statute or otherwise which may require the Lessor to sell, lease or otherwise use the Undivided Interest (including the related Generation Entitlement Share) or Unit 2 in mitigation of the Lessor's damages as set forth in paragraph (a) of this Section 16 or which may otherwise limit or modify any of the Lessor's rights and remedies provided in this Section 16.

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(d) Exercise at Other Rights or Remedies. In addition to all other rights and remedies provided in this Section 16, the Lessor may, except to the extent expressly limited by the provisions of this Section 16, exercise any other right or remedy that may be available to it under Applicable Law or proceed by appropriate court action to enforce the terms hereof or to recover damage. for the breach hereof.

(e) Special Cure Right of Lessee. In the event a "Notice of Default" is given under Section l5(iv), the Lessee may, on or prior to the occurrence of an Event of Default resulting therefrom, give written notice to the Lessor stating that the Lessee has elected to exercise the option (the Cure Option) provided in this Section 16(e), which election shall be irrevocable as to the Lessee. Promptly after the giving of such notice, the Lessee and the Owner Participant shall agree upon the Fair Market Sales Value of the Undivided Interest and. the Real Property Interest or, if they shall be unable so to agree within one month after the date of the Lessee's notice, such value shall be determined by the Appraisal Procedure; provided, however, that such Value, for purposes of this paragraph (e), shall be determined on the assumption that the purchaser shall be required to pay the full amount of the decommissioning cost of the Undivided Interest. On the Basic Rent Payment Date next following the date that such Fair Market Sales Value shall have been determined, the Lessee shall pay to the Lessor all Rent due on such Basic Rent Payment Date, plus an amount equal to the excess of (i) the greater of such Fair Market Sales Value and the Casualty Value determined as of such Basic Rent Payment Date over (ii) the unpaid principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such date. Upon compliance in full by the Lessee with the foregoing provisions of this paragraph (a) and assumption by the Lessee of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to
Section 3.9(b) of the Indenture, the Lessor shall Transfer the Undivided Interest and the Real Property Interest to the Lessee. If the Lessee shall not

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have assumed all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes in accordance With Section 3.9(b) of the Indenture, but the Owner Participant shall have received under Section 5.2 of the Indenture all amounts required to be paid by the Lessee pursuant to this paragraph (e) (including interest, if any, thereon pursuant to Section 3(b) (iii)), the Lessor shall retain the Undivided Interest and the Real Property Interest, subject to the terms of this Facility Lease and Section 7(b) (4) of the Participation Agreement: in which case, without further act an the part of the Lessor or the Lessee, (i) the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on all Notes then Outstanding and (ii) this Facility Lease shall become a security agreement for all purposes of Applicable Law.

SECTION 17. Notices.

All communications and notices provided for in this Facility Lease shall be in writing and shall be given in person or by means of telex, telecopy, or other wire transmission, or mailed by registered or certified mail, or delivered by express delivery service, addressed as provided in the Participation Agreement. All such communications and notices given in such manner shall be effective on the date of receipt of such communication or notice.

SECTION 18. Successors and Assigns.

This Facility Lease, including all agreements, covenants, indemnities, representations and warranties, shall be binding upon and inure to the benefit of the Lessor and its successors and permitted assigns, and the Lessee and its successors and, to the extent permitted hereby, assigns.

SECTION 19. Right to Perform for Lessee.

If the Lessee shall fail to make any payment of Rent to be made by it, or shall fail to perform or comply with any of its other agreements contained herein, or fail to make any payment to be made by it under any ANPP Project Agreement, or shall fail to perform or comply with any of its other

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agreements contained in any ANPP Project Agreement, either the Lessor or the Owner Participant may, but shall not be obligated to (i) if permitted by Applicable Law, tender such payment, or (ii) if permitted by Applicable Law and the ANPP Project Agreements, effect such performance or compliance, and the amount of such payment and the amount of all costs and expenses (including, without limitation, attorneys' and other professionals' fees and expenses) of the Lessor or the Owner Participant, as the case may be, incurred in connection with such payment or the performance of or compliance with such agreement, as the case may be, together with interest thereon at the Penalty Rate, shall be deemed Supplemental Rent, payable by the Lessee upon demand. In the event that the Lessor or the Owner Participant shall cure any default by the Lessee under the ANPP Participation Agreement, then (so long as an Event of Default has occurred and is continuing) the Lessor, together with each other Person contributing to such cure, shall be entitled (to the full extent enforceable in accordance with Applicable Law and the ANPP Project Agreements) to receive the Generation Entitlement Share of the Lessee under the ANPP Participation Agreement (not limited to Unit 2), with each contributor to such cure to receive a percentage of such Generation Entitlement Share equal to the percentage of the cure contributed thereby.

SECTION 20. Additional Covenants.

The Lessee agrees to comply with and to pay, as Supplemental Rent, all amounts payable by it under the provisions of Section 13 of the Participation Agreement and under the provisions of the Tax Indemnification Agreement and to pay all amounts (if any) which are to be paid by the Lessee under the terms of the Indenture, which provisions are incorporated herein by this reference as fully as if set forth in full at this place. The Lessee agrees to comply with its covenants and agreements set forth in Sections 7(b)(4),
10(b), 14 and 16 of the Participation Agreement and Articles III, IV, V and VI of the Assignment and Assumption, which covenants and agreements are incorporated herein by this reference as fully as if set forth in full at this place.

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SECTION 21. Lease of Real Property Interest.

Pursuant to the Deed and the Assignment of Beneficial Interest, the Lessee has sold to the Lessor the Real Property Interest. The Lessor hereby grants to the Lessee a leasehold Interest in the Real Property Interest, such leasehold to be coterminous with the lease of the undivided Interest hereunder.

SECTION 22. Amendments and Miscellaneous.

(a) Amendments in writing. The terms of this Facility Lease may not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever except by written instrument signed by the Lessor and the Lessee.

(b) Survival. (1) All indemnities, representations and warranties contained in this Facility Lease and the other Transaction Documents and the Financing Documents and in any agreement, document or certificate delivered pursuant hereto or thereto or in connection herewith or therewith shall survive, and continue in effect following, the execution and delivery of this Facility Lease and the expiration or other termination of. this Facility Lease.

(2) The obligations of the Lessee to pay Supplemental Rent and the obligations of the Lessee under Sections 5, 16, 19 and 20 hereof shall survive the expiration or termination of this Facility Lease. The extension of any applicable statute of limitations by the Owner Trustee, the Indenture Trustee, the Lessee, the Owner Participant, the Loan Participant or any Indemnitee shall not affect such survival. The obligations of the Lessee under section 20 are expressly made for the benefit of, and shall be enforceable by, any Indemnitee, separately or together, without declaring this Facility Lease to be in default and notwithstanding any assignment by the Lessor of this Facility Lease or any of its rights thereunder or any disposition of all or any part of any interest in the Undivided Interest, the Real Property Interest, Unit 2 or any other property referred to in this Facility Lease or any other Transaction Document or Financing Document. All payments required to be made pursuant to
Section 20 shall be made directly to, or as otherwise requested by, the Indemnitee entitled thereto upon written demand by such Indernnitee.

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(c) Severability of Provisions. Any provision of this Facility Lease which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Applicable Law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect.

(d) True Lease. This Facility Lease is intended as and shall constitute an agreement of lease and nothing herein or elsewhere contained shall be construed as conveying to the Lessee any right, title or interest in or to the Undivided Interest or the Real Property Interest, except as lessee only.

(e) Original Lease The single executed original of this Facility Lease marked "THIS CONTERPART IS THE ORIGINAL COUNTERPART" and containing the receipt of the Indenture Trustee thereon ohall be the "Original" of this Facility Lease. To the extent that this Facility Lease constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Facility Lease may be created through the transfer or possession of any counterpart other than the "Original".

(f) Governing Law. This Facility Lease shall be governed by and construed in accordance with the law of the state of New York, except to the extent that pursuant to the law of the State of Arizona the law of the State of Arizona is mandatorily applicable thereto.

(g) Headings. The division of this Facility Lease into sections, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Facility Lease.

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(h) Concerning the Owner Trustee. FNB is entering into this Facility Lease solely as Owner Trustee under the Trust Agreement and not in its individual capacity. Anything herein to the contrary notwithstanding, all and each of the representations, warranties, undertakings and agreements herein made on the part of the Owner Trustee are made and intended not as personal representations, warranties, undertakings and agreements by or for the purpose or with the intention of binding FNB personally but are made and intended for the purpose of binding only the Trust Estate, and this Facility Lease is executed and delivered by the Owner Trustee solely in the exercise of the powers expressly conferred upon it as trustee under the Trust Agreement; and no personal liability or responsibility is assumed hereunder by or shall at any time be enforceable against FNB or any successor in trust or the Owner Participant on account of any representation, warranty, undertaking or agreement hereunder of the Owner Trustee, either expressed or implied, all such personal liability, if any, being expressly waived by the Lessee, except that the Lessee or any Person claiming by, through or under it, making claim hereunder, may look to the Trust Estate for satisfaction of the same and the Owner Trustee or its successor in trust, as applicable, shall be personally liable for its own gross negligence or willful misconduct. If a successor owner trustee is appointed in accordance with the terms of the Trust Agreement, such successor owner trustee shall, without any further act, succeed to all the rights, duties, immunities and obligations of the Owner Trustee hereunder and the predecessor owner trustee shall be released from all further duties and obligations hereunder.

(i) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401, the beneficiary of the Trust Agreement is Burnham Leasing Corporation, a New York corporation, whose address is so Broad Street, New York, New York 10004, Attention: Assistant Treasurer. A copy of the Trust Agreement is available for inspection at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

(j) Counterpart Execution. This Facility Lease may be executed in any number of counterparts and by each of the parties hereto or thereto on separate counterparts, all such counterparts together constituting but one and the same instrument.

6091.BURNHAM. 1106.47:1

IN WITNESS WHEREOF, each of the parties hereto has caused this Facility Lease to be duly executed in New York, New York by an officer thereunto duly authorized.

THE FIRST NATIONAL BANK OF
BOSTON, not in its individual capacity,
but solely as Owner Trustee under a
Trust Agreement dated as of
August 12, 1986, with
Burnham Leasing Corporation

PUBLIC SERVICE COMPANY OF NEW MEXICO

State of New York      )
                       )ss:
County of New York     )

The foregoing instrument was acknowledged before me this 17th day of August, 1986, by J.E. STERBA, the Vice President, Revenue Management of PUBLIC SERVICE CONPANY OF NEW MEXICO, a New Mexico corporation, on behalf of said corporation.

                                                   ---------------------------
                                                         Notary Public

                                                 David A. Spivak
                                        Notary Public, State of New York
                                                 No. 31-4693468
                                          Qualified In New York County
                                        Commission Expires March 30, 1987

State of Rev York     )

)ss:
County of New York )

The foregoing instrument was acknowledged before me this 17th day of August, 1986, by M. .P.Henry, an Assistant Vice President of THE FIRST NATIONAL BANK OF BOSTON, a national banking association, on behalf of the banking association as trustee under that certain Trust Agreement, dated as of August 12, 1986, with Burnham Leasing Corporation.

David A. Spivak
Notary Public, State of New York
No. 31-4693468
Qualified In New York County
Commission Expires March 30, 1987

6091.BURNHAM.1106.47B:1

 Basic                                     Basic
  Rent                                     Rent
 Payment        Percentage of             Payment              Percentage of
  Date          Facility Cost               Date               Facility Cost
 -------        -------------             -------              -------------

7/15/1987        107.3214792              1/15/2005             68.4786850
1/15/1988        109.3866622              7/15/2005             65.9549845
7/15/1988        108.7324908              1/15/2006             63.6084475
1/15/1989        110.2890342              7/15/2006             61.2034113
7/15/1989        109.1565103              1/15/2007             58.7383750
1/15/1990        110.2811458              7/15/2007             56.2081600
7/15/1990        108.7437008              1/15/2008             53.5961840
1/15/1991        109.4409749              7/15/2008             50.9465850
7/15/1991        107.4430512              1/15/2009             48.4068189
1/15/1992        107.6449054              7/15/2009             46.0019776
7/15/1992        105.1184914              1/15/2010             43.8093499
1/15/1993        104.7898085              7/15/2010             41.8269965
7/15/1993        104.2034408              1/15/2011             40.1464641
1/15/1994        104.4621918              7/15/2011             38.7720939
7/15/1994        105.0746043              1/15/2012             37.4741344
1/15/1995        105.3313670              7/15/2012             36.0172097
7/15/1995        105.4258440              1/15/2013             34.4124193
1/15/1996        104.3460229              7/15/2013             32.5888575
7/15/1996        103.2076348              1/15/2014             30.5794579
1/15/1997        102.0075284              7/15/2014             28.3092521
7/15/1997        100.7423843              1/15/2015             25.8069882
1/15/1998        98.9769915               7/15/2015             22.9931020
7/15/1998        96.8379410               1/15/2016             20.0000000
1/15/1999        94.7183084
7/15/1999        92.3466042
1/15/2000        89.9930168
7/15/2000        87.3598679
1/15/2001        84.9164720
7/15/2001        83.2856328
1/15/2002        81.1200173
7/15/2002        79.4045153
1/15/2003        77.1226200
7/15/2003        75.3166896
1/15/2004        72.9124246
7/15/2004        71.0116226

Schedule 2 to Lease

                      Percentage                                   Percentage
Payment               of Facility            Payment              of Facility
 Date                    Cost                 Date                    Cost
- -------               -----------            -------              -----------

1986-Aug              102.1288350             Jul                  107.9900354
Sep                   103.551082              Aug                  106.3566164
Oct                   104.7577969             Sep                  107.2079214
Nov                   105.9690500             Oct                  108.0387451
Dec                   107.1890001             Nov                  108.8729188
1987-Jan              104.7469334             Dec                  109.7104940
Feb                   105.8953117             1991-Jan             106.1221028
Mar                   107.0514101             Feb                  106.9356524
Apr                   108.1807222             Mar                  107.7523828
May                   109.2806319             Apr                  108.5615682
June                  110.3875084             May                  109.3499550
July                  107.0603718             June                 110.1411302
Aug                   105.6584574             July                 106.5057575
Sep                   106.7443686             Aug                  104.7904266
Oct                   107.8004092             Sep                  105.5587490
Nov                   108.8628041             Oct                  106.3059750
Dec                   109.9316515             Nov                  107.0554541
1988-Jan              106.5659987             Dec                  107.8072206
Feb                   107.6060402             1992-Jan             104.1319920
Mar                   108.6522601             Feb                  104.8572360
Apr                   109.6884203             Mar                  105.5845013
May                   110.6998752             Apr                  106.3032497
June                  111.7170637             May                  107.0033501
July                  108.3047423             June                 107.7050799
Aug                   106.8162363             July                 103.9820366
Sep                   107.8143593             Aug                  104.6586589
Oct                   108.7874341             Sep                  105.3366619
Nov                   109.7657228             Oct                  105.9957573
Dec                   110.7493057             Nov                  106.6559602
1989-Jan              107.3029779             Dec                  107.3172872
Feb                   108.2610033             1993-Jan             103.5533963
Mar                   109.2240893             Feb                  104.1884686
Apr                   110.1786578             Mar                  104.8243968
May                   111.1134663             Apr                  105.4521169
June                  112.0529737             May                  106.0605617
July                  108.5676894             June                 106.6694473
Aug                   107.0049947             July                 102.8524714
Sep                   107.9279406             Aug                  103.4335629
Oct                   108.8309099             Sep                  104.4997786
Nov                   109.7381681             Oct                  105.0764842
Dec                   110.6497812             Nov                  105.6532650
1990-Jan              107.1363037             Dec                  106.8642699
Feb                   108.0260386             1994-Jan             103.0346527
Mar                   108.9199462             Feb                  103.6028310
Apr                   109.8071307             Mar                  104.4553998
May                   110.6740871             Apr                  105.6489107
June                  111.5448610             May                  106.2173221

Schedule 2 to Lease

                      Percentage                                   Percentage
Payment               of Facility            Payment              of Facility
 Date                    Cost                 Date                    Cost
- -------               -----------            -------              -----------

Jun                   107.4102001             May                  98.3566627
July                  103.5719724             June                 98.5366882
Aug                   104.1313271             Jul                  94.6108969
Sep                   105.3057290             Aug                  95.0805240
Oct                   105.8652448             Sep                  95.2326961
Nov                   106.4248420             Oct                  95.7025449
Dec                   107.5978253             Nov                  96.1725056
1995-Jan              103.7505297             Dec                  96.3225100
Feb                   104.3005918             1999-Jan             92.3853005
Mar                   105.1260528             Feb                  92.8385708
Apr                   106.2796494             Mar                  93.1561225
May                   106.8299640             Apr                  93.2768904
June                  107.6204041             May                  93.7328080
July                  103.7635586             June                 93.8524921
Aug                   104.3038346             July                 89.8985362
Sep                   104.8441977             Aug                  90.3393038
Oct                   105.3846483             Sep                  90.4281252
Nov                   105.9251870             Oct                  90.8691330
Dec                   106.4658145             Nov                  91.3102621
1996-Jan              102.5989118             Dec                  91.3966737
Feb                   103.1288819             2000-Jan             87.4275047
Mar                   103.6589425             Feb                  87.8526842
Apr                   104.1890943             Mar                  88.1248451
May                   104.7193378             Apr                  88.1788585
June                  105.2496736             May                  88.6044141
July                  101.3721795             June                 88.6572213
Aug                   101.8912963             July                 84.6720319
Sep                   102.4105073             Aug                  85.0807963
Oct                   102.9298132             Sep                  85.0994062
Nov                   103.4492145             Oct                  85.5084307
Dec                   103.9687120             Nov                  85.9175865
1997-Jan              100.0800638             Dec                  85.9335180
Feb                   100.3877511             2001-Jan             82.1020842
Mar                   101.0955363             Feb                  82.4951670
Apr                   101.6034203             Mar                  82.7186145
May                   102.1114036             Apr                  83.1119670
June                  102.6194869             May                  83.5181857
July                  98.7190924              June                 83.9247396
Aug                   99.2147432              July                 80.3579202
Sep                   99.5644633              Aug                  80.7448529
Oct                   100.0603188             Sep                  80.7128549
Nov                   100.5562777             Oct                  81.1000693
Dec                   100.7636596             Nov                  81.4874259
1998-Jan              96.8508951              Dec                  81.8749247
Feb                   97.3338705              2002-Jan             78.0511202
Mar                   97.6923678              Feb                  78.4253795
Apr                   97.8733668              Mar                  78.6152248

Schedule 2 to Lease

                      Percentage                                   Percentage
Payment               of Facility            Payment              of Facility
 Date                    Cost                 Date                    Cost
- -------               -----------            -------              -----------

Apr                   78.9897761             Mar                   59.8452512
May                   79.3779493             Apr                   60.1390817
June                  79.7664805             May                   60.4501342
July                  76.2061444             June                  60.7617674
Aug                   76.5739367             July                  56.6826356
Sep                   76.4988577             Aug                   56.9579842
Oct                   76.8669550             Sep                   57.2335405
Nov                   77.2352064             Oct                   57.5266386
Dec                   77.6036117             Nov                   57.8202176
2003-Jan              73.7716915             Dec                   58.1142829
Feb                   74.1261158             2007-Jan              54.0165502
Mar                   74.2855097             Feb                   54.2784579
Apr                   74.6402503             Mar                   54.5405818
May                   75.0093948             Apr                   54.8105461
June                  75.3789216             May                   55.0987103
July                  71.8254603             June                  55.3874938
Aug                   72.1730779             July                  51.2861507
Sep                   72.0525336             Aug                   51.5366040
Oct                   72.4004815             Sep                   51.7872821
Nov                   72.7485963             Oct                   52.0564975
Dec                   73.0968779             Nov                   52.3262265
2004-Jan              69.2563525             Dec                   52.5964750
Feb                   69.5898695             2008-Jan              48.4746932
Mar                   69.7172195             Feb                   48.7144424
Apr                   70.0510791             Mar                   48.9545044
May                   7034001690             Apr                   49.2029319
June                  70.7496674             May                   49.4707190
July                  67.2035191             June                  49.7392476
Aug                   67.5298725             July                  45.6106931
Sep                   67.3613448             Aug                   45.8719451
Oct                   67.6880560             Sep                   46.1342662
Nov                   68.0149478             Oct                   46.4175034
Dec                   68.3420203             Nov                   46.7021465
2005-Jan              64.4924555             Dec                   46.9882150
Feb                   64.8039363             2009-Jan              42.8781341
Mar                   64.8974848             Feb                   43.1578937
Apr                   65.2093366             Mar                   43.4394544
May                   65.5372924             Apr                   43.7314754
June                  65.8656845             May                   44.0464023
July                  61.08013766            June                  44.3636692
Aug                   62.1003736             July                  40.2859016
Sep                   62.3995624             Aug                   40.5982101
Oct                   62.7153385             Sep                   40.9132931
Nov                   63.0315647             Oct                   41.2531699
Dec                   63.3482461             Nov                   41.5962444
2006-Jan              59.2725820             Dec                   41.9425639
Feb                   59.5588168             2010-Jan              37.8950478

Schedule 2 to Lease

                      Percentage                                   Percentage
Payment               of Facility            Payment              of Facility
 Date                    Cost                 Date                    Cost
- -------               -----------            -------              -----------

Feb                    38.2377974             2014-Jan            22.4047630
Mar                    38.5842871             Feb                 22.6613287
Apr                    38.9441336             Mar                 22.9213712
May                    39.3311627             Apr                 23.1965436
June                   39.7226118             May                 23.5015807
July                   35.7216245             June                23.8108366
Aug                    36.1113307             July                19.7486393
Sep                    36.5060251             Aug                 19.9665246
Oct                    36.9301379             Sep                 20.1872659
Nov                    37.3597676             Oct                 20.4370098
Dec                    37.7949972             Nov                 20.6900970
2011-Jan               33.8392989             Dec                 20.9465759
Feb                    34.2746875             2015-Jan            16.8307614
Mar                    34.7163197             Feb                 16.9941762
Apr                    35.1748850             Mar                 17.1595803
May                    35.6657370             Apr                 17.3386034
June                   36.1636855             May                 17.5459565
July                   32.2888086             June                17.7559696
Aug                    32.7192845             July                13.5929463
Sep                    33.1560274             Aug                 13.7083977
Oct                    33.6251963             Sep                 13.8250716
Nov                    34.1012270             Oct                 13.9690892
Dec                    34.5842234             Nov                 14.1147652
2012-Jan               30.6985566             Dec                 14.2621213
Feb                    31.0958065             2016-Jan            10.0000000
Mar                    31.4987908
Apr                    31.9191123
May                    32.3716265
June                   32.8307241
July                   28.9207704
Aug                    29.2933390
Sep                    29.6712416
Oct                    30.0806639
Nov                    30.4959860
Dec                    30.9172966
2013-Jan               26.9689514
Feb                    27.3025146
Mar                    27.6407882
Apr                    27.9954449
May                    28.3812389
June                   28.7725446
July                   24.7937101
Aug                    25.0962920
Sep                    25.4030845
Oct                    25.7402557
Nov                    26.0821678
Dec                    26.4288911

Schedule 3 to Lease

 Basic                                              Basic
 Rent                        Percentage             Rent            Percentage
Payment                     of Facility            Payment         of Facility
 Date                           Cost                Date              Cost
- -------                     -----------            -------         -----------

7/15/1987                   106.2908686            1/15/2005        64.3187250
1/15/1988                   105.8330228            7/15/2005        61.6258250
7/15/1988                   107.6163400            1/15/2006        59.1032129
1/15/1989                   106.6463755            7/15/2006        56.5149370
7/15/1989                   107.9477195            1/15/2007        53.8592081
1/15/1990                   106.5420793            7/15/2007        51.1305447
7/15/1990                   107.4345809            1/15/2008        48.3120487
1/15/1991                   105.5974986            7/15/2008        45.4475301
7/15/1991                   103.0252750            1/15/2009        42.6841030
1/15/1992                   103.6003535            7/15/2009        40.0465039
7/15/1992                   103.5830405            1/15/2010        37.6116513
1/15/1993                   103.1919068            7/15/2010        41.8269965
7/15/1993                   102.5405483            1/15/2011        40.1464641
1/15/1994                   102.7316651            7/15/2011        38.7720939
7/15/1994                   103.2736925            1/15/2012        37.4741344
1/15/1995                   103.4572075            7/15/2012        36.0172097
7/15/1995                   103.4754575            1/15/2013        34.4124193
1/15/1996                   102.3163090            7/15/2013        32.5888575
7/15/1996                   101.0953671            1/15/2014        30.5794579
1/15/1997                    99.8093493            7/15/2014        28.3092521
7/15/1997                    98.4547994            1/15/2015        25.8069882
1/15/1998                    96.5933646            7/15/2015        22.9931020
7/15/1998                    94.3604877            1/15/2016        20.0000000
1/15/1999                    92.1400906
7/15/1999                    89.6635235
1/15/2000                    87.2008083
7/15/2000                    84.4540929
1/15/2001                    81.8925115
7/15/2001                    80.1386799
1/15/2002                    77.8450696
7/15/2002                    75.9963669
1/15/2003                    73.5758532
7/15/2003                    71.6256665
1/15/2004                    69.0712779
7/15/2004                    67.0142464

SCHEDULE 4

to
FACLILITY LEASE

REAL ESTATE INTEREST DESCRIPTION

The Real Property Undivided Interest is a (i) 0.6548444% undivided interest in the land described in I below, a (ii) 0.7555556% undivided interest in the rights and interests described in II below, and (iii) a 0.7515556% undivided Interest in the right and interests described in III below.

I. PVNGS PLAHT SITE

PARCEL NO. 1: Lot Four (4); the Southwest quarter of the Northwest quarter; and the West half of the Southwest quarter, all in Section Two (2), Township One (1) South, Range Six (6) West of the Qua and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 2: All of Section Three (3), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 3: The East half of Section Four (4), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 4: The West half of Section Twenty-six (26), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 5: Section Twenty-seven (27), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the Northwest quarter of Section 27.

PARCEL NO. 6: The Southeast quarter of Section Twenty-eight (28), Township One
(1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona: EXCEPT 50% of~a11 oil, gas and other mineral deposits and geothermal resources recovered from or developed on the property, as reserved in instrument recorded May 10, 1974 in Docket 10647, page 136.

6091. BURNHAM. 1106.47:1

PARCEL NO. 7: The East half of Section Thirty-three (33), Township One (1) North, Range Six (6) West of the Gila and salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 8: All of Section Thirty-four (34), Township One (1) North, Range Six
(6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 9: The West half of section Thirty-five (35), Township One (1) North, Range Six (6) West of the Qua and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 10: The Southeast quarter of Section Nine (9), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the Northwest quarter thereof.

PARCEL NO. 11: All of Section Ten (10), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the East half of the Southeast quarter thereof; and EXCEPT the North half of the South half of the Northwest quarter of the Northwest quarter thereof.

PARCEL NO. 12: That part of the East half of the Southwest quarter of Section Twenty-three (23), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona, more particularly described as follows:

BEGINNING at the Southeast corner of the said East half of the Southwest quarter of Section 23; thence West, an assumed bearing along the South line of the said East half of the Southwest quarter of Section 23, for a distance of 762.04 feet; thence North 0 degrees 03 minutes 39 seconds West; parallel to the East line of the said East half of the Southwest quarter of Section 23, for a distance of 1946.46 feet to a point on the South right-of-way line of the 200 foot wide HM5AYAMPA-5ALCME HIGHWAY, as recorded in Book 12 of Road Maps, page 82, Maricopa County Recorder, Maricopa County, Arizona; thence continuing North 0 degrees 03 minutes 39 seconds West for a distance of 234.15 feet to a point on the North right-of-way line of said highway; thence South 58 degrees 43 minutes 35 seconds

60911.BURNHAM.1106.47:1

East, along aid North right-of-way line for a distance of 892.17 feet to a point on the said East line of the East half of the Southwest quarter of Section 23; thence South 0 degrees 03 minutes 39 seconds East, along said East line for a distance of 234.15 feet to a point on the said South right-of-way line: thence continuing South 0 degrees 03 minutes 39 seconds East for a distance of 1483.31 feet to the true point of beginning;
EXCEPT the East 305 feet of the South 305 feet thereof; and EXCEPT one-half of the minerals and mineral rights and mineral estates of every kind and nature, as set forth in Deed recorded in Docket 11652, page 53, Maricopa County Records.

PARCEL NO. 13: The North half of the South half of the Northwest quarter of the Northwest quarter of Section Ten (10), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

II. HASSAYAMPA PUMPING STATION AND EFFLUENT PIPELINE

All real property, leases, licenses, easements, rights-of-way and other property held by Title USA Company of Arizona Trust NO. 530 established by that certain Trust Agreement dated October 15, 1975, as amended, but excluding therefrom all improvements.

III. MISCELLANEOUS REAL PROPERTY INTERESTS

Those ANPP Project Agreements (as defined in the ANPP Participation Agreement), in addition to the Trust Agreement for Title USA Company of Arizona Trust 530, consisting of leases, licenses, easements, and permits, which provide land and land rights for (a) the pipeline to supply waste water effluent to PVNGS from the 91st Avenue sewage treatment plant serving the Phoenix Metropolitan area and (b) railroad access to the Nuclear Plant Site (as defined in the ANPP Participation Agreement).

6091.BURNHAM.1106.47:l

SCHEDULE 5

to
FACILITY LEASE

UNDIVIDED Interest DESCRIPTION

The Undivided interest is (i) a 2.2666667% undivided interest in and to the property described under A below and (ii) a 0.7555556% undivided interest in and to the property described in B below.

A. Unit 2 of the Palo Verde Nuclear Generating Station (PNVGS), located in Maricopa County, Arizona, approximately 55 miles west of the City of Phoenix, Arizona, and approximately 16 miles west of the City of Buckeye, Arizona, consisting of:

I. Unit 2 Combustion Engineering "System 80" pressurized water reactor nuclear steam supply system (the MISS). The NO is comprised of a reactor vessel containing 241 fuel assemblies with approximately 100 tons of enriched uranium (fuel assemblies, however, are not part of Unit 2 and are not included in the Undivided Interest being sold), two steam generators, four reactor coolant pumps and various additional systems and subsystems. The licensed thermal rating of the NSSS is 3800 MW.

II. Unit 2 GE TCEF-43, 1800 RPM tandem-compound, six flow, reheat turbine-generator including turbine, generator, moisture separator-reheater, exciter, controls, and auxiliary subsystems. The turbine-generator is conductor

cooled  and rated at 1,554 DWA at 24,000 V, 3 phase,  60 HZ,
1.5 in Hg ASS  back  pressure,  and  approximately  1,363 MW
maximum gross electric output.

III. Unit 2 146 ft. inside diameter, steel-lined, prestressed concrete cylindrical containment building with a hemispherical dome designed for 60 psig. The containment building houses the reactor system. psig. The containment building houses the reactor system.

6091.BURNHAM.1106.47:1

IV. Unit 2 auxiliary systems and equipment including engineered safeguards systems, reactor auxiliary systems and turbine-generator auxiliary Systems associated with items I, II, and III above, extending to and including the Unit 2 start-up transformer.

V. Unit 2 cooling tower system consisting of three (3) mechanical draft cooling towers, including a closed cycle circulating water system, make-up water systems and essential spray ponds.

VI. Unit 2 radioactive waste treatment system, including liquid, gaseous, and solid waste subsystems, controls, instrumentation, storage, handling and shipment facilities.

VII. Unit 2 emergency diesel-generator system, including a diesel-generator building which contains two diesel generators, fuel oil systems, storage tanks, control and instrumentation systems and otner equipment.

VIII. Unit 2 internal communication systems, including associated interconnections and computer data links.

BUT EXCLUDING:

I. Nuclear fuel for Unit 2, including spare fuel assemblies.

II. Spare Parts (Unit 2)

III. Transmission facilities (including any and all facilities and equipment providing interconnection between the Unit 2 turbine generator and the ANPP High Voltage Switchyard, including step-up transformers and standby equipment and Systems).

6091.BURNHAM.1106.47:1

IV. Oil and diesel fuel inventories (Unit 2)

B. All PVNGS common facilities, INCLUDING BUT NOT LIMITED TO:

I. Surveillance systems, including associated radioactive monitoring systems and equipment.

II. Water treatment facilities and transport systems forsupply of waste water effluent.

BUT EXCLUDING:

I. Nuclear fuel, including spare fuel assemblies.

II. All transmission and ANPP High Voltage Switchyard facilities.

III Administration Building.

IV. Administration Annex Building.

V. Technical Support Center.

VI. Visitor Center.

VII. External communication systems and equipment, including associated interconnections and computer data links.

VIII. Parking lot improvements, road improvements, fencing and dikes.

IX. Spare parts (common facilities).

X. Simulator.

XI. Oil and diesel fuel inventories.

XII. Real property, beneficial interest in Title USA Company of Arizona Trust No. 530, and Project Agreement interests described in Schedule 4.

XIII. Warehouse.

6091.BURNHAM.1106.47:1

Appendix A.

DEFINITION OF TERMS

The terms defined herein relate to the participation Agreement (as defined below) and certain Transaction Documents executed, or to be executed, in connection with the participation Agreement. Such terms include the plural as well as the singular. Any agreement defined or referred to below shall include each amendment, modification and supplement thereto and waiver thereof as may become effective from time to time, except where otherwise indicated. Any term defined below by reference to any agreement shall have such meaning whether or not such document is in effect. The terms "hereof", "herein", "hereunder" and comparable terms refer to the entire agreement with respect to which such terms are used and not to any particular article, section or other subdivision thereof.

If, and to the extent that, either the participation Agreement or any other Transaction Document which incorporates this Appendix shall be amended from time to time pursuant to the respective terms thereof, this Appendix shall be, or be deemed to have been, amended concurrently with the execution and delivery of each such amendment in order to conform the definitions herein to the new or amended definitions set forth in or required by each such amendment.

Additional Bards shall mean Bonds in addition to the Initial Series Bonds.

Additional Equity Investment shall have the meaning specified in Section 8(f) of the Facility Lease.

Additional Notes shall have the meaning set forth in the recitations in the Indenture, which Additional Notes shall be issued, if at all, pursuant to Section 3.5 of the Indenture.

Affiliate, with respect to any Person, shall mean any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such person. For purposes of this definition, the

6091.BURNHAM.1106.47:1

term "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

After-Tax Basis shall mean, with respect to any payment received or deemed to have been received by any Person, the amount of such payment supplemented by a further payment to that Person so that the sum of the two payments shall, after deduction of all taxes and other charges (taking into account any credits or deductions arising therefrom and the timing thereof) computed at the highest marginal statutory tax rate resulting from the receipt (actual or constructive) of such two payments imposed under any Applicable Law or by any Governmental Authority, be equal to such payment received or deemed to have been received.

Agent and Agency Period shall have the respective meanings set forth in Section 7.01 of the Assignment and Assumption.

ANPP Administrative Committee shall mean the committee established pursuant to section 6.1.1 of the ANPP Participation Agreement (or any comparable successor provision).

ANPP operating Committee shall mean the committee established pursuant to Section 6.1.2 of the ANPP Participation Agreement (or any comparable successor provision).

ANPP Participants shall have the meaning assigned to the word Participant under the ANPP Participation Agreement.

ANPP Participation Agreement shall mean the Arizona Nuclear Power Project Participation Agreement, dated as of August 23, 1973, among APS, Salt River, Southern California, PNM, El Paso, LADWP and SCPPA, as heretofore and hereafter amended pursuant to the terms thereof.

609l.BURNHAM.ll06.55:l

ANPP Project Agreements shall mean the ANPP Participation Agreement and the other Project Agreements (as such term is defined in the ANPP Participation Agreement)

ANPP switchyard shall mean the ANPP High Voltage switchyard located at the PVNGS site, the owner-ship, construction, operation and maintenance of which are governed by the AN?? High Voltage switchyard Participation Agreement executed as of August 20, 1921 (APS Contract No. 2252-419,00), the parties to which are APS, PNM, salt River, El Paso, LADWP and southern California.

ANPP Transferee shall have the meaning set forth in Section 4.01 of the Assignment and Assumption.

Applicable Law shall mean all applicable laws, statutes, treaties, rules, codes, ordinances, regulations, permits, certificates, orders, licenses and permits of any Governmental Authority, interpretations of any of the foregoing by a Governmental Authority having jurisdiction, and judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other judicial or quasi judicial tribunal (including those pertaining to health, safety, the environment or otherwise).

Appraisal procedure shall mean a procedure whereby two independent appraisers, one chosen by the Lessee and one by the Lessor, shall mutually agree upon the value, period or amount (including Economic useful Life) then the subject of an appraisal. If either the Lessor or the Lessee, as the case may be, shall determine that a value, period or amount to be determined (other than fair market value under section 5(b) of the Facility Lease) under the Facility Lease or any other Transaction Document cannot be established promptly by mutual agreement, such party shall appoint its appraiser and deliver a written notice thereof to the other party. Such other party shall appoint its appraiser within 15 days after receipt from the other party of the foregoing written notice. If within 20 days after appointment of the two appraisers, as described above, the two appraisers are unable to agree upon the value, period or amount in question, a third independent appraiser shall be chosen within ten days thereafter by the mutual consent of such first two appraisers or, if such

6091.BURNHAM.1106.47:1

first two appraisers fail to agree upon the appointment of a third appraiser within such period, such appointment shall be made by the American Arbitration Association, or any organization successor thereto, from a panel of arbitrators having experience in the business of operating a nuclear electric generating plant and a familiarity with equipment used or operated in such business. The decision of the third appraiser so appointed and chosen shall be given within ten days after the selection of such third appraiser. If three appraisers shall be so appointed and the determination of one appraiser is disparate from the middle determination by more than twice the amount, period or value by which the third determination is disparate from the middle determination, then the determination of such appraiser shall be excluded, the remaining two determinations shall be averaged and such average shall be binding and conclusive on the Lessor and the Lessee; otherwise the average of all three determinations shall be binding and conclusive on the Lessor and the Lessee. The fees and expenses Of appraisers incurred in connection with any Appraisal Procedure relating to any transaction contemplated by any provision of any Transaction Document shall be divided equally between the Lessor and the Lessee (except pursuant to section 16 of the Facility Lease, which shall be paid solely by the Lessee)

APS shall mean Arizona public service Company, an Arizona corporation.

Arizona Public utility Act 5 shall mean Chapter 2, Title 40, Arizona Revised Statutes.

Assigned Payments shall have the meaning specified in section 2.1(1) of the Indenture.

Assignment and Assumption shall mean the Assignment, Assumption and Further Agreement. dated as of August 12, 1986, between PNM and the Owner Trustee.

Assignment of Beneficial interest shall mean the Deed and Assignment of Beneficial Interest under Title USA Company of Arizona Trust No. 530, dated as of August 18, 1986, from PNM to the owner Trustee.

6091.BURNHAM.1106.47:1

Assumption Agreement shall mean the Assumption Agreement of PNM substantially in the form of Exhibit B to the Indenture.

Assumptions shall mean the Pricing Assumptions and the Tax Assumptions.

Atomic Energy Act shall mean the Atomic Energy Act of 1954, as amended, and regulations from time to time issued, published or promulgated pursuant thereto.

Authorized officer shall mean, with respect to the Indenture Trustee, any officer of the Indenture Trustee who shall be duly authorized by appropriate corporate action to authenticate a Note and shall mean, with respect to the owner Trustee, any officer of the owner Trustee who shall be duly authorized by appropriate corporate action to execute any Transaction Document.

Bankruptcy code shall mean the Bankruptcy Reform Act of 1978, as amended, and any law with respect to bankruptcy, insolvency or reorganization successor thereto.

Basic Lease Tern shall mean the initial term of the Facility Lease, which shall begin on the Closing Date and end on January 15, 2016, unless earlier terminated.

Basic Rent shall have the meaning set forth in section 3(a) of the Facility Lease.

Basic Rent Payment Dates shall mean and include January 15, 1987, and each January 15 and July 15 of each year thereafter through and including January 15, 2016, and, if the Lessee shall elect the Renewal Term, each January 15 and July 15 of each year during the Renewal Term, commencing July 15, 2016 and ending on the last day of the Renewal Term.

Bill of Sale shall mean the Deed and Bill of sale, dated as of August 18, 1986, between PNM and the owner Trustee.

6091.BURNHAM.1106.55:1

Bonds shall mean all bonds, notes and other evidences of indebtedness from time to time issued and outstanding under the Collateral Trust rndenture, including. but without limitation, the Initial series Bonds, the Releveraging Bonds, the Refunding Bonds and any other Additional Bonds.

Business Day shall mean any day other than a Saturday or Sunday or other day on which banks in Albuquerque, New Mexico, new York, New York or Boston, Massachusetts are authorized or obligated to be closed.

Capital Improvement shall mean (a) the addition, betterment or enlargement of any property constituting part of Unit 2 or the Common Facilities or the replacement of any such property with other property, irrespective of whether (i) such replacement property constitutes an enlargement or betterment of the property which it replaces, (ii) the cost of such addition, betterment, enlargement or replacement is or may be capital ized, or charged to maintenance or repairs, in accordance with the Uniform System of Accounts or (iii) such addition, betterment or enlargement is or is not included or reflected in the plans and specifications for Unit 2 or the Common Facilities, as built, and (b) any alteration, modification, addition or improvement to Unit 2, other than original, substitute or replacement parts incorporated into Unit 2 or the Common Facilities.

Casualty value, as of any Basic Rent payment Date, shall mean the percentage of Facility Cost set forth opposite such date in Schedule 1 to the Facility Lease. casualty value as of any Basic Rent Payment Date during the Renewal Term shall mean the unamortized portion as of such Basic Rent Payment Date of the Fair Market sales value of the undivided Interest, determined by the straight-line amortization of such Fair Market sales value at the corrurencement of the itenewal Term over the period from such commencemant date through the remaining term of the License determined pursuant to the Appraisal procedure undertaken in accordance with the last sentence of section 13(a) of the Facility Lease. Anything contained in the participation Agreement or the Facility Lease to the contrary notwithstanding, Casualty Value shall be, when added to all other amounts which the Lessee is required to pay under Section 9(c) of the Facility Lease (taking into account any assumption of Notes by the Lessee),

6091.BURNHAM.llO6.55:l

a under any circumstances and in any event, in an amount at least sufficient to pay in full, as of any Basic Rent Payment Date, the aggregate unpaid principal amount of all Notes Outstanding at the close of business on such date, together with accrued and unpaid interest on such Notes.

Change in Tax raw shall mean any change in the Code or successor legislation enacted by either the Ninety-ninth or the One Hundredth Congress (other than a change in respect of an alternative minimum tax or an add-on minimum tax having the same effect as an alternative minimum tax), or if prior to January 15, 1997 Ci) there is enacted any technical correction thereto, or (ii) there are adopted, promulgated, issued or published any proposed, temporary or final Regulations resulting therefrom (regardless of the effective date of such technical corrections or Regulations, but only if such technical corrections or Regulations would affect Net Economic Return), provided, however, that a Change in Tax Law shall occur in the event the provision set forth in
Section 1509(b) of H.R. 3838 as passed by the U.S. House of Representatives on December 17, 1985 and Section 1809(b) of H.R. 3838 as passed by the U.S. Senate on June 24, 1986 shall fail to be enacted into law in the form therein set forth or, if such provision is so enacted into law, it shall not apply to the Common Facilities.

Chemical Bank shall mean chemical Bank, a New York banking corporation.

Chief Financial officer shall mean the person designated by the Board of Directors of PNN as the chief financial officer of PNM.

Claim shall mean liabilities, obligations, losses, damages, penalties, claims (including, without limitation, claims involving liability in tort, strict or otherwise), actions, suits, judgments, costs, interest, expenses and disbursements, whether or not any of the foregoing shall be founded or unfounded (including, without limitation, legal fees and expenses and costs of investigation) of any kind and nature whatsoever without any limitation as to amount.

6091.BURNHAM.1106.47:1

Closing shall mean the proceedings which are contemplated by
Section 4 of the Participation Agreement

Closing Date shall mean August 18, 1986.

Code shall mean the Internal Revenue Code of 1954, as amended, or any comparable successor law.

Collateral Trust Indenture shall mean the Collateral Trust Indenture, dated as of December 16, 1985, among PNM, Funding Corp and the Collateral Trust Trustee.

Collateral Trust Indenture supplement shall mean a supplement to the Collateral Trust Indenture.

Collateral Trust Trustee shall mean Chemical Bank, not in its individual capacity, but solely as Collateral Trust Trustee under the Collateral Trust Indenture, and the successors or assigns of such Trustee.

Common Facilities shall mean all PVNGS common facilities, as set forth in rtem B of Exhibit B to the Bill of Sale, other than common facilities excluded therefrom in said item B.

Common Facilities Interest shall mean the Owner Trustee's portion of the Lessee's original 10.2% undivided interest in all Common Facilities at PVNGS, the percentage of which is set forth in Schedule 2 to the Participation Agreement.

Coverage Ratio shall mean the fraction (i) the denominator of which shall be the sum (calculated as of a date no earlier than 135 days prior to the date of calculation) of (x) the interest that will be payable during the twelve-month period following the date of the transaction with respect to which a calculation is required to be made on the debt (both long-term and short-term) of the Surviving Lessee, and (y) the interest portion of payments due during the twelve-month period following the date of such transaction on lease obligations of the Surviving Lessee with a term in excess of one year, and (ii) the numerator of which shall be the sum of (x) the pro forma net sarnings (before taxes and excluding allowance for funds used during construction) of the

6091. BURNHAM. 1106.55:1

Surviving Lessee for a twelve-month period ending no earlier than 135 days prior to the date of such transaction, and Cy) such denominator.

Cure option shall have the meaning set forth in section 16(e) of the Facility Lease.

Debt shall mean (A) indebtedness for borrowed money, (B) obligations as lessee under leases and (C) obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clause (A) or (B) above, if the principal amount (or equivalent) thereof is greater than $20,000,000 for any one item of Debt or $30,000,000 in the aggregate for all items of Debt of the Lessee).

Decommissioning shall mean the decommissioning and retirement from service of Unit 2, and the related possession, maintenance and disposal of radioactive material used in ot produced incident to the p05session and operation of Unit 2, including, without limitation, (i) placement and maintenance of Unit 2 in a state of protective storage, (ii) in-place entombment and maintenance of Unit 2, (iii) dismantlement of Unit 2, (iv) any other form of decommissioning and retirement from service required by or acceptable to the NRC and (v) all activities undertaken incident to the implementation thereof and to the obtaining of NRC authority therefor, including, without limitation, maintenance, storage, custody, removal, decontamination, and disposition of materials, equipment and fixtures, razing of Unit 2, removal and disposition of debris from the PVNGS Site, and restoration of the PVNGS Site related to Unit 2 for unrestricted use.

Decommissioning Costs shall mean all costs, liabilities and expenses relating or allocable to, or incurred in connection with, the Decommissioning of Unit 2, including, without limitation, (i) any and all costs of activities undertaken to terminate NRC licensing authority and requirements to own, operate and p05sess Unit 2 and to possess radioactive material used in or produced incident to the possession and operation of Unit 2; and (ii) any and all costs of activities undertaken, prior to termination of all NRC licensing

6091.BURNHAM.1106.47:1

authority and requirements with respect to Unit 2 and the radioactive material used in or produced incident to the possession and operation of Unit 2, to possess, maintain, and dispose of radioactive material used in or produced incident to the possession and operation of Unit 2.

Deed shall mean the Deed, dated as of August 12, 1986, from PNM to the Owner Trustee.

Deemed Loss Event shall mean any of the following events (unless waived by the Owner Participant, which waiver shall be in writing and may be either indefinite or for a specified period):

(1) Regulation. If at any time after the closing Date and before the Lease Termination Date, the Owner Trustee or the Owner Participant, by reason of the ownership of the Undivided Interest or the Real Property Interest or any part thereof by the Owner Trustee (or any beneficial interest therein by the Owner Participant) dr the lease of the Undivided Interest or the Real Property rnterest to the Lessee or any of the other transactions contemplated by the Transaction Documents (the term Owner Participant, as used in this definition, not including any Transferee who at the time of transfer to such Transferee is a non-exempt entity of the type referred to in this clause (1), whether by reason of such ownership or lease transactions, or otherwise) shall be deemed by any Governmental Authority having jurisdiction to be, or shall become subject to regulation (other than Non-Burdensome Regulation) as, an "electric utility" or a "public utility" under any Applicable Law or a holding company under the Holding Company Act, or as a consequence of any Governmental Action, and the effect thereof on the Owner Trustee or the Owner Participant would be, in the sole judgment of either such Person, acting on advice of counsel, adverse, and the Owner Trustee and the Owner Participant have not waived application of this definition, except that if the Lessee, at its sole cost and expense, is contesting diligently and in good faith any action by any Governmental Authority which would otherwise constitute a Deemed Loss Event under this clause
Cl), such Deemed Loss Event shall be deemed not to have occurred so long as (i) such contest does not involve ariy danger of the foreclosure, sale, forfeiture or loss of, or the creation of any Lien

6091.BURNHAM.1106.47:1

on, the Undivided Interest, the Real property rnterest or any part thereof or any interest therein, (ii) such contest does not adversely affect the Undivided Interest, the Real property Interest or any part thereof or any other property, assets or rights of the owner Trustee or the owner participant or the Lien of the Indenture thereon, (iii) the Lessee shall have furnished the owner Trustee, the owner Participant, and the Indenture Trustee with an opinion of independent counsel satisfactory to each such person to the effect that there exists a reasonable basis for contesting such determination and the effects thereof, (iv) such determination and the effects thereof shall be effectively stayed or withdrawn during such contest (and shall not be subject to retroactive application at the conclusion of such contest) in a manner satisfactory to the owner Trustee and the owner participant, and the Owner Participant shall have determined that the Owner Trustee's continued ownership of the Undivided Interest and the Real Property rnterest during the pendency of such contest or such contest will not adversely affect its or its Affiliates' business, and (V) the Lessee shall have indemnified the owner Trustee and the owner participant in a manner satisfactory to each such Person for any liability or loss which either such person may incur as a result of the Lessee's contest;

(2) Price-Anderson Act Change. If there shall be, at any time during the Lease Term, any change in the price-Anderson Act, the Atomic Energy Act or the regulations of the NRC, or any other Applicable Law, in each case as in effect on the Closing Date, as a result of which, in the opinion of independent counsel for the Owner Participant, (i) the aggregate liability for a single Nuclear Incident of "persons indemnified" (as each such term is defined in the price-Anderson Act) is increased, unless the change is such that neither the owner Trustee nor the Owner participant may be exposed, either during or subsequent to the Lease Term, to any increased real or potential liability in respect of a Nuclear Incident, (ii) the aggregate liability for a single Nuclear Incident of "persons indemnified" (as such term is defined in the price-Anderson Act) exceeds the amount of financial protection established by the NRC as a condition to the License, unless the change

6091.BURNHAM.1106.47:1

is such that neither the Owner Trustee nor the Owner Participant may be exposed, either during or subsequent to the Lease Term, to any increased real or potential liability in respect of a Nuclear Zncident,
(iii) the amount of financial protection required, including but flat limited to the limitation on the amount of deferred premiums for such financial protection, is increased, unless the change is such that neither the Owner Trustee nor the Owner Participant may be exposed, either during or subsequent to the Lease Term, to any increased real or potential liability in respect of a Nuclear Incident, or (iv) either the Owner Trustee or the Owner Participant may be exposed to any other increase in its real or potential liability in respect of a Nuclear Incident, either during or sub-sequent to the Lease Term, it being understood for purposes of this definition that the requirement or existence of insurance, retrospective premiums, indemnities (whether by the Lessee or any other person) or other forms of financial protection (similar or dissimilar to the foregoing) shall not be deemed to reduce or eliminate any exposure of the Owner Trustee or the owner Participant to real or potential liability in respect of a Nuclear Incident except to the extent Cx) such financial protection is provided by the United States Government under Congressional action which does not require any further appropriation or other act of congress or any other Governmental Authority, (y) the terms of such financial protection are otherwise satisfactory to the Owner Trustee and the Owner Participant, and (z) the Owner Trustee or Owner Participant may not otherwise be exposed, either during or subsequent to the Lease Term, to any increased real or potential liability in respect of a Nuclear Incident; provided, however, that such change shall not constitute a "Deemed Loss Event9' if such change shall include a provision drafted in a manner reasonably satisfactory to the Owner Participant which exempts the Owner Trustee and the owner Participant from all real and potential liability in respect of a Nuclear Incident so long as neither the Owner trustee or the Owner Participant is in actual possession and control of Unit 2 or the Undivided Interest, unless (in the opinion of independent counsel to the Owner Participant) a court could reasonably hold that the statute incorporating such provision is unconstitutional;

6091. BURNHAM. 1106.55:1

(3) Liability for Termination obligation. If there shall be any change in Applicable Law as a result of which the owner Trustee shall become liabLe in its individual capacity, or the owner participant shall become liable in any capacity, in respect of any portion of the Termination obligation (as defined in the ANPF Participation Agreement) or ~ecommissioning Costs or, during the Lease Term, any other liability or obligation imposed as of the date hereof on licensees of the NRC;

(4) Illegality. If there shall be any change in Applicable Law or any Governmental Action the effect of which is to make the transactions contemplated by the Transaction Documents unauthorized, illegal or otherwise contrary to Applicable Law;

(5) Limitation on Exercise of Rights. Any change in, or new interpretation by Governmental Authority having jurisdiction of, the License and the License Amendment (each as in effect on the Closing Date) constituting an assertion to the effect that the exercise by the owner Trustee or the owner participant of any right (irrespective of the event giving rise to such right) under any Transaction Document would constitute impermissible control over Unit 2 or the licensees of Unit 2, other than an assertion that affects such rights in a manner consistent with the second sentence of section 184 of the Atomic Energy Act and the NRC'S regulations thereunder (including, without limitation, 10 CYR section 50.81, as now and hereafter in effect);

(6) Early Licensee Status. If as a result of any expiration, revocation, suspension, amendment or interpretation by any Governmental Authority of the License, the License Amendment or any other Governmental Action or change in Applicable Law, either the owner Trustee or the owner Participant shall be required to become a licensee of the NRC prior to the Lease Termination Date;

(7) Suspension or Termination of Insurance. If any policy of liability insurance with respect to Unit 2 shall be suspended or terminated, or the. coverage thereunder reduced, for any reason whatsoever or shall be amended or supplemented, in either case in a manner which may expose the owner Trustee or

6091.BURNHAM.1106.47:1

the Owner Participant, either during or subsequent to the Lease Term1 to any increased real or potential liability in respect of a Nuclear Incident and such policy of insurance shall not be immediately replaced by insurance or other financial protection satisfactory to the Owner Participant effective immediately upon such suspension, termination, reduction, amendment or supplementation which, in the reasonable opinion of the Owner Participant, is at least as protective of it (in all respects deemed by it to be material) as the policy of insurance so terminated, suspended, reduced, amended or supplemented, urdess the aggregate liability for a Nuclear Incident of "persons indemnified" (as such term is defined in the Atomic Energy Act of 1954, as amended) is reduced by an amount equal to the amount of liability insurance so terminated, suspended, reduced, amended or supplemented and, in the reasonable opinion of the Owner Participant, it may not otherwise be exposed1 either during or subsequent to the Lease Term, to any increased real or potential liability in respect of a Nuclear rncident as a consequence of such suapenston, termination, reduction, amendment or supplementation.

Default shall mean an event or condition which, with the giving of notice or lapse of time, or both, would constitute an Event of Default.

Directive shall mean an instrument in writing executed in accordance with the terms and provisions of the Indenture by the Holders, or their duly authorized agents or attorneys-in-fact, representing a Majority in Interest of Holders of Notes, directing the Indenture Tru5tee to take or refrain from taking the action specified in such instrument.

Early Termination Date shall have the meaning specified in
Section 14(d) of the Facility Lease.

Early Termination Notice shall have the meaning specified in
Section l4Cd) of the Facility Lease.

Economic Useful Life shall mean that period (commencing on the date as of which the determination of Economic Useful Life is to be made as provided in section 8(g) of the Facility Lease and ending on the date upon which either of the states of affairs described in clauses ci) and Cii) below cease to

6091.BURNHAM.1106.47:1

apply, or can reasonably be expected to cease to apply, to Unit 2) during which
(i) Unit 2 will be useful to, and usable by, any owner or lessee thereof as a facility f6r the generation of electric pdwer'and (ii) Unit 2 is an economic and commercially practical facility for the generation of electric power capable of producing (after taking into account costs of capital) a reasonable economic return to the owner thereof. For the purposes of determinations under clauses
(i) and (ii) above, the following factors, among others, shall be taken into account (as such factors obtain on the date of determination and as such factors are reasonably expected to obtain in the future): (a) provisions of the ANPP Project Agreements (including, without limitation, the ANPP Participation Agreement and the Material Project Agreements (or substitutes for such Material Project Agreements in effect on the date of determination)); (b) the actual condition and performance of Unit 2: (C) the actual condition and performance of such other facilities constituting PVNGS (including, without limitation, the Common Facilities) as are integral to the operation of Unit 2; (d) the actual condition of, and access of the ANPP Participants to, the ANPP switchyard and such other transmission facilities as are available and necessary to permit the transmission of the maximum amount of power generated by PVNGS; (e) the cost of obtaining, handling, storing and disposing of nuclear fuel for Unit 2; (f) the projected cost (including, without limitation, costs attributable to obligations to fund any reserve fund maintained (or funded) by licensed owners and/or lessees of Unit 2 to the extent dedicated to (or attributable to and freely available with respect to) Unit 2 (the Unit 2 Fund)) or the Decommissioning or retirement from service of Unit 2 including, without limitation, Decommissioning Costs (taking into account the balance (plus projected investment earnings thereon) of the Unit 2 Fund); (g) the cost of Capital Improvements to Unit 2 then planned to be made, or reasonably expected to be made; (h) the cost of acquiring or leasing the Unit 2 Retained Assets; (i) the current status of all Governmental Action with respect to Unit 2 (including without limitation, the License) required to permit licensed owners and/or lessees to possess and (in the case of the operating Agent) to operate unit 2 and such other facilities constituting PVNGS (including, without limitation, the Common Facilities) as are integral to the operation of unit 2; and (j) the relative cost of producing an amount of electric power and energy equivalent to the generating

6O9l.BURNHAM. 1106.55:1

capacity of Unit 2 from other facilities then available in the region serviced, or reasonably expected to be serviced by PVNGS.

El Paso shall mean El Paso Electric Company, a Texas corporation.

ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended.

Estimated Transaction Expenses S h a 1 1 h ave the meaning set forth in Section 5(a) of the Participation Agreement.

Event of Default shall have the meaning set forth in Section 15 of the Facility Lease.

Event of Loss shall mean any of the following events: (a) a Final Shutdown, (b) a Requisition of Title, or (a) a Requisition of.Use for an indefinite period which can be reasonably expected to exceed, or a stated period which ends on the last day of or after, the Lease Term (including the Renewal term only if the Renewal Term shall have been elected prior to such Requisition of Use by the exercise of the renewal option provided in Section 12 of the Facility Lease).

Excepted Payments shall mean (i) all payments of Supplemental Rent, other than payments by the Lessee (x) of Casualty Value, Termination Value br Special Casualty Value or in connection with the exercise of the Cure Option or the occurrence of the Special Purchase Event or (y) of indemnity payments to which either the Loan Participant or any Indemnitee other than the owner Trustee or the Owner Participant or any of their respective Affiliates (or the respective successors, assigns, agents, officers, directors or.employees thereof) is entitled; (ii) any amounts payable under any Transaction Document to reimburse the Lessor or the Owner Participant or any of their respective Affiliates (including the reasonable expenses of the Lessor or the Owner Participant incurred in connection with any such payment) for performing or complying with any of the obligations of the Lessee under and as permitted by any Transaction Document, (iii) any amount payable to the Owner Participant by any Transferee as the purchase price of the Owner Participant's interest in the Trust Estate, (iv) so long as no Indenture Default or Indenture Event of Default

6091. BURNHAM. 1106.55:1

shall have occurred and be continuing, all payments of Basic Rent in excess of amounts then due and owing in respect of the principal of and premium, if any, and interest on all Notes outstanding; (v) any insurance proceeds with respect to an Event of Loss in excess of amounts then due and owing in respect of the principal of and premium, if any, and interest on all Notes outstanding, (vi) any insurance proceeds (or payments with respect to risks self-insured) under liability policies and (vii) any payments in respect of interest to the extent attributable to payments referred to in clauses (i) through (vi) above.

Existing Mortgage shall mean the Indenture of Mortgage and Deed of Trust dated as of June 1, 1947, between PNM and Irving Tuust Company, as heretofore supplemented by all supplemental Indentures thereto.

Expenses shall mean liabilities, obligations, losses, damages, taxes (other than taxes on income), claims, actions, suits, costs, expenses and disbursements (including legal fees and expenses) of any kind and nature whatsoever.

Extension Letter shall mean the Extension Letter, dated August 18, 1986 and addressed to the Collateral Trust Trustee by the parties to the Participation Agreement.

Extraordinary Nuclear occurrence shall have its meaning as defined in Section 11 of the Atomic Energy Act and the related NRC regulations, as amended to the date hereof, and as the meaning of such term shall be expanded from time to time by future amendments thereof. The definition of "extraordinary nuclear occurrence" contained in Section 11 of the Atomic Energy Act on the date hereof is: "any event causing a discharge or dispersal of source, special nuclear, or byproduct material from its intended place of confinement in amounts offaite, or causing radiation levels offsite, which the Commission determines to be substantial, and which the Commission determines has resulted or will probably result in substantial damages to persons off-site or property offsite. Any determination by the Commission that such an event has, or has not, occurred shall be final and conclusive, and no other official or any court shall have power or jurisdiction to review any such determination. The Commission shall establish criteria in writing setting forth the basis upon which such determination shall be made. As used in this subsection, 'offsite' means away fron 'the location' or 'the contract location' as defined in the applicable Commission indemnity agreement, enterea into pursuant to section 2210 of this title."

6091. BURNHAM. 1106.55:1

Facility cost shall mean the Purchase Price plus the sum of
(x) all supplemental Financing Amounts, and (y) all Additional Equity Investment amounts.

Facility Lease shall mean the Facility Lease, dated as of August 12, 1986, between PNM, as Lessee, and the owner Trustee, as Lessor.

Fair Market Rental value or Fair Market Sale' Value of any property or service shall mean (other than for purposes of section 5(b) of the Facility Lease) the value of such property or service for lease or sale determined on the basis of an arm's-length transaction for cash between an informed and willing lessee or purchaser (under no compulsion to lease or purchase) and an informed and willing lessor or seller (under no compulsion to lease or selt), and shall take into account the Lessor's rights and obligations under the Assignment and Assumption and the Assignment of Beneficial Interest and rights under the Deed and the Bill of sale, but shall be without regard to any rights of the Lessee (including any renewal options) under the Facility Lease. Except pursuant to section 6.01 of the Assignment and Assumption, Fair Market Rental Value and Fair Market sales value of the undivided Interest and the Real Property Interest shall be determined on the assumption that (i) Unit 2 has been maintained in accordance with, and the Lessee has complied with, the requirements of the Facility Lease, the other Transaction Documents and the ANPP Participation Agreement, and (ii) the Lessee or PNM, as possessor of the Undivided Interest and the Real Property Interest, is otherwise in compliance with the requirements of all Transaction Documents. Fair Market Rental value shall be determined on the assumption that rent will. be payable in equal semi-annual installments in arrears.

Federal Power Act shall mean the Federal Power Act,as amended.

6091.BURNHAM.1106.47:1

Federal securities shall have the meaning set forth in section 2.3(c) of the Indenture.

FERC shall mean the Federal Energy Regulatory Commission of the United States of America or any successor agency.

Final Prospectus shall mean the Prospectus included in the Registration statement on the date the same becomes effective, including documents incorporated into said Prospectus by reference, including any applicable prospectus supplements.

Final Shutdown shall mean the earlier to occur of:

(1) the expiration or revocation of the License or that portion of the License that permits the operation of Unit 2 or the expiration, suspension or revocation of the License or that portion of the License that permits the possession by the Lessee of the Undivided Interest and the Real Property Interest: or

(2) the suspension (pursuant to 10 C.F.R. section 2.202, as amended, and any successor provision) of the License or that portion of the License that permits the operation of Unit 2, which suspension remains in effect for three consecutive calendar months; or

(3) the permanent or temporary cessation of operation of Unit 2 as a result of a Nuclear Incident at Unit 2 (or if Unit 2 is not in operation immediately prior to the occurrence of such Nuclear Incident, the failure to resume operation thereof as a result of such Nuclear Incident) if (A) the Period of such cessation or failure equals or exceeds twenty-four consecutive calendar months, or (3) such Nuclear Incident causes the radiation level in the containment building of Unit 2, as measured by the average of two high range radiation monitors in such containment building of Unit 2 (or if only one such monitor is operating at such time, such monitor) over one hour to equal or exceed 500 rads per hour; provided e however, this subsection (B) shall not apply in respect of a Nuclear Incident arising solely from a fuel handling accident; or

6091. BURNMAM. 1106.55:1

(4) the permanent or temporary cessation of operation of Unit 2 as a result of a Nuclear Incident at Unit 1 or 3 (the Affected Unit) (or if Unit 2 is not in operation immediately prior to the occurrence of such Nuclear Incident, the failure to resume operation thereof as a result of such Nuclear Incident) if (A) the Period of such cessation or failure equals or exceeds thirty-six consecutive calendar months; or (B) such Nuclear Incident causes the radiation level in the containment building of the Affected Unit, as measured by the average of two high range radiation monitors in such containment building (or if only one such monitor is operating at such time, such monitor) over one hour to equal or exceed 500 rads per hour; provided, however, this subsection (B) shall not apply in respect of a Nuclear Incident arising solely from a fuel handling accident;

(5) The occurrence of a Nuclear Incident at Unit 1, 2 or 3 causing (A) substantial injury or death to any person on or off the PYNGS Site or (B) a discharge or dispersal of Source, special Nuclear or Byproduct Material from its intended place of confinement in amounts of f the PVNGS Site or causing radiation levels off the PVNGS Site such that, in the case of (B) above (x) the NRC declares the occurrence of an Extraordinary Nuclear Occurrence or declares any other event connoting an equivalent level of accident or (y) the surface contamination dose rate measured off the PVNGS Site by a radiation monitor at 1 meter above the surface level equals or is greater at any time than 10 millirads/hour (0.10 milligray/hour) or in the case of noble gas plume passage, the radiation dose rate equals or is greater than 10 rads (0.10 gray) integrated over 24 hours, (or if the NRC shall at any time lower the radiation levels required for the occurrence of an Extraordinary Nuclear Occurrence, such lower levels as shall be consistent with such change by the NRC); or

(6) damage to or destruction of any portion of Unit 2 and, unless the Lessee theretofore shall have exercised its purchase option under
Section 13(b) of the Facility Lease, the failure of the Lessee, or of the Lessee and one or more other ANPP Participants, (A) to agree within eighteen calendar months of such damage or destruction (or prior to such earlier date as of which one or more other ANPP Participants shall agree to restore or reconstruct any damaged portion of Unit 2 in accordance with Section 16.2 of the ANPP Participation Agreement) to restore or reconstruct Unit 2 to completion priot to the day sixty calendar months after the date of such agreement and (B)

6091.BURNHAM.1106.47:1

thereafter to complete the restoration and reconstruction of unit 2 within a period of sixty calendar months after the date of such agreement, provided that no Final Shutdown shall be deemed to have occurred pursuant to this clause (6) if and so long as Unit 2 is in operation at a rated core power level of at least 1900 megawatts thermal; or

(7) the non-operation of Unit 2 or the operation of Unit 2 at a net rated power level below 630 megawatts electric or any combination thereof for any reason (including, without limitation, the occurrence of any Nuclear Incident at any generating facility located anywhere in the world) for a Period of thirty-six consecutive calendar months (or a period through the penultimate day of the Lease Term if the Lessee shall have given notice of its intent to exercise the purchase option permitted by section 13(b) of the Facility Lease) other than as a result of damage to or destruction of Unit 2.

For purposes of this definition, a Final Shutdown resulting from the occurrence of an event described in clause (5) above shall be deemed to have occurred immediately and automatically upon the decline of the water coolant within Unit 2 to a level three feet above the nuclear fuel.

Financing Documents shall mean the Collateral Trust Indenture, the Term Note Supplemental Indenture, the Underwriting Agreement, the Term Loan Agreement, the Supplemental Indenture of Pledge and the Refunding Supplemental Indenture.

Fixed Rate Nate shall mean the non-recourse promissory note or notes to be issued by the Owner Trustee and authenticated by the Indenture Trustee on the Refunding Date to refund the Initial series Note.

Fixed Rate Renewal Term shall have the meanings set forth in
Section 12 of the Facility Lease.

FNB shall mean The First National Bank of Boston, in its individual capacity, and its successors and assigns.

6091. BURNHAM. 1106.55:1

Form U-7D shall mean the certificate to be filed pursuant to Rule 7(d) of the Holding Company Act for the purpose of exempting the Owner Participant and the Owner Trustee from registration under the Holding Company Act.

Funding Corp shall mean First PV Funding Corporation, a Delaware corporation.

Generating Unit shall mean Unit 1, 2, or 3.

Generation Entitlement Share shall have the meaning assigned thereto in the ANPP Participation Agreement and (i) when used in reference to Unit 2, shall mean the Generation Entitlement Share of PNM as the ANPP Participant with respect to its interest in Unit 2,. (ii) when used in reference to the Undivided Interest, shall mean that portion of the Generation Entitlement Share attributable to the Undivided Interest and (iii) when used in Section 19 of the Facility Lease, shall refer to the Generation Entitlement Share of the Lessee in all Generating Units as PVNGS.

Governmental Action shall mean all authorizations, consents, approvals, waivers, exceptions, variances, orders, licenses, exemptions, publications, filings, notices to and declarations of or with any Governmental Authority (other than routine reporting requirements the failure to comply with which will not affect the validity or enforceability of any of the Transaction Documents or have a material adverse effect on the transactions contemplated by any Transaction Document or any Financing Document) or any other action in respect of any Governmental Authority and shall include, without limitation, all siting, environmental and operating permits and licenses which are required for the use and operation of Unit 2, including the Undivided Interest and the Real Property Interest.

Governmental Authority shall mean any Federal, state, county, municipal, foreign, international, regional or other governmental authority, agency, board, body, instrumentality or court, and the staff thereof pursuant to their official responsibilities.

6091.BURNHAM.1106.47:1

Holders shall mean the holders of the Notes or the Bonds, as the case may be.

Holding Company Act shall mean the Public utility Holding Company Act of 1935, as amended.

Indemnitee shall mean the Owner Participant, the Owner Trustee, FNB, the Loan Participant, the stockholder of Funding Corp and its officers and directors, Chemical Bank, the Indenture Trustee, each Holder of a Note from time to time Outstanding, the Collateral Trust Trustee, the Trust, the Trust Estate, the Lease Indenture Estate, the indenture estate under the Collateral Trust Indenture, any Affiliate of any of the foregoing and the respective successors, assigns, agents, officers, directors or employees of the foregoing, excluding, however, any ANYP Participant other than the Owner Trustee or the owner Participant.

Indenture shall mean the Trust Indenture, Mortgage, Security Agreement and Assignment of Rents, dated as of August 12, 1986, between the Owner Trustee and the Indenture Trustee.

Indenture Default shall mean an event which, after giving of notice or lapse of time, or both, would become an Indenture Event of Default.

Indenture Event of Default shall mean any of the events specified in Section 6.2 of the Indenture.

Indenture Trustee shall mean Chemical Bank, a New York banking corporation, not iri its individual capacity, but solely as Indenture Trustee under the Indenture and each successor trustee and co-trustee thereunder.

Indenture Trustee's Liens shall mean Liens against the Lease Indenture Estate which result from acts of, or any failure to act by, or as a result of claims against, the Indenture Trustee, in its individual capacity, unrelated to the transactions contemplated by the Transaction Documents.

Indenture Trustee's office shall mean the office of the Indenture Trustee located at 55 Water Street, New York, New York 10041, or such other office as may be designated by the Indenture Trustee to the Owner Trustee and each Holder of a Note Outstanding under the Indenture.

6091. BURNHAM. 1106.55:1

Initial series Bonds shall mean the promissory notes of Funding Corp evidencing the loans made to Funding Corp under the Term Loan Agreement, issued, authenticated and delivered under the Term Loan Agreement and the Collateral Trust Indenture, as supplemented by the Term Note Supplemental Indenture.

Initial series Nate shall mean the nonrecourse promissory note,. substantially in the form of Exhibit A to the Indenture, to be issued by the Owner Trustee and authenticated by the Indenture Trustee on the Closing Date to finance a portion of the Purchase Price.

Investment shall have the meaning set forth in Section 3 of the Participation Agreement.

Investment Company Act shall mean the Investment Company Act of 1940, as amended.

Investment Percentage shall mean the percentage identified as such in Schedule 2 to the Participation Agreement.

IRS shall mean the Internal Revenue Service of the United States Department of the Treasury or any successor agency.

LADWP shall mean the Department of Water and Power of The City of Los Angeles, a department organized and existing under the charter of the City of Los Angeles, a municipal corporation of the State of California.

Lease Indenture Estate shall have the meaning set forth in
Section 2.1 of the Indenture.

Lease Term shall mean the aggregate of the Basic Lease Term and the Renewal Term, if any.

Lease Termination Date shall mean the last day of the Lease Term (whether occurring by reason of a termination or expiration of the Lease Term).

6091. BURNHAM. 1106.55:1

Lessee shall mean Public Service Company of New Mexico, a flew Mexico corporation, and its successors and assigns, as lessee under the Facility Lease and as party to the other Transactions Documents and Financing Documents to which it is a signatory.

Lessee Request shall mean a request of the Lessee delivered pursuant to section 6.03 of the Collateral Trust Indenture.

Lessor shall mean the Owner Trustee as lessor under the Facility Lease (and for purposes of the definition of "Deemed 1055 Event" and where the context otherwise so requires, the owner Trustee in its individual capacity), and its successors and assigns.

Lessor's Interest shall have the meaning set forth in Section
8(c) (3) of the Participation Agreement.

Lessor' s Liens or Owner Trustee' s Liens shall mean Liens against the Trust Estate or the Lease Indenture Estate (other than permitted Liens described in the definition of such term, except "Lessor's Liens" and "Owner Participant's Liens" referred to in clause (vi) of such definition) for which the Lessee is not responsible and which result from acts of, or any failure to act by, or as a result of claims against, niB or the Lessor, unrelated to the ownership of the Undivided Interest or the Real Property Interest, the administration of the Trust Estate or the transactions contemplated by the Transaction Documents or the Financing Documents.

Lessor's portion shall mean the owner Trustee's portion of the original 10.2% undivided interest of the Lessee in Unit 2, the percentage of which is set forth in Schedule 2 to the Participation Agreement.

License shall mean NRC Facility Operating License No. NPF-5l, issued April 24, 1986 (superseding NRC Facility operating License No. NPF-46, issued on December 9, 1985), as the same may be amended, modified, extended, renewed or superseded from time to time.

EQgl.BURNHAM. 1106.55:1

License Amendment shall mean amendment number No. 2 to the License, issued August 12, 1986, approving the sale and leaseback transaction contemplated by the Transaction Documents.

License Expiration Date shall mean December 9, 2025, or any later or earlier date on which the License shall expire or be terminated.

Lien shall mean any mortgage, pledge, security interest, encumbrance, lien, easement, servitude or charge of any kind, including, without limitation, any conditional sale or other title retention agreement, any lease in the nature thereof or the filing of, or agreement to give, any financing statement under the Uniform Commercial Code of any jurisdiction.

Loan shall have the meaning set forth in Section 2(a) of the Participation Agreement.

Loan Participant shall mean Funding Corp.

Loan Percentage shall mean the percentage identified as such in schedule 2 to the Participation Agreement.

Majority in Interest of Holders of Notes shall mean Holders of a majority in principal amount of all Notes Outstanding under the Indenture at the time of any such determination.

Material Project Agreements S h a 1 1 m a a n (i) Nuclear Fuel Contract between Arizona Nuclear Power Project and Combustion Engineering, Inc. (CE), dated as of August 20, 1973, (ii) Nuclear Steam Supply Contract between APS and CE, dated as of August 20, 1973, as amended (iii) Turbine Generator Contract between APS and General Electric Company, dated as of March 21, 1974, as amended (iv) Uranium Enrichment Services Contract between the United States of America (USA) and APS, dated November 15, 1984, as amended and the Associated Supplemental Agreement of Settlement between USA and APS, dated November 15, 1984, (v) Contract between APS and Westinghouse Electric Corporation for fuel fabrication services for reload batches of nuclear fuel, dated August 7, 1974, as amended, (vi) Agreement for the Sale and Purchase of.Waste Water Effluent between the City of Tolleson, APS and Salt River, dated June 12, 1981, as

6091.BURNHAM. 1106.55:1

amended (vii) Agreement for Construction of Arizona nuclear Power Project between Bechtel power Corporation (Bechtel) and APS, dated January 15, 1973,
(viii) Agreement for Engineering and Procurement Services between APS and Bechtel, dated January 15, 1973, (ix) Option and Purchase of Effluent dated April 23, 1973, among the Cities of Phoenix, Glendale, Mesa, Tempe and Scottsdale, the Town of Youngtown, APS and Salt River, APS, and salt River, dated April 23, 1973, (x) Agreement for Conversion Services between Allied Chemical Corporation and An, dated November 17, 1975, as amended, (xi) Uranium Concentrate Sales Agreement between Energy Fuels Exploration company and APS, dated as of December 1, 1983, (xii) Uranium Concentrate Sales Agreement between Energy Fuels Exploration and APS, dated as of October 23, 1981, as amended,
(xiii) Agreement for Sale of Uranium Concentrates between Pathfinder Mines Corporation and APS, dated December 1, 1983, (xiv) Contract for Disposal of Spent Nuclear Fuel and/or High Level Radioactive Waste between USA and APS, dated July 21, 1984, and the ANPP Participation Agreement.

Minimum Net Worth means a Net Worth equal to the greater of
(x) $700,000,000 and Cy) (1) $950,000,000 less (2) with respect to each Generating Unit as to which PNM shall have entered into one or more transactions constituting sale and leaseback transactions under the ANPP Participation Agreement (including, but without limitation, the transaction contemplated by the Participation Agreement), (A) $50,000,000 (in the case of Unit 1) and $100,000,000 (in the case of each other Generating Unit) times (B) the aggregate percentage of the Lessee's undivided interest in such PVNGS unit subject to such transactions.

Mortgage Release shall mean the Indentures of Partial Release, each dated August 18, 1986, under and with respect to the Existing Mortgage.

Net Economic Return shall mean the after-tax economWc yield and periodic after-tax cash flows (after all Federal, state and local taxes) and the periodic return on investment and the timing of tecognition of income originally expected by the Owner Participant with respect to the Undivided Interest, utilizing the same assumptions as used by the Owner Participant in making the original cojnputation upon which its evaluation of investment in the Undivided Interest and the initial computation of Basic Rent, Casualty Value, Special Casualty Value and Termination Value were based.

6091.BURNHAM. 1106.55:1

Net Worth means the excess of assets over liabilities determined by the Lesseets auditors on the basis of generally accepted accounting principles.

New Mexico Public utility Act shall mean the New Mexico Public Utility Act, as amended.

NMPSC shall mean the New Mexico Public Service Commission established pursuant to Section 62-5-1 of New Mexico Statutes Annotated, 1978.

NMPSC order shall mean the order issued by the NMPSC on July 8, l986 in Case No. 2019 (Phase I), approving, among other things, the terms of the Facility Lease and the execution and delivery of the Facility Lease by PNM.

Non-Burdensome Regulation s h a 1 1 m e a n (i) regulation to which the Owner Participant or the Owner Trustee is otherwise subject by reason of its lease financing or other activities unrelated to the transactions contemplated by the Transaction Documents, (ii) ministerial regulatory requirements which do not impose limitations or regulatory requirements on the business or activities of the Owner Participant and which are deemed, in the reasonable discretion of the Owner Participant, not to be burdensome, (iii) regulation resulting from any possession of the Undivided Interest on or after the Lease Termination Date or (iv) regulation of the Owner Trustee which would be terminated by the appointment of a successor Owner Trustee or a co-Owner Trustee pursuant to the terms of the Trust Agreement.

Nonseverable, when used with respect to any Capital Improvement, shall mean any Capital Improvement which is not a Severable Capital Improvement.

Noteholder shall mean any Holder from time to time of a Note Outstanding under the Indenture.

Notes shall mean the Initial Series Note and the Fixed Rate Note, the Releveraging Note and any other Additional Notes.

6091. BURNHAM. 1106.55:1

Notice of Closing shall have the meaning set forth in Section 5(a) of the Participation Agreement.

NRC shall mean the Nuclear Regulatory Commissiofl of the United States of America or any successor agency.

Nuclear Incident shall have its meaning as defined in Section 11 of the Atomic Energy Act, as amended to the date hereof and as the meaning of such term may be expanded from time to time by future amendments thereof. The definition of "nuclear incident" contained in the Atomic Energy Act on the date hereof is: "any occurrence, including an extraordinary nuclear occurrence, within the United States causing, within or outside the United States, bodily injury, sickness, disease, or death, or loss of or damage to property, or loss of use of property, arising out of or resulting from the radioactive, toxic, explosive, or other hazardous properties of source, special nuclear, or byproduct material: Provided, however, that as the term is used in section 2210(1) of this title, it shall include any such occurrence outside the United States: And provided further, That as the term is used in section 2210(d) of this title, it shall include any such occurrence outside the united States if such occurrence involves source, special nuclear, or byproduct material owned by, and used by or under contract with, the United States: And provided further, That as the term is used in section 2210(c) of this title, it shall include any such occurrence outside both the United states and any other nation if such occurrence arises out of or results from the radioactive, toxic, explosive, or other hazardous properties of source, special nuclear, or byproduct material licensed pursuant to subchapters V, VI, VII, and rx of this chapter, which is used in connection with the operation of a licensed stationary production or utilization facility or which moves outside the territorial limits of the United States in transit from one person licensed by the Commission to another person licensed by the Commission."

Nuclear Waste Act shall mean the Nuclear Waste Policy Act of 1982, as amended, or any comparable successor law.

6091. BURNHAM. 1106.55:1

Officers' Certificate Shall m e a n a certificate signed by the President or any Vice President and by the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Person with respect to which such term is used.

Operating Agent shall have the meaning assigned thereto in the ANPP Participation Agreement.

Original of the Facility Lease shall mean the fully executed counterpart of the Facility Lease, marked "This Counterpart is the Original Counterpart", pursuant to Section 22(e) of the Facility Lease and contaming the receipt of the Indenture Trustee.

Outstanding, when used with respect to the Notes, shall mean, as of the date of determination, all such Notes theretofare issued, authenticated and delivered under the Indenture, except (a) Notes theretofore cancelled by the Indenture Trustee or delivered to the Indenture Trustee for cancellation, (b) Notes or portions thereof for the payment of which the Indenture Trustee holds (and has notified the holders thereof that it holds) in trust for that purpose an amount sufficient to make full payment thereof when due, (c) Notes or portions thereof which have been pledged as collateral for any obligations of the obligor thereof to the extent that an amount sufficient to make full payment of such obligations when due has been deposited with the pledge. of such Notes for the purpose of holding such amount in trust for the payment of such obligations in accordance with the indenture or agreement under which such obligations are secured and Cd) Notes in exchange for, or in lieu of, which other Notes have been issued, authenticated and delivered pursuant to the rndenture; provided, however, that any Note owned by the Lessee or the owner Trustee or any Affiliate of either thereof shall be disregarded and deemed not to be Outstanding for the purpose of any Directive.

Overdue Interest Rate shall mean the weighted average rate per annum of interest payable with respect to overdue payments of principal on the Notes Outstanding, computed as set forth in such Notes.

6091.BURNHAM.1106.47:1

Owner Participant shall mean Burnham Leasing Corporation, and the successors and assigns of such Person in accordance with the Trust Agreement and the Participation Agreement.

Owner Participant's Liens shall mean Liens against the Trust Estate or the Lease Indenture Estate (other than Permitted Liens described in the definition bf such term, except "Lessor's Liens" and "Owner Participant's Liens" referred to in clause (vi) of such definition) for which the Lessee is not responsible and which result from acts of, or any failure to act by, or as a result of claims against, the owner Participant unrelated to the transactions contemplated by the Transaction Documents or the Financing Documents.

Owner Trustee shall mean The First National Sank of Boston, a national banking association, not in its individual capacity, but solely as Owner Trustee under the Trust Agreement (unless the context otherwise requires), and each successor as trustee, separate trustee and co-trustee thereunder.

Participation Aqrecment shall mean the Participation Agreement, dated as of August 12, 1986, among the Owner Trustee, the Indenture Trustee, Funding Corp, the Owner Participant and PNM.

Penalty Rate shall mean 2% per annum in excess of the Prime Rate.

Period of a stated duration in respect of any event shall mean an indefinite period which can reasonably be expected to exceed the lesser of such duration and the period remaining to the date which is three years prior to the end of the remaining Basic Lease Term (or if such event occurs after the date three years prior to the end of the remaining Basic Lease Term, the lesser of six months and the period remaining to the day next preceding the end of the Basic Lease Term) or a stated period in excess of the lesser thereof or an actual period which continues in excess of the lesser thereof.

Permitted Liens shall mean (i) the respective rights and interests of the Lessee, the Owner Participant, the Lessor, the Loan Participant and the Indenture Trustee, as provided in the Transaction Documents; (ii) the

6091. BURNHAM. 1106.55:1

rights of any sublessee or assignee under a sublease or an assignment permitted by the terms of the Facility Lease; (iii) the Lien of the Existing Mortgage on the leasehold estate under the Facility Lease; (iv) Liens for taxes either not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, so long as such proceedings shall not (x) involve any danger of the sale, forfeiture or loss of the undivided Interest or the Real property Interest or any part thereof or interest therein of the Lessor or the Owner participant, (y) interfere with the use, possession or disposition of the Undivided Interest or the Real Property Interest, or any part thereof or interest therein, or (z) impair payment of Rent; (v) inchoate materialmen's, mechanics', workmen's, repairmen's, employees', carriers', warehouse-men's, or other like Liens arising in the ordinary course of business for PVNGS, and not delinquent; (vi) Lessor's Liens, owner participant's Liens and Indenture Trustee' S Liens; (vii) choate Liens that have been bonded for the full amount in dispute or as to which other satisfactory security arrangements shall have been made and which are being contested diligently by the appropriate party in good faith and by appropriate proceedings so long as such proceedings shall not violate clause (x), (y) or (z) of clause (iv) above; (viii) choate Liens of any of the types described in clause (v) above that have been bonded for the full amount in dispute or as to which other satisfactory security arrangements shall have been made and which arise out of judgments or awards and with respect to which (A) an appeal or proceeding for review is being prosecuted in good faith and for the payment of which adequate reserves shall have been provided as required by generally accepted accounting practice and (B) there shall have been secured a stay of execution pending such appeal or proceeding for review, so long as such proceedings shall not violate clause (x), (y) or (z) of clause (iv) above; (ix) the rights and interests of the Lessee under the Assignment and Assumption; (x) the rights of the NRC under the License; (xi) the rights of the ANPP Participants (other than (i) the Lessee and (ii) any Person who shall become an ANPP Participant in respect of the undivided Interest and the Real Property Interest) under the ANPP Participation Agreement or any other ANPP Project Agreement; (xii) Liens on the undivided ownership interests in Unit 2 of the ANPP participants and other Persons (other than the Lessee) and (xiii) any Liens arising by virtue of the ANFP participation Agreement.

6091.BURNHAM.1106.47:1

Person shall mean any individual, partnership, corporation, trust, unincorporated association or joint venture, a government or any department or agency thereof, or any other entity.

PNM shall mean Public Service Company of New Mexico, a New Mexico corporation.

Price-Anderson Act shall mean the price-Anderson Act, Pub. L. No. 85-256, 71 Stat. 576 (1957), as amended to the Closing Date.

Pricing Assumptions shall mean the pricing assumptions set forth in schedule 2 to the Participation Agreement.

Prime Rate shall mean the rate of interest publicly announced from time to time by Chemical Bank at its principal office in New York City as its prime or base lending rate. Any change in the Prime Rate shall be effective on the date such change in the Prime Rate is announced.

Project Insurance shall have the meaning assigned thereto in the ANPP Participation Agreement.

Project Manager shall have the meaning assigned thereto in the ANPP Participation Agreement.

Purchase Documents shall mean the Bill of Sale, the Deed and the Assignment of Beneficial Interest and such other documents as the Owner Participant, the Owner Trustee, the Indenture Trustee, the Loan Participant or their respective counsel shall deem desirable to convey good and marketable title to the Undivided Interest and the Real Property Interest to the Trust.

Purchase Price shall have the meaning set forth in Section 4(a) of the Participation Agreement.

PVNGS shall mean the Arizona Nuclear Power Project, as that term is defined in the ANPP Participation Agreement.

6091.BURNHAM. 1106.55:1

PVNGS Site shall mean the beneficial interest in the Arizona land trust and the real property described in Exhibit A to the Bill of Sale.

Real Estate Investment shall have the meaning set forth in
Section 3(a) of the Participation Agreement.

Real Property rnterest shall mean the right, title and interest of the Owner Trustee acquired pursuant to the Deed and the Assignment of Beneficial rnterest.

Reasonable Basis for a pcsition shall exist if tax counsel may properly advise reporting such position on a tax return in accordance with Formal opinion 85-352 issued by the Standing Committee on Ethics and Professional Responsibility of the American Bar Association.

Refunding Bonds shall mean Funding Corp's Lease Obligation Bonds series 19865, issued, authenticated and delivered under the Collateral Trust rndenture, as supplemented by the Refunding Supplemental Indenture, as described in the Underwriting Agreement.

Refunding Date shall mean the date of issuance of the Refunding Bonds.

Refunding Loan shall have the meaning set forth in Section 2(d) of the Participation Agreement.

Refunding Supplemental Indenture shall mean the Refunding Sand Supplemental Indenture, among PNM, Funding Corp and the Collateral Trust Trustee, supplementing the Collateral Trust Indenture and providing, among other things, for the issuance of the Refunding Bonds.

Registration Statement shall mean the registration statement on Form S-fl, as amended, and any other similar registration statement, including all exhibits and all documents incorporated therein by reference, filed with the SEC under the Securities Act in connection with the offer, issue and sale of the Refunding Bonds.

6091.BURNHAM.llO6.55:1

Regulations shall mean the income tax regulations issued, published or promulgated under the Code.

Releveraging Amount shall (i) mean the mitial principal amount of each series of Releveraging Bonds, but only in an amount equal to the amount of the related Note or Notes issued in connection with such Bonds, or (ii) the initial principal amount of the Refunding Bonds to the extent such amount is in excess of the Initial Series Bands being refunded, but only in an amount equal to the amount that the related Fixed Rate Note or Notes exceed the aggregate amount of the Initial Series Note and any Releveraging Notes theretofore issued.

Releveraging Bonds shall mean a series of securities issued, authenticated and delivered under the Collateral Trust Indenture in accordance with Section 2.03 thereof, part of the proceeds of which is used to refund to the Owner Participant a portion of its Investment as provided in Section 3(b) of the Participation Agreement.

Releveraging Date shall mean the date of issuance of the Releveraging Bonds.

Releveraging roan shall have the meaning specified in Section 2(c) of the Participation Agreement.

Releveraging Note shall mean the non-recourse promissory note, substantially in the form of the Initial Series Note or, if the Refunding Date shall have occurred, the Fixed Rate Note, to be issued by the Owner Trustee and authenticated by the Indenture Trustee on the Releveraging Date to refund to the owner Trustee a portion of the Investment.

Renewal Term shall mean the Fixed Rate Renewal Term as provided in Section 12 of the Facility Lease. Rent. Rent shall mean Basic Rent and Supplemental.

6091.BURNHAM.1106.47:1

Rent Differential shall have the meaning set forth in Section 3(h) of the Facility Lease.

Requisition of Title shall mean any circumstance or event in consequence of which Unit 2 or the Undivided Interest shall be condemned or seized or title thereto shall be requisitioned or taken by any Governmental Authority under power of eminent domain or otherwise and all administrative or judicial appeals opposing such condemnation, seizure or taking shall have been exhausted or the period for such appeal shall have expired.

Requisition of Urn shall mean any circumstance or event in consequence of which the use of Unit 2 or the Undivided Interest shall be requisitioned or taken by any Governmental Authority under power of eminent domain or otherwise, other than a Requisition of Title.

Responsible officer shall mean, with respect to the subject matter of any covenant, agreement or obligation of any party contained in any Transaction Document, the President, or any Vice President, Assistant Vice President, Treasurer, Assistant Treasurer or other officer who in the normal performance of his operational responsibility would have knowledge of such matter and the requirements with respect thereto.

Retained Assets shall mean (i) the Lessee's interest in PVNGS (other than the Undivided Interest, the related Generation Entitlement Share, and the Real Property Interest), (ii) Severable Capital Improvements title to the undivided interest in which is retained by the Lessee in accordance with
Section 8(e) of the Facility Lease, and (iii) any additional interest in and to PVNGS (other than the Undivided Interest, the related Generation Entitlement Share and the Real Property Interest) to which the Lessee becomes entitled in consequence of Sections 16.2 or 23.5 of the ANPP Participation Agreement (except as otherwise provided in Section 5(a) or 19 of the Facility Lease).

Sale Proceeds shall mean, with respect to any sale of the Undivided Interest and the Real Property Interest by the Lessor to any Person other than the Lessee, the gross proceeds of such sale payable in cash, less all costs and expenses whatsoever incurred by the Lessor and the Owner participant in connection therewith.

6091.BURNHAM.1106.47:1

Salt River shall mean Salt River Project Agricultural Improvement and power District, an Arizona agricultural improvement district.

SCPPA shall mean southern California public power Authority, a California joint powers agency (doing business in Arizona as southern California public power Authority Association).

SEC shall mean the securities and Exchange commission of the United States of America, or any successor agency.

Section 6(c) Application shall mean Funding Corp's Application for an Order under Section 6(c) of the Investment company Act of 1940 exempting First PV Funding Corporation from all provisions of such Act, as filed with the SEC on September 20, 1985, as amended.

Secured obligations shall have the meaning set forth in section 7(b)(4) of the participation Agreement.

Securities Act shall mean the securities Act of 1933, as amended.

Securities Exchange Act shall mean the Securities Exchange Act of 1934, as amended.

Severable, when used with respect to any capital improvements shall mean any capital improvement which can readily be removed from Unit 2 or the Common Facilities without materially damaging unit 2 or the Common Facilities or materially diminishing or impairing the value, utility or condition of Unit 2 or the common Facilities.

Source, special Nuclear or Byproduct Material shall have their respective defined meanings as defined in section 11 of the Atomic Energy Act of 1954, as amended to the date hereof and as the meanings of such terms may. be expanded by future amendments thereof.

6091. BURNHAM. 1106.55:1

Southern California shall mean Southern California Edison Company, a California corporation.

Special Casualty Value as of any date, shall mean (i) during the Basic Lease Term, the percentage of Facility Cost set forth opposite such date in Schedule 2 to the Facility Lease, and (ii) during the Renewal Term, if any, the unamortized portion of the Fair Market Sales Value of the Undivided Interest determined by amortizing ratably the Fair Market Sales Value of the Undivided Interest as of the day following the last day of the Basic Lease Term in semi-annual steps over the period from such date to the License Expiration Date. Anything contained in the Facility Lease to the contrary notwithstanding, Special Casualty Value shall be, when added to all other amounts which the Lessee is required to pay under Section 9(d) of the Facility Lease (taking into. account any assumption of Notes by the Lessee), under any circumstances and in any event, in an amount at least sufficient to pay in full, as of any date of payment, the aggregate unpaid principal amount of all Notes Outstanding at the close of business on such date, together with accrued and unpaid interest on such Notes.

Supplemental Financing shall mean a financing of the Supplemental Financing Amount of Capital Improvements made pursuant to Section 8(f) of the Facility Lease.

Special Purchase Event shall have the meaning specified in section 13(c) of the Facility Lease.

Substituted Lessee shall have the meaning specified in Section 6.8(c) of the Indenture.

Supplemental Financing Amount shall mean a Unit 2 Interest in the cost of a Capital Improvement to Unit 2, and a Common Facilities Interest in the cost of a Capital Improvement to the Common Facilities, or that portion of such interest in such cost which shall not exceed (i) the amount of the increase, if any, in the Owner Participant's basis in the Undivided Interest for purposes of section 1012 or 1016 of the Code as a result of such Capital Improvement less (ii) the amount of the related Additional Equity Investment of the Lessor, if.
any.

6091.BURNHAM.1l06.55:l

Supplemental Indenture of Pledge shall have the meaning specified in the Term Note Supplemental Indenture.

Supplemental Rent shall have the meaning set forth in section 3(b) of the Facility Lease.

Surviving Leessee shall have the meaning specified in Section
10(b) (3) (ii) of the Participation Agreement.

Tax shall mean any and all fees (including, without limitation, documentation, recording, license and registration fees), taxes (including, without limitation, net income, franchise, value added, ad valorem, gross income, gross receipts, sales, use, property (personal or real, tangible or intangible) excise and stamp taxes), levies, imposts, duties, charges, assessments, or withholdings of any nature whatsoever, general or special, ordinary or extraordinary, together with any and all penalties, tines, additions to tax and interest thereon.

Tax Assumptions shall mean the assumptions set forth in
Section 1(a) of the Tax Indemnification Agreement, with respect to the Federal income tax consequences of the transactions contemplated by the Transaction Documents.

Tax Indemnification Agreement shall mean the Tax Indemnification Agreement, dated as of August 12, 1986, between PNM and the Owner Participant.

Term Loan Agreemant shall mean the Term Loan Agreement dated as of August 12, 1986 among Funding Corp, PNM and the banks named on the signature pages thereto.

Term Note Supplemental Indentre shall mean the Series 19868 Term Note Supplemental Indenture dated as of August 12, 1986 among PNM, Funding Corp and the Collateral Trust Trustee, supplementing the Collateral Trust Indenture and providing, among other things, for the issuance of the Initial series Bonds.

6091. BURNHAM. 1106.55:1

Termination Date shall have the meaning set forth in Section 14(a) of the Facility Lease.

Termination Event shall mean any early termination of the Facility Lease in accordance with Section 14 thereof.

Termination Notice shall have the meaning set forth in Section 14(a) of the Facility Lease.

Termination obligation shall have the meaning set forth in
Section 15.10.2 of the ANPP Participation Agreement (or any comparable successor provision).

Termination Value, as of any Basic Rent Payment Date during the Basic Lease Term, shall mean the percentage of Facility Cost set forth.opposite such date in schedule 3 to the Facility Lease. Anything contained in the Facility Lease to the contrary notwithstanding, Termination Value shall be, when added to all other amounts which the Lessee is required to pay under section 14 of the Facility Lease, under any circumstances and in any event, in an amount at least sufficient to pay in full as of any Basic Rent Payment Date the aggregate unpaid principal amount of all Notes Outstanding at the close of business on such date, together with accrued and unpaid interest on such Notes.

Transaction Documents shall mean the Participation Agreement, the Facility Lease, the Trust Agreement, the Indenture, the Extension Letter, the Tax Indemnification Agreement, the Mortgage Release, the Assignment and Assumption, each Purchase Document and the Notes.

Transaction Expenses shall have the meaning set forth in
Section 14(a) of the Participation Agreement.

Transfer shall mean the transfer, by bill of sale or otherwise, by the Lessor of all the Lessor's right, title and interest in and to the Undivided Interest and the Real Property Interest and under the Assignment and Assumption on an "as is, where is" basis, free and clear of all Lessor's Liens and Owner Participant's Liens, but otherwise without recourse, representation or warranty (including an express disclaimer of representations

6091.BURNHAM.1106.47:1

and warranties in a manner comparable to that set forth in the second sentence of Section 6(b) of the Facility Lease), together with the due assumption by the transferee of, and the due release of the Lessor from, all of the Lessor's obligations under the Assignment and Assumption and the Assignment of Beneficial Interest by an instrument or instruments satisfactory in form and substance to the Lessor and the Owner Participant.

Transferee shall have the meaning assigned thereto in Section 15 of the Participation Agreement.

Trust shall mean the trust created by the Trust Agreement.

Trust Agrement shall mean the Trust Agreement, dated as of August 12, 1986, between Burnham Leasing Corporation and FNB.

Trust Estate shall have the meaning set forth in Section 2.03 of the Trust Agreement.

Trust Indenture Act shall mean the Trust Indenture Act of 1939, as amended.

Trustee's Expenses shall mean any and all liabilities, obligations, casts, compensation, fees, expenses and disbursements (including, without limitation, legal fees and expenses) of any kind and nature whatsoever (other than such amounts as are included in Transaction Expenses) which may be imposed on, incurred by or asserted against the Indenture Trustee or any of its agents, servants or personal representatives, in any way relating to or arising out of the Indenture, the Lease Indenture Estate, the Participation Agreement or the Facility Lease, or any document contemplated thereby, or the performance or enforcement of any of the terms thereof, or in any way relating to or arising out of the administration of such Lease Indenture Estate or the action or inaction of the Indenture Trustee under the Indenture; provided, however, that such amounts shall not include any Taxes or any amount expressly excluded from the Lessee's indemnity obligations pursuant to Section 13(a) or 13(b) of the Participation Agreement.

6091.BURNHAM.1l06.55:l

UCC or Uniform commercial Code shall mean the Uniform Commercial Code as in effect in any applicable jurisdiction.

Underwriting Agreement shall mean the agreement with the underwriters named therein relating to the purchase, sale and delivery of the Refunding Bonds.

Undivided Interest shall mean the Unit 2 Interest in Unit 2 and the Unit 2 Common Facilities Interest in the Cannon Facilities. Where the context so requires, the Undivided Interest includes the related Generation Entitlement Share.

Undivided Interest Indenture Supplment shall mean the supplement to the Indenture, substantially in the form of Exhibit C thereto, pursuant to which the Owner Trustee causes the Undivided Interest and the Real Property Interest to be subjected to the Lien of the Indenture.

Uniform System of Accounts shall mean the Uniform System of Accounts prescribed for Public Utilities and Licensees subject to the provisions ot the Federal Power Act (Class A and Class B), 18 CER 101, as in effect on the date of execution of the Participation Agreement, as amended or modified from time to time after such date.

Unit 1 and Unit 3 shall mean the Generating Units bearing such designations at PVNGS.

Unit 2 shall mean the 1,270 megawatt unit, commonly known as Unit 2, at PVNGS, all as more fully described in Item A of Exhibit B to the Bill of sale, together with all Capital Improvements thereto, but excluding all Common Facilities.

Unit 2 Common Facilities Interest shall mean the Owner Trustee's 0.7555556% undivided interest in all Common Facilities.

Unit 2 Interest shall mean a percentage equal to the Owner Trustee's 2.2666667% undivided interest in all of Unit 2.

6091. BURNMAM. 1106.55:1

Unit 2 Retained Assets shall mean (i) all resident fuel assemblies, equipment and personal property constituting part of the Generating Unit (as defined in the ANPP Participation Agreement) designated as Palo Verde Nuclear Generating Station Unit 2 (other than common facilities) but excluded from Unit 2 as set forth in Stem A of Exhibit B to the Bill of Sale and (ii) all equipment and personal and real property constituting PVNOS common facilities under the ANPP Participatipn Agreement but excluded from the Common Facilities as set forth in Stem B of Exhibit a to the Bill of Sale.

User shall mean a Person unrelated to PNM (within the meaning of Section 318 of the Code) possessing the Undivided Snterest after the Lease Termination Date.

Weighted Factor means the weighted average of the annual percentage rates (averaged over the Basic Lease Term and (x) if the Pricing Assumptions contemplate the Lessor claiming investment tax credits, the basic term of all other leases so contemplating (the SIC Leases) entered into by PNM pursuant to the authority granted by the NMPSC Order or (y) if the Pricing Assumptions do not contemplate the Lessor claiming investment tax credits, the basic term of all other leases not so contemplating (the Non-ITC Leases) entered into by PUn pursuant to the authority granted by the NMPSC Order) Ci) as such percentage rates may be adjusted from time to time pursuant to the terms of the Facility Lease and the rrc Leases or the Non-STC Leases, as the case may be, but excluding any such adjustments in connection with supplemental financing of capital improvements, and (ii) adjusted to reflect the amortization over the Basic Lease Term and the basic term of the rrc Leases or the Non-ITC Leases, as the case may be, of any gain or loss to the Lessee from any hedging or interest protection program implemented by the Lessee with respect to the Notes and with respect to the comparable notes to be issued with respect to the ITC Leases or the Non-ITC Leases, as the case may be, which, when multiplied by the aggregate of the Purchase Price and the comparable purchase prices payable by the lessors under the ITC Leases or the Non-ITC Leases, as the case may be, determines, respectively, the amount of Basic Rent payable under the Facility Lease and the comparable basic rent payable under the ITC Leases or the Non-ITC Leases, as the case may be.

6091.BURNHAM.1106.47:1

When Recorded, Return to:       Greg R. Nielsen
                                Snell & Wilmer
                                3100 Valley Bank Center
                                Phoenix, Arizona 85073

CERTAIN RIGHTS OF THE LESSOR UNDER THE FACILITY LEASE AS AMENDED BY THIS AMENDMENT NO. 1 THERETO HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF, CHEMICAL BANK, AS INDENTURE TRUSTEE UNDER A TRUST' INDENTURE, MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OR RENTS DATED AS OF AUGUST 12, 1986, AS AMENDED. THIS AMENDMENT NO.1 HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. SEE SECTION 3(f) OF THIS AMENDMENT NO. 1 FOR INFORMATION CONCERNING THE RIGHTS OF HOLDERS OF VARIOUS COUNTERPARTS HEREOF.

THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

AMENDMENT NO.1
Dated as of November 18, 1986
to

FACILITY LEASE
Dated as of August 12, 1986
between

THE FIRST NATIONAL BANK OF BOSTON
not in its individual capacity,
but solely as Owner Trustee
under a Trust Agreement, dated as
of August 12, 1986 with Burnham
Leasing Corporation

Lessor

and

PUBLIC SERVICE COMPANY OF NEW MEXICO,

Lessee

Original Facility Lease Recorded on August 18, 1986, as Instrument No. 86-439392 in Maricopa County Recorder's Office.

6O91.BURNHAM.DEBT.146:1

AMENDMENT NO. 1, dated as of November 18, 1986 (Amendment No.
1), to the Facility Lease dated as of August 12, 1986 between THE FIRST NATIONAL BANK OF BOSTON, a national banking association, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement, dated as of August 12, 1986, with Burnham Leasing Corporation, a New York corporation (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the Lessee).

WITNESSETH:

WHEREAS, the Lessee and the Lessor have heretofore entered into a Facility Lease dated as of August 12, 1986 (the Facility Lease), providing for the lease by the Lessor to the Lessee of the Undivided Interest and the Real Property Interest;

WHEREAS, Section 3(e) of the Facility Lease provides for an adjustment to Basic Rent and to the schedules of Casualty Values, Special Casualty Values and Termination Values in the event, among other things, of the refunding (by issuance of the Fixed Rate Notes) of the Initial Series Note;

WHEREAS, the Fixed Rate Notes are being issued pursuant to Supplemental Indenture No. 1, dated as of November 18, 1986, to the Indenture;

WHEREAS, Section 3(d) of the Facility Lease provides for an adjustment to Basic Rent and to the schedules of Casualty Values, Special Casualty Values and Termination Values in the event of a Change in Tax Law; and

WHEREAS, a Change in Tax Law has occurred;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Definitions.

For purposes hereof, capitalized terms used herein and not otherwise defined herein or in the recitals shall have the meanings assigned to such terms in Appendix A to the Facility Lease.

6091.BURNHAM.DEBT.146:l

SECTION 2. Amendments.

(a) Section 3(a)(i) of the Facility Lease is amended to read in its entirety as follows:

"(i) on January 15, 1987, an amount equal to .024553111% of Facility Cost times the actual number of days from and including August 18, 1986 to, but excluding, January 15, 1987, plus or minus the Rent Differential, if any, referred to in Section 3(h);"

(b) (1) Section 3(a)(ii) of the Facility Lease is amended to read in its entirety as follows:

"(ii) on July 15, 1987 and on each Basic Rent Payment Date thereafter to and including January 15, 2016, an amount equal to 4.4195600% of Facility Cost;".

(2) Section 3(a) (iii) is amended to delete from the parenthetical contained therein the phrase "and any increases and decreases pursuant to Section 3(h)".

(c) Section 3 (e) (iii) of the Facility Lease is hereby amended to replace "0.8% of Facility Cost" with "1.3% of Facility Cost". Section
3(e) (iv) is hereby amended to insert (x) "(other than a change in items 4, 9 (as to the basis for amortization of Transaction Expenses), 15, 17 and 19, but without limiting the effect of Section 3(d) hereof)" immediately following the word "change" and (y) the word "Current" before the phrase "Pricing Assumptions." Section 3(e) of the Facility Lease is hereby further amended to insert at the end thereof the following new sentence: "Current Pricing Assumptions shall mean the assumptions attached to the letter from the Lessee to the Owner Participant dated November 25, 1986, as such letter may be replaced from time to time with the written consent of the Owner Participant."

(d) Schedule 1 to the Facility Lease (Schedule of Casualty Values) is hereby replaced with Schedule 1 hereto.

(e) Schedule 2 to the Facility Lease (Schedule of Special Casualty Values) is hereby replaced with Schedule 2 hereto.

6091.BURNHAM.DEBT.146:l

(f) Schedule 3 to the Facility Lease (Schedule of Termination Values) is hereby replaced with Schedule 3 hereto.

(g) Section 3(h) of the Facility Lease is hereby amended to read in its entirety as follows:

"(h) Rent Differential. The installment of Basic Rent due January 15, 1987 shall be increased or decreased, as the case may be, by the Rent Differential. For purposes hereof, Rent Differential shall mean the difference between (i) the aggregate amount of interest paid or payable on the Initial Series Notes on or before November 25, 1986 and (ii) the aggregate amount of interest that would have been paid on such Initial Series Notes if such Notes had at all times from the date of issuance thereof to November 25, 1986 borne interest at a rate equal to 7.54978% per annum (computed on the basis of a 360-day year of twelve 30-day months). If (A) the amount determined in accordance with clause (i) of the immediately preceding sentence shall be greater than the amount determined in accordance with clause (ii) of such sentence, the amount of Basic Rent due on January 15, 1987 shall be increased by the Rent Differential, and (B) the amount determined in accordance with such clause (ii) shall exceed the amount determined in accordance with such clause (i), the amount of Basic Rent due on January 15, 1987 shall be decreased by the Rent Differential."

(h) (1) The second sentence of Section 9(d) is hereby amended to read in its entirety as follows:

"On the fifteenth day of the month during which a Deemed Loss Event shall have occurred (or, if such Deemed Loss Event shall occur after the fifteenth day of such month, the fifteenth day of the next following month), the Lessee shall pay to the Lessor an amount equal to the excess of (i) Special Casualty Value determined as of the date such payment is due over (ii) the principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such day."

6091.BURNHAM.DEBT.146:l

(2) The following new sentence is hereby inserted immediately following the second sentence of Section 9(d), as amended by the preceding paragraph (1):

"If such fifteenth day is a Basic Rent Payment Date, the portion of such amount equal to Basic Rent otherwise due on such date shall be deemed to be an installment of Basic Rent for all purposes hereof and of Sections 5.1 and 5.2 of the Indenture."

SECTION 3. Miscellaneous.

(a) Partial Prepayment of Rent. In accordance with the last sentence of
Section 3(a) of the Facility Lease, the Lessee shall pay an amount equal to $1,512,636.49 on November 25, 1986, such amount (i) being equal to the interest payment due on the Initial Series note on such date and (ii) to be credited against Basic Rent due on January 15, 1987.

(b) Effective Date of Amendments. The amendments set forth in Section 2 hereof shall be and become effective upon the execution hereof by the parties hereto.

(c) Counterpart Execution. This Amendment No. 1 may be executed in any number of counterparts and by each of the parties hereto on separate counterparts; all such counterparts shall together constitute but one and the same instrument.

(d) Governing Law. This Amendment No. 1 has been negotiated and delivered in the State of New York and shall be governed by, and be construed in accordance with, the laws of the State of New York, except to the extent that pursuant to the law of the State of Arizona such law is mandatorily applicable hereto,

(e) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401, the beneficiary of the Trust Agreement is Burnham Leasing Corporation, a New York corporation. The address of the beneficiary is 60 Broad Street, New York, New York 10004, Attention: Assistant Treasurer. A copy of the Trust Agreement is available for inspection at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

609l.BURNHAM.DEBT.146:l

(f) Amendment No. 1. The single executed original of this Amendment No. 1 marked "THIS COUNTERPART IS. THE ORIGINAL COUNTERPART" and containing the receipt of the Indenture Trustee thereon shall be the "Original" of this Amendment No. 1. To the extent that this Amendment No. 1 constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Amendment No. 1 may be created or continued through the transfer or possession of any counterpart other than the "Original".

6091.BURNHAM.DEBT. 146:1

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 1 to Facility Lease to be duly executed in New York, New York by an officer thereunto duly authorized.

THE FIRST NATIONAL BANK OF BOSTON,
not in its individual capacity,
but solely as Owner Trustee
under a Trust Agreement, dated
as of August 12, 1986, with
Burnham Leasing Corporation

PUBLIC SERVICE COMPANY OF NEW MEXICO,

By /s/ B. D. Lackey
   --------------------------------
     Vice President and Corporate
             Controller

State of New York     )
                      )  ss:
County of New York    )

The foregoing instrument was acknowledged before me this 24th day of November, 1986, by B.D. LACKEY, Vice President and Corporate Controller of PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation, on behalf of the corporation.

/s/ Delia T. Santiago
--------------------------
      Notary Public

State of New York     )
                      )  ss:
County at New York    )


                  The foregoing  instrument was acknowledged before me this 24th

day of November, 1986, by Martin P. Henry, Assistant Vice President at THE FIRST NATIONAL BANK OF BOSTON, a national banking association, on behalf of the banking association as Owner Trustee under the Trust Agreement dated as of August 12, 1986 with Burnham Leasing Corporation.

/s/ David A. Spivak
--------------------------
      Notary Public

David A. Spivak Notary Public, State of New York No. 31-4693463 Qualified in New York County Commission Expires March 30, 1987

6091.BURNHAM.DEBT.146:l

 Payment        Percentage of             Payment              Percentage of
  Date          Facility Cost               Date               Facility Cost
 -------        -------------             -------              -------------

1/15/1987        104.0505748              1/15/2005             69.0763910
7/15/1987        105.8018101              7/15/2005             67.3933069
1/15/1988        105.1525583              1/15/2006             64.7514850
7/15/1988        104.5152596              7/15/2006             62.6287747
1/15/1989        105.4381490              1/15/2007             60.4185648
7/15/1989        104.4749057              7/15/2007             58.1488078
1/15/1990        105.0854100              1/15/2008             55.7958028
7/15/1990        103.7620773              7/15/2008             53.3846790
1/15/1991        104.0421878              1/15/2009             51.0230738
7/15/1991        102.4512318              7/15/2009             48.7033199
1/15/1992        102.4826532              1/15/2010             46.4482298
7/15/1992        100.6234215              7/15/2010             44.2745691
1/15/1993        100.3856266              1/15/2011             42.2110179
7/15/1993        100.0054158              7/15/2011             40.2799103
1/15/1994        99.4690803               1/15/2012             38.5171132
7/15/1994        98.7690349               7/15/2012             36.9518951
1/15/1995        97.8900254               1/15/2013             33.3071917
7/15/1995        98.6232891               7/15/2013             33.4139011
1/15/1996        98.9722892               1/15/2014             31.2993913
7/15/1996        97.6544891               7/15/2014             28.9352572
1/15/1997        95.9561142               1/15/2015             26.3007332
7/15/1997        94.0536182               7/15/2015             23.3623639
1/15/1998        92.1839260               1/15/2016             20.6281891
7/15/1998        90.3855211
1/15/1999        88.8457839
7/15/1999        87.6920480
1/15/2000        86.0511887
7/15/2000        84.8210534
1/15/2001        83.0720147
7/15/2001        81.7621018
1/15/2002        79.8978801
7/15/2002        78.3031112
1/15/2003        76.5162549
7/15/2003        75.0312334
1/15/2004        72.9138145
7/15/2004        71.3328071

                                                                     SCHEDULE 2
                                                                             to
                                                                AMENDMENT NO. 1

  Payment              Percentage of            Payment           Percentage of
   Date                Facility Cost              Date            Facility Cost
  -------              -------------            -------           -------------

15 SEP 1986             104.59195              15 SEP 1989           103.39672
15 OCT 1986             105.17691              15 OCT 1989           104.20612
15 NOV 1986             106.23461              15 NOV 1989           105.04647
15 DEC 1986             106.43730              15 DEC 1989           105.89036
15 JAN 1987             106.45542              15 JAN 1990           106.69602
15 FEB 1987             104.51180              15 FEB 1990           103.05927
15 MAR 1987             105.58777              15 MAR 1990           103.88038
15 APR 1987             106.58044              15 APR 1990           104.68615
15 MAY 1987             107.56967              15 MAY 1990           105.46547
15 JUN 1987             108.61131              15 JUN 1990           106.27527
15 JUL 1987             109.58322              15 JUL 1990           107.04630
15 AUG 1987             106.13307              15 AUG 1990           103.39445
15 SEP 1987             105.38861              15 SEP 1990           102.42679
15 OCT 1987             106.32935              15 OCT 1990           103.17890
15 NOV 1987             107.32841              15 NOV 1990           103.96101
15 DEC 1987             108.33354              15 DEC 1990           104.74578
15 JAN 1988             107.06393              15 JAN 1991           105.49135
15 FEB 1988             103.54673              15 FEB 1991           101.84293
15 MAR 1988             104.48928              15 MAR 1991           102.61596
15 APR 1988             105.40607              15 APR 1991           103.37303
15 MAY 1988             106.29643              15 MAY 1991           104.10341
15 JUN 1988             107.22367              15 JUN 1991           104.86331
15 JUL 1988             108.10805              15 JUL 1991           105.58423
15 AUG 1988             104.55589              15 AUG 1991           101.91001
15 SEP 1988             103.70422              15 SEP 1991           100.89844
15 OCT 1988             104.56406              15 OCT 1991           101.60677
15 NOV 1988             105.46229              15 NOV 1991           102.34412
15 DEC 1988             106.36498              15 DEC 1991           103.08359
15 JAN 1989             107.22039              15 JAN 1992           103.78420
15 FEB 1989             103.64084              15 FEB 1992           100.08898
15 MAR 1989             104.52005              15 MAR 1992           100.81485
15 APR 1989             105.38040              15 APR 1992           101.52442
15 MAY 1989             106.21814              15 MAY 1992           102.21227
15 JUN 1989             107.08726              15 JUN 1992           102.92533
15 JUL 1989             107.91856              15 JUL 1992           103.60454
15 AUG 1989             104.30785              15 AUG 1992           99.88324

6091.BURNHAM.DEBT.146:1

  Payment              Percentage of            Payment           Percentage of
   Date                Facility Cost              Date            Facility Cost
  -------              -------------            -------           -------------

15 SEP 1992              100.58271             15 SEP 1995          96.07057
15 OCT 1992              101.24859             15 OCT 1995          96.62388
15 NOV 1992              101.93917             15 NOV 1995          97.17727
15 DEC 1992              102.63130             15 DEC 1995          97.73075
15 JAN 1993              103.28980             15 JAN 1996          98.28432
15 FEB 1993              99.54696              15 FEB 1996          94.41009
15 MAR 1993              100.22467             15 MAR 1996          94.95505
15 APR 1993              100.88807             15 APR 1996          95.50010
15 MAY 1993              101.52839             15 MAY 1996          96.04524
15 JUN 1993              102.19280             15 JUN 1996          96.59048
15 JUL 1993              102.82365             15 JUL 1996          97.13581
15 AUG 1993              99.05227              15 AUG 1996          93.25294
15 SEP 1993              99.70108              15 SEP 1996          93.78927
15 OCT 1993              100.61661             15 OCT 1996          94.32570
15 NOV 1993              100.95566             15 NOV 1996          94.86223
15 DEC 1993              101.59566             15 DEC 1996          95.39884
15 JAN 1994              102.20232             15 JAN 1997          95.93556
15 FEB 1994              98.40583              15 FEB 1997          92.04367
15 MAR 1994              99.02924              15 MAR 1997          92.57099
15 APR 1994              99.63812              15 APR 1997          93.09841
15 MAY 1994              100.22395             15 MAY 1997          93.62592
15 JUN 1994              100.83260             15 JUN 1997          94.15354
15 JUL 1994              101.40799             15 JUL 1997          94.68125
15 AUG 1994              97.57920              15 AUG 1997          90.77860
15 SEP 1994              98.16994              15 SEP 1997          91.29515
15 OCT 1994              98.72770              15 OCT 1997          91.81180
15 NOV 1994              99.30764              15 NOV 1997          92.32856
15 DEC 1994              99.8784               15 DEC 1997          92.84542
15 JAN 1995              100.43497             15 JAN 1998          93.36238
15 FEB 1995              96.57690              15 FEB 1998          89.44841
15 MAR 1995              97.13802              15 MAR 1998          89.95364
15 APR 1995              97.69922              15 APR 1998          90.45898
15 MAY 1995              98.26050              15 MAY 1998          90.96443
15 JUN 1995              98.82187              15 JUN 1998          91.97065
15 JUL 1995              99.32333              15 JUL 1998          91.97065
15 AUG 1995              95.51766              15 AUG 1998          88.05147
                                               15 SEP 1998          88.54650

6091.BURNHAM.DEBT.146:1

  Payment              Percentage of            Payment           Percentage of
   Date                Facility Cost              Date            Facility Cost
  -------              -------------            -------           -------------


15 OCT 1998             89.04164             15 OCT 2001             79.51497
15 NOV 1998             89.53689             15 NOV 2001             79.95860
15 DEC 1998             90.03225             15 DEC 2001             80.40237
15 JAN 1999             90.54443             15 JAN 2002             80.86667
15 FEB 1999             86.59955             15 FEB 2002             76.86359
15 MAR 1999             87.08502             15 MAR 2002             77.29734
15 APR 1999             87.57060             15 APR 2002             77.72925
15 MAY 1999             88.07359             15 MAY 2002             78.18240
15 JUN 1999             88.56545             15 JUN 2002             78.62197
15 JUL 1999             89.07486             15 JUL 2002             79.08297
15 AUG 1999             85.11106             15 AUG 2002             75.05889
15 SEP 1999             85.58995             15 SEP 2002             75.48268
15 OCT 1999             86.06895             15 OCT 2002             75.90663
15 NOV 1999             86.54808             15 NOV 2002             76.33074
15 DEC 1999             87.02733             15 DEC 2002             76.75500
15 JAN 2000             87.52455             15 JAN 2003             77.20119
15 FEB 2000             83.56212             15 FEB 2003             73.47885
15 MAR 2000             84.03082             15 MAR 2003             73.59029
15 APR 2000             84.49964             15 APR 2003             74.00189
15 MAY 2000             84.98907             15 MAY 2003             74.43620
15 JUN 2000             85.46259             15 JUN 2003             74.85099
15 JUL 2000             85.95688             15 JUL 2003             75.29869
15 AUG 2000             81.97426             15 AUG 2003             71.25179
15 SEP 2000             82.43595             15 SEP 2003             71.6575
15 OCT 2000             82.89776             15 OCT 2003             72.05788
15 NOV 2000             83.35970             15 NOV 2003             72.46117
15 DEC 2000             83.82178             15 DEC 2003             72.86463
15 JAN 2001             84.30306             15 JAN 2004             73.29153
15 FEB 2001             80.3292              15 FEB 2004             69.24602
15 MAR 2001             80.77274             15 MAR 2004             69.63631
15 APR 2001             81.22369             15 APR 2004             70.02626
15 MAY 2001             81.69453             15 MAY 2004             70.44049
15 JUN 2001             82.15265             15 JUN 2004             70.83920
15 JUL 2001             82.63083             15 JUL 2004             71.26239
15 AUG 2001             78.62814             15 AUG 2004             67.19117
15 SEP 2001             79.07148             15 SEP 2004             67.57192

  Payment              Percentage of            Payment           Percentage of
   Date                Facility Cost              Date            Facility Cost
  -------              -------------            -------           -------------

15 OCT 2004             67.95285               15 OCT 2007          53.98194
15 NOV 2004             68.53396               15 NOV 2007          54.29457
15 DEC 2004             68.71525               15 DEC 2007          54.60760
15 JAN 2005             69.12158               15 JAN 2008          54.95157
15 FEB 2005             65.05242               15 FEB 2008          50.77987
15 MAR 2005             65.41912               15 MAR 2008          51.06719
15 APR 2005             65.78600               15 APR 2008          51.36810
15 MAY 2005             66.17882               15 MAY 2008          51.69209
15 JUN 2005             66.55506               15 JUN 2008          51.99590
15 JUL 2005             66.93746               15 JUL 2008          52.53180
15 AUG 2005             62.86032               15 AUG 2008          48.20391
15 SEP 2005             63.21740               15 SEP 2008          48.49580
15 OCT 2005             63.57466               15 OCT 2008          48.82139
15 NOV 2005             63.93213               15 NOV 2008          49.12621
15 DEC 2005             64.78979               15 DEC 2008          49.43193
15 JAN 2006             64.57421               15 JAN 2009          49.77180
15 FEB 2006             60.57791               15 FEB 2009          45.64596
15 MAR 2006             60.91863               15 MAR 2009          45.91033
15 APR 2006             61.27117               15 APR 2009          46.25020
15 MAY 2006             61.64393               15 MAY 2009          46.58662
15 JUN 2006             61.99900               15 JUN 2009          46.90166
15 JUL 2006             62.38217               15 JUL 2009          47.25303
15 AUG 2006             58.24530               15 AUG 2009          43.13635
15 SEP 2006             58.57439               15 SEP 2009          43.44146
15 OCT 2006             58.93160               15 OCT 2009          43.73421
15 NOV 2006             59.27049               15 NOV 2009          44.10493
15 DEC 2006             59.60975               15 DEC 2009          44.42770
15 JAN 2007             59.97797               15 JAN 2010          44.79614
15 FEB 2007             55.83424               15 FEB 2010          40.68098
15 MAR 2007             56.14877               15 MAR 2010          40.99417
15 APR 2007             56.47601               15 APR 2010          41.32551
15 MAY 2007             56.82482               15 MAY 2010          41.63727
15 JUN 2007             57.15472               15 JUN 2010          42.02655
15 JUL 2007             57.51465               15 JUL 2010          42.40673
15 AUG 2007             83.34818               15 AUG 2010          38.31557
15 SEP 2007             53.64975               15SEP2010            38.64649
                                               15 OCT 2009          39.02069
                                               15 NOV 2009          39.37173
                                               15 DEC 2009          39.72610

  Payment              Percentage of            Payment           Percentage of
   Date                Facility Cost              Date            Facility Cost
  -------              -------------            -------           -------------

15 JAN 2011             40.12442               15 OCT 2013          26.39005
15 FEB 2011             36.04908               15 NOV 2013          26.73997
15 MAR 2011             36.39654               15 DEC 2013          27.09489
15 APR 2011             36.76528               15 JAN 2014          27.50297
15 MAY 2011             37.16883               15 FEB 2014          23.14938
15 JUN 2011             37.54874               15 MAR 2014          23.42703
15 JUL 2011             37.97548               15 APR 2014          23.72939
15 AUG 2011             33.92654               15 MAY 2014          24.06982
15 SEP 2011             34.30133               15 JUN 2014          24.38303
15 OCT 2011             34.72530               15 JUL 2014          24.74872
15 NOV 2011             35.12507               15 AUG 2014          20.35295
15 DEC 2011             35.52991               15 SEP 2014          20.59892
15 JAN 2012             35.98474               15 OCT 2014          20.87032
15 FEB 2012             31.96165               15 NOV 2014          21.12698
15 MAR 2012             32.36322               15 DEC 2014          21.32693
15 APR 2012             32.78981               15 JAN 2015          21.69851
15 MAY 2012             33.25636               15 FEB 2015          17.24736
15 JUN 2012             33.69833               15 MAR 2015          17.42486
15 JUL 2012             34.19360               15 APR 2015          17.62597
15 AUG 2012             30.04604               15 MAY 2015          17.86351
15 SEP 2012             30.44516               15 JUN 2015          18.07216
15 OCT 2012             30.89753               15 JUL 2015          13.33161
15 NOV 2012             31.32460               15 AUG 2015          13.82749
15 DEC 2012             31.75991               15 SEP 2015          13.95116
15 JAN 2013             32.24565               15 OCT 2015          14.12428
15 FEB 2013             27.97353               15 NOV 2015          14.26748
15 MAR 2013             28.33295               15 DEC 2015          14.41234
15 APR 2013             28.71865               15 JAN 2016          14.60697
15 MAY 2013             29.14395
15 JUN 2013             29.54340
15 JUL 2013             29.99673
15 AUG 2013             25.68962
15 SEP 2013             26.01349

  Payment              Percentage of            Payment           Percentage of
   Date                Facility Cost              Date            Facility Cost
  -------              -------------            -------           -------------

1/15/1987               103.0602435           1/15/2005            64.9164310
7/15/1987               104.7711995           7/15/2005            63.0641505
1/15/1988               102.3213300           1/15/2006            60.2462503
7/15/1988               103.3991088           7/15/2006            57.9403004
1/15/1989               102.5379014           1/15/2007            55.5393979
7/15/1989               103.2661149           7/15/2007            53.0711925
1/15/1990               102.0687545           1/15/2008            50.5116675
7/15/1990               102.4529575           7/15/2008            47.8856240
1/15/1991               100.9211226           1/15/2009            45.3003578
7/15/1991               101.0334556           7/15/2009            42.7478461
1/15/1992               99.2485124            1/15/2010            40.2505313
7/15/1992               99.0879706            7/15/2010            37.8247939
1/15/1993               98.7877249            1/15/2011            35.4989135
7/15/1993               98.3425233            7/15/2011            33.2948070
1/15/1994               97.7385536            1/15/2012            31.2489074
7/15/1994               96.9681431            7/15/2012            29.3870317
1/15/1995               96.0158658            1/15/2013            27.4346454
7/15/1995               96.6729025            7/15/2013            25.221157
1/15/1996               96.9425753            1/15/2014            22.7734275
7/15/1996               95.5422215            7/15/2014            20.0625201
1/15/1997               93.7579350            1/15/2015            17.0671186
7/15/1997               91.7660333            7/15/2015            13.7531940
1/15/1998               89.8052991            1/15/2016            10.6291891
7/15/1998               87.9080679
1/15/1999               86.2675661
7/15/1999               85.0089674
1/15/2000               83.5589801
7/15/2000               81.9152784
1/15/2001               80.0480541
7/15/2001               78.6151489
1/15/2002               76.6229324
7/15/2002               75.0949627
1/15/2003               72.9694881
7/15/2003               71.3402103
1/15/2004               69.0726678
7/15/2004               67.3354309

6091.BURNHAM.DEBT.146:1

When Recorded, Return to: Greg R. Nielsen Snell & Wilmer 3100 Valley Bank Carter Phoenix, Arizona 89073

CERTAIN RIGHTS OF THE LESSOR UNDER THE FACILITY LEASE AS HERETOFORE AMENDED AND AS FURTHER AMENDED BY THIS AMENDMENT NO. 2 THERETO HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF, CHEMICAL BANK, AS INDENTURE TRUSTEE UNDER A TRUST INDENTURE, MORTGAGE, SECURITY AGREEMENT AND ASSIGMIENT OF RENTS DATED AS OF AUGUST 12, 1986, AS HERETOFORE AMENDED. THIS AMENDMENT NO. 2 HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. SEE SECTION 3(e) OF THIS AMENDMENT NO. 2 FOR INF0RMATION CONCERNING THE RIGHTS OF HOLDERS or VARIOUS COUNTERPARTS HEREOF.

THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

AMENDMENT NO. 2
Dated as of November 25, 1986

to

FACILITY LEASE
Dated as of August 12, 1986,
am heretofore amended,

between

THE FIRST NATIONAL BANK OF BOSTON
not in its individual capacity,
but solely as Owner Trustee
under a Trust Agreement, dated as
of August 12, 1986, with Burnham
Leasing Corporation, as

Lessor

and

PUBLIC SERVICE COMPANY OF NEW MEXICO, as

Lessee

AMENDMENT N0. 2, dated as of November 25, 1986 (Amendment No.
2), to the Facility Lease dated as of August 12, 1986, as heretofore amended, between THE FIRST NATIONAL BANK OF BOSTON, a national banking association, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement, dated as of August 12, 1986, with Burnham Leasing Corporation, a New York Corporation (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the Lessee).

W I T N E S S E T H:

WHEREAS, the Lessee and the Lessor have heretofore entered into a Facility Lease, dated as of August 12, 1986 (the Facility Lease), providing for the lease by the Lessor to the Lessee of the Undivided Interest and the Real Property Interest;

WHEREAS, the Leases and the Lessor have heretofore entered into Amendment No.1 to the Facility Lease, dated as of November 18, 1986 (Amendment No. 1), providing for, among other things, certain amendments to section 3(a) of the Facility Lease;

WHEREAS, the Lessee and the Lessor desire to make a correction to Amendment No. 1, to correct a mathematical mistake made in the calculation of Basic Rent in connection therewith; and

WHEREAS, the Indenture Trustee has consented to this Amendment No. 2 pursuant to the Request, Instruction and Consent effective on December 15, 1986;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Definitions.

For purposes hereof, capitalized terms used herein and not otherwise defined herein or in the recitals shall have the meanings assigned to such terms in Appendix A to the Facility Lease.

SECTION 2. Amendments.

(a) section 3(a) (i) of the Facility Lease (as amended by Amendment No. 1) is deleted in its entirety.

(b)(l) section 3(a)(ii) of the Facility Lease, as amended by Amendment No. 1, becomes "Section 3(a)(i)" and is further amended to read in its entirety as follows:

"(i) on January 15, 1987 and on each Basic Rent Payment Date thereafter to and including January 15, 2016, an amount equal to 4.4195613% of Facility Cost, plus or minus the Rent Differential, if any, referred to in section 3(h) hereof; and".

(2) section 3(a)(iii) of the Facility Lease becomes section 3(a)
(ii) and the phrase "clause (ii) of this Section 3 (a)" immediately preceding the parenthetical is deleted and replaced by the phrase "clause (i) of this section 3(a)".

SECTION 3. Miscellaneous.

(a) Effective Date of Amendments. The amendments set forth in section 2 hereof shall be and became effective upon the execution hereof by the parties hereto.

(b) Counterpart Execution. This Amendment No. 2 may be executed in any number of counterparts and by each of the parties hereto on separate counterparts; all such counterparts shall together constitute but one and the same instrument.

(c) Governing Law. This Amendment No. 2 has been negotiated and delivered in the State of New York and shall be governed by, and construed in accordance with, the laws of the State of New York, except to the extent that pursuant to the law of the state of Arizona such law is mandatorily applicable hereto.

(d) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401, the beneficiary of the Trust Agreement is Burnham Leasing Corporation, a New York Corporation. The address of the beneficiary is 60 Broad Street, New York, New York 10004, Attention: Assistant Treasurer. A copy of the Trust Agreement is available for inspection at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

(e) Amendment No. 2. The single executed original of this Amendment No. 2 marked "THIS COUTTERPART IS THE ORIGINAL COUNTERPART" and containing the receipt of the Indenture Trustee thereon shall be the "Original" of this Amendment No. 2. To the extent that this Amendment No. 2 constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Amendment No. 2 may be created or continued through the transfer or possession of any counterpart other than the "Original".

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 2 to Facility tease to be duly executed in New York, New York by an officer thereunto duly authorized.

THE FIRST NATIONAL BANK OF BOSTON,
not in its individual capacity,
but solely as Owner Trustee under
a Trust Agreement, dated as of
August 12, 1986, with Burnham
Leasing Corporation

By  /s/ Martin P. Henry
    ------------------------------
       Assistant Vice President

PUBLIC SERVICE COMPANY OF NEW MEXICO,

By   /s/ A. J. Robison
     -----------------------------
      Senior Vice President and
       Chief Financial officer

6091.BURNHAM.DEBT.146A:

State of New York )
) ss:
County of New York )

The foregoing instrument was acknowledged before me this 15th day of December, 1986, by A. J. ROBISON, Senior vice President and Chief Financial Officer of PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico Corporation, on behalf of the corporation.

        /s/ Delia T. Santiago

          Notary Public
        DELIA T. SANTIAGO
 Notary Public State of New York
           No 41-3451160
   Qualified In Queens County
Commission Expires March 30, 1987

State of New York )
) ss:
County of New York )

The foregoing instrument was acknowledged before me this 15th day of December, 1986, by Martin P. Henry, Assistant vice President of THE FIRST NATIONAL BANK of BOSTON, a national banking association, on behalf of the banking association as Owner Trustee under the Trust Agreement dated as of August 12, 1985, with Burnham Leasing Corporation.

   /s/ David A. Spivak
-------------------------
      Notary Public

DAVID A. SPIVAK
Notary Public, State of New York
No. 31-4693468
Qualified in New York County
Commission Expires March 30, 1987

When Recorded, Return to: Greg R. Nielsen, Esq.

Snell & Wilmer
3100 Valley Bank Center
Phoenix, Arizona 85073

CERTAIN RIGHTS OF THE LESSOR UNDER THE FACILITY LEASE AS AMENDED BY THIS AMENDMENT NO. 1 THERETO HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF, CHEMICAL BANK, AS INDENTURE TRUSTEE UNDER A TRUST INDENTURE, MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS DATED AS OF DECEMBER 15, 1986. THIS FACILIY LEASE HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. SEE SECTION 22(e) OF THIS AMENDMENT NO1 FOR INFORMATION CONCERNING THE RIGHTS OF HOLDERS OF VARIOUS COUNTERPARTS HEREOF.

THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

FACILITY LEASE

Dated as of December 15, 1986

between

THE FIRST NATIONAL BANK OF BOSTON,
not in its individual capacity ,a
but solely as Owner Trustee
under a Trust Agreement, dated as
of December 15, 1986,
with Chase Manhattan Realty
Leasing Corporation,

Lessor

and

PUBLIC SERVICE COMPANY OF NEW MEXICO,

Lessee

                                TABLE OF CONTENTS

                                                                          Page
                                                                          ----

SECTION 1         Definitions............................................  1

SECTION 2         Lease of Undivided
                  Interest; Term; Personal
                  Property...............................................  1

           a      Lease of Undivided
                  Interest...............................................  1

           b      Term...................................................  1

           c      Personal Property......................................  2

           d      Description............................................  2

SECTION 3         Rent; Adjustments to
                  Rent...................................................  2

           a      Basic Rent.............................................  2

           b      Supplement Rent........................................  3

           c      Form of Payment........................................  4

           d      Adjustments to Rent....................................  4

           e      Further Adjustments....................................  5

           f      Computation of
                  Adjustments............................................  5

           g      Sufficiency of Basic
                  Rent and Supplemental
                  Rent...................................................  6

SECTION 4         Net Lease..............................................  7


                                     --i--
6091.CHASEU1.LEASE.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

SECTION 5         Return of the Undivided
                  Interest............................................... 9

           a      Return of the Undivided
                  Interest............................................... 9

           b      Disposition Services................................... 11

SECTION 6         Warranty of the Lessor................................. 12

           a      Quiet Enjoyment........................................ 12

           b      Disclaimer of Other
                  Warranties............................................. 12

           c      Enforcement of Certain
                  Warranties............................................. 13

SECTION 7         Liens  ................................................ 13

SECTION 8         Operation and Maintenance;
                  Capital Improvements................................... 14

           a      Operation and
                  Maintenance............................................ 14

           b      Inspection............................................. 15

           c      Capital Improvements................................... 15

           d      Reports................................................ 16

           e      Title to Capital
                  Improvements........................................... 17

           f      Funding of the Cost of
                  Capital Improvements................................... 18


                                     --ii--

6091.CHASEU1.LEASE.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

SECTION 9         Event of Loss; Deemed
                  Loss Event............................................. 20

           a      Damage or Loss......................................... 20

           b      Repair................................................. 21

           c      Payment of Casualty
                  Value.................................................. 21

           d      Payment of Special
                  Casualty Value......................................... 22

           e      Requisition of Use..................................... 23

           f      Termination of
                  Obligation............................................. 23

           g      Application of Payments
                  on an Event of Loss.................................... 24

           h      Application of Payments
                  Not Relating to an Event
                  of Loss................................................ 24

           i      Other Dispositions..................................... 25

           j      Assumption of Notes;
                  Creation of Lien on
                  Undivided Interest .................................... 25

SECTION 10        Insurance.............................................. 25

           a      Required Insurance..................................... 25

           b      Permitted Insurance.................................... 27

SECTION 11        Rights to Assign or
                  Sublease............................................... 27

                                    --iii--
6091.CHASEU1.LEASE.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

           a      Assignment or Sublease
                  by the Lessee.......................................... 27

           b      Assignment by Lessor as
                  Security for Lessor's
                  Obligations............................................ 28

SECTION 12        Lease Renewal.......................................... 28


SECTION 13        Notices for Renewal or
                  Purchase; Purchase
                  Options................................................ 29

           a      Notice, Determination of
                  Values, Appraisal
                  Procedure.............................................. 29

           b      Purchase Option at
                  Expiration of the Lease
                  Term................................................... 29

           c      Special Purchase Event................................. 30


SECTION 14        Termination for
                  Obsolescence........................................... 30

           a      Termination Notice..................................... 30

           b      Right of Lessor to
                  Retain Undivided
                  Interest upon
                  Termination............................................ 31

           c      Events on the
                  Termination Date....................................... 31

           d      Early Termination
                  Notice................................................. 32

                                     --iv--
6091.CHASEU1.LEASE.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----
           e      Events on the Early
                  Termination............................................ 32

SECTION 15        Events of Default...................................... 33

SECTION 16        Remedies............................................... 37

           a      Remedies............................................... 37

           b      No Release............................................. 42

           c      Remedies Cumulative.................................... 42

           d      Exercise of Other Rights
                  or Remedies............................................ 43

           e      Special Cure Right of
                  Lessee................................................. 43

SECTION 17        Notices................................................ 44

SECTION 18        Successors and Assigns................................. 45

SECTION 19        Right to Perform for
                  Lessee................................................. 46

SECTION 20        Additional Covenants................................... 46

SECTION 21        Lease of Real Property
                  Interest............................................... 46

SECTION 22        Amendments and
                  Miscellaneous.......................................... 46

           a      Amendments in Writing.................................. 46

           b      Survival............................................... 46

                                     --v--
6091.CHASEU1.LEASE.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

           c      Severability of
                  Provisions............................................. 47

           d      True Lease............................................. 47

           e      Original Lease......................................... 47

           f      Governing Law.......................................... 48

           g      Headings............................................... 48

           h      Concerning the Owner Trustee........................... 48

           i      Disclosure............................................. 49

           j      Counterpart Execution.................................. 49

APPENDIX A Definitions

SCHEDULE 1 Casualty Values

SCHEDULE 2 Special Casualty Values

SCHEDULE 3 Termination Values

SCHEDULE 4 Real Property Interest Description

SCHEDULE 5 Undivided Interest Description


                                     --vi--
6091.CHASEU1.LEASE.47:1

FACILITY LEASE, dated as of December 15, 1986, between THE FIRST NATIONAL BANK OF BOSTON, a national banking association, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement, dated as of December 15, 1986, with Chase Manhattan Realty Leasing Corporation (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the Lessee).

WITNESSETH:

WHEREAS, the Lessor owns the undivided Interest and the Real Property Interest;

WHEREAS, the Lessee desires to lease the undivided Interest and the Real Property Interest from the Lessor on the terms and conditions set forth herein; and

WHEREAS, the Lessor is willing to lease the Undivided interest and the Real Property Interest to the Lessee on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Definitions.

For purposes hereof, capitalized terms used herein shall have the meanings assigned to such terms in Appendix A hereto. References in this Facility Lease to sections, paragraphs and clauses are to sections, paragraphs and clauses in this Facility Lease unless otherwise indicated.

SECTION 2. Lease of Undivided Interest; Term; Personal Property.

(a) Lease of Undivided Interest. Upon the terms and subject to the conditions of this Facility Lease, the Lessor hereby leases to the Lessee, and the Lessee hereby leases from the Lessor, the undivided Interest.

(b) Term. The term of this Facility Lease shall begin on December 17, 1986, and shall end on the last day of the Lease Term.

6091.CHASEU1.LEASE.47:1

(c) Personal Property. It is the express intention of the Lessor and the Lessee that title to the Undivided Interest and every portion thereof be, and hereby is, severed, and shall be and remain severed, from title to the real estate constituting the Real Property Interest and the PVNGS Site. The Lessor and the Lessee intend that the Undivided Interest shall constitute personal property to the maximum extent permitted by Applicable Law.

(d) Description. The Real Property Interest is described on schedule 4 hereto. The Undivided Interest is described on Schedule 5 hereto.

SECTION 3. Rent; Adjustments to Rent.

(a) Basic Rent. The Lessee shall pay to the Lessor, as basic rent (herein referred to as Basic Rent) for the Undivided Interest and the Real Property Interest, the following amounts:

(i) on January 15, 1987, an amount equal to .02583079% of the Facility Cost for each day from, and including, December 17, 1986 to, but excluding, January 15, 1987;

(ii) on July 15, 1987 and on each Basic Rent Payment Date thereafter to and including January 15, 2015, an amount equal to 4.649542% of Facility Cost: and

(iii) if the Lessee shall elect the Renewal Term1 on July 15, 2015 and on each Basic Rent Payment flats thereafter during the Renewal Term, an amount equal to one-half of an amount determined by dividing the aggregate amount of all payments of Basic Rent payable with respect to the Basic Lease Term pursuant to clause (ii) of this Section 3(a) (taking into account any adjustments pursuant to sections 3(d) and 3(e)), by 56.

If an interest payment on any Note shall be due on a date other than a Basic Rent Payment Date, the Lessee shall pay additional Basic Rent on such date equal to such interest payment and such payment of additional Basic Rent shall be credited against the Basic Rent due on the Basic Rent Payment Date next succeeding the date that such additional Basic Rent shall have been paid.

6091. CHASEUl. LEASE. 47:1

(b) supplemental Rent. The Lessee shall pay the following amounts (herein referred to as supplemental Rent).

(i) when due or, where no due date is specified, on demand, any amount (other than Basic Rent, Casualty Value Termination Value and special Casualty Value) which the Lessee assumes the obligation to pay or agrees to pay to the Lessor, the Owner Participant, the indenture Trustee, the Collateral Trust Trustee or any indemnitee under this Facility Lease, any other Transaction Document or the Collateral Trust indenture, any amount which is to be paid under section 6.9, 7.6, or 8.7 of the Indenture and any amount that the Lessee is required to pay, or provide for the payment of, under Section 8.5 of the Indenture;

(ii) when due, any amount payable hereunder as Casualty Value, Termination Value or special Casualty Value, and an amount equal to any premium or prepayment penalty with respect to the Notes;

(iii) on demand and in any event on the Basic Rent Payment Date next succeeding the date such amounts shall be due and payable hereunder, to the extent permitted by Applicable Law, interest (computed on the same basis as interest on the Notes is computed) at a rate per annum equal to (A) the Overdue interest Rate, on that portion of the payment of Basic Rent or Supplemental Rent distributable pursuant to clause "first" of
Section 5.1 or clause "second" of Section 5.3 of the Indenture (determined prior to the computation of interest on overdue payments referred to in such clauses) , and (B) the Penalty Rate, on the balance of any such payment of Basic Rent or Supplemental Rent (including, in the case of both clause (i) and clause (ii) above, but without limitation, to the extent permitted by Applicable Law, interest payable pursuant to this clause (iii)) not paid when due (without regard to any period of grace) for any period for which the same shall be overdue.

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The Lessor shall have all rights, powers and remedies provided for in this Facility Lease, at law, in equity or other-tie, in the case of non-payment of Basic Rent or supplemental Rent.

(c) Form of Payment. Subject to Section 11(b), each payment of Rent under this Facility Lease shall be made in immediately available funds no later than 11:00 a.m., local time at the place of receipt, on the date each such payment shall be due and payable hereunder and shall be paid either (A) in the case of payments other than Excepted Payments, to the Lessor at its address determined in accordance with Section 17, or at such other address as the Lessor may direct by notice in writing to the Lessee, or (B) in the case of Excepted Payments, to such Person as shall be entitled to receive such payment at such address as such Person may direct by notice in writing to the Lessee. If the date on which any payment of Rent is due hereunder shall not be a Business Day, the payment otherwise due thereon shall be due and payable on the preceding Business Day, with the same force and effect as if paid on the nominal date provided in this Facility Lease.

(d) Adjustments to Rent. Basic Rent and the schedules of Casualty values, Termination Values and Special Casualty Values attached hereto shall be adjusted (upward or downward) to preserve Net Economic Return if there is any Change in Tax Law other than a change in respect of a minimum tax; provided, however, that the aggregate amount of such downward adjustments shall not exceed the aggregate amount of such upward adjustments. Adjustments under this paragraph (d) shall be (1) made not more than once a year and (2) limited in the aggregate to the extent necessary such that the aggregate amount of Basic Rent theretofore and thereafter payable throughout the Basic Lease Term (computed for such purposes only without regard to any adjustments theretofore made pursuant to Section 3(e)) shall not exceed by more than 4% the aggregate amount of Basic Rent which would have been payable throughout the Basic Lease Term (calculated as aforesaid) had no such adjustments been made.

The provisions of this Section 3(d) to the contrary notwithstanding, if any Change in Tax Law is, or becomes, applicable to the transaction contemplated by this Facility Lease in consequence of the transfer

6091. CHASEUl LEASE .47:1

of the Owner Participant's beneficial interest in the Trust (whether or not permitted by section 15 of the Participation Agreement) or if such change in Tax Law would not have been applicable to such transaction had no such transfer occurred, then no adjustment shall be, or be required to be, made pursuant to this Section 3.(d) ; provided, however, that this sentence shall not apply to the initial transfer of the owner Participant's beneficial interest in the Trust to one of its Affiliates.

(e) Further Adjustments. Basic Rent and the schedules of Casualty Values, Special Casualty Values and Termination Values attached hereto shall be appropriately adjusted (upward or downward) to preserve Net Economic Return if there is (i) any Supplemental Financing, (ii) the payment of Transaction Expenses in an amount which is other than 1.5% of the Purchase Price or (iii) any other change (other than a change in items 4, 5, a (as to the basis for amortization of Transaction Expenses), 14, 15 and 17, but without limiting the effect of Section 3(d) hereof) in the Pricing Assumptions.

(f) Computation of Adjustments. Upon the occurrence of an event requiring an adjustment to Basic Rent payable pursuant to clause (ii) of Section
3(a), and the schedules of Casualty Values, Special Casualty Values and Termination Values attached hereto, pursuant to paragraph (d) or (e) of this
Section 3, the owner Participant shall make the necessary computations and furnish to the Lessee, the Loan Participant, the Lessor and the indenture Trustee the revised amounts and percentages, which amounts and percentages shall be implemented upon delivery thereof and effective as of the date of occurrence of the event requiring such adjustment (taking into account any payment of Basic Rent already made) and shall remain effective until changed in consequence of any verification procedure set forth below. Such revised amounts and percentages shall be subject to verification (at the Lessee's request within 90 days after the Owner Participant furnishes the revised amounts to the Lessee, the Loan Participant, the Lessor and the Indenture Trustee) by the Owner Participant's nationally recognized independent public accountants, in which case such accountants shall either (i) confirm to the Lessee in writing that such revised amounts were computed or' a basis consistent with the original calculations, or
(ii) compute and provide to the Lessee, the Lessor, the Owner Participant, the

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Loan Participant and the Indenture Trustee revised amounts and percentages which are on such a basis. The revised amounts and percentages, as so confirmed or computed if applicable, shall be conclusive and. binding upon the Lessee, the Lessor, the Owner Participant, the Loan Participant and the Indenture Trustee. The cost of any such verification shall be borne by the Lessee unless such accountants shall require an adjustment to the revised amounts arid percentages originally provided by the owner Participant which differs by more than 10% from the adjustment so provided, in which case such cost shall be divided and paid by the Lessee and the Owner Participant in equal amounts. Each adjustment pursuant to paragraph (d) or (e) of this Section 3 may, but need not, be evidenced by the execution and delivery of a supplement to this Facility Lease in form and substance satisfactory to the Lessee and the owner Participant, but shall be effective as provided herein without regard to the date on which such supplement to this Facility Lease is so executed and delivered. Any adjustment referred to in this Section 3 shall satisfy the provisions of Revenue Procedure 75-21, Revenue Procedure 75-28 and any other applicable statute, regulation, revenue procedure, revenue ruling or technical information release relating to the subject matter of Revenue Procedure 75-21 or Revenue procedure 75-28, but, in the case of any upward adjustment, shall be no less than the adjustment otherwise required pursuant to this Section 3.

(g) Sufficiency of Basic Rant and supplemental Rent. Notwithstanding any other provision of this Facility Lease, any other Transaction Document or any Financing Document, (i) the amount of Basic Rent payable on each Basic Rent Payment Date shall be at least equal to the aggregate amount of principal, premium, if any, and accrued interest payable on all Notes then outstanding and (ii) each payment of Casualty Value, Special Casualty Value and Termination Value shall in no event be. less (when added to all other amounts, other than Excepted Payments, required to be paid by the Lessee under this Facility Lease in respect of any Event of Loss or Deemed Loss Event or termination of this Facility Lease) than an amount sufficient, as of the date of payment, to pay in full all principal of, and premium, if any, and interest then due on all Notes outstanding on and as of such date of payment (taking into account any assumption of the Notes by the Lessee).

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SECTION 4. Net Lease.

This Facility Lease (as originally executed and as -a tied, supplemented and amended from time to time) is a net lease, and the Lessee hereby acknowledges and agrees that the Lessee's obligation to pay all Rent hereunder, and the rights of the Lessor in and to such Rent, shall be absolute, unconditional and irrevocable and shall not be affected by any circumstances of any character, including, without limitation, (i) any set-off, abatement, counterclaim, suspension, recoupment, reduction, rescission, defense or other right or claim which the Lessee may have against the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant, the Operating Agent, any ANPP Participant, any vendor or manufacturer of any. equipment or assets included in the Undivided Interest, Unit 1, any Capital Improvement, the Real Property Interest, the PVNGS Site, PVNGS, or any part of any thereof, or any other Person for any reason whatsoever, (ii) any defect in or failure of the title, merchantability, condition, design, compliance with specifications, operation or fitness for use of all or any part of the Undivided Interest, Unit 1, any Capital Improvement, the Real Property Interest, the PVNGS Site or PVNGS, (iii) any damage to, or removal, abandonment, decommissioning, shutdown, salvage, scrapping, requisition, taking, loss, theft or destruction of all or any part of the Undivided Interest, Unit 1, any Capital Improvement, the Real Property Interest, the PVNGS Site or PVNGS; or any interference, interruption or cessation in the use or possession thereof or of the Undivided Interest by the Lessee or by any other Person (including, but without limitation, the Operating Agent or any other ANPF Participant) for any reason whatsoever or of whatever duration, (iv) any restriction, prevention or curtailment of or interference with any use of all or any part of the Undivided Interest, Unit 1, any Capital Improvement, the Real Property Interest, the PVNGS Site or PVNGS, (V) any insolvency, bankruptcy, reorganization or similar proceeding by or against the Lessee, the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant, the Operating Agent, any other ANPP Participant or any other Person, (vi) the invalidity, illegality or unenforceability of this Facility Lease, any other Transaction Document, any Financing Document, the ANPP Participation Agreement or any other instrument referred to herein or therein or

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any other infirmity herein or therein or any lack of right, power or authority'; of the Lessor, the Lessee, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant or any other Person to enter into this Facility Lease, any other Transaction Document or any Financing Document, or any doctrine of force majeure, impossibility, frustration, failure of consideration, or any similar legal or equitable doctrine that the Lessee's obligation to pay Rent is excused because the Lessee has not received or will not receive the benefit for which the Lessee bargained, it being the intent of the Lessee to assume all risks from all causes whatsoever that the Lessee does not receive such benefit, (vii) the breach or failure of any warranty or representation made in this Facility Lease or any other Transaction Document or any Financing Document by the Lessor, the Owner Participant, the Indenture Trustee, the! Collateral Trust Trustee, the Loan Participant or any other Person, (viii) any amendment or other change of, or any assignment of rights under, this Facility Lease, any other Transaction Document, any Financing Document or any ANPP Project Agreement, or any waiver, action or inaction under or in respect of this Facility Lease, any other Transaction Document, any Financing Document or any ANPP Project Agreement, or any exercise or non-exercise of any right or remedy under this Facility Lease, any other Transaction Document, any Financing Document or any ANPP Project Agreement, including, without limitation, the exercise of any foreclosure or other remedy under the Indenture, the Collateral Trust Indenture or this Facility Lease, or the sale of Unit 1, any Capital Improvement, the Undivided Interest, the Real Property Interest, the PVNGS Site or PVNGS, or any part thereof or any interest therein, or (ix) any other circumstance or happening whatsoever whether or not similar to any of the foregoing. The Lessee acknowledges that by conveying the leasehold estate created by this Facility Lease to the Lessee and by putting the Lessee in possession of the Undivided Interest and the Real Property Interest, the Lessor has performed all of the Lessor's obligations under and in respect of this Facility Lease, except the covenant under Section 6(a) hereof that the Lessor and Persons acting for the Lessor will not interfere with the Lessee's quiet enjoyment of the Undivided Interest and the Real Property Interest. The Lessee hereby waives, to the extent permitted by Applicable Law, any and all rights which it may now have or which at any time hereafter may be conferred

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upon it, by statute or otherwise, to terminate, cancel, quit or surrender this Facility Lease or to effect or claim any diminution or reduction of Rent payable by the Lessee hereunder, including without limitation the provisions of Arizona Revised Statutes section 32-343, except in accordance with the express terms hereof. If for any reason whatsoever this Facility Lease. shall be terminated in whole or in part by operation of law or otherwise, except as specifically provided herein, the Lessee nonetheless agrees to pay to the Lessor or other Person entitled thereto an amount equal to each installment of Basic Rent and all Supplemental Rent at the time such payment would have become due and payable in accordance with the terms hereof had this Facility Lease not been terminated in whole or in part. Each payment of Rent made by the Lessee hereunder shall be final and the Lessee shall not seek or have any right to recover all or any part of such payment from the Lessor or any other Person for any reason whatsoever. All covenants., agreements and undertakings of the Lessee herein shall be performed at its cost, expense and risk unless expressly otherwise stated. Nothing in this Section 4 shall be construed as a guaranty by the Lessee of any residual value in the Undivided Interest or as a guaranty of the Notes. Any provisions of Section 7(b) (2) or 9(c) of the Participation Agreement to the contrary notwithstanding, if the Lessee shall fail to make any payment of Rent to any Person when and as due (taking into account applicable grace periods), such Person shall have the right at all times, to the exclusion of the ANPP Participants, to demand, collect, sue for, enforce obligations relating to and otherwise obtain all amounts due in respect of such Rent.

SECTION 5. Return of the Undivided Interest.

(a) Return of the Undivided Interest. On the Lease Termination Date, the Lessee will (1) surrender possession of the Undivided Interest and the Real Property Interest to the Lessor (or to a Person specified by the Lessor to the Lessee in writing not less than 6 months prior to the Lease Termination Date) (i) with full rights as a Transferee" and the sole "Participant" with respect to the Undivided Interest and the Real Property Interest within the meaning of Section 15.10 of the ANPP Participation Agreement and (ii) without a Price-Anderson Event (as hereinafter defined) having arisen prior to, or arising upon, or immediately following, such surrender and (2) furnish to the

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Lessor: (i) copies certified by a senior officer of the Lessee of all Governmental Action necessary to effect such surrender (including, but without limitation, appropriate amendments to the License permitting the Lessor (without the Lessor being required to change its business) or such Person to possess the Undivided Interest and the Real Property Interest with or without the continued involvement of the Lessee as Agent), which Governmental Action shall be in full force and effect; and (ii) an opinion of counsel (which may be nudge Rose Guthrie Alexander & Ferdon, Snell & Wilmer or another counsel experienced with NRC and other nuclear matters reasonably satisfactory to the Owner Participant) to the effect that (A) the Lessee has obtained all Governmental Action and action under the ANPP Participation Agreement necessary to effect such surrender by the Lessee and receipt of possession by the Lessor (or by the Person so specified by the Lessor) and (B) such Governmental Action is in full force and effect. At the time of such return the Lessee shall pay or have paid all amounts due and payable, or to become due and payable, by it as an ANPP Participant under each and every ANPP Project Agreement allocable or chargeable (whether or not payable during or after the Lease Term) to the Undivided Interest or the Real Property Interest in respect of any period or periods ending on or prior to the Lease Termination Date (including, but without limitation, all amounts payable with respect to any and all discretionary Capital Improvements to Unit 1 or the PVNGS Site approved or authorized (without the concurrence of the owner Participant) within the 3-year period preceding the end of the Lease Term, whether or not implementation thereof has been completed on or prior to the Lease Termination Date), and the Undivided Interest and the Real Property Interest shall be free and clear of all Liens (other than Permitted Liens described in clauses (i), (v) (other than those arising by, through or under the Lessee alone) , (vi) , (vii) (other than as aforesaid), (viii) (other than as aforesaid), (ix) and (x) of the definition of such term) and in the condition and state of repair required by Section 8. In the event that on or prior to the Lease Termination Date there shall have occurred a default by any ANPP Participant (other than the Lessee) under the ANPP Participation Agreement and such default shall not have been cured by the defaulting ANPP Participant, then
(i) the Lessee agrees to indemnify and hold the Lessor (and each successor, assign and transferee thereof) harmless against any and all obligations under

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the ANPP Participation Agreement with respect to contributions or payments required to be made thereby as a result of such default and (ii) the Lessor (and each successor, assign and transfered thereof) agrees to reimburse the Lessee for all amounts paid by the Lessee pursuant to the foregoing clause (i) to the extent, but only to the extent, that the Lessor (or such successor, assign or transferee) shall have actually received proceeds from the sale of the Generation Entitlement share of the defaulting ANPP Participant as a result of the payment made by the Lessee pursuant to the foregoing clause (i) and, to the extent the Lessor (or such successor, assign or transferee) shall have received such proceeds, the amount to be reimbursed to the Lessee pursuant to this clause
(ii) shall include interest at the Prime Rate from the date of any payment by the Lessee pursuant to the foregoing clause (i) through the date of reimbursement of such amount pursuant to this clause (ii). For purposes of this
Section 5(a) a "Price-Anderson Event" shall mean any change in, or new interpretation by Governmental Authority having jurisdiction of, Applicable Law, including without limitation the Price-Anderson Act, the Atomic Energy Act and the regulations of the NRC, in each case as in effect on the Closing Date, but only if such change is specified in clauses (2) (i) through (iv) of the definition of "Deemed Loss Event" (other than a change which is specified in clause (A) of the definition of "Acceptable Change).

(b) Disposition Services. The Lessee agrees that if it does not exercise its option to renew or purchase as provided in Sections 12 and 13, respectively, then during the last thirty-six months of the Lease Term, the Lessee will fully cooperate with the Lessor in connection with the Lessor's efforts to lease or dispose of the Undivided Interest and the Real Property Interest, including using the Lessee's reasonable efforts to lease or dispose of the Undivided Interest and the Real Property Interest. The Lessor agrees to reimburse the Lessee for reasonable out-of-pocket costs and expenses of the Lessee incurred at the request of the Lessor or the Owner Participant in connection with such cooperation and such efforts.

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SECTION 6. Warranty of the Lessor.

(a) Quiet Enjoyment. The Lessor warrants that until the Lease Termination Date, so long as no Event of Default shall have occurred and be continuing, the Lessee's use and possession of Unit 1, including the Undivided Interest, shall not be interrupted by the Lessor or any Person claiming by, through or under the Lessor, and, their respective successors and assigns.

(b) Disclaimer. of Other Warranties. The warranty set forth in
Section 6(a) is in lieu of all other warranties of the Lessor or the Owner Participant, whether written, oral or implied, with respect to this Facility Lease, Unit 1, any Capital Improvement, the undivided Interest, PVNGS, the Real Property Interest or the PVNGS Site. As among the Owner Participant, the Loan Participant, the Indenture Trustee, the Collateral Trust Trustee, the Lessor and the Lessee, execution by the Lessee of this Facility Lease shall be conclusive proof of the compliance of Unit 1 (including any Capital Improvement) , the Undivided Intere5t and the Real Property Interest with all requirements of this Facility Lease, and the Lessee acknowledges and agrees that (i) NEITHER THE LESSOR NOR THE OWNER PARTICIPANT IS A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND AND (ii) THE LESSOR LEASES AND THE LESSEE TAKES THE UNDIVIDED INTEREST AND THE REAL PROPERTY INTEREST, AND SHALL TAKE EACH CAPITAL INPROVEENT, AND ANY PART THEREOF, AS IS AND WHERE IS, and neither the Lessor nor the Owner Participant shall be deemed to have made, and THE LESSOR AND THE OWNER PARTICIPANT EACH HERESY DISCLAIMS, ANY OTHER REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN OR CONDITION OF UNIT 1, ANY CAPITAL IMPROVEMENT, THE UNDIVIDED INTEREST, THE REAL PROPERTY INTEREST, THE PVNGS SITE OR PVNGS, OR ANY PART THEREOF, THE MERCHANTABILITY THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR PURPOSE, TITLE TO UNIT 1, ANY CAPITAL IMPROVEMENT, THE UNDIVIDED INTEREST, THE REAL PROPERTY INTEREST, THE PVNGS SITE OR FINGS, OR ANY PART THEREOF, THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT OR THE ABSENCE OF ANY LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, NOR SHALL THE LESSOR OR THE OWNER PARTICIPANT BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LIABILITY IN TORT, STRICT OR OTHERWISE) , it being agreed that all

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such risks, as among the Owner Participant, the Loan Participant, the Collateral Trust Trustee, the Indenture Trustee, the Lessor and the Lessee, are to be borne by the Lessee. The provisions of this Section 6(b) have been negotiated, and, except to the extent otherwise expressly provided in Section 6(a), the foregoing provisions are intended to be a complete exclusion and negation of any representations or warranties by the Lessor, the Owner Participant, the Loan Participant, the Collateral Trust Trustee or the Indenture Trustee, express or implied, with respect to Unit 1 (including any Capital Improvement) , the Undivided Interest, PVNGS, the Real Property Interest or the PVNGS Site that may arise pursuant to any law now or hereafter in effect, or otherwise.

(C) Enforcement of Certain Warranties. The Lessor authorizes the Lessee (directly or through agents, including the Operating Agent), at the Lessee's expense, to assert for the Lessor's account, during the Lease Term, all of the Lessor's rights (if any) under any applicable warranty and any other claims (under this Facility Lease or any Purchase Document) that the Lessee or the Lessor may have against any vendor or manufacturer with respect to Unit 1 (including any Capital Improvement) or the Undivided Interest, and the Lessor agrees to cooperate, at the Lessee's expense, with the Lessee and the Operating Agent in asserting such rights. Any amount received (without regard to any right of setoff or other similar right of any Person against the Lessee) by the Lessee as payment under any such warranty or other claim against any vendor or manufacturer (or, if such warranty or claim relates to the Undivided Interest and the Retained Assets, the portion of such received amount appropriately allocable to the Undivided Interest) shall be applied in accordance with Sections 9(g), (h) and (i).

SECTION 7. Liens.

The Lessee will not directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to the Undivided Interest, the Real Property Interest, the Lessor's title thereto or any interest of the Lessor or Lessee therein (and the Lessee will promptly, at its own expense, take such action as may be necessary duly to discharge any such Lien) except Permitted Liens.

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SECTION 8. operation and Maintenance; capital Improvements

(a) Operation and Maintenance. The Lessee agrees that it will exercise its rights, powers, elections and options as an ANPP Participant under the ANPP Project Agreements to cause the Operating Agent to (A) maintain Unit 1 in such condition that Unit 1 will have the capacity and functional ability to perform, on a continuing basis (ordinary wear and tear excepted), in normal commercial operation, the functions and substantially at the ratings at which it is, from time to time, rated, (B) operate, service, maintain and repair Unit 1 and replace all necessary or useful parts and components thereof so that its condition and operating efficiency will be maintained and preserved, ordinary wear and tear excepted, in all material respects in accordance with (1) prudent utility practice for items of similar size and nature, (2) such operating standards as shall be required to take advantage of and enforce all available warranties and (3) the terms and conditions of all insurance policies maintained in effect at any time with respect thereto, (C) use, possess, operate and maintain Unit 1 in compliance with all material applicable Governmental Actions (including the License) affecting PVNGS or Unit 1 or the use, possession, operation and maintenance thereof and (D) otherwise act in accordance with the standards set forth in the ANPP Participation Agreement. The Lessee will comply with all its obligations under Applicable Law affecting Unit 1, the Undivided Interest, PVNGS, the Real Property Interest and the PVNGS Site, and the use, operation and maintenance thereof. The Lessee agrees to (i) exercise its rights under the ANPP Participation Agreement so that there will always be an operating Agent under the ANPP Participation Agreement and (ii) maintain in full force and effect a license from the NRC adequate to possess the Undivided Interest and the Real Property Interest under the circumstances contemplated by the ANPP participation Agreement. The Lessee will keep and maintain proper books and records (i) relating to all. Operating Funds (as defined in the ANPP Participation Agreement) provided by it to the Operating Agent under the ANPP Participation Agreement and (ii) upon receipt of the requisite information from the Operating Agent, relating' to the application of such operating Funds to the operation and maintenance of Unit 1 and the acquisition, construction and installation of capital Improvements, all in accordance with the Uniform System

6091.CHASEU1.LEASE.47:1

of Accounts. The Lessor shall not be obliged in any way to maintain, alter, repair, rebuild or replace Unit 1, any capital Improvement, the Undivided Interest or the Real Property Interest, or any part thereof, or, except as provided in Section 8(f), to pay the cost of alteration, rebuilding, replacement, repair or maintenance of Unit l any capital Improvement, the Undivided Interest or the Real Property Interest, or any part thereof, and the Lessee expressly waives the right to perform any such action at the expense of the lessor pursuant to any law at any time in effect.

(b) inspection. The Lessor and the Owner Participant and their respective authorized representatives shall have the right to inspect PVNGS (subject, in each event, to the ANPP Participation Agreement, Applicable Law, applicable confidentiality undertakings and procedures established by the Operating Agent) at their expense. The Lessor and the owner Participant and their respective authorized representatives shall have the right to inspect, at their expense, the. books and records of the Lessee relating to PVNGS, and make copies of and extracts therefrom (subject as aforesaid) and may, at their expense, discuss the Lessee's affairs, finances and accounts with its executive officers and its independent public accountants (and by this provision, the Lessee authorizes such accountants, in the presence of the Lessee, to discuss with the Lessor and the Owner Participant and their respective authorized representatives the affairs, finances and accounts of the Lessee), all at such times and as often as may be reasonably requested. None of the Lessor, the owner Participant, the Indenture Trustee and the Collateral Trust Trustee shall have any duty whatsoever to make any inspection or inquiry referred to in this
Section 8(b) and shall not incur any liability or obligation by reason of not making any such inspection or inquiry.

(a) Capital Improvements. If and to the extent required by the ANPP Participation Agreement, the Lessee shall, at its sole expense, promptly participate in the making of any Capital Improvement to Unit 1 or the Common Facilities. Of the net proceeds of (i) any sale or other disposition of property removed from Unit 1 or the Common Facilities receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) by, or credited to the account of the Lessee in accordance with the ANPP Participation

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Agreement and (ii) any insurance proceeds receivable (without regard to any right of setoff or other similar right at any Person against the Lessee) for the account of the Lessor or the Lessee in respect of the loss or destruction of, or damage or casualty to, any such property, lo.6o6666% in the case of Unit 1, or 5.555555% in the case off Common Facilities, of either such amount shall be applied as provided in section 9(g), (h) or (i), as the case may be. A 1.700000%, in the case of Unit 1, or .566667%, in the case of Common Facilities, undivided interest in property at any time removed from Unit 1 or the Common Facilities shall remain the property of the Lessor, no matter where located, until such time as a Capital improvement constituting a replacement of such property shall have been installed in Unit 1 or the Common Facilities or such removed property has been disposed of by the Operating Agent in accordance with the ANPP Participation Agreement. Simultaneously with such disposition by the Operating Agent, title to a 1.700000%, in the case of Unit 1, or .566667%, in the case of Common Facilities, undivided interest in the removed property shall vest in the Person designated by the operating Agent, free and clear of any and all claims or rights of the Lessor. Unless subparagraph (3) of Section 8(e) shall be applicable, upon the incorporation of a Capital Improvement in Unit 1 or the Common Facilities, without further act, (i) title to a 1.700000%, in the case of Unit 1, or .566667%, in the case of Common Facilities, undivided interest in such Capital Improvement shall vest in the Lessor and (ii) such applicable undivided interest in such Capital Improvement shall become subject to this Facility Lease and be deemed to be part of the Undivided Interest for all purposes hereof to the same extent that the Lessor had a like undivided interest in the property originally incorporated or installed in Unit 1 or the Common Facilities. The Lessee warrants and agrees that the Lessor's 1.700000% or .566667%, as the case may be, undivided interest in all Capital Improvements shall be free and clear of all Liens., except Permitted Liens other than the type specified in clauses (ii), (iii) and (xii) of the definition thereof.

(d) Reports. To the extent permissible, the Lessee shall prepare and file in timely fashion, or, where the Lessor shall be required to file, the Lessee shall prepare and deliver to the Lessor within a reasonable time prior to the date for filing, any reports with. respect to Unit 1, the Undivided Interest

609l.CHASEUl.LEASE.47: 1

or the Real Property Interest or the condition or operation thereof that shall be requited to be filed with any governmental or regulatory authority. On or before March 1 of each year (commencing on March 1, 1988) and on the Lease Termination Date, the Lessee shall furnish the Lessor and the Owner Participant with a report stating the total cost of all Capital Improvements and describing separately and in reasonable detail each Capital Improvement (or related group of Capital Improvements) made during the period from the date hereof to December 31, 1987 in the case of the first such report or during the period from the end of the period covered by the last previous report to the December 31 prior to such report in the case of subsequent reports. On or before March 1 in each year (commencing March 1, 1987) and at such other times as the Lessor or the Owner Participant shall reasonably request in writing (which request shall provide a reasonable period for response), the Lessee will report in writing to the Lessor with respect to (i) the most recent annual capital expenditure budget submitted by the Operating Agent to the Lessee in accordance with the ANPP Participation Agreement and (ii) the then plans (if any) which the Lessee may have for the financing of the same under Section 8(f).

(e) Title to Capital Improvements. Title to a 1.700000%, in the case of Unit 1, or .566667%, in the case of Common Facilities, undivided interest in each Capital Improvement to Unit 1 or the Common Facilities, as the case may be, shall vest as follows:

(1) In the case of each Nonseverable Capital Improvement, whether or not the Lessor shall have financed or provided financing (in whole or in part) for such undivided interest in such Capital Improvement by an Additional Equity Investment or a Supplemental Financing, or both, effective on the date such Capital Improvement shall have been incorporated or installed in Unit 1 or the Common Facilities, as the case may be, the Lessor shall, without further act, acquire title to such undivided interest in such Capital Improvement:

(2) in the case of each Severable Capital Improvement, if the Lessor shall have financed (by an Additional Equity Investment or a Supplemental Financing, or both) 1.700000%, in the case of Unit 1, or .566667%, in the case of Common Facilities, of the cost of such

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capital improvement the Lessor shall, without further act, acquire title to such undivided interest in such capital Improvement; and

(3) in the case of each Severable capital Improvement, if the Lessor shall not have financed (by an Additional Equity investment or a supplemental Financing, or both) 1.700000%, in the case of Unit 1, or .566667%, in the case of Common Facilities, of the cost of such capital improvement, the Lessee shall retain title to such undivided interest in such capital Improvement.

Immediately upon title to such 1.700000%, in the case of Unit 1, or .566667%, in the case of Common Facilities, undivided interest in any capital Improvement vesting in the Lessor pursuant to subparagraph (1) or sub-paragraph
(2) of this Section 8(e), such undivided interest in such Capital Improvement shall, without further act, become subject to this Facility Lease and be deemed part of the undivided Interest for all purposes hereof.

(f) Funding at the Cost of capital Improvements. Before placing in service any Capital Improvement to Unit 1 or the Common facilities the cost of which exceeds $100,000,000 in respect of the interests of all ANPP Participants, the Lessee shall give the Lessor and the Owner Participant reasonable advance notice thereof. The Owner Participant shall have the option, in its sole discretion, of financing through the Lessor 1.700000%, in the case of Unit 1, or .566667%, in the case of Common Facilities, of the cost of any such Capital Improvement, or any other Capital Improvement presented to the Owner Participant for financing, including or not including the making of an investment by the owner Participant (an Additional Equity Investment) and the issuance of one or more Additional Notes, all on terms acceptable to the Lessee and the Owner Participant. If the Owner Participant does not finance, or arrange the financing of, 1.700000%, in the case or Unit 1, or .566667%, in the case of Common Facilities, of the cost of such Capital Improvement, the Lessee may cause the Lessor to issue, if and to the extent permitted by the Indenture, to one or more Persons (other than any Person affiliated with the Lessee within the meaning of Section 318 of the Code) one or more Additional Notes and to use the

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proceeds thereof to pay the applicable percentage of the cost of such Capital Improvement, subject to satisfaction of the following conditions

(i) there shall be no more than one supplemental Financing it' any calendar year;

(ii) the sum of the Supplemental Financing Amounts in any calendar year, shall equal or exceed 1.700000% of $5,000,000;

(iii) the Lessee may include in any request for a supplemental Financing only capital Improvements not previously financed in any Supplemental Financing and which have been installed or affixed no earlier than three calendar years before the beginning of the calendar year in which such supplemental Financing occurs;

(iv) the total amount of all supplemental Financings during the Basic Lease Term shall not exceed 16.666666% of $100,000,000;

(v) unless waived by the Owner Participant, the Bonds issued and outstanding under the Collateral Trust Indenture shall be rated no less than "investment grade", as determined by standard & Poor's Corporation and Moody's Investors Service, Inc.;

(vi) the Supplemental Financing Amount shall not exceed that portion of the cost of Capital Improvements which, when financed, will constitute an addition to the Owner Participant's basis under section 1012 of the Code;

(vii) in the opinion of independent tax counsel to the owner Participant, such supplemental Financing shall not result in adverse tax consequences to the Owner Participant or adversely affect the status of this Facility Lease as a "true lease" for Federal, New York state or New York city tax purposes, and the owner Participant and the Lessee shall have agreed upon the amount and manner of payment of the indemnity (if any) payable by the Lessee as a consequence of such supplemental Financing;

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(viii) the Additional Notes shall have a final maturity date no later than January 15, 2015;

(ix) the Lessee shall have made such representations, warranties and covenants regarding the tax characteristics of the Lessor1s undivided interest in each Capital Improvement as the Owner Participant reasonably requests, and the Tax Indemnification Agreement shall have been appropriately modified;

(x) appropriate adjustments to Basic Rent and the schedules of casualty Values, Special Casualty Values and Termination Values shall have been agreed to by the Owner Participant to support the amortization of the Additional Notes issued in respect of such Supplemental Financing and to preserve Net Economic Return;

(xi) the Lessee shall pay to the Lessor an amount equal to all out-of-pocket costs and expenses reasonably incurred by the Lessor or the Owner Participant and not financed as a part of such supplemental Financing or reflected in adjustments to Basic Rent;

(xii) no Default or Event of Default shall have occurred and be continuing; and

(xiii) the Lessee shall enter into such agreements and shall have provided such tax indemnities, representations, warranties, covenants, opinions, certificates and other documents as the owner Participant shall reasonably request.

SECTION 9. Event of Loss; Deemed Loss Event.

(a) Damage or Loss. In the event that Section 16.2 of the ANPP Participation Agreement (as in effect on the date hereof) shall become applicable, or an Event of Loss, a Requisition of Use or a Requisition of Title shall occur, or Unit 1 or any substantial part thereof shall suffer destruction,

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damage, loss, condemnation, confiscation, theft or seizure for any reason whatsoever, such fact shall promptly, and in any case within five Business Days following such event, be reported by the Lessee to the Lessor and the Owner Participants.

(b) Repair. The Lessee shall promptly make any and all payments required of the Lessee under the provisions of the ANPP Participation Agreement relating to damage or destruction or the like to Unit 1 or any portion thereof; provided, however, that the Lessee shall in no event be obligated to make or join in any agreement under Section 16.2 of the ANPP Participation Agreement (as in effect on the date hereof) concerning repairs to or reconstruction of Unit 1.

(c) Payment of Casualty value. On the Basic Rent Payment Date next following receipt by the Lessee of a written notice from the Lessor that an Event of Loss has occurred, the Lessee shall pay to the Lessor all Basic Rent due on such Basic Rent Payment Date, plus an amount equal to the excess of (i) Casualty value determined as of such Basic Rent Payment Date over (ii) the unpaid principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such date. An Event of Loss shall not be deemed to have occurred unless and until the Lessor delivers the notice specified in the preceding sentence. Upon compliance in full by the Lessee with the foregoing provisions of this Section 9(c) and assumption by the Lessee of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to Section 3.9(b) of the indenture, the Lessor shall (so long as no Default or Event of Default shall have occurred and be continuing) , and at any time after the occurrence of an Event of Loss, the Lessor may:

(1) in the case of an Event of Loss arising from a Final Shutdown, if the Lessee shall have declined, but one or more of the other ANPP Participants shall have elected, to reconstruct or restore unit 1, as permitted by the ANPP Participation Agreement, Transfer the Undivided Interest and the Real Property interest to such electing ANPP Participants, as required by and in the proportions set forth in the ANPP Participation Agreement, in which case the Lessee shall be entitled to receive the portion of the salvage value" purchase price allocable to the Undivided interest; or

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(2) if clause (1) shall not be applicable, Transfer the Undivided Interest and the Real Property Interest to the Lessee.

If the Lessee shall not have assumed all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the Indenture, but the owner Participant shall have received under
Section 5.2 of the Indenture all amounts required to be paid by the Lessee pursuant to this Section 9(c) (including interest, if any, thereon pursuant to
Section 3(b)(iii) hereof), the Lessor shall retain the Undivided Interest and the Real Property Interest subject to the terms of this Facility Lease and
Section 7(b)(4) of the Participation Agreement; provided, however, that (i) the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on all Notes then Outstanding and (ii) this Facility Lease shall become a security agreement for all purposes of Applicable Law.

(d) Payment of special casualty value. If a Deemed Loss Event occurs, the party hereto having knowledge thereof shall promptly notify the other thereof (provided that the failure by the Lessor to furnish to the Lessee the foregoing notification shall not impair the right of the Lessor to exercise the option referred to below) and, at the Lessor's option, exercisable by delivery of written notice to the Lessee, on the day (specified in Schedule 2) of the month next following the month during which such notice is delivered to the Lessee, the Lessee shall pay to the Lessor an amount equal to the excess of
(i) Special Casualty Value determined as of the date such payment is due over
(ii) the principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such day. Upon compliance in full by the Lessee with the foregoing provisions of this Section 9(d) and assumption by the Lessee of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to
Section 3.9(b) of the Indenture, the Lessor shall (so long as no Default or Event of Default shall have occurred and be continuing) , and at any time after

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the occurrence of a Deemed Loss Event, the Lessor may, Transfer the Undivided Interest and the Real Property Interest to the Lessee. If the Lessee shall not have assumed all the liabilities and obligations of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the Indenture, but the Owner Participant shall have received under Section 5.2 of the Indenture all amounts required to be paid by the Lessee pursuant to this Section 9(d) (including interest, if any, thereon pursuant to Section 3(b)(iii))L,, the Lessor shall retain the undivided Interest and the Real Property Interest subject to the terms of this Facility Lease and Section 7(b) (4) of the Participation Agreement; provided, however, that (i) the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on all Notes Outstanding and (ii) this Facility Lease shall become a security agreement for a~1 purposes of Applicable Law.

(e) Requisition of Use. In the case of a Requisition of Use not constituting an Event of Loss, this Facility Lease shall continue, and each and every obligation of the Lessee hereunder and under each Transaction Document shall remain in full force and effect. So long as no Default or Event of Default shall have occurred and be continuing, the Lessee shall be entitled to all sums received by reason of any such Requisition of Use for the period ending on the Lease Termination Date, and the Lessor shall be entitled to all sums received by reason of any such Requisition of Use for the period after the Lease Termination Date.

(f) Termination of obligation. Until the Lessee shall have made the payments specified in Section 9(c) or 9(d), the Lessee shall make all payments of Rent when due; and the Lessee shall thereafter be required to make all payments of Supplemental Rent as and when due. In the event that the Lessee shall assume all the obligations and liabilities of the Owner Trustee under the Indenture and the Motes pursuant to Section 3.9(b) of the Indenture, upon receipt by the Owner Participant under Section 5.2 of the Indenture of the payments specified in Section 9(c) or 9(d) and payment by the Lessee of all other Rent due and owing through and including the date of payment (including Basic Rent due on or accrued through such date, as the case may be) , the Lease Term shall end and the Lessee's obligation to pay further Basic Rent shall cease.

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(g) Application of Payments on an Event of Lass. Any payments receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) at any time by the Lessor or the Lessee (other than insurance placed by the Owner Trustee or the Owner Participant pursuant to
Section 10(b)) from any Governmental Authority, insurer or other Person (except the Lessee, the Owner Trustee or the Owner Participant) as a result of the occurrence of an Event of Loss shall be applied as follows:

(i) all such payments received at any time by the Lessee shall be promptly paid to the Lessor for application pursuant to the following provisions of this section 9(g), except that the Lessee may retain any amounts that would at the time be payable to the Lessee as reimbursement under the provisions of clause (ii) below;

(ii) so much of such payments as shall not exceed the amount required to be paid by the Lessee pursuant to Section
9(c) (ignoring, for this purpose clause (ii) of the first sentence thereof) shall be applied in reduction of the Lessee's obligation to pay such amount if not already paid by the Lessee or, if already paid by the Lessee, shall be applied to reimburse the Lessee for its payment of such amount: and

(iii) the balance, if any, of such payments remaining thereafter shall be divided between the Lessor and the Lessee as their interests may appear.

(h) Application of Payments Not Relating to an Event of Loss. Payments receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) at any time by the Lessor (other than insurance placed by the Owner Trustee or the Owner Participant pursuant to
Section 10(b)) or the Lessee from any Governmental Authority, insurer or other Person with respect to any destruction, damage, loss, condemnation, confiscation, theft or seizure of or Requisition of Title to or Requisition of Use of the undivided Interest or any part thereof not constituting an Event of Loss shall be applied first to reimburse the Lessee for all amounts expended in

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respect of the repair, replacement or reconstruction of the undivided Interest or any cart thereof as provided in Section 9(b) , and second the balance, if any, of such payments shall be divided between the Lessor and the Lessee as their interests flay appear.

(i) Other Dispositions. Notwithstanding the foregoing provisions of this Section 9, so long as a Default or Event of Default shall have occurred and be continuing, any amount that would otherwise be payable to or for the account of, or that would otherwise be retained by, the Lessee pursuant to Section 10 or this Section 9 shall be paid to the Lessor as security for the obligations of the Lessee under this Facility Lease and, at such time thereafter as no Default or Event of Default shall be continuing, such amount shall be paid promptly to the Lessee unless this Facility Lease shall have therefore been declared to be in default, in which event such amount shall be disposed of in accordance with the provisions hereof, of the Indenture and of the Trust Agreement.

(1) Assumption of Notes; Creation of Lien on Undivided Interest. In connection with an Event of Loss, a Deemed Loss Event or the exercise of the Cure Option, (i) the Lessee agrees to use its best efforts to comply with the conditions respecting its assumption of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes set forth in
Section 3.9(b) of the Indenture, and (ii) the Lessor agrees that, if the Lessee fails to assume all the obligations and liabilities of the owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the Indenture, not later than two Business Days prior to the date on which the Lessee is required to make the payments specified in Section 9(c) or 9(d), the Lessor will cause the Undivided Interest and the Real Property Interest to be subjected to the Lien of the Indenture by executing and delivering to the Indenture Trustee the Undivided Interest Indenture Supplement.

SECTION 10. Insurance.

(a) Required Insurance. The Lessee will use its best efforts to cause the Operating Agent to carry and maintain insurance required under the ANPP Participation Agreement and will make all payments required of the Lessee under the ANPP Participation Agreement in respect of such insurance. The Lessee

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will at all times maintain, directly or through the perating Agent, policies of casualty and liability insurance with respect to the undivided Interest and the Real Property Interest in such amounts and with such coverage as shall be adequate in accordance with prudent utility practice. Any policies of insurance in respect of destruction, damage, loss, theft or other casualty to the Undivided Interest, the Real Property Interest, Unit 1 or any part thereof shall name the Lessor (and, to the extent practicable, the Owner Participant) as an additional insured, as its interest (or their interests) may appear, and any policies with respect to nuclear liability insurance with respect to the Undivided :interest, the Real Property Interest, Unit 1, or any part thereof, shall include all Indemnitees as insureds through an omnibus definition of "insured" or through endorsement; provided, however, that if the Operating Agent, as trustee, shall become the loss payee tinder any policy of insurance constituting Project Insurance, then the Lessor and the Owner Participant shall be and be made beneficiaries of the trust arrangement under which the operating Agent acts as trustee. The Lessee shall, on or before March 1 of each year, commencing March 1, 1987, furnish to the Lessor and the Owner Participant (A) a report signed by the broker or brokers for the PVNGS insurance (or if insurance is placed directly by the Operating Agent, a certificate signed by the Operating Agent) (i) showing the insurance then maintained by the ANPP Participants with respect to PVNGS, (ii) stating that no premiums are then delinquent, and (iii) stating that the insurance maintained by the ANPP Participants with respect to PVNGS is in accordance with the terms of (1) the ANPP Participation Agreement and (2) this Section 10, (3) a report signed by the broker or brokers for the Lessee's insurance (or if insurance is placed directly by the Lessee, a certificate signed by the Lessee) showing the separate insurance, if any, then maintained by the Lessee with respect to its interest in PVNGS and stating that no premiums under such insurance are delinquent; (C) a certificate signed by the Lessee stating that the insurance maintained by the ANPP Participants and by the Lessee, identified on the reports to be delivered pursuant to clauses (A) and (B), is in accordance with prudent utility practice within the nuclear industry, the ANPP Participation Agreement and this Section 10; and (C) 'upon the request of the Lessor or the Owner Participant, copies (to the extent permitted by the issuers of such policies) of policies so maintained. Any report by an insurance

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broker with respect to clause (A) (iii) (1) may be made in reliance upon a schedule provided by the Lessee (a copy of which shall be attached) identifying the insurance (by coverage, limits, insureds and other pertinent details) required to be maintained under the ANPP Participation Agreement. Any report with respect to clause (A) (iii) (2) may be made in reliance upon a similar schedule provided by the Lessee (a copy of which shall be attached) identifying the insurance required to be maintained under this Section 10. All insurance proceeds paid in respect of damage, destruction, loss, theft or other casualty to the Undivided Interest or the Real Property Interest shall be applied as provided in Section 9(g), (h) or (i), as the case may be, subject, however, to any priority allocations of such proceeds to decontamination and debris removal set forth in the insurance policies or required under Applicable Law. In the event that either the operating Agent or the Lessee delivers a certificate pursuant to clause (A) or (B) of the foregoing, the Owner Participant shall be entitled to receive (if it so requests and if the insurer will issue the same) a report from any insurer listed in such certificate.

(b) Permitted Insurance. Nothing in this Section 10 shall prohibit the Lessee from placing, at its expense, insurance on or with respect to the cost of purchasing replacement power, naming the Lessee as insured and/or loss payee, unless such insurance would conflict with or otherwise limit the availability of insurance to be provided or maintained in accordance with
Section 10(a). Nothing in this Section 10 shall prohibit the Lessor or the Owner Participant from placing at its expense other insurance on or with respect to Unit 1, the Undivided interest or the Real Property Interest or the operation of Unit 1, naming the Lessor or the Owner Participant as insured and/or loss payee, unless such insurance would conflict with or otherwise limit the insurance to be provided or maintained in accordance with Section 10(a).

SECTION 11. Rights to Assign or sublease.

(a) Assignment or Sublease by the Lessee. Without the prior written consent of the Lessor, the Lessee shall not assign. sublease, transfer or encumber (except for Permitted Liens) its leasehold interest in the Undivided Interest or the Real Property Interest under this Facility Lease. The Lessee

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shall not, without the prior written consent of the Lessor and the Owner Participant, part with the possession of, or suffer or allow to pass out of its possession, the Undivided Interest, the Real Property :interest or any interest therein, except to the extent required pursuant to the ANPP Participation Agreement or expressly permitted by the provisions of this Facility Lease or any other Transaction Document.

(b) Assignment by Lessor as security for Lessor's Obligations. To secure the indebtedness evidenced by the Notes, the Lessor will assign to the Indenture Trustee its right, title and interest to receive certain payments of Rent (not including, in any event, Excepted Payments), to the extent provided in the Indenture and may assign to the Indenture Trustee its right, title and interest in the Undivided Interest and the Real Property Interest as contemplated by Section 9(j). The Lessee hereby (a) consents to such assignment pursuant to the terms of the Indenture, (b) agrees to pay-directly to the Indenture Trustee at the indenture Trustee's Office (so long as the lien at the Indenture has not been satisfied and discharged and the Lessor is obligated thereunder) all amounts of Rent (other than Excepted Payments) due or to become due to the Lessor that shall be required to be paid to the Indenture Trustee pursuant to the Indenture, (c) agrees that the right of the Indenture Trustee to any such payments shall be absolute and unconditional and shall not be affected by any circumstances whatsoever, including, without limitation, those circumstances set forth in Section 4 and (d) agrees that, to the extent provided in the Indenture and until the Indenture is discharged in accordance with its terms, the Indenture Trustee shall have all the rights of the Lessor hereunder with respect to Assigned Payments as if the Indenture Trustee had originally been named herein as the Lessor.

SECTION 12. Lease Renewal.

Subject to the notice requirements set forth in Section 13(a), at the end of the Basic Lease Term, provided that no Default, Event of Default, Event of Loss or Deemed Loss Event shall have occurred and be continuing and the Notes shall have been paid in full, the Lessee shall have the right to renew the term of this Facility Lease for a period commencing January 15, 2015, and ending on the later of January 15, 2017 and the end of the Maximum Option Period (the

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Renewal Term), during which the Basic Rent payable shall be the rental provided in Section 3(a) (iii) and one-half of the rental provided in Section 21.

SECTION 13.Notices for Renewal or Purchase; Purchase Options.

(a) Notice; Determination of values; Appraisal Procedure. Not later than three years nor earlier than five years prior to the expiration date of the Basic Lease Term, and not later than three years nor earlier than five years prior to the expiration date of the Renewal Term, as the case may be, the Lessee shall give to the Lessor written notice of its election either to (A) return the Undivided Interest and the Real Property Interest to the Lessor pursuant to section 5., or (S) exercise the renewal option permitted by Section 12 (in the case of the notice delivered in respect of the expiration date of the Basic Lease Term) or the purchase option permitted by Section 13(b). If the notice specified in clause (B) of the preceding sentence is given three years prior to the expiration of the Basic Lease Term, then not later than two years prior to 'the expiration date of the Basic Lease Term, the Lessee will give the Lessor written notice of its election either to exercise the renewal option permitted by Section 12 or the purchase option permitted by Section 13
(b) . Any such election shall be irrevocable as to the Lessee, but no such election shall be binding on the Lessor if, on the effective date thereof, an Event of Default shall have occurred and be continuing or an Event of Loss or a Deemed Loss Event shall have occurred. Promptly after giving notice, (i) in case the renewal option has been elected, the Maximum Option Period shall be determined by the Appraisal Procedure, or (ii) in case the purchase option permitted by Section 13(b) has been elected, the Lessee and the Owner Participant shall agree upon the Fair Market Sales Value of the Undivided Interest and the Real Property Interest, or, if within three months after the date of the Lessee's notice the Lessee and the Owner Participant shall be unable so to agree, such value shall be determined by the Appraisal Procedure.

(b) Purchase Option at Expiration of the Lease Term. Subject to the notice requirements set forth in Section 13 (a) , unless a Default or an Event of Default shall have occurred and be continuing or an Event of Loss or Deemed Loss Event shall have occurred, on the date of the expiration of the

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Basic Lease Term or the Renewal Term (if elected), the Lessee shall have the right. to purchase the Undivided Interest and the Real Property Interest for a purchase price equal to the Fair Market sates Value thereof.

(c) Purchase of the Undivided interest; Payment, Etc. If the Lessee shall have elected or be required to purchase the Undivided Interest and the Real Property Interest pursuant to Section 13(b), payment by the Lessee of the purchase price for the Undivided Interest and the Real Property Interest shall be made in immediately available funds, whereupon the Lessor shall Transfer the Undivided Interest and the Real Property Interest to the Lessee.

SECTION 14. Termination for Obsolescence.

(a) Termination Notice. Notwithstanding any provision herein contained to the contrary, unless a Default or an Event of Default shall have occurred and be continuing or an Event of Loss or a Deemed Loss Event shall have occurred, the Lessee shall have the option (provided that the Lessee shall have delivered to the Lessor an Officers1 Certificate to the effect that the Lessee's Board of Directors has adopted and there is in effect a resolution determining that Unit 1 is (A) uneconomic to the Lessee or (B) economically obsolete for any reason; and provided that the Lessee shall be disposing of all its other leased interests in Unit 1), on at least 360 days' prior written notice (a Termination Notice) to the Lessor, the Owner Participant and the Indenture Trustee (which notice shall be irrevocable)) to terminate this Facility Lease on any Basic Rent Payment Date after January 15, 1998, and prior to January 15, 2012 (the Termination Date) . If the Lessee shall give the Lessor a Termination Notice, the Lessee shall, as agent for the Lessor, use its best efforts to obtain cash bids for the purchase of the Undivided Interest and the Real Property Interest, together with the interest of the Lessor under the Assignment and Assumption. The Lessor shall also have the right to obtain such cash bids, either directly or through agents other than the Lessee. The Lessee shall certify to the Lessor within ten days after the Lessee's receipt of each bid (and, in any event, prior to the Termination Date) the amount and terms thereof and the name and address of the party (which shall not be the Lessee or an Affiliate of the Lessee) submitting such bid.

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(b) Right of Lessor to Retain Undivided Interest upon Termination. If a Termination Notice has been delivered pursuant to Section
14(a), the Lessor may elect to retain, rather than sell, the Undivided Interest and the Real Property Interest by giving notice to the Lessee and the Indenture Trustee prior to the Termination Date. It shall be a condition precedent to the Lessor's right to retain the Undivided Interest and the Real Property Interest that on or prior to the Termination Date the Lessor shall have paid (or made provision for payment) to the Indenture Trustee, the unpaid principal amount of all Notes Outstanding on such date and all premium, if any, and interest accrued and unpaid on the date of payment. If the Lessor elects to retain the Undivided Interest and the Real Property Interest pursuant to this Section 14(b) , the Lessee shall pay to the Lessor on the Termination Date the Basic Rent and any other Rent due or accrued, as the case may be, to and including the Termination Date, together with an amount equal to the excess, if any, of the Termination Value as of the Termination Date over the highest bona tide offer received pursuant to Section 14(a).

(C) Events on the Termination Date. If the Lessor has not elected to retain the Undivided Interest and the Real Property Interest as provided in Section 14 (b), on the Termination Date the Lessor shall (upon receipt of the sale price and all additional payments specified in the next sentence) Transfer the Undivided' Interest and the Real Property Interest for cash to the bidder (which shall not be the Lessee or an Affiliate of the Lessee) that shall have submitted the highest bid on or before the Termination Date. The total sale price realized at such sale shall be retained by the Lessor (subject, however, to the terms of the Indenture and the requirement that there shall have been paid, or provision for payment made, to the Indenture Trustee the unpaid principal amount of all Notes Outstanding on the Termination Date and all premium, if any, and interest accrued and unpaid on the date of payment) and, in addition, on the Termination Date the Lessee shall pay to the Lessor (A) the excess, if any, of the Termination Value as of the Termination Date over the net sale price of the Undivided Interest and the Real Property Interest and (B) any Basic Rent due or accrued, as the case may be, to and including the Termination Date and shall pay to the Person or Persons entitled thereto all Supplemental

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Rent (other than Termination Value). Upon compliance by the Lessee with the applicable provisions of this Section 14, the obligation of the Lessee to pay Basic Rent due hereunder for any period inter the Termination Date shall cease and the Basic Lease Term shall end on the Termination Date: provided, however, that, in the event of termination of this Facility Lease pursuant to this
Section 14, the obligations of the Lessee under the ANPP Participation Agreement (except as therein expressly provided) and the Assignment and Assumption shall continue in full force and effect and shall not be impaired by reason of any such termination. If, other than as a result of the Lessor's election to retain the Undivided Interest and the Real Property Interest as provided in Section
14(b), on or as of the Termination Date no such sale shall occur or the Lessee shall not have complied in full with this Section 14, this Facility Lease shall continue in full force and effect in accordance with its terms with-out prejudice to the Lessee's right to exercise its rights under this Section 14 thereafter, except that the Lessee shall not be entitled to deliver another Termination Notice during the 3-year period following such Termination Date. The Lessor shall be under no duty to solicit bids, to inquire into the efforts of the Lessee to obtain bids or otherwise take any action in connection with any such sale other than, if the Lessor has not elected to retain the Undivided Interest and the Real Property Interest, to Transfer the Undivided Interest and the Real Property Interest to the purchaser named in the highest bid certified by the Lessee to the Lessor or obtained by the Lessor, against receipt of the payments provided for herein (but only if such purchaser has obtained all Governmental Action by the NRC necessary in connection therewith).

(4) Early Termination Notice. In the event that the Lessee shall fail to exercise its renewal option or purchase option within the time limit provided by Section 13(a), the Lessor shall have the option, on any Basic Rent Payment Date thereafter, on at least 120 days prior written notice (an Early Termination Notice) to the Lessee and the Indenture Trustee, to terminate this Facility Lease on the Basic Rent Payment Date specified in such notice (the Early Termination Date) . Any Early Termination Notice may be revoked by the Lessor at any time on or prior to the Early Termination Date.

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(e) Events on the Early Termination Date. On the Early Termination Date the Lessor shall, at its option, (i) Transfer the undivided Interest and the Real Property Interest to the bidder (other than the Lessee or an Affiliate of the Lessee) selected by the Lessor or (ii) retain the undivided Interest and the Real Property Interest; It shall be a condition precedent to the Lessor's right to sell or retain the Undivided Interest and the Real Property Interest that on or prior to the Early Termination Date the Lessor shall have paid (or made provision for payment) to the Indenture Trustee the unpaid principal amount of all Votes Outstanding on such date and all premium, if any, and interest accrued and unpaid on the date of payment. The total sale price realized at any such sale shall be retained by the Lessor and, in addition, on the Early Termination Date the Lessee shall pay to the Lessor any Basic Rent due or accrued, as the case may be, to and including the Early Termination Date, and shall pay to the Person or Persons entitled thereto all Supplemental Rent (other than Termination Value). Upon compliance by the Lessee with the applicable provisions of this Section 14, the obligation of the Lessee to pay Basic Rent due hereunder for any period after the Early Termination Date shall cease and the Lease Term shall end on the Early Termination Date; provided, however, that in the event of the termination of this Facility Lease pursuant to this Section 14, the obligations of the Lessee under the ANPP Participation Agreement (except as therein expressly provided) and the Assignment and Assumption shall continue in full force and effect and shall not be impaired by reason of any such termination.

SECTION 15. Events of Default.

The term Event of Default, wherever used herein, shall mean any of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary, or come about or be effected by operation of law, or be pursuant to or in compliance with any Applicable Law or Governmental Action).

(i) the Lessee shall fail to make, or cause to be made,
(x) payment of Casualty Value, Termination Value, Special Casualty Value or payment due pursuant to exercise of the Cure Option when due, (y) any payment of Basic Rent within 5 Business Days after the same shall become due or (z) any payment of

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Supplemental Rent (other than Casualty Value, Termination Value, Special Casualty Value or payment due pursuant to exercise of the Cure Option) within 20 days after the same shall become due or demanded, as the case may be; or

(ii) the Lessee shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it under
Section 10(b) (3) (i) , 10(b) (3) (ii),. 10 (b ) C 3) (iii { or
10(b) (3) (V) of the Participation Agreement or Section 7, 10 (other than failure of the Lessee to cause to be delivered the insurance certificates (other than a certificate of the Lessee) described therein) or 11 of this Facility Lease; or

(iii) the Lessee shall fail to perform or observe any covenant or agreement to be performed or observed by it under
Section 10(b)(3)(viii) of the Participation Agreement and such failure shall continue for a period of 30 days after there shall have been given to the Lessee by the Lessor or the owner Participant a notice specifying such failure and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or

(iv) the Lessee shall fail to perform its agreements set forth in Section 5(a) hereof; or

(v) the Lessee shall fail to perform or observe any covenant, condition or agreement (other than covenants, conditions or agreements referred to in clauses (i) through (iv) above) to be performed or observed by it under this Facility Lease or any other Transaction Document, and such failure shall continue for a period of 30 days after there shall have been given to the Lessee by the Lessor or the Owner Participant a notice specifying such failure and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or

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(vi) any representation or warranty made by the Lessee in this Facility Lease, any other Transaction Document (other than the Tax Indemnification Agreement) or any agreement, document or certificate delivered by the Lessee in connection herewith or therewith shall prove to have been incorrect in any material respect when any such representation or warranty was made or given and shall remain material and materially incorrect at the time in question; or

(vii) the Lessee shall commence a voluntary case or other proceeding seeking liquidation, reorganization or. other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking of possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall take any corporate action to authorize any of the foregoing; or an involuntary case or other proceeding shall be commenced against the Lessee seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed or unstayed for a period of 60 consecutive days; or

(viii) final judgment for the payment of money in excess of $1,000,000 shall be rendered against the Lessee and the. Lessee shall not have discharged the same or provided for its discharge in accordance with its terms or bonded the same or procured a stay of execution thereof within 60 days from the entry thereof; or

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(ix) (1) a default by the Lessee under the ANPP Participation Agreement in consequence of which the Lessee's right to receive its Generation Entitlement Share in PVNGS is suspended by the other ANPP Participants, or (2) the giving by any ANPP Participant of a notice 'under Section 23.2 (or any comparable successor provision) of the ANPP Participation Agreement respecting a default thereunder by the Lessee and the lapse of 20 Business Days from the giving of such notice without the Lessee having cured such default; provided however, that for purposes of this clause (2) if the Lessee shall have, in good faith, disputed the existence or nature of a default and such dispute shall have become the subject of an arbitration under section 24 (or any comparable successor provision) of the ANPP Participation Agreement, such 20 Business Day period shall commence on the date of the final determination of the board of arbitrators under such Section 24; or

(x) (1) the Lessee shall fail to pay when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) any Debt (which term shall mean (A) indebtedness for borrowed money, (B) obligations as lessee under leases and (C) obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clause (A) or (B) above, in each case if the principal amount (or equivalent) thereof (or in the case of any operating lease, an equivalent on the assumption such lease were a lease required to be capitalized in accordance with generally accepted accounting principles) is greater than $20,000,000 ($5,000,000 in the case of any PVNGS operating lease)) of the Lessee, and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt, but only if the Lessee shall have received notice of such failure or a Responsible Officer of the Lessee shall have actual knowledge of such failure; or (2) any other

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default under any agreement or instrument relating to any such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt, but only if the Lessee shall have received notice of such default or event or a Responsible Officer of the Lessee shall have actual knowledge of such default or event.

SECTION 16. Remedies.

(a) Remedies. Upon the occurrence of any Event of Default and so long as the same shall be continuing, the Lessor may, at its option, declare this Facility Lease to be in default by written notice to such effect given to the Lessee, and may exercise one or more of the following remedies as the Lessor in its sole discretion shall elect:

(i) the Lessor may, by notice to the Lessee, rescind or terminate this Facility Lease;

(ii) the Lessor may (x) demand that the Lessee, and thereupon the Lessee shall, return possession of the Undivided interest and the Real Property Interest promptly to the Lessor in the manner and condition required by, and otherwise in accordance with the provisions of, this Facility Lease as if the Undivided Interest and the Real Property Interest were being returned at the end of the Lease Term and the Lessor shall not be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith and (y) subject to Applicable Law, enter upon the PVNGS Site and take immediate possession of (to the exclusion of the Lessee) the Undivided Interest and the Real Property Interest, by summary proceedings or otherwise, all without liability to the Lessee for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise;

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(iii) the Lessor may sell the Undivided Interest and the Real Property Interest, or any part thereof, together with any interest of the Lessor under the Assignment and assumption, at public or private sale in a commercially reasonable manner, as the Lessor may determine, free and clear of any rights of the Lessee in the Undivided Interest and the Real Property Interest and without any duty to account to the Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent required by clause (V) or (vi) below if the Lessor shall elect to exercise its rights thereunder), in which event the Lessee's obligation to pay Basic Rent hereunder for periods commencing after the date of such sale shall be terminated or proportionately reduced, as the case may be (except to the extent that Basic Rent is to be included in computations under clause (v) or (vi) below if the Lessor shall elect to exercise its rights thereunder).

(iv) the Lessor may hold, keep idle or lease to others all or any part of the Undivided Interest and the Real Property Interest, as the Lessor in its sole discretion may determine, free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or for any proceeds with respect to such action or inaction, except that the Lessee's obligation to pay Basic Rent for periods commencing after the Lessee shall have been deprived of use of the Undivided Interest and the Real Property Interest pursuant to this clause (iv) shall be reduced by an amount equal to the net proceeds, if any, received by the Lessor from leasing the Undivided interest and the Real Property Interest to any Person other than the Lessee for the same periods or any portion thereof;

(v) except in the case of an Event of Default specified in clause (iv) of Section 15 (subject, however, to the provisos to the first sentence of Section 16(c) hereof), the Lessor may, whether or not the Lessor shall have exercised or shall thereafter at any time exercise its rights under clause (i),

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(ii), (iii) or (iv) above, demand, by written notice to the Lessee specifying a payment date which shall be a Basic Rent Payment Date not earlier than 10 days after the date of such notice, that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on the Basic Rent Payment Date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty (in lieu Of the Basic Rent due after the Basic Rent Payment Datespecified in such notice) , any unpaid Rent due through the Basic Rent payment Date specified in such notice plus whichever of the following amounts the Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the interest rate specified in. Section 3(b)
(iii) from the Basic Rent Payment Date specified in such notice to the date of actual payment) (and, in the case of (C) below, upon receipt of such payment the Lessor shall (or may prior to the receipt of such payment) Transfer to the Lessee the. Undivided Interest and the Real Property Interest):

(A) an amount equal to the excess, if any, of
(1) Casualty Value, computed as of the Basic Rent Payment Date specified in such notice, over (2) the Fair Market Rental Value of the Undivided Interest and the Real Property Interest (determined on the basis of the then actual condition of 'Unit 1) until the end of the remaining useful life of Unit 1, after discounting such Fair Market Rental Value semi-annually to present value as of the Basic Rent Payment Date specified in such notice at a rate of 10% per annum:

(B) an amount equal to the excess, if any, of
(1) such Casualty Value over (2) the Fair Market Sales Value of the Undivided interest and the Real Property Interest (determined on the basis of the then actual condition of Unit 1) as of the Basic Rent Payment Date specified in such notice;

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(C) an amount equal to the excess, if any, of
(1) the present value as of the Basic Rent Payment Date specified in such notice of all installments of Basic Rent until the end of the Basic Lease Term or the Renewal Term, as the case may be, discounted semi-annually at a rate of 10% per annum, over (2) the present value as of such Basic Rent Payment Date of the Fair Market Rental Value of the Undivided Interest and the Real Property interest (determined on the basis of the then actual condition of Unit I) until the end of the Basic Lease Term or the Renewal Term, as the case may be, discounted semi-annually at a rate of 10% per annum; or

(D) an amount equal to the higher of (1) the Casualty Value (special casualty Value if the Event of Default is an event specified in clause (V), (viii) or
(x) (2) of-Section 15 hereof), computed as of the Basic Rent Payment Date specified in such notice or (2) the Fair Market Sales Value of the Undivided Interest and the Real Property Interest;

(vi) if the Lessor shall have sold all the Undivided Interest and the Real Property Interest pursuant to clause (iii) above, the Lessor, in lieu of exercising its rights under clause
(V) above with respect to the Undivided Interest and the Real Property Interest may, if it shall so elect, demand that the Lessee pay to the Lessor and the Lessee shall pay to the Lessor on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (in lieu of Basic Rent due for periods commencing after the next Basic Rent Payment Date following the date of such sale), any unpaid Basic Rent due through such Basic Rent Payment Date, plus the amount of any deficiency of the Sale Proceeds under the casualty Value, computed as of such Basic Rent Payment Date, together with interest at the interest rate specified in Section 3(b) (iii) on the amount of such Rent and such deficiency from the date of such sale until the date of actual payment; or

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(vii) in the case of an Event of Default specified in clause
(iv) of Section 15, the Lessor may demand, by written notice to the Lessee specifying a payment date which shall be not earlier than the date 30 days after the last. Basic Rent Payment Date of the Lease Term, that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on such last payment date, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due through such last Basic Rent Payment Date plus an amount (not less than zero) equal to the Fair Market Sales value (determined without regard to the obligation of the Lessee under Section l0(b)(3)(xi) of the participation Agreement) of the Undivided Interest and the Real Property Interest (determined on the basis of the actual condition of Unit 1) determined as of such last Basic Rent Payment Date (together with interest on such amount at the interest rate specified in Section 3(b)(iii) from such last Basic Rent Payment Date to the date of actual payment) and upon receipt of such payment the Lessor shall (or may prior to the receipt of such payment) Transfer to the Lessee the Undivided Interest and the Real Property Interest); provided, however, that the Lessor may not exercise the foregoing remedy if the Lessor shall have failed to Transfer the undivided Interest and the Real Property Interest to the bidder (which shall not be the Lessee or an Affiliate of the Lessee) that shall have submitted the highest cash bid on or before the date on which such Event of Default arose excluding, however, any such cash bid which the Lessor or the Owner Participant determines was not submitted in good faith, or as to which the bidder fails to certify to the Lessor such information as the Lessor or Owner Participant may reasonably request in order to determine whether or not such bid was submitted in good faith (and the Lessor agrees that it will, if and to the extent so requested by the Lessee on or

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after the date 90 days preceding such last Basic rent payment Date, use reasonable efforts (at the expense off the Lessee) for a period ending :n the day 90 days after such last Basic Rent Payment Date, to find a Person willing to submit such cash bid; provided, however, that the failure of the Lessor to do so shall not relieve the Lessee of its obligations under this clause (vii)).

(b) No Release. No rescission or termination of this Facility Lease, in whole or in part, or repossession of the Undivided Interest or the Real Property Interest or exercise of any remedy under paragraph (a) of this
Section 16 shall, except as specifically provided therein, relieve the Lessee of any of its liabilities and obligations hereunder. In addition, the Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before, after or during the exercise of any of the foregoing remedies, including all reasonable legal fees and other costs and expenses incurred by the Lessor or the Owner Participant by reason of the occurrence of any Event of Default or the exercise of the Lessor's remedies with respect thereto. At any sale of the Undivided Interest, the Real Property Interest or any part thereof pursuant to this Section 16, the Owner Participant, the Lessor or the Indenture Trustee may bid for and purchase such property.

(c) Remedies Cumulative. No remedy under paragraph (a) of this
Section 16 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy provided under such paragraph (a) or otherwise available to the Lessor at law or in equity; provided, however, that notwithstanding anything to the contrary set forth in this Facility Lease, the remedy set forth in Section 16(a) (vii) shall be. the sole and exclusive remedy under this Section 16 in the case of an Event of Default specified in clause
(iv) of Section 15, unless the Lessee is in default of its payment obligations under Section 16 (a) (vii), in which case the Lessor may exercise its other remedies under Section 16(a); (except that the maximum amount payable by the Lessee in the event of the exercise by the Lessor of any of the remedies provided for in Section 16(a) (v) or (vi) shall not exceed the total amount payable by the Lessee under Section 16(a) (vii) minus the amount provided in subclause (2) of clause (A), (3) or (C) of such Section 16(a) (v) , if the

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Lessor elects a remedy specified in said clause (A) , (B) or (C), or the deficiency referred to in Section 16(a) (vi), if the Lessor elects the remedy specified in Section 16(a) (vi) hereto). No express or implied waiver by the Lessor of any Default or Event of Default hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Default or Event of Default. The failure or delay of the Lessor in exercising any right granted it hereunder upon any occurrence of any of the contingencies set forth herein shall not constitute a waiver of any such right upon the continuation or recurrence of any such contingencies or similar contingencies and any single or partial exercise of any particular right by the Lessor shall not exhaust the same or constitute a waiver of any other right provided herein. To the extent permitted by Applicable Law, the Lessee hereby waives any rights now or hereafter conferred by statute or otherwise which may require the Lessor to sell, lease or otherwise use the Undivided Interest or Unit 1 in mitigation of the Lessor's damages as set forth in paragraph (a) of this Section 16 or which may otherwise limit or modify any of the Lessor's rights and remedies provided in this Section 16.

(d) Exercise of Other Rights or Remedies. In addition to all other rights and remedies provided in this Section 16, the Lessor may, except td the extent expressly limited by provisions of this Section 16, exercise any other right or remedy that may be available to it under Applicable Law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof.

(e) Special Cure Right of Lessee. In the event a "Notice of Default is given under Section l5(iii) the Lessee may, on or prior to the occurrence of an Event of Default resulting therefrom, give written notice to the Lessor stating that the Lessee has elected to exercise the option (the Cure Option) provided in this Section 16(e), which election shall be irrevocable as to the Lessee. Promptly after the giving of such notice, the Lessee and the Owner Participant shall agree upon the Fair Market Sales Value of the Undivided Interest and the Real Property Interest or, if they shall be unable so to agree within one month after the date of the Lessee's notice, such value shall be determined by the Appraisal Procedure. On the Basic Rent Payment Date next following the date that such Fair Market Sales Value shall have been determined,

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the Lessee shall pay to the Lessor all Rent due on such Basic Rent Payment Date, plus an amount equal to the excess at (i) the greater of such Fair Market Sales Value and the Casualty Value determined as of such Basic Rent Payment Date over
(ii) the unpaid principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such date. Upon compliance in full by the Lessee with the foregoing provisions of this paragraph (a) and assumption by the Lessee of all the obligations and liabilities of the Owner Trustee under the Indenture and the Motes pursuant to Section 3.9(b) of the Indenture, the Lessor shall (so long as no Default or Event of Default shall have occurred and be continuing) Transfer the Undivided Interest and the Real Property Interest to the Lessee. If the Lessee shall not have assumed all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the Indenture, but the Owner Participant shall have received under Section 5.2 of the Indenture all amounts required to be paid by the Lessee pursuant to this paragraph (a) (including interest, if any, thereon pursuant to Section
3(b)(iii)), the Lessor shall retain the Undivided Interest and the Real Property Interest subject to the terms of this Facility Lease and Section 7(b) (4) of the Participation Agreement; provided, however, that the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on all Notes then outstanding and this Facility Lease shall become a security agreement for all purposes of Applicable Law. The Lessee agrees to use its best efforts to comply with the conditions respecting its assumption set forth in Section 3.9(b) of the Indenture and, failing such assumption, agrees to accept a transfer of the owner Participant's right, title and interest in the Trust Estate pursuant to Section 7(b) (4) of the Participation Agreement.

SECTION 17. Notices.

All communications and notices provided for in this Facility Lease shall be in writing and shall be given in person (with signed receipt of an officer of the Owner Participant in the case of a delivery to the Owner Participant) or by means of telex, telecopy, or other wire transmission, or

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mailed by registered or certified mail, or delivered by express delivery service, addressed as provided in the Participation Agreement. All such communications and notices given in such manner shall be effective on the date of receipt of such communication or notice.

SECTION 18. Successors and Assigns.

This Facility Lease, including all agreements, covenants, indemnities, representations and warranties, shall be binding upon and inure to the benefit of the Lessor and its successors and permitted assigns, and the Lessee and its successors and, to the extent permitted hereby, assigns.

SECTION 19. Right to Perform for Lessee.

If the Lessee shall fail to make any payment of Rent to be made by it, or shall fail to perform or comply with any of its other agreements contained herein, or fail to make any payment to be made by it under any ANPP Project Agreement, or shall fail to perform or comply with any of its other agreements contained in any ANPP Project Agreement, either the Lessor or the owner Participant may, but shall not be obligated to, tender such payment, or effect such performance or compliance, and the amount of such payment and the amount of all costs and expenses (including, without limitation, attorneys' and other professionals' fees and expenses) of the Lessor or the Owner Participant, as the case may be, incurred in connection with such payment or the performance of or compliance with such agreement, as the case may be, together with interest thereon at the Penalty Rate, shall be deemed Supplemental Rent, payable by the Lessee upon demand. In the event that the Lessor or the owner Participant shall cure any default by the Lessee under the ANPP Participation Agreement, then (so long as an Event of Default has occurred and is continuing) the Lessor, together with each other Person contributing to such cure, shall be entitled (to the full extent enforceable in accordance with Applicable Law) to receive the Generation Entitlement Share of the Lessee under the ANPP Participation Agreement (not limited to Unit 1), with each contributor to receive a percentage of such Generation Entitlement Share equal to the percentage of the cure contributed thereby.

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SECTION 20. Additional Covenants.

The Lessee agrees to comply with and to pay, as Supplemental Rent, all amounts payable by it under the provisions of Section 13 of the Participation Agreement and under the provisions of the Tax Indemnification Agreement, which provisions are incorporated herein by this reference as fully as if set forth in full at this place. The Lessee agrees to comply with its covenants and agreements set forth in Sections 10(b), 14 and 16 of the Participation Agreement and Articles III, IV, V and VI of the Assignment and Assumption, which covenants and agreements are incorporated herein by this reference as fully as if set forth in full at this place.

SECTION 21. lease of Real Property Interest.

Pursuant to the Deed and the Assignment of Beneficial Interest, the Lessee has sold to the Lessor the Real Property Interest. The Lessor hereby grants to the Lessee a leasehold interest in the Real Property Interest, such leasehold to be coterminous with the lease of the Undivided Interest hereunder and to be at a rent per annum equal to the respective percentages of the Real Estate Investment for the applicable period set forth or derived from the respective percentages of Facility Cost in clauses (i), (ii) and (iii), respectively, of Section 3(a) hereof (which rent is incorporated as part of Basic Rent payable pursuant to Section 3(a) hereof).

SECTION 22. Amendments and Miscellaneous.

(a) Amendments in Writing. The terms of this Facility Lease may not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever except by written instrument signed by the Lessor and the Lessee.

(b) Survival. (1) All indemnities, representations and warranties contained in this Facility Lease and the other Transaction Documents and the Financing Documents and in any agreement, document or certificate delivered pursuant hereto or thereto or in connection herewith or therewith shall survive, and continue in effect following, the execution and delivery of this Facility Lease and the expiration or other termination of this Facility Lease.

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(2) The obligations of the Lessee to pay supplemental Rent and the obligations of the Lessee under sections 5, 16, 19 and 20 hereof shall survive the expiration or termination of this Facility Lease. The extension of any applicable statute of limitations by the Owner Trustee, the indenture Trustee, the Lessee, the Owner Participant, the Loan Participant or any Indemnitee shall not affect such survival. The obligations of the Lessee under
Section 20 are expressly made for the benefit of, and shall be enforceable by, any Indemnitee, separately or together, without declaring this Facility Lease to be in default and notwithstanding any assignment by the Lessor of this Facility Lease or any of its rights thereunder or any disposition of all or any part of any interest in the Undivided interest, the Real Property interest, Unit 1 or any other property referred to in this Facility Lease or in this Facility Lease or any other Transaction Document or Financing Document. All payments required to be made pursuant to Section 20 shall be made directly to, or as otherwise requested by, the Indemnitee entitled thereto upon written demand by such Indemnitee.

(a) Severability of Provisions Any provision of this Facility Lease which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Applicable Law, the Lessee hereby waives any provision or law which renders any provision hereof prohibited or unenforceable in any respect.

(d) True Lease. This Facility Lease shall constitute an agreement of lease and nothing herein or elsewhere shall be construed as conveying to the Lessee any right, title or interest in or to the Undivided Interest or the Real Property Interest, except as lessee only.

(e) Original lease. The single executed original of this Facility Lease marked "THIS COUNTERPART IS THE ORIGINAL COUNTERPART" and containing the receipt of the Indenture Trustee thereon shall be the "Original" of this Facility Lease. To the extent that this Facility Lease constitutes chattel paper, as such term is defined in the Uniform commercial code as in effect in any applicable jurisdiction, no security interest in this Facility Lease may be created through the transfer or possession of any counterpart other than the "Original".

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(f) Governing Law. This Facility Lease shall be governed by and construed in accordance with the law of the state of flew York, except to the extent that pursuant to the law of the State of Arizona the law of the State of Arizona is mandatorily applicable hereto.

(g) Headings. The division of this Facility Lease into sections, the provision of a table of con-tents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Facility Lease.

(h) Concerning the Owner Trustee. FNB is entering into this Facility Lease solely as Owner Trustee under the Trust Agreement and not in its individual capacity. Anything herein to the contrary notwithstanding, all and each of the representations, warranties, undertakings and agreements herein made on the part of the Owner Trustee are made and intended not as personal representations, warranties, undertakings and agreements by or for the purpose or with the intention of binding FNB personally but are made and intended for the purpose of binding only the Trust Estate, and this Facility Lease is executed and delivered by the Owner Trustee solely in the exercise of the powers expressly conferred upon it as trustee under the Trust Agreement; and no personal liability or responsibility is assumed hereunder by or shall at any time be enforceable against FNB or any successor in trust or the Owner Participant on account of any representation, warranty, undertaking or agreement hereunder of the Owner Trustee, either expressed or implied, all such personal liability, if any, being expressly waived by the Lessee, except that the Lessee or any Person claiming by, through or under it, making claim hereunder, may look to the Trust Estate for satisfaction of the same and the owner Trustee or its successor interest, as applicable, shall be personally liable for its own gross negligence or willful-misconduct. If a successor owner trustee is appointed in accordance with the terms of the Trust Agreement, such successor owner trustee shall, without any further act, succeed to all the rights, duties, immunities

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and obligations of the Owner Trustee hereunder and the predecessor owner trustee shall be released from all further duties and obligations hereunder.

(i) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401, the beneficiary of the Trust Agreement is Chase Manhattan Realty Leasing Corporation, a New York corporation whose address is One Chase Manhattan Plaza (20th Floor), New York, New York 10081, Attention of Leasing Administrator. The address of the beneficiary is also therein described. A copy of the Trust Agreement is available for inspection at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

(j) Counterpart Execution. This Facility Lease may be executed in any number of counterparts and by each of the parties hereto or thereto on separate counterparts, all such counterparts together constituting but one and the same instrument.

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IN WITNESS WHEREOF, each of the parties hereto has caused this Facility Lease to be duly executed in New York, New York by an officer thereunto duly authorized.

THE FIRST NATIONAL BANK OF
BOSTON, not in its individual
capacity, but solely as Owner
Trustee under a Trust
Agreement, dated as of December
15, 1986, with Chase Manhattan
Realty Leasing Corporation

PUBLIC SERVICE COMPANY
OF NEW MEXICO

6091.CHASEU1.LEASE.47:1

State of New York )
) ss:
County of New York )

The foregoing instrument was acknowledged before me this 15th day of December, 1986, by A.J. Robison, Senior Vice President and Chief Financial Officer of Public Service Company of New Mexico, a New Mexico Corporation, on behalf of the corporation.

      /s/ Delia T. Santiago
     -----------------------
         Notary Public
         Delia T. Santago
 Notary Public State of New York
         No 41-3451160
   Qualified In Queens County
Commission Expires March 30, 1987

State of New York )
) ss.
County of New York )

The foregoing instrument was acknowledged before me this 15th day of December, 1986, by Martin F. Henry, Assistant Vice President of The First Natiohal Bank of Boston, a national banking association, on behalf of the banking association as Owner Trustee under that certain Trust Agreement dated as of December 15, 1986.

 /s/ David A. Spivak
------------------------
     Notary Public

                                                                   SCHEDULE 1
                                                                   TO FACILITY
                                                                   LEASE
                           SCHEDULE OF CASUALTY VALUES

 BASIC RENT                                             PERCENTAGE OF
PAYMENT DATE                                            FACILITY COST
- ------------                                            -------------

15JAN87                                                     105.94334
15JUL87                                                     104.82779

15JAN88                                                     106.20642
15JUL88                                                     105.17772

15JAN89                                                     108.21549
15JUL89                                                     107.07107

15JAN90                                                     109.47569
15JUL90                                                     108.31785

15JAN91                                                     110.15808
15JUL91                                                     108.97072

15JAN92                                                     110.21149
15JUL92                                                     108.95844

15JAN93                                                     109.62035
15JUL93                                                     108.26330

15JAN94                                                     108.30191
15JUL94                                                     106.80048

15JAN95                                                     106.29835
15JUL95                                                     104.89817

15JAN96                                                     104.18824
15JUL96                                                     102.85333

15JAN97                                                     102.10833
15JUL97                                                     100.70463

15JAN98                                                     99.83623
15JUL98                                                     98.33687

15JAN99                                                     97.32303
15JUL99                                                     95.71397

15JAN100                                                    94.53854
15JUL100                                                    92.80428

15JAN101                                                    91.45971
15JUL101                                                    89.82730

                           SCHEDULE OF CASUALTY VALUES

 BASIC RENT                                             PERCENTAGE OF
PAYMENT DATE                                            FACILITY COST
- ------------                                            -------------

15JAN102                                                    88.14857
15JUL102                                                    86.22766

15JAN103                                                    84.62272
15JUL103                                                    82.60677

15JAN104                                                    80.88149
15JUL104                                                    78.76212

15JAN105                                                    76.90592
15JUL105                                                    74.67525

15JAN106                                                    72.67859
15JUL106                                                    70.32818

15JAN107                                                    68.18158
15JUL107                                                    65.70404

15JAN108                                                    63.39779
15JUL108                                                    60.78382

15JAN109                                                    58.30671
15JUL109                                                    55.54644

15JAN110                                                    52.88659
15JUL110                                                    49.96951

15JAN111                                                    47.11428
15JUL111                                                    44.02926

15JAN112                                                    40.96522
15JUL112                                                    37.70042

15JAN113                                                    34.41334
15JUL113                                                    30.95620

15JAN114                                                    27.43099
15JUL114                                                    23.76819

15JAN115                                                    20.00000

BASIC RENT         PERCENTAGE OF            BASIC RENT          PERCENTAGE OF
PAYMENT DATE       FACILITY COST           PAYMENT DATE         FACILITY COST
- ------------       -------------           ------------         -------------

15JAN87             105.93953                15JUN90              107.84240
15FEB87             106.39611                15JUL90              107.91093
15MAR87             106.86087                15AUG90              107.97717
15APR87             105.85050                15SEP90              107.46000
15MAY87             106.19610                15OCT90              107.51432
15JUN87             104.47466                15NOV90              107.57126
15JUL87             104.79951                15DEC90              107.51733
15AUG87             105.11218
15SEP87             104.31547                15JAN91              109.64942
15OCT87             104.60756                15FEB91              109.69166
15NOV87             104.90548                15MAR91              109.73644
15DEC87             104.94556                15APR91              109.28655
                                             15MAY91              109.31183
15JAN88             106.14985                15JUN91              108.32723
15FEB88             106.38006                15JUL91              108.33966
15MAR88             106.61522                15AUG91              108.34874
15APR88             105.91697                15SEP91              107.86031
15MAY88             106.12748                15OCT91              107.85663
15JUN88             104.87501                15NOV91              107.85491
15JUL88             105.07218                15DEC91              107.76886
15AUG88             105.25702
15SEP88             104.66908                15JAN92              109.45422
15OCT88             104.84050                15FEB92              109.43576
15NOV88             105.01603                15MAR92              109.41913
15DEC88             105.02104                15APR92              109.03902
                                             15MAY92              109.00388
15JAN89             108.05718                15JUN92              108.10129
15FEB89             108.20650                15JUL92              108.05429
15MAR89             108.35960                15AUG92              108.00214
15APR89             107.74554                15SEP92              107.53770
15MAY89             107.87894                15OCT92              107.47373
15JUN89             106.71734                15NOV92              107.41103
15JUL89             106.83931                15DEC92              107.28985
15AUG89             106.95663
15SEP89             106.40377                15JAN93              108.56550
15OCT89             106.50984                15FEB93              108.48510
15NOV89             106.61914                15MAR93              108.40583
15DEC89             106.59029                15APR93              108.08086
                                             15MAY93              107.98296
15JAN90             109.16669                15JUN93              107.14780
15FEB90             109.26305                15JUL93              107.03709
15MAR90             109.36257                15AUG93              106.91991
15APR90             108.83335                15SEP93              106.46755
15MAY90             108.91403                15OCT93              106.33746

BASIC RENT         PERCENTAGE OF            BASIC RENT          PERCENTAGE OF
PAYMENT DATE       FACILITY COST           PAYMENT DATE         FACILITY COST
- ------------       -------------           ------------         -------------

15NOV93             106.20789                15MAR97               98.92106
15DEC93             106.04267                15APR97               98.69482
                                             15MAY97               98.46857
15JAN94             106.90052                15JUN97               97.92681
15FEB94             106.75067                15JUL97               97.70056
15MAR94             106.60116                15AUG97               97.46285
15APR94             106.32122                15SEP97               97.13509
15MAY94             106.15192                15OCT97               96.89738
15JUN94             105.37730                15NOV97               96.65967
15JUL94             105.20324                15DEC97               96.42196
15AUG94             105.02141
15SEP94             104.58183                15JAN98               96.55907
15OCT94             104.40000                15FEB98               96.30932
15NOV94             104.21817                15MAR98               96.05956
15DEC94             104.02334                15APR98               95.80980
                                             15MAY98               95.56004
15JAN95             104.50146                15JUN98               95.01569
15FEB95             104.31151                15JUL98               94.76594
15MAR95             104.12156                15AUG98               94.50352
15APR95             103.92206                15SEP98               94.16087
15MAY95             103.73211                15OCT98               93.89845
15JUN95             103.07090                15NOV98               93.63604
15JUL95             102.88096                15DEC98               93.37362
15AUG95             102.68252
15SEP95             102.30494                15JAN99               93.45452
15OCT95             102.10651                15FEB99               93.17880
15NOV95             101.90807                15MAR99               92.90309
15DEC95             101.70963                15APR99               92.62737
                                             15MAY99               92.35165
15JAN96             101.94689                15JUN99               91.80293
15FEB96             101.73958                15JUL99               91.52721
15MAR96             101.53228                15AUG99               91.23752
15APR96             101.32498                15SEP99               90.87752
15MAY96             101.11768                15OCT99               90.58782
15JUN96             100.57447                15NOV99               90.29813
15JUL96             100.36717                15DEC99               90.00844
15AUG96             100.15060
15SEP96             99.83425                 15JAN100              90.02972
15OCT96             99.61768                 15FEB100              89.72534
15NOV96             99.40112                 15MAR100              89.42096
15DEC96             99.18455                 15APR100              89.11658
                                             15MAY100              88.81220
15JAN97             99.37356                 15JUN100              88.25712
15FEB97             99.14731                 15JUL100              87.95274

BASIC RENT         PERCENTAGE OF            BASIC RENT          PERCENTAGE OF
PAYMENT DATE       FACILITY COST           PAYMENT DATE         FACILITY COST
- ------------       -------------           ------------         -------------

15AUG100            87.63464                 15JAN104             73.32182
15SEP100            87.25627                 15FEB104             72.92437
15OCT100            86.93817                 15MAR104             72.52692
15NOV100            96.62007                 15APR104             72.12947
15DEC100            86.30198                 15MAY104             71.73202
                                             15JUN104             71.15925
15JAN101            86.26162                 15JUL104             70.76180
15FEB101            85.93294                 15AUG104             70.35147
15MAR101            85.60426                 15SEP104             69.90958
15APR101            85.27558                 15OCT104             69.49925
15MAY101            84.94690                 15NOV104             69.08892
15JUN101            84.39059                 15DEC104             68.67859
15JUL101            84.06191
15AUG101            93.72136                 15JAN105             68.46113
15SEP101            83.33069                 15FEB105             68.03909
15OCT101            82.99014                 15MAR105             67.61705
15NOV101            82.64959                 15APR105             67.19500
15DEC101            82.30904                 15MAY105             66.77296
                                             15JUN105             66.18738
15JAN102            82.21225                 15JUL105             65.76533
15FEB102            81.86080                 15AUG105             65.32961
15MAR102            81.50935                 15SEP105             64.86454
15APR102            81.15790                 15OCT105             64.42882
15MAY102            80.80645                 15NOV105             63.99309
15JUN102            80.25110                 15DEC105             63.55736
15JUL102            79.89965
15AUG102            79.53619                 15JAN106             63.29973
15SEP102            79.13288                 15FEB106             62.85157
15OCT102            78.76943                 15MAR106             62.40341
15NOV102            78.40598                 15APR106             61.95525
15DEC102            78.04252                 15MAY106             61.50709
                                             15JUN106             60.90786
15JAN103            77.89921                 15JUL106             60.45970
15FEB103            77.52494                 15AUG106             59.99702
15MAR103            77.15066                 15SEP106             59.50733
15APR103            76.77639                 15OCT106             59.04465
15MAY103            76.40211                 15NOV106             58.58197
15JUN103            75.84136                 15DEC106             58.11930
15JUL103            75.46709
15AUG103            75.08068                 15JAN107             57.81968
15SEP103            74.66059                 15FEB107             57.34380
15OCT103            74.27418                 15MAR107             56.86793
15NOV103            73.88776                 15APR107             56.39205
15DEC103            73.50135                 15MAY107             55.91618

BASIC RENT         PERCENTAGE OF            BASIC RENT          PERCENTAGE OF
PAYMENT DATE       FACILITY COST           PAYMENT DATE         FACILITY COST
- ------------       -------------           ------------         -------------

15JUN107            55.30241                 15NOV110             33.40813
15JUL107            54.82804                 15DEC110             32.82000
15AUG107            54.33674
15SEP107            53.82087                 15JAN111             32.33061
15OCT107            53.32957                 15FEB111             31.72573
15NOV107            52.83828                 15MAR111             31.12085
15DEC107            52.34698                 15APR111             30.51597
                                             15MAY111             29.91109
15JAN108            52.00389                 15JUN111             29.22912
15FEB108            51.49859                 15JUL111             28.63357
15MAR108            50.99328                 15AUG111             28.00911
15APR108            50.48798                 15SEP111             27.37107
15MAY108            49.98267                 15OCT111             26.74661
15JUN108            49.35342                 15NOV111             26.12215
15JUL108            48.85134                 15DEC111             25.49770
15AUG108            48.32967
15SEP108            47.78597                 15JAN112             24.95370
15OCT108            47.26430                 15FEB112             24.31147
15NOV108            46.74262                 15MAR112             23.66923
15DEC108            46.22095                 15APR112             23.02700
                                             15MAY112             22.38477
15JAN109            45.83185                 15JUN112             21.68291
15FEB109            45.29531                 15JUL112             21.05240
15MAR109            44.75877                 15AUG112             20.38938
15APR109            44.22223                 15SEP112             19.71588
15MAY109            43.68570                 15OCT112             19.05287
15JUN109            43.03996                 15NOV112             18.38985
15JUL109            42.50852                 15DEC112             17.72684
15AUG109            41.95461
15SEP109            41.38135                 15JAN113             17.12501
15OCT109            40.82744                 15FEB113             16.44313
15NOV109            40.27353                 15MAR113             15.76124
15DEC109            39.71962                 15APR113             15.07936
                                             15MAY113             14.39748
15JAN110            39.28180                 15JUN113             13.67445
15FEB110            38.71211                 15JUL113             13.00689
15MAR110            38.14242                 15AUG113             12.30295
15APR110            37.57273                 15SEP113             12.30295
15MAY110            37.00305                 15OCT113             10.88784
15JUN110            36.33976                 15NOV113             10.18390
15JUL10             35.77719                 15DEC113              9.47996
15AUG110            35.18906
15SEP110            34.58439                 15JAN114              8.81689
15OCT110            33.99626                 15FEB114              8.09292

BASIC RENT         PERCENTAGE OF            BASIC RENT          PERCENTAGE OF
PAYMENT DATE       FACILITY COST           PAYMENT DATE         FACILITY COST
- ------------       -------------           ------------         -------------

15MAR114              7.36895
15APR114              6.64498
15MAY114              5.92101
15JUN114              5.17546
15JUL114              4.46863
15AUG114              3.72125
15SEP114              2.97008
15OCT114              2.22270
15NOV114              1.47531
15DEC114              0.72793

15JAN115              0.00000

                                                                      Schedule 3
                                                                              to
                                                                  Facility Lease

                         SCHEDULE OF TERMINATION VALUES

BASIC RENT                                               PERCENTAGE OF
PAYMENT DATE                                             FACILITY COST
- ------------                                             -------------

15JAN87                                                     105.94334
15JUL87                                                     104.82779

15JAN88                                                     106.20642
15JUL88                                                     105.17772

15JAN89                                                     108.21549
15JUL89                                                     107.07107

15JAN90                                                     109.47569
15JUL90                                                     108.31785

15JAN91                                                     110.15808
15JUL91                                                     108.97072

15JAN92                                                     110.21149
15JUL92                                                     108.95844

15JAN93                                                     109.62035
15JUL93                                                     108.26330

15JAN94                                                     08.30191
15JUL94                                                     106.80048

15JAN95                                                     106.29835
15JUL95                                                     104.89817

15JAN96                                                     104.18824
15JUL96                                                     102.85333

15JAN97                                                     102.10833
15JUL97                                                     100.70463

15JAN98                                                     99.83623
15JUL98                                                     98.33687

15JAN99                                                     97.32303
15JUL99                                                     95.71397

15JAN100                                                    94.53854
15JUL100                                                    92.80428

15JAN101                                                    91.45971
15JUL101                                                    89.62720

                         SCHEDULE OF TERMINATION VALUES

BASIC RENT                                               PERCENTAGE OF
PAYMENT DATE                                             FACILITY COST
- ------------                                             -------------

15JAN102                                                    88.14857
15JUL102                                                    86.22766

15JAN103                                                    84.62272
15JUL103                                                    82.60677

15JAN104                                                    80.88149
15JUL104                                                    78.76212

15JAN105                                                    76.90592
15JUL105                                                    74.67525

15JAN106                                                    72.67859
15JUL106                                                    70.32818

15JAN107                                                    68.18158
15JUL107                                                    65.70404

15JAN108                                                    63.39779
15JUL108                                                    60.78382

15JAN109                                                    58.30671
15JUL109                                                    55.54644

15JAN110                                                    52.88659
15JUL110                                                    49.96951

15JAN111                                                    47.11428
15JUL111                                                    44.02926

15JAN112                                                    40.96522
15JUL112                                                    37.70042

15JAN113                                                    34.41334
15JUL113                                                    30.95620

15JAN114                                                    27.43099
15JUL114                                                    23.76819

15JAN115                                                    20.0000

SCHEDULE 4
to
FACILITY LEASE

REAL PROPERTY INTEREST DESCRIPTlON

The Real Property Interest is a (i) 0.5% undivided interest in the land described in I below, a (ii).566667% undivided interest in the rights and interests described in II below, and (iii) a .566667% undivided interest in the rights and interests described in III below.

I. PVNGS PLANT SITE

PARCEL NO. 1: Lot Four (4); the Southwest quarter of the Northwest quarter; and the West half of the Southwest quarter, all in Section Two (2), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 2: All of Section Three (3), Township One (1) South, Range Six
(6) West of the Gila and Salt River Base and Meridian, Maricopa county, Arizona.

PARCEL NO. 3: The East half of Section Four (4), Township One (l) South, Range Six (6) West of the Gila and Sa1t River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 4:The West half of Section Twenty-six (26), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 5: Section Twenty-seven (27), Township One (1) North, Range Six
(6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the Northwest quarter of Section 27.

PARCEL NO. 6: The Southeast quarter of Section Twentyeight (28), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT 50% of all oil, gas and other mineral deposits and geothermal resources recovered from or developed on the property, as reserved in instrument recorded May 10, 1974 in Docket 10647, page 136.

6091. CHASEUl. LEASE.47:l

PARCEL No. 7: The East half of Section Thirty-three (33), Township One (1) North, Range Six (6) West of the Gila ant Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 8: All of Section Thirty-four (34), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 9: The West half of Section Thirty-five (35), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 10: The Southeast quarter of Section Nine (9), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the Northwest quarter thereof.

PARCEL NO. 11: All of Section Ten (10), Township One (1) South, Range Six
(6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the East half of the Southeast quarter thereof; and EXCEPT the North half of the South half of the Northwest quarter of the Northwest quarter thereof.

PARCEL NO. 12: That part of the East half of the Southwest quarter of
Section Twenty-three (23), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona, more particularly described as follows:

BEGINNING at the Southeast corner of the said East half of the Southwest quarter of Section 23; thence West, an assumed bearing along the South line of the said East half of the Southwest quarter of Section 23, for a distance of 762.04 feet; thence North. 0 degrees 03 minutes 39 seconds West; parallel to the East line of the said East half of the Southwest quarter of Section 23, for a distance of 1946.46 feet to a point on the South right-of-way line of the 200 foot wide HASSAYAMPA-SALDME HIGHWAY, as recorded in Book 12 of Road Maps, page 82, Maricopa County Recorder, Maricopa County, Arizona; thence continuing North 0 degrees 03 minutes 39 seconds West for a distance of 234.15 feet to a point on the North right-of-way line of said highway; thence South

609l.CHASEUl.LEASE.47:1

58 degrees 43 minutes 35 seconds East, along said North right-of-way line for a distance of 892.17 feet to a point on the said East line of the East half of the Southwest quarter of Section 23; thence South 0 degrees 03 minutes 39 seconds East, along said East line for a distance of 234.15 feet to a point on the said South right-of-way line; thence continuing South 0 degrees On minutes 39 seconds East for a distance of 1483.31 feet to the true point of beginning;

EXCEPT the East 305 feet of the South 305 feet thereof; and EXCEPT one-half of the minerals and mineral rights and mineral estates of every kind and nature, as set forth in Deed recorded in Docket 11652, page 52, Maricopa County Records.

PARCEL NO. 13: The North half of the South half of the Northwest quarter of the Northwest quarter of Section Ten (10), Township One (l) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

II. HASSAYAMA PUMPING STATION AND EFFLUENT PIPEINE

All real property, leases, licenses, easements, rights-of-way and other property held by Title USA Company of Arizona Trust No. 530 established by that certain Trust Agreement dated October 15, 1975, as amended, but excluding therefrom all improvements.

III. MISCELLANEOUS REAL PROPERTY INTERESTS

Those ANPP Project Agreements (as defined in the ANPP Participation Agreement), in addition to the Trust Agreement for Title USA Company of Arizona Trust 530, consisting of leases, licenses, easements, and permits, which provide land and land rights for (a) the pipeline to supply waste water effluent to PVNGS from the 91st Avenue sewage treatment plant serving the Phoenix Metropolitan area and (b) railroad access to the Nuclear Plant Site (as defined in the ANPP Participation Agreement).

6091. CHASEUl LEASE. 47:1

SCHEDULE 5
to
FACILITY LEASE

UNDIVIDED INTEREST DESCRIPTION

The Undivided Interest is a (i) 1.700000% undivided interest in and to the property described under A below and (ii) a .566667% undivided interest in and to the property described in B below

A. Unit 1 of the Palo Verde Nuclear Generating Station (PVNGS), located in Maricopa County, Arizona, approximately 55 miles west of the City of Phoenix, Arizona, and approximately 16 miles west of the City of Buckeye, Arizona, consisting of:

I. Unit 1 Combustion Engineering "System 80" pressurized water reactor nuclear steam supply system (the NSSS) . The NSSS is comprised of a reactor vessel containing 241 fuel assemblies with approximately 100 tons of enriched uranium (fuel assemblies, however, are not part of Unit 1 and are not included in the Undivided Interest being sold), two steam generators, four reactor coolant pumps and various additional systems and subsystems. The licensed thermal rating of the NSSS is 3800 MW.

II. Unit 1 GE TC6F-43, 1800 RPM tandem-compound, six flow, reheat turbine-generator including turbine, generator, moisture separator-reheater, exciter, controls, and auxiliary subsystems. The turbine-generator is conductor cooled and rated at 1,554 MVA at 24,000 V, 3 phase, 60 Hz, 1.5 in Hg ABS back pressure, and approximately 1,363 MW maximum gross electric output.

III. Unit 1 146 ft. inside diameter, steel-lined, prestressed concrete cylindrical containment building with a hemispherical dome designed for 60 psig. The containment building houses the reactor system.

6091.CHASEUl.LEASE.47:1

IV. Unit 1 auxiliary systems and equipment including engineered safeguards systems, reactor auxiliary systems and turbine-generator auxiliary systems associated with items I, II, and III above, extending to and including the Unit 1 start-up transformer.

V. Unit 1 cooling tower system consisting of three (3) mechanical draft cooling towers, including a closed cycle circulating water system, make-up water systems and essential spray ponds.

VI. Unit 1 radioactive waste treatment system, including liquid, gaseous, and solid waste subsystems, controls, instrumentation, storage, handling and shipment facilities.

VII. Unit 1 emergency diesel-generator system, including a diesel-generator building which contains two diesel generators, fuel oil systems, storage tanks, control and instrumentation systems and other equipment.

VIII. Unit 1 internal communication systems, including associated interconnections and computer data links.

BUT EXCLUDING:

I. Nuclear fuel for Unit 1, includinq spare fuel assemblies.

II. Spare Parts (Unit 1)

III. Transmission facilities (including any and all facilities and equipment providing interconnection between the Unit 1 turbine generator and the ANPP High Voltage Switchyard, including step-up transformers and standby equipment and systems).

IV.   Oil and diesel fuel inventories (Unit 1).                         =2219
                                                                        =(2219)
B.    All PVNGS common facilities, INCLUDING BUT NOT LIMITED
      TO:                                                               =2221
                                                                        =(2221)
I.    Surveillance systems, including associated                        =2225
      radioactive monitoring systems and equipment.                     =2226
                                                                        =(2226)
II.   Water treatment facilitaies and transport systems for supply      =2228
      of waste water effluent.                                          =2229
                                                                        =(2229)
III.  Warehouse and related storage facilities                          =2231
      and equipment.                                                    =(2231)
      BUT EXCLUDING:
I.    Nuclear fuel, including spare fuel                                =2236
      assemblies.                                                       =(2236)
II.   All transmission and ANPP High Voltage Switchyard                 =2238
      facilities.                                                       =(2238)
III.  Adminstration Building.                                           =2240

IV.   Adminstration Annex Builidng.                                     =2242

V.    Technical Support Center.                                         =2244

VI.   Visitor Center.                                                   =2246

VII.  External communication systems and equipment,                     =2248
      including associated interconnections and computer                =2249
      data links.                                                       =(2249)

VIII. Parking lot improvements, road improvemnts, fencing               =2251
      and dikes.                                                        =2252

IX.   Spare parts (common facilities).                                  =2254

X.    Simulator.                                                        =2256

XI.   Oil and diesel fuel inventories.                                  =2258

XII.  Real property, beneficial interest in Title USA Company of        =2260
      Arizona Trust No. 530, and Project Agreement interests            =2261
      described in Schedule 4.

6091.CHASEU1.LEASE.47:1

When Recorded, Return to: Greg R. Nielsen, Esq.

Snell & Wilmer
3100 Valley Bank Center
Phoenix, Arizona 85073

CERTAIN RIGHTS OF THE LESSOR UNDER THE FACILITY LEASE AS AMENDED BY THIS AMENDMENT NO. 1 THERETO HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF, CHEMICAL BANK, AS INDENTURE TRUSTEE UNDER A TRUST INDENTURE, MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS DATED AS OF DECEMBER 15, 1986. THIS AMENDMENT NO.1 HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. SEE SECTION 3(e) OF THIS AMENDMENT NO1 FOR INFORMATION CONCERNING THE RIGHTS OF HOLDERS OF VARIOUS COUNTERPARTS HEREOF.

THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.

AMENDMENT NO.1

Dated as of April 8, 1987
to

FACILITY LEASE (Unit 1)
Dated as of December 15, 1986

between

THE FIRST NATIONAL BANK OF BOSTON,
not in its individual capacity ,a
but solely as Owner Trustee
under a Trust Agreement, dated as
of December 15, 1986,
with Chase Manhattan Realty
Leasing Corporation,

Lessor
and
PUBLIC SERVICE COMPANY OF NEW MEXICO,
Lessee

Original Facility Lease Recorded on DECEMBER 17, 1986, as Instrument No. 86-695925, in Maricopa County Recorder's Office.

AMENDMENT NO. 1, dated as of April 8, 1987 (Amendment No. 1), to the Facility Lease dated as of December 15, 1986, between THE FIRST NATIONAL BANK or BOSTON, a national banking association, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement, dated as of December 15, 1986, with chase Manhattan Realty Leasing Corporation, a New York corporation (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the Lessee).

WITNESSETH:

WHEREAS, the Lessee and the Lessor have heretofore entered into a Facility Lease dated as of December 15, 1986 (the Facility Lease), providing for the lease by the Lessor to the Lessee of the Undivided Interest and the Real Property Interest;

WHEREAS, the Lessee and the Lessor desire to amend the Facility Lease as set forth in section 2 hereof; and

WHEREAS, the Indenture Trustee has consented to this Amendment No. 1 pursuant to the Request, Instruction and Consent effective on April 8, 1987;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Definitions.

For purposes hereof, capitalized terms used herein and not otherwise defined herein or in the recitals shall have the meanings assigned to such ante in Appendix A to the Facility Lease.

6091.CHASEEU1.LEASE.204:1

SECTION 2. Amendments.

(a)A new section 8(g) of the Facility Lease is inserted therein, to read in its entirety as follows:

"(g) Useful Life. If the Lessee shall not theretofore have exercised its option under section 13 to purchase the Undivided Interest and the Real Property Interest, then (i) if the Lessee shall not theretofore have exercised its option to renew the Lease pursuant to
Section 12, on January 15, 2014, the Lessee shall initiate the Appraisal Procedure to determine the remaining Economic Useful Life of Unit 1 as of July 15, 2014 and (ii) an the Rent Payment Date occurring one year prior to the end of the Renewal Term, if any, the Lessee shall initiate the Appraisal Procedure to determine the remaining Economic Useful Life of Unit 1 as of the date six months prior to the end of the Renewal Term. The Lessee and the Lessor agree to use their best efforts to ensure that such determination of remaining economic useful life is made no later than July 15, 2014 (in the case of the first such determination) and six months prior to the end of the Renewal Term (in the case of the second such determination)

(b) section l5(iv) of the Facility Lease is hereby amended to read in its entirety as follows:

"(iv) (1) the Lessee shall fail to per-form its agreements set forth in section 5(a) hereof or (2) the remaining Economic Useful Life of Unit 1, as determined under Section e(g) if required thereby to be so determined, shall be (x) as of the date six months prior to the end of the Basic Lease Term, less than five and one-half years or (y) as of the date six months prior to the end of the Renewal Term, three and one-half years; or"

6091.CHASEU1.LEASE.204:1

(C) section 16(a) (vii) of the Facility Lease is hereby amended to read in its entirety as follows:

"(vii) in the case of an Event of Default. specified in clause
(iv) of section 15, the Lessor may demand, by written notice to the Lessee specifying a payment date which shall be (A) in the case of an Event of Default specified in subclause (1) of said clause (IV), not earlier than the date 30 days after the last Basic Rent Payment Date of the Lease Term, and (B), in the case of an Event of Default specified in subclause (2) of said clause (iv), the last Basic Rent Payment Date of the Lease Term, that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on such payment date, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due through such last Basic Rent Payment Date plus an amount (not less than zero) equal to the Fair Market Sales Value (determined without regard to the obligation of the Lessee under Section 1o(b)(3)(xi) of the Participation Agreement) of the undivided Interest and the Real Property Interest
(determined on the basis of the actual condition of Unit 1) determined as of such last Basic Rent Payment Date (together with interest on such amount at the interest rate specified in section 3(b) (iii) from such last Basic Rent Payment Date to the date of actual payment) and upon receipt of such payment the Lessor shall (or may prior to the receipt of such payment) Transfer to the Lessee the Undivided Interest and the Real Property Interest); provided, however, that a the Lessor may not exercise the foregoing I. remedy if the Lessor shall have failed to Transfer the Undivided Interest and the Real Property Interest to the bidder (which shall not be the Lessee or an Affiliate of the Lessee) that shall have submitted the highest cash bid on or before the date on which such Event of Default arose excluding, however, any such cash bid which the Lessor or the Owner Participant determines was not submitted in good

6091.CHASEU1.LEASE.204.1

faith, or as to which the bidder fails to certify to the Lessor such information as the Lessor or Owner Participant may reasonably request in order to determine whether or not such bid was submitted in good faith (and the Lessor agrees that it will, if and to the extent so requested by the Lessee on or after the date 90 days preceding such last Basic Rent Payment Date, use reasonable efforts Cat the expense of the Lessee) for a period ending on the day 90 days after such last Basic Rent Payment Date, to find a Person willing to submit such cash bid:
provided, however, that the failure of the Lessor to do so shall not relieve the Lessee of its obligations under this clause (vii))."

(d) A new definition is hereby added to Appendix A to the Facility Lease, to read in its entirety as follows:

"Decommissioning shall mean the decommissioning and retirement from service of Unit 1, and the related possession, maintenance and disposal of radioactive material used in or produced incident to the possession and operation of Unit 1, including, without limitation, (i) placement and maintenance of Unit 1 in a state of protective storage,
(ii) in-place entombment and maintenance of Unit 1, (iii) dismantlement of Unit 1, (iv) any other form of decommissioning and retirement from service required by or acceptable to the NRC and (v) all activities undertaken incident to the implementation thereof and to the obtaining of NRC authority therefor, including, without limitation, maintenance, storage, custody, removal, decontamination, and disposition of materials, equipment and fixtures, razing of Unit 1, removal and disposition of debris from the PVNGS Site, and restoration of the PVNGS Site related to Unit 1 for unrestricted use."

(e) A new definition is hereby added to Appendix A to the Facility Lease, to read in its entirety as follows:

6091.CHASEU1.LEASE.204:1

"Decommissioning Costs shall mean all costs, liabilities and expenses relating or allocable to, or incurred in connection with, the Decommissioning of Unit 1, including, without limitation, (i) any and all costs of activities undertaken to terminate NRC licensing authority and requirements to own, operate and possess Unit 1 and to possess radioactive material used in or produced incident to the possession and operation of Unit 1) and (ii) any and all costs of activities undertaken, prior to termination of all NRC licensing authority and requirements with respect to Unit 1 and the radioactive material used in or produced incident to the possession and operation of Unit 1, to possess, maintain, and dispose of radioactive material used in or produced incident to the possession and operation of Unit 1."

(f) A new definition is hereby added Appendix A to the Facility Lease, to read in entirety as follows:

"Economic Useful Life shall mean that period (commencing on the date as of which the determination of Economic Useful Life is to be made as provided in section 8(g) of the Facility Lease and ending on the date upon which either of the states of affairs described in clauses (i) and (ii) below ceases to apply, or can reasonably be expected to cease to apply, to Unit 1) during which (i) Unit 1 will be useful to, and usable by, any owner or lessee thereof as a facility for the generation of electric power and (ii) Unit I is an economic and commercially practical facility for the generation of electric power capable of producing (after taking into account costs of capital) a reasonable economic return to the owner thereof. For the purposes of determinations under clauses (i) and, (ii) above, the following factors, among others, shall be taken into account (as such factors obtain on the date of determination and as such factors are reasonably expected to obtain in

6091.CHASEU1.LEASE.204:1

the future): (a) provisions of the Project Agreements (including, without limitation, the ANPP Participation Agreement and the Material Project Agreements (or substitutes for such Material Project Agreements in effect on the date of determination)); (b) the actual condition and performance of Unit 17 (c) the actual condition and performance of such other facilities constituting PVNGS (including, without limitation, the Common Facilities) as are integral to the operation of Unit 1; (d) the actual condition of, and access of the ANPP Participants to, the ANPP switchyard and such other transmission facilities as are available and necessary to permit the transmission of the maximum amount of power generated by PVNGS; (e) the cost of obtaining, handling, storing and disposing of nuclear fuel for Unit 17 (f) the projected cost (including, without limitation, costs attributable to obligations to fund any reserve fund maintained (or funded) by licensed owners and/or lessees of Unit 1 to the extent dedicated to (or attributable to and freely available with respect to) Unit 1 (the Unit 1 Fund)) or the Decommissioning or retirement from service of Unit 1 including without limitation, Decommissioning Costs (taking into account the balance (plus projected investment earnings thereon) of the Unit 1 Fund) ; (g) the cost of Capital Improvements to Unit 1 then planned to be a made, or reasonably expected to be made; (h) the cost of acquiring or leasing the Unit 1 Retained Assets; (i) the current status of all Governmental Action with respect to Unit 1 (including, without limitation, the License) required to permit licensed owners and/or lessees to possess and (in the case of then Operating Agent) to operate Unit 1 and such other facilities constituting PVNGS (including, without limitation, the Common Facilities) as are integral to the operation of Unit 1; and (j) the relative cost of producing an amount of electric power and energy equivalent to the generating capacity of Unit 1 from other facilities then available in the region serviced, or reasonably expected to be serviced, by PVNGS."

6091.CHASEU1.LEASE.204:1

(e) Paragraph (B) (a) of the definition of "Acceptable Change" set forth in Appendix A to the Facility Lease is hereby amended to read in its entirety as follows:

"(a) the amount payable by all licensees of a single nuclear facility in respect of such facility in any one year and with respect to any one "nuclear incident" under any deferred premium or similar plan required by Applicable Law shall not exceed $36 million (subject to adjustment as provided in subclause (V) of the preceding clause (b))."

SECTION 3. Miscellaneous.

(a) Effective Date of Amendments. The amendments set forth in
Section 2 hereof shall be and become effective upon the execution hereof by the parties hereto.

(b) Counterpart Execution. This Amendment No. 1 may be executed in any number of counterparts and by each of the parties hereto on separate counterparts; all such counterparts shall together constitute but one and the same instrument.

(c) Governing raw. This Amendment No. 1 has been negotiated and delivered in the State of New York and shall be governed by, and be construed in accordance with, the laws of the State of New York, except to the extent that pursuant to the law of the State of Arizona such law is mandatorily applicable hereto.

(d) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401, the beneficiary of the Trust Agreement is Chase Manhattan Realty Leasing Corporation, a New York corporation. The address of the beneficiary is One Chase Manhattan Plaza, New York, New York 10081. A copy of the Trust Agreement is available for inspection at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

6091.CHASEU1.LEASE.204:1

(e) Amendment No. 1. The single executed original of this Amendment No. 1 marked "THIS COUNTERPART IS THE ORIGINAL COUNTERPART" and containing the receipt of the Indenture Trustee thereon shall be the "original" of this Amendment No. 1. To the extent that this Amendment No. 1 constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Amendment No. 1 may be created or continued through the transfer or possession of any counterpart other than the "original".

6091.CHASEU1.LEASE.204:1

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 1 to Facility Lease to be duly executed by an officer thereunto duly authorized.

THE FIRST NATIONAL BANK OF BOSTON, not in
its individual capacity, but solely as
Owner Trustee under a Trust Agreement,
dated as of December 15, 1986, with
Chase Manhattan Realty Leasing
Corporation

PUBLIC SERVICE COMPANY OF NEW MEXICO

6091.CHASEUl.LEASE.204:l

IN WITNESS WHEREOF, each of the Parties hereto has caused this Amendment No. 1 to Facility Lease to be duly executed by an officer thereunto duly authorized.

THE FIRST NATIONAL BANK OF BOSTON, not in
its individual capacity, but solely as
Owner Trustee under a Trust Agreement,
dated as of December 15, 1986, with
Chase Manhattan Realty Leasing
Corporation

PUBLIC SERVICE COMPANY OF
NEW MEXICO

6091.CHASEU1.LEASE.204:1

State of New York )
)ss:
County or Bernalillo )

The foregoing instrument was acknowledged before me this 8th day of April, 1987, by B.D. Lackey, the Vice President and Corporate Controller of Public Service Company of New Mexico, a New Mexico corporation, on behalf of the corporation.

Commonwealth of Massachusetts )
)ss:
County of Suffolk )

The foregoing instrument was acknowledged before me this 8th day of April, 1987, by James E. Mogavero, an Assistant Cashier of THE FIRST NATIONAL BANK OF BOSTON,THE FIRST NATIONAL BANK, a national banking association, on behalf of the banking association as Owner Trustee under the Trust Agreement dated as of December 15, 1986 with Chase Manhattan Realty Leasing Corporation.

     /s/ Carol Malley
-----------------------------
        Notary Public

CAROL MALLEY
Notary Public
My Commission Expires January 28, 1994

6091.CHASEU1.LEASE.204:1

When Recorded, Return to: Greg R. Nielsen, Esq.

Snell & Wilmer
3100 Valley Bank Canter
Phoenix, Arizona 85073

CERTAIN RIGHTS OF THE LESSOR UNDER THE FACILITY LEASE AS AMENDED BY THIS AMENTMENT NO.1 THERETO HAVE BEEN ASSIGNED TO, AND ARE TO A SECURITY IN FAVOR OF, CHEMICAL BANK, AS INDEUTURE, TRUSTEE UNDER A ASSIGNMENT OF RENTS DATED AS OF DECEMBER 15,1986. THIS FACILITY LEASE HAS BEEN EXECUTED IN SERVERAL COUNTERPARTS.SEE SECTION 22(e) OF THIS AMENDMENT NO.1 FOR INFORMATION CONCERNING THE RIGHTS OF HOLDERS OF VARIOUS COUNTERPARTS HEREOF.

THIS COUNERPART IS NOT THE ORIGINAL COUNTERPART.

Dated as of December 15, 1986

between

THE FIRST NATIONAL BANK OF BOSTON,
not in its individual capacity,
but solely as Owner Trustee
under a Trust Agreement, dated as
of December 15, 1986,
with Chase Manhattan Realty
Leasing Corporation,

Lessor

and

PUBLIC SERVICE COMPANY OF NEW MEXICO,

Lessee

                                TABLE OF CONTENTS

                                                                          Page

SECTION 1         Definitions............................................  1

SECTION 2         Lease of Undivided
                  Interest; Term; Personal
                  Property...............................................  1

           a      Lease of Undivided
                  Interest...............................................  1

           b      Term...................................................  1

           c      Personal Property......................................  1

           d      Description............................................  2

SECTION 3         Rent; Adjustments to
                  Rent...................................................  2

           a      Basic Rent.............................................  2

           b      Supplement Rent........................................  3

           c      Form of Payment........................................  4

           d      Adjustments to Rent....................................  4

           e      Further Adjustments....................................  5

           f      Computation of
                  Adjustments............................................  5

           g      Sufficiency of Basic
                  Rent and Supplemental
                  Rent...................................................  6

SECTION 4         Net Lease..............................................  7


                                     --i--
6091.CHASEU2.LEASE.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

SECTION 5         Return of the Undivided
                  Interest............................................... 9

           a      Return of the Undivided
                  Interest............................................... 9

           b      Disposition Services................................... 11

SECTION 6         Warranty of the Lessor................................. 12

           a      Quiet Enjoyment........................................ 12

           b      Disclaimer of Other
                  Warranties............................................. 12

           c      Enforcement of Certain
                  Warranties............................................. 13

SECTION 7         Liens  ................................................ 13

SECTION 8         Operation and Maintenance;
                  Capital Improvements................................... 14

           a      Operation and
                  Maintenance............................................ 14

           b      Inspection............................................. 15

           c      Capital Improvements................................... 14

           d      Reports................................................ 16

           e      Title to Capital
                  Improvements........................................... 17

           f      Funding of the Cost of
                  Capital Improvements................................... 18


                                     --ii--

6091.CHASEU2.LEASE.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

SECTION 9         Event of Loss; Deemed
                  Loss Event............................................. 20

           a      Damage or Loss......................................... 20

           b      Repair................................................. 21

           c      Payment of Casualty
                  Value.................................................. 21

           d      Payment of Special
                  Casualty Value......................................... 22

           e      Requisition of Use..................................... 23

           f      Termination of
                  Obligation............................................. 23

           g      Application of Payments
                  on an Event of Loss.................................... 24

           h      Application of Payments
                  Not Relating to an Event
                  of Loss................................................ 24

           i      Other Dispositions..................................... 25

           j      Assumption of Notes;
                  Creation of Lien on
                  Undivided Interest .................................... 25

SECTION 10        Insurance.............................................. 25

           a      Required Insurance..................................... 25

           b      Permitted Insurance.................................... 27

SECTION 11        Rights to Assign or
                  Sublease............................................... 27

                                    --iii--
6091.CHASEU2.LEASE.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

           a      Assignment or Sublease
                  by the Lessee.......................................... 27

           b      Assignment by Lessor as
                  Security for Lessor's
                  Obligations............................................ 28

SECTION 12        Lease Renewal.......................................... 28


SECTION 13        Notices for Renewal or
                  Purchase; Purchase
                  Options................................................ 29

           a      Notice, Determination of
                  Values, Appraisal
                  Procedure.............................................. 29

           b      Purchase Option at
                  Expiration of the Lease
                  Term................................................... 29

           c      Special Purchase Event................................. 30


SECTION 14        Termination for
                  Obsolescence........................................... 30

           a      Termination Notice..................................... 30

           b      Right of Lessor to
                  Retain Undivided
                  Interest upon
                  Termination............................................ 31

           c      Events on the
                  Termination Date....................................... 31

           d      Early Termination
                  Notice................................................. 32

                                     --iv--
6091.CHASEU2.LEASE.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----
           e      Events on the Early
                  Termination............................................ 32

SECTION 15        Events of Default...................................... 33

SECTION 16        Remedies............................................... 37

           a      Remedies............................................... 37

           b      No Release............................................. 42

           c      Remedies Cumulative.................................... 42

           d      Exercise of Other Rights
                  or Remedies............................................ 43

           e      Special Cure Right of
                  Lessee................................................. 43

SECTION 17        Notices................................................ 44

SECTION 18        Successors and Assigns................................. 45

SECTION 19        Right to Perform for
                  Lessee................................................. 46

SECTION 20        Additional Covenants................................... 46

SECTION 21        Lease of Real Property
                  Interest............................................... 46

SECTION 22        Amendments and
                  Miscellaneous.......................................... 46

           a      Amendments in Writing.................................. 46

           b      Survival............................................... 46

                                     --v--
6091.CHASEU2.LEASE.47:1

                         TABLE OF CONTENTS (Continued)
                                                                        Page
                                                                        ----

           c      Severability of
                  Provisions............................................. 47

           d      True Lease............................................. 47

           e      Original Lease......................................... 47

           f      Governing Law.......................................... 48

           g      Headings............................................... 48

           h      Concerning the Owner Trustee........................... 48

           i      Disclosure............................................. 49

           j      Counterpart Execution.................................. 49

APPENDIX A Definitions

SCHEDULE 1 Casualty Values

SCHEDULE 2 Special Casualty Values

SCHEDULE 3 Termination Values

SCHEDULE 4 Real Property Interest Description

SCHEDULE 5 Undivided Interest Description

FACILITY LEASE, dated as of December 15, 1986, between THE FIRST NATIONAL BANK OF BOSTON, a national banking association, not in its individual capacity, but solely as Owner Trustee under a Trust Agreement, dated as of December 15, 1986, with Chase Manhattan Realty Leasing Corporation (the Lessor), and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico Corporation (the Lessee).

WITNESSETH:

WHEREAS, the Lessor owns the Undivided interest and the Real Property interest;

WHEREAS, the Lessee desires to lease the Undivided interest and the Real Property Interest from the Lessor on the terms and conditions set forth herein; and

WHEREAS, the Lessor is willing to lease the Undivided Interest and the Real Property interest to the Lessee on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Definitions.

For purposes hereof, capitalized terms used herein shall have the meanings assigned to such terms in Appendix A hereto. References in this Facility Lease to sections, paragraphs and clauses are to sections, paragraphs and clauses in this Facility Lease unless other-wise indicated.

SECTION 2. Lease of Undivided Interest; Term: Personal Property.

(a) Lease of Undivided Interest. Upon the terms and subject to the conditions of this Facility Lease, the Lessor hereby leases to the Lessee, and the Lessee hereby leases from the Lessor, the Undivided Interest.

(b) Term. The term of this Facility Lease shall begin on December 17, 1986, and shall end on the last day of the Lease Term.

6091.CHASEU2.LEASE.47:1

(c) Personal Property. It is the express intention of the Lessor and the Lessee that title to the Undivided Interest and every portion thereof be, and hereby is, severed, and shall be and remain severed, tram title to the real estate constituting the Real Property Interest and the PVNGS Site. The Lessor and the Lessee intend that the Undivided Interest shall constitute personal property to the maximum extent permitted by Applicable Law.

(d) Description. The Real Property Interest is described on Schedule 4 hereto. The Undivided interest is described on Schedule S hereto.

SECTION 3. Rent; Adjustments to Rent.

(a) Basic Rent. The Lessee shall pay to the Lessor, as basic rent (herein referred to as Basic Rent) for the Undivided Interest and the Real Property Interest, the following amounts:

(i) on January 15, 1987, an amount equal to .02585778% of the Facility Cost for each day from, and including, December 17, 1986 to, but excluding, January 15, 1987;

(ii) on July 15, 1987 and on each Basic Rent Payment Date thereafter to and including January 15, 2016, an amount equal to 4.654400% of Facility Cost; and

(iii) if the Lessee shall elect the Renewal Term1 on July 15, 2016 and on each Basic Rent Payment Date thereafter during the Renewal Term, an amount equal to one-half of an amount determined by dividing the aggregate amount of all payments of Basic Rent payable with respect to the Basic Lease Term pursuant to clause (ii) of this Section 3(a) (taking into account any adjustments pursuant to Sections 3(d) and 3(e)), by 58.

It an interest payment on any Note shall be due on a date other than a Basic Rent Payment Date, the Lessee shall pay additional Basic Rent on such date equal to such interest payment and such payment of additional Basic Rent shall be credited against the Basic Rent due on the Basic Rent Payment Date next succeeding tie date that such additional Basic Rent shall have been paid.

6091.CHASEU2.LEASE.47:1

(b) Supplemental Rent. The Lessee shall pay the following amounts (herein referred to as Supplemental Rent):

(i) when due or, where no due date is specified, on demand, any amount (other than Basic Rent, Casualty Value, Termination Value and Special Casualty Value) which the Lessee assumes the obligation to pay or agrees to pay to the Lessor, the Owner Participant, the indenture Trustee, the Collateral Trust Trustee or any Indemnitee under this Facility Lease, any other Transaction Document or the Collateral Trust indenture, any amount which is to be paid under Section E.9,.7.E or 9.7 of the Indenture and any amount that the Lessee is required to pay, or provide for the payment of, under Section 8.5 of the Indenture:

(ii) when due, any amount payable hereunder as Casualty Value, Termination Value or Special Casualty Value, and an amount equal to any premium or prepayment penalty with respect to the Notes;

(iii) on demand and in any event on the Basic Rent Payment Date next succeeding the date such amounts shall be due and payable hereunder, to the extent permitted by Applicable Law, interest (computed on the same basis as interest on the Notes is computed) at a rate per annum equal to (A) the Overdue interest Rate, on that portion of the payment of Basic Rent or Supplemental Rent distributable pursuant to clause first" of
Section 5.1 or clause "second" of Section 5.3 of the indenture (determined prior to the computation of interest on overdue payments referred to in such clauses) , and CS) the Penalty Rate, on the balance of any such payment of Basic Rent or Supplemental Rent (including, in the case of both clause (i) and clause (ii) above, but without limitation, to the extent permitted by Applicable Law, interest payable pursuant to this clause (iii)) not paid when due (without regard to any period of grace) for any period for which the same shall be overdue.

6091.CHASEU2.LEASE.47:1

The Lessor shall have all rights, powers and remedies provided tar in this Facility Lease, at law, in equity or otherwise, in the case of non-payment of Basic Rent or Supplemental Rent.

(c) Form of Payment. Subject to Section 11(b), each payment of Rent under this Facility Lease shall be made in immediately available funds no later than 11:00 a.m., local time at the place of receipt, on the date each such payment shall be due and payable hereunder and shall be paid either (A) in the case of payments other than Excepted Payments, to the Lessor at its address determined in accordance with Section 17, or at such other address as the Lessor may direct by notice in writing to the Lessee, or (B) in the case of Excepted Payments, to such Person as shall be entitled to receive such payment at such address as such Person may direct by notice in writing to the Lessee. If the date on which any payment of Rent is due hereunder shall not be a Business Day, the payment otherwise due thereon shall be due and payable on the preceding Business Day, with the same force and effect as if paid on the nominal date provided in this Facility Lease.

(d) Adjustments to Rent. Basic Rent and the schedules of Casualty Values, Termination Values and Special Casualty Values attached hereto shall be adjusted (upward or downward) to preserve Net Economic Return if there is any Change in Tax Law other than a Change in respect of a minimum tax; provided, however, that the aggregate amount of such downward adjustments shall not exceed the aggregate amount of such upward adjustments. Adjustments under this paragraph (d) shall be (1) made not more than once a year and (2) limited in the aggregate to the extent necessary such that the aggregate amount of Basic Rent theretofore and thereafter payable throughout the Basic Lease Term (computed for such purposes only without regard to any adjustments theretofore made pursuant to Section 3(e)) shall not exceed by more than 4% the aggregate amount of Basic Rent which would have been payable throughout the Basic Lease Term (calculated as aforesaid) had no such adjustments been made.

The provisions of this Section 3(d) to the contrary notwithstanding, if any Change in Tax Law is, or becomes, applicable to the transaction contemplated by this Facility Lease in consequences of the transfer

6091.CHASEU2.LEASE.47:1

of the Owner Participant's beneficial interest in the Trust (whether or not permitted by Section 15 of the Participation Agreement) or if such Change in Tax Law would not have been applicable to such transaction had no such transfer occurred, then no adjustment shall be, or be required to be, made pursuant to this Section 3 (d); provided, however, that this sentence shall not apply to the initial transfer of the Owner Participant's beneficial interest in the Trust to one of its Affiliates.

(e) Further Adjustments. Basic Rent and the schedules of Casualty Values, Special Casualty Values and Termination Values attached hereto shall be appropriately adjusted (upward or downward) to preserve Net Economic Return if there is (i) any Supplemental Financing, (ii) the payment of Transaction Expenses in an amount which is other than 3.0% of the Purchase Price or (iii) any other change (other than a change in items 4, 5, 9 (as to the basis for amortization of Transaction Expenses) , 14, 15 and 17, but without limiting the effect of Section 3(d) hereof) in the Pricing Assumptions.

(f) computation of Adjustments. Upon the occurrence of an event requiring an adjustment to Basic Rent payable pursuant to clause (ii) of
Section 3(a), and the schedules of Casualty Values, Special Casualty Values and Termination Values attached hereto, pursuant to paragraph (d) or (e) of this
Section 3, the Owner Participant shall make the necessary computations and furnish to the Lessee, the Loan Participant, the Lessor and the Indenture Trustee the revised amounts and percentages, which amounts and percentages shall be implemented upon delivery thereof and effective as of the date of occurrence of the event requiring such adjustment (taking into account any payment of Basic Rent already made) and shall remain effective until changed in consequence of any verification procedure set forth below. Such revised amounts and percentages shall be subject to verification (at the Lessee9s request within 90 days after the Owner Participant furnishes the revised amounts to the Lessee, the Loan Participant, the Lessor and the Indenture Trustee) by the Owner Participant's nationally recognized independent public accountants, in which case such accountants shall either (i) confirm to the Lessee in writing that such revised amounts were computed on a basis consistent with the original calculations, or
(ii) compute and provide to the Lessee, the Lessor, the Owner Participant, the

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Loan Participant and the indenture Trustee revised amounts and percentages which are on such a basis. The revised amounts and percentages, as so confirmed or computed if applicable, shall be conclusive and binding upon the Lessee, the Lessor, the Owner Participant, the Loan Participant and the Indenture Trustee. The cost of any such verification shall be borne by the Lessee unless such accountants shall require an adjustment to the revised amounts and percentages originally provided by the Owner Participant which differs by more than 10% from the adjustment so provided, in which case such cost shall be divided and paid by the Lessee and the Owner Participant in equal amounts. Each adjustment pursuant to paragraph (d) or (e) of this Section 3 may, but need not, be evidenced by the execution and delivery of a supplement to this Facility Lease in form and substance satisfactory to the Lessee and the Owner Participant, but shall be effective as provided herein without regard to the date on which such supplement to this Facility Lease is so executed and delivered. Any adjustment referred to in this Section 3 shall satisfy the provisions of Revenue Procedure 75-21, Revenue Procedure 75-28 and any other applicable statute, regulation, revenue procedure, revenue ruling or technical information release relating to the subject matter of Revenue Procedure 75-21 or Revenue Procedure 75-28, but, in the case of any upward adjustment, shall be no less than the oadjustment otherwise required pursuant to this Section 3.

(g) sufficiency of Basic Rent arid Supplemental Rent. Notwithstanding any other provision of this Facility Lease, any other Transaction Document or any Financing Document (i) the amount of Basic Rent payable on each Basic Rent Payment Date shall be at least equal to the aggregate amount of principal, premium, if any, and accrued interest payable on all Notes then Outstanding and (ii) each payment of Casualty Value, special casualty Value and Termination Value shall in no event be less (when added to all other amounts, other than Excepted Payments, required to be paid by the Lessee under this Facility Lease in respect of any Event of Loss or Deemed Loss Event or termination of this Facility Lease) than an amount sufficient, as of the date of payment, to pay in full all principal of, and premium, if any, and interest then due on all Notes Outstanding on and as of such date of payment (taking into account any assumption of the Notes by the Lessee).

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SECTION 4. Net Lease.

This Facility Lease (as originally executed and as modified, supplemented and amended from time to time) is a net lease, and the Lessee hereby acknowledges and agrees that the Lessee's obligation to pay all Rent hereunder, and the rights of the Lessor in and to such Rent, shall be absolute, unconditional and irrevocable and shall not be affected by any circumstances of any character, including, without limitation, (i) any set-off1 abatement, counterclaim, suspension, recoupment, reduction, rescission, defense or other right or claim which the Lessee may have against the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant, the Operating Agent, any ANPP Participant, any vendor or manufacturer of any equipment or assets included in the Undivided interest, Unit 2, any Capital Improvement, the Real Property interest, the PVNGS Site, PINGS, or any part of any thereof, or any other Person for any reason whatsoever, (ii) any defect in or failure of the title, merchantability, condition, design, compliance with specifications, operation or fitness for use of all or any part of the undivided Interest, Unit 2, any Capital Improvement, the Real Property Interest, the PVNGS Site or PVNGS, (iii) any damage to, or removal, abandonment, decommissioning, shutdown, salvage, scrapping,' requisition, taking, loss, theft or destruction of all or any part of the Undivided interest1 Unit 2, any Capital Improvement, the Real Property Interest, the PVNGS Site or PVNGS, or any interference, interruption or cessation in the use or possession thereof or of the Undivided Interest by the Lessee or by any other Person (including, but without limitation, the Operating Agent or any other ANPP Participant) for any reason whatsoever or of whatever duration, (iv) any restriction, prevention or curtailment of or interference with any use of all or any part of the Undivided Interest, Unit 2, any capital Improvement, the Real Property Interest, the PVNGS Site or PVNGS, (V) any insolvency, bankruptcy, reorganization or similar proceeding by or against the Lessee, the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan participant, the Operating Agent, any other ANPP Participant or any other Person, (vi) the invalidity, illegality or unenforceability of this Facility Lease, any other Transaction Document, any Financing Document, the ANPP Participation Agreement or any other instrument referred to herein or therein or any other infirmity

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herein or therein or any lack of right, power or authority of the Lessor, the Lessee, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant or any other Person to enter into this Facility Lease, any other Transaction Document or any Financing. Document,. or any doctrine of force majeure, impossibility, frustration, failure of consideration, or any similar legal or equitable doctrine that the Lessee's obligation to pay Rent is excused because the Lessee has not received or will not receive the benefit for which the Lessee bargained, it being the intent of the Lessee to assume all risks from all causes whatsoever that the Lessee does not receive such benefit, (vii) the breach or failure of any warranty or representation made in this Facility Lease or any other Transaction Document or any Financing Document by the Lessor, the Owner Participant, the Indenture Trustee, the Collateral Trust Trustee, the Loan Participant or any other Person, (viii) any amendment or other change of, or any assignment of rights under, this Facility Lease, any other Transaction Document, any Financing Document or any ANPP Project Agreement, or any waiver, action or inaction under or in respect of this Facility Lease, any other Transaction Document, any Financing Document or any ANPP Project Agreement, or any exercise or non-exercise of any right or remedy under this Facility Lease, any other Transaction Document, any Financing Documents any ANPP Project Agreement, including, without limitation, the exercise of any foreclosure or other remedy under the Indenture, the Collateral Trust indenture or this Facility Lease, or the sale of Unit 2, any Capital Improvement, the undivided interest, the Real Property Interest, the PVNGS Site or PVNGS, or any part thereof or any interest therein, or (ix) any other circumstance or happening whatsoever whether or not similar to any of the foregoing. The Lessee acknowledges that by conveying the leasehold estate created by this Facility Lease to the Lessee and by putting the Lessee in possession of the Undivided Interest and the Real Property Interest, the Lessor has performed all of the Lessor's obligations under and in respect of this Facility Lease, except the covenant under Section 6(a) hereof that the Lessor and Persons acting for the Lessor will not interfere with the Lessee's quiet enjoyment of the Undivided Interest and the Real Property Interest. The Lessee hereby waives, to the extent permitted by Applicable Law, any aid all rights which it may now have or which at any time hereafter may be conferred upon it,

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by statute or otherwise, to terminate, cancel, quit or surrender this Facility Lease or to effect or claim any diminution or reduction of Rent payable by the Lessee hereunder, including without limitation the provisions of Arizona Revised Statutes Section 33-343, except in accordance with the. express terms hereof. If for any reason whatsoever this Facility Lease shall be terminated in whole or in part by operation of law or otherwise, except as specifically provided herein, the Lessee nonetheless agrees to pay to the Lessor or other Person entitled thereto an amount equal to each installment of Basic Rent and all Supplemental Rent at the time such payment would have become due and payable in accordance with the terms hereof had this Facility Lease not been terminated in whole or in part. Each payment of Rent made by the Lessee hereunder shall be final and the Lessee shall not seek or have any right to recover all or any part of such payment from the Lessor or any other Person for any reason whatsoever. All covenants, agreements and undertakings of the Lessee herein shall be performed at its cost, expense and risk unless expressly otherwise stated. Nothing in this
Section 4 shall be construed as a guaranty by the Lessee of any residual value in the Undivided Interest or as a guaranty of the Notes. Any provisions of
Section 7(b) (2) or 8(c) of the Participation Agreement to the contrary notwithstanding, if the Lessee shall fail to make any payment or Rent to any Person when and as due (taking into account applicable grace periods), such Person shall have the right at all times, to the exclusion of the ANPP Participants, to demand, collect, sue for, enforce obligations relating to and otherwise obtain all amounts due in respect of such Rent.

SECTION 5. Return of the Undivided Interest.

(a) Return of the Undivided Interest. On the Lease Termination Date, the Lessee will (1) surrender possession of the Undivided Interest and the Real Property Interest to the Lessor (or to a Person specified by the Lessor to the Lessee in writing not less than 6 months prior to the Lease Termination Date) (i) with full rights as a Transferee" and the sole "Participant" with respect to the Undivided Interest and the Real Property Interest within the meaning of Section 15.10 of the ANPP Participation Agreement and (ii) without a Price-Anderson Event (as hereinafter defined) having arisen prior to, or arising upon, or immediately following, such surrender and (2) furnish to the

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Lessor: (i) copies certified by a senior officer of the Lessee of all Governmental Action necessary to effect such surrender (including, but without limitation, appropriate amendments to the License permitting the Lessor (without the Lessor being required to change its business) or such Person to possess the Undivided Interest and the Real Property interest with or without the continued involvement of the Lessee as Agent), which Governmental Action shall be in full force and effect; and (ii) an opinion of counsel (which may be Mudge Rose Guthrie Alexander & Ferdon, Snell & Wilmer or another counsel experienced with NRC and other nuclear matters reasonably satisfactory to the Owner Participant) to the effect that (A) the Lessee has obtained all Governmental Action and action under the ANPP Participation Agreement necessary to effect such surrender by the Lessee and receipt of Possession by the Lessor (or by the Person so specified by the Lessor) and (B) such Governmental Action is in full force and effect. At the time of such return the Lessee shall pay or have paid all amounts due and payable, or to become due and payable, by it as an ANPP Participant under each and every ANPP Project Agreement allocable or chargeable (whether or not payable during or after the Lease Term) to the Undivided Interest or the Real Property Interest in respect of any period or periods ending on or prior to the Lease Termination Date (including, but without limitation, all amounts payable with respect to any and all discretionary Capital Improvements to Unit 2 or the PVNGS Site approved or authorized (without the concurrence of the Owner Participant) within the 3-year period preceding the end of the Lease Term, whether or not implementation thereof has been completed on or prior to the Lease Termination Date), and the Undivided Interest and the Real Property Interest shall be free and clear of all Liens (other than Permitted Liens described in clauses (i), (V) (other than those arising by through or under the Lessee alone) , (vi) , (vii) (other than as aforesaid), (viii) (other than as aforesaid), (ix) and (x) of the definition of such term) and in the condition and state of repair required by Section 8. In the event that on or prior to the Lease Termination Date there shall have occurred a default by any ANPP Participant (other than the Lessee) under the ANPP Participation Agreement and such default shall not have been cured by the defaulting ANPP Participant, then
(i) the Lessee agrees to indemnify and hold the Lessor (and each successor, assign and transferee thereof) harmless against any and all obligations under the ANPP

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Participation Agreement with respect to contributions or payrnents required to be made thereby as a result of such default and (ii) the Lessor (and each successor, assign and transferee thereof) agrees to reimburse the Lessee for all amounts paid by the Lessee pursuant to the foregoing clause (i) to the extent, but only to the extent, that the Lessor (or such successor, assign or transferee) shall have actually received proceeds from the sale of the Generation Entitlement Share of the defaulting ANPP Participant as a result of the payment made by the Lessee pursuant to the foregoing clause (i), and, to the extent the Lessor (or such successor, assign or transferee) shall have received such proceeds, the amount to be reimbursed to the Lessee pursuant to this clause
(ii) shall include interest at the Prime Rate from the date of any payment by the Lessee pursuant to the foregoing clause (i) through the date of reimbursement of such amount pursuant to this clause (ii). For purposes of this
Section 5(a) a "Price-Anderson. Event" shall mean any change in, or new interpretation by Governmental Authority having jurisdiction of, Applicable Law, including without limitation the Price-Anderson Act, the Atomic Energy Act and the regulations of the NRC, in each case as in effect on the Closing Date, but only if such change is specified in clauses (2) (i) through (iv) of the definition of "Deemed Loss Event" (other than a change which is specified in clause (A) of the definition of "Acceptable Change").

(b) Disposition Services. The Lessee agrees that if it does not exercise its option to renew or purchase as provided in Sections 12 and 13, respectively, then during the last thirty-six months of the Lease Term1 the Lessee will fully cooperate with the Lessor in connection with the Lessor's efforts to lease or dispose of the Undivided interest and the Real Property Interest, including using the Lessee's reasonable efforts to lease or dispose of the Undivided Interest and the Real Property Interest. The Lessor agrees to reimburse the Lessee for reasonable out-of-pocket costs and expenses of the Lessee incurred at the request of the Lessor or the Owner Participant in connection with such cooperation and such efforts.

-1l-

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SECTION 6. Warranty of the Lessor.

(a) Quiet Enjoyment. The Lessor warrants that until the Lease Termination Date, so long as no Event of Default shall have occurred and be continuing, the Lessee's use and possession of Unit 2, including the Undivided Interest, shall not be interrupted by the Lessor or any Person claiming by, through or under the Lessor, and their respective successors and assigns.

(b) Disclaimer of Other Warranties. The warranty set forth in
Section 6(a) is in lieu of all other warranties of the Lessor or the Owner Participant, whether written, oral or implied, with respect to this Facility Lease, Unit 2, any Capital Improvement, the Undivided Interest, PVNGS, the Real Property Interest or the PVNGS Site. As among the Owner Participant, the Loan Participant, the Indenture Trustee, the Collateral Trust Trustee, the Lessor and the Lessee, execution by the Lessee of this Facility Lease shall be conclusive proof. of the compliance of Unit 2 (including any Capital Improvement) , the Undivided Interest and the Real Property Interest with all requirements of this Facility Lease, and the Lessee acknowledges and agrees that (i) NEITHER THE LESSOR NOR THE OWNER PARTICIPANT IS A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND AND (ii) THE. LESSOR LEASES AND THE LESSEE TAKES THE UNDIVIDED INTEREST AND THE REAL PROPERTY INTEREST, AND SHALL TAKE EACH CAPITAL IMPROVEMENT, AND ANY PART THEREOF, AS IS AND WHERE IS, and neither the Lessor nor the Owner Participant shall be deemed to have made, and THE LESSOR AND THE OWNER PARTICIPANT EACH HEREBY DISCLOSE, AMY OTHER REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN OR CONDITION OF UNIT 2, ANY CAPITAL IMPROVEMENT, THE UNDIVIDED INTEREST; THE REAL PROPERTY INTEREST, THE PVNGS SITE OR PVNGS, OR ANY

PART THEREOF, THE MERCHANTABILITY THEREOF OR THE FITNESS THEREOF FOR ANY

PARTICULAR PURPOSE, TITLE TO UNIT 2, ANY CAPITAL IMPROVEMENT, THE UNDIVIDED INTEREST, THE REAL PROPERTY INTEREST, THE PVNGS SITE OR PVNGS, OR ANY PART THEREOF, THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT OR THE ABSENCE OF ANY LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, NOR SHALL THE LESSOR OR THE OWNER PARTICIPANT BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LIABILITY IN TORT, STRICT OR OTHERWISE) , it being agreed

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that all such risks, as among the Owner Participant, the Loan Participant, the Collateral Trust Trustee, the Indenture Trustee, the Lessor and the Lessee, are to be borne by the Lessee. The provisions of this Section 6(b) have been negotiated, and, except to the extent otherwise expressly provided in section
6(a), the foregoing provisions are intended to be a complete exclusion and negation of any representations or warranties by the Lessor, the Owner Participant, the Loan Participant, the Collateral Trust Trustee or the indenture Trustee, express or implied, with respect to Unit 2 (including any Capital Improvement), the Undivided Interest, pvngs, the Real Property Interest or the PVNGS Site that may arise pursuant to any law now or hereafter in effect, or otherwise.

(a) Enforcement of Certain Warranties. The Lessor authorizes the Lessee (directly or through agents, including the Operating Agent), at the Lessee's expense, to assert for the Lessor's account, during the Lease Term, all of the Lessor's rights (if any) under any applicable warranty and any other claims (under this Facility Lease or any Purchase Document) that the Lessee or the Lessor may have against any vendor or manufacturer with respect to Unit 2 (including any Capital Improvement) or the Undivided Interest, and the Lessor agrees to cooperate, at the Lessee's expense, with the Lessee and the Operating Agent in asserting such rights. Any amount received (without regard to any right of setoff or other similar right of any Person against the Lessee) by the Lessee as payment under any such warranty or other claim against any vendor or manufacturer (or, if such warranty or claim relates to the Undivided Interest and the Retained Assets, the portion of such received amount appropriately allocable to the Undivided Interest) shall be applied in accordance with Sections 9(g), (h) and (i).

Section 7. Liens.

The Lessee will not directly or indirectly create, incur6 assume or permit to exist any Lien on or with respect to the undivided Interest, the Real Property Interest, the Lessor's title thereto or any interest of the Lessor or Lessee therein (and the Lessee will promptly, at its own expense, take such action as may be necessary duly to discharge any such Lien), except permitted Liens.

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SECTION 8. Operation and Maintenance; Capital Improvements.

(a) Operation and Maintenance. The Lessee agrees that it will exercise its rights, powers, elections and options as an ANPP Participant under the ANPP Project Agreements to cause the Operating Agent to (A) maintain Unit 2 in such condition that Unit 2 will have the capacity and functional ability to perform, on a continuing basis (ordinary wear and tear excepted), in normal commercial operation, the functions and substantially at the ratings at which it is, from time to time, rated, (B) operate, service, maintain and repair Unit 2 and replace all necessary or useful parts and components thereof so that its condition and operating efficiency will be maintained and preserved, ordinary wear and tear excepted, in all material respects in accordance with (1) prudent utility practice for items of similar size and nature, (2) such operating standards as shall be required to take advantage of and enforce all available warranties and (3) the terms and conditions of all insurance policies maintained in effect at any time with respect thereto, (C) use, possess, operate and maintain Unit 2 in compliance with all material applicable Governmental Actions (including the License) affecting PVNGS or Unit 2 or the use, possession, operation and maintenance thereof and (D) otherwise act in accordance with the standards set forth in the ANPP Participation Agreement. The Lessee will comply with all its obligations under Applicable Law affecting Unit 2, the Undivided Interest, PVNGS, the Real Property Interest and the PVNGS Site, and the use, operation and maintenance thereof. The Lessee agrees to (i) exercise its rights under the AMP? Participation Agreement so that there will always be an Operating Agent under the AN?? Participation Agreement and (ii) maintain in full force and effect a license from the NRC adequate to possess the Undivided Interest and the Real Property Interest under the circumstances contemplated by the AMP? Participation Agreement. The Lessee will keep and maintain proper books and records (i) relating to all Operating Funds (as defined in the ANPP Participation Agreement) provided by it to the Operating. Agent under the ANPP Participation Agreement and (ii) upon receipt of the requisite information from the Operating Agent, relating to the application of such Operating Funds to the operation and maintenance of Unit 2 and the acquisition, construction and installation of Capital Improvements, all in accordance with the Uniform System

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of Accounts. The Lessor shall not be obliged in any way to maintain, altar, repair, rebuild or replace Unit 2, any Capital Improvement, the Undivided Interest or the Real Property Interest, or any part thereof, or, except as provided in Section 8(f), to pay the cost of alteration, rebuilding, replacement, repair or maintenance of Unit 2, any Capital Improvement, the Undivided Interest or the Real Property Interest, or any part thereof, and the Lessee expressly waives the right to perform any such action at the expense of the Lessor pursuant to any law at any time in effect.

(b) Inspection. The Lessor and the Owner Participant and their respective authorized representatives shall have the right to inspect .PVNGS (subject, in each event, to the ANPP Participation Agreement, Applicable Law, applicable confidentiality undertakings and procedures established by the Operating Agent) at their expense. The Lessor and the Owner Participant and their respective authorized representatives shall have the right to inspect, at their expense, the books and records of the Lessee relating to PVNGS, and make copies of and extracts therefrom (subject as aforesaid) and may, at their expense, discuss the Lessee's affairs, finances and account with its executive officers and its independent public accountants (and by this provision, the Lessee authorizes such' accountants, in the presence of the Lessee, to discuss with the Lessor and the Owner Participant and their respective authorized representatives the affairs, finances and accounts of the Lessee), all at such times and as often as may be reasonably requested. None of the Lessor, the Owner Participant, the Indenture Trustee and the Collateral Trust Trustee shall have any duty whatsoever to make any inspection or inquiry referred to in this
Section 8(b) and shall not incur any liability or obligation by reason of not making any such inspection or inquiry.

(C) Capital Improvements. If and to the extent required by the ANPP Participation Agreement, the Lessee shall, at its sole expense, promptly participate in the making of any Capital Improvement to Unit 2 or the Common Facilities. Of the net proceeds of (i) any sale or other disposition of property removed from Unit 2 or the Common Facilities receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) by, or credited to the account of the Lessee in accordance with the ANPP Participation

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Agreement and (ii) any insurance proceeds receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) for the account of the Lessor or the Lessee in respect of the loss or destruction of, or damage or casualty to, any such property, 7 777778% in the case of Unit 2, or 2.592593% in the case of Common Facilities, of either such amount shall be applied as provided in Section 9(g), (h) or (i), as the case may be. A .7933333%, in the case of Unit 2, or .2644444%, in the case of Common Facilities, undivided interest in property at any time removed from Unit 2 or the Common Facilities shall remain the property of the Lessor, no matter where located, until such time as a Capital improvement constituting a replacement of such property shall have been installed in Unit 2 or the Common Facilities or such removed property has been disposed of by the Operating Agent in accordance with the NAP Participation Agreement. Simultaneously with such disposition by the Operating Agent, title to a .7933333%, in the case of Unit 2, or .2644444%, in the case of Common Facilities, undivided interest in the removed property shall vest in the Person designated by the Operating Agent1 free and clear of any and all claims or rights of the Lessor. Unless subparagraph (3) of Section 8(e) shall be applicable, upon the incorporation of a Capital Improvement in Unit 2 or the Common Facilities, without further act, (i) title to a .7933333%, in the case of Unit 2, or .2644444%, in the case of Common Facilities, undivided interest in such Capital improvement shall vest in the Lessor and (ii) such applicable undivided interest in such Capital Improvement shall become subject to this Facility Lease and be deemed to be part of the Undivided Interest for all purposes hereof to the same extent that the Lessor had a like undivided interest in the property originally incorporated or installed in Unit 2 or the Common Facilities. The Lessee warrants and agrees that the Lessor's .7933333% or .2644444%, as the case may be, undivided interest in all Capital Improvements shall be tree and clear of all Liens, except Permitted Liens other than the type specified in clauses (ii), (iii) and (xii) at the definition thereof.

(d) Reports. To the extent permissible, the Lessee shall prepare and file in timely fashion, or, where the Lessor shall be required to file, the Lessee shall prepare and deliver to the Lessor within a reasonable time prior to the date for filing, any reports with respect to Unit 2, the Undivided Interest

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or the Real Property Interest or the condition or operation thereof that shall be required to be filed with any governmental or regulatory authority. On or before March 1 of each year (commencing on March 1, 1988) and on the Lease Termination Date, the Lessee shall furnish the Lessor and the Owner Participant with a report stating the total cost of all Capital Improvements and describing separately and in reasonable detail each Capital Improvement (or related group of Capital Improvements) made during the period from the date hereof to December 31, 1987 in the case of the first such report or during the period from the end of the period covered by the last previous report to the December 31 prior to such report in the case of subsequent reports. On or before March 1 in each year (commencing March 1, 1987) and at such other times as the Lessor or the Owner Participant shall reasonably request in writing (which request shall provide a reasonable period for response), the Lessee will report in writing to the Lessor with respect to (i) the most recent annual capital expenditure budget submitted by the Operating Agent to the Lessee in accordance with the ANPP Participation Agreement and (ii) the then plans (if any) which the Lessee may have for the financing of the same under Section 8(f).

(e) Title to Capital Improvements. Title to a .7933333%, in the case of Unit 2, or .2644444%, in the case of Common Facilities, undivided interest in each Capital Improvement to Unit 2 or the Common Facilities, as the case may be, shall vest as follows:

(1) in the case of each Nonseverable Capital Improvement, whether or not the Lessor shall have financed or provided financing (in whole or in part) for such undivided interest in such Capital Improvement by an Additional Equity Investment or a Supplemental Financing, or both, effective on the date such Capital Improvement shall have been incorporated or installed in Unit 2 or the Common Facilities, as the case may be, the Lessor shall, without further act, acquire title to such undivided interest in such Capital Improvement;

(2) in the. case of each Severable Capital improvement, if the Lessor shall have financed (by an Additional Equity Investment or a supplemental Financing, or both) .7933333%, in the case of unit 2, or .2644444%, in the case of Common Facilities, of the cost of such

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Capital Improvement, the Lessor shall, without further act, acquire title to such undivided interest in such Capital Improvement; and

(3) in the case of each Severable Capital Improvement, if the Lessor shall not have financed (by an Additional Equity Investment or a Supplemental Financing, or both) .7933333%, in the case of Unit 2, or .2644444%, in the case of Common Facilities, of the cost of such Capital Improvement, the Lessee shall retain title to such undivided interest in such Capital Improvement.

Immediately upon title to such .7933333%, in the case of Unit 2, or .2644444%, in the case of Cannon Facilities, undivided interest in any Capital Improvement vesting in the Lessor pursuant to sub-paragraph (1) or sub-paragraph (2) of this Section 8(e), such undivided interest in such Capital improvement shall, without further act, become subject to this Facility Lease and be deemed part of the Undivided Interest for all purposes hereof.

(f) Funding of the Cast or Capital Improvements. Before placing in service any Capital Improvement to Unit 2 or the Common Facilities the cost of which exceeds $1OO,000,000 in respect of the interests of all ANPP Participants, the Lessee shall give the Lessor and the Owner Participant reasonable advance notice thereof. The Owner Participant shall have the option, in its sole discretion, of financing through the Lessor .7933333%, in the case of Unit 2, or .2644444%, in the case of Common Facilities, of the cost of any such Capital Improvement, or any other Capital Improvement presented to the Owner Participant for financing, including or not including the making of an investment by the Owner Participant (an Additional Equity Investment) and the issuance of one or more Additional Notes, all on terms acceptable to the Lessee and the Owner Participant. If the Owner Participant does not finance, or arrange the financing of, .7933333%, in the case of Unit 2, or .2644444%, in the case of Common Facilities, of the cost of such Capital Improvement, the Lessee may cause the Lessor to issue, if and to the extent permitted by the Indenture, to one or more Persons (other than any Person affiliated with the Lessee within the meaning of Section 318 of the Code) one or more Additional Notes and to use the

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proceeds thereof to pay the applicable percentage of the cost of such Capital Improvement, subject to satisfaction off the following conditions:

(i) there shall be no more than one Supplemental Financing in any calendar year;

(ii) the sum of the Supplemental Financing Amounts in any calendar year shall equal or exceed .7933332% of $5,000,000;

(iii) the Lessee may include in any request for a Supplemental Financing only Capital Improvements not previously financed in any Supplemental Financing and which have been installed or affixed no earlier than three calendar years before the beginning of the calendar year in which such Supplemental Financing occurs;

(iv) the total amount of all Supplemental Financings during the Basic Lease Term shall not exceed 7.777778% of $100,000,000;

(v) unless waived by the Owner Participant, the Bonds issued and outstanding under the Collateral Trust Indenture shall be rated no less than "investment grade", as determined by Standard & Poor's Corporation and Moody's Investors Service, Inc.;

(vi) the Supplemental Financing Amount shall not exceed that portion of the cost of Capital Improvements which, when financed, will constitute an addition to the Owner Participant's basis under section 1012 of the Code;

(vii) in the opinion of independent tax counsel to the Owner Participant, such Supplemental Financing shall not result in adverse tax Consequences to the Owner Participant or adversely affect the status of this Facility Lease as a "true lease for Federal, New York State or New York City tax purposes, and the Owner Participant and the Lessee shall have agreed upon the amount and manner of payment of the indemnity (if any) payable by the Lessee as a consequence of such supplemental Financing:

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(viii) the Additional Notes shall have a final maturity date no later than January 15, 2016:

(ix) the Lessee shall have made such representations, warranties and covenants regarding the tax characteristics of the Lessor's undivided interest in each Capital Improvement as the Owner Participant reasonably requests, and the Tax indemnification Agreement shall have been appropriately modified;

(x) appropriate adjustments to Basic Rent and the schedules of Casualty Values, Special Casualty Values and Termination Values shall have been agreed to by the Owner Participant to support the amortization of the Additional Notes issued in respect of such Supplemental Financing and to preserve Met Economic Return;

(xi) the Lessee shall pay to the Lessor an amount equal to all out-of-pocket costs and expenses reasonably incurred by the Lessor or the Owner Participant and not financed as a part of such Supplemental Financing or reflected in adjustments to Basic Rent;

(xii) no Default or Event of Default shall have occurred and be continuing; and

(xiii) the Lessee shall enter into such agreements and shall have provided such tax indemnities, representations, warranties1 covenants, opinions, certificates and other documents as the Owner Participant shall reason-ably request.

SECTION 9. Event of Loss; Deemed Loss Event.

(a) Damage or Loss. In the event that Section 16.2 of the ANPP Participation Agreement (as in effect on the date hereof) shall become applicable, or an Event of Loss, a Requisition of Use or a Requisition of Title shall occur, or Unit .2 or any substantial4 part thereof shall suffer destruction, damage, loss, condemnation, confiscation, theft or seizure for any

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reason whatsoever, such fact shall promptly, and in any case within five Business Days following such event, be reported by the Lessee to the Lessor and the Owner Participant.

(b) Repair. The Lessee shall promptly make any and all payments required of the Lessee under the provisions of the AMP? Participation Agreement relating to damage or destruction or the like to Unit 2 or any portion thereof; provided, however, that the Lessee shall in no event be obligated to make or join in any agreement under Section 16.2 of the AN?? Participation Agreement (as in effect on the date hereof) concerning repairs to or reconstruction of Unit 2.

(c) Payment of Casualty Value. On the Basic Rent Payment Date next following receipt by the Lessee of a written notice from the Lessor that an Event of Loss has occurred, the Lessee shall pay to the Lessor all Basic Rent due on such Basic Rent Payment Date, plus an amount equal to the excess of (i) Casualty Value determined as of such Basic Rent Payment Date over (ii) the unpaid principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such date. An Event of Loss shall not be deemed to have occurred unless and until the Lessor delivers the notice specified in the preceding sentence. Upon compliance in full by the Lessee with the foregoing provisions of this Section 9(c) and assumption by the Lessee of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to Section 3.9(b) of the Indenture, the Lessor shall (so long as no Default or Event of Default shall have occurred and be continuing), and at any time after the occurrence of an Event of Loss, the Lessor may:

(1) in the case of an Event of Loss arising from a Final Shutdown, if the Lessee shall have declined, but one or more of the other ANPP Participants shall have elected, to reconstruct or restore Unit 2, as permitted by the ANPP Participation Agreement, Transfer the Undivided Interest and the Real Property Interest to such electing ANPP Participants, as required by and in the proportions set forth in the ANPP Participation Agreement, in which case the Lessee shall be entitled to receive the portion of the "salvage value" purchase price allocable to the Undivided Interest; or

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(2) if clause (1) shall not be applicable, Transfer the Undivided Interest and the Real Property Interest to the Lessee.

If the Lessee shall not have assumed all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the Indenture, but the Owner Participant shall have received under
Section 5.2 of the Indenture all amounts required to be paid by the Lessee pursuant to this Section 9(c) (including interest, if any, thereon pursuant to
Section 3(b) (iii) hereof), the Lessor shall retain the Undivided Interest and the Real Property Interest subject to the terms of this Facility Lease and
Section 7(b)(4) of the Participation Agreement; provided, however, that (i) the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on' all Notes then Outstanding and (ii) this Facility Lease shall become a security agreement for all purposes of Applicable Law.

(d) Payment of special Casualty Value. If a Deemed Loss Event occurs, the party hereto having knowledge thereof shall promptly notify the other thereof (provided that the failure by the Lessor to furnish to the Lessee the foregoing notification shall not impair the right of the Lessor to exercise the option referred to below) and, at the Lessor's option, exercisable by delivery of written notice to the Lessee, on the day (specified in Schedule 2) of the month next following the month during which such notice is delivered to the Lessee, the Lessee shall pay to the Lessor an amount equal to the excess of
(i) Special Casualty Value determined as of the date such payment is due over
(ii) the principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such day. Upon compliance in full by the Lessee with the foregoing provisions of this Section 9(d) and assumption by the Lessee of all the obligations and. liabilities of the Owner Trustee under the Indenture and the Notes pursuant to
Section 3.9(b) of the Indenture, the Lessor shall (so long as no Default or Event of Default shall have occurred and be continuing, and at any time after

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the occurrence of a Deemed Loss Event, the Lessor may, Transfer the Undivided Interest and the Real Property Interest to the Lessee. If the Lessee shall not have assumed all the liabilities and obligations of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the Indenture, but the Owner Participant shall have received under Section 5.2 of the Indenture all amounts required to be paid by the Lessee pursuant to this Section 9(d) (including interest1 if any, thereon pursuant to Section 3(b)(iii)), the Lessor shall retain the Undivided Interest and the Real Property Interest subject to the terms of this Facility Lease and Section 7(b) (4) of the Participation Agreement; provided, however, that (i) the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on all Notes Outstanding and (ii) this Facility Lease shall became a security agreement for all purposes of Applicable Law.

(e) Requisition of Use. In the case of a Requisition of Use not constituting an Event of Loss, this Facility Lease shall continue, and each and every obligation of the Lessee hereunder and under each Transaction Document shall remain in full force and effect. So long as no. Default or Event of Default shall have occurred and be continuing, the Lessee shall be entitled to all sums received by reason of any such Requisition of Use for the period ending on the Lease Termination Date, and the Lessor shall be entitled to all sums received by reason of any such Requisition of Use for the period after the Lease Termination Date.

(f) Termination of Obligation. Until the Lessee shall have made the payments specified in Section 9(c) or 9(d), the Lessee shall make all payments of Rent when due; and the Lessee shall thereafter be required to make all payments of Supplemental Rent as and when due. In the event that the Lessee shall assume all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to Section 3.9(b) of the Indenture, upon receipt by the Owner Participant under Section 5.2 of the Indenture of the payments specified in Section 9(c) or 9(d) and payment by the Lessee of all other Rent due and owing through and including the date of payment (including Basic Rent due on or accrued through such date, as the case may be), the Lease Term shall end and the Lessee's obligation to pay further Basic Rent shall cease.

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(g) Application of Payments on an Event of Loss. Any payments receivable (without regard to any right at setoff or other similar right of any Person against the Lessee) at any time by the Lessor or the Lessee (other than insurance placed by the Owner Trustee or the Owner Participant pursuant to
Section 10(b)) from any Governmental Authority, insurer or other Person (except the Lessee, the Owner Trustee or the Owner Participant) as a result of the occurrence of an Event of Loss shall be applied as follows:

(i) all such payments received at any time by the Lessee shall be promptly paid to the Lessor for application pursuant to the following provisions of this Section 9(g), except that the Lessee may retain any amounts that would at the time be payable to the Lessee as reimbursement under the provisions of clause (ii) below;

(ii) so much of such payments as shall not exceed the amount required to be paid by the Lessee pursuant to Section
9(c) (ignoring, for this purpose, clause (ii) of the first Sentence thereof) shall be applied in reduction of the Lessee's obligation to pay such amount if not already paid by the Lessee or, if already paid by the Lessee, shall be applied to reimburse the Lessee for its payment of such amount; and

(iii) the balance, if any, of such payments remaining thereafter shall be divided between the Lessor and the Lessee as their interests may appear.

(h) Application of Payments Not Relating to an Event of Loss. Payments receivable (without regard to any right of setoff or other similar right of any Person against the Lessee) at any time by the Lessor (other than insurance placed by the Owner Trustee or the Owner Participant pursuant to
Section 10(b)) or the Lessee from any Governmental Authority, insurer or other Person with respect to any destruction, damage, loss, condemnation, confiscation, theft or seizure of or Requisition of Title to or Requisition of Use of the Undivided Interest or any part thereof not constituting an Event of Loss shall be applied first to reimburse the Lessee for all amounts expended in

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respect of the repair, replacement or reconstruction of the Undivided Interest or any part thereof as provided in Section 9(b), and second the balance, if any, of such payments shall be divided between the Lessor and the Lessee as their interests may appear.

(i) Other Dispositions. Notwithstanding the foregoing provisions of this Section 9, so long as a Default or Event of Default shall have occurred and be continuing, any amount that would otherwise be payable to or for the account of, or that would otherwise be retained by, the Lessee pursuant to Section 10 or this Section 9 shall be paid to the Lessor as security for the obligations of the Lessee under this Facility Lease and, at such time thereafter as no Default or Event of Default shall be continuing, such amount shall be paid promptly to the Lessee unless this Facility tease shall have theretofore been declared to be in default, in which event such amount shall be disposed of in accordance with the provisions hereof, of the Indenture and of the Trust Agreement.

(j) Assumption of Notes; Creation of Lien on Undivided Interest. In connection with; an Event of Loss, a Deemed Loss Event or the exercise of the Cure Option, (i) the Lessee agrees to use its best efforts to comply with the conditions respecting its assumption of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes set forth in Section 3.9(b) of the Indenture, and (ii) the Lessor agrees that, if the Lessee fails to assume all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the indenture, not later than two Business Days prior to the date on which the Lessee is required to make the payments specified in Section 9(c) or 9(d), the Lessor will cause the Undivided Interest and the Real Property Interest to be subjected to the Lien of the Indenture by executing and delivering to the Indenture Trustee the Undivided Interest Indenture Supplement.

SECTION 10. Insurance.

(a) Required Insurance. The Lessee will use its best efforts to cause the Operating Agent to carry and maintain insurance required under the ANPP Participation Agreement and will make all payments required of the Lessee under the ANPP Participation Agreement in respect of such insurance. The Lessee

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will at all times maintain, directly or through the Operating Agent, policies of casualty and liability insurance with respect to the Undivided Interest and the Real Property Interest in such amounts and with such coverage as shall be adequate in accordance with prudent utility practice. Any policies of insurance in respect of destruction, damage, loss, theft or other casualty to the Undivided Interest, the Real Property Interest, unit 2 or any part thereof shall name the Lessor (and, to the extent practicable, the Owner Participant) as an additional insured, as its interest (or their interests) may appear, and any policies with respect to nuclear liability insurance with respect to the Undivided Interest, the Real Property Interest, Unit 2, or any part thereof, shall include all Indemnities as insureds through an omnibus definition of "insured" or through endorsement: provided however, that if the Operating Agent as trustee, shall become the loss payee under any policy of insurance constituting Project Insurance, then the Lessor and the Owner Participant shall be and be made beneficiaries of the trust arrangement under which the Operating Agent acts as trustee. The Lessee shall, on or before March 1 of each year, commencing March 1, 1987, furnish to the Lessor and the Owner Participant (A) a report signed by the broker or brokers for the PVNGS insurance (or if insurance is placed directly by the Operating Agent, a certificate signed by the Operating Agent) (i) showing the insurance then maintained by the ANPP Participants with respect to PVNGS, (ii) stating that no premiums are then delinquent, and (iii) stating that the insurance maintained by the ANPP Participants with respect to PVNGS is in accordance with the terms of (1) the ANPP Participation Agreement and (2) this Section 10, (B) a report signed by the broker or brokers for the Lessee's insurance (or it insurance is placed directly by the Lessee, a certificate signed by the Lessee) showing the separate insurance, if arty, then maintained by the Lessee with respect to its interest in PVNGS and stating that no premiums under such insurance are delinquent; (C) a certificate signed by the Lessee stating that the insurance maintained by the ANPP Participants and by the Lessee, identified on the reports to be delivered pursuant to clauses (A) and (B), is in accordance with prudent utility practice within the nuclear industry, the ANPP Participation Agreement and this Section 10: and (D) upon the request of the Lessor or the Owner Participant, copies (to the extent permitted by the issuers of such policies) of policies so maintained. Any report by an insurance

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broker with respect to clause (A) (iii) (1) may be made in reliance upon a schedule provided by the Lessee (a copy of which shall be attached) identifying the insurance (by coverage, limits, insureds and other pertinent details) required to be maintained under the ANPP Participation Agreement. Any report with respect to clause (A) (iii) (2) may be made in reliance upon a similar schedule provided by the Lessee (a copy of which shall be attached) identifying the insurance required to be maintained under this Section 10. All insurance proceeds paid in respect of damage, destruction, loss, theft or other casualty to the Undivided Interest or the Real Property Interest shall be applied as provided in Section 9(g), (h) or (i), as the case may be, subject, however, to any priority allocations of such proceeds to decontamination and debris removal set forth in the insurance policies or required under Applicable Law. In the event that either the Operating Agent or the Lessee delivers a certificate pursuant to clause (A) or (B) of the foregoing, the Owner Participant shall be entitled to receive (if it so requests and if the insurer will issue the same) a report from any insurer listed in such certificate.

(b) Permitted Insurance. Nothing in this Section 10 shall prohibit the Lessee from placing, at its expense, insurance on or with respect to the cost of purchasing replacement power, naming the Lessee as insured and/or loss payee, unless such insurance would conflict with or otherwise limit the availability of insurance to be provided or maintained in accordance with
Section 10(a). Nothing in this Section 10 shall prohibit the Lessor or the Owner Participant from placing at its expense other insurance on or with respect to Unit 2, the Undivided Interest or the Real Property Interest or the operation of Unit 2, naming the Lessor or the Owner Participant as insured and/or loss payee, unless such insurance would conflict with or otherwise limit the insurance to be provided or maintained in accordance with Section 10(a).

SECTION 11. Rights to Assign or sublease.

(a) Assignment or sublease by the Lessee. Without the prior written consent of the Lessor, the Lessee shall not assign, sublease, transfer or encumber (except for Permitted Liens) its leasehold interest in the Undivided Interest or the Real Property Interest under this Facility Lease. The Lessee

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shall not, without the prior written consent of the Lessor and the Owner Participant, part with the possession of, or suffer or allow to pass out of its possession, the Undivided interest, the Real Property Interest or any interest therein, except to the extent required pursuant to the ANPP Participation Agreement or expressly permitted by the provisions of this Facility Lease or any other Transaction Document.

(b) Assignment by Lessor as Security for Lessor's Obligations. To secure the indebtedness evidenced by the Notes, the Lessor will assign to the Indenture Trustee its right, title and interest to receive certain payments of Rent (not including, in any event, Excepted Payments), to the extent provided in the Indenture and may assign to the Indenture Trustee its right, title and interest in the Undivided Interest and the Real Property Interest as contemplated by Section 9(j). The Lessee hereby (a) consents to such assignment pursuant to the terms of the Indenture, (b) agrees to pay directly to the Indenture Trustee at the Indenture Trustee's Office (so long as the lien of the Indenture has not been satisfied and discharged and the Lessor is obligated thereunder) all amounts of Rent (other than Excepted Payments) due or to become due to the Lessor that shall be required to be paid to the Indenture Trustee pursuant to the Indenture, (c) agrees that the right of the Indenture Trustee to any such payments shall be absolute and unconditional and shall not be affected by any circumstances whatsoever, including, without limitation, those circumstances set forth in Section 4 and (d) agrees that, to the extent provided in the Indenture and until the Indenture is discharged in accordance with its terms, the Indenture Trustee shall have all the rights of the Lessor hereunder with respect to Assigned Payments as if the Indenture Trustee had originally been named herein as the Lessor.

SECTION 12. Lease Renewal.

Subject to the notice requirements set forth in Section 13(a), at the end of the Basic Lease Term, provided that no Default, Event of Default, Event of Loss or Deemed Loss Event shall have occurred and be continuing and the Notes shall have been paid in full, the Lessee shall have the right to renew the term of this Facility Lease for a period commencing January 15, 2016, and ending oh the later of January 15, 2018 and the end of the Maximum Option Period (the

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renewal Term), during which the Basic Rent payable shall be the rental provided in Section 3(a)(iii) and one-halt of the rental provided in Section 21.

SECTION 13. Notices for Renewal or Purchase; Purchase Options.

(a) Notice; Determination of Values; Appraisal Procedure. Not later than three years nor earlier than five years prior to the expiration date of the Basic Lease Term, and not later than three years nor earlier than five years prior to the expiration date of the Renewal Term, as the case may be, the Lessee shall give to the Lessor written notice of its election either to (A) return the Undivided Interest arid the Real Property Interest to the Lessor pursuant to Section 5, or (B) exercise the renewal option permitted by Section
12 (in the case of the notice delivered in respect of the expiration date of the Basic Lease Term) or the purchase option permitted by Section 12(b). If the notice specified in clause (B) of the preceding sentence is given three years prior to the expiration of the Basic Lease Term, then not later than two years prior to the expiration date of the Basic Lease Term, the Lessee will give the Lessor written notice of its election either to exercise the renewal option permitted by Section 12 or the purchase option permitted by Section 13(b). Any such election shall be irrevocable as to the Lessee, but no such election shall be binding on the Lessor if, on the effective date thereof, an Event of Default shall have occurred and be continuing or an Event of Loss or a Deemed Loss Event shall have occurred. Promptly after giving notice, (i) in case the renewal option has been elected, the Maximum Option Period shall be determined by the Appraisal Procedure, or (ii) in case the purchase option permitted by Section 13(b) has been elected, the Lessee and the Owner Participant shall agree upon the Fair Market Sales Value of the undivided Interest and the Real Property Interest, or, if within three months after the date of the Lessee's notice the Lessee and the Owner Participant shall be unable so to agree, such value shall be determined by the Appraisal Procedure.

(b) Purchase Option at Expiration of the lease Term. Subject to the notice requirements set forth in Section 13(a), unless a Default or an Event of Default shall have occurred and be continuing or an Event of Loss or Deemed Loss Event shall have occurred, on the date of the expiration of the Basic Lease

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Term or the Renewal Term (if elected), the Lessee shall have the right to purchase the Undivided Interest and the Real Property Interest for a purchase price equal to the Fair Market Sales Value thereof.

(c) Purchase of the Undivided Interest; Payment, Etc. If the Lessee shall have elected or be required to purchase the Undivided Interest and the Real Property Interest pursuant to Section 13(b), payment by the Lessee of the purchase price for the Undivided Interest and the Real Property Interest shall be made in immediately available funds, whereupon the Lessor shall Transfer the Undivided Interest and the Real Property Interest to the Lessee.

SECTION 14. Termination for obsolescence.

(a) Termination Notice. Notwithstanding any provision herein contained to the contrary, unless a Default or an Event of Default shall have occurred and be continuing or an Event of Loss or a Deemed Loss Event shall have occurred, the Lessee shall have the option (provided that the Lessee shall have delivered to the Lessor an Officers' Certificate to the effect that the Lessee's Board of Directors has adopted and there is in effect a resolution determining that Unit 2 is (A) uneconomic to the Lessee or (B) economically obsolete for any reason; and provided that the Lessee shall be disposing of all its other leased interests in Unit 2), on at least 360 days' prior written notice (a Termination Notice) to the Lessor, the Owner Participant and the Indenture Trustee (which notice shall be irrevocable)) to terminate this Facility Lease on any Basic Rent Payment Date after January 15, 1999, and prior to January 15, 2013 (the Termination Date). If the Lessee shall give the Lessor a Termination Notice, the Lessee shall, as agent for the Lessor, use its best efforts to obtain cash bids for the purchase of the undivided Interest and the Real Property Interest, together with the interest of the Lessor under the Assignment and Assumption. The Lessor shall also have the right to obtain such cash bids, either directly or through agents other than the Lessee. The Lessee shall certify to the Lessor within ten days after the Lessee's receipt of each bid (and, in any event, prior to the Termination Date) the amount and terms thereof and the name and address, of the party (which shall not be the Lessee or an Affiliate of the Lessee) submitting such bid.

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(b) Right of Lessor to Retain Undivided Interest upon Termination. If a Termination Notice has been delivered pursuant to Section
14(a), the Lessor may elect to retain, rather than sell, the Undivided Interest and the Real Property Interest by giving notice to the Lessee and the indenture Trustee prior to the Termination Date. It shall be a condition precedent to the Lessor's right to retain the Undivided Interest and the Real Property Interest that on or prior to the Termination Date the Lessor shall have paid (or made provision for payment) to the Indenture Trustee, the unpaid principal amount of all Notes Outstanding on such date and all premium, if any, and interest accrued and unpaid on the date of payment. If the Lessor elects to retain the Undivided Interest and the Real Property interest pursuant to this Section 14 (b), the Lessee shall pay to the Lessor on the Termination Date the Basic Rent and any other Rent due or accrued, as the case may be, to and including the Termination Date, together with an amount equal to the excess, if any, of the Termination Value as of the Termination Date over the highest bona fide offer received pursuant to Section 14(a).

(c) Events on the Termination Date. If the Lessor has not elected to retain the Undivided Interest and the Real Property Interest as provided in Section 14(b), on the Termination Date the Lessor shall (upon receipt of the sale price and all additional payments specified in the next sentence) Transfer the Undivided Interest and the Real Property Interest for cash to the bidder (which shall not be the Lessee or an Affiliate of the Lessee) that shall have submitted the highest bid on or before the Termination Date: The total sale price realized at such sale shall be retained by the Lessor (subject, however, to the terms of the Indenture and the requirement that there shall have been paid, or provision for payment made, to the Indenture Trustee the unpaid principal amount of all Notes Outstanding on the Termination bate and all premium, if any, and interest accrued and unpaid on the date of payment) and, in addition, on the Termination Date the Lessee shall pay to the Lessor (A) the excess, if any, of the Termination Value as of the Termination Date over the net sale price of the Undivided Interest and the Real Property Interest and (B) any. Basic Rent due or accrued, as the case may be, to and including the Termination Date and shall pay to the Person or Persons entitled thereto all Supplemental

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Rent (other than Termination Value). Upon compliance by the Lessee with the applicable provisions of this Section 14, the obligation of the Lessee to pay Basic Rant due hereunder for any period after the Termination Date shall cease and the Basic Lease Term shall end on the Termination Date; provided, however, that, in the event of termination of this Facility Lease pursuant to this
Section 14, the obligations of the Lessee under the ANPP Participation Agreement (except as therein expressly provided) and the Assignment and Assumption shall continue in full force and effect and shall not be impaired by reason of any such termination. If, other than as a result of the Lessor's election to retain the Undivided Interest and the Real Property Interest as provided in Section
14(b), on or as of the Termination Date no such sale shall occur or the Lessee shall not have complied in full with this Section 14, this Facility Lease shall continue in full force and effect in accordance with its terms without prejudice to the Lessee's right to exercise its rights under this Section 14 thereafter, except that the Lessee shall not be entitled to deliver another Termination Notice during the 3-year period. following such Termination Date. The Lessor shall be under no duty to solicit bids, to inquire into the efforts of the Lessee to obtain bias or otherwise take any action in connection with any such sale other than, if the Lessor has not elected to retain the Undivided Interest and the Real Property interest, to Transfer the Undivided Interest and the Real Property Interest to the purchaser named in the highest bid certified by the Lessee to the Lessor or obtained by the Lessor, against receipt of the payments provided for herein (but only if such purchaser has obtained all Governmental Action by the NRC necessary in connection therewith).

(d) Early Termination Notice. In the event that the Lessee shall fail to exercise its renewal option or purchase option within the time limit provided by Section 13 (a) , the Lessor shall have the option, on any Basic Rent Payment Date thereafter, on at least 120 days prior written notice (an Early Termination Notice) to the Lessee and the Indenture Trustee, to terminate this Facility Lease on the Basic Rent Payment Date specified in such notice (the Early Termination Date). My Early Termination Notice may be revoked by the Lessor at any time on or prior to the Early Termination Date.

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(e) Events On the Early Termination Date. On the Early Termination Date the Lessor shall, at its option, (i) Transfer the Undivided Interest and the Real Property Interest to the bidder (other than the Lessee or an Affiliate of the Lessee) selected by the Lessor or (ii) retain the Undivided interest and the Real Property Interest. It shall be a condition precedent to the Lessor's right to sell or retain the Undivided Interest and the Real Property Interest that on or prior to the Early Termination Date the Lessor shall have paid (or made provision for payment) to the Indenture Trustee the unpaid principal amount of all Notes Outstanding on such date and all premium, if any, and interest accrued and unpaid on the date of payment. The total sale price realized at any such sale shall be retained by the Lessor and, in addition, on the Early Termination Date the Lessee shall pay to the Lessor any Basic Rent due or accrued, as the case may be, to and including the Early Termination Date, and shall pay to the Person or Persons entitled thereto all Supplemental Rent (other than Termination Value) . Upon compliance by the Lessee with the applicable provisions of this Section 14, the obligation of the Lessee to pay Basic Rent due thereunder for any period after the Early Termination Date shall cease and the Lease Term shall end on the Early Termination Date; provided, however, that in the event of the termination of this Facility Lease pursuant to this Section 14, the obligations of the Lessee under the AMP? Participation Agreement (except as therein expressly provided) and the Assignment and Assumption shall continue in full force and effect and shall not be impaired by reason of any such termination.

SECTION 15. Events of Default.

The term Event of Default, wherever used herein, shall mean any of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary, or come about or be effected by operation of law, or be pursuant to or in compliance with any Applicable Law or Governmental Action)

(i) the Lessee shall rail to make, or cause to be made,
(x) payment of Casualty Value, Termination Value, Special Casualty Value or payment due pursuant to exercise of the Cure Option when due, (y) any payment of Basic Rent within S Business Days after the same shall Become due or (z) any payment of Supplemental Rent (other than Casualty Value,

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Termination Value, Special Casualty Value or payment due pursuant to exercise of the Cure Option) Within 20 days after the same shall become due or demanded, as the case may be; or

(ii) the Lessee shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it under Sect ion 10(b) (3) (i) , 10(b) (3) (ii) 10(b) (3)
(iii) or 10(b) (3) (v) of the Participation Agreement or
Section 7, 10 (other than failure of the Lessee to cause to be delivered the insurance certificates (other than a certificate of the Lessee) described therein) or 11 of this Facility Lease: or

(iii) the Lessee shall fail to perform or observe any covenant or agreement to be performed or observed by it under
Section 10(b) (3) (viii) of the Participation Agreement and such failure shall continue for a period of 30 days after there shall; have been given to the Lessee by the Lessor or the Owner Participant a notice specifying such failure and requiring it to be remedied and stating that such notice is a "Notice of Default hereunder: or

(iv) the Lessee shall fail to perform its agreements set forth in Section 5(a) hereof; or

(v) the Lessee shall fail to perform or observe any covenant, condition or agreement (other than covenants, conditions or agreements referred to in clauses (i) through
(iv) above) to be performed or observed by it under this Facility Lease or any other Transaction Document, and such failure shall continue for a period of 30 days after there shall have been given to the Lessee by the Lessor or the Owner Participant a notice specifying such failure and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder: or

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(vi) any representation or warranty made by the Lessee, in this Facility Lease, any other Transaction Document (other than the Tax Indemnification Agreement) or any agreement, document or certificate delivered by the Lessee in connection herewith or therewith shall prove to have been incorrect in any material respect when any such representation or warranty was made or given and shall remain material and materially incorrect at the time in question; or

(vii) the Lessee shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking of possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall take any corporate action to authorize any of the foregoing; or an involuntary case or other proceeding shall be commenced against the Lessee seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed or unstayed for a period of 60 consecutive days; or

(viii) final judgment for the payment of money in excess of $l,O0O,0O0 shall be rendered against the Lessee and the Lessee shall not have discharged the same or provided for its discharge in accordance with its terms or bonded the same or procured a stay of execution thereof within 60 days from the entry thereof; or

(ix) (1) a default by the Lessee under the ANPP Participation Agreement in consequence of

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which the Lessee's right to receive its Generation Entitlement Share in PVNGS is suspended by the other ANPP Participants, or
(2) the giving by any ANPP Participant of a notice under
Section 23.2 (or any comparable successor provision) of the ANPP Participation Agreement respecting a default thereunder by the Lessee and the lapse of 20 Business Days from the giving of such notice without the Lessee having cured such default; provided, however, that for purposes of this clause (2) if the Lessee shall have, in good faith, disputed the existence or nature of a default and such dispute shall have become the subject of an arbitration under Section 24 (or any comparable successor provision) of the ANPP Participation Agreement, such 20 Business Day period shall commence on the date of the final determination of the board of arbitrators under such Section 24; or

(x) (1) the Lessee shall fail to pay when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) any Debt (which term shall mean (A) indebtedness for borrowed money, (B) obligations as lessee under leases and
(C) obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clause (A) or (B) above, in each case if the principal amount (or equivalent) thereof (or in the case of any operating lease, an equivalent on the assumption such lease were a lease required to be capitalized in accordance with generally accepted accounting principles) is greater than $20,000,000 ($5,000,000 in the case of any PVNGS operating lease)) of the Lessee, and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt, but only it the Lessee shall have received notice of such failure or a Responsible Officer of the Lessee shall have actual knowledge of such failure; or (2) any other default under any agreement

6091.CHASEU2.LEASE.47:1

or instrument relating to any such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt, but only if the Lessee shall have received notice of such default or event or a Responsible Officer of the Lessee shall have actual knowledge of such default or event.

SECTION 16. Remedies.

(a) Remedies. Upon the occurrence of any Event of Default and so long as the same shall be continuing, the Lessor may, at its option, declare this Facility Lease to be in default by written notice to such effect given to the Lessee, and may exercise one or more of the following remedies as the Lessor in its sole discretion shall elect:

(i) the Lessor may, by notice to the Lessee, rescind or terminate this Facility Lease;

(ii) the Lessor may (x) demand that the Lessee, and thereupon the Lessee shall, return possession of the undivided interest and the Real Property Interest promptly to the Lessor in the manner and condition required by, and otherwise in accordance with the provisions of, this Facility Lease as if the Undivided interest and the Real Property Interest were being returned at the end of the Lease Term and the Lessor shall not be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith and (y) subject to Applicable Law, enter upon the PVNGS Site and take immediate possession of (to the exclusion of the Lessee) the undivided Interest and the Real Property Interest, by summary proceedings or otherwise, all without liability to the Lessee for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise;

6091.CHASEU2.LEASE.47:1

(iii) the Lessor may sell the Undivided Interest and the Real Property Interest, or any part thereof, together with any interest of the Lessor under the Assignment and :'assumption, at public or private sale in a commercially reasonable manner, as the Lessor may determine, free and clear of any rights of the Lessee in the Undivided Interest and the Real Property Interest and without any duty to account to the Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent required by clause (v) or (vi) below if the Lessor shall elect to exercise its rights thereunder), in which event the Lessee's obligation to pay Basic Rent hereunder for periods commencing after the date of such sale shall be terminated or proportionately reduced, as the case may be (except to the extent that Basic Rent is to be included in computations under clause (v) or (vi) below if the Lessor shall elect to exercise its rights thereunder);

(iv) the Lessor may hold, keep idle or lease to others all or any part of the Undivided interest and the Real Property Interest, as the Lessor in its sole discretion may determine, free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or for any proceeds with respect to such action or inaction, except that the Lessee's obligation to pay Basic Rent for periods commencing after the Lessee shall have been deprived of use of the Undivided Interest and the Real Property interest pursuant to this clause (iv) shall be reduced by an amount equal to the net proceeds, if any, received by the Lessor from leasing the Undivided Interest and the Real Property Interest to any Person other than the Lessee for the same periods or any portion thereof;

(v) except in the case of an Event of Default specified in clause (iv) of Section 15 (subject, however, to the provisos to the first sentence of Section 16(c) hereof), the Lessor may, whether or not the Lessor shall have exercised or shall thereafter at any time exercise its rights under clause (i), (ii),

6091.CHASEU2.LEASE.47:1

(iii) or (iv) above, demand, by written notice to the Lessee specifying a payment data which shall be a Basic Rent Payment Date not earlier than 10 days after the date of such notice, that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on the Basic Rent Payment Date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent due after the Basic Rent Payment Date specified in such notice), any unpaid Rent due through the Basic Rent Payment Date specified in such notice plus whichever of the following amounts the Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the interest rate specified in
Section 3(b) (iii) from the Basic Rent Payment Date specified in such notice to the date of actual payment) (and, in the case of (D) below, upon receipt of such payment the Lessor shall (or may prior to the receipt of such payment) Transfer to the Lessee the Undivided Interest and the Real Property Interest):

(A) an amount equal to the excess, if any, of
(1) Casualty Value, computed as of the Basic Rent Payment Date specified in such notice, over (2) the Fair Market Rental Value of the Undivided Interest and the Real Property Interest (determined on the basis of the then actual condition of Unit 2) until the end of the remaining useful life of Unit 2, after discounting such Fair Market Rental Value semi-annually to present value as of the Basic Rent Payment Date specified in such notice at a rate of 10% per annum;

(B) an amount equal to the excess, if any, of
(1) such Casualty Value over (2) the Fair Market Sales Value of the Undivided Interest and the Real Property Interest (determined on the basis of the then actual condition of Unit 2) as of the Basic Rent Payment Date specified in such notice;

6091.CHASEU2.LEASE.47:1

(C) an amount equal to the excess, if any, of
(1) the present value as of the Basic Rent Payment Date specified in such notice of all installments of Basic Rent until the end of the Basic Lease Term or the Renewal Term, as the case may be, discounted semi-annually at a rate of 10% per annum, over (2) the present value as of such Basic Rent Payment Date of the Fair Market Rental Value of the Undivided Interest and the Real Property Interest (determined on the basis of the then actual condition of Unit 2) until the end of the Basic Lease Term or the Renewal Term, as the case may be, discounted semi-annually at a rate of 10% per annum:

or

(D) an amount equal to the higher of (1) the Casualty Value (Special Casualty Value if the
(pound)vent of Default is an event specified in clause (V), (viii) or (x) (2) of Section 15 hereof), computed as of the Basic Rent Payment Date specified in such notice or (2) the Fair Market Sales Value of the Undivided Interest and the Real Property interest;

(vi) if the Lessor shall have sold all the Undivided interest and the Real Property Interest pursuant to clause (iii) above, the Lessor, in lieu of exercising its rights under clause
(v) above with respect to the Undivided interest and the Real Property Interest may, if it shall so elect, demand that the Lessee pay to the Lessor and the Lessee shall pay to the Lessor on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (in lieu of Basic Rent due for periods commencing after the next Basic Rent Payment Date following the date of such sale), any unpaid Basic Rent due through such Basic Rent Payment Date, plus the amount of any deficiency of the Sale Proceeds under the Casualty Value, computed as of such Basic Rent Payment Date, together with interest at the interest rate specified in Section 3(b) (iii) on the amount of such Rent and such deficiency from the date of such sale until the date of actual payment: or

6091.CHASEU2.LEASE.47:1

(vii) in the case of an Event of Default specified in clause (iv) of Section 15, the Lessor may demand, by written notice to the Lessee specifying a payment date which shall be not earlier than the date 30 days after the last Basic Rent Payment Date of the Lease Term, that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on such last payment date, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due through such last Basic Rent Payment Date plus an amount (not less than zero) equal to the Fair Market Sales Value (determined without regard to the obligation of the Lessee under Section l0(b)(3)(xi) of the Participation Agreement) of the Undivided interest and the Real Property Interest (determined on the basis of the actual condition of Unit 2) determined as of such last Basic Rent Payment Date (together with interest on such amount at the interest rate specified in Section 3(b)(iii) from such last Basic Rent Payment Date to the date of actual payment) and upon receipt of such payment the Lessor shall (or may prior to the receipt of such payment) Transfer to the Lessee the Undivided Interest and the Real Property Interest); provided, however, that the Lessor may not exercise the foregoing remedy if the Lessor shall have failed to Transfer the Undivided Interest and the Real Property Interest to the bidder (which shall not be the Lessee or an Affiliate of the Lessee) that shall have submitted the highest cash bid on or before the date on which such Event of Default arose excluding, however, any such cash bid which the Lessor or the Owner Participant determines was not submitted in good faith, or as to which the bidder fails to certify to the Lessor such information as the Lessor or Owner Participant may reasonably request in order to determine whether or not such bid was submitted in good faith (and the Lessor agrees that it will, if and to the extent so requested by the Lessee on or after the

6091.CHASEU2.LEASE.47:1

date 90 days preceding such last Basic Rent Payment Date, use reasonable efforts (at the expense of the Lessee) for a period ending on the day 90 days after such last Basic Rent Payment Date, to find a Person willing to submit such cash bid; provided, however, that the failure of the Lessor to do so shall not relieve the Lessee of its obligations under this clause (vii)).

(b) No Release. No rescission or termination of this Facility Lease, in whole or in part, or repossession of the Undivided Interest or the Real Property Interest or exercise of any remedy under paragraph (a) of this Section 16 shall, except as specifically provided therein, relieve the Lessee of any of its liabilities and obligations hereunder. In addition, the Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before, after or during the exercise of any of the foregoing remedies, including all reasonable legal fees and other costs and expenses incurred by the Lessor or the Owner Participant by reason of the occurrence of any Event of Default or the exercise of the Lessor's remedies with respect thereto. At any sale of the Undivided Interest, the Real Property Interest or any part thereof pursuant to this Section 16, the Owner Participant, the Lessor or the Indenture Trustee may bid for and purchase such property.

(c) Remedies cumulative. No remedy under paragraph (a) of this
Section 16 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy provided under such paragraph (a) or otherwise available to the Lessor at law or in equity; provided, however, that notwithstanding anything to the contrary set forth in this Facility Lease, the remedy set forth in section 16(a) (vii) shall be the sole and exclusive remedy under this Section 16 in the case of an Event of Default specified in clause
(iv) of Section 15, unless the Lessee is in default of its payment obligations under Section 16(a) (vii), in which case the Lessor may exercise its other remedies under Section 16(a); (except that the maximum amount payable by the Lessee in the event of the exercise by the Lessor of any of the remedies provided for in Section 16 (a) (v) or (vi) shall not exceed the total amount payable by the Lessee under Section 16(a) (vii) minus the amount provided in subclause (2) of clause (A), (S) or (C) of such Section 16(a) (v) , if the

6091.CHASEU2.LEASE.47:1

Lessor elects a remedy specified in said clause (A) , (S) or (C) , or the deficiency referred to in Section 16(a)(vi), if the Lessor elects the remedy specified in section 16 (a) (vi) hereof) . No express or implied waiver by the Lessor of any Default or Event of Default hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Default or Event of Default. The failure or delay of the Lessor in exercising any right granted it hereunder upon any occurrence of any of the contingencies set forth herein shall not constitute a waiver of any such right upon the continuation or recurrence of any such contingencies or similar contingencies and any single or partial exercise of any particular right by the Lessor shall not exhaust the same or constitute a waiver of any other right provided herein. To the extent permitted by Applicable Law, the Lessee hereby waives any rights now or hereafter conferred by statute or otherwise which may require the Lessor to sell, lease or otherwise use the Undivided interest or Unit 2 in mitigation of the Lessor's damages as set forth in paragraph (a) of this section 16 or which may otherwise limit or modify any of the Lessor's rights and remedies provided in this Section 16.
(d) Exercise of Other Rights or Remedies. In addition to all other rights and remedies provided in this Section 16, the Lessor may, except to the extent expressly limited by provisions of this Section 16, exercise any other right or remedy that may be available to it under Applicable Law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof.

(e) Special Cure Right of Lessee. In the event a "Notice of Default" is given under Section 15(iii), the Lessee may, on or prior to the occurrence of an Event of Default resulting therefrom, give written notice to the Lessor stating that the Lessee has elected to exercise the option (the Cure Option) provided in this Section 16(e), which election shall be irrevocable as to the Lessee. Promptly after the giving of such notice, the Lessee and the Owner Participant shall agree upon the Fair Market Sales Value of the Undivided Interest and the Real Property Interest or, if they shall be unable so to agree within one month after the date of the Lessee's notice, such value shall be determined by the Appraisal Procedure. On the Basic Rent Payment Date next following the date that such Fair Market sales Value shall have been determined,

6091.CHASEU2.LEASE.47:1

the Lessee shall pay to the Lessor all Rent due on such Basic Rent Payment Date, plus an amount equal to the excess of (i) the greater of such Fair Market sales Value and the Casualty Value determined as of such Basic Rent Payment Date over
(ii) the unpaid principal amount of the Notes Outstanding on such date after giving effect to the payment, if any, of the principal installment due and payable on such date. Upon compliance in full by the Lessee with the foregoing provisions of this paragraph (e) and assumption by the Lessee of all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes pursuant to Section 3.9(b) of the indenture1 the Lessor shall (so long as no Default or Event of Default shall have occurred and be continuing) Transfer the Undivided Interest and the Real Property interest to the Lessee. If the Lessee shall not have assumed all the obligations and liabilities of the Owner Trustee under the Indenture and the Notes in accordance with Section 3.9(b) of the indenture, but the Owner Participant shall have received under Section 5.2 of the indenture all amounts required to be paid by the Lessee pursuant to this paragraph (e) (including interest, if any, thereon pursuant to Section
3(b)(iii)), the Lessor shall retain the Undivided Interest and the Real Property interest subject to the terms of this Facility Lease and Section 7(b) (4) of the Participation Agreement; provided, however, that the obligation of the Lessee to pay further Basic Rent shall be reduced to an amount on each Basic Rent Payment Date equal to the aggregate amount of principal, premium, if any, and accrued interest then payable on all Notes then Outstanding and this Facility Lease shall become a security agreement for all purposes of Applicable Law. The Lessee agrees to use its best efforts to comply with the conditions respecting its assumption set forth in Section 3.9(b) of the 'Indenture and, failing such assumption, agrees to accept a transfer of the Owner Participant's right, title and interest in the Trust Estate pursuant to Section 7(b) (4) of the Participation Agreement.

SECTION 17. Notices.

All communications and notices provided for in this Facility Lease shall be in writing and shall be given in person (with signed receipt of an officer of the Owner Participant in the case of a delivery to the Owner Participant) or by means of telex, telecopy, or other wire transmission, or

6091.CHASEU2.LEASE.47:1

mailed by registered or certified mail, or delivered by express delivery service, addressed as provided in the Participation Agreement. All such communications and notices given in such manner shall be effective on the date of receipt of such communication or notice.

SECTION l8. Successors and Assigns.

This Facility Lease, including all agreements, covenants, indemnities, representations and warranties, shall be binding upon and inure to the benefit of the Lessor and its successors and permitted assigns, and the Lessee and its successors and, to the extent permitted hereby, assigns.

SECTION 19. Right to Perform for Lessee.

If the Lessee shall fail to make any payment of Rent to be made by it, or shall fail to perform or comply with any of its other agreements contained herein, or fail to make any payment to be made by it under any ANPP Project Agreement, or shall fail to perform or comply with any of its other agreements contained in any ANPP Project Agreement, either the Lessor or the Owner Participant may, but shall not be obligated to, tender such payment, or effect such performance or compliance, and the amount of such payment and the amount of all costs and expenses (including, without limitation, attorneys' and other professionals' fees and expenses) of the Lessor or the Owned Participant, as the case may be, incurred in connection with such payment or the performance of or compliance with such agreement, as the case may be, together with interest thereon at the Penalty Rate, shall be deemed Supplemental Rent, payable by the Lessee upon demand. In the event that the Lessor or the Owner Participant shall cure any default by the Lessee under the ANPP Participation Agreement, then (so long as an Event of Default has occurred and is continuing) the Lessor, together with each other Person contributing to such cure, shall be entitled (to the full extent enforceable in accordance with Applicable Law) to receive the Generation Entitlement Share of the Lessee under the ANPP Participation Agreement (not limited to Unit 2), with each contributor to receive a percentage of such Generation Entitlement Share equal to the percentage of the cure contributed thereby.

6091.CHASEU2.LEASE.47:1

SECTION 20. Additional Covenants.

The Lessee agrees to comply with and to pay, as Supplemental Rent, all amounts payable by it under the provisions of Section 13 of the Participation Agreement and under the provisions of the Tax Indemnification Agreement, which provisions are incorporated herein by this reference as fully as if set forth in full at this place. The Lessee agrees to comply with its covenants and agreements set forth in Sections 10(b), 14 and 16 or the Participation Agreement and Articles III, IV, V and VI of the Assignment and Assumption, which covenants and agreements are incorporated herein by this reference as fully as if set forth in full at this place.

SECTION 21. Lease of Real Property Interest.

Pursuant to the Deed and the Assignment of Beneficial Interest, the Lessee has sold to the Lessor the Real Property Interest. The Lessor hereby grants to the Lessee a leasehold interest in the Real Property interest, such leasehold to be coterminous with the lease of the Undivided Interest hereunder and to be at a rent per annum equal to the respective percentages of the Real Estate investment for the applicable period set forth or derived from the respective percentages of Facility Cost in clauses (i), (ii) and (iii), respectively, of Section 3(a) hereof (which rent is incorporated as part of Basic Rent payable pursuant to Section 3(a) hereof).

SECTION 22. Amendments and Miscellaneous.

(a) Amendments in Writing. The terms of this Facility Lease may not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever except by written instrument signed by the Lessor and the Lessee.

(b) Survival. (1) All indemnities, representations and warranties contained in this Facility Lease and the other Transaction Documents and the Financing Documents and in any agreement, document or certificate delivered pursuant hereto or thereto or in connection herewith or therewith shall survive, and continue in effect following, the execution and delivery of this Facility Lease and the expiration or other termination of this Facility Lease.

6091.CHASEU2.LEASE.47:1

(2) The obligations of the Lessee to pay Supplemental Rent and the obligations of the Lessee under Sections 5, 16, 19 and 20 hereof shall survive the expiration or termination of this Facility Lease. The extension of any applicable statute of limitations by the Owner Trustee, the Indenture Trustee, the Lessee, the Owner Participant, the Loan Participant or any Indemnitee shall not affect such survival. The obligations of the Lessee under
Section 20 are expressly made for the benefit of, and shall be enforceable by, any Indemnitee, separately or together, without declaring this Facility Lease to be in default and notwithstanding any assignment by the Lessor of this Facility Lease or any of its rights thereunder or any disposition of all or any part of any interest in the Undivided Interest, the Real Property Interest, Unit 2 or any other property referred to in this Facility Lease or in this Facility Lease or any other Transaction Document or Financing Document. All payments required to be made pursuant to Section 20 shall be made directly to, or as otherwise requested by, the Indemnitee entitled thereto upon writ-ten demand by such Indemnitee.

(c) Severability of Provisions. Any provision of this Facility Lease which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Applicable Law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect.

(d) True lease. This Facility Lease shall constitute an agreement of lease and nothing herein or elsewhere shall be construed as conveying to the Lessee any right, title or interest in or to the Undivided Interest or the Real Property Interest, except as lessee only.

(e) Original Lease. The single executed original of this Facility Lease marked "THIS COUNTERPART IS THE ORIGINAL COUNTERPART" and containing the receipt of the Indenture Trustee thereon shall be the "Original"

6091.CHASEU2.LEASE.47:1

of this Facility Lease. To the extent that this Facility Lease constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Facility Lease may be created through the transfer or possession of any counterpart other than the "Original".

(f) Governing raw. This Facility Lease shall be governed by and construed in accordance with the law of the State of New York., except to the extent that pursuant to the law of the State of Arizona the law of the State of Arizona is mandatorily applicable hereto.

(g) Headings. The division of this Facility Lease into sections, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Facility Lease..

(h) Concerning the Owner Trustee. FNB is entering into this Facility Lease solely as Owner Trustee under the Trust Agreement and not in its individual capacity. Anything herein to the contrary notwithstanding, all and each of the representations, warranties, undertakings and agreements herein made on the part of the Owner Trustee are made and intended not as personal representations, warranties, undertakings and agreements by or for the purpose or with the intention of binding FNB personally but are made and intended for the purpose of binding only the Trust Estate, and this Facility Lease is executed and delivered by the Owner Trustee solely in the exercise of the powers expressly conferred upon it as trustee under the Trust Agreement; and no personal liability or responsibility is assumed hereunder by or shall at any time be enforceable against r~8 or any successor in trust or the Owner Participant on account of any representation, warranty, undertaking or agreement hereunder of the Owner Trustee, either expressed or implied, all such personal liability, if any, being expressly waived by the Lessee, except that the Lessee or any Person claiming by, through or under it, making claim hereunder, may look to the Trust Estate for satisfaction of the same and the Owner Trustee or its successor in trust, as applicable, shall be personally liable for its own gross negligence or willful misconduct. If a successor owner trustee is appointed in accordance with the terms of the Trust Agreement, such successor owner trustee shall, without any further act, succeed to all the rights, duties, immunities

6091.CHASEU2.LEASE.47:1

and obligations of the Owner Trustee hereunder and the predecessor owner trustee shall be released from all further duties and obligations hereunder.

(i) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401, the beneficiary of the Trust Agreement is Chase Manhattan Realty Leasing Corporation, a New York corporation whose address is One Chase Manhattan Plaza (20th Floor), flew York, New York 10081, Attention of Leasing Administrator. The address of the beneficiary is also therein described. A copy of the Trust Agreement is available for inspection at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

(j) Counterpart Execution. This Facility Lease may be executed in any number of counterparts and by each of the parties hereto or thereto on separate counterparts, all such counterparts together constituting but one and the same instrument.

6091.CHASEU2.LEASE.47:1

IN WITNESS WHEREOF, each of the parties hereto has caused this Facility Lease to be duly executed in New York, New York by an officer thereunto duly authorized.

THE FIRST NATIONAL RANK OF BOSTON, not
in its individual capacity, but solely as
Owner Trustee under a Trust Agreement,
dated as of December 15, 1986, with Chase
Manhattan Realty Leasing Corporation

PUBLIC SERVICE COMPANY OF NEW MEXICO

6091.CHASEU2.LEASE.47:1

State of New York )
) ss.
County of New York )

The foregoing instrument was acknowledged before me this 15th day of December, 1986, by A.J. Robison, Senior Vice President and Chief Financial Officer of Public Service Company of New Mexico, a New Mexico corporation, on behalf of the corporation.

      /s/ Delia T. Santiago
     -----------------------
         Notary Public
         Delia T. Santago
 Notary Public State of New York
         No 41-3451160
   Qualified In Queens County
Commission Expires March 30, 1987

State of New York )
) ss.
County of New York )

The foregoing instrument was acknowledged before me this 15th day of December, 1986, by Martin P. Henry, Assistant Vice President of The First National Bank of Boston, a national banking association, on behalf of the banking association as owner Trustee under that certain Trust Agreement dated as of December 15, 1986.

 /s/ David A. Spivak
------------------------
     Notary Public

David A. Spivak Notary Public, State of New York No. 31-4693488 Qualified in New York County Commission Expires March 10, 1987

                                                                   SCHEDULE 1
                                                                   TO FACILITY
                                                                   LEASE
                           SCHEDULE OF CASUALTY VALUES

 BASIC RENT                                             PERCENTAGE OF
PAYMENT DATE                                            FACILITY COST
- ------------                                            -------------

15JAN87                                                     106.53611
15JUL87                                                     105.53335

15JAN88                                                     107.07918
15JUL88                                                     106.17858

15JAN89                                                     109.42323
15JUL89                                                     108.43402

15JAN90                                                     111.01369
15JUL90                                                     109.97758

15JAN91                                                     112.00086
15JUL91                                                     110.94964

15JAN92                                                     112.38274
15JUL92                                                     111.28104

15JAN93                                                     112.14605
15JUL93                                                     110.95717

15JAN94                                                     111.21117
15JUL94                                                     109.88662

15JAN95                                                     109.49132
15JUL95                                                     108.10138

15JAN96                                                     107.43704
15JUL96                                                     106.11823

15JAN97                                                     105.42555
15JUL97                                                     104.04483

15JAN98                                                     103.23626
15JUL98                                                     101.76861

15JAN99                                                     100.82360
15JUL99                                                     99.25609

15JAN100                                                    98.15967
15JUL100                                                    96.47795

15JAN101                                                    95.22783
15JUL101                                                    93.45710

                           SCHEDULE OF CASUALTY VALUES

 BASIC RENT                                             PERCENTAGE OF
PAYMENT DATE                                            FACILITY COST
- ------------                                            -------------

15JAN102                                                    92.07347
15JUL102                                                    90.21857

15JAN103                                                    88.71529
15JUL103                                                    86.77283

15JAN104                                                    85.15757
15JUL104                                                    83.11902

15JAN105                                                    81.38095
15JUL105                                                    79.23904

15JAN106                                                    77.36934
15JUL106                                                    75.11630

15JAN107                                                    73.10563
15JUL107                                                    70.73318

15JAN108                                                    68.57156
15JUL108                                                    66.07099

15JAN109                                                    63.74791
15JUL109                                                    61.10991

15JAN110                                                    58.61418
15JUL110                                                    55.82895

15JAN111                                                    53.14878
15JUL111                                                    50.20591

15JAN112                                                    47.32863
15JUL112                                                    44.21696

15JAN113                                                    41.12929
15JUL113                                                    37.83716

15JAN114                                                    34.52492
15JUL114                                                    31.83716

15JAN115                                                    27.48785
15JUL115                                                    23.79647

15JAN116                                                    20.00000

BASIC RENT         PERCENTAGE OF            BASIC RENT          PERCENTAGE OF
PAYMENT DATE       FACILITY COST           PAYMENT DATE         FACILITY COST
- ------------       -------------           ------------         -------------

15JAN87             106.53255                15JUN90              109.50229
15FEB87             107.01607                15JUL90              109.59771
15MAR87             107.50825                15AUG90              109.69058
15APR87             106.50559                15SEP90              109.19018
15MAY87             106.87841                15OCT90              109.27162
15JUN87             105.15431                15NOV90              109.35606
15JUL87             105.50694                15DEC90              109.32859
15AUG87             105.84743
15SEP87             105.06266                15JAN91              111.52602
15OCT87             105.38322                15FEB91              111.59608
15NOV87             105.71011                15MAR91              111.66906
15DEC87             105.77597                15APR91              111.24112
                                             15MAY91              111.29506
15JAN88             107.02636                15JUN91              110.31900
15FEB88             107.28351                15JUL91              110.36054
15MAR88             107.54606                15AUG91              110.39851
15APR88             106.86252                15SEP91              109.92992
15MAY88             107.10110                15OCT91              109.95564
15JUN88             105.85414                15NOV91              109.98371
15JUL88             106.08006                15DEC91              109.92689
15AUG88             106.29372
15SEP88             105.72306                15JAN92              111.67582
15OCT88             105.92405                15FEB92              111.68749
15NOV88             106.12965                15MAR92              111.70138
15DEC88             106.16281                15APR92              111.34764
                                             15MAY92              111.34349
15JAN89             109.27545                15JUN92              110.45252
15FEB89             109.45576                15JUL92              110.43700
15MAR89             109.64037                15AUG92              110.41618
15APR89             109.04760                15SEP92              109.97484
15MAY89             109.21337                15OCT92              109.94272
15JUN89             108.06254                15NOV92              109.91229
15JUL89             108.21768                15DEC92              109.82333
15AUG89             108.35955
15SEP89             107.82054                15JAN93              111.16133
15OCT89             107.95166                15FEB93              111.11368
15NOV89             108.08639                15MAR93              111.06757
15DEC89             108.08146                15APR93              110.77365
                                             15MAY93              110.70939
15JAN90             110.72523                15JUN93              109.88905
15FEB90             110.84723                15JUL93              109.81248
15MAR90             110.97275                15AUG93              109.72935
15APR90             110.46123                15SEP93              109.30353
15MAY90             110.56836                15OCT93              109.20803

BASIC RENT         PERCENTAGE OF            BASIC RENT          PERCENTAGE OF
PAYMENT DATE       FACILITY COST           PAYMENT DATE         FACILITY COST
- ------------       -------------           ------------         -------------

15NOV93             109.11348                15MAR97              102.43914
15DEC93             108.98371                15APR97              102.22241
                                             15MAY97              102.00569
15JAN94             109.90295                15JUN97              101.45723
15FEB94             109.78866                15JUL97              101.24050
15MAR94             109.67514                15AUG97              101.01314
15APR94             109.43114                15SEP97              100.69041
15MAY94             109.29832                15OCT97              100.46305
15JUN94             108.54183                15NOV97              100.23570
15JUL94             108.39558                15DEC97              100.00834
15AUG94             108.24139
15SEP94             107.82253                15JAN98              100.17698
15OCT94             107.65470                15FEB98               99.93844
15NOV94             107.48698                15MAR98               99.69990
15DEC94             107.30680                15APR98               99.46136
                                             15MAY98               99.22283
15JAN95             107.81390                15JUN98               98.67364
15FEB95             107.63082                15JUL98               98.43510
15MAR95             107.44774                15AUG98               98.18483
15APR95             107.25645                15SEP98               97.84920
15MAY95             107.07337                15OCT98               97.59892
15JUN95             106.40136                15NOV98               97.34865
15JUL95             106.21828                15DEC98               97.09838
15AUG95             106.02733
15SEP95             105.65088                15JAN99               97.21230
15OCT95             105.45994                15FEB99               96.94969
15NOV95             105.26899                15MAR99               96.68708
15DEC95             105.07804                15APR99               96.42447
                                             15MAY99               96.16186
15JAN96             105.34471                15JUN99               95.61030
15FEB96             105.14554                15JUL99               95.34769
15MAR96             104.94637                15AUG99               95.07212
15APR96             104.74719                15SEP99               94.72130
15MAY96             104.54802                15OCT99               94.44573
15JUN96             103.99654                15NOV99               94.17016
15JUL96             103.79737                15DEC99               93.89459
15AUG96             103.58961
15SEP96             103.27654                15JAN100              93.95063
15OCT96             102.06878                15FEB100              93.66145
15NOV96             102.86102                15MAR100              93.37227
15DEC96             102.65326                15APR100              93.08309
                                             15MAY100              92.79391
15JAN97             102.87260                15JUN100              92.23815
15FEB97             102.65587                15JUL100              91.94897

BASIC RENT         PERCENTAGE OF            BASIC RENT          PERCENTAGE OF
PAYMENT DATE       FACILITY COST           PAYMENT DATE         FACILITY COST
- ------------       -------------           ------------         -------------

15AUG100            91.64572                 15JAN104             78.10052
15SEP100            91.27744                 15FEB104             77.72275
15OCT100            90.97585                 15MAR104             77.34498
15NOV100            90.67428                 15APR104             76.96722
15DEC100            90.37273                 15MAY104             76.58945
                                             15JUN104             76.02017
15JAN101            90.37535                 15JUL104             75.65062
15FEB101            90.06210                 15AUG104             75.26080
15MAR101            89.74885                 15SEP104             74.83520
15APR101            89.43560                 15OCT104             74.44539
15MAY101            89.12343                 15NOV104             74.05557
15JUN101            88.56778                 15DEC104             73.66576
15JUL101            88.26182
15AUG101            87.93741                 15JAN105             73.49763
15SEP101            87.55829                 15FEB105             73.09685
15OCT101            87.23403                 15MAR105             72.69607
15NOV101            86.90977                 15APR105             72.29529
15DEC101            86.58552                 15MAY105             71.89451
                                             15JUN105             71.31376
15JAN102            86.53183                 15JUL105             70.92151
15FEB102            86.19716                 15AUG105             70.50794
15MAR102            85.86248                 15SEP105             70.06087
15APR102            85.52780                 15OCT105             69.64729
15MAY102            85.19313                 15NOV105             69.23372
15JUN102            84.63866                 15DEC105             68.82015
15JUL102            84.31128
15AUG102            83.96535                 15JAN106             68.61405
15SEP102            83.57514                 15FEB106             68.18884
15OCT102            83.22921                 15MAR106             67.76363
15NOV102            82.88328                 15APR106             67.33842
15DEC102            82.53735                 15MAY106             66.91321
                                             15JUN106             66.32021
15JAN103            82.43880                 15JUL106             65.90395
15FEB103            82.08273                 15AUG106             65.46515
15MAR103            81.72665                 15SEP106             64.99524
15APR103            81.37057                 15OCT106             64.55645
15MAY103            81.01449                 15NOV106             64.11765
15JUN103            80.45596                 15DEC106             63.67885
15JUL103            80.10784
15AUG103            79.74041                 15JAN107             63.43265
15SEP103            79.33501                 15FEB107             62.98150
15OCT103            78.96758                 15MAR107             62.53034
15NOV103            78.60015                 15APR107             62.07918
15DEC103            78.23272                 15MAY107             61.62802

BASIC RENT         PERCENTAGE OF            BASIC RENT          PERCENTAGE OF
PAYMENT DATE       FACILITY COST           PAYMENT DATE         FACILITY COST
- ------------       -------------           ------------         -------------

15JUN107            61.02195                 15NOV110             40.33502
15JUL107            60.58029                 15DEC110             39.77883
15AUG107            60.11471
15SEP107            59.62051                 15JAN111             39.34802
15OCT107            59.15492                 15FEB111             38.77615
15NOV107            58.68934                 15MAR111             38.20428
15DEC107            58.22375                 15APR111             37.63242
                                             15MAY111             37.06055
15JAN108            57.93519                 15JUN111             36.39286
15FEB108            57.45650                 15JUL111             35.83382
15MAR108            56.97781                 15AUG111             35.24363
15APR108            56.49912                 15SEP111             34.63599
15MAY108            56.02043                 15OCT111             34.04579
15JUN108            55.40040                 15NOV111             33.45560
15JUL108            54.93186                 15DEC111             32.86541
15AUG108            54.43786
15SEP108            53.91784                 15JAN112             32.38166
15OCT108            53.42383                 15FEB112             31.77483
15NOV108            52.92982                 15MAR112             31.16799
15DEC108            52.43581                 15APR112             30.56116
                                             15MAY112             29.95433
15JAN109            52.10246                 15JUN112             29.26861
15FEB109            51.59453                 15JUL112             28.67581
15MAR109            51.08660                 15AUG112             28.04955
15APR109            50.57867                 15SEP112             27.40897
15MAY109            50.07074                 15OCT112             26.78271
15JUN109            49.43582                 15NOV112             26.15644
15JUL109            48.93884                 15DEC112             25.53018
15AUG109            48.41465
15SEP109            47.86718                 15JAN113             24.99040
15OCT109            47.34299                 15FEB113             24.34648
15NOV109            46.81881                 15MAR113             23.70257
15DEC109            46.29462                 15APR113             23.05866
                                             15MAY113             22.41475
15JAN110            45.91393                 15JUN113             21.70984
15FEB110            45.37498                 15JUL113             21.08124
15MAR110            44.83603                 15AUG113             20.41669
15APR110            44.29708                 15SEP113             19.74111
15MAY110            43.75813                 15OCT113             19.07657
15JUN110            43.10734                 15NOV113             18.41202
15JUL10             42.58022                 15DEC113             17.74748
15AUG110            42.02403
15SEP110            41.44741                 15JAN114             17.14841
15OCT110            40.89121                 15FEB114             16.46511

BASIC RENT         PERCENTAGE OF            BASIC RENT          PERCENTAGE OF
PAYMENT DATE       FACILITY COST           PAYMENT DATE         FACILITY COST
- ------------       -------------           ------------         -------------

15MAR114             15.78181
15APR114             15.09851
15MAY114             14.41521
15JUN114             13.68984
15JUL114             13.02337
15AUG114             12.31816
15SEP114             11.60536
15OCT114             10.90016
15NOV114             10.19495
15DEC114              9.48974

15JAN115              8.82800
15FEB115              8.10291
15MAR115              7.37781
15APR115              6.65272
15MAY115              5.92763
15JUN115              5.18048
15JUL115              4.47388
15AUG115              3.72551
15SEP115              2.97317
15OCT115              2.22480
15NOV115              1.47643
15DEC115              0.72805

15JAN116              0.00000

                                                                      Schedule 3
                                                                              to
                                                                  Facility Lease

                         SCHEDULE OF TERMINATION VALUES

BASIC RENT                                               PERCENTAGE OF
PAYMENT DATE                                             FACILITY COST
- ------------                                             -------------

15JAN87                                                     106.53611
15JUL87                                                     105.53335

15JAN88                                                     107.07918
15JUL88                                                     106.17858

15JAN89                                                     109.42323
15JUL89                                                     108.43402

15JAN90                                                     111.01369
15JUL90                                                     109.97758

15JAN91                                                     112.00086
15JUL91                                                     110.94964

15JAN92                                                     112.38274
15JUL92                                                     111.28104

15JAN93                                                     112.14605
15JUL93                                                     110.95717

15JAN94                                                     111.21117
15JUL94                                                     109.88662

15JAN95                                                     109.49132
15JUL95                                                     108.10138

15JAN96                                                     107.43704
15JUL96                                                     106.11823

15JAN97                                                     105.42555
15JUL97                                                     104.04483

15JAN98                                                     103.23626
15JUL98                                                     101.76861

15JAN99                                                     100.82360
15JUL99                                                      99.25609

15JAN100                                                     98.15967
15JUL100                                                     96.47795

15JAN101                                                     95.22783
15JUL101                                                     93.45710

                         SCHEDULE OF TERMINATION VALUES

BASIC RENT                                               PERCENTAGE OF
PAYMENT DATE                                             FACILITY COST
- ------------                                             -------------

15JAN102                                                    92.07347
15JUL102                                                    90.21857

15JAN103                                                    88.71529
15JUL103                                                    86.77283

15JAN104                                                    85.15757
15JUL104                                                    83.11902

15JAN105                                                    81.38095
15JUL105                                                    79.23904

15JAN106                                                    77.36934
15JUL106                                                    75.11630

15JAN107                                                    73.10563
15JUL107                                                    70.73318

15JAN108                                                    68.57156
15JUL108                                                    66.07099

15JAN109                                                    63.74791
15JUL109                                                    61.10991

15JAN110                                                    58.61418
15JUL110                                                    55.82895

15JAN111                                                    53.14878
15JUL111                                                    50.20591

15JAN112                                                    47.32863
15JUL112                                                    44.21696

15JAN113                                                    41.12929
15JUL113                                                    37.83716

15JAN114                                                    34.52492
15JUL114                                                    31.03977

15JAN115                                                    27.48785
15JUL115                                                    23.79647

15JAN116                                                    20.00000

SCHEDULE 4
to
FACILITY LEASE

REAL PROPERTY INTEREST DESCRIPTION

The Real Property interest is a (i) .2333334% undivided interest in the land described in r below, a (ii) .2644444% undivided interest in the rights and interests described in III below, and (iii) a .2644444% undivided interest in the rights and interests described in III below.

I. PVNGS PLANT SITE

PARCEL NO. 1: Lot Four (4); the Southwest quarter of the Northwest quarter; and the West half of the Southwest quarter, all in Section Two (2), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 2: All of Section Three (3), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 3: The East half of Section Four (4), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 4: The West half of Section Twenty-six (26), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 5: Section Twenty-seven (27), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the Northwest quarter of Section 27.

PARCEL NO. 6: The Southeast quarter of Section Twenty-eight (28), Township One
(1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT 50% of all oil, gas and other mineral deposits and geothermal resources recovered from or developed on the property, as reserved in instrument recorded May 10, 1974 in Docket 10647, page 136.

6091.CHASEU2.LEASE.47:1

PARCEL NO. 7: The East half of Section Thirty-three (33), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 8: All of Section Thirty-four. (34) Township One (1) Worth, Range Six
(6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 9: The West half of Section Thirty-five (35), Township One (1) North, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

PARCEL NO. 10: The Southeast quarter of Section Nine (9), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the Northwest quarter thereof.

PARCEL NO. 11: All of Section Ten (10), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT the East half of the Southeast quarter thereof; and EXCEPT the North half of the South half of the Northwest quarter of the Northwest quarter thereof.

PARCEL NO. 12: That part of the East half of the Southwest quarter of Section Twenty-three (23), Township One (1) Worth, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona, more particularly described as follows:

BEGINNING at the Southeast corner of the said East half of the Southwest quarter of Section 23; thence West, an assumed bearing along the South line of the said East half of the Southwest quarter of Section 23, for a distance of 762.04 feet; thence North 0 degrees 03 minutes 39 seconds West; parallel to the East line of the said East half of the Southwest quarter of Section 23, for a distance of i946.46 feet to a point on the South right-of-way line of the 200 foot wide HASSAYAMPA-SALOME HIGHWAY, as recorded in Book 12 of Road Maps, Page 82, Maricopa County Recorder, Maricopa County, Arizona; thence continuing North 0 degrees 03 minutes 39 seconds West for a distance of 234.15 feet to a point on the North right-of-way line of said highway; thence South

6091.CHASEU2.LEASE.47:1

58 degrees 43 minutes 35 seconds East, along said North right-of-way line for a distance of 892.17 tact to a point on the said East line of the East half of the Southwest quarter of Section 23; thence South 0 degrees On minutes 39 seconds East, along said East line for a distance of 234.15 feet to a point on the said South right-of-way line; thence continuing South 0 degrees On minutes 39 seconds East for a distance of 1483.31 feet to the true point of beginning; EXCEPT the East 305 feet of the South 305 feet thereof; and EXCEPT one-half of the minerals and mineral rights and mineral estates of every kind and nature, as set forth in Deed recorded in Docket 11652, page 52, Maricopa County Records.

PARCEL NO. 13: The North half of the South half of the Northwest quarter of the Northwest quarter of Section Ten (10), Township One (1) South, Range Six (6) West of the Gila and Salt River Base and Meridian, Maricopa County, Arizona.

II. HASSAYAMPA PUMPING STATION AND EFFLUENT PIPELINE

All real property, leases, licenses, easements, rights-of-way and other property held by Title USA Company of Arizona Trust No. 530 established by that certain Trust Agreement dated October 15, 1975, as amended, but excluding therefrom all improvements.

III. MISCELLANOUS REAL PROPERTY INTERESTS

Those ANPP Project Agreements (as defined in the AMP? Participation Agreement), in addition to the Trust Agreement for Title USA Company of Arizona Trust 530, consisting of leases, licenses, easements, and permits, which provide land and land rights for (a) the pipeline to supply waste water effluent to PVNGS from the 91st Avenue sewage treatment plant serving the Phoenix Metropolitan area and (b) railroad access to the Nuclear Plant Site (as defined in the ANPP Participation Agreement).

6091.CHASEU2.LEASE.47:1

SCHEDULE 5
to
FACILITY LEASE

UNDIVIDED INTEREST DESCRIPTION

The Undivided Interest is a (i) .7933333% undivided interest in and to the property described under A below and (ii) a .2644444% undivided interest in and to the property described in B below.

A. Unit 2 cc the Palo Verde Nuclear Generating Station (PVNGS), located in Maricopa County, Arizona, approximately 55 miles west of the City of Phoenix, Arizona, and approximately 16 miles west of the City of Buckeye, Arizona, consisting of:

I. Unit 2 Combustion Engineering "System 80" pressurized water reactor nuclear steam supply system (the NSSS). The NSSS is comprised of a reactor vessel containing 241 fuel assemblies with approximately 100 torn of enriched uranium (fuel assemblies, however, are not part of Unit 2 and are not included in the Undivided Interest being sold) two steam generators, four reactor coolant pumps and various additional systems and subsystems. The licensed thermal rating of the NSSS is 3800 MW.

II. Unit 2 GE TC6F-43, 1800 RPM tandem-compound, six flow, reheat turbine-generator including turbine, generator, moisture separator-reheater, exciter, controls, and auxiliary subsystems. The turbine-generator is conductor cooled and rated at 1,554 MVA at 24,000 V, 3 phase, 60 Hz, 1.5 in Hg ABS back pressure, and approximately 1,363 MW maximum gross electric output.

III. Unit 2 146 ft. inside diameter,steel-lined, prestressed concrete cylindrical containment building with a hemispherical dome designed for 60 psig. The containment building houses the reactor system.

6091.CHASEU1.LEASE.47:1

IV. Unit 2 auxiliary systems and equipment including engineered safeguards systems, reactor auxiliary systems and turbine-generator auxiliary systems associated with items r, II, and III above, extending to and including the unit 2 start-up transformer.

V. Unit 2 cooling tower system consisting of three (3) mechanical draft cooling towers, including a closed cycle circulating water system, make-up water systems and essential spray ponds.

VI. Unit 2 radioactive waste treatment system, including liquid, gaseous, and solid waste subsystems, controls, instrumentation, storage, handling and shipment facilities.

VII. Unit 2 emergency diesel-generator system, including a diesel-generator building which contains two diesel generators1 fuel oil. systems, storage tanks, control and instrumentation systems and other equipment.

VIII. Unit 2 internal communication systems, including associated interconnections and computer data links.

BUT EXCLUDING:

I. Nuclear fuel for Unit 2, including spare fuel assemblies.

II. Spare Parts (Unit 2).

III. Transmission facilities (including any and all facilities and equipment providing interconnection between the Unit 2 turbine generator and the ANPP High Voltage Switchyard, including step-up transformers and standby equipment and systems).

6091.CHASEU2.LEASE.47:1

IV. Oil and diesel fuel inventories (Unit2).

B. All PVNGS common facilities, INCLUDING BUT NOT LIMITED TO:

I. Surveillance Systems, including associated radioactive monitoring systems and equipment.

II. Water treatment facilities and transport Systems for supply of waste water effluent.

III. Warehouse and related storage facilities and equipment.

BUT EXCLUDING:

I. Nuclear fuel, including spare fuel assemblies.

II. All transmission and ANPP High Voltage Switchyard facilities.

III. Administration Building.

IV. Administration Annex Building.

V. Technical Support Center.

VI. Visitor Center.

VII. External communication Systems and equipment, including associated interconnections and computer data links.

VIII. Parking lot improvements, road improvements, fencing and dikes.

IX. Spare parts (common facilities)

X. Simulator.

XI. Oil and diesel fuel inventories.

XII. Real property, beneficial interest in Title USA Company of Arizona Trust No. 530, and Project Agreement interests described in Schedule 4.

6091.CHASEU2.LEASE.47:1

When Recorded, Return to: Greg R. Nielsen, Esq.

Snell & Wilmer
3100 Valley Bank Canter
Phoenix, Arizona 85073

CERTAIN RIGHTS OF THE LESSOR UNDER THE FACILITY LEASE AS AMENDED BY THIS AMENTMENT NO.1 THERETO HAVE BEEN ASSIGNED TO, AND ARE TO A SECURITY IN FAVOR OF, CHEMICAL BANK, AS INDEUTURE, TRUSTEE UNDER A ASSIGNMENT OF RENTS DATED AS OF DECEMBER 15,1986. THIS AMENDMENT NO. 1 HAS BEEN EXECUTED IN SERVERAL COUNTERPARTS. SEE SECTION 3(e) OF THIS AMENDMENT NO.1 FOR INFORMATION CONCERNING THE RIGHTS OF HOLDERS OF VARIOUS COUNTERPARTS HEREOF.

THIS COUNERPART IS NOT THE ORIGINAL COUNTERPART.

between
THE FIRST NATIONAL BANK OF BOSTON,
not in its individual capacity,
but solely as Owner Trustee
under a Trust Agreement, dated as
of December 15, 1986,
with Chase Manhattan Realty
Leasing Corporation,

Lessor

and

PUBLIC SERVICE COMPANY OF NEW MEXICO,

Lessee

AMENDMENT NO. 1, dated as of April 8, 1987 (Amendment No. 1), to the Facility Lease dated as of December 15, 1986, between THE FIRST NATIONAL BANK OF BOSTON, a national banking association, not in its individual capacity1 but solely as Owner Trustee under a Trust Agreement, dated as of December 15, 1986, with Chase Manhattan Realty Leasing Corporation a New York corporation (the lessor), and PUBUC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the Lessee).

WITNESSETH

WHEREAS, the Lessee and the Lessor have heretofore entered into a Facility Lease dated as of December 15, 1986 (the Facility Lease), providing for the lease by the Lessor to the Lessee of the Undivided Interest and the Real Property Interest;

WHEREAS, the Lessee and the Lessor desire to amend the Facility Lease as set forth in Section 2 hereof; and

WHEREAS, the Indenture Trustee has consented to this Amendment No. 1 pursuant to the Request, Instruction and Consent effective on April 8, 1987;

NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Definitions.

For purposes hereof, capitalized terms used herein and not otherwise defined herein or in the recitals shall have the meanings assigned to such term in Appendix A to the Facility Lease.

6091.CHASEU2.LEASE.203:1

SECTION 2. Amendments.

(a) A new Section 8(g) of the Facility Lease is inserted therein, to read in its entirety as follows:

"(g) Useful Life. If the Lessee shall not theretofore have exercised its option under section 13 to purchase the Undivided Interest and the Real Property interest, then (i) if the Lessee shall not theretofore have exercised its option to renew the Lease pursuant to
Section 12, on January 15, 2015, the Lessee shall initiate the Appraisal Procedure to determine the remaining Economic Useful Life of Unit 2 as of July 15, 2015 and (ii) on the Rent Payment Date occurring one year prior to the end of the Renewal Term, if any, the Lessee shall initiate the Appraisal Procedure to determine the remaining Economic Useful Life of Unit 2 as of the date six months prior to the end of the Renewal Term. The Lessee and the Lessor agree to use their beet efforts to ensure that such determination of remaining economic useful life is made no later than July 15, 2015 (in the case of the first such determination) and six months prior to the end of the Renewal Term (in the case of the second such determination) "

(b) Section l5(iv) of the Facility Lease is hereby amended to read in its entirety as follows:

(iv) (1) the Lessee shall fail to perform its agreements sat forth in section 5(a) hereof or (2) the remaining Economic Useful Life of Unit 2, as determined under Section 8(g) if required thereby to be so determined, shall be (x) as of the date six months prior to the end of the Basic Lease Term, less than five and one-half years or (y) as of the date six months prior to the end of the Renewal Term, three and one-half years or"

6091.CHASEU2.LEASE.203:1

(c) Section 16(a) (vii) of the Facility Lease is hereby amended to read in its entirety as follows:

"(vii) in the case of an Event of Default specified in clause
(iv) of Section 15, the Lessor may demand, by written notice to the Lessee specifying a payment date which shall be (A) in the case of an Event of Default specified in subclause (1) of said clause (iv), not earlier than the date 30 days after the last Basic Rent Payment Date of the Lease Term, and (B), in the case of an Event of Default specified in subclause (2) of said clause (iv), the last Basic Rent payment Date of the Lease Term, that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on such payment date, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due through such last Basic Rent Payment Date plus an amount (not less than zero) equal to the Fair Market Sales Value (determined without regard to the obligation of the Lessee under Section l0 (b) (3) (xi) of the Participation Agreement) of the Undivided Interest and the Real Property Interest (determined on the basis of the actual condition of Unit 2) determined as of such last Basic Rent Payment Date (together with interest on such amount at the interest rate specified in Section 3 (b) (iii) from such last Basic Rent Payment Date to the date of actual payment) and upon receipt of such payment the Lessor shall (or may prior to the receipt of such payment) Transfer to the Lessee the Undivided interest and the Real Property Interest); provided, however, that the Lessor may not exercise the foregoing remedy if the Lessor shall have failed to Transfer the Undivided interest and the Real Property interest to the bidder (which shall not be the Lessee or an Affiliate of the Lessee) that shall have submitted the highest cash bid on or before the date on which such Event of Default arose excluding, however, any such cash bid which the Lessor or the owner Participant determines was not submitted in good faith, or

6091.CHASEU2.LEASE.203:l

as to which the bidder fails to certify to the Lessor such information as the Lessor or owner Participant may reasonably request in order to determine whether or not such bid was submitted in good faith (and the Lessor agrees that it will, if and to the extent so requested by the Lessee on or after the date 90 days preceding such last Basic Rent Payment Date, use reasonable efforts (at the expense of the Lessee) for a period ending on the day 90 days after such last Basic Rent Payment Date, to find a Person willing to submit such cash bid; provided, however, that the failure of the Lessor to do so shall not relieve the Lessee of its obligations under this clause (vii))."

(d) A new definition is hereby added to Appendix A to the Facility Lease, to read in its entirety as follows:

"Decommissioning shall mean the decommissioning and retirement from service of Unit 2, and the related possession, maintenance and disposal of radioactive material used in or produced incident to the possession and operation of Unit 2, including, without limitation, (i) placement and maintenance of Unit 2 in a state of protective storage,
(ii) in-place entombment and maintenance of Unit 2, (iii) dismantlement of Unit 2, (iv) any other form of decommis5ioning and retirement from service required by or acceptable to the NRC and (V) all activities undertaken incident to the implementation thereof and to the obtain-in; of NRC authority therefor, including, without limitation, maintenance, storage, custody, removal, decontamination, and disposition of materials, equipment and fixtures, razing of Unit 3, removal and disposition of debris from the PVNGS Site, and restoration of the PVNGS site related to Unit 2 for unrestricted use."

(e) A new definition is hereby added to Appendix A to the Facility Lease, to read in its entirety as follows:

6091.CHASEU2.LEASE.203:1

Decommissioning Costs shall mean all costs, liabilities and expenses relating or allocable to, or incurred in connection with, the Decommissioning of Unit 2, including, without limitation, (i) any and all costs of activities undertaken to terminate NRC licensing authority and requirements to own, operate and possess Unit 2 and to possess radioactive material used in or produced incident to the possession and operation of Unit 2r and (ii) any and all costs of activities undertaken, prior to termination of all NRS licensing authority and requirements with respect to Unit 2 and the radioactive material used in or produced incident to the possession and operation of Unit 2, to possess, maintain, and dispose of radioactive material used in or produced incident to the possession and operation of Unit 2."

(f) A new definition is hereby added to Appendix A to the Facility Lease, to read in its entirety as follows:

Economic Useful Life shall mean that period (commencing on the date as of which the determination of Economic Useful Life is to be made as provided in Section 8(g) of the Facility Lease and ending on the date upon which either of the states of affairs described in clauses (i) and
(ii) below ceases to apply, or can reasonably be expected to cease to apply, to Unit 2) during which (i) Unit 2 will be useful to, and usable by, any owner or lessee thereof as a facility for the generation of electric power and (ii) Unit 2 is an economic and commercially practical facility for the generation of electric power capable of producing (after taking into account costs of capital) a reasonable economic return to the owner thereof. For the purposes of determinations under clauses (i) and (ii) above, the following factors, among others, shall be taken into account (as such factors obtain on the date of determination and as such factors are reasonably expected to obtain in

6091.CHASEU2.LEASE.203:1

the future): (a) provisions of the ANPP Project Agreements (including, without limitation, the ANPP Participation Agreement and the Material Project Agreements (or substitutes for such Material Project Agreements in effect on the date of determination)); (b) the actual condition and performance of Unit 2; (c) the actual condition and performance of such other facilities constituting PVNGS (including, without limitation, the Common Facilities) as are integral to the operation of Unit 2; (4) the actual condition of, and access of the ANPP Participants to, the ANPP Switchyard and such other transmission facilities 15 are available and necessary to permit the transmission of the maximum amount of power generated by PVNGS; (e) the cost of obtaining, handling, storing and disposing of nuclear fuel for Unit 2; (f) the projected coat (including, without limitation, costs attributable to obligations to fund any reserve fund maintained (or funded) by licensed owners and/or lessees of Unit 2 to the extent dedicated to (or attributable to and freely available with respect to) Unit 2 (the Unit 2 Fund)) or the Decommissioning or retirement from service of Unit 2 including, without limitation, Decommissioning Costs (taking into account the balance (plus projected investment earnings thereon) of the Unit 2 Fund); (g) the cost of Capital Improvements to Unit 2 then planned to be made, or reasonably expected to be made; (h) the cost of acquiring or leasing the Unit 2 Retained Assets; (i) the current status of all Governmental Action with respect to Unit 2 (including, without limitation, the License) required to permit licensed owners and/or lessees to possess and (in the case of the Operating Agent) to operate Unit 2 and such other facilities constituting PVNGS (including, without limitation, the Common Facilities) as are integral to the operation of Unit 2; and (j) the relative cost of producing an amount of electric power and energy equivalent to the generating capacity of Unit 2 from other facilities then available in the region serviced, or reasonably expected to be serviced, by PVNGS."

6091.CHASEU2.LEASE.203:1

(e) Paragraph (B) (a) of the definition of "Acceptable Change" set forth in Appendix A to the Facility Lease is hereby amended to read in its entirety as follows:

"(c) the amount payable by all licensees of a single nuclear facility in respect of such facility in any one year and with respect to any one "nuclear incident" under any deferred premium or similar plan required by Applicable Law shall not exceed $36 million (subject to adjustment as provided in subclause (y) of the preceding clause (b))."

SECTION 3. Miscellaneous.

(a) Effective Date of Amendments. The amendments set forth in section 2 hereof shall be and become effective upon the execution hereof by the parties hereto.

(b) Counterpart Execution. This Amendment No. 1 may be executed in any number of counterpart and by each of the parties hereto on separate counterparts; all such counterparts shall together constitute but one and the same instrument.

(c) Governing Law. This Amendment No. 1 has been negotiated and delivered in the State of New York and shall be governed by, and be construed in accordance with, the laws of the State of New York, except to the extent that pursuant to the law of the State of Arizona such law is mandatorily applicable hereto.

(d) Disclosure. Pursuant to Arizona Revised Statutes Section 33-401, the beneficiary of the Trust Agreement is Chase Manhattan Realty Leasing Corporation, a New York corporation. The address of the beneficiary is One Chase Manhattan Plaza, New York, New York 10081. A copy of the Trust Agreement is available for inspection at the offices of the Owner Trustee at 100 Federal Street, Boston, Massachusetts 02110, Attention of Corporate Trust Division.

6091.CHASEU2.LEASE.203:1

(e) Amendment No. 1. The single executed original of this Amendment No. 1 marked THIS COUNTERPART IS THE ORIGINAL COUNTERPART" and containing the receipt of the Indenture Trustee thereon shall be the "Original" of this Amendment No. 1. To the extent that this Amendment No. 1 constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Amendment No. 1 may be created or continued through the transfer or possession of any counterpart other than the "Original".

6091.CHASEU2.LEASE.203:1

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 1 to Facility raise to be duly executed by an officer thereunto duly authorized.

THE FIRST NATIONAL BANK OF BOSTON, not in
its individual capacity, but solely as
Owner Trustee under a Trust Agreement,
dated as of December 15, 1986, with
Chase Manhattan Realty Leasing
Corporation

PUBLIC SERVICE COMPANY OF
NEW MEXICO

6091.CHASEU2.LEASE.203:l

State of New Mexico )
) ss:
County of Bernalillo )

The foregoing instrument was acknowledged before me this 8th day of April, 1987, by B. D. Lackey the Vice President and Corporate Controller of PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation, on behalf of the corporation.

Commonwealth of Massachusetts    )
                                 )  ss:
County of Suffolk                )

The foregoing instrument was acknowledged before me this 8th day of April, 1987, by James E. Mogavero, an Assistant Cashier of THE FIRST NATIONAL BANK OF BOSTON, a national banking association, on behalf of the banking association as Owner Trustee under the Trust Agreement dated as of December 15, 1985 with Chase Manhattan Realty Leasing Corporation.

 /s/ Carol Malley
-------------------
  Notary Public

CAROL MALLEY
Notary Public
My commission Expires January 28,1994

609l.CHASEU2.LEASE.203:l

EMPLOYMENT TERMINATION AND RELEASE AGREEMENT
FOR
M. PHYLLIS BOURQUE

THIS EMPLOYMENT TERMINATION AND RELEASE AGREEMENT FOR M. PHYLLIS BOURQUE ("the "Agreement") by and between the Public Service Company of New Mexico, a New Mexico corporation, (the "Company") and M. PHYLLIS BOURQUE ("Employee"), is effective as of the date Employee signs the Agreement as set forth below.

R E C I T A L S

WHEREAS, Employee has been continuously employed by the Company since March 2, 1987.

WHEREAS, Employee is resigning from the Company effective December 24, 1996 and is also resigning from all other positions she holds with Company, or its affiliates (including any affiliated entity over which the Company, directly or indirectly, has a controlling interest (an "Affiliate"));

WHEREAS, the parties desire to compromise all claims and disputes that may currently exist between them; and

WHEREAS, with respect to the foregoing, the Company has agreed to provide Employee with severance benefits, pursuant to the following terms and conditions.

NOW, THEREFORE, in consideration of the promises and benefits set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, it is hereby agreed as follows:

1. Employee's Termination. Employee is resigning from the Company and hereby resigns from any and all other positions she currently holds with Company and Affiliates thereof, including all officer, committee, and director positions currently held with such entities, such termination and resignations to be effective as of December 24, 1996 (the "Termination Date").

2. Severance Benefits. Company agrees to provide Employee with severance benefits equal to Senior Management Plan severance benefits as set forth in the PNM Non-Union Severance Pay Plan (the "Severance Plan") as follows:

(a) Severance Pay. Severance Pay totaling $208,964.15.

(b) Placement Assistance. Employee shall also receive placement assistance benefits by reimbursement of her placement assistance expenses during the twelve (12) month period following the Termination Date. The amount of such reimbursement shall not exceed five percent (5%) of Employee's base salary, for a total reimbursement not to exceed $6,750. Placement assistance shall include, but shall not be limited to: (i) out-of-town travel (i.e., airfare, mileage, rental cars, lodging and meals), (ii) services for out placement, (iii) resume preparation and mailing, and (iv) recruitment or employment agencies fees.

(c) Health Care Coverage. Employee shall receive Health Care Benefits for the next twelve (12) calendar months immediately following Employee's Termination Date, with the Company paying for all such Health Care Benefits for Employee and her enrolled eligible dependents on such terms and conditions as was provided by the Company immediately prior to the Termination Date. Employee will not be allowed to change her level of benefits (including the elected family coverage) during such twelve (12) month period. If Employee was receiving a monthly refund immediately prior to her Termination Date due to the elected level of Health Care Benefits, she will continue to receive such refund during such twelve (12) month period. If Employee was required to contribute to the monthly cost of the Health Care Benefits (e.g., by payroll withholding), she will be required to continue making any applicable monthly premium payments to retain the level of coverage being provided immediately prior to such Termination Date. "Health Care Benefits" as used herein shall mean the medical and dental benefits provided to Employee under the PNM Benefit Trust and Master Plan, maintained by the Company or a health maintenance organization benefits sponsored by the Company, although the Company reserves the right from time to time, in its absolute and sole discretion, to amend such plans, in any and all respects, including the right to reduce or change the level of benefits provided thereunder, or to provide alternative forms of benefits. The Health Care Benefits provided hereunder for the first six (6) month period shall be tax free, whereas the second six (6) month period (i) shall be a taxable benefit to Employee and (ii) shall reduce by six (6) months the available Consolidated Omnibus Budget Reconciliation Act ("COBRA") medical continuation coverage period available to Employee.

(d) Insurance Benefits. Term life insurance, accidental death and dismemberment coverage in the amount of $135,000 for a period of twelve (12) calendar months immediately following the Termination Date.

3. Payment of Benefits and Health Care and Life Insurance Coverage. The payment for the benefits described in paragraphs 2 (a) and (b) above, and the health care and life insurance coverage shall be made to, or arranged for, Employee at the end of the seven (7) day revocation period for this Agreement, following Employee's timely execution of this Agreement and without the same being revoked by Employee.

4. Release Provisions. Various state and federal statutes (laws) prohibit employment discrimination based on age, sex, race, color, national origin, religion, ancestry, physical or mental handicap and disability, mental condition or veteran status. These statutes are enforced through state, federal and local agencies, including the EEOC and the New Mexico Department of Labor, Human Rights Division. Employee should carefully consider this Agreement and the Release provisions of this Section 4, and thoroughly understand its effect before signing it. Employee is strongly encouraged to consult with her own attorney before signing this Agreement. Employee understands that the decision to consult with an attorney is solely the decision of Employee. Employee acknowledges that she has been given a period of at least twenty-one (21) days (the "Review Period") to review and consider this Agreement before signing it. Employee understands that she may use as much of this Review Period as she wishes prior to signing. Employee may revoke this Agreement within seven (7) days after signing it and this Agreement will become effective and enforceable only after this revocation period has expired. Revocation will be made by returning a copy of this Agreement to JUDY ZANOTTI of the Company with a written signature in the space provided at the end of the Agreement indicating that Employee has elected to revoke this Agreement. For this revocation to be effective, written notice must be received by the Company no later than the close of business on the seventh (7th) day after Employee signs this Agreement. If Employee does not sign the Agreement during the Review Period or if she revokes this Agreement during the seven (7) day revocation period, it shall not be effective nor enforceable and Employee will not receive the benefits provided under this Agreement.

(a) Release of the Company. By signing this Agreement, Employee agrees to release and discharge the Company and Affiliates, their directors, officers, agents, supervisors, employees, subsidiaries and successors from any and all claims which Employee has or may have arising out of or related to Employee's relationship, in any capacity, with the Company or Affiliates or the termination of employment with the Company or Affiliates ("Claims"). This Agreement includes, but is not limited to any Claims arising under Title VII of the Civil Rights Act, as amended, which prohibits discrimination based on race, color, national origin, religion, or sex; the Age Discrimination in Employment Act, which prohibits discrimination based on age; the Equal Pay Act, which prohibits paying men and women unequal pay for equal work; the Rehabilitation Act of 1973, which prohibits discrimination based on handicap; the Americans with Disabilities Act, which prohibits discrimination based upon disability; the Vietnam Era Veterans Readjustment Act of 1974, which prohibits discrimination against veterans; the Family Medical Leave Act of 1993 which provides certain employee's rights with respect to employee absences; the Employee Retirement Income Security Act of 1974 ("ERISA"), which governs rights in employee benefit plans; the New Mexico Human Rights Act, which prohibits discrimination based on race, color, national origin, religion, ancestry, sex, or mental or physical handicap; or any of these statutes, as amended, as of the date of signing of this Agreement, or any other federal, state, or local statute, law, executive order or regulation. This Agreement also includes a release by Employee for any Claims arising from state or federal common law or statute including any claims relating to the Company's right to terminate its employees, including but not limited to any claims for wrongful discharge, retaliatory discharge, breach of covenant of good faith and fair dealing or breach of employment contract. Employee also releases the Company, by way of illustration, but not limitation, for any personal injury or stress damages in connection with her treatment by the Employer or arising out of her termination. Employee agrees not to file any lawsuit or assert any Claim, without limitation, based upon the foregoing state or federal common laws or statutes.

This Agreement does not extend to a release of the Company for any benefits payable pursuant to the Agreement, nor to any benefits that Employee might otherwise be entitled pursuant to any of the Company's pension plans (as that term is defined in Section 3(2)(A) of ERISA), benefits pursuant to the then applicable PNM health insurance plans, any health maintenance organization, or Benefits My Way. Pursuant to 29 U.S.C. ss. 626, this Agreement does not extend to any claims or rights under the federal Age Discrimination in Employment Act which may arise out of the actions of the Company or an Affiliate after the date of this Agreement. Notwithstanding anything herein to the contrary, nothing herein shall be construed as to abrogate or supersede any obligation or agreement of the Company or Affiliates that may exist outside of this Agreement, pursuant to applicable bylaw provisions of the Company or Affiliates, to indemnify Employee, or to provide Employee with director and officer liability insurance. This Agreement shall not increase or adversely impact any such rights or obligations to which Employee may be entitled under such indemnification or directors and officers liability insurance referred to in the immediately preceding sentence.

(b) No Release of Employee. The Company and Affiliates do not release Employee from any claim which the Company or an Affiliate has or may have against Employee arising out of or relating to Employee's relationship, in any capacity, with the Company or Affiliates. This Agreement also does not release Employee for expressly contracted debts or loans due the Company or Affiliates, evidenced by written notes or agreements, or for willful, wanton or intentionally wrongful acts, nor does this Agreement extend to matters or events occurring after the date of this Agreement.

5. Confidential Information.

(a) Employee Acquired Confidential Information. Except as required by law, Employee agrees to keep confidential all "Confidential Information" (as defined in this Agreement) obtained during the course of employment with the Company and the positions she has held with Affiliates. Employee agrees that she will not reveal any Confidential Information to any other person, corporation or entity, without the prior written consent from an authorized Company representative. The term "Confidential Information" as used in this Agreement means information, written or otherwise, which Employee has received in the course of her relationship, in any capacity with the Company or Affiliates and includes, without limitation, all reports, forecasts, contracts, customer information, confidential commercial information, trade secrets, business secrets, personnel information or any information that is not available to the general public. Any information, analysis or interpretation which is public information as a result of (A) a public filing made by the Company or Affiliates or (B) information supplied by the Company or Affiliates pursuant to formal discovery procedures (unless such information, analysis or interpretation is public as a result of a breach of this Agreement) shall not be considered Confidential Information.

(b) Confidential Employment Information. PNM and Affiliates agree that, consistent with current policy, they will only release information confirming dates of employment and positions held by Employee.

(c) This Agreement Confidential. The parties, and each of them, agree that this Agreement has been entered into with the understanding that all of the terms and conditions hereof will remain confidential and that they or their legal representatives will not, except as provided herein, disclose to any Third Party the terms and conditions of this Agreement unless the other party hereto consents in writing to such disclosure. As used herein, "Third Party" means any person, corporation, partnership, firm, consultant, or governmental entity, or representatives of any of the foregoing, other than officers, employees and attorneys of the parties to this Agreement.

(d) Protective Order. In the event that Employee is requested or required to disclose the Confidential Information pursuant to Section 5(a), (b) or (c) above, it is agreed that Employee shall provide the Company with prompt written notice of such request(s) at least ten (10) days prior to making any such disclosure and advise whether or not Employee intends to seek an appropriate protective order to preclude disclosure of such information. If Employee seeks a protective order, the Company or any Affiliate may join in such action. If Employee does not seek a protective order, then the Company or an Affiliate shall have such right to seek a protective order. The parties to the Agreement agree to cooperate in seeking a protective order if any party hereto so requests.

If Employee seeks such protective order, without the Company or the Affiliate joining such action, or if the Company and/or the Affiliate commences such action, without Employee seeking or joining in such action, then the party seeking such protective order shall pay the attorney fees and expenses associated therewith, including the reasonable attorney fees and costs of any other party to this Agreement who requires such legal counsel to protect her or its interest pursuant to such action. If Employee or the Company (and/or Affiliate) both join in such action, then each shall be responsible for her or its respective attorney fees and costs. If, in the absence of a protective order or the receipt of a waiver hereunder, a party is legally bound, in the written opinion of its counsel, to disclose the Confidential Information, it may legally do so without a breach of this Agreement. PNM and Affiliates shall instruct their directors, officers, employees, agents and attorneys to maintain the confidentiality provisions hereof. Notwithstanding the foregoing, all parties hereby consent to the disclosure of information contained in or related to this Agreement to the extent required, in the opinion of counsel to a party hereto, to comply with applicable securities laws and regulations or the laws and regulations administered by the NMPUC which bind such party.

6. Agreement to Assist Company. Employee agrees to assist the Company when requested from time to time in the future, such as in providing testimony or providing information to the Company or its counsel.

7. Accord and Satisfaction. Employee agrees that the payments and benefits provided for pursuant to this Agreement and the provisions included hereunder constitute full settlement and satisfaction of all claims released by Employee as described in Section 4(a), and agrees that this Agreement and the benefits provided pursuant to this Agreement are not to be construed as an admission of liability by the Company, Affiliates, or their directors, officers, supervisors, agents, employees or any other persons or entities being released. Employee further agrees that acceptance of the payments and benefits provided under this Agreement constitute a waiver of all rights Employee may have to pursue any rights and privileges under any internal grievance procedure or policy.

8. Entire Agreement. The benefits provided hereunder are in lieu of any other benefits to which Employee may be eligible under (i) severance plans (including employment option programs) or agreements maintained by Company or Affiliates thereof (including any right to receive a notice of position impaction under Company or Affiliates severance plans, which right is hereby specifically waived), (ii) executive or employee retention plans or similar type change in control plans or agreements maintained by Company or Affiliates thereof, or (iii) any other benefit plan of the Company or its Affiliates not otherwise mentioned in the following sentence of this paragraph. The benefits provided hereunder are not, however, in lieu of nor is the Agreement intended to increase or decrease or in any way impact the benefits otherwise provided to Employee under plans that are specifically not released by Section 4(a).

9. Payroll Taxes. Any amounts due pursuant to this Agreement shall be reduced by applicable federal, social security (FICA) (Employee's portion only) and state payroll withholding taxes.

10. Interpretation and Appeals. The interpretation, administration and appeals of any dispute regarding this Agreement shall be resolved under the interpretation, administration and appeal provision of the Severance Plan, Articles VI and XI thereof, which are incorporated herein by reference.

11. Controlling Laws. This Agreement shall be interpreted under the laws of the State of New Mexico.

12. Headings. The headings and subheadings in this Agreement are inserted for convenience and reference only and are not to be used in construing this Agreement or any provision thereof.

13. Revocation Contingency. It is hereby agreed that the benefits provided hereunder are contingent upon the Employee properly completing and delivering this Agreement without revoking the same as otherwise provided in
Section 4 hereof.

14. Signature by Employee. Employee has twenty-one (21) days from the date this Agreement is delivered to her to sign and return it to the Company. If she does not sign, as provided below, and return the same within the twenty-one
(21) day period, this Agreement shall no longer be of any force or effect. Following the signing of the Agreement by Employee, she shall have seven (7) days to revoke the same by returning a revoked copy of the Agreement to the Company. The date of the signature and delivery by Employee shall be determined by the date set forth in the notarial acknowledgment with respect to such signature.

EMPLOYEE HAS CAREFULLY READ AND FULLY UNDERSTANDS ALL OF THE PROVISIONS OF THIS TERMINATION AND RELEASE AGREEMENT WHICH SETS FORTH THE ENTIRE AGREEMENT BETWEEN (I) THE COMPANY AND EMPLOYEE WITH REGARD TO EMPLOYEE'S EMPLOYMENT WITH THE COMPANY, AND HER TERMINATION AND (II) AFFILIATES AND EMPLOYEE WITH REGARD TO EMPLOYEE'S EMPLOYMENT WITH AFFILIATES AND TERMINATION. EMPLOYEE HEREBY ACKNOWLEDGES THAT EMPLOYEE HAS NOT RELIED UPON ANY REPRESENTATION OR STATEMENTS, WRITTEN OR ORAL, NOT SET FORTH IN THIS DOCUMENT, WITH RESPECT TO THIS AGREEMENT OR (I) AND (II) ABOVE.

IN WITNESS WHEREOF, the parties hereto, have signed this Agreement to be effective as of the date signed and delivered by Employee.

STATE OF NEW MEXICO      )
                         ) ss:
COUNTY OF BERNALILLO     )

The foregoing instrument was acknowledged before me this ____ day of _______________, 1996, by Benjamin F. Montoya, its President and Chief Executive Officer, on behalf of Public Service Company of New Mexico.

My commission expires:

STATE OF NEW MEXICO                     )
                                        ) ss:
COUNTY OF BERNALILLO                    )

The foregoing instrument was acknowledged before me this ____ day of _______________, 1996, by M. PHYLLIS BOURQUE.

My commission expires:

REVOCATION

I, M. PHYLLIS BOURQUE, do hereby revoke the attached Employment Termination and Release Agreement.

STATE OF NEW MEXICO         )
                            ) ss:
COUNTY OF BERNALILLO        )

The foregoing instrument was acknowledged before me this ____ day of ______________, 1996, by M. PHYLLIS BOURQUE.

My commission expires: