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                           PURCHASE AND SALE AGREEMENT

                                       FOR

                            FOUR CORNERS POWER PLANT


                                 BY AND BETWEEN

                       SOUTHERN CALIFORNIA EDISON COMPANY,
                            A CALIFORNIA CORPORATION

                                       AND

                        PINNACLE WEST ENERGY CORPORATION,
                             AN ARIZONA CORPORATION

                                   DATED AS OF

                                 APRIL 27, 2000










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<PAGE>
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
ARTICLE 1      DEFINITIONS.................................................    1
         1.1   Defined Terms...............................................    1
         1.2   Index of Other Defined Terms................................   12
         1.3   Interpretation..............................................   13

ARTICLE 2      PURCHASE AND SALE OF ASSETS.................................   13
         2.1   Transfer of Assets..........................................   13
         2.2   Excluded Assets.............................................   16
         2.3   Assumption of Liabilities...................................   17
         2.4   Excluded Liabilities........................................   19
         2.5   Control of Litigation.......................................   20

ARTICLE 3      CLOSING.....................................................   20
         3.1   Closing.....................................................   20
         3.2   Purchase Price..............................................   21
         3.3   Pre-Closing and Post-Closing Adjustments....................   21
         3.4   Payment.....................................................   23
         3.5   Allocation of Purchase Price................................   23
         3.6   Prorations..................................................   23
         3.7   No Assignment if Breach.....................................   24
         3.8   Deliveries by Seller........................................   25
         3.9   Deliveries by Purchaser.....................................   26
         3.10  Facilities Contracts........................................   27

ARTICLE 4      REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER.......   27
         4.1   Organization and Existence..................................   27
         4.2   Execution, Delivery and Enforceability......................   27
         4.3   No Violation................................................   27
         4.4   Compliance with Laws........................................   28
         4.5   Permits, Licenses, Etc......................................   28
         4.6   Litigation..................................................   28
         4.7   Title.......................................................   29

                                       i
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                                TABLE OF CONTENTS
                                   (Continued)

                                                                            Page
                                                                            ----
         4.8   Facilities Contracts........................................   29
         4.9   Intellectual Property.......................................   29
         4.10  Taxes.......................................................   29
         4.11  Undisclosed Liabilities.....................................   29
         4.12  Brokers.....................................................   29

ARTICLE 5      REPRESENTATIONS AND WARRANTIES OF PURCHASER.................   30
         5.1   Organization and Existence..................................   30
         5.2   Execution, Delivery and Enforceability......................   30
         5.3   No Violation................................................   30
         5.4   ACC.........................................................   31
         5.5   Compliance with Laws........................................   31
         5.6   Litigation..................................................   31
         5.7   Brokers.....................................................   31
         5.8   Financing...................................................   31
         5.9   Qualified for Permits.......................................   31
         5.10  "AS IS" SALE................................................   31

ARTICLE 6      COVENANTS OF EACH PARTY.....................................   32
         6.1   Efforts to Close............................................   32
         6.2   Transmission................................................   33
         6.3   Updating....................................................   33
         6.4   Conduct Pending Closing.....................................   34
         6.5   Consents and Approvals......................................   35
         6.6   Tax Matters.................................................   36
         6.7   Risk of Loss................................................   39
         6.8   Cooperation Relating to Insurance...........................   39
         6.9   Confidentiality.............................................   40
         6.10  Adequate Assurance..........................................   40
         6.11  Title to Real Property and Leased Property..................   41
         6.12  Right of First Refusal......................................   41

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                                TABLE OF CONTENTS
                                   (Continued)

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         6.13  Third Party Offers..........................................   42
         6.14  Post Closing - Additional Offers............................   44
         6.15  Post Closing - Further Assurances...........................   44
         6.16  Post Closing - Information and Records......................   44
         6.17  Release.....................................................   45
         6.18  Facilities Switchyard Capacity..............................   46

ARTICLE 7      INDEMNIFICATION.............................................   46
         7.1   Indemnification by Seller...................................   46
         7.2   Indemnification by Purchaser................................   47
         7.3   Notice of Claim.............................................   47
         7.4   Defense of Third Party Claims...............................   47
         7.5   Cooperation.................................................   48
         7.6   Mitigation and Limitation on Claims.........................   48
         7.7   Exclusivity.................................................   49

ARTICLE 8      CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
               AT THE CLOSING..............................................   49
         8.1   Compliance with Provisions..................................   49
         8.2   HSR Act.....................................................   49
         8.3   Injunction..................................................   49
         8.4   Required Regulatory Approvals...............................   49
         8.5   Representations and Warranties..............................   50
         8.6   Officer's Certificate.......................................   50
         8.7   Title Policy/Insurance......................................   50
         8.8   Material Adverse Effect.....................................   50
         8.9   Liens.......................................................   50
         8.10  Seller's Required Consents..................................   50
         8.11  Legal Opinion...............................................   50
         8.12  No Termination..............................................   50
         8.13  Right of First Refusal and Notice...........................   51

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                                TABLE OF CONTENTS
                                   (Continued)

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         8.14  Collateral Agreement........................................   51

ARTICLE 9      CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
               AT THE CLOSING..............................................   51
         9.1   Compliance with Provisions..................................   51
         9.2   HSR Act.....................................................   51
         9.3   Injunction..................................................   51
         9.4   Approvals...................................................   51
         9.5   Representations and Warranties..............................   51
         9.6   Officer's Certificate.......................................   52
         9.7   Legal Opinions..............................................   52
         9.8   No Termination..............................................   52
         9.9   Right of First Refusal......................................   52
         9.10  Purchaser's Required Consents...............................   52

ARTICLE 10     TERMINATION.................................................   52
         10.1  Rights To Terminate.........................................   52
         10.2  Effect of Termination.......................................   53
         10.3  Specific Performance; Limitation of Damages.................   53

ARTICLE 11     MISCELLANEOUS AGREEMENTS AND ACKNOWLEDGMENTS................   54
         11.1  Expenses....................................................   54
         11.2  Entire Document.............................................   54
         11.3  Schedules...................................................   54
         11.4  Counterparts................................................   54
         11.5  Severability................................................   54
         11.6  Assignability...............................................   54
         11.7  Captions....................................................   55
         11.8  Governing Law...............................................   55
         11.9  Dispute Resolution..........................................   55
         11.10 Notices.....................................................   56
         11.11 Time is of the Essence......................................   57

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                                TABLE OF CONTENTS
                                   (Continued)

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         11.12 No Third Party Beneficiaries................................   57
         11.13 No Joint Venture............................................   57
         11.14 Construction of Agreement...................................   57
         11.15 Effect of Closing Over Known Unsatisfied Conditions or
               Breached Representations, Warranties or Covenants...........   57
         11.16 Conflicts...................................................   57
         11.17 Waiver of Compliance........................................   58
         11.18 Survival....................................................   58


EXHIBITS
         Transmission Term Sheet...........................................    A
         Seller's Legal Opinion............................................    B
         Purchaser's Legal Opinion.........................................    C

SCHEDULES

Schedule 1.1.51(a)........."Schedule of Seller's Officers, Employees, and
                           Knowledgeable Persons"
Schedule 1.1.51(b)........."Schedule of Purchaser's and Operating Agent's
                           Officers, Employees and Authorized Agents"
Schedule 1.1.51(c)........."Schedule of Operating Agent Officers, Employees
                           and Authorized Agents"
Schedule 2.1(g)............"Emission Allowances"
Schedule 2.1(q)............"Schedule of Miscellaneous Assets"
Schedule 2.2(a)............"Schedule of Excluded Assets"
Schedule 2.2(i)............"Examples of Excluded Claims"
Schedule 3.2(b)............"Capital Expenditure Categories"
Schedule 3.6(a)(iv)........"Operating and Maintenance Expense Pro-Rations"
Schedule 4.8..............."Certain Facilities Contracts"
Schedule 6.6(g)(ii)........"Pollution Control Bonds"

                                       v
<PAGE>
                           PURCHASE AND SALE AGREEMENT
                                       FOR
                            FOUR CORNERS POWER PLANT


     This PURCHASE AND SALE AGREEMENT FOR FOUR CORNERS POWER PLANT is made as of
April 27, 2000, by and between SOUTHERN  CALIFORNIA EDISON COMPANY, a California
corporation  ("SELLER"),  and  PINNACLE  WEST  ENERGY  CORPORATION,  an  Arizona
corporation ("PURCHASER").

                                   BACKGROUND

     A. Seller desires to sell to Purchaser  certain assets which constitute all
of Seller's participation interests in the Facilities, the Facilities Switchyard
and certain  other  facilities  and assets  associated  therewith  or  ancillary
thereto,  and Purchaser desires to purchase these assets from Seller, all on the
terms and conditions hereinafter set forth;

     B. Seller and Purchaser are entering into this  Agreement to evidence their
respective duties, obligations and responsibilities;

     NOW,  THEREFORE,  in  consideration  of  the  respective   representations,
warranties,  covenants and agreements  contained in this  Agreement,  Seller and
Purchaser agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

     1.1 DEFINED TERMS.  The following  terms when used in this Agreement (or in
the Schedules and Exhibits to this Agreement)  with initial letters  capitalized
have the meanings set forth below:

          1.1.1 ACC.  "ACC"  means the  Arizona  Corporation  Commission  or its
regulatory successor, as applicable.

          1.1.2 APS.  "APS" means Arizona  Public  Service  Company,  an Arizona
corporation.

          1.1.3 AZ2. "AZ2" means the delivery or scheduling  point designated by
the California ISO which,  as of the Effective  Date of this  Agreement,  is the
Facilities Switchyard.

          1.1.4  AFFILIATE.  "AFFILIATE" of a Person means any other Person that
(a) directly or indirectly  controls the specified Person;  (b) is controlled by
or is under direct or indirect common control with the specified  Person; or (c)
is an officer, director, employee,  representative or agent or subsidiary of the
Person.  For the purposes of this definition,  "control," when used with respect
to any specified Person, means the power to direct the management or policies of
the specified Person,  directly or indirectly,  whether through the ownership of
voting  securities,  partnership  or limited  liability  company  interests,  by
contract or otherwise.
<PAGE>
          1.1.5 AGREEMENT.  "AGREEMENT"  means this Purchase and Sale Agreement,
together with the Schedules and Exhibits hereto.

          1.1.6 ANCILLARY  AGREEMENTS.  "ANCILLARY  AGREEMENTS"  means the Deed,
Bill of Sale,  Assignment and Assumption Agreement and any other agreement to be
executed and delivered by the Parties under this Agreement.

          1.1.7 ARTICLE.  "ARTICLE" means a numbered  article of this Agreement.
An Article includes all the numbered  sections of this Agreement that begin with
the same number as that Article.

          1.1.8  ASSETS.  "ASSETS"  has the  meaning  set forth in  SECTION  2.1
"Transfer of Assets."

          1.1.9 ASSIGNMENT AND ASSUMPTION AGREEMENT.  "ASSIGNMENT AND ASSUMPTION
AGREEMENT"  means the  assignment and  assumption  agreement  between Seller and
Purchaser,  to be delivered at the Closing,  in such form as shall be reasonably
acceptable  to Seller and  Purchaser,  pursuant to which  Seller shall assign to
Purchaser  all of Seller's  right,  title and interest in and to the  Facilities
Contracts,  certain  intangible  assets and certain other Assets,  and Purchaser
shall accept such assignments and assume the Assumed Liabilities.

          1.1.10 ASSUMED LIABILITIES.  "ASSUMED LIABILITIES" has the meaning set
forth in SECTION 2.3 "Assumption of Liabilities."

          1.1.11 BILL OF SALE. "BILL OF SALE" means the bill of sale from Seller
to  Purchaser,  to be  delivered  at the  Closing,  in  such  form as  shall  be
reasonably acceptable to Seller and Purchaser.

          1.1.12  BUSINESS DAY.  "BUSINESS DAY" means a day other than Saturday,
Sunday or a day on which banks are legally  closed for  business in the State of
Arizona.

          1.1.13 CALIFORNIA ISO.  "CALIFORNIA ISO" means the Independent  System
Operator  described  in Article 3 of Chapter  2.3 of Part 1 of Division 1 of the
California Public Utilities Code.

          1.1.14 CAPITAL EXPENDITURE.  "CAPITAL EXPENDITURE" means any additions
to or  replacements  of property,  plant and equipment in accordance with any of
the Facilities Contracts.

          1.1.15  CLOSING.  "CLOSING"  has the  meaning set forth in SECTION 3.1
"Closing."

          1.1.16  CLOSING  DATE.  "CLOSING  DATE" has the  meaning  set forth in
SECTION 3.1 "Closing."

          1.1.17  CODE.  "CODE"  means the  Internal  Revenue  Code of 1986,  as
amended.

          1.1.18 COLLATERAL AGREEMENT. "COLLATERAL AGREEMENT" means that certain
Purchase and Sale  Agreement  for Palo Verde Nuclear  Generating  Station by and
between Seller and Purchaser dated as of the Effective Date.

                                       2
<PAGE>
          1.1.19  COMMERCIALLY  REASONABLE  EFFORTS.   "COMMERCIALLY  REASONABLE
EFFORTS"  means efforts by a reasonable  Person in the position of a Party which
are designed to enable a Party to satisfy a condition to, or otherwise assist in
the  consummation  of,  the  transactions  contemplated  by, or to  perform  its
obligations  under, this Agreement and which do not require the performing Party
to  expend  any  funds  or  assume   liabilities  other  than  expenditures  and
liabilities  which are  customary  and  reasonable  in  nature  and  amount  for
transactions like those contemplated by this Agreement.

          1.1.20 CONFIDENTIAL  INFORMATION.  "CONFIDENTIAL  INFORMATION" has the
meaning ascribed to such term in the Confidentiality Agreement.

          1.1.21 CONFIDENTIALITY  AGREEMENT.  "CONFIDENTIALITY  AGREEMENT" means
that certain  letter  agreement  dated  February 11,  2000,  between  Seller and
Purchaser.

          1.1.22 CPUC. "CPUC" means the California Public Utilities  Commission,
or its regulatory successor, as applicable.

          1.1.23 DEED.  "DEED" means the special  warranty  deed as  customarily
used in the state where the Facilities are located pursuant to which Seller will
convey all of its right,  title and interest in the real property Assets sold to
Purchaser under this Agreement, subject to Permitted Encumbrances.

          1.1.24   EMISSION   ALLOWANCES.   "EMISSION   ALLOWANCES"   means  all
authorizations  to emit  specified  units of pollutants or Hazardous  Substances
from the Assets, which units are established by the Governmental  Authority with
jurisdiction  over the Assets  under (a) an air  pollution  control and emission
reduction   program  designed  to  mitigate  global  warming  or  interstate  or
intrastate  transport  of air  pollutants,  (b) a program  designed  to mitigate
impairment of surface  waters,  watersheds,  or groundwater or (c) any pollution
reduction  program with a similar purpose.  Allowances  include  allowances,  as
described above,  regardless of whether the Governmental  Authority establishing
such allowances  designates  such allowances by a name other than  "allowances."
The amount of the Emission  Allowances shall be all Emission  Allowances granted
to the  Facilities and in existence and not consumed as of the Effective Date or
subsequently  authorized  in respect  of the  Assets,  reduced  by the  Emission
Allowances  consumed in the  operation of the  Facilities  between the Effective
Date and the Closing Date in the ordinary course of business.

          1.1.25  ENCUMBRANCES.  "ENCUMBRANCES"  means  any and  all  mortgages,
pledges,  claims, liens,  security interests,  conditional and installment sales
agreements,   easements,   activity  and  use   restrictions   and  limitations,
exceptions, rights-of-way, deed restrictions, defects of title, encumbrances and
charges of any kind.

          1.1.26 ENVIRONMENTAL  CONDITION.  "ENVIRONMENTAL  CONDITION" means the
presence or Release to the  environment,  whether at the Facilities  Switchyard,
the Facilities or otherwise, of Hazardous Substances, including any migration of
Hazardous  Substances  through  air,  soil or  groundwater  at,  to or from  the
Facilities or the  Facilities  Switchyard or the Navajo Mine  regardless of when
such presence or Release occurred or is discovered.

                                       3
<PAGE>
          1.1.27  EFFECTIVE DATE.  "EFFECTIVE DATE" means the date on which this
Agreement has been executed and delivered by the Parties.

          1.1.28  ENVIRONMENTAL  LAWS.  "ENVIRONMENTAL  LAWS" means all Federal,
state, local and tribal (to the extent applicable as related to human health and
safety),  civil  and  criminal  laws,  regulations,  rules,  ordinances,  codes,
decrees, judgments, directives, or judicial or administrative orders relating to
pollution or protection of the  environment,  natural  resources or human health
and  safety,  as  the  same  may  be  amended  or  adopted,  including,  without
limitation,  laws  relating  to  Releases or  threatened  Releases of  Hazardous
Substances  (including,  without  limitation,  Releases to ambient air,  surface
water,  groundwater,  land, surface and subsurface strata) or otherwise relating
to the manufacture,  processing, distribution, use, treatment, storage, Release,
transport,  disposal or  handling of  Hazardous  Substances,  including  but not
limited  to,  the  Comprehensive  Environmental  Response,   Compensation,   and
Liability  Act  (42   U.S.C.ss.   9601  ET  SEQ.),   the   Hazardous   Materials
Transportation  Act (49 U.S.C.ss.  1801 ET SEQ.), the Resource  Conservation and
Recovery Act (42 U.S.C.ss.  6901 ET seq.),  the Federal Water Pollution  Control
Act (33 U.S.C.ss.  1251 ET SEQ.), the Clean Air Act (42 U.S.C.ss. 7401 ET SEQ.),
the Toxic Substances Control Act (15 U.S.C.ss.  2601 ET SEQ.), the Oil Pollution
Act  (33  U.S.C.ss.   2701  ET  seq.),  the  Emergency  Planning  and  Community
Right-to-Know Act (42 U.S.C.ss. 11001 ET SEQ.), the Oil Pollution Act (33 U.S.C.
Sec. 2701 ET SEQ.),  the Safe Drinking Water Act (42 U.S.C.  Secs.  300f through
300j), the Occupational  Safety and Health Act (29 U.S.C. Sec. 651 ET SEQ.), the
Surface  Mining  Control and  Reclamation  Act of 1977 (30 U.S.C.  Sec.  1201 ET
SEQ.), any similar laws of any Governmental  Authority having  jurisdiction over
the site at which the Assets are located or otherwise applicable to the Assets.

          1.1.29 EXCLUDED ASSETS. "EXCLUDED ASSETS" has the meaning set forth in
SECTION 2.2 "Excluded Assets."

          1.1.30 EXCLUDED  LIABILITIES.  "EXCLUDED  LIABILITIES" has the meaning
set forth in SECTION 2.4 "Excluded Liabilities."

          1.1.31 EXHIBITS. "EXHIBITS" means the exhibits to this Agreement.

          1.1.32  FACILITIES.  "FACILITIES"  means the  fossil  fuel  generating
facility  known as the Four Corners  Power Plant and located in  Fruitland,  New
Mexico.

          1.1.33  FACILITIES   CO-TENANCY  AGREEMENT.   "FACILITIES   CO-TENANCY
AGREEMENT" means that certain Four Corners Project Co-Tenancy  Agreement entered
into as of July 19, 1966, by and among the Facilities Owners, as the same may be
amended to the date of the Closing.

          1.1.34 FACILITIES  CONTRACTS.  "FACILITIES  CONTRACTS" has the meaning
set forth in SECTION 2.1(H).

          1.1.35  FACILITIES FUEL AGREEMENT.  "FACILITIES  FUEL AGREEMENT" means
that certain Four Corners Fuel Agreement No. 2 dated as of September 1, 1966.

                                       4
<PAGE>
          1.1.36 FACILITIES INSURANCE POLICIES.  "FACILITIES INSURANCE POLICIES"
means all  insurance  policies  carried  by or for the  benefit  of Seller  with
respect to the  ownership,  operation or  maintenance  of the  Facilities or the
Facilities Switchyard,  including all liability, property damage, self insurance
arrangements,  retrospective  assessments and business  interruption policies in
respect thereof.

          1.1.37   FACILITIES   OPERATING   AGREEMENT.   "FACILITIES   OPERATING
AGREEMENT" means that certain Four Corners Project  Operating  Agreement entered
into as of May 15, 1969, by and between the Facilities  Owners,  as the same may
be amended to the date of the Closing.

          1.1.38 FACILITIES OWNER.  "FACILITIES OWNER" means each Person who, as
of the  relevant  time,  is a  "Participant"  under  the  Facilities  Co-Tenancy
Agreement,  which, as of the date of this Agreement, means APS, El Paso Electric
Company,  Public Service Company of New Mexico, Salt River Project  Agricultural
Improvement District,  Seller and Tucson Electric Power Company, in each case in
such Person's capacity as a Participant.

          1.1.39 FACILITIES SWITCHYARD. "FACILITIES SWITCHYARD" means the 500 kv
and 345 kv switchyards located at and adjacent to the Facilities.

          1.1.40 FERC. "FERC" means the Federal Energy Regulatory  Commission as
established  by  the  Department  of  Energy   Organization   Act  of  1977,  42
U.S.C.ss.7171, as amended, or its regulatory successor, as applicable.

          1.1.41  FIRPTA  AFFIDAVIT.   "FIRPTA   AFFIDAVIT"  means  the  Foreign
Investment in Real Property Tax Act Certificate  and Affidavit of Seller,  to be
delivered at the Closing.

          1.1.42 FIRM TRANSMISSION  RIGHTS.  "FIRM TRANSMISSION  RIGHTS" has the
meaning set forth in the California  ISO FERC Electric  Tariff  Original  Volume
Nos. 1 through 11, as approved by FERC as of October 13, 1999.

          1.1.43  GOVERNMENTAL  AUTHORITY.  "GOVERNMENTAL  AUTHORITY"  means any
federal,  state,  local or other  government;  any  governmental,  regulatory or
administrative  agency,  commission,  body  or  other  authority  exercising  or
entitled to  exercise  any  administrative,  executive,  judicial,  legislative,
police,  regulatory  or taxing  authority  or power;  any court or  governmental
tribunal;  and any Tribal  Authority;  but does not include the  Purchaser,  the
Seller, any Affiliate thereof, or any of their respective successors in interest
or any owner or operator of the Assets (if otherwise a Governmental Authority).

          1.1.44 GUARANTOR. "GUARANTOR" means Pinnacle West Capital Corporation.

          1.1.45 GUARANTY.  "GUARANTY"  means that certain Guaranty  executed by
Guarantor and delivered by Purchaser to Seller on or before the Effective Date.

          1.1.46  HAZARDOUS   SUBSTANCES.   "HAZARDOUS   SUBSTANCES"  means  any
chemical,  material or substance  that is listed or regulated  under  applicable
Environmental  Laws as a  "hazardous"  or "toxic"  substance  or waste,  or as a
"contaminant," or is otherwise listed or

                                       5
<PAGE>
regulated under applicable Environmental Laws because it poses a hazard to human
health or the environment.

          1.1.47  HSR ACT.  "HSR  ACT"  means  the  Hart-Scott-Rodino  Antitrust
Improvements Act of 1976, as amended from time to time.

          1.1.48  INCOME  TAX.  "INCOME  TAX"  means  any  Tax  imposed  by  any
Governmental Authority (a) based upon, measured by or calculated with respect to
gross or net income,  profits or receipts  (including  municipal  gross  receipt
Taxes,  capital gains Taxes and minimum Taxes) or (b) based upon, measured by or
calculated with respect to multiple bases (including  corporate franchise Taxes)
if one or more of such bases is described  in clause (a), in each case  together
with any interest, penalties or additions attributable to such Tax.

          1.1.49  INDEPENDENT  ACCOUNTING  FIRM.  "INDEPENDENT  ACCOUNTING FIRM"
means such  nationally  recognized,  independent  accounting firm as is mutually
appointed by Seller and Purchaser for purposes of this Agreement.

          1.1.50  INITIAL  PURCHASE  PRICE.  "INITIAL  PURCHASE  PRICE"  has the
meaning set forth in SECTION 3.2, "Purchase Price."

          1.1.51  KNOWLEDGE.  The term  "KNOWLEDGE"  or similar  phrases in this
Agreement means: (i) in the case of Seller, the extent of the actual and current
knowledge of the Seller's officers,  employees, and knowledgeable persons listed
in  SCHEDULE   1.1.51(a)   "Schedule  of  Seller's  Officers,   Employees,   and
Knowledgeable  Persons" at the date of this  Agreement  (or, with respect to the
certificate delivered pursuant to SECTION 8.6 "Officer's  Certificate," the date
of delivery of the  certificate)  without any  implication  of  verification  or
investigation  concerning  such  knowledge;  (ii) in the case of Purchaser,  the
extent of the actual and current  knowledge  of the  Purchaser's  and  Operating
Agent's officers,  employees and authorized agents listed in SCHEDULE  1.1.51(b)
"Schedule  of  Purchaser's  and  Operating  Agent's   Officers,   Employees  and
Authorized  Agents"  at the date of this  Agreement  (or,  with  respect  to the
certificate delivered pursuant to SECTION 9.6 "Officer's  Certificate," the date
of delivery of the  certificate)  without any  implication  of  verification  or
investigation  concerning  such  knowledge,  as  well  as the  Knowledge  of the
Operating Agent; and (iii) in the case of the Operating Agent, the extent of the
actual and current knowledge of the Operating  Agent's  officers,  employees and
authorized  agents  listed in SCHEDULE  1.1.51(c)  "Schedule of Operating  Agent
Officers,  Employees and Authorized  Agents" at the date of this Agreement or at
the Closing Date,  as well as the Persons who, as of the date of this  Agreement
or as of the  Closing,  serve as the plant  manager  of the  Facilities  and the
Person or Persons to whom the plant manager reports,  without any implication of
verification or investigation concerning such knowledge.

          1.1.52  LAWS.   "LAWS"  means  all   statutes,   rules,   regulations,
ordinances,  orders  and codes of  federal,  state and  local  governmental  and
regulatory authorities.

          1.1.53 MOENKOPI SWITCHYARD.  "MOENKOPI  SWITCHYARD" means the Moenkopi
Switching Station described in the Transmission Term Sheet.

                                       6
<PAGE>
          1.1.54 MATERIAL  ADVERSE EFFECT.  "MATERIAL  ADVERSE EFFECT" means (x)
any event,  circumstance or condition  materially impairing a Party's authority,
right, or ability to consummate the transactions  contemplated by this Agreement
or the Ancillary  Agreements,  or (y) any change (or changes taken together) in,
or effect  on, the  Assets  that is  materially  adverse  to the  operations  or
physical condition of the Facilities and the Facilities  Switchyard,  taken as a
whole, which exist as of the Closing,  including an unscheduled shutdown that is
materially  adverse  to the  operations  or  physical  condition  of the  Assets
following the Closing,  but excluding (a) any change (or changes taken together)
generally  affecting the  international,  national,  regional or local  electric
industry  as a whole  and not  affecting  the  Assets  in any  manner  or degree
materially  different than other facilities like the Facilities,  (b) any change
(or  changes)  resulting  from the  international,  national,  regional or local
markets  for fuel used at the  Facilities,  (c) any  change  (or  changes  taken
together)  in the  North  American,  national,  regional  or local  transmission
system, (d) any change (or changes taken together) to the extent constituting or
involving an Excluded  Asset or Excluded  Liability,  or (e) any change which is
cured  (including  by the payment of money) before the earlier of the Closing or
the termination of the Agreement under SECTION 10.1.

          1.1.55  NAVAJO MINE.  "NAVAJO MINE" means the coal mine located on the
Navajo  Nation  property  that is operated by Broken Hill  Proprietary  ("BHP"),
pursuant to which the  Facilities  are supplied coal under the  Facilities  Fuel
Agreement.

          1.1.56 NOTICE OF CLAIM. "NOTICE OF CLAIM" has the meaning set forth in
SECTION 7.3 "Notice of Claim."

          1.1.57  OPERATING  AGENT.  "OPERATING  AGENT"  means APS, as operating
agent under the Facilities  Co-Tenancy  Agreement and the  Facilities  Operating
Agreeement, or its successor in interest.

          1.1.58 PARTY. "PARTY" means either Seller or Purchaser, as the context
requires; "Parties" means, collectively, Seller and Purchaser.

          1.1.59  PERMITTED  ENCUMBRANCES.  "PERMITTED  ENCUMBRANCES"  means (a)
liens for Property Taxes and other  governmental  charges and assessments  which
are not yet due and payable,  (b) all  exceptions  set forth in the  Preliminary
Title Report to the extent deemed  approved by Purchaser under SECTION 6.11, (c)
during the period  prior to the  Closing,  the lien of  Seller's  Mortgage;  (d)
liens, encumbrances or title imperfections with respect to the Assets created by
or resulting from the acts or omissions of Purchaser or APS, (e) liens, charges,
claims, pledges, security interests, equities and encumbrances arising under the
Facilities  Contracts,  or which will be and are  discharged or released  either
prior to, or simultaneously with, the Closing, (f) the Assumed Liabilities,  and
(g)  liens,  charges,   claims,  pledges,   security  interests,   equities  and
encumbrances  that do not apply only and  exclusively  to the interest of Seller
but that also constitute liens, charges,  claims,  pledges,  security interests,
equities or encumbrances  upon the interests of the other  Facilities  Owners in
common and/or the Operating  Agent,  as agent for any of the Facilities  Owners,
and that individually, or in the aggregate, do not constitute a Material Adverse
Effect with respect to the  Facilities or the Facilities  Switchyard  other than
Material Adverse Effects of which the Operating Agent has Knowledge.

                                       7
<PAGE>
          1.1.60  PERSON.  "PERSON"  means  an  individual,  partnership,  joint
venture,   corporation,   limited  liability  company,  trust,   association  or
unincorporated organization, or any Governmental Authority.

          1.1.61  PRELIMINARY TITLE REPORT.  "PRELIMINARY  TITLE REPORT" has the
meaning set forth in SECTION 6.11 "Title to Real Property and Leased Property."

          1.1.62  PROPERTY TAX.  "Property Tax" means any Tax resulting from and
relating to the assessment of real or personal property or a possessory interest
in real or personal property by any Governmental Authority.

          1.1.63 PURCHASE PRICE.  "PURCHASE  PRICE" has the meaning set forth in
SECTION 3.2, "Purchase Price."

          1.1.64  PURCHASER.  "PURCHASER"  has  the  meaning  set  forth  in the
introductory paragraph of this Agreement.

          1.1.65 PURCHASER'S REQUIRED CONSENTS.  "PURCHASER'S REQUIRED CONSENTS"
means the consent of (i) any Person  other than a  Governmental  Authority  or a
Person referred to in clause (ii) necessary for Purchaser's  consummation of the
transactions  contemplated by this Agreement and the Ancillary  Agreements,  and
(ii) any Person  required by any of the  Facilities  Contracts  for  Purchaser's
consummation  of  the  transactions  contemplated  by  this  Agreement  and  the
Ancillary  Agreements and for the continued  operation of the Facilities and the
Facilities  Switchyard in the ordinary  course of business  consistent with past
practice.

          1.1.66  PURCHASER'S   REQUIRED  REGULATORY   APPROVALS.   "PURCHASER'S
REQUIRED  REGULATORY   APPROVALS"  means  approval  of  the  purchase  and  sale
contemplated hereby by (i) the CPUC (including receipt of the CPUC determination
referenced in SECTION 6.5(b)(i)),  the FERC and any other Governmental Authority
with general regulatory  authority over Purchaser whose approval is required for
the  transactions  contemplated by this Agreement and the Ancillary  Agreements,
and (ii) any other  Governmental  Authority with  regulatory  authority over the
business and assets represented by the Assets and whose approval is required for
Purchaser's consummation of the transactions  contemplated by this Agreement and
the Ancillary  Agreements and for the continued  operation of the Facilities and
the Facilities  Switchyard in the ordinary  course of business  consistent  with
past practice.

          1.1.67 QUALIFIED  OFFEROR.  A "QUALIFIED  OFFEROR" is a Person that is
not an Affiliate of the Seller that:  (a) certifies,  through a responsible  and
duly  authorized  elected  executive  officer,  that such Person (i) is engaged,
together with its Affiliates,  in the business of generating  electrical  power,
(ii) has a Net Worth (as defined in the Guaranty)  equal to at least One Billion
Dollars  ($1,000,000,000) or provides a guaranty substantially equivalent to the
Guaranty with respect to its terms and credit quality, (iii) is not aware of any
conditions  which  might  preclude  such  Person's  qualification  to obtain the
necessary  licenses and consents  required to consummate a Superior  Offer,  and
(iv) can consummate the  transaction  without  regulatory  approvals  other than
those which would be required by any buyer of the assets or which are  otherwise
identified  in  the  certification;   AND  (b)  submits  a  Superior  Offer,  or
non-binding  indication  of  interest  in making a  Superior  Offer,  to Seller,
together with the certification in (a)

                                       8
<PAGE>
above,  within the  Initial  Period;  AND (c) agrees to (i)  execute a customary
confidentiality agreement in favor of Seller and the Facilities Owners, (ii) not
engage in discussions  concerning a Superior  Offer or potential  Superior Offer
with any other Qualified Offeror except as permitted by Seller in its discretion
and,  in any  event,  without  full  disclosure  to Seller  and (iii)  engage in
discussions with Seller on a non-exclusive basis.

          1.1.68 RELEASE.  "RELEASE" means any release,  spill, leak, discharge,
disposal of, pumping, pouring, emitting, emptying, injecting, leaching, dumping,
depositing,  dispersing,  allowing  to escape or  migrate  into or  through  the
environment  (including  ambient air, surface water,  ground water, land surface
and subsurface strata or within any building, structure, facility or fixture) of
any Hazardous  Substance,  including the  abandonment or discarding of Hazardous
Substances in barrels, drums, or other containers.

          1.1.69  REMEDIATION.  "REMEDIATION"  means  any  action of any kind to
address an  Environmental  Condition  or Release  or  threatened  Release or the
presence  of  Hazardous  Substances  on or in the soil or  groundwater  or both,
including the following: (i) monitoring,  investigation,  cleanup,  containment,
remediation,  removal, mitigation,  response or restoration work; (ii) obtaining
any permits, consents, approvals or authorizations of any Governmental Authority
necessary to conduct any such work;  (iii) preparing and  implementing any plans
or studies for such work;  (iv)  obtaining a written  notice from a Governmental
Authority with jurisdiction under applicable Environmental Laws that no material
additional work is required by such Governmental Authority; (v) any response to,
or preparation for, any inquiry, order, hearing or other proceeding by or before
any  Governmental  Authority with respect to any such  Environmental  Condition,
Release or threatened Release or presence of Hazardous Substances,  and (vi) any
other activities  reasonably determined by the Operating Agent of the Facilities
or the Facilities Switchyard,  as applicable,  to be necessary or appropriate or
required under  Environmental  Laws to address an Environmental  Condition,  the
presence of or Release of Hazardous  Substances in the soil or  groundwater,  or
both, at the Facilities, the Facilities Switchyard, the Navajo Mine or any other
off-site location.

          1.1.70  SP15.  "SP15"  means the delivery  area so  designated  by the
California ISO as SP15 as of the Effective Date of this Agreement.

          1.1.71 SCHEDULES. "SCHEDULES" means the schedules to this Agreement.

          1.1.72 SECTION.  "SECTION" means a numbered  section of this Agreement
included within the Article that begins with the same number as that section.

          1.1.73 SELLER.  "SELLER" has the meaning set forth in the introductory
paragraph of this Agreement.

          1.1.74 SELLER'S MORTGAGE. "SELLER'S MORTGAGE" means the Seller's First
Mortgage Bond Trust Indenture, dated as of October 1, 1923, as amended.

          1.1.75 SELLER'S  REQUIRED  REGULATORY  APPROVALS.  "SELLER'S  REQUIRED
REGULATORY  APPROVALS"  means  approval of the  purchase  and sale  contemplated
hereby by (i) the CPUC (including receipt of the CPUC  determination  referenced
in SECTION 6.5(b)(i)), the FERC,

                                       9
<PAGE>
the California ISO, and any other Governmental Authority with general regulatory
authority  over  Seller  whose   approval  is  required  for  the   transactions
contemplated by this Agreement and the Ancillary Agreements,  and (ii) any other
Governmental  Authority with  regulatory  authority over the business and assets
represented   by  the  Assets  and  whose  approval  is  required  for  Seller's
consummation of the transaction contemplated by this Agreement and the Ancillary
Agreements.

          1.1.76 SELLER'S REQUIRED CONSENTS.  "SELLER'S REQUIRED CONSENTS" means
(i) the consent of the trustee under the Seller's Mortgage if required under the
Seller's  Mortgage,  and any Person  other than a  Governmental  Authority  or a
Person  referred to in clause (ii)  necessary for Seller's  consummation  of the
transactions  contemplated by this Agreement and the Ancillary  Agreements,  and
(ii) the consent of any Person  required by any of the Facilities  Contracts for
Seller's consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.

          1.1.77  SUPERIOR  OFFER.  SUPERIOR  OFFER.  "SUPERIOR  OFFER"  means a
written bona fide offer that satisfies all of the following criteria:

               (i) the offer is made by a Qualified Offeror;

               (ii) the offer must be for either of the following:

                    (1) substantially all of the Assets and Assumed  Liabilities
subject to this Agreement; or

                    (2) substantially all of the assets and liabilities  subject
to the Collateral Agreement and this Agreement.

               (iii) the offer has a cash purchase price,  after  application of
all  cash  adjustments  and cash  reimbursements,  that  exceeds  the sum of the
following:

                    (1) the cash Purchase Price,  after  application of all cash
adjustments,  and cash reimbursements in this Agreement or in this Agreement and
the Collateral Agreement, as the case may be; plus

                    (2) the Termination Fee; plus

                    (3) up to  One  Million  Dollars  ($1,000,000)  of  Seller's
incremental  transaction costs arising from providing due diligence  information
and opportunities to Qualified Offerors ("INCREMENTAL COSTS").

               (iv) the outside closing date for the transaction  subject to the
offer  shall be (a) the date  upon  which  all  regulatory  approvals  of Seller
described  in  SECTION  1.1.75  "Seller's  Required  Regulatory  Approvals"  are
received for the  transactions  contained in the offer and all first refusal and
notice periods in favor of other Facilities  Owners have expired with respect to
such offer, or (b) December 31, 2001 if later;

               (v)  taking  into   account  the  higher   price  under   SECTION
1.1.77(iii) and the other terms of the offer, the Seller concludes in good faith
that the economic benefit

                                       10
<PAGE>
of the Superior  Offer  exceeds the economic  benefit of this  Agreement or this
Agreement  and the  Collateral  Agreement,  as the case may be  (Seller  will be
deemed to have met the requirements of this SECTION 1.1.77(v) if Seller receives
a written opinion, subject to customary qualifications,  from an investment bank
with a national  reputation  to that effect or to the effect that  acceptance of
the offer is fair to Seller from a financial point of view  notwithstanding  the
existence of this Agreement and the Collateral Agreement); and

               (vi) the offer is not subject to a financing contingency or other
material contingency that is not included in this Agreement or in this Agreement
and the Collateral Agreement, as the case may be.

          1.1.78 TAX. "TAX" means any federal, Tribal Authority, state, local or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp,  occupation,  premium,  windfall profits,  environmental (including taxes
under Code Section 59A),  customs  duties,  capital stock,  franchise,  profits,
withholding,  social  security  (or  similar),  unemployment,  disability,  real
property  (including  assessments,  fees or  other  charges  based on the use or
ownership of real property),  personal property,  transactional,  use, transfer,
registration,  value added,  alternative  or add-on  minimum,  estimated tax, or
other tax of any kind  whatsoever,  including any interest,  penalty or addition
thereto,  whether disputed or not, including,  without limitation,  any item for
which liability arises as a transferee or successor-in-interest.

          1.1.79 TAX RETURN. "TAX RETURN" means any return, report,  information
return,  declaration,  claim for refund,  or other  document,  together with all
amendments  and  supplements   thereto  (including  all  related  or  supporting
information),  required to be supplied to any Governmental Authority responsible
for the administration of Laws governing Taxes.

          1.1.80 TERMINATION FEE. "TERMINATION FEE" has the meaning set forth in
SECTION 6.13(b)(ii)."

          1.1.81  THIRD PARTY  CLAIM.  "THIRD  PARTY  CLAIM"  means a claim by a
Person  that  is not a  member  of the  Seller  Group  or the  Purchaser  Group,
including any claim for the costs of conducting  Remediation or seeking an order
or demanding that a Person undertake Remediation.

          1.1.82 TRANSFERABLE  PERMITS.  "TRANSFERABLE  PERMITS" means all those
permits  relating  to the  Facilities  or the  Facilities  Switchyard  (and  all
applications  pertaining  thereto) which are  transferable  under applicable law
from Seller to Purchaser with or without a filing with, notice to, or consent or
approval of any Governmental Authority.

          1.1.83 TRANSFER TAX.  "TRANSFER TAX" means any sales Tax,  transaction
privilege  Tax,  transaction  Tax,  conveyance  fee, use Tax,  stamp Tax,  stock
transfer Tax or other similar Tax, including any related penalties, interest and
additions thereto.

          1.1.84  TRANSMISSION  TERM SHEET  "TRANSMISSION  TERM SHEET" means the
Transmission Term Sheet attached as EXHIBIT A.

                                       11
<PAGE>
          1.1.85 TRIBAL AUTHORITY. "TRIBAL AUTHORITY" means any sovereign nation
recognized by the United States  government,  Indian tribe, or any  governmental
subdivision,  agency,  department, or instrumentality thereof with the authority
to  administer  and  collect  Taxes,  administer  and  enforce  tribal  laws and
administer and enforce tribal agency processes.

     1.2 INDEX OF OTHER DEFINED TERMS.

         DEFINED TERM                                              SECTION
         ------------                                              -------
         Allocation                                                3.5
         Applicable Tax Law                                        3.5
         BHP                                                       1.1.55
         Closing Adjustment                                        3.3(a)
         Commercial Arbitration Rules                              11.9(c)
         DOI                                                       6.5(c)
         Estimated Adjustment                                      3.3.1
         Estimated Closing Statement                               3.3.1
         Excluded Claims                                           2.2(i)
         Facilities Permits                                        2.1(i)
         Final Allocation                                          3.5
         Final Pre-Closing Allocation                              3.5
         Fuel Inventory                                            2.1(e)
         Four Corners Closing                                      6.13(b)(iii)
         Indemnifiable Claim                                       7.6
         Indemnitee                                                7.3
         Indemnitor                                                7.3
         Initial Period                                            6.13
         Inventory                                                 2.1(f)
         Inventory Threshold                                       3.2(c)
         Inventory Value                                           3.2(c)
         Leased Property                                           2.1(b)
         Notice of Claim                                           7.3
         Owned Real Property                                       2.1(a)
         Pollution Control Bonds                                   6.6(g)
         Post-Closing Adjustment                                   3.3(b)
         Post-Closing Statement                                    3.3.2
         Preliminary Title Report                                  6.11
         Proposed Post-Closing Adjustment                          3.3(b)
         Purchaser Claims                                          7.1(a)
         Purchaser Group                                           7.1(a)
         Receiving Party                                           6.5(e)
         Seller Claims                                             7.2(a)
         Seller Group                                              7.2(a)
         Seller Permits                                            4.5
         Title Insurer                                             8.7
         Title Policies                                            8.7

                                       12
<PAGE>
     1.3  INTERPRETATION.  In this Agreement,  unless a clear contrary intention
appears:

          (a) the singular number includes the plural number and vice versa;

          (b)  reference to any Person  includes such  Person's  successors  and
assigns but, if applicable, only if such successors and assigns are permitted by
this Agreement, and reference to a Person in a particular capacity excludes such
Person in any other capacity;

          (c) reference to any gender includes each other gender;

          (d) reference to any agreement (including this Agreement), document or
instrument  means such agreement,  document or instrument as amended or modified
and in effect from time to time in  accordance  with the terms  thereof  and, if
applicable, the terms hereof;

          (e) reference to any Article,  Section, Schedule or Exhibit means such
Article,  Section,  Schedule or Exhibit to this Agreement, and references in any
Article,  Section,  Schedule,  Exhibit or  definition  to any clause  means such
clause of such Article, Section, Schedule, Exhibit or definition;

          (f)  "hereunder,"  "hereof,"  "hereto" and words of similar import are
references  to this  Agreement as a whole and not to any  particular  Section or
other provision hereof or thereof;

          (g)  "including"  (and  with  correlative   meaning  "include")  means
including  without  limiting the  generality of any  description  preceding such
term;

          (h) relative to the  determination of any period of time, "from" means
"from and including," "to" means "to but excluding" and "through" means "through
and including;"

          (i) reference to any law  (including  statutes and  ordinances)  means
such law as amended,  modified,  codified or reenacted, in whole or in part, and
in  effect  from  time to time,  including  rules  and  regulations  promulgated
thereunder; and

          (j) any agreement,  instrument, insurance policy, statute, regulation,
rule or order  defined or referred to herein or in any  agreement or  instrument
that is referred to herein means such agreement,  instrument,  insurance policy,
statute,  regulation,  rule or order as from time to time  amended,  modified or
supplemented,  including (in the case of agreements or instruments) by waiver or
consent  and  (in  the  case of  statutes,  regulations,  rules  or  orders)  by
succession of comparable  successor statutes,  regulations,  rules or orders and
references to all attachments thereto and instruments incorporated therein.

                                   ARTICLE 2
                           PURCHASE AND SALE OF ASSETS

     2.1 TRANSFER OF ASSETS.  Upon the terms and subject to the  satisfaction of
the conditions  contained in this Agreement,  at the Closing,  Seller will sell,
convey,  assign,  transfer and deliver to Purchaser and Purchaser  will purchase
and acquire  from Seller,  all of Seller's  interest in the  Facilities  and the
Facilities Switchyard, including Seller's undivided interest

                                       13
<PAGE>
therein as a tenant in common without the right of partition, including Seller's
interest in the following, but excluding all Excluded Assets (collectively,  the
"ASSETS"):

          (a) REAL  PROPERTY  RIGHTS.  The  parcels  of real  property  owned by
Seller,  or by the  Operating  Agent  on  behalf  of the  Seller,  as one of the
Facilities  Owners,  relating to the  Facilities or the  Facilities  Switchyard,
together with all buildings,  facilities and other improvements  thereon and all
appurtenances  thereto,  including all construction  work in process (the "OWNED
REAL PROPERTY");

          (b) LEASED REAL PROPERTY.  The real property leasehold estates and the
related lease or sublease  agreements,  if any, related to the Facilities or the
Facilities  Switchyard,  together  with  buildings,  fixtures and real  property
improvements  thereon and thereto,  including all  construction  work in process
(the "LEASED PROPERTY");

          (c)  RIGHTS-OF-WAY/EASEMENTS  AND  WATER  RIGHTS.  All  rights-of-way,
easements and privileges (including all water rights),  appurtenant to the Owned
Real Property and the Leased Property;

          (d)  EQUIPMENT.   All  machinery,   mobile  or  otherwise,   equipment
(including  computer  hardware  and  software  and  communications   equipment),
vehicles,  tools,  fixtures,  furniture  and  furnishings,  and  other  tangible
personal  property  related  to or used,  or  useful,  in the  operation  of the
Facilities or the Facilities  Switchyard  that (i) are not  Inventory,  (ii) are
licensed,  owned or leased by Seller,  or the Operating  Agent, on behalf of the
Facilities Owners or on behalf of the Seller,  as one of the Facilities  Owners,
as of the  Closing,  and  (iii)  are  used  primarily  in the  operation  of the
Facilities or the Facilities Switchyard,  and in the ordinary course of business
are typically located at the Facilities,  the Facilities Switchyard,  the Navajo
Mine or other locations or facilities which are owned,  operated,  maintained or
under the control of the Operating Agent or one of its Affiliates.

          (e) FUEL INVENTORY.  All coal under contract or in inventory  relating
to the operation of the  Facilities  located at or in transit to the  Facilities
("FUEL INVENTORY");

          (f)  INVENTORY.  The  following  items  intended to be consumed at the
Facilities  or the  Facilities  Switchyard  in the ordinary  course of business:
inventories of spare parts;  maintenance,  shop and office  supplies;  and other
similar  items of tangible  personal  property in  existence  as of the Closing,
wherever located, excluding Fuel Inventory (the "INVENTORY");

          (g) EMISSION  ALLOWANCES.  All Emission  Allowances,  including  those
specified on SCHEDULE 2.1(G);

          (h) FACILITIES CONTRACTS. Subject to the receipt of necessary consents
and approvals, the contracts, agreements,  arrangements,  licenses and leases of
any nature, including, but not limited to, the Facilities Fuel Agreement, (i) to
which  Seller,  in its capacity as a Facilities  Owner,  is a party,  or (ii) to
which the Operating  Agent,  on behalf of the Facilities  Owners or on behalf of
the Seller,  as one of the  Facilities  Owners,  is a party,  and by or to which
Seller, the Facilities,  or the Facilities  Switchyard are bound or subject,  in
each case relating to the

                                       14
<PAGE>
ownership,  lease,  maintenance or operation of the Facilities or the Facilities
Switchyard (the "FACILITIES CONTRACTS");

          (i)  PERMITS,  LICENSES,  ETC.  Subject to the  receipt  of  necessary
consents  and  approvals,  the  Transferable  Permits  and  any  other  permits,
licenses,   approvals,    registrations,    franchises,    certificates,   other
authorizations  and  consents  of  Governmental   Authorities  relating  to  the
ownership,  lease,  maintenance or operation of the Facilities or the Facilities
Switchyard  that, in each case, as of the Closing are in favor of the Facilities
Owners, or the Operating Agent, as agent for the Facilities  Owners,  except for
and to  the  extent  that  such  licenses,  permits,  approvals,  registrations,
franchises,  certificates,  other authorizations and consents relate to Excluded
Assets (the "FACILITIES PERMITS");

          (j) DOCUMENTS. The non-privileged books, records, documents, drawings,
reports,  operating data, operating safety and maintenance  manuals,  inspection
reports, engineering design plans, blueprints, specifications and procedures and
similar  items,  (i) located at and relating to the Facilities or the Facilities
Switchyard  or (ii)  otherwise  relating  to the  Facilities  or the  Facilities
Switchyard,  under Seller's  control,  specifically  identified,  and reasonably
requested  by  Purchaser;  provided,  however,  that  Seller  will  transfer  to
Purchaser the non-privileged portions of the foregoing privileged documents and,
to the extent  practicable,  without  being  required to risk waiver of any such
privilege,  will  summarize  for  Purchaser's  benefit  those  portions  of  the
foregoing documents that are privileged;

          (k) THIRD PARTY WARRANTIES. All unexpired, transferable warranties and
guarantees  from third parties with respect to the  Facilities or the Facilities
Switchyard;

          (l) INTELLECTUAL  PROPERTY.  All intangible  assets of an intellectual
property  nature,  including  all  patents  and patent  rights,  trademarks  and
trademark  rights,  inventions,  trade  names  and  copyrights  relating  to the
Facilities or the  Facilities  Switchyard,  including the name of the Facilities
and the Facilities  Switchyard and all pending applications  therefor,  together
with any trade secrets relating to the Facilities or the Facilities  Switchyard,
in each  case  that are  owned in  common  by the  Facilities  Owners  or by the
Operating Agent as agent for the Facilities Owners;

          (m) CLAIMS  AND CAUSES OF ACTION.  All rights in, to and under (i) any
claims or causes of action against any third parties (including indemnification,
contribution  and  insurance  claims)  relating  to any  Assets  or the  Assumed
Liabilities,  whether  occurring  prior  to, on or after  the  Closing,  if any,
including any claims for refunds,  prepayments,  offsets, recoupment,  insurance
proceeds,  condemnation  awards,  judgments  and the like,  whether  received as
payment or credit against future liabilities,  relating to the Facilities or the
Facilities  Switchyard and (ii) any actual or potential claim or cause of action
as a Facilities  Owner  against the Operating  Agent,  whether known or unknown,
contingent or accrued, arising prior to and in existence at the Closing;

          (n)  PREPAYMENT.  Advance  payments,  prepayments,  prepaid  expenses,
deposits and the like (i) made by the Seller or the Operating  Agent on Seller's
behalf in the ordinary course of business prior to the Closing specifically with
respect to the Facilities or the

                                       15
<PAGE>
Facilities Switchyard, (ii) which exist as of the Closing and (iii) with respect
to which Purchaser will receive the benefit after the Closing;

          (o)  INSURANCE  PROCEEDS.  The right to any  proceeds  from  insurance
policies to the extent covering the Assumed Liabilities;

          (p) TRANSMISSION.  Any Firm Transmission Rights acquired by the Seller
in any auction held by the California ISO prior to the Closing,  with respect to
the transmission path between the points commonly referred to as AZ2 to SP15, it
being  understood  and  agreed  that  such  Firm  Transmission  Rights  must  be
sufficient to meet the minimum output requirement specified under the Facilities
Co-Tenancy Agreement and the Facilities Operating Agreement; and

          (q) MISCELLANEOUS.  Any miscellaneous assets necessary, useful or used
in or ancillary to operating the  Facilities or the  Facilities  Switchyard  and
primarily utilized in connection  therewith but not otherwise  enumerated above,
including the assets specified on SCHEDULE  2.1(Q),  except for Excluded Assets,
which  in  the  ordinary  course  of  business  are  typically  located  at  the
Facilities,  the Facilities  Switchyard,  the Navajo Mine or other  locations or
facilities  which are owned,  operated,  maintained  or under the control of the
Operating Agent or one of its Affiliates.

     2.2  EXCLUDED  ASSETS.  Nothing in this  Agreement  will  constitute  or be
construed as conferring on Purchaser, and Purchaser is not acquiring, any right,
title or interest in or to the following (the "EXCLUDED ASSETS"),  except to the
extent  Seller  owns an  interest  in such assets as a tenant in common with the
other  Facilities  Owners,  in which  event such  interests  in such  assets are
Assets:

          (a) the assets  listed or  described on SCHEDULE  2.2(a)  "Schedule of
Excluded  Assets,"  which are  associated  with the Assets but are  specifically
excluded from the sale;

          (b)  certificates  of  deposit,  shares of stock,  securities,  bonds,
debentures,   evidences  of  indebtedness,  and  interests  in  joint  ventures,
partnerships, limited liability companies and other entities;

          (c) all cash,  cash  equivalents,  bank  deposits,  accounts and notes
receivable  (trade or  otherwise),  except for such assets on deposit  with,  or
under the control of, the Operating Agent;

          (d) any and all data and information pertaining to customers of Seller
or its Affiliates;

          (e) rights in, to and under all  agreements  and  arrangements  of any
nature,  which  are not  assigned  to the  Purchaser  under  the  terms  of this
Agreement;

          (f) all  trade  accounts  receivable  and all  notes,  bonds and other
evidences of indebtedness of and rights to receive payments arising out of sales
of energy from the Facilities

                                       16
<PAGE>
prior to the Closing and the security  arrangements,  if any,  related  thereto,
including  any rights with respect to any third party  collection  procedures or
any other  actions  or  proceedings  which  have been  commenced  in  connection
therewith;

          (g) rights  arising under this Agreement or any instrument or document
executed and delivered pursuant to the terms hereof;

          (h) any and all books and records not described in SECTION 2.1(J);

          (i) claims, choses in action,  rights of recovery,  rights of set-off,
rights to refunds and similar rights,  including but not limited to rights under
any  insurance  policy or refunds of Taxes,  relating  to or arising  out of the
period  prior to  Closing  (i) that do not  arise  from  events,  circumstances,
occurrences  or  conditions  that  create a  liability  for which  Purchaser  is
responsible  hereunder  as an  Assumed  Liability,  and (ii) in respect of which
Seller  has  incurred  out-of-pocket  costs or losses on the basis of which such
claim,  choses in  action,  rights of  recovery,  rights of  set-off,  rights to
refunds or similar  rights may be asserted  but only to the extent of such costs
and losses  incurred prior to Closing  ("EXCLUDED  CLAIMS") (see SCHEDULE 2.2(i)
for examples of Excluded Claims);

          (j)  subject to the  proviso  of SECTION  2.1(J),  all  privileged  or
proprietary materials, documents,  information, media, methods and processes not
owned by the Facilities  Owners in common or by the Operating Agent as agent for
the Facilities Owners and any and all rights to use the same, including, without
limitation,  intangible  assets  of an  intellectual  property  nature  such  as
trademarks, service marks and trade names (whether or not registered),  computer
software that is proprietary to Seller,  or the use of which under the pertinent
license  therefor  is limited to  operation  by Seller or its  Affiliates  or on
equipment owned by Seller or its Affiliates;

          (k) the right to receive mail and other communications relating to any
of the  Excluded  Assets or  Excluded  Liabilities,  all of which mail and other
communications shall be promptly forwarded by Purchaser to Seller; and

          (l)  properties of Seller that are not used primarily in the ownership
or operation of the Assets.

At any time or from time to time, up to ninety (90) days  following the Closing,
any and all of the Excluded  Assets may be removed from the  Facilities  and the
Facilities Switchyard by the Seller (at no expense to the Purchaser, but without
charge by the Purchaser for temporary storage), provided that Seller shall do so
in a manner  that  does not  unduly or  unnecessarily  disrupt  normal  business
activities at the Facilities and the Facilities Switchyard, and provided further
that  Excluded  Assets may be  retained  at the  Facilities  and the  Facilities
Switchyard to the extent permitted by easements, licenses, agreements or similar
arrangements in favor of Seller.

     2.3 ASSUMPTION OF LIABILITIES.  Upon the Closing, Purchaser will assume all
of Seller's obligations and liabilities of any kind or nature whatsoever related
to,  arising  from or  associated  with any of the  following to the extent they
relate  to  the  Assets  (the  "ASSUMED   LIABILITIES"),   except  for  Excluded
Liabilities:

                                       17
<PAGE>
          (a) Except  for the  payment  obligations  pro-rated  to Seller  under
SECTION 3.6, all liabilities and  obligations  under all agreements,  contracts,
undertakings, and licenses assigned to Purchaser under this Agreement, including
the Facilities  Contracts,  and the Transferable  Permits in accordance with the
terms  thereof,  except  in  each  case  to  the  extent  such  liabilities  and
obligations,  but for a breach or  default  by  Seller  or a  related  waiver or
extension  given by  Seller,  would  have  been  paid,  performed  or  otherwise
discharged  on or prior to the Closing  Date or to the extent the same arise out
of any such breach or default or related  waiver or  extension  given by Seller;
provided that,  for purposes of the foregoing,  the phrase "breach or default by
Seller or a related  waiver or extension  given by Seller" shall not include any
such breach, default, waiver or extension that is or has been also engaged in or
agreed to by the Facilities Owners in common or by the Operating Agent acting on
behalf of any Facilities Owner, including the Seller;

          (b) All  liabilities  or  obligations  of Seller  under or  related to
Environmental  Laws,  or  relating  to any  claim in  respect  of  Environmental
Conditions or Hazardous Substances arising under Laws,  including  Environmental
Laws,  or the common law,  whether  such  liability  or  obligation  is known or
unknown,  contingent or accrued,  to the extent relating to the Facilities,  the
Facilities Switchyard or the Navajo Mine, including (i) any violation or alleged
violation  of  Environmental   Laws  with  respect  to  the  ownership,   lease,
maintenance or operation of any of the Assets,  including any fines or penalties
that arise in connection with the ownership,  lease, maintenance or operation of
the Assets prior to, on or after the Closing Date, and the costs associated with
correcting any such violations; (ii) loss of life, injury to Persons or property
or damage to natural resources (whether or not such loss, injury or damage arose
or was made manifest before the Closing Date or arises or becomes manifest on or
after the  Closing  Date),  in each case,  caused (or  allegedly  caused) by any
Environmental  Condition or the presence or Release of Hazardous  Substances at,
on, in,  under,  or migrating  from the Assets prior to, on or after the Closing
Date, including any Environmental Condition or Hazardous Substances contained in
building  materials at or adjacent to the Assets or in the soil,  surface water,
sediments,  groundwater,  landfill cells, or in other  environmental media at or
near the Assets; and (iii) the investigation or Remediation (whether or not such
investigation  or Remediation  commenced before the Closing Date or commences on
or  after  the  Closing  Date)  of  any  Environmental  Condition  or  Hazardous
Substances  that are  present  or have been  Released  prior to, on or after the
Closing  Date at, on,  in,  under or  migrating  from the Assets or in the soil,
surface water, sediments,  groundwater, landfill cells or in other environmental
media at or adjacent to the Assets;

          (c)  All   liabilities   and  obligations  of  Seller  in  respect  of
dismantling the Facilities and the Facilities Switchyard and restoration of such
sites;

          (d) Any and all liabilities and obligations  respecting any changes or
improvements needed to the Assets, if any, for them to be in material compliance
with respect to safety,  building,  fire, land use, access  (including,  without
limitations, the Americans With Disabilities Act) or similar Laws respecting the
physical condition of the Assets;

          (e) Without  limiting the  representations  and  warranties  of Seller
contained  herein  or  Purchaser's  rights  for a  breach  thereof,  any and all
liabilities,  claims,  fines,  penalties and expenses not  otherwise  enumerated
above which in any way arise out of or are related to or

                                       18
<PAGE>
associated with the ownership, possession, use or operation of the Assets before
or after the Closing;

          (f) All other  liabilities  expressly  allocated  to Purchaser in this
Agreement or in any of the  Ancillary  Agreements,  including but not limited to
liability, if any, of Seller to BHP related to matters covered by FAS 106; and

          (g)  All   liabilities   and  obligations  of  Seller  in  respect  of
post-Closing  reclamation  and all final  reclamation of the Navajo Mine and the
site comprising the same or on which the Navajo Mine exists or has existed.

     2.4  EXCLUDED  LIABILITIES.  Purchaser  shall not assume or be obligated to
pay,  perform or otherwise  discharge the following  liabilities  or obligations
(the "EXCLUDED LIABILITIES"):

          (a) Any  liabilities  or  obligations  of  Seller  in  respect  of any
Excluded  Assets  or  other  assets  which  are not  Assets  and the  ownership,
operation and conduct of any business in connection therewith or therefrom;

          (b) Any liabilities or obligations of Seller in respect of costs under
SECTION 3.6 and Taxes attributable to the ownership,  operation or use of Assets
on or before the Closing  Date  (except for Taxes for which  Purchaser is liable
pursuant to SECTION 3.6 hereof) and any Taxes for which  Seller is liable  under
SECTION 6.6;

          (c) Except as otherwise  specifically set forth in SECTION 2.3 herein,
liabilities or obligations  arising prior to the Closing Date from the breach of
any term, covenant or provision of any of the agreements or contracts assumed by
Purchaser,  including the  Facilities  Contracts,  that would have been, but for
such breach,  paid, performed or otherwise discharged on or prior to the Closing
Date or to the  extent  the same  arise  out of any such  breach or  default  or
related waiver or extension given by Seller;  provided, that for purposes of the
foregoing,  no such  breach,  default,  waiver or  extension  shall  include any
breach,  default,  waiver or  extension  that is or has been also  engaged in or
agreed to by the Facilities Owners in common or by the Operating Agent acting on
behalf of any Facilities Owner, including the Seller;

          (d) Liabilities or obligations  under any of the Facilities  Contracts
which  would be included in the Assets but for the  provisions  of SECTION  3.7,
unless  Purchaser is provided with the benefits  thereunder as  contemplated  by
such Section;

          (e) Subject to SECTION  2.4(b) AND SECTION  2.4(i),  except for fines,
penalties or costs assumed by Purchaser  under SECTION 2.3(b) or SECTION 2.3(D),
any fines,  penalties or costs imposed by a Governmental  Authority with respect
to the Assets  resulting  from (i) an  investigation,  proceeding,  request  for
information or inspection  before or by a Governmental  Authority pending or, to
Seller's Knowledge, threatened prior to Closing, but only relating to actions or
omissions  prior to the Closing Date or (ii)  violations  of  applicable  law or
illegal acts of Seller; provided, that for purposes of the foregoing, actions or
omissions of Seller shall not include acts,  actions,  or omissions  that are or
have been also engaged in by the Facilities Owners in common or by the Operating
Agent acting on behalf of any Facilities Owner, including the Seller;

                                       19
<PAGE>
          (f) Any  liability of Seller  arising out of a breach by Seller of any
of its obligations under this Agreement or the Ancillary Agreements;

          (g) Any  obligation  of Seller to indemnify any Person who is a member
of the Purchaser Group pursuant to ARTICLE 7;

          (h) Any costs or  expenses  for which  Seller  is  liable  under  this
Agreement; and

          (i) Judgments,  fines,  and other  penalties  levied by a Governmental
Authority and due prior to the Closing.

2.5 CONTROL OF LITIGATION.

          (a) The Parties acknowledge and agree that, from and after the Closing
Date,  Seller shall be entitled  exclusively  to control,  defend and settle any
suit, action or proceeding,  and any investigation  arising out of or related to
any Excluded Assets or Excluded  Liabilities,  and Purchaser agrees to cooperate
reasonably in connection therewith, it being understood that Purchaser shall not
be required to incur any cost in connection  with any such settlement but may be
required  to  provide a release  to a third  party  claimant  in  respect of the
specific matters  involved in such suit,  action,  proceeding or  investigation;
provided,  however,  that Seller shall  reimburse  Purchaser for all  reasonable
costs and expenses  incurred in providing  such  cooperation to Seller and shall
not  unreasonably  interfere with operations at the Facilities or the Facilities
Switchyard.

          (b) The Parties acknowledge and agree that, from and after the Closing
Date,  Purchaser shall be entitled exclusively (except as otherwise described in
subsection (c) of this Section) to control,  defend and settle any suit,  action
or proceeding,  and any investigation  arising out of or related to any Asset or
Assumed  Liabilities,  and Seller  agrees to cooperate  reasonably in connection
therewith,  it being  understood  that Seller shall not be required to incur any
cost in  connection  with any such  settlement  but may be required to provide a
release to a third party claimant in respect of the specific matters involved in
such  suit,  action,  proceeding,  or  investigation;  provided,  however,  that
Purchaser shall reimburse Seller for all reasonable costs and expenses  incurred
in providing such cooperation to Purchaser and shall not unreasonably  interfere
with Seller's operations.

          (c) Subject to SECTION  6.6, the Parties  acknowledge  and agree that,
from and after  the  Closing  Date,  Seller  shall be  entitled  exclusively  to
control,  defend and settle any action or proceeding associated with any Tax and
related audit, appeals process or litigation for taxable periods occurring prior
to the Closing Date.

                                    ARTICLE 3
                                     CLOSING

     3.1 CLOSING.  The closing of the sale of the Assets to, and the  assumption
of the Assumed  Liabilities by, Purchaser (the "CLOSING") will take place at the
offices of Pinnacle West Capital Corporation,  400 North Fifth Street,  Phoenix,
Arizona  85004,  at 10:00 a.m.  local time on the date that is five (5) Business
Days following the date on which the conditions set forth in

                                       20
<PAGE>
ARTICLE 8 "Conditions  Precedent to the Obligations of Purchaser at the Closing"
and ARTICLE 9 "Conditions Precedent to the Obligations of Seller at the Closing"
have been  either  satisfied  or waived  by the  Party  for whose  benefit  such
conditions precedent exist, or on such other date and at such other place as the
Parties may mutually  agree,  but in any event no sooner than  November 1, 2000,
unless  agreed to by  Seller.  The date of  Closing  is  hereinafter  called the
"CLOSING  DATE." The Closing  shall be  effective  for all  purposes as of 12:01
a.m., Fruitland, New Mexico prevailing time, on the Closing Date.

     3.2 PURCHASE  PRICE.  The Initial  Purchase Price is Three Hundred  Million
Dollars  ($300,000,000).  At the Closing,  the Initial  Purchase  Price shall be
adjusted,  without  duplication,  to account for the following items and Closing
Adjustments and Post-Closing  Adjustments,  as set forth in SECTION 3.3, the sum
of which is hereinafter referred to as the "PURCHASE PRICE":

          (a)  PRORATIONS.  The  Initial  Purchase  Price  shall be  adjusted to
account for the items prorated as of the Closing Date pursuant to SECTION 3.6.

          (b) CAPITAL EXPENDITURES. Subject to SECTION 6.7, the Initial Purchase
Price shall be increased by the amount  expended by Seller between the Effective
Date  and  the  Closing  Date  for  Capital   Expenditures,   less   accumulated
depreciation as of the date of Closing,  to the extent that such expenditures in
the aggregate  exceed the amount  specified in, or are not incurred with respect
to the categories listed in SCHEDULE 3.2(b). Nothing in this paragraph should be
construed  to  limit  Seller's  rights  and  obligations  to  make  all  Capital
Expenditures  necessary  to comply with any  Facilities  Contract or  Facilities
Permit.  No  increase to the  Initial  Purchase  Price shall be made for Capital
Expenditures made by Seller after December 31, 2001.

          (c) FUEL INVENTORY AND INVENTORY.  The Parties agree that the Purchase
Price  includes a quantity of Fuel  Inventory  and  Inventory  and value thereof
which is represented by Three Million One Hundred Thousand Dollars  ($3,100,000)
of book value.  Accordingly,  the Parties agree that the Initial  Purchase Price
shall be further  adjusted by the  difference  between Three Million One Hundred
Thousand Dollars  ($3,100,000)  ("INVENTORY  Threshold") and the value as of the
Closing  (determined  in the same manner as the initial  valuation)  of the Fuel
Inventory  and  the  Inventory  pro-rated  to  Seller's   percentage   ownership
("INVENTORY  VALUE").  The Initial  Purchase Price shall be (i) increased by the
amount by which the Inventory  Value exceeds the Inventory  Threshold,  and (ii)
decreased by the amount by which the Inventory  Value is less than the Inventory
Threshold.  At least  sixty  (60) days  prior to the  Closing,  Purchaser  shall
propose to Seller a reasonable method of determining the items in Fuel Inventory
and Inventory as of the Closing,  which shall be subject to Seller's  reasonable
approval  or  disapproval  within ten (10) days after  delivery  of  Purchaser's
proposal. If the Parties cannot agree upon such method within (thirty) (30) days
after  Purchaser's  delivery of its initial  proposal,  then the method shall be
determined by the Independent  Accounting  Firm. There shall be no adjustment to
the Initial Purchase Price pursuant to this SECTION 3.2(c) unless the difference
between the Inventory  Threshold and the Inventory Value exceeds One Hundred and
Fifty-Five Thousand Dollars ($155,000).

     3.3 PRE-CLOSING AND POST-CLOSING ADJUSTMENTS.

                                       21
<PAGE>
          a) At least  thirty  (30)  calendar  days prior to the  Closing  Date,
Purchaser,  with the assistance and participation of, and in consultation  with,
the Seller and the  Operating  Agent,  shall  prepare  and  deliver to Seller an
estimated closing statement (the "ESTIMATED  CLOSING  STATEMENT") that shall set
forth  Purchaser's  best  estimate of all estimated  adjustments  to the Initial
Purchase Price required by SECTION 3.2 (the "ESTIMATED ADJUSTMENT").  Within ten
(10)  calendar  days after the delivery of the  Estimated  Closing  Statement by
Purchaser to Seller, Seller may object in good faith to the Estimated Adjustment
in writing.  If Seller objects to the Estimated  Adjustment within such ten (10)
day  period,   the  Parties  shall  attempt  to  resolve  their  differences  by
negotiation. If the Parties are unable to do so prior to the Closing Date (or if
Seller does not object to the Estimated Adjustment),  the Initial Purchase Price
shall be adjusted (the "CLOSING ADJUSTMENT") at the Closing by the amount of the
Estimated  Adjustment not in dispute.  The disputed portion shall be resolved in
accordance  with  the  provisions  of  SECTION  3.3(b)  and  paid as part of any
Post-Closing Adjustment to the extent required by SECTION 3.3(b).

          (b) Within sixty (60) days after the Closing Date, Purchaser, with the
assistance and  participation  of, and in consultation  with, the Seller and the
Operating Agent,  shall prepare and deliver to Seller a final closing  statement
(the  "POST-CLOSING  STATEMENT")  that  shall set forth all  adjustments  to the
Initial  Purchase  Price proposed by Purchaser to be required by SECTION 3.2 not
previously  effected  by the  Closing  Adjustment  (the  "PROPOSED  POST-CLOSING
ADJUSTMENT").  To the extent  applicable,  the  Post-Closing  Statement shall be
prepared  using the same  accounting  principles,  policies  and  methods as the
Operating Agent has historically  used in connection with the calculation of the
items reflected on such  Post-Closing  Statement.  Within thirty (30) days after
the delivery of the  Post-Closing  Statement by Purchaser to Seller,  Seller may
object in good faith to the Proposed Post-Closing Adjustment in writing, stating
in  reasonable  detail its  objections  thereto.  Purchaser  and Seller agree to
cooperate to exchange information used to prepare the Post-Closing Statement and
information  relating  thereto.  If Seller objects to the Proposed  Post-Closing
Adjustment, the Parties shall attempt to resolve such dispute by negotiation. If
the Parties are unable to resolve such dispute within thirty (30) days after any
objection by Seller, the Parties shall appoint the Independent  Accounting Firm,
which shall,  at Seller's and  Purchaser's  joint  expense,  review the Proposed
Post-Closing Adjustment and determine the appropriate adjustment to the Purchase
Price, if any, within thirty (30) days after such appointment. The Parties agree
to  cooperate  with the  Independent  Accounting  Firm and  provide it with such
information as it reasonably  requests to enable it to make such  determination.
For purposes of this Section and wherever  the  Independent  Accounting  Firm is
retained to resolve a dispute between the Parties,  the  Independent  Accounting
Firm may determine the issues in dispute  following such procedures,  consistent
with  the  language  of  this  Agreement,   as  it  deems   appropriate  to  the
circumstances  and  with  reference  to the  amounts  in  issue.  No  particular
procedures are intended to be imposed upon the Independent  Accounting  Firm, it
being the desire of the Parties that any such disagreement  shall be resolved as
expeditiously  and  inexpensively  as reasonably  practicable.  The  Independent
Accounting  Firm shall have no liability to the Parties in connection  with such
services except for acts of bad faith,  willful  misconduct or gross negligence,
and the Parties shall provide such  indemnities  to the  Independent  Accounting
Firm as it may reasonably  request.  The finding of such Independent  Accounting
Firm  shall  be  binding  on  the  Parties  hereto.  Upon  determination  of the
appropriate  adjustment  (the  "POST-CLOSING  ADJUSTMENT")  by  agreement of the
Parties or by binding

                                       22
<PAGE>
determination of the Independent Accounting Firm, the Party owing the difference
shall deliver such amount to the other Party no later than two (2) Business Days
after such determination,  in immediately available funds or in any other manner
as reasonably requested by the payee.

     3.4 PAYMENT.  Any cash payments required by this Agreement shall be paid in
U.S.  dollars in immediately  available  funds. The recipient of such funds will
designate the account or accounts to which the funds will be wire transferred.

     3.5  ALLOCATION  OF PURCHASE  PRICE.  The Parties will file all Tax Returns
consistently  with the allocation of the Purchase Price determined in accordance
with this SECTION 3.5. The  allocation  of the  Purchase  Price  (including  any
portion of the Assumed  Liabilities  if  applicable)  will be  negotiated by the
Parties in accordance  with  Applicable  Tax Law (as defined  below).  Purchaser
shall propose and deliver to Seller a preliminary allocation among the Assets of
the Purchase Price and such other consideration to be paid to Seller pursuant to
this Agreement (an  "ALLOCATION")  sufficiently far in advance of the Closing to
allow the Final Pre-Closing  Allocation referred to below to be determined prior
to the  Closing.  The  Allocation  shall be  consistent  with Code  Section 1060
("APPLICABLE  TAX LAW") and the  regulations  thereunder  and in a manner  which
facilitates  Property Tax reporting and shall separately  allocate Assets in the
Facilities  Switchyard.  Seller shall within thirty (30) days thereafter propose
any changes to the  Allocation.  Within thirty (30) days  following  delivery of
such proposed  changes,  Purchaser  shall provide Seller with a statement of any
objections  to  such  proposed  changes,  together  with a  reasonably  detailed
explanation  of the  reasons  therefor.  If  Purchaser  and Seller are unable to
resolve any disputed objections within ten (10) days thereafter, such objections
shall be referred to the Independent  Accounting Firm, which shall determine the
Allocation (including any valuations).  The Independent Accounting Firm shall be
instructed  to deliver to Purchaser  and Seller a written  determination  of the
proper  allocation of such disputed  items within twenty (20) Business Days from
the date of  engagement.  Such  determination  shall be  final,  conclusive  and
binding  upon the  Parties  for all  purposes,  and the  Allocation  shall be so
adjusted (the allocation, including the adjustment, if any, to be referred to as
the  "FINAL   PRE-CLOSING   ALLOCATION").   Within   thirty  (30)  days  of  the
determination  of the  Post-Closing  Adjustment,  the Parties shall agree to the
adjustments to the Final Pre-Closing  Allocation ("FINAL ALLOCATION").  The fees
and  disbursements  of  the  Independent  Accounting  Firm  attributable  to any
Allocation shall be shared equally by Purchaser and Seller. Purchaser and Seller
agree to timely file Internal Revenue Service Form 8594, and all Tax Returns, in
accordance with such Allocation or Final Allocation,  as the case may be, and to
report the  transactions  contemplated  by this Agreement for Federal Income Tax
and all other tax purposes in a manner  consistent  with the Allocation or Final
Allocation,  as the case may be.  Purchaser and Seller agree to promptly provide
the other Parties with any  additional  information  and  reasonable  assistance
required to complete Form 8594, or compute Taxes arising in connection  with (or
otherwise affected by) the transactions contemplated hereunder.

     3.6 PRORATIONS.

          (a) Purchaser and Seller agree that, except as otherwise  specifically
provided in this Agreement,  all of the budgeted,  ordinary, and recurring items
normally charged to the Facilities Owners, including those listed below (but not
including any Income Taxes and

                                       23
<PAGE>
Transfer Taxes),  relating to the business and operation of the Assets, shall be
prorated and charged as of the Closing Date,  without any duplication of payment
under the  Facilities  Contracts,  with  Seller  liable to the extent such items
relate to any time period prior to the Closing Date, and Purchaser liable to the
extent such items relate to periods  commencing  with the Closing Date (measured
in the same units used to compute the item in  question,  otherwise  measured by
calendar days):

               (i) Property  Taxes having a lien date in the same  calendar year
as the Closing  Date,  provided,  however,  with respect to any  Property  Taxes
imposed by a Tribal Authority,  such Property Taxes shall be prorated based upon
that portion of the calendar  year  starting  with the date of expiration of any
applicable  tax waiver and ending with the last day of the calendar  year of the
Closing Date;

               (ii) Retrospective adjustments and policyholder distributions for
the applicable period during which the Closing occurs with respect to Facilities
Insurance Policies occurring within twelve (12) months of Closing or ninety (90)
days after the year-end following the Closing, whichever occurs first;

               (iii) Operating and maintenance  expenses  incurred in any period
prior to the Closing Date (not including Capital  Expenditures) in the nature of
the expenses shown on SCHEDULE 3.6(a)(iv) but only to the extent that the amount
of such expenses are  determined  within twelve (12) months of Closing or ninety
(90) days after the year-end following the Closing, whichever occurs first; and

               (iv) A reimbursement for Firm Transmission  Rights referred to in
SECTION  2.1(P)  adjusted  in  proportion  to the  remaining  term  of the  Firm
Transmission Rights.

          (b) In connection with the prorations referred to in (a) above, in the
event that actual  figures are not available at the Closing Date,  the proration
shall be based upon the respective  amounts  accrued through the Closing Date or
paid for the most recent year or other appropriate period for which such amounts
paid are available.  All prorated  amounts shall be recalculated and paid to the
appropriate  Party  within  sixty (60) days  after the date that the  previously
unavailable actual figures become available.  Seller and Purchaser shall furnish
each other with such documents and other records as may be reasonably  requested
in order to confirm all  proration  calculations  made  pursuant to this SECTION
3.6.

     3.7 NO ASSIGNMENT IF BREACH.  To the extent that Seller's  rights under any
of the Facilities  Contracts to be transferred to Purchaser hereunder may not be
assigned  without  the  consent of another  Person  which  consent  has not been
obtained, this Agreement shall not constitute an agreement to assign the same if
an attempted  assignment would  constitute a breach thereof or be unlawful,  and
Purchaser  and  Seller  shall  cooperate  and each use  Commercially  Reasonable
Efforts to obtain any such required  consent(s) as promptly as possible.  Seller
and  Purchaser  agree  that  if  any  consent  to an  assignment  of  any of the
Facilities Contracts to be transferred hereunder shall not be obtained or if any
attempted assignment would be ineffective or would impair Purchaser's rights and
obligations  under the applicable  Facilities  Contracts so that Purchaser would
not in effect acquire all such rights and  obligations,  Seller,  to the maximum

                                       24
<PAGE>
extent permitted by law and such Facilities  Contracts,  shall after the Closing
appoint Purchaser to be Seller's  representative  and agent with respect to such
Facilities  Contracts,  and Seller shall, to the maximum extent permitted by law
and such  Facilities  Contracts,  enter into such reasonable  arrangements  with
Purchaser as are necessary to transfer to Purchaser the benefits and obligations
of such  Facilities  Contracts.  Seller and Purchaser  shall cooperate and shall
each use  Commercially  Reasonable  Efforts  after  the  Closing  to  obtain  an
assignment of such Facilities Contracts to Purchaser.

     3.8 DELIVERIES BY SELLER.  Subject to the terms and conditions  hereof,  at
the Closing,  Seller shall deliver,  or cause to be delivered,  the following to
Purchaser:

          (a) The Deed, duly executed by Seller and in recordable form,  subject
only to Permitted  Encumbrances and any owner's  affidavits or similar documents
reasonably required by Title Insurer;

          (b) The Bill of Sale, duly executed by Seller;

          (c) The Assignment and Assumption Agreement, duly executed by Seller;

          (d)  Evidence,  in  form  and  substance  reasonably  satisfactory  to
Purchaser and its respective  counsel,  of Seller's  receipt of (i) the Seller's
Required Regulatory Approvals specified in clause (i) of the definition thereof,
(ii) the Seller's  Required  Consents  specified in clause (i) of the definition
thereof,  and (iii)  documentation  evidencing the release of all  Encumbrances,
except for Permitted Encumbrances, including the release of Seller's Mortgage;

          (e) An opinion of counsel to Seller to the effect set forth in EXHIBIT
B hereto, subject to customary limitations and qualifications;

          (f) A Certificate  of Good  Standing  with respect to Seller,  as of a
recent date,  issued by the Secretary of State of the State of California and of
the state where the Facilities are located;

          (g) To  the  extent  available,  originals  of  all of the  Facilities
Contracts to which Seller has  Knowledge  that it is a party,  the  Transferable
Permits  issued to Seller and of which it has Knowledge  and, if not  available,
true and correct copies thereof;

          (h) A  certificate  addressed  to  Purchaser  dated the  Closing  Date
executed  by a duly  authorized  officer  of Seller to the  effect  set forth in
SECTION 8.6;

          (i) A FIRPTA Affidavit to Purchaser, duly executed by Seller;

          (j) Copies,  certified  by the  Secretary  or  Assistant  Secretary of
Seller, of corporate resolutions  authorizing the execution and delivery of this
Agreement,  each  Ancillary  Agreement  to  which  Seller  is a  party  and  the
authorization or ratification of all of the other agreements and instruments, in
each case, to be executed and delivered by Seller in connection herewith;

                                       25
<PAGE>
          (k) A certificate  of the  Secretary or Assistant  Secretary of Seller
identifying  the name and title and bearing the  signatures  of the  officers of
Seller  authorized  to  execute  and  deliver  this  Agreement,  each  Ancillary
Agreement to which Seller is a party and the other  agreements  and  instruments
contemplated hereby;

          (l)  Assignment  of  Conditional  Partial  Assignment  relating to the
assignment of the dedicated area and the supplement  dedicated area set forth in
the Facilities Fuel Agreement;

          (m)  Assignment of Interest in New Mexico State  Engineer Water Permit
No. 2838, issued October 10, 1958;

          (n) Assignment of Memorandum for Recordation;

          (o) Assignment of Facilities Fuel Agreement; and

          (p) All such other  agreements,  documents,  instruments  and writings
required to be delivered  by Seller at or prior to the Closing Date  pursuant to
this Agreement  necessary to sell, assign,  convey,  transfer and deliver all of
Seller's  rights,  title and interests in and to the Assets,  to  Purchaser,  in
accordance with this Agreement and, where necessary or desirable,  in recordable
form.

     3.9 DELIVERIES BY PURCHASER. Subject to the terms and conditions hereof, at
the Closing, Purchaser shall deliver, or cause to be delivered, the following to
Seller:

          (a) The Purchase  Price,  by wire  transfer of  immediately  available
funds to the account of Seller  designated by Seller in writing on or before the
Closing Date;

          (b)  The  Assignment  and  Assumption  Agreement,   duly  executed  by
Purchaser;

          (c) Evidence, in form and substance reasonably  satisfactory to Seller
and its  respective  counsel,  of  Purchaser's  receipt  of (i) the  Purchaser's
Required Regulatory Approvals specified in clause (i) of the definition thereof,
(ii)  the  Purchaser's  Required  Consents  specified  in  clause  (i) of  there
definition thereof;

          (d) An  opinion of  counsel  to  Purchaser  to the effect set forth in
EXHIBIT C hereto, subject to customary limitations and qualifications;

          (e) A Certificate of Good Standing with respect to Purchaser,  as of a
recent  date,  issued  by the ACC and the  state in  which  the  Facilities  are
located;

          (f) A certificate dated the Closing Date executed by a duly authorized
officer of Purchaser to the effect set forth in SECTION 9.6;

          (g) Copies,  certified  by the  Secretary  or  Assistant  Secretary of
Purchaser,  of  resolutions  authorizing  the  execution  and  delivery  of this
Agreement,  each  Ancillary  Agreement  to which  Purchaser  is a party  and the
authorization or ratification of all of the agreements and instruments,  in each
case, to be executed and delivered by Purchaser in connection herewith;

                                       26
<PAGE>
          (h) A certificate of the Secretary or Assistant Secretary of Purchaser
identifying  the name and title and bearing the  signatures  of the  officers of
Purchaser  authorized  to execute and deliver  this  Agreement,  each  Ancillary
Agreement to which  Purchaser is a party and the other  agreements  contemplated
hereby; and

          (i) All such other  agreements,  documents,  instruments  and writings
required to be delivered  by Purchaser at or prior to the Closing Date  pursuant
to this Agreement.

     3.10 FACILITIES  CONTRACTS.  The Parties agree that between the date hereof
and the Closing Date, the  ownership,  lease,  maintenance  and operation of the
Facilities  and the  Facilities  Switchyard  will be governed by the  Facilities
Contracts.

                                   ARTICLE 4
              REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER

     Except as set forth in Seller's Schedule of Exceptions corresponding to the
Section of this Agreement to which such disclosure  applies,  Seller represents,
warrants and, where specified, disclaims to Purchaser as follows:

     4.1  ORGANIZATION AND EXISTENCE.  Seller is a corporation,  duly organized,
validly  existing and in good standing under the laws of the State of California
and has all requisite  corporate  power and authority to own,  lease and operate
its properties and to carry on its business as is now being conducted. Seller is
duly  qualified  to do business  and is in good  standing in the state where the
Facilities are located.  Seller has heretofore  delivered to Purchaser  complete
and correct copies of its Articles of  Incorporation  and Bylaws as currently in
effect.

     4.2 EXECUTION, DELIVERY AND ENFORCEABILITY. Seller has full corporate power
to enter into,  and carry out its  obligations  under,  this  Agreement  and the
Ancillary  Agreements  which  are  executed  by  Seller  and to  consummate  the
transactions  contemplated  hereby and  thereby.  The  execution,  delivery  and
performance of this Agreement and the Ancillary Agreements which are executed by
Seller,  and  the  consummation  of the  transactions  contemplated  hereby  and
thereby, have been duly and validly authorized by all necessary corporate action
required on the part of Seller and no other corporate proceedings on the part of
Seller are necessary to authorize this Agreement and the Ancillary Agreements to
which it is a party or to consummate the  transactions  contemplated  hereby and
thereby. Assuming Purchaser's due authorization,  execution and delivery of this
Agreement  and  the  Ancillary  Agreements  when  executed  by  Purchaser,  this
Agreement  does and the  Ancillary  Agreements  when  executed  by  Seller  will
constitute  the valid and legally  binding  obligations  of Seller,  enforceable
against  Seller  in  accordance  with  its  and  their  terms,  except  as  such
enforceability  may  be  limited  by  bankruptcy,  insolvency,   reorganization,
moratorium or other similar laws of general application relating to or affecting
the enforcement of creditors' rights and by general equitable principles.

     4.3 NO  VIOLATION.  Subject  to  Seller  obtaining  the  Seller's  Required
Regulatory  Approvals  and  the  Seller's  Required  Consents,  and  except  for
compliance  with the  requirements  of the HSR Act,  neither the  execution  and
delivery  of this  Agreement  or any of the  Ancillary  Agreements  executed  by
Seller,  nor the  compliance  with any  provision  hereof  or  thereof,  nor the
consummation of the transactions contemplated hereby or thereby will:

                                       27
<PAGE>
          (a) violate, or conflict with, or result in a breach of any provisions
of the Articles of Incorporation or Bylaws of Seller;

          (b)  result  in a default  (or give rise to any right of  termination,
cancellation  or  acceleration)  under  or  conflict  with  any  of  the  terms,
conditions or provisions of any note, bond,  mortgage,  indenture,  license,  or
agreement or other  instrument  or  obligation  to which Seller is a party or by
which  Seller or any of the Assets may be bound,  except for such  defaults  (or
rights of termination or acceleration) as to which requisite waivers or consents
have been, or prior to the Closing will have been,  obtained or which would not,
individually or in the aggregate, create a Material Adverse Effect;

          (c) violate any law, rule,  regulation,  order, writ,  injunction,  or
decree, applicable to Seller or any of its assets, except where such violations,
individually or in the aggregate, would not create a Material Adverse Effect and
will  not  affect  the  validity  or  enforceability  of this  Agreement  or the
Ancillary Agreements or the validity of the transactions  contemplated hereby or
thereby; or

          (d) require  consent or approval  of,  filing  with,  or notice to any
Person  which,  if  not  obtained  would  prevent  Seller  from  performing  its
obligations hereunder.

     4.4  COMPLIANCE  WITH LAWS.  Seller has no Knowledge that it is in material
violation of any laws, orders, ordinances, rules, regulations or judgment of any
Governmental  Authority in existence  as of  execution  of this  Agreement  with
respect to the  Assets,  except for (a)  violations  or alleged  violations  the
subject  matter of which the Operating  Agent has  Knowledge,  (b) violations or
alleged violations by the Facilities Owners in common, or by the Operating Agent
acting on their behalf,  or (c) violations or alleged  violations  that will not
have a Material Adverse Effect.

     4.5 PERMITS, LICENSES, ETC. Prior to the Closing Date, Seller will hold all
permits,   registrations,   franchises,   certificates,   licenses   and   other
authorizations,  consents and  approvals of all  Governmental  Authorities  that
Seller  requires  in  order  to own  any of the  Assets  (collectively,  "SELLER
PERMITS"),  except for such failures to hold such Seller Permits as to which the
Operating Agent has Knowledge,  are also failures of all of the other Facilities
Owners (or all other than the Operating Agent) or would not,  individually or in
the aggregate, have a Material Adverse Effect.

     4.6  LITIGATION.  There is no claim,  action,  proceeding or  investigation
pending, or to Seller's  Knowledge,  threatened against or relating to Seller or
its Affiliates before any court,  arbitrator or Governmental  Authority,  or any
judgment,  decree or order of any court,  arbitrator or Governmental  Authority,
which could, individually or in the aggregate, reasonably be expected to result,
or has resulted,  in (a) the  institution  of legal  proceedings  to prohibit or
restrain the  performance of this Agreement or any of the Ancillary  Agreements,
or the consummation of the transactions  contemplated  hereby or thereby,  (b) a
claim  against  Purchaser  or its  Affiliates  for damages as a result of Seller
entering  into  this  Agreement  or  any  of the  Ancillary  Agreements,  or the
consummation by Seller of the transactions contemplated hereby or thereby, (c) a
material  impairment of Seller's  ability to perform its obligations  under this
Agreement or any of the Ancillary Agreements,  or (d) a Material Adverse Effect,
except for claims,  actions,  proceedings or investigations  pending against, or
judgments, decrees or orders involving all of the other

                                       28
<PAGE>
Facilities Owners or the Operating Agent as agent for the Facilities  Owners, or
as to which the Operating Agent has Knowledge.

     4.7  TITLE.  Subject  to  the  right  of  first  refusal  contained  in the
Facilities  Co-Tenancy Agreement and the Facilities Operating Agreement,  Seller
has good and marketable  title, or valid and effective  leasehold  rights in the
case of leased property, or valid and effective licenses in the case of licensed
rights,  to the tangible  personal  property  included in the Assets to be sold,
conveyed,  assigned,  transferred and delivered to Purchaser by Seller, free and
clear of all liens, charges, claims, pledges,  security interests,  equities and
encumbrances of any nature  whatsoever,  except for (a) those created or allowed
to be suffered by  Purchaser,  (b) those  which will be  discharged  or released
prior to or  substantially  simultaneously  with,  the  Closing,  (c)  Permitted
Encumbrances,  (d) those which do not apply only and exclusively to the interest
of the Seller but that also apply to interests of the other Facilities Owners in
common and/or the Operating  Agent,  as agent for any of the Facilities  Owners,
and (e)  possible  minor  matters  that do not  materially  interfere  with  the
intended use of the Assets.

     4.8  FACILITIES  CONTRACTS.  Seller has no Knowledge of any claim,  action,
proceeding   or   investigation,   pending  or   threatened,   challenging   the
enforceability  against Seller of the Facilities Contracts specified on SCHEDULE
4.8 "Certain Facilities  Contracts," except for challenges to the enforceability
of such contracts against the Facilities  Owners in common,  challenges of which
the Operating Agent has Knowledge,  or challenges which are not likely to result
in a Material Adverse Effect.

     4.9 INTELLECTUAL PROPERTY.  Seller does not own or otherwise have any right
to use any patent,  trade name,  trademark,  service mark or other  intellectual
property that is used in and  necessary  for the operation of the  Facilities or
the Facilities  Switchyard,  other than such as may be included in the Assets or
is licensed to the  Facilities  Owners or the Operating  Agent,  acting on their
behalf.

     4.10 TAXES.  At least sixty (60) Business  Days before the Closing,  Seller
will advise  Purchaser  in writing of any taxing  jurisdictions  in which Seller
owns  assets  or  conducts  business  that  require a  notification  to a taxing
authority of the transactions  contemplated by this Agreement, if the failure to
make such notification,  or obtain Tax clearances in connection therewith, would
either require  Purchaser to withhold any portion of the Purchase Price or would
subject Purchaser to any liability for any Taxes of Seller.

     4.11  UNDISCLOSED  LIABILITIES.  Except  for  liabilities  and  obligations
specifically  referred  to in SECTION  2.3 or 2.4,  the  Assets are not,  to the
Knowledge  of Seller,  subject to any  liability or  obligation  that has arisen
solely  as a result  of an act or  omission  by  Seller,  except  for  Permitted
Encumbrances,  acts or omissions of which the Operating Agent has Knowledge,  or
liabilities  and obligations  that are not reasonably  likely to have a Material
Adverse Effect.

     4.12  BROKERS.  All  negotiations   relating  to  this  Agreement  and  the
transactions  contemplated  hereby have been  carried on by Seller and in such a
manner as not to give rise to any valid claim  against  Purchaser  (by reason of
Seller's actions) for a brokerage commission, finder's fee or other like payment
to any Person.

                                       29
<PAGE>
                                   ARTICLE 5
                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

     Except as set forth in Purchaser's Schedule of Exceptions  corresponding to
the  Section of this  Agreement  to which  such  disclosure  applies,  Purchaser
represents, warrants and, where specified, disclaims to Seller as follows:

     5.1 ORGANIZATION AND EXISTENCE. Purchaser is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Arizona and
has all requisite  corporate  power and authority to own,  lease and operate its
properties and to carry on its business as is now being conducted. Purchaser has
heretofore  delivered to Seller  complete and correct  copies of its Articles of
Incorporation and Bylaws as currently in effect.

     5.2 EXECUTION,  DELIVERY AND  ENFORCEABILITY.  Purchaser has full corporate
power to enter into, and carry out its obligations under, this Agreement and the
Ancillary  Agreements  which are executed by  Purchaser  and to  consummate  the
transactions  contemplated  hereby and  thereby.  The  execution,  delivery  and
performance of this Agreement and the Ancillary Agreements which are executed by
Purchaser,  and the  consummation of the  transactions  contemplated  hereby and
thereby, have been duly and validly authorized by all necessary corporate action
required on the part of Purchaser and no other corporate proceedings on the part
of Purchaser  are  necessary  to  authorize  this  Agreement  and the  Ancillary
Agreements to which it is a party or to consummate the transactions contemplated
hereby and thereby. Assuming Seller's due authorization,  execution and delivery
of this  Agreement and the Ancillary  Agreements  when executed by Seller,  this
Agreement  does and the Ancillary  Agreements  when executed by Purchaser,  will
constitute the valid and legally binding  obligations of Purchaser,  enforceable
against  Purchaser  in  accordance  with its and  their  terms,  except  as such
enforceability  may  be  limited  by  bankruptcy,  insolvency,   reorganization,
moratorium or other similar laws of general application relating to or affecting
the enforcement of creditors' rights and by general equitable principles.

     5.3 NO VIOLATION.  Subject to Purchaser obtaining the Purchaser's  Required
Regulatory  Approvals  and the  Purchaser's  Required  Consents,  and except for
compliance  with the  requirements  of the HSR Act,  neither the  execution  and
delivery  of this  Agreement  or any of the  Ancillary  Agreements  executed  by
Purchaser,  nor the  compliance  with any provision  hereof or thereof,  nor the
consummation of the transactions contemplated hereby or thereby will:

          (a) violate, or conflict with, or result in a breach of any provisions
of the Articles of Incorporation or Bylaws of Purchaser;

          (b)  result  in a default  (or give rise to any right of  termination,
cancellation  or  acceleration)  under  or  conflict  with  any  of  the  terms,
conditions or provisions of any note, bond,  mortgage,  indenture,  license,  or
agreement or other  instrument or obligation to which Purchaser is a party or by
which Purchaser may be bound, except for such defaults (or rights of termination
or acceleration)  as to which requisite  waivers or consents have been, or prior
to the Closing will have been,  obtained or which would not,  individually or in
the aggregate, create a Material Adverse Effect;

                                       30
<PAGE>
          (c) violate any law, rule,  regulation,  order, writ,  injunction,  or
decree,  applicable  to  Purchaser  or any  of its  assets,  except  where  such
violations,  individually  or in the  aggregate,  would  not  create a  Material
Adverse  Effect and will not  affect  the  validity  or  enforceability  of this
Agreement  or the  Ancillary  Agreements  or the  validity  of the  transactions
contemplated hereby or thereby; or

          (d) require  consent or approval  of,  filing  with,  or notice to any
Person  which,  if not obtained  would prevent  Purchaser  from  performing  its
obligations hereunder.

     5.4 ACC.  No approval or  consent,  directly or  indirectly,  of the ACC is
required for Purchaser's consummation of the transactions contemplated hereby.

     5.5 COMPLIANCE WITH LAWS. Purchaser has no Knowledge that it is in material
violation of any laws, orders, ordinances, rules, regulations or judgment of any
Governmental  Authority in existence  as of  execution  of this  Agreement  with
respect to the Assets, except for violations or alleged violations that will not
have a Material Adverse Effect.

     5.6  LITIGATION.  There is no claim,  action,  proceeding or  investigation
pending,  or  to  Purchaser's  Knowledge,  threatened  against  or  relating  to
Purchaser  or its  Affiliates  before  any  court,  arbitrator  or  Governmental
Authority,  or any  judgment,  decree  or  order  of any  court,  arbitrator  or
Governmental  Authority,   which  could,   individually  or  in  the  aggregate,
reasonably be expected to result,  or has resulted,  in (a) the  institution  of
legal  proceedings to prohibit or restrain the  performance of this Agreement or
any  of  the  Ancillary  Agreements,  or the  consummation  of the  transactions
contemplated hereby or thereby, (b) a claim against Seller or its Affiliates for
damages as a result of  Purchaser  entering  into this  Agreement  or any of the
Ancillary  Agreements,  or the  consummation  by Purchaser  of the  transactions
contemplated hereby or thereby, (c) a material impairment of Purchaser's ability
to  perform  its  obligations  under  this  Agreement  or any  of the  Ancillary
Agreements, or (d) a Material Adverse Effect.

     5.7  BROKERS.   All  negotiations   relating  to  this  Agreement  and  the
transactions contemplated hereby have been carried on by Purchaser and in such a
manner as not to give rise to any  valid  claim  against  Seller  (by  reason of
Purchaser's  actions)  for a brokerage  commission,  finder's  fee or other like
payment to any Person.

     5.8 FINANCING.  Purchaser has now, and at the Closing  Purchaser will have,
liquid capital or committed  sources therefor  sufficient to permit Purchaser to
perform timely its obligations  hereunder,  under the Ancillary Agreements,  and
under the Collateral Agreement.

     5.9 QUALIFIED FOR PERMITS. To Purchaser's Knowledge,  Purchaser is, or will
be prior to the Closing,  qualified to obtain any Facilities  Permits  necessary
for the  ownership and operation by Purchaser of the Assets as of the Closing in
substantially the same manner as the Assets are currently operated.

     5.10 "AS IS" SALE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, PURCHASER
UNDERSTANDS  AND AGREES THAT THE ASSETS ARE BEING  ACQUIRED "AS IS, WHERE IS" ON
THE CLOSING DATE, AND IN THEIR CONDITION ON THE CLOSING DATE, AND THAT PURCHASER
IS RELYING ON

                                       31
<PAGE>
ITS OWN  EXAMINATION  OF THE ASSETS.  WITHOUT  LIMITING  THE  GENERALITY  OF THE
FOREGOING AND EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES  EXPRESSLY SET FORTH
IN THIS  AGREEMENT,  PURCHASER  UNDERSTANDS  AND AGREES  THAT  SELLER  EXPRESSLY
DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES AS TO LIABILITIES, OPERATIONS OF THE
ASSETS,  TITLE,  CONDITION,  VALUE OR  QUALITY  OF THE  ASSETS OR THE  PROSPECTS
(FINANCIAL  OR  OTHERWISE),  RISKS AND OTHER  INCIDENTS  OF THE  ASSETS  AND ANY
REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE WITH RESPECT TO THE ASSETS OR ANY PART THEREOF,  OR AS TO
THE WORKMANSHIP  THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN,  WHETHER LATENT
OR PATENT.  PURCHASER FURTHER AGREES THAT NO INFORMATION OR MATERIAL PROVIDED BY
OR COMMUNICATION  MADE BY SELLER OR ANY  REPRESENTATIVE  OF SELLER WILL CAUSE OR
CREATE ANY  REPRESENTATION  OR WARRANTY  DISCLAIMED BY THE  FOREGOING  EXCEPT AS
DISCLOSED IN THIS AGREEMENT OR IN A SCHEDULE ATTACHED HERETO.

                                   ARTICLE 6
                             COVENANTS OF EACH PARTY

     6.1 EFFORTS TO CLOSE.

          (a)  COMMERCIALLY  REASONABLE  EFFORTS.   Subject  to  the  terms  and
conditions  herein  provided,  each  of the  Parties  hereto  agrees  to use its
Commercially  Reasonable  Efforts to consummate and make  effective,  as soon as
reasonably  practicable,  the transactions  contemplated  hereby,  including the
satisfaction  of all  conditions  thereto set forth  herein.  Such actions shall
include,  without limitation,  exerting their Commercially Reasonable Efforts to
obtain the consents, authorizations and approvals of all private parties and any
Governmental  Authority whose consent is reasonably  necessary to effectuate the
transactions   contemplated   hereby,   and   effecting   all  other   necessary
registrations  and  filings,  including,   without  limitation,   filings  under
applicable laws,  including the HSR Act and all other necessary filings with the
CPUC, FERC (including applications to transfer the Facilities  Switchyard),  and
any other Governmental Authority.  All appearances,  presentations,  briefs, and
proposals  made  or  submitted  by or on  behalf  of  either  Party  before  any
regulatory  authority in connection with the approval of the transactions  shall
be subject to the joint approval or disapproval in advance and the joint control
of Purchaser and Seller,  acting with the advice of their respective counsel, it
being the intent that the Parties will consult and  cooperate  with one another,
and consider in good faith the views of one another, in connection with any such
appearance,  presentation,  brief, and proposal; provided that in the event of a
disagreement  concerning any such appearance,  presentation,  brief, or proposal
before the CPUC, the determinations of Seller shall be controlling; and provided
further that nothing will prevent a Party from responding to a subpoena or other
legal process as required by law or submitting  factual  information in response
to a request therefor,  and provided further that Seller,  but not the Purchaser
without  the advance  approval of Seller  (unless  requested  by the CPUC),  may
engage  in  private  meetings  or in  camera  proceedings  with  members  and/or
representatives of the CPUC if it reasonably apprises Purchaser of the nature of
such meetings or

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<PAGE>
proceedings.  Each  Party will  provide  the other  with  copies of all  written
communications  from  Governmental  Authorities  relating  to  the  approval  or
disapproval of the  transactions  contemplated  by the Agreement,  the Ancillary
Agreements, and the Collateral Agreement.

          (b) EXPENSES.  Whether or not the transactions contemplated hereby are
consummated,  except as  otherwise  provided  in this  Agreement,  all costs and
expenses  incurred  in  connection  with  this  Agreement  and the  transactions
contemplated  hereby  shall  be  paid  by the  Party  incurring  such  expenses.
Notwithstanding the foregoing:

               (i) Costs  associated  with  preliminary  title reports and title
policies  shall be borne by Seller up to the costs that would have been incurred
had the title policies been standard coverage  policies of title insurance,  and
the  remaining  costs,  if any,  including  costs for extended  coverage and any
endorsements  shall be borne by Purchaser (except that any survey costs shall be
borne one-half by Purchaser and one-half by Seller);

               (ii) Documentary  transfer fees, if any, will be borne by Seller,
and recording costs and charges  respecting real property will be borne one-half
by Purchaser and one-half by Seller;

               (iii) Except as otherwise  specifically set forth in SECTION 6.5,
all fees,  charges and costs of economists  and other experts,  if any,  jointly
retained by Purchaser  and Seller in  connection  with  submissions  made to any
Governmental Authority and advice in connection therewith respecting approval of
the transactions will be borne one-half by Purchaser and one-half by Seller.

     All such charges and expenses shall be promptly settled between the Parties
at the Closing or upon  termination or expiration of further  proceedings  under
this  Agreement,  or with respect to such charges and expenses not determined as
of such time, as soon thereafter as is reasonably practicable.

     6.2  TRANSMISSION.  Commencing on the Effective Date, the Parties shall use
Commercially  Reasonable  Efforts to enter into an agreement or agreements which
achieve the objectives  and outcomes  outlined in the  Transmission  Term Sheet.
Further,  the Parties shall use  Commercially  Reasonable  Efforts to secure the
regulatory   approvals  and  consents  necessary  to  cause  such  agreement  or
agreements to become effective as of the Closing Date; provided,  however,  that
the effectiveness of the agreement or agreements contemplated under this SECTION
6.2  shall  not be a  condition  of  Closing;  provided  further,  that  if such
agreement  or  agreements  are not  effective as of the Closing Date the Parties
shall continue to use Commercially  Reasonable  Efforts to secure such agreement
or agreements.

     6.3  UPDATING.  Seller shall  promptly  notify  Purchaser of any changes or
additions  to any of Seller's  Schedules to this  Agreement  with respect to the
Assets or  Assumed  Liabilities  related  thereto  by the  delivery  of  updates
thereof,  if any, as of a reasonably  current date prior to the Closing,  but in
any event not later than three (3) Business Days prior thereto.  No such updates
made  pursuant to this  Section  shall be deemed to cure any  inaccuracy  of any
representation or warranty made in this Agreement as of the date hereof,  unless
Purchaser

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<PAGE>
specifically  agrees  thereto in  writing,  nor shall any such  notification  be
considered  to constitute or give rise to a waiver by Purchaser of any condition
set forth in this Agreement.  Without  limiting the generality of the foregoing,
Seller shall notify  Purchaser  promptly of the  occurrence  of (i) any material
casualty,  physical  damage,  destruction  or physical loss  respecting,  or any
material  adverse  change in the  physical  condition of the  Facilities  or the
Facilities  Switchyard,  subject  to  ordinary  wear  and  tear  and to  routine
maintenance,  reasonably likely to result in a Material Adverse Effect, and (ii)
any other material event likely to impair  Seller's  ability to perform,  if, in
the cases of clauses (i) and (ii),  the  occurrence  is one of which  Seller has
Knowledge and of which the Operating Agent does not have Knowledge.

     6.4 CONDUCT PENDING  CLOSING.  Prior to  consummation  of the  transactions
contemplated  hereby or the termination or expiration of this Agreement pursuant
to its terms, and except to the extent approved by the other Facilities  Owners,
Seller  shall,  in its capacity as a Facilities  Owner,  exercise its rights and
discharge its  obligations  under the  Facilities  Co-Tenancy  Agreement and the
Facilities Operating Agreement in a manner which allows the Operating Agent to:

          (a) Operate and maintain the Assets  materially in accordance with the
usual and ordinary  course,  consistent  with  practices  followed  prior to the
execution of this Agreement;

          (b) Except as required by their terms,  or except to the extent agreed
to  unanimously  by the  Facilities  Owners,  not amend,  terminate,  renew,  or
renegotiate  any existing  Facilities  Contract or enter into any new Facilities
Contract,  except  in the  ordinary  course  of  business  and  consistent  with
practices  of the recent  past,  or default  (or take or omit to take any action
that with or without the giving of notice or passage of time, would constitute a
default) under any of their obligations under any such contracts;

          (c) Not: (i) sell, lease, transfer or dispose of, or make any contract
for the sale lease,  transfer or disposition of, any assets or properties  which
would be  included  in the Assets,  other than sales in the  ordinary  course of
business  which would not  individually,  or in the  aggregate,  have a Material
Adverse  Effect upon the operations or value of the Facilities or the Facilities
Switchyard;  (ii) incur, assume, guaranty, or otherwise become liable in respect
of any indebtedness for money borrowed which would result in Purchaser  assuming
such  liability  hereunder  after  the  Closing;  (iii)  delay the  payment  and
discharge of any liability which, upon Closing,  would be an Assumed  Liability,
because of the transactions contemplated hereby; or (iv) encumber or voluntarily
subject to any lien any Asset, except for Permitted Encumbrances;

          (d) Maintain in force and effect the material  property and  liability
insurance  policies  related to the Facilities or the Facilities  Switchyard and
the Assets;

          (e)  Not  take  any  action   which   would   cause  any  of  Seller's
representations  and warranties set forth in ARTICLE 4 to be materially false as
of the Closing; and

          (f) Not take any action or exercise  any voting  right with respect to
the Facilities or the Facilities  Switchyard,  including voting rights under the
Facilities Contracts,  other than in good faith (subject to the foregoing,  with
respect to any matter which requires a

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<PAGE>
vote of the Facilities Owners, Seller shall, if reasonably practicable,  consult
with Purchaser prior to such vote and take the Purchaser's views into account in
good faith);

     PROVIDED,  that  nothing in this  Section  shall (i)  preclude  Seller from
paying, prepaying or otherwise satisfying any liability which, if outstanding as
of the Closing Date, would be an Assumed Liability or an Excluded Liability,  or
(ii) preclude  Seller from incurring any liabilities or obligations to any third
party in  connection  with  obtaining  such Party's  consent to any  transaction
contemplated by this Agreement or the Ancillary Agreements.

     6.5 CONSENTS AND APPROVALS.

          (a) Subject to SECTION  6.1(a),  as promptly as practicable  after the
date of this  Agreement,  Seller  and  Purchaser  shall each file or cause to be
filed with the  Federal  Trade  Commission  and the  Department  of Justice  all
notifications  required  to be  filed  under  the  HSR Act  and  the  rules  and
regulations promulgated thereunder with respect to the transactions contemplated
hereby.  The Parties shall consult with each other as to the appropriate time of
filing  such  notifications  and shall  agree upon the  timing of such  filings,
respond  promptly to any requests for additional  information  made by either of
such agencies,  and cause the waiting  periods under the HSR Act to terminate or
expire at the earliest  possible  date after the date of filing.  Purchaser  and
Seller  shall be equally  responsible  for the cost of all filing fees under the
HSR Act and each Party will bear its own costs for the  preparation  of any such
filing.

          (b) Subject to SECTION  6.1(a),  (i) Seller shall seek, as part of the
CPUC  authorization,  a determination by the CPUC that allowing the Assets to be
an eligible  facility under Section 32 of the Public Utility Holding Company Act
of 1935, as amended, (A) will benefit consumers,  (B) is in the public interest,
and (C) does not violate  state law; (ii) as promptly as  practicable  after the
date of this Agreement,  Purchaser  shall file with FERC any other  applications
required  under the Federal  Power Act for the  purchase  and sale  contemplated
hereby,  which  filing(s) may be made  individually by Purchaser or jointly with
Seller,  as  reasonably  determined  by the  Parties  and (iii) as  promptly  as
practicable  after the date of this  Agreement  the Parties shall file with FERC
any other applications  required under the Federal Power Act for the approval of
the agreement  entered into pursuant to the Transmission  Term Sheet.  Purchaser
shall  be  solely  responsible  for  the  cost  of  preparing  and  filing  this
application, any petition(s) for rehearing, or any reapplication(s).

          (c) Subject to SECTION  6.1(a),  as promptly as practicable  after the
date of this Agreement,  Seller and Purchaser shall submit such documents as are
necessary  to obtain the  approval  of the Navajo  Nation and the United  States
Department of the Interior ("DOI") to the transaction subject to this Agreement.
Subject to SECTION  6.1(a),  the Parties shall respond  promptly to any requests
for additional  information made by the Navajo Nation and/or the DOI,  cooperate
in connection with any  presentation  or proceeding  associated with such Navajo
Nation  and/or  DOI  approval  and use their  respective  best  efforts to cause
approval to be obtained at the earliest  possible date after the date of filing.
The Parties shall consult with each other as to the  appropriate  time of filing
such  applications  and shall agree upon the timing of such  applications.  Each
Party  will  bear its own  costs in  connection  with  obtaining  such  consent,
provided, Purchaser shall pay any reasonable fee or other amount as is necessary
to obtain the approval of

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<PAGE>
the Navajo  Nation,  the Parties hereby  agreeing that the amounts  specified in
that certain Consent  Protocol  Agreement which has the Navajo Nation as a party
are reasonable.

          (d)  Subject  to SECTION  6.1(a),  Purchaser  shall  have the  primary
responsibility  for securing the  transfer,  reissuance  or  procurement  of the
Facilities   Permits  effective  as  of  the  Closing  Date.  Seller  shall  use
Commercially  Reasonable  Efforts to cooperate with Purchaser's  efforts in this
regard and assist in any transfer or reissuance  of  Facilities  Permits held by
Seller or the procurement of any other  Facilities  Permits when so requested by
Purchaser.

          (e) Within  fifteen (15) days after the receipt of any  Purchaser's or
Seller's Required  Regulatory  Approval,  the Party receiving such approval (the
"RECEIVING  PARTY")  shall  notify the other  Party in  writing if the  approval
contains any condition that the Receiving Party  determines  could reasonably be
expected to have a Material  Adverse  Effect on the  Receiving  Party or, in the
case of Purchaser, on the Assets; provided, however, that if the Receiving Party
does not  provide  such notice to the other  Party  within the fifteen  (15)-day
period  specified in this sentence,  the Receiving Party shall be deemed to have
accepted such Required  Regulatory  Approval,  including any condition contained
therein,  and the  condition to Closing set forth in SECTION 8.4 or SECTION 9.4,
as applicable to such Party with respect to such Required  Regulatory  Approval,
shall be deemed satisfied.  Within fifteen (15) days after receipt of any notice
specified in the previous sentence,  Seller and Purchaser shall meet to consider
what  Commercially  Reasonable  Efforts the  Receiving  Party intends to take in
order to obtain the Required  Regulatory Approval or to eliminate the materially
adverse  conditions.  After the Receiving  Party has completed  such agreed upon
Commercially Reasonable Efforts with respect to the materially adverse condition
contained in such Required Regulatory Approval, within fifteen (15) days of such
completion,  the Receiving  Party shall notify the other Party if the materially
adverse  condition  has been  eliminated  or remains in effect,  and whether the
Receiving Party either will accept such materially adverse condition by a waiver
of the applicable  Closing  condition in SECTION 8.4 or 9.4 with respect to such
materially  adverse  condition or deem that the applicable  Closing condition in
SECTION 8.4 or 9.4 cannot be satisfied due to the materially  adverse  condition
in such Required Regulatory Approval.

     6.6 TAX MATTERS.

          (a) All Transfer Taxes incurred in connection  with this Agreement and
the  transactions  contemplated  hereby  shall be borne  one-half  by Seller and
one-half by Purchaser.  Seller will file,  to the extent  required by applicable
law, all necessary Tax Returns and other  documentation with respect to all such
Transfer Taxes, and Purchaser will be entitled to review such returns in advance
and, if required by  applicable  law, will join in the execution of any such Tax
Returns or other  documentation.  Not less than five (5) Business  Days prior to
the due date of such Tax Returns, Purchaser shall pay the Seller one-half of the
amount shown as due on such Tax Returns,  as determined in accordance  with this
Agreement,  and shall,  to the extent  required by Law, join in the execution of
any such Tax  Return.  Prior to the  Closing  Date,  Purchaser  will  provide to
Seller,  to  the  extent  possible,  an  appropriate  exemption  certificate  in
connection with this Agreement and the transactions  contemplated  hereby,  with
respect to each applicable taxing authority.

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<PAGE>
          (b) With  respect to Taxes to be prorated in  accordance  with SECTION
3.6 of this Agreement  (except for pro-rated  Property Taxes required to be paid
by Seller),  Purchaser shall prepare and timely file all Tax Returns required to
be filed after the Closing  with  respect to the Assets,  if any, and shall duly
and timely pay all such Taxes shown to be due on such Tax  Returns.  Purchaser's
preparation of any such Tax Returns shall be subject to Seller's approval, which
approval shall not be  unreasonably  withheld or delayed.  Purchaser  shall make
such Tax Returns  available  for Seller's  review and approval  (which  approval
shall not be  unreasonably  withheld  or  delayed)  no later than  fifteen  (15)
Business  Days  prior to the due  date for  filing  such Tax  Returns,  it being
understood that Seller's failure to approve any such Tax Returns shall not limit
Purchaser's  obligation  to timely file such Tax Returns and duly and timely pay
all Taxes shown to be due thereon. Not less than five (5) Business Days prior to
the due date of any such Tax Return,  Seller shall pay to  Purchaser  the amount
shown as due on such Tax Returns as determined in accordance with SECTION 3.6 of
this Agreement and shall,  to the extent  required by law, join in the execution
of any such Tax Returns.

          (c) With respect to pro-rated Property Taxes,  specifically  including
but not  limited to  Property  Tax  Returns  prepared  and filed with any Tribal
Authority,  Seller's  preparation  of any such Tax  Return  shall be  subject to
Purchaser's  approval,  which  approval  shall not be  unreasonably  withheld or
delayed. Seller shall make such Tax Returns available for Purchaser's review and
approval  no later than  fifteen  (15)  Business  Days prior to the due date for
filing such Tax Return,  it being  understood  that the  Purchaser's  failure to
approve any such Tax Return shall not limit  Seller's  obligation to timely file
such Tax Returns.  In preparing  and reviewing  said Property Tax Returns,  each
Party shall cooperate and act in good faith to resolve any disagreement  related
to such Tax Returns as between the  Parties or as between  either  Party and any
Governmental Authority.

          (d)  Purchaser  and Seller  shall  provide  the other  Party with such
assistance as may reasonably be requested by the other Party in connection  with
the preparation of any Tax Return,  any audit or other examination by any taxing
authority,  or any judicial or administrative  proceedings relating to liability
for  Taxes,  and each will  retain and  provide  the  requesting  Party with any
records  or  information  which  may  be  relevant  to  such  return,  audit  or
examination,  proceedings or determination. Any information obtained pursuant to
this  SECTION 6.6 or  pursuant to any other  Section  hereof  providing  for the
sharing of information or review of any Tax Return or other schedule relating to
Taxes  shall be kept  confidential  by the  Parties  hereto in  accordance  with
SECTION 6.9.

          (e) In the event that a dispute arises between Seller and Purchaser as
to the amount of Taxes,  the Parties shall attempt in good faith to resolve such
dispute,  and any amount so agreed upon shall be paid to the appropriate  Party.
If such dispute is not resolved within thirty (30) days thereafter,  the Parties
shall  submit the dispute to the  Independent  Accounting  Firm for  resolution,
which  resolution  shall  be  final,  conclusive  and  binding  on the  Parties.
Notwithstanding  anything  in this  Agreement  to the  contrary,  the  fees  and
expenses of the  Independent  Accounting  Firm in resolving the dispute shall be
borne  equally by Seller and  Purchaser.  Any  payment  required to be made as a
result of the resolution of the dispute by the Independent Accounting Firm shall
be made within ten (10) days after such  resolution,  together with any interest
determined by the Independent Accounting Firm to be appropriate.

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<PAGE>
          (f) Seller  hereby  certifies  that all  Transfer Tax  liabilities  of
Seller  accruing before the Closing Date have been or will be fully satisfied or
provided  for. In the event the  Purchaser  is assessed  any  Transfer  Tax with
respect to the Assets for any period prior to the Closing  Date,  the  Purchaser
shall  notify the Seller  promptly  and shall  provide the Seller with a validly
executed  power of  attorney  authorizing  the Seller to act in the  Purchaser's
stead with regard to the  assessment.  Whether Seller  determines to contest any
such  assessment in whole or in part,  Seller shall  indemnify and hold harmless
the  Purchaser  in  connection  with any  assessment  of Tax  described  in this
section,  whether  or  not  contested  hereunder,  to  the  extent  such  Tax is
determined to be due and owing,  together with interest and penalties as well as
any  expenses  incurred  (including  legal  fees  that  may be  incurred  by the
Purchaser) in  participating  in any action related to such  assessment.  If the
laws of the State or the local  taxing  authority  require  payment of  assessed
Taxes as a condition to contesting or further  contesting  their  applicability,
the Seller shall make such payments  together with interest and  penalties.  The
Purchaser  agrees to  cooperate  fully in  initiating  and  pursuing  any action
directed  by the Seller  for  recovery  of such  payments  and shall  refund any
amounts  received  (including  interest and penalties)  within three (3) days of
receipt by the Purchaser.  Any action to contest Tax assessments hereunder or to
recover Taxes paid  hereunder by the Seller on behalf of the Purchaser  shall be
under the control of the Seller and at the Seller's sole cost and expense

          (g)  Notwithstanding  any other provision hereof,  Purchaser covenants
and  agrees  that,  after  the  Closing  Date,  Purchaser  will,  to the  extent
practicable,  and at  Seller's  expense,  (i)  provide  or cause to be  provided
written notice to Seller sixty (60) days in advance of taking any of the actions
specified on a Schedule to be provided by Seller to Purchaser within one hundred
twenty (120) days of the  Effective  Date,  which  Schedule  shall be reasonably
acceptable to Purchaser, listing actions or modifications to the Assets which in
Seller's  reasonable opinion could result in a loss of the exclusion of interest
on the Pollution Control Bonds from gross income for federal income tax purposes
under  Code  Section  103,  and (ii) take any  reasonable  actions  which it has
authority  to take that are  reasonably  requested  by Seller in writing for the
purpose of maintaining such exclusion  (including without limitation,  inserting
notification  requirements  in operating  manuals and posting notices within the
Facilities).  Notwithstanding  anything in this  Agreement to the contrary,  (i)
Purchaser  will have no liability  whatsoever in excess of $250,000 to Seller or
any  other  Person  if  Purchaser  fails to  comply  with the  covenants  in the
preceding  sentence and (ii) Purchaser shall not be required to take, or refrain
from taking,  any action  inconsistent  with  Purchaser's  rights or obligations
under any of the Facilities  Contracts.  Purchaser  further covenants and agrees
that, in the event that Purchaser transfers any of the Assets, Purchaser,  shall
obtain  from its  transferee  a covenant  and  agreement  that is  analogous  to
Purchaser's  covenants  and  agreements in this SECTION  6.6(g)  pursuant to the
first sentence of this SECTION 6.6(g),  as well as a covenant and agreement that
is analogous to that of this sentence.  This covenant shall survive  Closing and
shall  continue  in  effect  so long  as such  Pollution  Control  Bonds  remain
outstanding.  Seller  agrees to  promptly  notify  Purchaser  at such time as no
Pollution Control Bonds remain outstanding.  Seller will reimburse Purchaser for
any expenses  incurred by Purchaser in connection  with  Purchaser's  compliance
with this SECTION 6.6(g). The term "POLLUTION CONTROL BONDS" means the pollution
control bonds  specified on SCHEDULE  6.6(g)(ii),  and any  refundings  thereof,
issued or to be issued on behalf of Seller in connection with the Assets.

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<PAGE>
     6.7 RISK OF LOSS.

          (a) Between the date hereof and the Closing Date,  all risk of loss or
damage to the property included in the Assets shall be borne by Seller.

          (b) If, before the Closing Date,  all or any portion of the Facilities
or the  Facilities  Switchyard  become  subject  to or is  threatened  with  any
condemnation  or  eminent  domain  proceeding,  Seller  shall  notify  Purchaser
promptly in writing of such fact. If such taking would create a Material Adverse
Effect, then Purchaser may, at its option, (i) receive from Seller an assignment
of any claim,  settlement or proceeds  thereof and proceed with the transactions
contemplated  by this  Agreement,  or (ii) terminate this Agreement  pursuant to
SECTION 10.1.

          (c) If,  before the Closing Date all or any portion of the  Facilities
or the Facilities  Switchyard are damaged or destroyed  (whether by fire, theft,
vandalism  or other  casualty)  in whole or in part  prior to the  Closing,  and
Seller's  share of the fair market  value of such damage or  destruction  or the
cost of repair of the Facilities or the Facilities Switchyard that were damaged,
lost or destroyed is less than fifteen  percent (15%) of the aggregate  Purchase
Price, Seller shall, at its option,  either (i) reduce the Purchase Price by the
lesser of the Seller's  share of the fair market value of the  Facilities or the
Facilities  Switchyard  damaged or destroyed  (such value to be determined as of
the date immediately prior to such damage or destruction), or the Seller's share
of the  estimated  cost to repair or  restore  the same (any  disagreement  with
respect thereto being resolved in accordance  with SECTION 11.9),  (ii) upon the
Closing,  transfer  the  proceeds or the rights to the  proceeds  of  applicable
insurance  to  Purchaser,  or (iii)  bear  the  Seller's  share of the  costs of
repairing or restoring  such damaged or destroyed  portions of the Facilities or
the Facilities  Switchyard and, at Seller's election,  delay the Closing and any
right to terminate this Agreement for a reasonable  time necessary to accomplish
the same. If any part of the Facilities or the Facilities  Switchyard is damaged
or destroyed  (whether by fire, theft,  vandalism or other casualty) in whole or
in part prior to the  Closing and the lesser of the  Seller's  share of the fair
market value of the Facilities or the Facilities Switchyard damaged or destroyed
or the  Seller's  share of the cost of repair is greater  than  fifteen  percent
(15%) of the aggregate  Purchase  Price,  then Purchaser may elect either to (x)
require  Seller  upon the Closing to  transfer  the rights to Seller's  share of
proceeds (or the right to the proceeds) of applicable insurance to Purchaser and
proceed with the transactions  contemplated by this Agreement,  or (y) terminate
this Agreement.

     6.8 COOPERATION RELATING TO INSURANCE.  Until the Closing,  Seller will not
take any action  that will  decrease  the level of  insurance  coverage  for the
Facilities  and the  Facilities  Switchyard  as in  effect  on the date  hereof,
including,  without limitation,  property damage and liability insurance, unless
agreed  by the  other  Facilities  Owners.  In  addition,  Seller  agrees to use
Commercially Reasonable Efforts to assist Purchaser in making any claims against
pre-Closing  insurance  policies of Seller that may provide  coverage related to
Assumed  Liabilities.  Purchaser  agrees that it will  indemnify  Seller for its
reasonable  out-of-pocket  expenses  incurred in providing  such  assistance and
cooperation.  On and after the Closing, Seller authorizes the Operating Agent to
take any  actions  necessary  to remove  Seller  from any  Facilities  Insurance
Policies and Seller  agrees to waive its rights with  respect to such  insurance
coverage from and after the Closing. If requested by Seller, Purchaser agrees to
exercise Commercially Reasonable

                                       39
<PAGE>
Efforts to assist  Seller,  at Seller's  cost,  in  obtaining  so-called  "tail"
coverage in respect of claims  brought  after the  Closing for events  occurring
prior to the Closing, including, if appropriate, listing Seller as an additional
insured or named insured in policies of Purchaser and/or the Facilities Owners.

     6.9 CONFIDENTIALITY.

          (a)  GENERAL.  Each  Party  (and  its  officers,  employees,  counsel,
representatives  and agents)  will,  using the same degree of care as that Party
takes to preserve and safeguard its own  confidential  information,  maintain in
confidence  and not  disclose to third  Persons,  any  Confidential  Information
received   from  the  other  Party  (or  its   officers,   employees,   counsel,
representatives and agents) in connection with the transactions  contemplated by
this Agreement.  Each Party may disclose Confidential  Information received from
the other Party if and to the extent  required by law, court order,  subpoena or
other lawful order of a Governmental  Authority with  jurisdiction,  or with the
prior  written  consent of the other  Party.  If this  Agreement  is  terminated
pursuant to ARTICLE 10  "Termination,"  each Party will return  promptly,  if so
requested by the other Party,  any Confidential  Information  provided to it and
will use Commercially  Reasonable  Efforts to return any copies thereof that may
have  been   provided   to  others  in   accordance   with  this   SECTION   6.9
"Confidentiality." To the extent practicable, the Parties further agree, subject
to Section 6.13, to not issue any public announcement,  statement, press release
or other public  disclosure  with respect to this Agreement or the  transactions
contemplated  hereby without the prior written consent of the other Party, which
consent will not be unreasonably  withheld. To the extent the provisions of this
SECTION 6.9(a) conflict with the Confidentiality  Agreement, this SECTION 6.9(a)
shall supersede the applicable provision of the Confidentiality Agreement.

          (b) REGULATORY  AGENCIES.  Subject to SECTION  6.1(a),  upon the other
Party's prior written  approval  (which,  except as provided below,  will not be
unreasonably withheld), either Party may provide Confidential Information to the
CPUC, FERC or any other Governmental Authority with jurisdiction as necessary to
obtain Seller's Required Regulatory Approvals or Purchaser's Required Regulatory
Approvals  or  approval  under  the HSR Act.  The  disclosing  Party  will  seek
confidential  treatment  for  the  Confidential   Information  provided  to  any
Governmental  Authority and the disclosing  Party will notify the other Party as
far in advance as is practicable of its intention to release to any Governmental
Authority any Confidential Information.

          (c)  SURVIVAL.  The  obligations  of the  Parties in this  Section 6.9
"Confidentiality" will survive the termination of this Agreement,  the discharge
of all other  obligations  owed by the  Parties to each other,  any  transfer of
title to the Assets and the  Closing of the  transactions  contemplated  in this
Agreement.

     6.10 ADEQUATE ASSURANCE. Within thirty (30) days following Seller's Section
851 filing with the CPUC relating to this Agreement and Collateral Agreement (if
not already received):

          (a) a copy  of  the  Sixth  Amendment  to  the  Facilities  Co-Tenancy
Agreement executed by all Participants, including the Operating Agent;

                                       40
<PAGE>
          (b) a copy of the Navajo  Protocol  Agreement  executed  by the Navajo
Nation;

          (c) adequate  assurance from the Operating Agent that, with respect to
the  Facilities,  the Operating  Agent will  cooperate  with Seller (at Seller's
cost) to provide Seller or Seller's  authorized agents with timely access to due
diligence  information  concerning  and access to the  Facilities  (subject to a
customary  site  access   agreement)  in  good  faith  in  accordance  with  its
obligations under the Facilities  Contracts.  Such adequate  assurance shall not
obligate  the  Operating  Agent to exceed its rights and  obligations  under the
Facilities  Contracts and in the event the  Operating  Agent  believes,  in good
faith  that  it  is  unable  to  provide  such   information  or  access,   such
determination  shall be binding on the Seller for  purposes  of this  Agreement,
unless the Facilities Owners shall determine  otherwise,  in accordance with the
provisions of the Co-Tenancy  Agreement or the Facilities  Operating  Agreement,
provided  that nothing  herein  shall be deemed or  construed to limit  Seller's
rights of access or  information  under the  Co-Tenancy  Agreement  or the other
Facilities   Contracts   or  to  which  it  may   otherwise  be  entitled  as  a
tenant-in-common with respect to the Assets.

     6.11 TITLE TO REAL  PROPERTY  AND LEASED  PROPERTY.  As soon as  reasonably
possible after the Effective Date, Seller and Purchaser shall work cooperatively
with the Operating Agent to cause Title Insurer to deliver a current preliminary
title report on the real  property and leased  property  included in the Assets,
accompanied  by legible  copies of all  documents  referred to in the  exception
portion of such report, to Purchaser (the "PRELIMINARY TITLE REPORT"). Purchaser
shall  have not more  than  thirty  (30)  days  from  the  delivery  date of the
Preliminary Title Report in which to review and to give Seller and Title Insurer
written notice of any title exception  which is unacceptable to Purchaser,  and,
in the event any amendment is issued to the Preliminary Title Report,  Purchaser
shall have not more than thirty (30) days from the  delivery of an  amendment to
deliver a written objection to any title exception  appearing for the first time
in such amendment.  If Purchaser is dissatisfied  with any exception to title as
shown in the Preliminary Title Report, then, Seller shall have until the Closing
to eliminate any disapproved  exceptions from the Preliminary  Title Report,  or
obtain title insurance  endorsements  against such exceptions.  If Seller cannot
remove  such  exceptions  or obtain  title  insurance  endorsements  before  the
Closing, then Purchaser may either cancel this Agreement, or Purchaser may waive
such objections and the transaction  shall close as scheduled,  provided that if
Purchaser  disapproves  any title  exception that would  otherwise  qualify as a
Permitted  Encumbrance  under SECTION 1.1.59 but for  Purchaser's  position that
such title exception  constitutes or will constitute a Material  Adverse Effect,
then Seller shall have the right to terminate this Agreement (and the Collateral
Agreement) on fifteen (15)  Business  Days' notice given within thirty (30) days
following Purchaser's  disapproval of such title exception.  Notwithstanding any
other provision  hereof,  the following  exceptions  shall be deemed accepted by
Purchaser and need not be removed or endorsed over: (a) Permitted  Encumbrances;
and (b)  exceptions  not  objected  to in writing by  Purchaser  during the time
periods set forth above.

     6.12  RIGHT  OF  FIRST  REFUSAL.  If one or more of the  Facilities  Owners
exercises  their right of first  refusal  with  respect to the Assets  under the
Facilities Co-Tenancy Agreement,  Purchaser's  affiliate,  APS shall, subject to
the terms and  conditions  of the  Facilities  Co-Tenancy  Agreement and without
limitation of any of the rights of the other the Facilities  Owners  thereunder,
automatically  and without  further notice to Seller be deemed to have exercised
its

                                       41
<PAGE>
right  of first  refusal  with  respect  to the  Assets  to the  maximum  extent
permitted  by the  Facilities  Co-Tenancy  Agreement.  Seller  hereby  agrees to
promptly  orally  notify  Purchaser,  confirmed  in  writing,  as to any notices
received by Seller pursuant to Section 13 of the Facilities Co-Tenancy Agreement
regarding the Facilities Owners' right of first refusal.

     6.13 THIRD PARTY OFFERS.

          (a) Within  forty-five  (45) days (or more,  up to ninety (90) days in
the aggregate,  as determined by Seller)  before or after  Seller's  Section 851
filing with the CPUC  relating to this  Agreement and the  Collateral  Agreement
(the "INITIAL PERIOD"),  Seller may solicit or invite Superior Offers or written
indications  of interest from  Qualified  Offerors by such means as Seller deems
appropriate, including issuing press releases, public announcements, mailings of
relevant portions of such Section 851 filing to prospective  Qualified Offerors,
invitation  letters,  and  similar  means.  Upon the  expiration  of the Initial
Period, Seller will cease all active solicitations of third parties with respect
to any actual or potential  Superior Offers.  Within five (5) days following the
close of the Initial  Period,  Seller will provide  Purchaser with copies of any
Superior  Offers or  indications  of interest  for Superior  Offers  received by
Seller during the Initial  Period,  and Seller shall designate one such offer or
indication of interest as its Initial  Period offer for purposes of  Purchaser's
rights in the following sentence (the "INITIAL PERIOD OFFER"). Thereafter, until
fifteen (15) days after the close of the Initial  Period (the "SECOND  PERIOD"),
Purchaser  shall  have  the  right to  eliminate  further  consideration  of any
Superior  Offers or  indications  of interest for a Superior  Offer by providing
Seller written  notification  that Purchaser will match the Initial Period Offer
(net of the  Termination  Fee and the  Incremental  Costs) by providing  written
notice  thereof to Seller during the Second  Period.  Purchaser and Seller shall
then  enter  into  amendments  to  this  Agreement  or  this  Agreement  and the
Collateral Agreement, as the case may be, that would result in this Agreement or
this Agreement and the Collateral  Agreement,  as the case may be, having a cash
Purchase Price,  after  application of cash adjustments and cash  reimbursements
equal to the Initial Period Offer cash purchase price, after application of cash
adjustments and cash reimbursements  specified therein, and less the Termination
Fee and the Incremental Costs.

          (b)  If,  by the  end of the  Second  Period,  the  Purchaser  has not
indicated  to Seller its intent to match the Initial  Period Offer in the manner
described  IN SECTION  6.13(a),  Seller may engage in further  negotiations  and
discussions  regarding  remaining  Superior  Offers or  indications  of interest
therefor  received  during the Initial  Period for a period of up to 75 days (or
more, up to 120 days in the  aggregate,  as determined by Seller)  following the
end of the Second  Period  (the  "ACCEPTANCE  PERIOD").  During  the  Acceptance
Period, the Seller may provide information to the Qualified Offerors,  engage in
substantive  discussions and negotiations with the Qualified Offerors or conduct
one or more  auctions  among the  Qualified  Offerors.  In the event that Seller
elects to enter into a binding  agreement with a Qualified  Offeror with respect
to a Superior Offer (a "THIRD PARTY AGREEMENT"),  Seller must provide,  no later
than ten (10) days  following the  Acceptance  Period and prior to entering into
the Third Party  Agreement (or after entering into the Third Party Agreement but
subject to the terms of this Section 6.13) written notice thereof,  which notice
shall  include all the terms and  conditions of the Third Party  Agreement.  The
Parties will then have the following rights:

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<PAGE>
               (i)  Within  thirty  (30)  days  following   Seller's  notice  to
Purchaser of Seller's  intent to enter or entry into the Third Party  Agreement,
the Purchaser may notify Seller that  Purchaser  agrees to amend this  Agreement
(and, to the extent applicable,  the Collateral Agreement) to conform its terms,
conditions  and  price  to  those  of the  Third  Party  Agreement  (net  of the
Termination  Fee).  Such  notice  by  Purchaser  shall  be  accompanied  by such
amendments  proposed by  Purchaser.  Such  amendments  shall be deemed  adopted,
unless Seller notifies  Purchaser in writing of its specific  objections thereto
within ten (10) Business  Days of its receipt of  Purchaser's  notice,  in which
case the Parties shall exercise Commercially  Reasonable Efforts to resolve such
disagreements  as quickly as reasonably  practicable and to execute  appropriate
amendments in good faith within twenty (20) Business Days following  Purchaser's
original notice under this clause (i), it being understood that any disagreement
between the  Parties  shall be subject to  arbitration  in  accordance  with the
provisions hereof. Upon execution of such amendments,  the Third Party Agreement
shall be of no further force and effect (except as a standby  commitment  should
the Closing not occur under this Agreement as amended);

               (ii) If the Third  Party  Agreement  relates  to the  assets  and
liabilities  subject to this  Agreement  and the  Collateral  Agreement  and the
Purchaser  does not elect to amend the  Collateral  Agreement and this Agreement
within thirty (30) days following  Purchaser's  receipt of Seller's notice,  the
Collateral  Agreement and this  Agreement will  automatically  terminate and the
Seller shall, within five (5) Business Days, pay the Purchaser a termination fee
equal to two and one-half  percent (2.5%) of the Initial  Purchase Price for the
transactions  contemplated by the Collateral  Agreement and this  Agreement,  it
being agreed that  Purchaser  will be entitled to a  termination  fee under this
Agreement only if APS does not purchase the Facilities (the  appropriate  amount
paid  under  this  SECTION   6.13(b)(ii)   and  the  last  sentence  of  SECTION
6.13(b)(iii) is referred to herein as the "TERMINATION FEE"); and

               (iii) If the Third Party Agreement relates only to the assets and
liabilities subject to this Agreement and Purchaser does not elect to amend this
Agreement  within  thirty (30) days  following  Purchaser's  receipt of Seller's
notice,  the  Purchaser  will be  required  (A) to  consummate  the  transaction
contemplated  by the Collateral  Agreement,  subject to Seller's  condition that
there be a  closing  on  assets  and  liabilities  subject  to the  Third  Party
Agreement or a right of first refusal under the  Co-Tenancy  Agreement  (each, a
"FOUR CORNERS CLOSING") and (B) to remain committed as a standby purchaser under
this  Agreement,  according to its original  terms, if a closing under the Third
Party Agreement does not occur,  subject to (I) an extension of the Closing Date
as is reasonably  required to secure required consents and approvals,  but in no
event for more than  sixty  (60) days and (II)  Purchaser's  condition  that the
Closing occurs under the Collateral  Agreement,  with the closing date under the
Collateral Agreement being extended to the extent that Closing Date hereunder is
extended.  If the Closing  fails to occur under this  Agreement  (including on a
standby  basis),  Seller shall,  within five (5) Business Days of the earlier of
the date of (A) a Four Corners  Closing or (B) Purchaser's no longer being bound
under the foregoing  standby  commitment (for other than Purchaser's  default or
breach), pay the Purchaser a termination fee equal to

                                       43
<PAGE>
two  and  one-half  percent  (2.5%)  of  the  Initial  Purchase  Price  for  the
transactions contemplated by this Agreement.

          (c)  Notwithstanding  anything in this SECTION  6.13 to the  contrary,
Seller will not disclose to any third party Confidential Information provided by
Purchaser in violation of SECTION 6.9 or the Confidentiality Agreement.

          (d)  The  Parties  agree  that  the  validity  and  enforceability  of
Purchaser's  rights  under  this  Section  6.13  shall be  subject to the CPUC's
approval of this Agreement or of Purchaser's rights under this Section 6.13.

     6.14 POST CLOSING - ADDITIONAL  OFFERS.  Subject to CPUC's approval of this
Section  (which shall be deemed to have been  obtained if the CPUC approves this
Agreement  without  disapproving  this  Section),  in the  event  that  (a) this
Agreement is terminated for any reason other than Seller's  termination pursuant
to SECTION  10.1(a) hereof or pursuant TO SECTION  10.1(G) hereof for failure of
Seller's conditions  specified in SECTIONS 9.1, 9.4 (as to Purchaser's  Required
Regulatory  Approvals),  9.5, 9.6,  9.7, or 9.10,  (b) Seller within one year of
such termination  enters into an agreement for the sale of substantially  all of
the  Facilities  or for a portfolio of assets that  includes all or a portion of
Seller's  interest in the  Facilities  with a third party or such third  party's
Affiliate  from whom Seller,  before such  termination,  received (i) a Superior
Offer or  indication  of  interest  in making a  Superior  Offer  subsequent  to
Seller's Section 851 filing;  or (ii) any offer or indication of interest within
ninety (90) days prior to Seller's Section 851 filing, and (c) such agreement is
not entered into through an auction process,  then and in such event,  Purchaser
shall have a  thirty-day  right of first  refusal to match the third party offer
(and, in the event Seller receives a bona fide third party offer for a portfolio
of assets that includes all or a portion of Seller's interest in the Facilities,
Purchaser  shall have the option to match the portion of the offer that  relates
to Seller's interest in the Facilities (and the Facilities Switchyard).

     6.15 POST  CLOSING - FURTHER  ASSURANCES.  At any time or from time to time
after the Closing,  each Party will,  upon the  reasonable  request of the other
Party,  execute and deliver any further  instruments or documents,  and exercise
Commercially  Reasonable  Efforts to take such further actions as may reasonably
be required to fulfill and implement the terms of this  Agreement or realize the
benefits  intended  to be afforded  hereby.  After the  Closing,  and upon prior
reasonable request, each Party shall exercise Commercially Reasonable Efforts to
cooperate with the other, at the requesting  Party's expense (but including only
out-of-pocket  expenses to third parties and not the costs incurred by any Party
for the wages or other  benefits paid to its officers,  directors or employees),
in  furnishing   non-privileged  records,   information,   testimony  and  other
assistance in connection  with any inquiries,  actions,  audits,  proceedings or
disputes  involving  either of the Parties hereto (other than in connection with
disputes  between the Parties hereto) and based upon contracts,  arrangements or
acts of Seller, Purchaser, the other Facilities Owners or the Operating Agent on
behalf of one or more of the Facilities  Owners which were in effect or occurred
on,  prior  to, or after  Closing  and which  relate to the  Assets,  including,
without  limitation,  arranging  discussions  with (and  calling  as a  witness)
officers, directors,  employees, agents, and representatives of Purchaser or the
Seller.

     6.16 POST CLOSING - INFORMATION AND RECORDS.

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<PAGE>
          (a) Books and Records.

               (i) For a period of seven (7) years  after the  Closing  (or,  if
requested in writing by Seller  within seven (7) years after the Closing,  until
the closing of the  examination  of Seller's  federal income Tax Returns for all
periods  prior to and  including  the  Closing,  if later),  Purchaser  will not
dispose of any books, records,  documents or information  reasonably relating to
any of the Assets  delivered  to it by Seller  without  first  giving  notice to
Seller thereof and permitting Seller to retain or copy such books and records as
it may select.  During such period,  Purchaser will permit Seller to examine and
make  copies,  at  Seller's  expense,  of such  books,  records,  documents  and
information for any reasonable purpose,  including any litigation now pending or
hereafter  commenced  against Seller,  or the preparation of income or other Tax
Returns.

               (ii)  During  such  seven (7) year time  period,  Purchaser  will
provide to Seller, at Seller's expense, copies of such books, records, documents
and  information  reasonably  relating to any of the Assets  delivered  to it by
Seller for any  reasonable  purpose,  including  any  litigation  now pending or
hereafter commenced against Seller by any person (including  Purchaser).  Seller
will  provide  reasonable  notice to Purchaser of its need to access such books,
records, documents or other information.

               (iii) If privileged  and/or  attorney  work product  documents or
information,  including,  communications  between  Seller and its  counsel,  are
disclosed  to Purchaser in the books,  records,  documents or other  information
delivered by Seller,  Purchaser  agrees (1) such disclosure is inadvertent,  (2)
such  disclosure  will not  constitute  a  waiver,  in whole or in part,  of any
privilege or work product,  (3) such  information  will constitute  Confidential
Information, and (4) it will promptly return to Seller all copies of such books,
records, documents or other information in the possession of Purchaser.

     6.17  RELEASE.  Except for the  Excluded  Liabilities  and to the extent of
Seller's  obligations  hereunder  or under any  Ancillary  Agreement,  including
without  limitation  under  ARTICLE 7  (including  without  limitation  Seller's
obligations  under  ARTICLE  7 as the  result  of the  breach  of any  provision
hereof),  Purchaser on behalf of itself and each of its parent,  subsidiary  and
sister entities  (excluding  APS), and each successor or assign thereof,  hereby
waives its right to recover  from Seller or from any  Affiliate of Seller or any
Person acting on behalf of Seller or any such  Affiliate,  and forever  releases
and discharges  Seller,  and any such Affiliate and any such other Person,  from
any and all damages,  claims,  losses,  liabilities,  penalties,  fines,  liens,
judgments,  costs,  or  expenses  whatsoever  (including,   without  limitation,
attorneys'  fees and  costs),  whether  direct or  indirect,  known or  unknown,
foreseen or unforeseen,  that may arise on account of or in any way be connected
with the Assumed Liabilities. In this regard, Purchaser, on behalf of itself and
each of its parent,  subsidiary and sister  entities  (excluding  APS), and each
successor or assign

                                       45
<PAGE>
thereof, expressly waives any and all rights and benefits that it now has, or in
the future  may have  conferred  upon it by virtue of any  statute or common law
principle  which provides that a general release does not extend to claims which
a party does not know or suspect to exist in its favor at the time of  executing
the release,  if knowledge of such claims would have  materially  affected  such
party's settlement with the obligor.  Purchaser, on behalf of itself and each of
its parent,  subsidiary and sister entities  (excluding APS), and each successor
or assign  thereof,  hereby further  acknowledges  that it is aware that factual
matters now unknown to it may have given or may  hereafter  give rise to claims,
losses  and  liabilities   that  are  presently   unknown,   unanticipated   and
unsuspected,  that the release  contained  herein has been negotiated and agreed
upon in light of such awareness,  and that it nevertheless  hereby intends to be
bound to the release set forth above.

     6.18  FACILITIES  SWITCHYARD  CAPACITY.  From and after the  Closing  Date,
Purchaser  shall  permit  Seller,  at  Seller's  cost,  to use  capacity  in the
Facilities  Switchyard available to Purchaser (and not required for transmission
of Purchaser's  entitlement from the Facilities  related to the interest therein
being  purchased under this Agreement) as required for Seller to comply with its
obligations  under existing power or transmission  sale,  purchase,  or exchange
agreements with third parties.

                                   ARTICLE 7
                                 INDEMNIFICATION

     7.1 INDEMNIFICATION BY SELLER.

          (a)  PURCHASER  CLAIMS.  From  and  after  the  Closing,  Seller  will
indemnify,  defend and hold harmless  Purchaser and its parents and  Affiliates,
and  each  of  their  officers,  directors,  employees,  attorneys,  agents  and
successors and assigns  (collectively,  the "PURCHASER GROUP"), from and against
any and all demands, suits,  penalties,  obligations,  damages,  claims, losses,
liabilities,   payments,   costs  and  expenses  (including   reasonable  legal,
accounting and other expenses in connection  therewith) and including  costs and
expenses incurred in connection with  investigations and settlement  proceedings
which  arise  out  of,  in   connection   with,  or  relate  to,  the  following
(collectively, "PURCHASER CLAIMS"):

               (i) any breach or  violation  of any  covenant  or  agreement  of
Seller set forth in this Agreement;

               (ii)  any  breach  or  inaccuracy  of  the   representations   or
warranties made by Seller contained in this Agreement in ARTICLE 4;

               (iii) the Excluded Liabilities; and

               (iv)  any  loss  or  damages  resulting  from or  arising  out of
Seller's ownership or operation of the Excluded Assets after the Closing.

          (b) SELLER  LIMITATIONS.  If the Closing  occurs,  the Purchaser Group
will  not  be  entitled  to  any  punitive,  incidental,  indirect,  special  or
consequential  damages  resulting  from or arising out of any Purchaser  Claims,
including damages for lost revenues, income, profits or tax benefits, diminution
in value of the  Facilities  or any  other  damage  or loss  resulting  from the
disruption  to or loss of operation  of the Assets,  except to the extent due on
any Third Party Claim.  The aggregate  damages to which the Purchaser Group will
be entitled under SECTION 7.1(a)(ii) shall be limited to the Purchase Price.

                                       46
<PAGE>
     7.2 INDEMNIFICATION BY PURCHASER.

          (a)  SELLER  CLAIMS.  From  and  after  the  Closing,  Purchaser  will
indemnify,  defend and hold harmless  Seller and its parents and  Affiliates and
each of their officers, directors,  employees,  attorneys, agents and successors
and assigns  (collectively,  the "SELLER  GROUP"),  from and against any and all
demands, suits, penalties,  obligations,  damages, claims, losses,  liabilities,
payments,  costs and expenses (including reasonable legal,  accounting and other
expenses in connection  therewith) and including costs and expenses  incurred in
connection with investigations and settlement  proceedings which arise out of or
relate to the following (collectively, "SELLER CLAIMS"):

               (i) any breach or  violation  of any  covenant  or  agreement  of
Purchaser set forth in this Agreement;

               (ii) any breach or  inaccuracy of any of the  representations  or
warranties made by Purchaser contained in this Agreement in ARTICLE 5;

               (iii) the Assumed Liabilities; and

               (iv)  any  loss  or  damages  resulting  from or  arising  out of
Purchaser's ownership or operation of the Assets from and after the Closing.

          (b) PURCHASER  LIMITATIONS.  If the Closing  occurs,  the Seller Group
will  not  be  entitled  to  any  punitive,  incidental,  indirect,  special  or
consequential  damages  resulting  from  or  arising  out of any  Seller  Claim,
including damages for lost revenues, income, profits or tax benefits, diminution
in the value of the  Facilities or any other damage or loss  resulting  from the
disruption  to or loss of operation  of the Assets,  except to the extent due on
any Third Party Claim.  The aggregate  damages to which the Seller Group will be
entitled to under SECTION 7.2(a)(ii) shall be limited to the Purchase Price.

     7.3  NOTICE OF CLAIM.  Subject  to the terms of this  Agreement  and upon a
Party's receipt of notice of the assertion of a claim or of the  commencement of
any suit,  action or proceeding made or brought by any Person who is not a Party
to this Agreement or an Affiliate,  the Party seeking indemnification  hereunder
(the "INDEMNITEE")  will promptly notify the Party against whom  indemnification
is sought (the "INDEMNITOR") in writing of any damage, claim, loss, liability or
expense which the  Indemnitee  has  determined has given or could give rise to a
claim   under   SECTION   7.1   "Indemnification   by  Seller"  or  SECTION  7.2
"Indemnification  by Purchaser." (The written notice is referred to as a "NOTICE
OF CLAIM.") A Notice of Claim will  specify,  in  reasonable  detail,  the facts
known to the  Indemnitee  regarding  the  claim.  Subject  to the  terms of this
Agreement, the failure to provide (or timely provide) a Notice of Claim will not
affect  the  Indemnitee's  rights to  indemnification;  provided,  however,  the
Indemnitor is not obligated to indemnify the Indemnitee for the increased amount
of any claim  which  would  otherwise  have been  payable to the extent that the
increase resulted from the failure to deliver timely a Notice of Claim.

     7.4 DEFENSE OF THIRD PARTY  CLAIMS.  The  Indemnitor  will defend,  in good
faith and at its  expense,  any  claim or demand  set forth in a Notice of Claim
relating to a Third Party Claim

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<PAGE>
and  the  Indemnitee,  at its  expense,  may  participate  in the  defense.  The
Indemnitee  cannot  settle or  compromise  any Third  Party Claim so long as the
Indemnitor  is  defending  it in good  faith.  If the  Indemnitor  elects not to
contest a Third Party Claim,  the Indemnitee may undertake its defense,  and the
Indemnitor  will  be  bound  by  the  result  obtained  by the  Indemnitee.  The
Indemnitor may at any time request the Indemnitee to agree to the abandonment of
the  contest of the Third Party  Claim or to the  payment or  compromise  by the
Indemnitor of the asserted claim or demand. If the Indemnitee does not object in
writing within fifteen (15) days of the Indemnitor's request, the Indemnitor may
proceed with the action  stated in the request.  If within that fifteen (15) day
period the Indemnitee  notifies the Indemnitor in writing that it has determined
that the contest should be continued,  the Indemnitor  will be liable under this
ARTICLE 7 "Indemnification"  only for an amount up to the amount which the third
party to the  contested  Third  Party  Claim had  agreed to accept in payment or
compromise  as of the time the  Indemnitor  made its  request.  This SECTION 7.4
"Defense  of Third  Party  Claims" is subject to the rights of any  Indemnitee's
insurance carrier that is defending the Third Party Claim.

     7.5 COOPERATION. The Party defending the Third Party Claim will (a) consult
with the other Party  throughout the pendency of the Third Party Claim regarding
the investigation, defense, settlement, trial, appeal or other resolution of the
Third  Party  Claim;  and (b)  afford  the  other  Party the  opportunity  to be
associated in the defense of the Third Party Claim.  The Parties will  cooperate
in the defense of the Third Party Claim.  The Indemnitee  will make available to
the Indemnitor or its representatives all records and other materials reasonably
required  by them for use in  contesting  any  Third  Party  Claim  (subject  to
obtaining  an  agreement  to maintain the  confidentiality  of  confidential  or
proprietary  materials  in  a  form  reasonably  acceptable  to  Indemnitor  and
Indemnitee).  If requested by the Indemnitor, the Indemnitee will cooperate with
the  Indemnitor  and its  counsel in  contesting  any Third Party Claim that the
Indemnitor  elects to contest  or, if  appropriate,  in making any  counterclaim
against the Person asserting the claim or demand, or any cross-complaint against
any Person.  The  Indemnitor  will  reimburse  the  Indemnitee  for any expenses
incurred  by  Indemnitee  in  cooperating  with or acting at the  request of the
Indemnitor.

     7.6  MITIGATION AND LIMITATION ON CLAIMS.  As used in this  Agreement,  the
term  "INDEMNIFIABLE  CLAIM"  means  any  Purchaser  Claims  or  Seller  Claims.
Notwithstanding anything to the contrary contained herein:

          (a)  REASONABLE  STEPS  TO  MITIGATE.  The  Indemnitee  will  take all
reasonable  steps to mitigate  all losses,  damages and the like  relating to an
Indemnifiable  Claim,  including  availing itself of any defenses,  limitations,
rights of contribution,  claims against third Persons and other rights at law or
equity,  and will provide  such  evidence  and  documentation  of the nature and
extent  of  the  Indemnifiable  Claim  as  may be  reasonably  requested  by the
Indemnitor. The Indemnitee's reasonable steps include the reasonable expenditure
of money to mitigate or otherwise  reduce or  eliminate  any loss or expense for
which   indemnification   would   otherwise   be  due  under   this   ARTICLE  7
"Indemnification,"  and the  Indemnitor  will  reimburse the  Indemnitee for the
Indemnitee's  reasonable  expenditures in undertaking  the mitigation,  together
with  interest  thereon from the date of payment to the date of repayment at the
"prime rate" as published in THE WALL STREET JOURNAL.

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<PAGE>
          (b) NET OF BENEFITS.  Any Indemnifiable Claim is limited to the amount
of actual  damages  sustained  by the  Indemnitee  by  reason of such  breach or
nonperformance.

          (c) MINIMUM CLAIM.  No Party shall have any liability or obligation to
indemnify under SECTION  7.1(a)(ii) or SECTION  7.2(a)(ii),  as the case may be,
unless the aggregate amount for which such Party would be liable thereunder, but
for this provision,  exceeds one percent (1%) of the Initial Purchase Price, and
recovery shall be limited only to such amounts as exceed such  percentage of the
Initial  Purchase  Price.  For purposes of the foregoing,  individual  claims of
Fifteen Thousand Dollars  ($15,000) or less shall not be aggregated for purposes
of calculating such deductible  threshold  amount or for calculating  damages in
excess of such  amount.  Nothing in this  SECTION  7.6 is  intended to modify or
limit a Party's liability or obligation hereunder for other Indemnifiable Claims
or to  constitute  an  assumption  by Purchaser of any Excluded  Liability or an
assumption by Seller of any Assumed Liability.

     7.7 EXCLUSIVITY.  Except for intentional fraud,  following the Closing, the
rights and  remedies of Seller,  on the one hand,  and  Purchaser,  on the other
hand, for money damages under this Article are,  solely as between Seller on the
one hand, and Purchaser on the other hand,  exclusive and in lieu of any and all
other  rights and  remedies  for money  damages  which each of Seller on the one
hand,  and  Purchaser on the other hand,  may have under this  Agreement,  under
applicable Law, with respect to any Indemnifiable  Claim,  whether at common law
or in equity.

                                   ARTICLE 8
                     CONDITIONS PRECEDENT TO OBLIGATIONS OF
                            PURCHASER AT THE CLOSING

     The  obligations of Purchaser under this Agreement to complete the purchase
of the Assets and assume the Assumed Liabilities are subject to the satisfaction
or waiver, or deemed satisfaction or waiver, on or prior to the Closing, of each
of the following conditions precedent:

     8.1  COMPLIANCE  WITH  PROVISIONS.  Seller has performed or complied in all
material  respects with all covenants,  agreements  and conditions  contained in
this Agreement on its part required to be performed or complied with at or prior
to the Closing.

     8.2 HSR  ACT.  The  waiting  period  under  the HSR Act  applicable  to the
consummation of the sale of the Assets contemplated hereby shall have expired or
been terminated;

     8.3  INJUNCTION.  No preliminary or permanent  injunction or other order or
decree by any federal or state court or  Governmental  Authority  which prevents
the consummation of the sale of the Assets  contemplated  herein shall have been
issued and remain in effect (each Party  agreeing to cooperate in all efforts to
have any such  injunction,  order or decree  lifted)  and no Law shall have been
enacted by any state or  federal  government  or  Governmental  Authority  which
prohibits the consummation of the sale of the Assets;

     8.4 REQUIRED  REGULATORY  APPROVALS.  Without  limiting the  generality  of
SECTIONS  6.1(a) and 6.5,  Purchaser  shall  have  received  all of  Purchaser's
Required  Regulatory  Approvals

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<PAGE>
and Seller shall have received all of Seller's  Required  Regulatory  Approvals,
which approvals shall contain no condition which could reasonably be expected to
have a Material Adverse Effect on the Assets or Purchaser.

     8.5 REPRESENTATIONS  AND WARRANTIES.  The representations and warranties of
Seller set forth in this  Agreement  shall be true and  correct in all  material
respects  as of the Closing  Date,  in each case as though made at and as of the
Closing Date;

     8.6 OFFICER'S CERTIFICATE. Purchaser shall have received a certificate from
Seller, executed by an authorized officer, dated the Closing Date, to the effect
that the  conditions  set forth in SECTIONS 8.1, 8.4,  (insofar as it relates to
Seller's  Required  Regulatory  Approvals  as  specified  in  clause  (i) of the
definition  thereof),  8.5 and 8.10 (insofar as it relates to Seller's  Required
Consents  as  specified  in  clause  (i) of the  definition  thereof)  have been
satisfied by Seller;

     8.7 TITLE POLICY/INSURANCE.  Title to Assets comprised of interests in real
property and leased  property shall have been evidenced by the  willingness of a
title insurer  mutually  agreeable to the Parties (the "TITLE INSURER") to issue
at  regular  rates  ALTA  owner's,  or  lessee's,  as the case may be,  extended
coverage policies of title insurance (1990 Form B) (the "TITLE POLICIES"),  with
the general survey and creditors' rights exceptions removed, in amounts equal to
the portion of the Purchase Price allocated to such interests,  showing title to
such  interests  in such real  property  vested in  Purchaser  in the  condition
described in SECTION 6.11, subject only to Permitted Encumbrances,  and transfer
of such interest to  Purchaser.  The  willingness  of Title Insurer to issue the
Title Policies shall be evidenced  either by the issuance thereof at the Closing
or by the title Insurer's delivery of written  commitments or binders,  dated as
of the Closing (but insuring title as of the date title conveyance documents are
recorded),  to issue  such Title  Policies  within a  reasonable  time after the
Closing Date, subject to actual transfer of the real property in question.

     8.8 MATERIAL  ADVERSE  EFFECT.  Subject to SECTION 6.7, since the Effective
Date, no Material  Adverse  Effect shall have  occurred and be  continuing  with
respect to the Facilities and the Facilities Switchyard.

     8.9  LIENS.  Any and all  liens  and  encumbrances  (other  than  Permitted
Encumbrances)  on the  Assets  constituting  personal  property  shall have been
released and any  documents  necessary to evidence  such release shall have been
delivered to the Purchaser.

     8.10  SELLER'S  REQUIRED  CONSENTS.  Without  limiting  the  generality  of
SECTIONS  6.1(a) and 6.5,  all of  Seller's  Required  Consents  shall have been
obtained.

     8.11 LEGAL OPINION.  Purchaser shall have received an opinion from Seller's
counsel dated the Closing Date and reasonably satisfactory in form and substance
to Purchaser and its counsel as to the matters specified in EXHIBIT B.

     8.12 NO TERMINATION. Neither Party has exercised any termination right such
Party is entitled to exercise pursuant to SECTION 10.1.

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<PAGE>
     8.13 RIGHT OF FIRST  REFUSAL  AND  NOTICE.  The right of first  refusal and
notice periods set forth in SECTIONS 13.3 and 13.4 of the Facilities  Co-Tenancy
Agreement shall have expired or shall have been waived.

     8.14 COLLATERAL AGREEMENT. The closing under the Collateral Agreement shall
have occurred or will occur concurrent with the Closing.

                                   ARTICLE 9
                     CONDITIONS PRECEDENT TO OBLIGATIONS OF
                              SELLER AT THE CLOSING

     The  obligations of Seller under this Agreement to complete the sale of the
Assets and transfer the Assets and Assumed  Liabilities to Purchaser are subject
to the satisfaction or waiver, or deemed  satisfaction or waiver, on or prior to
the Closing, of each of the following conditions precedent:

     9.1 COMPLIANCE WITH PROVISIONS.  Purchaser has performed or complied in all
material  respects with all covenants,  agreements  and conditions  contained in
this Agreement on its part required to be performed or complied with at or prior
to the Closing.

     9.2 HSR  ACT.  The  waiting  period  under  the HSR Act  applicable  to the
consummation of the sale of the Assets contemplated hereby shall have expired or
been terminated;

     9.3  INJUNCTION.  No preliminary or permanent  injunction or other order or
decree by any federal or state court or  Governmental  Authority  which prevents
the consummation of the sale of the Assets  contemplated  herein shall have been
issued and remain in effect (each Party agreeing to use its best efforts to have
any such injunction,  order or decree lifted) and no Law shall have been enacted
by any state or  federal  government  or  Governmental  Authority  in the United
States which prohibits the consummation of the sale of the Assets;

     9.4 APPROVALS.  Without limiting the generality of SECTIONS 6.1(a) and 6.5,
Purchaser shall have received all of Purchaser's Required Regulatory  Approvals,
and Seller shall have  received all of Seller's  Required  Regulatory  Approvals
which approvals shall contain no condition which could reasonably be expected to
have a Material Adverse Effect on Seller; without limiting the generality of the
foregoing,  the CPUC shall have approved Seller's application to sell the Assets
in accordance  with the terms hereof  pursuant to Section 851 of the  California
Public  Utilities Code, the Seller shall have approved the ratemaking  treatment
of the transactions  contemplated hereby and by the Collateral Agreement as well
as the calculation and recovery of transition cost arising therefrom and related
thereto,  and  there  shall  additionally  have been no  material  change in the
regulations,   policies,  principles  or  terms  of  the  restructuring  of  the
California  electrical  utilities industry set forth in California Assembly Bill
1890 or in the CPUC's Policy Decision on Restructuring enunciated in D.95-12-063
dated December 20, 1995, as modified by D.96-01-009;

     9.5 REPRESENTATIONS  AND WARRANTIES.  The representations and warranties of
Purchaser  set forth in this  Agreement  and of the  Guarantor  set forth in the
Guaranty shall be true

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<PAGE>
and correct in all  material  respects as of the Closing  Date,  in each case as
though made at and as of the Closing Date;

     9.6 OFFICER'S  CERTIFICATE.  Seller shall have received a certificate  from
Purchaser,  executed by an  authorized  officer,  dated the Closing Date, to the
effect that the conditions set forth in SECTIONS 9.1, 9.4 (insofar as it relates
to Purchaser's  Required Regulatory  Approvals as specified in clause (i) of the
definition  thereof)  AND 9.5,  AND 9.10  (insofar as it relates to  Purchaser's
Required  Consents as specified in clause (i) of the  definition  thereof)  have
been satisfied by Purchaser;

     9.7 LEGAL OPINIONS.  Seller shall have received an opinion from Purchaser's
counsel dated the Closing Date and reasonably satisfactory in form and substance
to Seller and its counsel as to the matters specified in EXHIBIT C.

     9.8 NO TERMINATION.  Neither Party has exercised any termination right such
Party is entitled to exercise pursuant to SECTION 10.1 "Termination."

     9.9 RIGHT OF FIRST  REFUSAL.  The right of first refusal and notice periods
set  forth in  Sections  13.3 and 13.4 of the  Facilities  Co-Tenancy  Agreement
Condition shall have expired or shall have been waived.

     9.10  PURCHASER'S  REQUIRED  CONSENTS.  Without  limiting the generality of
SECTIONS  6.1(a) AND 6.5, all of Purchaser's  Required  Consents shall have been
obtained, subject to SECTION 3.7, and the Closing shall not result in a material
breach by Seller of a material Facilities Contract.

                                   ARTICLE 10
                                   TERMINATION

     10.1 RIGHTS TO TERMINATE.  This  Agreement,  or to the extent  specifically
permitted herein a portion thereof,  may, by written notice given on or prior to
the  Closing  Date,  in the manner  provided  in  SECTION  11.10  "Notices,"  be
terminated at any time prior to the Closing Date:

          (a) by  Seller  if there has been a  material  misrepresentation  or a
material   default  or  breach  by  Purchaser   with   respect  to   Purchaser's
representations  and  warranties  in  this  Agreement  or  the  due  and  timely
performance  of any of Purchaser's  covenants and  agreements  contained in this
Agreement,  and such  misrepresentation,  default  or breach is not cured by the
earlier  of the  Closing  Date or the date  thirty  (30) days  after  receipt by
Purchaser of written  notice  specifying  particularly  such  misrepresentation,
default or breach;

          (b) by Purchaser if there has been a material  misrepresentation  or a
material  default or breach by Seller with  respect to Seller's  representations
and  warranties in this  Agreement or the due and timely  performance  of any of
Seller's  covenants  and  agreements  contained  in  this  Agreement,  and  such
misrepresentation,  default or breach is not cured by the earlier of the Closing
Date or the date  thirty  (30) days after  receipt  by Seller of written  notice
specifying particularly such misrepresentation, default or breach;

                                       52
<PAGE>
          (c)  by  Purchaser,  upon  written  notice  to  Seller,  if any of the
Purchaser's Required Regulatory Approvals shall have been denied (and a petition
for rehearing or refiling of an application  initially denied without  prejudice
shall also have been denied), and such denial was not caused by or the result of
a  breach  of  this  Agreement  by  Purchaser,  or if the  Purchaser's  Required
Regulatory  Approvals  shall have been granted but are not in form and substance
reasonably  satisfactory to Purchaser  (including adverse conditions relating to
Purchaser or the Assets);

          (d)  by  Seller,  upon  written  notice  to  Purchaser,  if any of the
Seller's  Required  Regulatory  Approvals shall have been denied (and a petition
for rehearing or refiling of an application  initially denied without  prejudice
shall also have been denied), and such denial was not caused by or the result of
a breach of this Agreement by Seller,  or shall have been granted but are not in
form  and  substance  reasonably   satisfactory  to  Seller  (including  adverse
conditions relating to Seller or the Assets);

          (e) by Purchaser in accordance with SECTION 6.7 "Risk of Loss";

          (f) by mutual agreement of Seller and Purchaser; or

          (g) subject to SECTION  6.13(b)(iii),  by Seller or  Purchaser  if the
conditions to such Party's Closing have not occurred by December 31, 2001, or if
the conditions of the terminating  Party for Closing cannot reasonably be met by
such date,  unless the reason  for the  failure of  condition  set forth in this
SECTION  10.1(G) is the result of the material  breach of this  Agreement by the
Party seeking to terminate.

     10.2 EFFECT OF  TERMINATION.  If this  Agreement is terminated  pursuant to
SECTION 10.1 "Rights To Terminate,"  all further  obligations and liabilities of
the Parties hereunder will terminate, except (i) as set forth in ARTICLE 7 or as
otherwise  contemplated by the Agreement,  (ii) for the obligations set forth in
Sections 4.12  "Brokers," 5.7 "Brokers," 6.9  "Confidentiality,"  and ARTICLE 11
"Miscellaneous Agreements and Acknowledgments," and (iii) for the obligations of
the Parties set forth in the Confidentiality  Agreement.  Upon termination,  the
originals of any items,  documents or written materials provided by one Party to
the other Party will be returned by the receiving Party to the providing  Party,
and any  Confidential  Information  retained by the receiving Party will be kept
confidential.

     10.3 SPECIFIC PERFORMANCE;  LIMITATION OF DAMAGES. Seller acknowledges that
the  transactions  contemplated  by this  Agreement  are  unique  and  that  the
Purchaser  will  be  irreparably   injured  should  such   transactions  not  be
consummated  in a  timely  fashion..  Consequently,  Purchaser  will not have an
adequate  remedy at law if the Seller shall fail to transfer,  assign and convey
the Assets when required to do so hereunder.  In such event, the Purchaser shall
have the right,  in addition to any other remedy  available in equity or law, to
specific  performance  of such  obligation  by Seller,  subject  to  Purchaser's
performance  of its  obligations  hereunder.  Purchaser  acknowledges  that  the
transactions  contemplated  by this Agreement are unique and that Seller will be
irreparably  injured  should such  transactions  not be  consummated in a timely
fashion.  Consequently,  Seller will not have an  adequate  remedy at law if the
Purchaser shall fail to purchase the Assets when required to do so hereunder. In
such event,  the Seller  shall have the right,  in addition to any other  remedy
available in equity or law,

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<PAGE>
to specific  performance  of such  obligation by Purchaser,  subject to Seller's
performance  of its  obligations  hereunder.  Except as  otherwise  provided  in
SECTION  7.1(b)  and  SECTION  7.2(b),  neither  Party will be  entitled  to any
punitive,  incidental,  indirect,  special or consequential  damages,  including
damages for lost revenues,  income, or profits, resulting from or arising out of
a breach of this Agreement, whether or not the Closing occurs.

                                   ARTICLE 11
                  MISCELLANEOUS AGREEMENTS AND ACKNOWLEDGMENTS

     11.1  EXPENSES.   Except  as  otherwise  provided  herein,  each  Party  is
responsible   for  its  own  costs  and  expenses   (including   attorneys'  and
consultants'  fees,  costs  and  expenses)  incurred  in  connection  with  this
Agreement  and  the  consummation  of  the  transactions  contemplated  by  this
Agreement.

     11.2 ENTIRE DOCUMENT.  This Agreement (including the Exhibits and Schedules
to this Agreement) the Ancillary  Agreements,  the Collateral  Agreement and the
Confidentiality  Agreement contain the entire agreement between the Parties with
respect to the transactions contemplated hereby, and supersede all negotiations,
representations, warranties, commitments, offers, contracts and writings (except
for  the  Confidentiality  Agreement)  prior  to  the  execution  date  of  this
Agreement,  written or oral. No waiver and no  modification  or amendment of any
provision of this Agreement is effective  unless made in writing and duly signed
by the Parties  referring  specifically to this Agreement,  and then only to the
specific purpose, extent and interest so provided.

     11.3  SCHEDULES.  The Parties agree and  acknowledge  that the Schedules in
this  Agreement may be  incomplete or subject to revision  prior to the Closing.
The Parties  will  cooperate  and work in good faith to complete and update such
Schedules in a manner  consistent with the  requirements of this Agreement.  The
Schedules delivered pursuant to the terms of this Agreement are an integral part
of this Agreement to the same extent as if they were set forth verbatim herein.

     11.4  COUNTERPARTS.   This  Agreement  may  be  executed  in  one  or  more
counterparts, each of which is an original, but all of which together constitute
one and the same instrument.

     11.5 SEVERABILITY. If any provision hereof is held invalid or unenforceable
by any arbitrator or as a result of future legislative  action,  this holding or
action will be strictly  construed and will not affect the validity or effect of
any other provision  hereof.  To the extent permitted by law, the Parties waive,
to the  maximum  extent  permissible,  any  provision  of law that  renders  any
provision hereof prohibited or unenforceable in any respect.

     11.6  ASSIGNABILITY.  This  Agreement  is  binding  upon and  inures to the
benefit of the successors  and assigns of the Parties,  but is not assignable by
any Party  without the prior written  consent of the other Party,  which consent
may be granted or withheld in such Party's sole discretion;  provided,  however,
Purchaser may, upon ten (10) Business Days' notice to Seller,  assign its rights
and obligations to its Affiliate,  APS, without Seller's consent,  and Purchaser
shall  use  its  Commercially  Reasonable  Efforts  to  assign  its  rights  and
obligations to APS if such an agreement is necessary to obtain required consents
or Seller's or Purchaser's Required

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<PAGE>
Regulatory  Approvals.  Any such  assignment is  conditioned  on the  assignee's
agreement  in writing to assume the  assigning  Party's  duties and  obligations
under  this  Agreement  and the  Ancillary  Agreements,  subject  to any and all
restrictions,  terms and conditions of the Facilities  Co-Tenancy  Agreement and
Operating  Agreement and provided that such assignment does not adversely affect
or prejudice  any of Seller's  rights  hereby or result in any delay in the date
when the transactions  contemplated hereby would otherwise close. Any assignment
effected in accordance with this SECTION 11.6  "Assignability"  will not relieve
the assigning Party of its obligations and liabilities  under this Agreement and
the Ancillary Agreements.

     11.7 CAPTIONS. The captions of the various Articles, Sections, Exhibits and
Schedules of this Agreement have been inserted only for convenience of reference
and do not modify,  explain,  enlarge or restrict any of the  provisions of this
Agreement.

     11.8  GOVERNING  LAW.  The  validity,  interpretation  and  effect  of this
Agreement are governed by and will be construed in  accordance  with the laws of
the state in which the Facilities  are located  applicable to contracts made and
performed in such state and without regard to conflicts of law doctrines  except
to the extent that certain  matters are preempted by Federal law or are governed
by the law of the jurisdiction of organization of the respective Parties.

     11.9 DISPUTE RESOLUTION.

          (a) INTENT OF THE  PARTIES.  Except as provided in the next  sentence,
the sole remedy  available to either Party for any dispute or claim  arising out
of or relating  to this  Agreement  or any  Ancillary  Agreement  is the dispute
resolution procedure set forth in this SECTION 11.9 "Dispute Resolution". Either
Party may seek a preliminary  injunction or other provisional judicial remedy if
such action is necessary to prevent irreparable harm or preserve the status quo,
in which case both Parties nonetheless will continue to pursue resolution of the
dispute by means of this  procedure.  If the  Parties  cannot  resolve a dispute
under  SECTION  11.9(b)  "Management  Negotiations",  then the dispute  shall be
settled through binding arbitration under SECTION 11.9(c) "Arbitration."

          (b) MANAGEMENT NEGOTIATIONS. The Parties will attempt in good faith to
resolve any dispute or claim arising out of or relating to this  Agreement or an
Ancillary  Agreement promptly by negotiations  between a vice president (or more
senior  officer)  of  Seller  or  his or her  designated  representative  and an
executive  of similar  authority of  Purchaser.  Either Party may give the other
Party  written  notice of any  dispute or claim.  Within  twenty (20) days after
delivery of said notice, the executives will meet at a mutually  acceptable time
and place, and thereafter as often as they reasonably deem necessary to exchange
information  and to attempt to resolve the  dispute or claim.  If the matter has
not been resolved within sixty (60) days of the first meeting,  either Party (by
notice to the other Party) may initiate  arbitration of the controversy pursuant
to SECTION 11.9(c) "Arbitration."

          (c)  ARBITRATION.  In the  event  that  meetings  have  been  held  in
accordance  with  SECTION  11.9(b)  and any  such  dispute  shall  have not been
resolved at such  meetings,  then such dispute shall be resolved  exclusively by
arbitration,  upon the written request of any Party involved in such dispute and
the Parties  shall  submit such dispute to binding  arbitration  pursuant to the
Commercial  Arbitration  Rules  of the  American  Arbitration  Association  (the
"COMMERCIAL

                                       55
<PAGE>
ARBITRATION  RULES"). In the event that such dispute is submitted to arbitration
pursuant to the Commercial  Arbitration  Rules,  then the  arbitration  tribunal
shall be  composed  of three  neutral  arbitrators  (one such  arbitrator  to be
selected by Seller,  on the one hand, and Purchaser,  on the other hand, and the
third such  arbitrator  shall be a former U.S.  District  Court or U.S.  Circuit
Court of Appeals judge and shall serve as chairperson of such tribunal, selected
by the other two  arbitrators  or, in the  absence  of  agreement  between  such
arbitrators  by  the  American  Arbitration  Association).   The  venue  of  the
arbitration  shall be Phoenix,  Arizona,  if arbitration is initiated by Seller,
and Los Angeles,  California,  if  arbitration  is initiated by  Purchaser;  the
language of the arbitration  shall be English and the arbitration shall commence
no later than sixty (60) days after the written  request to arbitrate given by a
Party in accordance with this Agreement. The decision, judgment and order of the
arbitration  tribunal  shall be final,  binding and conclusive as to the Parties
involved  in such  dispute,  and their  respective  representatives,  and may be
entered in any court of competent jurisdiction. Other than the fees and expenses
of the arbitrators, which shall be shared equally by the Parties to the dispute,
each Party shall bear its own costs and expenses (including  attorneys' fees and
expenses) relating to the arbitration.

     11.10  NOTICES.  All notices,  requests,  demands and other  communications
under this  Agreement must be in writing and must be delivered in person or sent
by certified  mail,  postage  prepaid,  or by overnight  delivery,  and properly
addressed as follows:

         If to Seller:
                  Southern California Edison Company
                  2244 Walnut Grove Avenue
                  Rosemead, California 91770
                  Attention:  Chief Financial Officer

         With a copy to:
                  Southern California Edison Company
                  2244 Walnut Grove Avenue
                  Rosemead, California 91770
                  Attention:  General Counsel

         If to Purchaser:
                  Pinnacle West Energy Corporation
                  400 North 5th Street
                  Mailstation 9046
                  Phoenix, Arizona  85004
                  Attention:  Faye Widenmann

         With a copy to:
                  Pinnacle West Capital Corporation
                  400 North 5th Street
                  Mailstation 9988
                  Phoenix, Arizona  85004
                  Attention:  Warren C. Kotzmann

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<PAGE>
         With a copy to:
                  Pinnacle West Capital Corporation
                  400 North 5th Street
                  Mailstation 9068
                  Phoenix, Arizona  85004
                  Attention:  General Counsel

     Any Party may from time to time  change  its  address  for the  purpose  of
notices to that Party by a similar notice specifying a new address,  but no such
change is  effective  until it is actually  received  by the Party  sought to be
charged with its contents.

     All  notices and other  communications  required  or  permitted  under this
Agreement  which are addressed as provided in this SECTION  11.10  "Notices" are
effective upon delivery, if delivered personally or by overnight delivery,  and,
are effective five (5) days following deposit in the United States mail, postage
prepaid if delivered by mail.

     11.11 TIME IS OF THE  ESSENCE.  Time is of the essence of each term of this
Agreement.  Without limiting the generality of the foregoing, all times provided
for in this Agreement for the performance of any act will be strictly construed.

     11.12 NO THIRD PARTY BENEFICIARIES. Except as may be specifically set forth
in this  Agreement,  nothing in this Agreement,  whether express or implied,  is
intended to confer any rights or remedies  under or by reason of this  Agreement
on any Persons other than the Parties and their respective  permitted successors
and assigns,  nor is anything in this Agreement intended to relieve or discharge
the  obligation  or  liability of any third  Persons to any Party,  nor give any
third Persons any right of subrogation or action against any Party.

     11.13 NO JOINT VENTURE.  Nothing  contained in this Agreement creates or is
intended  to create an  association,  trust,  partnership,  or joint  venture or
impose a trust or partnership duty,  obligation,  or liability on or with regard
to any Party.

     11.14  CONSTRUCTION  OF  AGREEMENT.  Ambiguities  or  uncertainties  in the
wording of this  Agreement  will not be construed for or against any Party,  but
will be  construed  in the manner that most  accurately  reflects  the  Parties'
intent as of the date they executed this Agreement.

     11.15  EFFECT OF CLOSING  OVER KNOWN  UNSATISFIED  CONDITIONS  OR  BREACHED
REPRESENTATIONS,  WARRANTIES  OR  Covenants.  If Seller or  Purchaser  elects to
proceed with the Closing with  Knowledge by it of any failure to be satisfied of
any  condition  in its favor or the breach of any  representation,  warranty  or
covenant  by  the  other  Party,  the  condition  that  is  unsatisfied  or  the
representation,  warranty or covenant which is breached at the Closing Date will
be deemed  waived by such Party,  and such Party will be deemed to fully release
and forever discharge the other Party on account of any and all claims,  demands
or charges, known or unknown, with respect to the same.

     11.16 CONFLICTS.  In the event of any conflicts or inconsistencies  between
the terms of this  Agreement and the terms of any of the  Ancillary  Agreements,
the terms of this Agreement will govern and prevail.

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     11.17 WAIVER OF COMPLIANCE.  To the extent permitted by applicable Law, any
failure of any of the Parties to comply with any obligation, covenant, agreement
or condition set forth herein may be waived by the Party entitled to the benefit
thereof only by a written  instrument  signed by such Party, but any such waiver
shall not  operate as a waiver of, or  estoppel  with  respect  to, any prior or
subsequent failure to comply therewith. The failure of a Party to this Agreement
to  assert  any of its  rights  under  this  Agreement  or  otherwise  shall not
constitute a waiver of such rights.

     11.18 SURVIVAL.

          (a) The  representations  and warranties given or made by any Party in
Articles  4 or 5 hereof or in any  certificate  or other  writing  furnished  in
connection  herewith shall survive the Closing for a period of twenty-four  (24)
months  after the  Closing  Date and  shall  thereafter  terminate  and be of no
further  force or effect,  except that (i) all  representations  and  warranties
relating to Taxes and Tax Returns,  including  those set forth in SECTION  4.10,
shall  survive  the  Closing  for  the  period  of the  applicable  statutes  of
limitation plus any extensions or waivers thereof,  (ii) all representations and
warranties  relating  to title,  including  those set forth in SECTION 4.7 shall
survive  the  Closing   for  an   indefinite   period  of  time  and  (iii)  any
representation  or warranty as to which a claim  (including a contingent  claim)
shall have been  asserted  during the survival  period shall  continue in effect
with respect to such claim until such claim shall have been finally  resolved or
settled.  Subject to  SECTIONS  5.10 AND 11.15,  each Party shall be entitled to
rely  upon the  representations  and  warranties  of the  other  Party set forth
herein, notwithstanding any investigation or audit conducted before or after the
Closing Date or the decision of any Party to complete the Closing.

          (b) The  covenants  and  agreements  of the Parties  contained in this
Agreement,  including  those set forth in ARTICLE 7, shall  survive  the Closing
indefinitely, unless otherwise specified herein.

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     IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.



SOUTHERN CALIFORNIA EDISON COMPANY,
a California corporation


By Stephen E. Frank
   ------------------------------------
   Name: Stephen E. Frank
   Title: Chairman, President and CEO


PINNACLE WEST ENERGY CORPORATION,
an Arizona corporation


By William L. Stewart
   ------------------------------------
   Name: William L. Stewart
   Title: President


                                       59
