10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 0-296

El Paso Electric Company

(Exact name of registrant as specified in its charter)

Texas	74-0607870
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Stanton Tower, 100 North Stanton, El Paso, Texas	79901
(Address of principal executive offices)	(Zip Code)

(915) 543-5711

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    YES  x    NO  ¨

As of April 29, 2005, there were 47,731,566 shares of the Company’s no par value common stock outstanding.

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

INDEX TO FORM 10-Q

			Page No.
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
Consolidated Balance Sheets – March 31, 2005 and December 31, 2004			1
Consolidated Statements of Operations – Three Months and Twelve Months Ended March 31, 2005 and 2004			3
Consolidated Statements of Comprehensive Operations – Three Months and Twelve Months Ended March 31, 2005 and 2004			4
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2005 and 2004			5
Notes to Consolidated Financial Statements			6
Report of Independent Registered Public Accounting Firm			17
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	31
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	32
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
	Item 5.	Other Information	32
	Item 6.	Exhibits	32

(i)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

(In thousands)

	March 31, 2005 (Unaudited)			December 31, 2004
Utility plant:
Electric plant in service	$	1,843,882		$	1,839,924
Less accumulated depreciation and amortization		(687,400	)		(666,774	)
Net plant in service		1,156,482			1,173,150
Construction work in progress		86,970			74,853
Nuclear fuel; includes fuel in process of $980 and $7,128, respectively		71,205			69,239
Less accumulated amortization		(38,833	)		(34,195	)
Net nuclear fuel		32,372			35,044
Net utility plant		1,275,824			1,283,047
Current assets:
Cash and temporary investments		39,950			29,401
Accounts receivable, principally trade, net of allowance for doubtful accounts of $2,940 and $3,071, respectively		63,551			70,710
Accumulated deferred income taxes		7,203			6,509
Inventories, at cost		25,464			25,193
Undercollection of fuel revenues		16,760			19,302
Income taxes receivables		11,692			18,999
Prepayments and other		8,282			7,507
Total current assets		172,902			177,621
Deferred charges and other assets:
Decommissioning trust funds		89,542			89,363
Regulatory assets		17,904			18,487
Other		13,315			12,837
Total deferred charges and other assets		120,761			120,687
Total assets	$	1,569,487		$	1,581,355

See accompanying notes to consolidated financial statements.

1

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Continued)

CAPITALIZATION AND LIABILITIES

(In thousands except for share data)

	March 31, 2005 (Unaudited)			December 31, 2004
Capitalization:
Common stock, stated value $1 per share, 100,000,000 shares authorized, 63,016,150 and 62,665,500 shares issued, and 79,734 and 102,630 restricted shares, respectively	$	63,096		$	62,768
Capital in excess of stated value		270,766			268,771
Deferred and unearned compensation		1,713			1,127
Retained earnings		390,867			386,110
Accumulated other comprehensive loss, net of tax		(13,866	)		(10,553	)
		712,576			708,223
Treasury stock, 15,365,108 shares, at cost		(176,076	)		(176,076	)
Common stock equity		536,500			532,147
Long-term debt, net of current portion		183,555			359,362
Financing obligations, net of current portion		18,418			20,274
Total capitalization		738,473			911,783
Current liabilities:
Current portion of long-term debt and financing obligations		389,764			214,092
Accounts payable, principally trade		24,763			34,404
Taxes accrued other than federal income taxes		13,217			15,719
Interest accrued		13,200			13,609
Overcollection of fuel revenues		506			520
Other		26,263			24,726
Total current liabilities		467,713			303,070
Deferred credits and other liabilities:
Accumulated deferred income taxes		109,122			111,991
Accrued postretirement benefit liability		100,367			98,827
Asset retirement obligation		61,822			60,388
Accrued pension liability		46,323			49,055
Regulatory liabilities		15,365			15,682
Other		30,302			30,559
Total deferred credits and other liabilities		363,301			366,502
Commitments and contingencies
Total capitalization and liabilities	$	1,569,487		$	1,581,355

See accompanying notes to consolidated financial statements.

2

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands except for share data)

	Three Months Ended March 31,						Twelve Months Ended March 31,
	2005			2004			2005			2004
Operating revenues	$	159,185		$	155,852		$	711,961		$	672,728
Energy expenses:
Fuel		44,228			39,049			199,603			172,065
Purchased and interchanged power		11,487			12,852			65,086			55,668
		55,715			51,901			264,689			227,733
Operating revenues net of energy expenses		103,470			103,951			447,272			444,995
Other operating expenses:
Other operations		41,869			41,460			173,945			169,831
Impairment loss on CIS project		—			—			—			17,576
Maintenance		8,954			9,203			44,941			42,386
Depreciation and amortization		23,570			23,179			93,763			89,318
Taxes other than income taxes		10,416			11,537			41,463			43,182
		84,809			85,379			354,112			362,293
Operating income		18,661			18,572			93,160			82,702
Other income (deductions):
Investment and interest income, net		925			271			4,058			1,981
Loss on extinguishments of debt		—			(2,106	)		(3,250	)		(2,106	)
Miscellaneous other income		—			—			227			966
Miscellaneous other deductions		(834	)		(651	)		(2,686	)		(2,161	)
		91			(2,486	)		(1,651	)		(1,320	)
Interest charges (credits):
Interest on long-term debt and financing obligations		11,983			12,673			48,478			50,977
Other interest		122			148			509			744
Capitalized interest and AFUDC		(1,086	)		(770	)		(3,743	)		(5,026	)
		11,019			12,051			45,244			46,695
Income before income taxes and extraordinary item		7,733			4,035			46,265			34,687
Income tax expense		2,976			1,121			11,053			13,494
Income before extraordinary item		4,757			2,914			35,212			21,193
Extraordinary gain on re-application of SFAS No. 71, net of tax		—			—			1,802			—
Net income	$	4,757		$	2,914		$	37,014		$	21,193
Basic earnings per share:
Income before extraordinary item	$	0.10		$	0.06		$	0.74		$	0.44
Extraordinary gain on re-application of SFAS No. 71, net of tax		—			—			0.04			—
Net income	$	0.10		$	0.06		$	0.78		$	0.44
Diluted earnings per share:
Income before extraordinary item	$	0.10		$	0.06		$	0.73		$	0.44
Extraordinary gain on re-application of SFAS No. 71, net of tax		—			—			0.04			—
Net income	$	0.10		$	0.06		$	0.77		$	0.44
Weighted average number of shares outstanding		47,405,270			47,451,300			47,415,395			47,965,274
Weighted average number of shares and dilutive potential shares outstanding		48,250,450			47,900,302			48,107,347			48,389,715

See accompanying notes to consolidated financial statements.

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EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)

(In thousands)

	Three Months Ended March 31,						Twelve Months Ended March 31,
	2005			2004			2005			2004
Net income	$	4,757		$	2,914		$	37,014		$	21,193
Other comprehensive income (loss):
Minimum pension liability adjustment		—			—			(1,413	)		(4,234	)
Net unrealized gains (losses) on marketable securities:
Net holding gains (losses) arising during period		(1,970	)		287			(1,906	)		10,235
Reclassification adjustments for net (gains) losses included in net income		91			(233	)		(101	)		(175	)
Unrealized losses on cash flow hedges		(2,903	)		—			(2,903	)		—
Total other comprehensive income (loss) before income taxes		(4,782	)		54			(6,323	)		5,826
Income tax benefit (expense) related to items of other comprehensive income (loss):
Minimum pension liability adjustment		—			—			532			1,673
Net unrealized gains (losses) on marketable securities		376			(11	)		402			(2,310	)
Unrealized losses on cash flow hedges		1,093			—			1,093			—
Total income tax benefit (expense)		1,469			(11	)		2,027			(637	)
Other comprehensive income (loss), net of tax		(3,313	)		43			(4,296	)		5,189
Comprehensive income	$	1,444		$	2,957		$	32,718		$	26,382

See accompanying notes to consolidated financial statements.

4

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Three Months Ended March 31,
	2005			2004
Cash flows from operating activities:
Net income	$	4,757		$	2,914
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of electric plant in service		23,570			23,179
Amortization of nuclear fuel		4,700			4,302
Deferred income taxes, net		(2,152	)		(3,460	)
Loss on extinguishments of debt		—			2,106
Other amortization and accretion		2,912			2,138
Other operating activities		(33	)		6
Change in:
Accounts receivable		7,159			7,907
Inventories		(196	)		149
Net (under)/overcollection of fuel revenues		2,528			1,076
Prepayments and other		6,348			3,750
Accounts payable		(9,641	)		3,050
Taxes accrued other than federal income taxes		(2,502	)		(1,680	)
Interest accrued		(409	)		(279	)
Other current liabilities		(1,365	)		1,418
Deferred charges and credits		(2,267	)		3,507
Net cash provided by operating activities		33,409			50,083
Cash flows from investing activities:
Cash additions to utility property, plant and equipment		(19,062	)		(15,656	)
Cash additions to nuclear fuel		(1,949	)		(2,019	)
Capitalized interest and AFUDC:
Utility property, plant and equipment		(1,036	)		(711	)
Nuclear fuel		(50	)		(59	)
Decommissioning trust funds:
Purchases, including funding of $1.5 million		(5,289	)		(5,566	)
Sales and maturities		3,235			3,333
Other investing activities		1,422			(1,741	)
Net cash used for investing activities		(22,729	)		(22,419	)
Cash flows from financing activities:
Proceeds from exercise of stock options		2,713			305
Repurchases of and payments on first mortgage bonds		—			(16,370	)
Nuclear fuel financing obligations:
Proceeds		2,323			2,315
Payments		(4,284	)		(3,769	)
Other financing activities		(883	)		(223	)
Net cash used for financing activities		(131	)		(17,742	)
Net increase in cash and temporary investments		10,549			9,922
Cash and temporary investments at beginning of period		29,401			34,426
Cash and temporary investments at end of period	$	39,950		$	44,348

See accompanying notes to consolidated financial statements.

5

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A. Principles of Preparation

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Annual Report of El Paso Electric Company on Form 10-K for the year ended December 31, 2004 (the “2004 Form 10-K”). Capitalized terms used in this report and not defined herein have the meaning ascribed for such terms in the 2004 Form 10-K. In the opinion of management of the Company, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company at March 31, 2005 and December 31, 2004; the results of its operations and comprehensive operations for the three and twelve months ended March 31, 2005 and 2004; and its cash flows for the three months ended March 31, 2005 and 2004. The results of operations and comprehensive operations and the cash flows for the three months ended March 31, 2005 are not necessarily indicative of the results to be expected for the full calendar year.

Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain financial information has been condensed and certain footnote disclosures have been omitted. Such information and disclosures are normally included in financial statements prepared in accordance with generally accepted accounting principles. Certain prior period amounts have been reclassified to conform with the current period presentation.

Stock Options. The Company has two stock-based long-term incentive plans and accounts for them under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Stock options have typically been granted with an exercise price equal to fair market value on the date of grant and, accordingly, no compensation expense is recorded by the Company. If compensation expense for the option portion of the plans had been determined based on the fair value of the option at the grant date and amortized on a straight-line basis over the vesting period, consistent with the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts presented below (in thousands, except for per share data):

6

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Three Months Ended March 31,				Twelve Months Ended March 31,
	2005		2004		2005		2004
Net income, as reported	$	4,757	$	2,914	$	37,014	$	21,193
Deduct: Compensation expense, net of tax		220		229		896		915
Pro forma net income	$	4,537	$	2,685	$	36,118	$	20,278
Basic earnings per share:
As reported	$	0.10	$	0.06	$	0.78	$	0.44
Pro forma		0.10		0.06		0.76		0.42
Diluted earnings per share:
As reported		0.10		0.06		0.77		0.44
Pro forma		0.09		0.06		0.75		0.42

Unbilled Revenues. Accounts receivable include accrued unbilled revenues of $14.3 million and $18.0 million at March 31, 2005 and December 31, 2004, respectively.

Supplemental Cash Flow Disclosures (in thousands)

	Three Months Ended March 31,
	2005		2004
Cash paid for:
Interest on long-term debt and financing obligations	$	12,104	$	12,690
Non-cash financing activities:
Grants of restricted shares of common stock		19		21

7

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

B. Regulation

Texas Regulatory Matters

The rates and services of the Company are regulated in Texas by municipalities and by the Texas Commission. The largest municipality in the Company’s service area is the City of El Paso. The Texas Commission has exclusive appellate jurisdiction to review municipal orders and ordinances regarding rates and services within municipalities in Texas and original jurisdiction over certain other activities of the Company. The decisions of the Texas Commission are subject to judicial review.

Termination of Freeze Period. The Freeze Period expires on August 1, 2005. Thereafter, the Company will be subject to traditional cost of service regulation by the Texas cities it serves and by the Texas Commission. Its present rates will stay in effect until changed by a city or the Texas Commission. Any such change would be initiated with either a request by the Company or a regulator or customer. Any rate change order would be preceded by discovery and presentation of evidence. Any decision by a city would be subject to appellate review by the Texas Commission. The Company has no present intention to request a base rate change, and no complaints against the Company’s base rates are pending.

The end of the Freeze Period may also bring an end to the 50/50 sharing of off-system sales margins between the Company and its customers. The current fuel rule in Texas provides that such margins are to be fully credited to customers.

The Company’s ten-year franchise with the City of El Paso (“City”) expires on August 1, 2005. The franchise governs the Company’s usage of City-owned property, including the payment of franchise fees. On March 18, 2005, the Company made a presentation to the City of El Paso Public Utility Regulation Board (“PURB”) on a proposed extension of its current rate agreement. The material terms of the proposed agreement extension presented to the PURB included (i) a new 5-year base rate freeze; (ii) that there will be no change in rates if the Company’s return on equity is within a “bandwidth” of 200 basis points above or below a target return on equity of 400 basis points over the published utility bond yield average, and that the Company will have the right to initiate a rate case if earnings are below the bandwidth and will share earnings over such bandwidth equally with the City; (iii) an increase in the City franchise fee from 2% to 3%; (iv) a commitment from the Company to build its next generating plant in El Paso; (v) a commitment from the Company to spend at least 0.3% of its revenues from City customers on civic and charitable causes; (vi) a commitment from the Company to modify the percentage of its off-system sales margin that it shares with customers to 25%; and (vii) a new 30-year franchise agreement. The PURB is a public advisory board which will make a recommendation to the El Paso City Council (“City Council”) regarding the proposed agreement. The City Council is expected to make a final determination in the second or third quarter of 2005. If the agreement is approved in principle, the proposal will be set forth in a definitive agreement between the parties. The Company is unable to predict the outcome of these discussions.

8

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fuel. Although the Company’s base rates are frozen in Texas pursuant to Texas Commission rules and the Texas Rate Stipulation, the Company can request adjustments to its fuel factor to more accurately reflect projected energy costs associated with providing electricity and seek recovery of past undercollections of fuel revenues, subject to periodic final review by the Texas Commission in fuel reconciliation proceedings.

The Company reconciled its Texas jurisdictional fuel costs for the period January 1, 1999 through December 31, 2001 in PUC Docket No. 26194, and on May 5, 2004, the Texas Commission issued its final order. At issue was the Company’s request to recover an additional $15.8 million, before interest, from its Texas customers as a surcharge due to fuel undercollections from January 1999 through December 2001. The Texas Commission disallowed approximately $4.5 million of Texas jurisdictional expenses, before interest, consisting primarily of (i) approximately $4.2 million of purchased power expenses which the Texas Commission characterized as “imputed capacity charges,” and (ii) approximately $0.3 million in fees which were deemed to be administrative costs, not recoverable as fuel. This disallowance was recorded as a reduction of fuel revenue during the fourth quarter of 2003. In Texas, capacity charges are not eligible for recovery as fuel expenses but are to be recovered through the Company’s base rates. As the Company’s base rates were frozen during the period in which the imputed capacity charges were deemed to have been incurred, the $4.2 million of imputed capacity charges were therefore permanently disallowed, and not recoverable from its Texas customers. The Texas Commission’s decision has been appealed by two parties and the Company, and the Company is unable to predict the ultimate outcome of the appeals.

On August 31, 2004, the Company filed an application to reconcile Texas jurisdictional fuel costs for the period January 1, 2002 to February 29, 2004 in PUC Docket No. 30143. The Company has incurred purchased power costs similar to those that were at issue in PUC Docket No. 26194 for this current fuel reconciliation case. The Company believes that it has accounted for its purchased power costs during the reconciliation period covered by PUC Docket No. 30143 in a manner consistent with the Texas Commission’s decision in PUC Docket No. 26194. However, the Texas Commission is currently conducting a generic rulemaking proceeding to determine a statewide policy for the appropriate pricing of capacity in purchased power contracts. There can be no assurance as to the outcome of the rulemaking and its potential impact on the Company with respect to fuel recovery in future reconciliation periods, including those in PUC Docket No. 30143. Additionally, intervenors in PUC Docket No. 30143 have filed testimony disputing as much as $44 million of the requested fuel and purchase power costs. Although the ultimate outcome of the proceeding cannot be predicted with certainty, the Company believes the amount of under/overcollection of fuel revenues recorded as of March 31, 2005 is appropriate.

9

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

C. Common Stock

Common Stock Repurchase Program

Since the inception of the stock repurchase programs in 1999, the Company has repurchased approximately 15.3 million shares in total at an aggregate cost of $175.6 million, including commissions. Approximately 1.7 million shares remain authorized to be repurchased under the currently authorized program. No shares were repurchased during the first quarter of 2005. The Company may continue making purchases of its stock pursuant to its stock repurchase plan at open market prices and may engage in private transactions, where appropriate. The repurchased shares will be available for issuance under employee benefit and stock option plans, or may be retired.

Reconciliation of Basic and Diluted Earnings Per Share

The reconciliation of basic and diluted earnings per share before extraordinary item is presented below:

	Three Months Ended March 31,
	2005					2004
	Income		Shares	Per Share		Income		Shares	Per Share
	(In thousands)					(In thousands)
Basic earnings per share:
Income before extraordinary item	$	4,757	47,405,270	$	0.10	$	2,914	47,451,300	$	0.06
Effect of dilutive securities:
Unvested restricted stock		—	136,923				—	23,357
Stock options		—	708,257				—	425,645
Diluted earnings per share:
Income before extraordinary item	$	4,757	48,250,450	$	0.10	$	2,914	47,900,302	$	0.06

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EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Twelve Months Ended March 31,
	2005					2004
	Income		Shares	Per Share		Income		Shares	Per Share
	(In thousands)					(In thousands)
Basic earnings per share:
Income before extraordinary item	$	35,212	47,415,395	$	0.74	$	21,193	47,965,274	$	0.44
Effect of dilutive securities:
Unvested restricted stock		—	113,324				—	56,162
Stock options		—	578,628				—	368,279
Diluted earnings per share:
Income before extraordinary item	$	35,212	48,107,347	$	0.73	$	21,193	48,389,715	$	0.44

Options excluded from the computation of diluted earnings per share because the exercise price was greater than the average market price for the periods presented are as follows:

	Three Months     Ended March 31,		Twelve Months Ended March 31,
	2005	2004	2005	2004
Options excluded	—	558,745	39,158	888,952
Exercise price range	—	$13.77 - $ 15.99	$14.50 - $ 15.99	$11.88 - $ 15.99

D. Commitments, Contingencies and Uncertainties

For a full discussion of commitments and contingencies, see Note I of Notes to Consolidated Financial Statements in the 2004 Form 10-K. In addition, see Note B above and Notes B and C of Notes to Consolidated Financial Statements in the 2004 Form 10-K regarding matters related to regulation and Palo Verde, including decommissioning, spent fuel storage, disposal of low-level radioactive waste, steam generators and liability and insurance matters.

Environmental Matters

The Company is subject to regulation with respect to air, soil and water quality, solid waste disposal and other environmental matters by federal, state, tribal and local authorities. Those authorities govern current facility operations and have continuing jurisdiction over facility modifications. Failure to comply with these environmental regulatory requirements can result in actions by regulatory agencies or other authorities that might seek to impose on the Company administrative, civil, and/or criminal penalties. If the United States regulates green house gas emissions, the Company’s fossil fuel generation assets will be faced with the additional cost of monitoring, controlling and reporting these emissions. In addition, unauthorized releases of pollutants or contaminants into the environment can result in costly cleanup obligations that are subject to enforcement by the regulatory agencies. Environmental regulations can change rapidly and are often difficult to predict. While the Company strives to prepare for and implement changes necessary to

11

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

comply with changing environmental regulations, substantial expenditures may be required for the Company to comply with such regulations in the future.

The Company analyzes the costs of its obligations arising from environmental matters on an ongoing basis, and believes it has made adequate provision in its financial statements to meet such obligations. As a result of this analysis, the Company has a provision for environmental remediation obligations of approximately $1.3 million as of March 31, 2005, which is related to compliance with federal and state environmental standards. However, unforeseen expenses associated with compliance could have a material adverse effect on the future operations and financial condition of the Company.

The Company incurred the following expenditures during the three and twelve months ended March 31, 2005 and 2004 to comply with federal environmental statutes (in thousands):

	Three Months Ended March 31,				Twelve Months Ended March 31,
	2005		2004		2005		2004
Clean Air Act	$	220	$	210	$	772	$	1,165
Clean Water Act (1)		99		226		1,079		728

(1) Includes $0.6 million in remediation costs for the twelve months ended March 31, 2005.

Along with many other companies, the Company received from the Texas Commission on Environmental Quality (“TCEQ”) a request for information dated October 15, 2003 in connection with environmental conditions at a facility in San Angelo, Texas that has been owned and operated by the San Angelo Electric Service Company (“SESCO”). The Company’s written response to TCEQ notes that SESCO performed repair services for certain Company electrical equipment between 1981 and 1991, prior to the Company’s bankruptcy. Although the SESCO site has not been designated as a state or federal Superfund site and the Company has not been named as a “responsible party” or a “potentially responsible party” at that site, the Company received in October 2004 an invitation to participate in site cleanup activities from a group of private companies that are conducting certain cleanup activities at the SESCO site. At this time, the Company has not agreed to participate in the cleanup of the SESCO site and is unable to predict the outcome of this matter, although the Company has no reason at present to believe that it will incur material liabilities in connection with the SESCO site.

Except as described herein, the Company is not aware of any other active investigation of its compliance with environmental requirements by the Environmental Protection Agency, the TCEQ or the New Mexico Environment Department which is expected to result in any material liability. Furthermore, except as described herein, the Company is not aware of any unresolved, potentially material liability it would face pursuant to the Comprehensive Environmental Response, Comprehensive Liability Act of 1980, also known as the Superfund law.

12

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

E. Litigation

The Company is a party to various legal actions. In many of these matters, the Company has excess casualty liability insurance that covers the various claims, actions and complaints. Based upon a review of these claims and applicable insurance coverage, to the extent that the Company has been able to reach a conclusion as to its ultimate liability, it believes that none of these claims will have a material adverse effect on the financial position, results of operations or cash flows of the Company.

On January 16, 2003, the Company was served with a complaint on behalf of a purported class of shareholders alleging violations of the federal securities laws (Roth v. El Paso Electric Company, et al., No. EP-03-CA-0004). The complaint was filed in the El Paso Division of the United States District Court for the Western District of Texas. The suit seeks undisclosed compensatory damages for the class as well as costs and attorneys’ fees. The lead plaintiff, Carpenters Pension Fund of Illinois, filed a consolidated amended complaint on July 2, 2003, alleging, among other things, that the Company and certain of its current and former directors and officers violated securities laws by failing to disclose that some of the Company’s revenues and income were derived from an allegedly unlawful relationship with Enron. The allegations arise out of the FERC investigation of the power markets in the western United States during 2000 and 2001, which the Company previously settled with the FERC Trial Staff and certain intervening parties. On August 15, 2003, the Company and the individual defendants filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted. On November 26, 2003, the Court denied the motion to dismiss as to the Company and three of the individual defendants and granted the motion to dismiss as to two individual defendants. On April 13, 2004, the Court granted a motion of the Company and the remaining individual defendants requesting permission to file an interlocutory appeal to the U. S. Court of Appeals for the Fifth Circuit regarding certain legal questions relating to the Court’s denial of the motion to dismiss the complaint as to those defendants. On April 27, 2004, the Court entered an order staying the district court proceedings until the Fifth Circuit completed its review. On June 7, 2004, the U. S. Court of Appeals denied the appeal which automatically lifted the stay in the district court. This matter is presently set for trial on September 19, 2005, but such date may be extended. While the Company believes the lawsuit is without merit and intends to defend itself vigorously, the parties have reached an agreement in principle to resolve this case. This settlement remains subject to the execution of a mutually acceptable settlement agreement and approval by the Court. If ultimately approved by the Court, the Company does not expect any further charge to earnings as a result of the settlement.

On May 21, 2003, the Company was served with a complaint by the Port of Seattle seeking civil damages under the Sherman Act, the Racketeer Influenced and Corrupt Organization Act, and state anti-trust laws, as well as for fraud (Port of Seattle v. Avista Corporation, et al., No. CV03-117OP). The complaint was filed in the United States District Court for the Western District of Washington. The complaint alleges that the Company, indirectly through its dealings with Enron, conspired with the other named defendants to manipulate the California energy market, which had the

13

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

effect of artificially inflating the price that the Port of Seattle paid for electricity. The Company, together with several other defendants, filed a motion to dismiss. On May 12, 2004, the Court granted the Company’s motion, and the suit was dismissed. The Port of Seattle has filed an appeal of the Court’s decision with the U. S. Court of Appeals for the Ninth Circuit. The parties have filed briefs and are awaiting a hearing and decision. While the Company believes that these matters are without merit, the Company is unable to predict the outcome or range of any possible loss.

On May 5, 2004, Wah Chang, a specialty metals manufacturer which operates a plant in Oregon, filed suit against the Company and other defendants in the United States District Court for the District of Oregon. (Wah Chang v. Avista Corporation, et al., No. 04-619AS). The complaint makes substantially the same allegations as were made in Port of Seattle and seeks the same types of damages. In addition, on June 7, 2004, the City of Tacoma filed suit against the Company and other defendants in the United States District Court for the Western District of Washington (City of Tacoma v. American Electric Power Service Corp., et al., C04-5325RBL). This complaint also makes substantially the same allegations as were made in Port of Seattle and seeks civil damages (including treble damages) from the Company and the other defendants for violations of certain antitrust provisions under the Sherman Act. Both of these matters were transferred to the same court that heard and dismissed the Port of Seattle lawsuit and on February 11, 2005, the Court granted the Company’s motion to dismiss both cases. Wah Chang and the City of Tacoma have both filed notices of appeal with the U.S. Court of Appeals for the Ninth Circuit. While the Company believes that these matters are without merit and intends to defend itself vigorously, the Company is unable to predict the outcome or range of possible loss.

F. Employee Benefits

Retirement Plans

The net periodic benefit cost recognized for the three and twelve months ended March 31, 2005 and 2004 is made up of the components listed below as determined using the projected unit credit actuarial cost method (in thousands):

	Three Months Ended March 31,						Twelve Months Ended March 31,
	2005			2004			2005			2004
Components of net periodic benefit cost:
Service cost	$	1,233		$	1,113		$	4,561		$	3,972
Interest cost		2,636			2,522			10,232			9,729
Expected return on plan assets		(2,215	)		(1,927	)		(8,214	)		(7,579	)
Amortization of:
Net loss		1,049			843			3,629			2,145
Prior service cost		29			5			139			21
Net periodic benefit cost	$	2,732		$	2,556		$	10,347		$	8,288

14

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the first quarter of 2005, the Company contributed $5.1 million of its projected $18.5 million for 2005 annual contribution to its retirement plans.

Other Postretirement Benefits

The net periodic benefit cost recognized for the three and twelve months ended March 31, 2005 and 2004 is made up of the components listed below (in thousands):

	Three Months Ended March 31,						Twelve Months Ended March 31,
	2005			2004			2005			2004
Components of net periodic benefit cost:
Service cost	$	1,098		$	1,159		$	3,735		$	4,095
Interest cost		1,698			1,756			5,781			6,607
Expected return on plan assets		(339	)		(315	)		(1,282	)		(1,080	)
Amortization of:
Net gain		—			—			(387	)		—
Prior service cost		(63	)		—			(314	)		—
Net periodic benefit cost	$	2,394		$	2,600		$	7,533		$	9,622

During the first quarter of 2005, the Company contributed $0.9 million of its projected $3.4 million 2005 annual contribution to its postretirement plan.

G. Franchises and Significant Customers

City of El Paso Franchise

The Company’s ten-year franchise with the City of El Paso (“City”) expires on August 1, 2005. The franchise governs the Company’s usage of City-owned property, including the payment of franchise fees. The Company is meeting with the City to discuss the Company’s franchise and rate treatment after the expiration of the Freeze Period. See Note B. The Company is unable to predict the outcome of these discussions.

Military Installations

The Company’s retail service contract with Holloman Air Force Base expires in December 2005. The Company is currently negotiating with Holloman Air Force Base and is seeking to enter into a new contract with this customer.

H. Financial Instruments

The Company has filed a shelf registration statement on Form S-3 with the SEC, which became effective on May 5, 2005. The shelf registration statement enables the Company to offer and issue

15

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

debt securities, first mortgage bonds, shares of stock and certain other securities of up to $1.0 billion from time to time in one or more offerings.

During the first quarter of 2005, the Company entered into treasury rate lock agreements to hedge against potential movements in the treasury reference interest rates. These treasury rate locks expire during the second quarter of 2005. The treasury rate lock agreements meet the criteria for hedge accounting and are designated as a highly effective cash flow hedge. In accordance with cash flow hedge accounting, the Company recorded the fair value of the cash flow hedge at March 31, 2005 of $1.8 million, net of tax, as a component of accumulated other comprehensive loss. The Company will adjust the value of the hedge gain or loss until the position is closed which will occur during the second quarter of 2005. The accumulated other comprehensive gain or loss associated with the cash flow hedge will be recognized in earnings as interest expense is accrued on applicable debt obligations. In the event that the treasury rate lock agreements are not utilized in connection with the issuance of debt, any gain or loss on such agreements will be recognized immediately.

16

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

El Paso Electric Company:

We have reviewed the condensed consolidated balance sheet of El Paso Electric Company and subsidiary as of March 31, 2005, the related condensed consolidated statements of operations and comprehensive operations for the three-month and twelve-month periods ended March 31, 2005 and 2004, and the related condensed consolidated statements of cash flows for the three-month periods ended March 31, 2005 and 2004. These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of El Paso Electric Company and subsidiary as of December 31, 2004, and the related consolidated statements of operations, comprehensive operations, changes in common stock equity, and cash flows for the year then ended (not presented herein); and in our report dated March 11, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

KPMG LLP

El Paso, Texas

May 5, 2005

17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this Item 2 updates, and should be read in conjunction with, the information set forth in Part II, Item 7 of the Company’s 2004 Form 10-K.

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q other than statements of historical information are “forward-looking statements.” The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Forward-looking statements may include words like the Company “believes”, “anticipates”, “targets”, “expects”, “pro forma”, “estimates”, “intends” and words of similar meaning. Forward-looking statements describe the Company’s future plans, objectives, expectations or goals. Such statements address future events and conditions concerning:

• capital expenditures,

• earnings,

• liquidity and capital resources,

• litigation,

• accounting matters,

• possible corporate restructurings, acquisitions and dispositions,

• compliance with debt and other restrictive covenants,

• interest rates and dividends,

• environmental matters,

• nuclear operations, and

• the overall economy of the Company’s service area.

These forward-looking statements involve known and unknown risks that may cause the Company’s actual results in future periods to differ materially from those expressed in any forward-looking statement. Factors that would cause or contribute to such differences include, but are not limited to, such things as:

• the Company’s rates following the end of the Freeze Period and the New Mexico Stipulation,

• loss of margins on off-system sales,

• increased costs at Palo Verde,

• unscheduled outages,

• electric utility deregulation or re-regulation,

• regulated and competitive markets,

• ongoing municipal, state and federal activities,

• economic and capital market conditions,

• changes in accounting requirements and other accounting matters,

• changing weather trends,

• rates, cost recoveries and other regulatory matters,

• the impact of changes and downturns in the energy industry and the market for trading wholesale electricity,

18

• political, legislative, judicial and regulatory developments,

• the impact of lawsuits filed against the Company,

• the impact of changes in interest rates,

• inability to refinance maturing debt,

• changes in, and the assumptions used for, pension and other post-retirement and post-employment benefit liability calculations, as well as actual and assumed investment returns on pension plan assets,

• the impact of changing cost and cost escalation and other assumptions on the Company’s nuclear decommissioning liability for the Palo Verde Nuclear Generating Station,

• Texas, New Mexico and electric industry utility service reliability standards,

• homeland security considerations,

• coal, natural gas, oil and wholesale electricity prices, and

• other circumstances affecting anticipated operations, sales and costs.

These lists are not all-inclusive because it is not possible to predict all factors. A discussion of some of these factors is included in this document under the headings “Risk Factors” and in the 2004 Form 10-K under the headings “Management’s Discussion and Analysis” “–Summary of Critical Accounting Policies and Estimates” and “–Liquidity and Capital Resources.” This report should be read in its entirety. No one section of this report deals with all aspects of the subject matter. Any forward-looking statement speaks only as of the date such statement was made, and the Company is not obligated to update any forward-looking statement to reflect events or circumstances after the date on which such statement was made except as required by applicable laws or regulations.

Summary of Critical Accounting Policies and Estimates

The preparation of the Company’s financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes for the periods presented and actual results could differ in future periods from those estimates. Critical accounting policies and estimates are both important to the portrayal of the Company’s financial condition and results of operations and which require complex, subjective judgments are more fully described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2004 Form 10-K.

Overview

The Company derives revenue principally from the sale of power to retail customers and economy sales as follows:

	Three Months Ended March 31,				Twelve Months Ended March 31,
	2005		2004		2005		2004
Retail sales	81	%	86	%	86	%	88	%
Economy sales	17		12		12		10

Revenues from the sale of electricity include fuel costs, which are passed through directly to customers, and base revenues. Base revenues refers to the Company’s revenues from the sale of

19

electricity excluding such fuel costs. Economy sales are wholesale sales into markets outside the Company’s service territory.

The Company’s retail base revenues percentages by customer class are presented below:

	Three Months Ended March 31,				Twelve Months Ended March 31,
	2005		2004		2005		2004
Residential	39	%	39	%	38	%	38	%
Commercial and industrial, small	36		35		37		36
Commercial and industrial, large	9		10		9		10
Sales to public authorities	16		16		16		16
Total base revenues	100	%	100	%	100	%	100	%

No retail customer accounted for more than 2% of the Company’s base revenues during such periods. In addition, sales for resale base revenues accounted for less than 1% of base revenues.

Palo Verde, which represents approximately 40% of the Company’s available net generating capacity and approximately 56% and 49% of the Company’s available energy for the three and twelve months ended March 31, 2005, respectively, is subject to performance standards in Texas. If such performance standards are not met, the Company is subject to a penalty. See Part I, “Business–Regulation–Texas Regulatory Matters–Palo Verde Performance Standards of the 2004 Form 10-K.”

Historical Results of Operations

	Three Months Ended March 31,				Twelve Months Ended March 31,
	2005		2004		2005		2004
Income before extraordinary item (in thousands)	$	4,757	$	2,914	$	35,212	$	21,193
Diluted earnings per share before extraordinary item		0.10		0.06		0.73		0.44

Income for the three months ended March 31, 2005 increased $1.8 million or $0.04 diluted earnings per share, compared to the results for the same period a year ago. This after-tax increase resulted primarily from (i) increased 2005 economy sales margins of $1.5 million; (ii) loss on extinguishments of debt of $1.3 million in the quarter ended March 31, 2004 with no comparable amount in the current quarter; (iii) a $0.7 million 2005 decrease in taxes other than income taxes; (iv) decreased 2005 insurance expenses of $0.4 million; (v) decreased 2005 outside services of $0.4 million; and (vi) a $0.4 million 2005 increase in investment and interest income. These increases were partially offset by decreased 2005 retail base revenues of $2.2 million after-tax and increased 2005 non-Palo Verde operating and maintenance expenses of $0.7 million after-tax.

Income before the extraordinary item for the twelve months ended March 31, 2005 increased $14.0 million or $0.29 diluted earnings per share, compared to the results for the same period a year ago.

20

This after-tax increase resulted primarily from (i) the 2003 asset impairment loss on the CIS project of $10.7 million with no comparable loss in the current period; (ii) the recording of the benefits of the IRS settlement of $6.2 million with no comparable amount in the previous period; (iii) the Texas fuel disallowance in Docket No. 26194 of $2.8 million that was recorded in 2003 with no comparable amount in the current period; (iv) increased 2005 economy sales margins of $2.0 million; (v) decreased 2005 insurance expenses of $1.8 million; (vi) decreased 2005 interest charges on long-term debt of $1.5 million; and (vii) increased 2005 investment and interest income of $1.3 million. These increases were partially offset by the following items, which are presented on an after-tax basis (i) increased 2005 pension and benefits expense of $3.9 million; (ii) decreased 2005 retail base revenues of $2.9 million; (iii) increased 2005 depreciation expense of $2.8 million; (iv) increased 2005 Palo Verde expenses of $2.2 million; and (v) increased 2005 non-Palo Verde operation and maintenance costs of $1.2 million.

Operating revenues net of energy expenses decreased $0.5 million for the three months ended March 31, 2005 compared to the same period last year primarily due to decreased retail base revenues of $3.5 million. This decrease was partially offset by increased economy sale margins and sales of $2.4 million.

Operating revenues net of energy expenses increased $2.3 million for the twelve months ended March 31, 2005 compared to the previous period primarily due to (i) the Texas fuel disallowance of $4.5 million recorded in the fourth quarter of 2003; (ii) increased 2005 economy margins and sales of $3.3 million; and (iii) $1.3 million expense related to fuel settlement agreements primarily with Enron North America, Corp. recorded in the prior period with no comparable amount in the current period. This increase was partially offset by decreased 2005 retail base revenues of $4.7 million and a $2.4 million increase in the coal reclamation liability recorded in the fourth quarter of 2004 with no comparable amount in the previous period.

21

Comparisons of kWh sales and operating revenues are shown below (in thousands):

					Increase (Decrease)
Quarter Ended March 31:	2005		2004		Amount			Percent
kWh sales:
Retail:
Residential		449,464		468,317		(18,853	)	(4.0	)%
Commercial and industrial, small		435,490		454,848		(19,358	)	(4.3	)
Commercial and industrial, large		267,840		303,390		(35,550	)	(11.7	)(1)
Sales to public authorities		268,046		278,904		(10,858	)	(3.9	)
Total retail sales		1,420,840		1,505,459		(84,619	)	(5.6	)
Wholesale:
Sales for resale		8,165		9,267		(1,102	)	(11.9	)
Economy sales		587,111		486,620		100,491		20.7	(2)
Total wholesale sales		595,276		495,887		99,389		20.0
Total kWh sales		2,016,116		2,001,346		14,770		0.7
Operating revenues:
Base revenues:
Retail:
Residential	$	39,235	$	40,171	$	(936	)	(2.3	)%
Commercial and industrial, small		35,364		36,101		(737	)	(2.0	)
Commercial and industrial, large		9,274		10,290		(1,016	)	(9.9	)(1)
Sales to public authorities		15,737		16,558		(821	)	(5.0	)
Total retail base revenues		99,610		103,120		(3,510	)	(3.4	)
Wholesale:
Sales for resale		325		392		(67	)	(17.1	)
Total base revenues		99,935		103,512		(3,577	)	(3.5	)
Fuel revenues		29,528		31,274		(1,746	)	(5.6	)
Economy sales		26,710		18,964		7,746		40.8	(2)
Other		3,012		2,102		910		43.3	(3)(4)
Total operating revenues	$	159,185	$	155,852	$	3,333		2.1

(1) Primarily due to the closure or significantly reduced operations of several customers.

(2) Primarily due to increased available generation and higher market prices.

(3) Primarily due to increased transmission revenues.

(4) Represents revenues with no related kWh sales.

22

					Increase (Decrease)
Twelve Months Ended March 31:	2005		2004		Amount			Percent
kWh sales:
Retail:
Residential		1,967,232		1,969,286		(2,054	)	(0.1	)%
Commercial and industrial, small		2,096,464		2,114,145		(17,681	)	(0.8	)
Commercial and industrial, large		1,200,875		1,235,714		(34,839	)	(2.8	)
Sales to public authorities		1,232,146		1,245,747		(13,601	)	(1.1	)
Total retail sales		6,496,717		6,564,892		(68,175	)	(1.0	)
Wholesale:
Sales for resale		39,991		67,129		(27,138	)	(40.4	)(1)
Economy sales		1,938,958		1,791,814		147,144		8.2
Total wholesale sales		1,978,949		1,858,943		120,006		6.5
Total kWh sales		8,475,666		8,423,835		51,831		0.6
Operating revenues:
Base revenues:
Retail:
Residential	$	173,816	$	174,247	$	(431	)	(0.2	)%
Commercial and industrial, small		165,023		165,830		(807	)	(0.5	)
Commercial and industrial, large		42,134		43,698		(1,564	)	(3.6	)
Sales to public authorities		71,899		73,805		(1,906	)	(2.6	)
Total retail base revenues		452,872		457,580		(4,708	)	(1.0	)
Wholesale:
Sales for resale		1,608		3,225		(1,617	)	(50.1	)(1)
Total base revenues		454,480		460,805		(6,325	)	(1.4	)
Fuel revenues		159,306		132,538		26,768		20.2	(2)
Economy sales		86,279		70,469		15,810		22.4	(3)
Other		11,896		8,916		2,980		33.4	(4)(5)
Total operating revenues	$	711,961	$	672,728	$	39,233		5.8

(1) Primarily due to sales to the CFE in 2003 with no comparable sales in 2004.

(2) Primarily due to an increase in recoverable fuel expenses as a result of an increase in the price and volume of natural gas burned and an increase in purchased power costs.

(3) Primarily due to increased available generation and higher market prices.

(4) Primarily due to increased transmission revenues.

(5) Represents revenues with no related kWh sales.

Other operations expense increased $0.4 million for the three months ended March 31, 2005 compared to the same period last year primarily due to increased (i) pension and benefits expense of $0.7 million relating to employee bonuses accrual; (ii) increased 2005 non-Palo Verde operations expense of $0.8 million; and (iii) increased 2005 Palo Verde operations expense of $0.4 million. These increases were partially offset by decreased insurance related expenses of $0.7 million and decreased outside services of $0.7 million.

Other operations expense increased $4.1 million for the twelve months ended March 31, 2005 compared to the same period last year primarily due to (i) increased 2005 pension and benefits expense

23

of $6.3 million (including a $4.0 million increase in employee bonuses); (ii) increased 2005 Palo Verde operations expense of $1.7 million; and (iii) increased 2005 non-Palo Verde operations expense of $1.4 million. These increases were partially offset by (i) decreased 2005 insurance related expenses of $2.9 million; (ii) decreased 2005 customer account expense of $1.5 million; and (iii) decreased outside services of $1.2 million.

The Company abandoned a CIS project and recognized an asset impairment loss of $17.6 million in September 2003. The Company is now analyzing various options to meet its current and projected CIS needs.

Maintenance expense decreased $0.2 million for the three months ended March 31, 2005 compared to the same period last year primarily due to reduced 2005 maintenance at Palo Verde of $0.5 million partially offset by increased 2005 non-Palo Verde maintenance of $0.3 million.

Maintenance expense increased $2.6 million for the twelve months ended March 31, 2005 compared to the same period last year primarily due to increased 2005 maintenance at Palo Verde of $1.8 million and increased 2005 non-Palo Verde maintenance of $0.6 million.

Depreciation and amortization expense increased $0.4 million and $4.4 million for the three and twelve months ended March 31, 2005, respectively, compared to the same periods last year due to increases in depreciable plant balances. The twelve month increase was also due to the implementation of new depreciation rates based on a new depreciation study.

Taxes other than income taxes decreased $1.1 million and $1.7 million for the three and twelve months ended March 31, 2005, respectively, compared to the same periods last year. The decrease was primarily due to a June 2004 change in New Mexico law which changed the way the occupation street rental tax was recorded and a decrease in property tax compared to the prior period.

Other income (deductions) increased $2.6 million for the three months ended March 31, 2005 compared to the same period last year primarily due to losses on extinguishments of debt of $2.1 million recorded in 2004 with no comparable activity in 2005, and an adjustment of $0.7 million reducing interest income associated with the resolution of the Texas fuel reconciliation in PUC Docket No. 26194 recorded in 2004 with no comparable activity in 2005.

Other income (deductions) decreased $0.3 million for the twelve months ended March 31, 2005 compared to the same period last year primarily due to an increase of $1.1 million related to losses on extinguishments of debt and the receipt of $0.9 million of sales tax refunds in the prior period with no comparable activity in the current period. These decreases were partially offset by increased investment income of $1.3 million related to the decommissioning trust funds.

Interest charges (credits) decreased $1.0 million for the three months ended March 31, 2005 compared to the same period last year primarily due to (i) a $0.7 million decrease resulting from a reduction of outstanding debt as a result of open market purchases of the Company’s first mortgage bonds and (ii) increased capitalized interest of $0.3 million due to an increase in construction work in progress expenditures related to Palo Verde Units 1 and 3 steam generators.

24

Interest charges (credits) decreased $1.5 million for the twelve months ended March 31, 2005 compared to the same period last year primarily due to a $2.5 million decrease resulting from a reduction of outstanding debt as a result of open market purchases of the Company’s first mortgage bonds partially offset by a reduction in capitalized interest of $1.3 million as a result of transferring Palo Verde Unit 2 steam generators to plant in service.

Income tax expense increased $1.9 million for the three months ended March 31, 2005 compared to the same period last year primarily due to changes in pretax income and certain permanent differences and adjustments. Income tax expense, before the effect of an extraordinary item, decreased $2.4 million for the twelve months ended March 31, 2005 compared to the same period last year, primarily due to the $6.2 million benefit for the IRS settlement offset by changes in pretax income and certain permanent differences.

Extraordinary gain on re-application of SFAS No. 71 relates to the Company’s third quarter 2004 determination that it met the criteria necessary to re-apply SFAS No. 71 to its New Mexico jurisdiction. The decision was based on the Company’s receiving the New Mexico Commission’s approval for new rates that were based upon the Company’s cost of service and the fact that New Mexico had repealed its electric utility restructuring law. The re-application of SFAS No. 71 to the Company’s New Mexico jurisdiction resulted in the recording of a $1.8 million extraordinary gain, net of tax.

In December 2004, the FASB issued a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123 (revised) focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123 (revised) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with some limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award – “the requisite service period” – typically the vesting period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. SFAS No. 123 (revised) is effective for public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. SFAS No. 123 (revised) applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. Additionally, compensation cost for outstanding awards for which the requisite service has not been rendered as of the effective date shall be expensed as the requisite service is rendered on or after the required effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for pro forma disclosure under SFAS No. 123. Due to timing of the release of SFAS No. 123 (revised), the Company has not yet completed the analysis of the ultimate impact that this new pronouncement will have on the Company’s financial statements but does not expect this statement to have an effect materially different than the pro forma disclosures provided in Note A.

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,” (“FIN 47”). FIN 47 clarifies that the term “conditional” as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” which refers to a legal obligation to perform an asset retirement activity even if the timing and/or settlement are conditional on a future event that may or may not be within the control of an entity. Accordingly, the entity must record a liability for the conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. The interpretation is effective for companies no later than the end of the fiscal year ending after

25

December 15, 2005. The Company is evaluating the impact of FIN 47 on its consolidated financial statements.

Liquidity and Capital Resources

The Company’s principal liquidity requirements in the near-term are expected to consist of the refinancing of the Company’s pollution control bonds and its first mortgage bonds, interest payments on the Company’s indebtedness, operating and capital expenditures related to the Company’s generating facilities and transmission and distribution systems, and income and other taxes. The Company expects that, for all but the debt refinancing, cash flows from operations will be sufficient for such purposes. As of March 31, 2005, the Company had approximately $40.0 million in cash and cash equivalents, an increase of $10.6 million from the balance of $29.4 million on December 31, 2004.

Pollution control bonds of $193.1 million are subject to remarketing on August 1, 2005, and first mortgage bonds of $175.8 million are scheduled to mature in 2006. Additionally, the Company has $183.6 million of first mortgage bonds which become callable in 2006 and which may be refinanced at that time if market conditions are favorable. During the first quarter of 2005, the Company entered into treasury rate lock agreements to hedge against potential movements in the treasury reference interest rates. These treasury rate locks expire during the second quarter of 2005. Treasury rates have fallen since the Company entered into these agreements. Should treasury rates remain at these lower levels or continue to fall, a cash payment will be due when these agreements expire. Assuming treasury rates at the expiration of the hedges are the same as treasury rates as of April 29, 2005, a cash payment of $22.9 million would be due. The Company’s ability to access capital and credit markets may be adversely affected by uncertainties related to its operating results, conditions in the credit markets and debt rating agency actions.

The Company has filed a shelf registration statement on Form S-3 with the SEC which became effective on May 5, 2005. The shelf registration statement enables the Company to offer and issue debt securities, first mortgage bonds, shares of stock and certain other securities from time to time in one or more offerings of up to $1.0 billion.

On May 5, 2005, the Company announced that it has commenced a cash tender offer for any and all of its 8.90% Series D First Mortgage Bonds due February 1, 2006 and its 9.40% Series E First Mortgage Bonds due May 1, 2011, which are callable by the Company beginning on February 1, 2006 (collectively, the “Bonds”). The total outstanding principal amount of the Bonds subject to the offer is approximately $359.4 million. See Part II, Item 5, “Other Information.”

Long-term capital requirements of the Company will consist primarily of construction of electric utility plant and the payment of interest on and retirement and refinancing of debt. Utility construction expenditures will consist primarily of expanding and updating the transmission and distribution systems, addition of new generation, and the cost of capital improvements and replacements at Palo Verde and other generating facilities, including the replacement of steam generators in Palo Verde Units 1 and 3.

Utility construction expenditures reflected in the following table consist primarily of local generation (including cost of capacity to replace units to be retired), expanding and updating the transmission and distribution systems and the cost of capital improvements and replacements at Palo Verde, including the fabrication and installation of Palo Verde Units 1 and 3 steam generators.

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Replacement power costs expected to be incurred during the replacement of Palo Verde steam generators are not included in construction costs. Studies indicate that the Company will need additional supply-side and demand-side resources to meet increasing load requirements on its system. As a result, the Company is currently evaluating various alternatives to meet its load requirements.

The Company’s estimated cash construction costs for 2005 through 2008 are approximately $498 million. Actual costs may vary from the construction program estimates shown. Such estimates are reviewed and updated periodically to reflect changed conditions.

By Year (1)(2) (In millions)			By Function (In millions)
2005	$	95	Production (1)(2)	$	284
2006		83	Transmission		32
2007		141	Distribution		126
2008		179	General		56
Total	$	498	Total	$	498

(1) Does not include acquisition costs for nuclear fuel. See Part I “Energy Sources – Nuclear Fuel” in the 2004 Form 10-K.

(2) Includes $159.6 million for local generation, $15.4 million for the Four Corners Station and $109.4 million for the Palo Verde Station.

During the twelve months ended March 31, 2005 and 2004, the Company utilized $55.5 million and $11.6 million, respectively, of regular federal tax loss carryforwards. The significant reduction in federal tax loss carryforwards during the twelve months ended March 31, 2005 was primarily related to the IRS settlement. The Company anticipates that existing federal tax loss carryforwards will be fully utilized in 2005 and the Company’s cash flow requirements are expected to include greater amounts of cash for income taxes than has existed in recent years.

The Company is continually evaluating its funding requirements related to its retirement plans, other postretirement benefit plans, and decommissioning trust funds. To date, the Company has contributed $5.1 million of its projected $18.5 million 2005 annual contribution to its retirement plans. The Company has also contributed $0.9 million of its projected $3.4 million 2005 annual contribution to its postretirement benefit plan and $1.5 million of its projected $6.2 million 2005 annual contribution to the decommissioning trust funds.

The $100 million revolving credit facility provides up to $70 million for nuclear fuel purchases. Any amounts not borrowed by the Company for nuclear fuel purchases are available for use for working capital needs. As of March 31, 2005, approximately $39.2 million had been drawn for nuclear fuel purchases. No amounts are currently outstanding on this facility for working capital needs. The revolving credit facility was renewed for a five-year term in December 2004. During the term of the agreement, the revolving credit facility may be increased to $150 million at the request of the Company.

Since inception of its deleveraging program in 1996, the Company has repurchased or retired with internally generated cash $586.5 million of first mortgage bonds. No first mortgage bonds were repurchased during the first quarter of 2005. Common stock equity as a percentage of capitalization, including current portion of long-term debt and financing obligations, was 48% as of March 31, 2005.

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Since the inception of the stock repurchase programs in 1999, the Company repurchased approximately 15.3 million shares in total at an aggregate cost of $175.6 million, including commissions. No shares were repurchased during the first quarter of 2005. The Company may continue making purchases of its stock pursuant to its stock repurchase plan at open market prices and may engage in private transactions, where appropriate. The repurchased shares will be available for issuance under employee benefit and stock option plans, or may be retired.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Risk Factors

Like other companies in our industry, our consolidated financial results will be impacted by weather, the economy of our service territory, fuel prices, the performance of our customers and the decisions of regulatory agencies. Our common stock price and creditworthiness will be affected by national and international macroeconomic trends, general market conditions and the expectations of the investment community, all of which are largely beyond our control. In addition, the following statements highlight risk factors that may affect our consolidated financial condition and results of operations. These are not intended to be an exhaustive discussion of all such risks, and the statements below must be read together with factors discussed elsewhere in this document and in our other filings with the SEC.

Our Costs Could Increase if There are Problems at the Palo Verde Nuclear Generating Station

A significant percentage of our generating capacity, assets and operating expenses is attributable to Palo Verde. The Company’s 15.8% interest in each of the three Palo Verde units total approximately 600 MW of generating capacity. Palo Verde represents approximately 40% of our available net generating capacity and represented approximately 56% of our available energy for the three months ended March 31, 2005. We face the risk of additional or unanticipated costs at Palo Verde resulting from (i) increases in operation and maintenance expenses; (ii) the replacement of steam generators in Palo Verde Units 1 and 3; (iii) an extended outage of any of the Palo Verde units; (iv) increases in estimates of decommissioning costs; (v) the storage of radioactive waste, including spent nuclear fuel; (vi) insolvency of other Palo Verde Participants; and (vii) compliance with the various requirements and regulations governing commercial nuclear generating stations. At the same time, the Company’s retail base rates in Texas are effectively capped through a rate freeze ending in August 2005. As a result, the Company cannot raise its base rates in Texas prior to the expiration of the Freeze Period in the event of increases in non-fuel costs or loss of revenue. Additionally, should retail competition occur, there may be competitive pressure on the Company’s power generation rates which could reduce its profitability. The Company cannot assure that its revenues will be sufficient to recover any increased costs, including any increased costs in connection with Palo Verde or other operations, whether as a result of inflation, changes in tax laws or regulatory requirements, or other causes.

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Our Retail Rates Are Subject to Change Following the Termination of our Ten-Year Rate Freeze in August 2005

Our rates in Texas, which accounted for 63% of our revenues for the three months ended March 31, 2005, have been frozen and not subject to regulatory review since August 2, 1995. The Freeze Period expires on August 1, 2005. Thereafter, we will be subject to traditional cost of service regulation by the Texas cities that we serve and the Texas Commission. There can be no assurance that we will be able to maintain our Texas rates after expiration of the Freeze Period. In addition, the end of the Freeze Period may mean that we will no longer be entitled to retain 50% of our margins from off-system sales. If a return to cost of service regulation leads to lower rates or the retention by us of less of the margin from off-system sales, there would be a material negative impact on our revenues, earnings, cash flows and financial position.

Our Franchise With the City of El Paso Expires in August 2005

El Paso is the largest city in our service area, representing 54% of our revenues for the three months ended March 31, 2005. Our ten-year franchise with the City of El Paso expires on August 1, 2005 and there can be no assurance that we will be able to negotiate a new franchise on terms that are acceptable to us.

We May Not Be Able to Pass Through All of Our Fuel Expenses to Customers

In general, through regulation, we can pass through our fuel and purchased power expenses to our customers. Nevertheless, we agreed in 2004 to a fixed fuel factor for ten percent of our retail customers in New Mexico. This subjects us to the risk of increased costs of fuel that would not be recoverable. The portion of fuel expense that is not fixed is subject to reconciliation by the Texas and New Mexico Commissions. Prior to the completion of a reconciliation, the Company records fuel transactions such that fuel revenues equal fuel expense except for the portion fixed in New Mexico. In the event that a disallowance occurs during a reconciliation proceeding, the amounts recorded for fuel and purchased power expenses could differ from the amounts allowed to be collected by us from our customers and we would incur a loss to the extent of the disallowance.

Equipment Failures and Other External Factors Can Adversely Affect Our Results

The generation and transmission of electricity require the use of expensive and complex equipment. While we have a maintenance program in place, generating plants are subject to unplanned outages because of equipment failure. We are particularly vulnerable to this due to the advanced age of several of our generating units in or near El Paso. In these events, we must acquire power from others at unpredictable costs in order to supply our customers and comply with our contractual agreements. This can increase our costs materially and prevent us from selling excess power at wholesale, thus reducing our profits. In addition, decisions or mistakes by other utilities may adversely affect our ability to use transmission lines to deliver or import power, thus subjecting us to unexpected expenses or to the cost and uncertainty of public policy initiatives. We are particularly vulnerable to this because a significant portion of our available energy (at Palo Verde and Four Corners) is located hundreds of miles from El Paso and Las Cruces and must be delivered to our customers over long distance transmission lines. These factors, as well as weather, interest rates, economic conditions, fuel prices and price volatility, are

29

largely beyond our control, but may have a material adverse effect on our consolidated earnings, cash flows and financial position.

Competition and Deregulation Could Result in a Loss of Customers and Increased Costs

As a result of changes in federal law, our wholesale and large retail customers already have, in varying degrees, alternate sources of economical power, including co-generation of electric power. In addition, in recent years, both New Mexico and Texas passed industry deregulation legislation requiring us to separate our transmission and distribution functions, which would remain regulated, from our power generation and energy services businesses, which would operate in a competitive market, in the future. New Mexico repealed the New Mexico Restructuring Act in April 2003, and the Company’s operations in New Mexico will remain fully regulated. On October 13, 2004, the Texas Commission approved a rule delaying retail competition in the Company’s Texas service territory. There is substantial uncertainty about both the regulatory framework and market conditions that would exist if and when retail competition is implemented in the Company’s Texas service territory, and we may incur substantial preparatory, restructuring and other costs that may not ultimately be recoverable. There can be no assurance that deregulation would not adversely affect our future operations, cash flows and financial condition.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk due to changes in interest rates, equity prices and commodity prices. See the Company’s 2004 Form 10-K, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” for a complete discussion of the market risks faced by the Company and the Company’s market risk sensitive assets and liabilities. As of March 31, 2005, there have been no material changes in the market risks faced by the Company or the fair values of assets and liabilities disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the Company’s 2004 Form 10-K, except as discussed below.

During the first quarter of 2005, the Company entered into treasury rate lock agreements to hedge against potential movements in the treasury reference interest rates. These treasury rate locks expire during the second quarter of 2005. The treasury rate lock agreements meet the criteria for hedge accounting and are designated as a highly effective cash flow hedge. In accordance with cash flow hedge accounting, the Company recorded the fair value of the cash flow hedge at March 31, 2005 of $1.8 million, net of tax, as a component of accumulated other comprehensive loss. The Company will adjust the value of the hedge gain or loss until the position is closed which will occur sometime during the second quarter of 2005. The accumulated other comprehensive gain or loss associated with the cash flow hedge will be recognized in earnings as interest expense is accrued on applicable debt obligations.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. During the period covered by this report, the Company’s chief executive officer and principal financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of March 31, 2005, (the “Evaluation Date”), concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures (as required by paragraph (b) of the Securities Exchange Act of 1934 Rules 13a-15 or 15d-15) were adequate and designed to ensure that material information relating to the Company and the Company’s consolidated subsidiary would be made known to them by others within those entities.

Changes in internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting in connection with the evaluation required by paragraph (d) of the Securities Exchange Act of 1934 Rules 13a-15 or 15d-15, that occurred during the quarter ended March 31, 2005, that materially affected, or that were reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company hereby incorporates by reference the information set forth in Part I of this report under Notes B and E of Notes to Consolidated Financial Statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In February 2004, the Company’s Board of Directors authorized a new stock repurchase program permitting the repurchase of up to 2 million shares of its outstanding common stock. Approximately 1.7 million shares remain authorized to be repurchased under the program. No shares were repurchased during the first quarter of 2005.

Item 5. Other Information

Sixth Supplement to General Mortgage Indenture and Deed of Trust

On May 5, 2005, the Company entered into a Sixth Supplemental Indenture to the General Mortgage Indenture and Deed of Trust dated as of February 1, 1996 between the Company and U.S. Bank National Association, as successor to State Street Bank and Trust Company, as Trustee (the “General Mortgage”), which amends the covenants and events of default contained in the First Supplemental Indenture to the General Mortgage at such time as there are no longer outstanding any of the Company’s Series D or Series E First Mortgage Bonds under the General Mortgage.

Tender Offer

On May 5, 2005, the Company announced that it has commenced a cash tender offer (the “Tender Offer”) for any and all of its 8.90% Series D First Mortgage Bonds due February 1, 2006 and its 9.40% Series E First Mortgage Bonds due May 1, 2011, which are callable by the Company beginning on February 1, 2006 (collectively, the “Bonds”). The total outstanding principal amount of the Bonds subject to the Tender Offer is approximately $359.4 million. The terms and conditions of the Tender Offer are more fully described in a Form 8-K filed by the Company on May 5, 2005.

Item 6. Exhibits

See Index to Exhibits incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EL PASO ELECTRIC COMPANY
By:	/s/ SCOTT D. WILSON
	Scott D. Wilson
	Senior Vice President
	and Chief Financial Officer
	(Duly Authorized Officer and
	Principal Financial Officer)

Dated: May 6, 2005

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EL PASO ELECTRIC COMPANY

INDEX TO EXHIBITS

Exhibit Number	Exhibit
4.01	Sixth Supplemental Indenture dated as of May 5, 2005 to General Mortgage Indenture and Deed of Trust dated as of February 1, 1996 between the Company and U.S. Bank National Association as trustee
†10.01	Form of Directors’ Restricted Stock Award Agreement between the Company and certain directors of the Company. (Identical in all material respects to Exhibit 10.07 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999)
10.02	Eight Treasury Rate Lock agreements between the Company and Credit Suisse First Boston International
††10.03	Master Power Purchase and Sale Agreement and Transaction Agreement, dated as of July 7, 2004, between the Company and Southwestern Public Service Company
15	Letter re Unaudited Interim Financial Information
31.01	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
†	In lieu of non-employee director cash compensation, four agreements, dated as of January 3, 2005 and April 1, 2005, substantially identical in all material respects to this Exhibit, have been entered into with Kenneth R. Heitz; and Patricia Z. Holland-Branch directors of the Company.
††	Confidential treatment has been requested for the redacted portions of Exhibit 10.03. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as “****.” A complete version of this Exhibit has been filed separately with the Securities and Exchange Commission.

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EX-4.01

EXHIBIT 4.01

THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY.

THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

SIXTH

SUPPLEMENTAL INDENTURE

EL PASO ELECTRIC COMPANY

To

U.S. BANK NATIONAL ASSOCIATION

Trustee

Dated as of May 5, 2005

Supplemental to General Mortgage Indenture

and Deed of Trust

Dated as of February 1, 1996

THIS IS A SECURITY AGREEMENT GRANTING A SECURITY INTEREST IN PERSONAL PROPERTY INCLUDING PERSONAL PROPERTY AFFIXED TO REALTY AS WELL AS A MORTGAGE UPON REAL ESTATE AND OTHER PROPERTY.

SIXTH SUPPLEMENTAL INDENTURE

THIS SIXTH SUPPLEMENTAL INDENTURE, dated as of May 5, 2005 (the “Supplemental Indenture”), between EL PASO ELECTRIC COMPANY, a Texas corporation (the “Company”), whose principal office is located at Stanton Tower, 100 North Stanton, El Paso, Texas, 79901, and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States, as Trustee (the “Trustee”), whose corporate trust office is located at One Federal Street, 3^rd Floor, Boston, Massachusetts, 02110.

WITNESSETH

WHEREAS, the Company and the Trustee have entered into that (i) General Mortgage Indenture and Deed of Trust, dated as of February 1, 1996 (the “Original Indenture”), relating to the issuance of Bonds as may be created and established from time to time in one or more series; (ii) First Supplemental Indenture dated as of February 1, 1996 (the “First Supplemental Indenture”); (iii) Second Supplemental Indenture dated as of August 19, 1997 (the “Second Supplemental Indenture”); (iv) Third Supplemental Indenture dated as of January 29, 1999 (the “Third Supplemental Indenture”); (v) Fourth Supplemental Indenture dated as of January 25, 2002 (the “Fourth Supplemental Indenture”); and (vi) Fifth Supplemental Indenture dated as of December 17, 2004 (the “Fifth Supplemental Indenture” and, together with the Original Indenture, the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture and the Fourth Supplemental Indenture, the “Indenture”);

WHEREAS, the Company issued Bonds pursuant to the terms of the Indenture and mortgaged and pledged the Mortgaged Property to secure payment of the Bonds;

WHEREAS, it is provided in the Original Indenture, among other things, that the Company shall execute and file with the Trustee, and the Trustee at the request of the Company, when required by the Original Indenture, shall join in, indentures supplemental thereto, and which thereafter shall form a part thereof, for the purpose, among others, of amending the Indenture as permitted by Section 14.02 thereof;

WHEREAS, Section 14.02 of the Original Indenture permits the Indenture or the Bonds to be amended or supplemented with the consent of the Holders of not less than a majority in principal amount of the then Outstanding Bonds; provided that if the proposed amendment or waiver affects only the Holders of certain series of Outstanding Bonds, then the consent only of the Holders of a majority in aggregate principal amount of Outstanding Bonds of such affected series, considered as one class, shall be required;

WHEREAS, the Company proposes to eliminate the financial and other covenants and the events of default contained in Articles 4 and 5 of the First Supplemental Indenture following the retirement or repayment of the Series D and Series E Bonds, and such proposed amendment affects only the Holders of Series H Bonds;

WHEREAS, the Company has obtained and delivered to the Trustee the written consent of the sole Holder of the Outstanding Bond of Series H to the proposed amendments set forth in this Supplemental Indenture; and

WHEREAS, all acts and things have been done and performed which are necessary to make this Supplemental Indenture, when duly executed and delivered, a valid, binding and legal instrument in accordance with its terms and for the purposes herein expressed; and the execution and delivery of this Supplemental Indenture have been in all respects duly authorized.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, it is agreed by and between the Company and the Trustee as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Terms Incorporated By Reference. Except for the terms defined in this Supplemental Indenture, all capitalized terms used in this Supplemental Indenture have the respective meanings set forth in the Indenture.

ARTICLE 2

AMENDMENT OF FIRST SUPPLEMENTAL INDENTURE

Section 2.01. Amendment of Section 2.02(c). The first sentence of Section 2.02 (c) of the First Supplemental Indenture is hereby deleted in its entirety and replaced with the following:

“On and as of the date upon which none of the Investor Series Bonds remain Outstanding (as set forth in a written notice delivered to the Trustee by the Company), the Collateral Series H Bonds shall no longer be entitled to the protections of the covenants contained in Article 4 hereof and shall no longer be subject to the provisions pertaining to Events of Default contained in Article 5 hereof.”

Section 2.02. Deletion of Section 4.12. Section 4.12 of the First Supplemental Indenture, which was added pursuant to the Fifth Supplemental Indenture, is hereby deleted.

Section 2.03. Exhibit H. Exhibit H to the First Supplemental Indenture is hereby replaced in its entirety with Exhibit H hereto.

ARTICLE 3

AMENDMENT AND REPLACEMENT OF SERIES H BONDS

Section 3.01. Amendment to Reflect Deletion of Section 4.12 of the Indenture and Amendment of Section 2.02(c) of the Indenture. In order to reflect the deletion of Section 4.12 of the Indenture, and the amendment of Section 2.02(c) thereof as provided in Sections 2.01 and 2.02 above, each of the Series H Bonds is amended by replacing the last sentence of the ninth paragraph thereof with the following:

2

“Notwithstanding the foregoing proviso, without the consent of the Holders, on and as of the date upon which none of the Investor Series Bonds remain Outstanding (as set forth in a notice delivered to the Trustee by the Company), the Series H Bonds shall no longer be entitled to the protections of the covenants contained in Article 4 of the First Supplemental Indenture and shall no longer be subject to the provisions pertaining to Events of Default contained in Article 5 of the First Supplemental Indenture.”

Section 3.02. Replacement of Series H Bond. Upon surrender of the Outstanding Series H Bond by the sole Holder thereof, the Company shall execute, and the Trustee shall, and is hereby authorized and directed, to authenticate, in each case as provided in the Indenture, a replacement Bond substantially in the form of Exhibit H hereto.

ARTICLE 4

THE TRUSTEE

Section 4.01. Trustee’s Disclaimer. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company, or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by the Company.

Except as herein otherwise provided, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed, by the Trustee by reason of this Supplemental Indenture other than as set forth in the Indenture, and this Supplemental Indenture is executed and accepted on behalf of the Trustee, subject to all the terms and conditions set forth in the Indenture, as fully to all intents as if the same were set forth at length herein.

ARTICLE 5

MISCELLANEOUS

Section 5.01. Reference to Original Indenture. Except insofar as otherwise expressly provided herein, all the provisions, definitions, terms and conditions of the Original Indenture, as it has been and may from time to time be amended, shall be deemed to be incorporated in and made a part of this Supplemental Indenture; and the Original Indenture as heretofore supplemented and as supplemented by this Supplemental Indenture is in all respects ratified and confirmed; and the Original Indenture, as amended, and this Supplemental Indenture shall be read, taken and construed as one and the same instrument.

Section 5.02. Governing Law. In view of the fact that Bondholders may reside in various states and the desire to establish with certainty that this Supplemental Indenture will be governed by and construed and interpreted in accordance with the law of a state having a well developed body of commercial and financial law relevant to transactions of the type contemplated herein, this Supplemental Indenture shall be construed in accordance with and governed by the laws of the State of New York (without regard to the conflict of laws provisions

3

thereof) applicable to agreements made and to be performed therein, except to the extent that the TIA shall be applicable and except to the extent that the TIA shall be applicable and except to the extent the law of any jurisdiction wherein any portion of the Mortgaged Property is located shall mandatorily govern the perfection, priority or enforcement of the Lien of the Indenture with respect to such portion of the Mortgaged Property.

Section 5.03. Successors. All covenants, stipulations and agreements of the Company in this Supplemental Indenture shall bind its successors and assigns. All agreements of the Trustee in this Supplemental Indenture shall bind its successor.

Section 5.04. Counterparts. This Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts when so executed shall be deemed to be an original, but all such counterparts shall together constitute by one and the same instrument.

4

IN WITNESS WHEREOF, EL PASO ELECTRIC COMPANY has caused this Supplemental Indenture to be executed by its Chairman of the Board, Chief Executive Officer, President or one of its Vice Presidents, and duly attested by its Secretary or one of its Assistant Secretaries, and U.S. BANK NATIONAL ASSOCIATION has caused the same to be executed by one of its Vice Presidents or Assistant Vice Presidents and its corporate seal to be hereunto affixed, and duly attested by one of its Assistant Secretaries, as of the day and year first above written.

	EL PASO ELECTRIC COMPANY
	By:	/s/ Scott D. Wilson
	Name:	Scott D. Wilson
	Title:	Senior Vice President and CFO
Attest:
/s/ Gary Sanders
Asst. Secretary
	U.S. BANK NATIONAL
	ASSOCIATION, as Trustee
	By:	/s/ George Davison
	Name:	George Davison
	Title:	Officer
[Corporate Seal]
Attest:
Title:

5

ACKNOWLEDGEMENT

STATE OF TEXAS	)
	)	SS.
COUNTY OF EL PASO	)

On the 5th day of May, 2005, before me personally came Scott D. Wilson, to me known, who, being by me duly sworn, did depose and say that he resides in El Paso County, Texas; that he is the Senior VP and CFO of El Paso Electric Company, a Texas corporation, the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the board of directors of said corporation.

/s/ Hilda Vargas

Notary Public

(Notary Seal)

ACKNOWLEDGEMENT

COMMONWEALTH OF MASSACHUSETTS	)
	)	SS.
COUNTY OF SUFFOLK	)

On the      day of May, 2005, before me personally came                     , to me known, who, being by me duly sworn, did depose and say that s/he resides in                     , Massachusetts; s/he is a                      of U.S. Bank National Association, a banking corporation organized under the laws of The Commonwealth of Massachusetts, the corporation described in and which executed the foregoing instrument; that s/he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the board of directors of said corporation, and that s/he signed her/his name thereto by his authority.

Notary Public

(Notary Seal)

Exhibit H

[Form of Series H Bond]

THIS BOND IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR COLLATERAL AGENT UNDER THE CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2004, AMONG THE COMPANY, JPMORGAN CHASE BANK, AS TRUSTEE OF THE RIO GRANDE RESOURCES TRUST II, THE LENDERS SPECIFIED THEREIN (THE “LENDERS”), AND JPMORGAN CHASE BANK, AS ISSUING BANK, AS ADMINISTRATIVE AGENT, AND AS COLLATERAL AGENT (THE “COLLATERAL AGENT”) (SUCH CREDIT AGREEMENT, AS AMENDED FROM TIME TO TIME, THE “REVOLVING CREDIT AGREEMENT”).

EL PASO ELECTRIC COMPANY

No. $100,000,000

COLLATERAL SERIES H FIRST MORTGAGE BONDS

El Paso Electric Company, a Texas corporation (herein, together with its successors and assigns, the “Company”), for value received promises to pay to                     , or registered assigns the principal sum of ONE HUNDRED MILLION DOLLARS or such lesser principal amount as is equal to the aggregate principal amount of the outstanding Loans and L/C Disbursements (as defined in the Revolving Credit Agreement) in whole or installments on such date or dates as the Company has any obligation to make payments under the Revolving Credit Agreement, but not later than the Maturity Date (as defined in the Revolving Credit Agreement) or December 17, 2009, whichever shall occur first, at the same place or places as such payments are required to be made by the Company, in any coin or currency of the United States of America which at the time of such payment shall be legal tender for the payment of public and private debts, and to pay interest on the unpaid principal amount hereof in like coin or currency to the registered owner hereof at said place or places at such rate per annum on each interest payment date (as hereinafter defined) as shall cause the amount of interest payable on such interest payment date on this Series H Bond to equal the amount of interest, fees, charges and expenses payable on such interest payment date under the Revolving Credit Agreement. Such interest shall be payable on the same dates as interest is payable from time to time pursuant to the Revolving Credit Agreement (each such date hereinafter called an “interest payment date”), until maturity of this Series H Bond, or if the Collateral Agent shall demand redemption of this Series H Bond, until the redemption date, or, if the Company shall default in the payment of principal due on this Series H Bond, until such principal and interest, shall have been paid in full and the Company’s obligations with respect thereto discharged as provided in the Indenture (as hereinafter defined). The amount of interest and fees and types of charges and expenses payable from time to time under the Revolving Credit Agreement, the basis on which such amounts are computed and the dates on which such amounts are

payable are set forth in the Revolving Credit Agreement.

Except as hereinafter provided, this Series H Bond shall bear interest (a) from the interest payment date next preceding the date of this Series H Bond to which interest has been paid, or (b) if the date of this Series H Bond is an interest payment date to which interest has been paid, then from such date, or (c) if no interest has been paid on this Series H Bond, then from the date of initial issue.

This Series H Bond is one of the bonds of the Company known as its First Mortgage Bonds (the “Bonds”), issued and to be issued in one or more series under and secured by a General Mortgage Indenture and Deed of Trust, dated as of February 1, 1996, duly executed by the Company to U.S. Bank National Association, a banking corporation organized under the laws of The Commonwealth of Massachusetts, Trustee (“Trustee”), and indentures supplemental thereto, heretofore or hereafter executed, to which General Mortgage Indenture and Deed of Trust and all indentures supplemental thereto (collectively referred to as the “Indenture”) reference is hereby made for a description of the property mortgaged and pledged, the nature and extent of the security, the terms and conditions upon which the Bonds are, and are to be, issued and secured, and the rights of the owners of the Bonds and the Trustee in respect of such security. As provided in the Indenture, the Bonds may be in various principal sums, are issuable in series, may mature at different times, may bear interest at different rates and may otherwise vary as therein provided; and this Bond is the only Bond of a series entitled “Collateral Series H First Mortgage Bonds”, created by a First Supplemental Indenture dated as of February 1, 1996, as provided for in the Indenture. The terms of this Series H Bond include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code §§77aaa-77bbbb) (the “Act”), as in effect on the date of the Indenture.

The Indenture authorizes the issuance of up to $100,000,000 aggregate principal amount of Series H Bonds, but the aggregate principal amount hereof outstanding at any time shall not exceed such lesser amount as is equal to the amount of the Total Commitment under the Revolving Credit Agreement or, if such Total Commitment shall have terminated, the aggregate outstanding principal amount of the Loans and L/C Disbursements under the Revolving Credit Agreement.

This Series H Bond has been issued by the Company to the Collateral Agent (i) to provide for the payment of the Company’s obligations to make payments to any person under the Revolving Credit Agreement and (ii) to provide to such persons the benefits of the security provided for by this Series H Bond.

Any payment made in respect to the Company’s obligations under the Revolving Credit Agreement shall be deemed a payment in respect of this Series H Bond, but such payment shall not reduce the principal amount of this Series H Bond unless, and then only to the extent, the aggregate amount of the Total Commitment is irrevocably reduced concurrently with such payment. In the event that all of the Company’s obligations under the Revolving Credit Agreement have been paid in full and discharged, this Series H Bond shall be deemed paid in full and the Collateral Agent shall surrender this Series H Bond to the Trustee for cancellation. This

2

Series H Bond shall also be surrendered to the Trustee, or to the Company for delivery to the Trustee, for cancellation on the Collateral Release Date, as that term is defined in Section 10.04 of the Revolving Credit Agreement, if the conditions enumerated in such Section 10.04 have been satisfied.

In the manner provided in the Indenture, this Series H Bond shall be redeemed at a redemption price of 100% (expressed as a percentage of principal amount) plus accrued interest thereon to the redemption date, in cash, upon receipt by the Trustee of a written demand for redemption of this Series H Bond from the Collateral Agent (the “Collateral Series Redemption Demand”). This Series H Bond shall be redeemed in the amount specified in the Collateral Series Redemption Demand, which amount shall be equal to the outstanding principal, interest and other amounts then due and owing under the Revolving Credit Agreement. The Collateral Series Redemption Demand shall also state (i) that an “Event of Default” has occurred and is continuing under the terms of the Revolving Credit Agreement, (ii) that payment of the principal amount outstanding under the Revolving Credit Agreement, all interest thereon and all other amounts payable thereunder are immediately due and payable, and (iii) that the Collateral Agent has demanded payment thereof from the Company. The portion of this Series H Bond subject to redemption shall be redeemed on the fifth Business Day following receipt by the Trustee of the Collateral Series Redemption Demand. Any payment made to the Collateral Agent pursuant to a Collateral Series Redemption Demand shall constitute a payment by the Company in respect of its obligations under the Revolving Credit Agreement. The Collateral Series Redemption Demand shall be rescinded and shall be null and void for all purposes of the Indenture upon receipt by the Trustee, no later than the Business Day prior to the date fixed for redemption, of a certificate of the Collateral Agent (a) stating that there has been a waiver of such Event of Default, or (b) withdrawing said Collateral Series Redemption Demand.

The principal of this Series H Bond may be declared or may become due before the maturity hereof, on the conditions, in the manner and at the times set forth in the Indenture, upon the happening of an Event of Default as therein defined.

With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Bonds which would be affected by the action to be taken, the Company and the Trustee may from time to time and at any time, enter into a Supplemental Indenture for the purpose of adding any provision or changing in any manner or eliminating any provision of the Indenture or of any Supplemental Indenture or of modifying in any manner the rights of the Holders of Bonds and any coupons; provided, however, that (i) no such Supplemental Indenture shall, without the consent of the Holder of each Outstanding Bond affected thereby (a) reduce the principal amount of Bonds whose Holders must consent to an amendment, supplement or waiver, (b) reduce the Principal of or change the fixed maturity of any Bond, or alter the provisions with respect to any sinking, improvement, maintenance, replacement or analogous fund or conversion, redemption or repurchase rights with respect to any Bond, (c) reduce the rate of or change the time for payment of interest on any Bond, (d) waive a Default or Event of Default in the payment of Principal of or interest on the Bonds (except a rescission of acceleration of the Bonds pursuant to the Indenture where the Event of Default has been remedied), (e) make any Bond payable in money other than that stated in such Bond, (f) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Bonds to receive payments of Principal of or interest on the Bonds, (g) waive a redemption payment with respect

3

to any Bond, (h) limit the right of a Holder of Bonds to institute suit for the enforcement of payment of Principal of or interest on such Bonds in accordance with the terms of said Bonds, (i) permit the creation by the Company of any Prior Lien (but no merger or consolidation permitted under the Indenture of the Company with any other Person owning property which is subject to a Prior Lien, shall be deemed the creation of a Prior Lien), or (j) make any change in the Indenture pertaining to amendments, supplements or waivers to the Indenture or any Supplemental Indenture with the consent of the Holders, and (ii) if there shall be Bonds of more than one series of Bonds outstanding and if such proposed action shall materially adversely affect the rights of Holders of Bonds of one or more such series, then the consent (including consents obtained in connection with a tender offer or exchange offer for Bonds) only of the Holders of a majority in aggregate principal amount of the outstanding Bonds of all series so affected, considered as one class, shall be required. Notwithstanding the foregoing proviso, without the consent of the Holders, on and as of the date upon which none of the Investor Series Bonds remain Outstanding (as set forth in a notice delivered to the Trustee by the Company), the Series H Bonds shall no longer be entitled to the protections of the covenants contained in Article 4 of the First Supplemental Indenture and shall no longer be subject to the provisions pertaining to Events of Default contained in Article 5 of the First Supplemental Indenture.

No incorporator, stockholder, director, officer or employee of the Company shall have any liability for any obligations of the Company under this Series H Bond and the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Any and all such rights and claims against every such incorporator, stockholder, director, officer or employee, as such, whether arising at common law or in equity, or created by rule of law, statute, constitution or otherwise, are expressly released and waived as a condition of, and as part of the consideration for, the execution of the Indenture and the issuance of this Series H Bond.

This Series H Bond is nontransferable except to effect transfer to any successor to the Collateral Agent under the Revolving Credit Agreement, but is exchangeable by the registered holder hereof, in person or by attorney duly authorized, at the corporate trust office of the Trustee, any such permitted transfer or exchange to be made in the manner and upon the conditions prescribed in the Indenture, upon the surrender and cancellation of this Series H Bond and the payment of any applicable taxes and fees required by law, and upon any such transfer or exchange a new registered bond or bonds or the same series and tenor, will be issued to the authorized transferee, or the registered holder, as the case may be.

This Series H Bond shall not be valid until authenticated by the manual signature of the Trustee, or a successor trustee or authenticating agent appointed pursuant to the Indenture.

4

IN WITNESS WHEREOF, the Company has caused this Series H Bond to be executed in its name by the manual or facsimile signature of its Chairman of the Board, its Chief Executive Officer, its President or one of its Vice Presidents, and attested by the manual or facsimile signature of its Secretary or one of its Assistant Secretaries.

Issue Date:

Authentication Date:

This Bond is one of the Bonds of the series designated therein, described in the within- mentioned Indenture.		EL PASO ELECTRIC COMPANY, as Issuer
U.S. BANK NATIONAL ASSOCIATION,		By:
as Trustee		Title:
		Attest:
By:
	Authorized Officer	Title:

5

ASSIGNMENT

To assign this Series H Bond, fill in the form below:

(I) or (we) assign and transfer this Series H Bond to

________________________________________________________________________________________________________________________________________________________________________

                                                                             (Insert assignee’s soc. sec. or tax I.D. no.)

________________________________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________________________________

(Print or type assignee’s name, address and zip code)

and irrevocably appoint ______________________________________________________________________________________

agent to transfer this Series H Bond on the books of the Company. The agent may substitute another to act for him.

Date:                             

Your Signature:

________________________________________________________________________________________________________________________________________________________________________

(Sign exactly as your name appears on this Series H Bond)

Signature

Guarantee: __________________________________________________________________________________________________

(Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Registrar, which requirements will include membership or participation in STAMP or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Exchange Act.)

EX-10.02

EXHIBIT 10.02

29 March 2005

El Paso Electric Company

123 West Mills

El Paso, Texas 79901

United Sates

External ID: 9182693

Dear Sirs:

The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to in the Agreement specified below.

In this Confirmation, “CSFBi” means Credit Suisse First Boston International and “Counterparty” means El Paso Electric Company.

1. The definitions and provisions contained in the 2000 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to a “Transaction” shall be deemed to be references to a “Swap Transaction” for the purposes of the 2000 ISDA Definitions.

If you and we are parties to the 1992 ISDA Master Agreement, (the “Agreement”), this Confirmation supplements, forms a part of, and is subject to such Agreement. If you and we are not yet parties to the Agreement, you and we agree to use our best efforts promptly to negotiate, execute, and deliver the Agreement, including our standard form of Schedule attached thereto and made a part thereof, with such modifications as you and we shall in good faith agree. Upon execution and delivery by you and us of the Agreement, this Confirmation shall supplement, form a part of, and be subject to such Agreement. Until you and we execute and deliver the Agreement, this Confirmation (together with all other Confirmations of Transactions previously entered into between us, notwithstanding anything to the contrary therein) shall supplement, form a part of, and be subject to the 1992 ISDA Master Agreement as if, on the Trade Date of the first such Transaction between us, you and we had executed that agreement (without any Schedule thereto) and had specified that the Automatic Early Termination provisions contained in Section 6(a) of such agreement would apply.

The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine and each party hereby submits to the jurisdiction of the Courts of the State of New York.

CSFBi and Counterparty each represents to the other that it has entered into this Transaction in reliance upon such tax, accounting, regulatory, legal, and financial advice as it deems necessary and not upon any view expressed by the other.

The terms of the Transaction to which this Confirmation relates is as follows:

1. Determination of Payment Amount. On the Determination Date, the Calculation Agent shall calculate the Payment Amount in accordance with the terms herein and shall notify the parties of such Payment Amount and which party shall pay such amount by close of business on the Determination Date. All determinations hereunder shall be made by the Calculation Agent in good faith and in accordance with its standard practices.

2. Payment. If the Payment Amount is negative, CSFBi shall pay the absolute value of the Payment Amount to Counterparty on the Settlement Date and if the Payment Amount is positive, Counterparty shall pay the Payment Amount to CSFBi on the Settlement Date.

3. Definitions. As used herein, the following terms shall have the following meaning:

Trade Date:	11 March 2005
Effective Date:	11 March 2005
Determination Date:	13 May 2005. Such election shall be conveyed to Counterparty by telephone, to be confirmed and delivered in writing (which may be electronically) and if not received shall not affect the validity of such telephonic notice, which shall be irrevocable.
Reference Treasury:	5.375% due 15 February 2031
Notional Amount:	USD 200,000,000
Reference Yield:	4.87%
Final Yield:	The yield of the Reference Treasury to be determined on the Determination Date by the Calculation Agent
Payment Amount:	An amount equal to the product of (i) the Reference Yield minus the Final Yield multiplied by (ii) the Notional Amount multiplied by (iii) the Reference Duration.
Reference Duration:	The duration of the Reference Treasury as displayed under the heading “RISK” on Bloomberg Screen T30

External ID: 9182693 2

	<govt> YA (evaluated at yield) as of the determination date
Settlement Date:	One Business Day following the Determination Date, subject to adjustment in accordance with the US Treasury market settlement conventions on the Determination Date
Business Days:	New York
Calculation Agent:	CSFBi

Without affecting the provisions of this Confirmation requiring the calculation of certain net payment amounts, all payments under this Confirmation will be made without set-off or counterclaim; provided, however, that upon the designation or deemed designation of any Early Termination Date, in addition to and not in limitation of any other right or remedy (including any right to set-off, counterclaim, or otherwise withhold payment) under applicable law:

the Non-defaulting Party or the party that is not the Affected Party (in either case, “X”) may, without prior notice to any person, set off any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by the Defaulting Party or Affected Party (in either case, “Y”) to X or to any Affiliate of X, against any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by X or any Affiliate of X to Y, and, for this purpose, may convert one currency into another. If any sum or obligation is unascertained, X may in good faith estimate that sum or obligation and set off in respect of that estimate, subject to X or Y, as the case may be, accounting to the other party when such sum or obligation is ascertained.

4. Account Details:

Payments to CSFBi:	As advised separately in writing
Payments to Counterparty:	As advised separately in writing

Credit Suisse First Boston International is Authorized and Regulated by the Financial Services Authority and has entered into this transaction as principal. The time at which the above transaction was executed will be notified to Counterparty on request.

External ID: 9182693 3

Please confirm that the foregoing correctly sets forth the terms of our agreement by signing and returning this Confirmation.

Yours faithfully,
Credit Suisse First Boston International
By:	/s/ Karen Newton
Name:	Karen Newton
Title:	Director

Confirmed as of the date first written above:

El Paso Electric Company
By:	/s/ Steven P. Busser
Name:	Steven P. Busser
Title:	VP, Regulatory Affairs & Treasurer

Our Reference Number: External ID: 9182693 / Risk ID: 550700024

4

31 March 2005

El Paso Electric Company

123 West Mills

El Paso, Texas 79901

United Sates

External ID: 9188097

Dear Sirs:

The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to in the Agreement specified below.

In this Confirmation, “CSFBi” means Credit Suisse First Boston International and “Counterparty” means El Paso Electric Company.

1. The definitions and provisions contained in the 2000 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to a “Transaction” shall be deemed to be references to a “Swap Transaction” for the purposes of the 2000 ISDA Definitions.

If you and we are parties to the 1992 ISDA Master Agreement, (the “Agreement”), this Confirmation supplements, forms a part of, and is subject to such Agreement. If you and we are not yet parties to the Agreement, you and we agree to use our best efforts promptly to negotiate, execute, and deliver the Agreement, including our standard form of Schedule attached thereto and made a part thereof, with such modifications as you and we shall in good faith agree. Upon execution and delivery by you and us of the Agreement, this Confirmation shall supplement, form a part of, and be subject to such Agreement. Until you and we execute and deliver the Agreement, this Confirmation (together with all other Confirmations of Transactions previously entered into between us, notwithstanding anything to the contrary therein) shall supplement, form a part of, and be subject to the 1992 ISDA Master Agreement as if, on the Trade Date of the first such Transaction between us, you and we had executed that agreement (without any Schedule thereto) and had specified that the Automatic Early Termination provisions contained in Section 6(a) of such agreement would apply.

The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine and each party hereby submits to the jurisdiction of the Courts of the State of New York.

CSFBi and Counterparty each represents to the other that it has entered into this Transaction in reliance upon such tax, accounting, regulatory, legal, and financial advice as it deems necessary and not upon any view expressed by the other.

The terms of the Transaction to which this Confirmation relates is as follows:

1. Determination of Payment Amount. On the Determination Date, the Calculation Agent shall calculate the Payment Amount in accordance with the terms herein and shall notify the parties of such Payment Amount and which party shall pay such amount by close of business on the Determination Date. All determinations hereunder shall be made by the Calculation Agent in good faith and in accordance with its standard practices.

2. Payment. If the Payment Amount is negative, CSFBi shall pay the absolute value of the Payment Amount to Counterparty on the Settlement Date and if the Payment Amount is positive, Counterparty shall pay the Payment Amount to CSFBi on the Settlement Date.

3. Definitions. As used herein, the following terms shall have the following meaning:

Trade Date:	30 March 2005
Effective Date:	30 March 2005
Determination Date:	13 May 2005. Such election shall be conveyed to Counterparty by telephone, to be confirmed and delivered in writing (which may be electronically) and if not received shall not affect the validity of such telephonic notice, which shall be irrevocable.
Reference Treasury:	5.375% due 15 February 2031
Notional Amount:	USD 25,000,000
Reference Yield:	4.90%
Final Yield:	The yield of the Reference Treasury to be determined on the Determination Date by the Calculation Agent
Payment Amount:	An amount equal to the product of (i) the Reference Yield minus the Final Yield multiplied by (ii) the Notional Amount multiplied by (iii) the Reference Duration.
Reference Duration:	The duration of the Reference Treasury as displayed under the heading “RISK” on Bloomberg Screen T30

External ID: 9188097 2

	<govt> YA (evaluated at yield) as of the determination date.
Settlement Date:	One Business Day following the Determination Date, subject to adjustment in accordance with the US Treasury market settlement conventions on the Determination Date
Business Days:	New York
Calculation Agent:	CSFBi

Without affecting the provisions of this Confirmation requiring the calculation of certain net payment amounts, all payments under this Confirmation will be made without set-off or counterclaim; provided, however, that upon the designation or deemed designation of any Early Termination Date, in addition to and not in limitation of any other right or remedy (including any right to set-off, counterclaim, or otherwise withhold payment) under applicable law:

the Non-defaulting Party or the party that is not the Affected Party (in either case, “X”) may, without prior notice to any person, set off any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by the Defaulting Party or Affected Party (in either case, “Y”) to X or to any Affiliate of X, against any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by X or any Affiliate of X to Y, and, for this purpose, may convert one currency into another. If any sum or obligation is unascertained, X may in good faith estimate that sum or obligation and set off in respect of that estimate, subject to X or Y, as the case may be, accounting to the other party when such sum or obligation is ascertained.

4. Account Details:

Payments to CSFBi:	As advised separately in writing
Payments to Counterparty:	As advised separately in writing

Credit Suisse First Boston International is Authorized and Regulated by the Financial Services Authority and has entered into this transaction as principal. The time at which the above transaction was executed will be notified to Counterparty on request.

External ID: 9188097 3

Please confirm that the foregoing correctly sets forth the terms of our agreement by signing and returning this Confirmation.

Yours faithfully,
Credit Suisse First Boston International
By:	/s/ Karen Newton
Name:	Karen Newton
Title:	Director

Confirmed as of the date first written above:

El Paso Electric Company
By:	/s/ Steven P. Busser
Name:	Steven P. Busser
Title:	VP, Regulatory Affairs & Treasurer

Our Reference Number: External ID: 9188097 / Risk ID: 550890071

4

31 March 2005

El Paso Electric Company

123 West Mills

El Paso, Texas 79901

United Sates

External ID: 9187477

Dear Sirs:

The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to in the Agreement specified below.

In this Confirmation, “CSFBi” means Credit Suisse First Boston International and “Counterparty” means El Paso Electric Company.

1. The definitions and provisions contained in the 2000 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to a “Transaction” shall be deemed to be references to a “Swap Transaction” for the purposes of the 2000 ISDA Definitions.

If you and we are parties to the 1992 ISDA Master Agreement, (the “Agreement”), this Confirmation supplements, forms a part of, and is subject to such Agreement. If you and we are not yet parties to the Agreement, you and we agree to use our best efforts promptly to negotiate, execute, and deliver the Agreement, including our standard form of Schedule attached thereto and made a part thereof, with such modifications as you and we shall in good faith agree. Upon execution and delivery by you and us of the Agreement, this Confirmation shall supplement, form a part of, and be subject to such Agreement. Until you and we execute and deliver the Agreement, this Confirmation (together with all other Confirmations of Transactions previously entered into between us, notwithstanding anything to the contrary therein) shall supplement, form a part of, and be subject to the 1992 ISDA Master Agreement as if, on the Trade Date of the first such Transaction between us, you and we had executed that agreement (without any Schedule thereto) and had specified that the Automatic Early Termination provisions contained in Section 6(a) of such agreement would apply.

The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine and each party hereby submits to the jurisdiction of the Courts of the State of New York.

CSFBi and Counterparty each represents to the other that it has entered into this Transaction in reliance upon such tax, accounting, regulatory, legal, and financial advice as it deems necessary and not upon any view expressed by the other.

The terms of the Transaction to which this Confirmation relates is as follows:

1. Determination of Payment Amount. On the Determination Date, the Calculation Agent shall calculate the Payment Amount in accordance with the terms herein and shall notify the parties of such Payment Amount and which party shall pay such amount by close of business on the Determination Date. All determinations hereunder shall be made by the Calculation Agent in good faith and in accordance with its standard practices.

2. Payment. If the Payment Amount is negative, CSFBi shall pay the absolute value of the Payment Amount to Counterparty on the Settlement Date and if the Payment Amount is positive, Counterparty shall pay the Payment Amount to CSFBi on the Settlement Date.

3. Definitions. As used herein, the following terms shall have the following meaning:

Trade Date:	29 March 2005
Effective Date:	29 March 2005
Determination Date:	12 May 2005. Such election shall be conveyed to Counterparty by telephone, to be confirmed and delivered in writing (which may be electronically) and if not received shall not affect the validity of such telephonic notice, which will be irrevocable
Reference Treasury:	5.375% due 15 February 2031
Notional Amount:	USD 25,000,000
Reference Yield:	4.92%
Final Yield:	The yield of the Reference Treasury to be determined on the Determination Date by the Calculation Agent.
Payment Amount:	An amount equal to the product of (i) the Reference Yield minus the Final Yield multiplied by (ii) the Notional Amount multiplied by (iii) the Reference Duration.
Reference Duration:	The duration of the Reference Treasury as displayed under the heading “RISK” on Bloomberg Screen T30

External ID: 9187477 2

	<govt> YA (evaluated at yield) as of the determination date.
Settlement Date:	One Business Day following the Determination Date, subject to adjustment in accordance with the US Treasury market settlement conventions on the Determination Date
Business Days:	New York
Calculation Agent:	CSFBi

Without affecting the provisions of this Confirmation requiring the calculation of certain net payment amounts, all payments under this Confirmation will be made without set-off or counterclaim; provided, however, that upon the designation or deemed designation of any Early Termination Date, in addition to and not in limitation of any other right or remedy (including any right to set-off, counterclaim, or otherwise withhold payment) under applicable law:

the Non-defaulting Party or the party that is not the Affected Party (in either case, “X”) may, without prior notice to any person, set off any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by the Defaulting Party or Affected Party (in either case, “Y”) to X or to any Affiliate of X, against any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by X or any Affiliate of X to Y, and, for this purpose, may convert one currency into another. If any sum or obligation is unascertained, X may in good faith estimate that sum or obligation and set off in respect of that estimate, subject to X or Y, as the case may be, accounting to the other party when such sum or obligation is ascertained.

4. Account Details:

Payments to CSFBi:	As advised separately in writing
Payments to Counterparty:	As advised separately in writing

Credit Suisse First Boston International is Authorized and Regulated by the Financial Services Authority and has entered into this transaction as principal. The time at which the above transaction was executed will be notified to Counterparty on request.

External ID: 9187477 3

Please confirm that the foregoing correctly sets forth the terms of our agreement by signing and returning this Confirmation.

Yours faithfully,
Credit Suisse First Boston International
By:	/s/ Karen Newton
Name:	Karen Newton
Title:	Director

Confirmed as of the date first written above:

El Paso Electric Company
By:	/s/ Steven P. Busser
Name:	Steven P. Busser
Title:	VP, Regulatory Affairs & Treasurer

Our Reference Number: External ID: 9187477 / Risk ID: 550880024

4

29 March 2005

El Paso Electric Company

123 West Mills

El Paso, Texas 79901

United Sates

External ID: 9186807

Dear Sirs:

The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to in the Agreement specified below.

In this Confirmation, “CSFBi” means Credit Suisse First Boston International and “Counterparty” means El Paso Electric Company.

1. The definitions and provisions contained in the 2000 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to a “Transaction” shall be deemed to be references to a “Swap Transaction” for the purposes of the 2000 ISDA Definitions.

If you and we are parties to the 1992 ISDA Master Agreement, (the “Agreement”), this Confirmation supplements, forms a part of, and is subject to such Agreement. If you and we are not yet parties to the Agreement, you and we agree to use our best efforts promptly to negotiate, execute, and deliver the Agreement, including our standard form of Schedule attached thereto and made a part thereof, with such modifications as you and we shall in good faith agree. Upon execution and delivery by you and us of the Agreement, this Confirmation shall supplement, form a part of, and be subject to such Agreement. Until you and we execute and deliver the Agreement, this Confirmation (together with all other Confirmations of Transactions previously entered into between us, notwithstanding anything to the contrary therein) shall supplement, form a part of, and be subject to the 1992 ISDA Master Agreement as if, on the Trade Date of the first such Transaction between us, you and we had executed that agreement (without any Schedule thereto) and had specified that the Automatic Early Termination provisions contained in Section 6(a) of such agreement would apply.

The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine and each party hereby submits to the jurisdiction of the Courts of the State of New York.

CSFBi and Counterparty each represents to the other that it has entered into this Transaction in reliance upon such tax, accounting, regulatory, legal, and financial advice as it deems necessary and not upon any view expressed by the other.

The terms of the Transaction to which this Confirmation relates is as follows:

1. Determination of Payment Amount. On the Determination Date, the Calculation Agent shall calculate the Payment Amount in accordance with the terms herein and shall notify the parties of such Payment Amount and which party shall pay such amount by close of business on the Determination Date. All determinations hereunder shall be made by the Calculation Agent in good faith and in accordance with its standard practices.

2. Payment. If the Payment Amount is negative, CSFBi shall pay the absolute value of the Payment Amount to Counterparty on the Settlement Date and if the Payment Amount is positive, Counterparty shall pay the Payment Amount to CSFBi on the Settlement Date.

3. Definitions. As used herein, the following terms shall have the following meaning:

Trade Date:	24 March 2005
Effective Date:	24 March 2005
Determination Date:	13 May 2005. Such election shall be conveyed to Counterparty by telephone, to be confirmed and delivered in writing (which may be electronically) and if not received shall not affect the validity of such telephonic notice, which shall be irrevocable.
Reference Treasury:	5.375% due 15 February 2031
Notional Amount:	USD 25,000,000
Reference Yield:	4.90%
Final Yield:	The yield of the Reference Treasury to be determined on the Determination Date by the Calculation Agent
Payment Amount:	An amount equal to the product of (i) the Reference Yield minus the Final Yield multiplied by (ii) the Notional Amount multiplied by (iii) the Reference Duration.
Reference Duration:	The duration of the Reference Treasury as displayed under the heading “RISK” on Bloomberg Screen T30

External ID: 9186807 2

	<govt> YA (evaluated at yield) as of the determination date
Settlement Date:	One Business Day following the Determination Date, subject to adjustment in accordance with the US Treasury market settlement conventions on the Determination Date
Business Days:	New York
Calculation Agent:	CSFBi

Without affecting the provisions of this Confirmation requiring the calculation of certain net payment amounts, all payments under this Confirmation will be made without set-off or counterclaim; provided, however, that upon the designation or deemed designation of any Early Termination Date, in addition to and not in limitation of any other right or remedy (including any right to set-off, counterclaim, or otherwise withhold payment) under applicable law:

the Non-defaulting Party or the party that is not the Affected Party (in either case, “X”) may, without prior notice to any person, set off any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by the Defaulting Party or Affected Party (in either case, “Y”) to X or to any Affiliate of X, against any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by X or any Affiliate of X to Y, and, for this purpose, may convert one currency into another. If any sum or obligation is unascertained, X may in good faith estimate that sum or obligation and set off in respect of that estimate, subject to X or Y, as the case may be, accounting to the other party when such sum or obligation is ascertained.

4. Account Details:

Payments to CSFBi:	As advised separately in writing
Payments to Counterparty:	As advised separately in writing

Credit Suisse First Boston International is Authorized and Regulated by the Financial Services Authority and has entered into this transaction as principal. The time at which the above transaction was executed will be notified to Counterparty on request.

External ID: 9186807 3

Please confirm that the foregoing correctly sets forth the terms of our agreement by signing and returning this Confirmation.

Yours faithfully,
Credit Suisse First Boston International
By:	/s/ Karen Newton
Name:	Karen Newton
Title:	Director

Confirmed as of the date first written above:

El Paso Electric Company
By:	/s/ Steven P. Busser
Name:	Steven P. Busser
Title:	VP, Regulatory Affairs & Treasurer

Our Reference Number: External ID: 9186807 / Risk ID: 550830042

4

29 March 2005

El Paso Electric Company

123 West Mills

El Paso, Texas 79901

United Sates

External ID: 9186297

Dear Sirs:

The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to in the Agreement specified below.

In this Confirmation, “CSFBi” means Credit Suisse First Boston International and “Counterparty” means El Paso Electric Company.

1. The definitions and provisions contained in the 2000 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to a “Transaction” shall be deemed to be references to a “Swap Transaction” for the purposes of the 2000 ISDA Definitions.

If you and we are parties to the 1992 ISDA Master Agreement, (the “Agreement”), this Confirmation supplements, forms a part of, and is subject to such Agreement. If you and we are not yet parties to the Agreement, you and we agree to use our best efforts promptly to negotiate, execute, and deliver the Agreement, including our standard form of Schedule attached thereto and made a part thereof, with such modifications as you and we shall in good faith agree. Upon execution and delivery by you and us of the Agreement, this Confirmation shall supplement, form a part of, and be subject to such Agreement. Until you and we execute and deliver the Agreement, this Confirmation (together with all other Confirmations of Transactions previously entered into between us, notwithstanding anything to the contrary therein) shall supplement, form a part of, and be subject to the 1992 ISDA Master Agreement as if, on the Trade Date of the first such Transaction between us, you and we had executed that agreement (without any Schedule thereto) and had specified that the Automatic Early Termination provisions contained in Section 6(a) of such agreement would apply.

The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine and each party hereby submits to the jurisdiction of the Courts of the State of New York.

CSFBi and Counterparty each represents to the other that it has entered into this Transaction in reliance upon such tax, accounting, regulatory, legal, and financial advice as it deems necessary and not upon any view expressed by the other.

The terms of the Transaction to which this Confirmation relates is as follows:

1. Determination of Payment Amount. On the Determination Date, the Calculation Agent shall calculate the Payment Amount in accordance with the terms herein and shall notify the parties of such Payment Amount and which party shall pay such amount by close of business on the Determination Date. All determinations hereunder shall be made by the Calculation Agent in good faith and in accordance with its standard practices.

2. Payment. If the Payment Amount is negative, CSFBi shall pay the absolute value of the Payment Amount to Counterparty on the Settlement Date and if the Payment Amount is positive, Counterparty shall pay the Payment Amount to CSFBi on the Settlement Date.

3. Definitions. As used herein, the following terms shall have the following meaning:

Trade Date:	23 March 2005
Effective Date:	23 March 2005
Determination Date:	13 May 2005. Such election shall be conveyed to Counterparty by telephone, to be confirmed and delivered in writing (which may be electronically) and if not received shall not affect the validity of such telephonic notice, which shall be irrevocable.
Reference Treasury:	5.375% due 15 February 2031
Notional Amount:	USD 25,000,000
Reference Yield:	4.96%
Final Yield:	The yield of the Reference Treasury to be determined on the Determination Date by the Calculation Agent
Payment Amount:	An amount equal to the product of (i) the Reference Yield minus the Final Yield multiplied by (ii) the Notional Amount multiplied by (iii) the Reference Duration.
Reference Duration:	The duration of the Reference Treasury as displayed under the heading “RISK” on Bloomberg Screen T30

External ID: 9186297 2

	<govt> YA (evaluated at yield) as of the determination date
Settlement Date:	One Business Day following the Determination Date, subject to adjustment in accordance with the US Treasury market settlement conventions on the Determination Date
Business Days:	New York
Calculation Agent:	CSFBi

Without affecting the provisions of this Confirmation requiring the calculation of certain net payment amounts, all payments under this Confirmation will be made without set-off or counterclaim; provided, however, that upon the designation or deemed designation of any Early Termination Date, in addition to and not in limitation of any other right or remedy (including any right to set-off, counterclaim, or otherwise withhold payment) under applicable law:

the Non-defaulting Party or the party that is not the Affected Party (in either case, “X”) may, without prior notice to any person, set off any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by the Defaulting Party or Affected Party (in either case, “Y”) to X or to any Affiliate of X, against any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by X or any Affiliate of X to Y, and, for this purpose, may convert one currency into another. If any sum or obligation is unascertained, X may in good faith estimate that sum or obligation and set off in respect of that estimate, subject to X or Y, as the case may be, accounting to the other party when such sum or obligation is ascertained.

4. Account Details:

Payments to CSFBi:	As advised separately in writing
Payments to Counterparty:	As advised separately in writing

Credit Suisse First Boston International is Authorized and Regulated by the Financial Services Authority and has entered into this transaction as principal. The time at which the above transaction was executed will be notified to Counterparty on request.

External ID: 9186297 3

Please confirm that the foregoing correctly sets forth the terms of our agreement by signing and returning this Confirmation.

Yours faithfully,
Credit Suisse First Boston International
By:	/s/ Karen Newton
Name:	Karen Newton
Title:	Director

Confirmed as of the date first written above:

El Paso Electric Company
By:	/s/ Steven P. Busser
Name:	Steven P. Busser
Title:	VP, Regulatory Affairs & Treasurer

Our Reference Number: External ID: 9186297/ Risk ID: 550820024

4

29 March 2005

El Paso Electric Company

123 West Mills

El Paso, Texas 79901

United Sates

External ID: 9184454

Dear Sirs:

The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to in the Agreement specified below.

In this Confirmation, “CSFBi” means Credit Suisse First Boston International and “Counterparty” means El Paso Electric Company.

1. The definitions and provisions contained in the 2000 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to a “Transaction” shall be deemed to be references to a “Swap Transaction” for the purposes of the 2000 ISDA Definitions.

If you and we are parties to the 1992 ISDA Master Agreement, (the “Agreement”), this Confirmation supplements, forms a part of, and is subject to such Agreement. If you and we are not yet parties to the Agreement, you and we agree to use our best efforts promptly to negotiate, execute, and deliver the Agreement, including our standard form of Schedule attached thereto and made a part thereof, with such modifications as you and we shall in good faith agree. Upon execution and delivery by you and us of the Agreement, this Confirmation shall supplement, form a part of, and be subject to such Agreement. Until you and we execute and deliver the Agreement, this Confirmation (together with all other Confirmations of Transactions previously entered into between us, notwithstanding anything to the contrary therein) shall supplement, form a part of, and be subject to the 1992 ISDA Master Agreement as if, on the Trade Date of the first such Transaction between us, you and we had executed that agreement (without any Schedule thereto) and had specified that the Automatic Early Termination provisions contained in Section 6(a) of such agreement would apply.

The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine and each party hereby submits to the jurisdiction of the Courts of the State of New York.

CSFBi and Counterparty each represents to the other that it has entered into this Transaction in reliance upon such tax, accounting, regulatory, legal, and financial advice as it deems necessary and not upon any view expressed by the other.

The terms of the Transaction to which this Confirmation relates is as follows:

1. Determination of Payment Amount. On the Determination Date, the Calculation Agent shall calculate the Payment Amount in accordance with the terms herein and shall notify the parties of such Payment Amount and which party shall pay such amount by close of business on the Determination Date. All determinations hereunder shall be made by the Calculation Agent in good faith and in accordance with its standard practices.

2. Payment. If the Payment Amount is negative, CSFBi shall pay the absolute value of the Payment Amount to Counterparty on the Settlement Date and if the Payment Amount is positive, Counterparty shall pay the Payment Amount to CSFBi on the Settlement Date.

3. Definitions. As used herein, the following terms shall have the following meaning:

Trade Date:	17 March 2005
Effective Date:	17 March 2005
Determination Date:	13 May 2005. Such election shall be conveyed to Counterparty by telephone, to be confirmed and delivered in writing (which may be electronically) and if not received shall not affect the validity of such telephonic notice, which shall be irrevocable.
Reference Treasury:	5.375% due 15 February 2031
Notional Amount:	USD 25,000,000
Reference Yield:	4.80%
Final Yield:	The yield of the Reference Treasury to be determined on the Determination Date by the Calculation Agent
Payment Amount:	An amount equal to the product of (i) the Reference Yield minus the Final Yield multiplied by (ii) the Notional Amount multiplied by (iii) the Reference Duration.
Reference Duration:	The duration of the Reference Treasury as displayed under the heading “RISK” on Bloomberg Screen T30

External ID: 9184454 2

	<govt> YA (evaluated at yield) as of the Determination Date.
Settlement Date:	One Business Day following the Determination Date, subject to adjustment in accordance with the US Treasury market settlement conventions on the Determination Date
Business Days:	New York
Calculation Agent:	CSFBi

Without affecting the provisions of this Confirmation requiring the calculation of certain net payment amounts, all payments under this Confirmation will be made without set-off or counterclaim; provided, however, that upon the designation or deemed designation of any Early Termination Date, in addition to and not in limitation of any other right or remedy (including any right to set-off, counterclaim, or otherwise withhold payment) under applicable law:

the Non-defaulting Party or the party that is not the Affected Party (in either case, “X”) may, without prior notice to any person, set off any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by the Defaulting Party or Affected Party (in either case, “Y”) to X or to any Affiliate of X, against any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by X or any Affiliate of X to Y, and, for this purpose, may convert one currency into another. If any sum or obligation is unascertained, X may in good faith estimate that sum or obligation and set off in respect of that estimate, subject to X or Y, as the case may be, accounting to the other party when such sum or obligation is ascertained.

4. Account Details:

Payments to CSFBi:	As advised separately in writing
Payments to Counterparty:	As advised separately in writing

Credit Suisse First Boston International is Authorized and Regulated by the Financial Services Authority and has entered into this transaction as principal. The time at which the above transaction was executed will be notified to Counterparty on request.

External ID: 9184454 3

Please confirm that the foregoing correctly sets forth the terms of our agreement by signing and returning this Confirmation.

Yours faithfully,
Credit Suisse First Boston International
By:	/s/ Karen Newton
Name:	Karen Newton
Title:	Director

Confirmed as of the date first written above:

El Paso Electric Company
By:	/s/ Steven P. Busser
Name:	Steven P. Busser
Title:	VP, Regulatory Affairs & Treasurer

Our Reference Number: External ID: 9184454/ Risk ID: 5507060039

4

29 March 2005

El Paso Electric Company

123 West Mills

El Paso, Texas 79901

United Sates

External ID: 9183349

Dear Sirs:

The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to in the Agreement specified below.

In this Confirmation, “CSFBi” means Credit Suisse First Boston International and “Counterparty” means El Paso Electric Company.

1. The definitions and provisions contained in the 2000 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to a “Transaction” shall be deemed to be references to a “Swap Transaction” for the purposes of the 2000 ISDA Definitions.

If you and we are parties to the 1992 ISDA Master Agreement, (the “Agreement”), this Confirmation supplements, forms a part of, and is subject to such Agreement. If you and we are not yet parties to the Agreement, you and we agree to use our best efforts promptly to negotiate, execute, and deliver the Agreement, including our standard form of Schedule attached thereto and made a part thereof, with such modifications as you and we shall in good faith agree. Upon execution and delivery by you and us of the Agreement, this Confirmation shall supplement, form a part of, and be subject to such Agreement. Until you and we execute and deliver the Agreement, this Confirmation (together with all other Confirmations of Transactions previously entered into between us, notwithstanding anything to the contrary therein) shall supplement, form a part of, and be subject to the 1992 ISDA Master Agreement as if, on the Trade Date of the first such Transaction between us, you and we had executed that agreement (without any Schedule thereto) and had specified that the Automatic Early Termination provisions contained in Section 6(a) of such agreement would apply.

The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine and each party hereby submits to the jurisdiction of the Courts of the State of New York.

CSFBi and Counterparty each represents to the other that it has entered into this Transaction in reliance upon such tax, accounting, regulatory, legal, and financial advice as it deems necessary and not upon any view expressed by the other.

The terms of the Transaction to which this Confirmation relates is as follows:

1. Determination of Payment Amount. On the Determination Date, the Calculation Agent shall calculate the Payment Amount in accordance with the terms herein and shall notify the parties of such Payment Amount and which party shall pay such amount by close of business on the Determination Date. All determinations hereunder shall be made by the Calculation Agent in good faith and in accordance with its standard practices.

2. Payment. If the Payment Amount is negative, CSFBi shall pay the absolute value of the Payment Amount to Counterparty on the Settlement Date and if the Payment Amount is positive, Counterparty shall pay the Payment Amount to CSFBi on the Settlement Date.

3. Definitions. As used herein, the following terms shall have the following meaning:

Trade Date:	14 March 2005
Effective Date:	14 March 2005
Determination Date:	13 May 2005. Such election shall be conveyed to Counterparty by telephone, to be confirmed and delivered in writing (which may be electronically) and if not received shall not affect the validity of such telephonic notice, which shall be irrevocable.
Reference Treasury:	5.375% due 15 February 2031
Notional Amount:	USD 50,000,000
Reference Yield:	4.85%
Final Yield:	The yield of the Reference Treasury to be determined on the Determination Date by the Calculation Agent
Payment Amount:	An amount equal to the product of (i) the Reference Yield minus the Final Yield multiplied by (ii) the Notional Amount multiplied by (iii) the Reference Duration.
Reference Duration:	The duration of the Reference Treasury as displayed under the heading “RISK” on Bloomberg Screen T30

External ID: 9183349 2

	<govt> YA (evaluated at yield) as of the determination date
Settlement Date:	One Business Day following the Determination Date, subject to adjustment in accordance with the US Treasury market settlement conventions on the Determination Date
Business Days:	New York
Calculation Agent:	CSFBi

Without affecting the provisions of this Confirmation requiring the calculation of certain net payment amounts, all payments under this Confirmation will be made without set-off or counterclaim; provided, however, that upon the designation or deemed designation of any Early Termination Date, in addition to and not in limitation of any other right or remedy (including any right to set-off, counterclaim, or otherwise withhold payment) under applicable law:

the Non-defaulting Party or the party that is not the Affected Party (in either case, “X”) may, without prior notice to any person, set off any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by the Defaulting Party or Affected Party (in either case, “Y”) to X or to any Affiliate of X, against any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by X or any Affiliate of X to Y, and, for this purpose, may convert one currency into another. If any sum or obligation is unascertained, X may in good faith estimate that sum or obligation and set off in respect of that estimate, subject to X or Y, as the case may be, accounting to the other party when such sum or obligation is ascertained.

4. Account Details:

Payments to CSFBi:	As advised separately in writing
Payments to Counterparty:	As advised separately in writing

Credit Suisse First Boston International is Authorized and Regulated by the Financial Services Authority and has entered into this transaction as principal. The time at which the above transaction was executed will be notified to Counterparty on request.

External ID: 9183349 3

Please confirm that the foregoing correctly sets forth the terms of our agreement by signing and returning this Confirmation.

Yours faithfully,
Credit Suisse First Boston International
By:	/s/ Karen Newton
Name:	Karen Newton
Title:	Director

Confirmed as of the date first written above:

El Paso Electric Company
By:	/s/ Steven P. Busser
Name:	Steven P. Busser
Title:	VP, Regulatory Affairs & Treasurer

Our Reference Number: External ID: 9183349/ Risk ID: 550730070

4

4 April 2005

El Paso Electric Company

123 West Mills

El Paso, Texas 79901

United Sates

External ID: 9188651

Dear Sirs:

The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to in the Agreement specified below.

In this Confirmation, “CSFBi” means Credit Suisse First Boston International and “Counterparty” means El Paso Electric Company.

1. The definitions and provisions contained in the 2000 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to a “Transaction” shall be deemed to be references to a “Swap Transaction” for the purposes of the 2000 ISDA Definitions.

If you and we are parties to the 1992 ISDA Master Agreement, (the “Agreement”), this Confirmation supplements, forms a part of, and is subject to such Agreement. If you and we are not yet parties to the Agreement, you and we agree to use our best efforts promptly to negotiate, execute, and deliver the Agreement, including our standard form of Schedule attached thereto and made a part thereof, with such modifications as you and we shall in good faith agree. Upon execution and delivery by you and us of the Agreement, this Confirmation shall supplement, form a part of, and be subject to such Agreement. Until you and we execute and deliver the Agreement, this Confirmation (together with all other Confirmations of Transactions previously entered into between us, notwithstanding anything to the contrary therein) shall supplement, form a part of, and be subject to the 1992 ISDA Master Agreement as if, on the Trade Date of the first such Transaction between us, you and we had executed that agreement (without any Schedule thereto) and had specified that the Automatic Early Termination provisions contained in Section 6(a) of such agreement would apply.

The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine and each party hereby submits to the jurisdiction of the Courts of the State of New York.

CSFBi and Counterparty each represents to the other that it has entered into this Transaction in reliance upon such tax, accounting, regulatory, legal, and financial advice as it deems necessary and not upon any view expressed by the other.

The terms of the Transaction to which this Confirmation relates is as follows:

1. Determination of Payment Amount. On the Determination Date, the Calculation Agent shall calculate the Payment Amount in accordance with the terms herein and shall notify the parties of such Payment Amount and which party shall pay such amount by close of business on the Determination Date. All determinations hereunder shall be made by the Calculation Agent in good faith and in accordance with its standard practices.

2. Payment. If the Payment Amount is negative, CSFBi shall pay the absolute value of the Payment Amount to Counterparty on the Settlement Date and if the Payment Amount is positive, Counterparty shall pay the Payment Amount to CSFBi on the Settlement Date.

3. Definitions. As used herein, the following terms shall have the following meaning:

Trade Date:	31 March 2005
Effective Date:	31 March 2005
Determination Date:	13 May 2005. Such election shall be conveyed to Counterparty by telephone, to be confirmed and delivered in writing (which may be electronically) and if not received shall not affect the validity of such telephonic notice, which shall be irrevocable.
Reference Treasury:	5.375% due 15 February 2031
Notional Amount:	USD 25,000,000
Reference Yield:	4.83%
Final Yield:	The yield of the Reference Treasury to be determined on the Determination Date by the Calculation Agent
Payment Amount:	An amount equal to the product of (i) the Reference Yield minus the Final Yield multiplied by (ii) the Notional Amount multiplied by (iii) the Reference Duration.
Reference Duration:	The duration of the Reference Treasury as displayed under the heading “RISK” on Bloomberg Screen T30

External ID: 9188651 2

	<govt> YA (evaluated at yield) as of the Determination Date.
Settlement Date:	One Business Day following the Determination Date, subject to adjustment in accordance with the US Treasury market settlement conventions on the Determination Date
Business Days:	New York
Calculation Agent:	CSFBi

Without affecting the provisions of this Confirmation requiring the calculation of certain net payment amounts, all payments under this Confirmation will be made without set-off or counterclaim; provided, however, that upon the designation or deemed designation of any Early Termination Date, in addition to and not in limitation of any other right or remedy (including any right to set-off, counterclaim, or otherwise withhold payment) under applicable law:

the Non-defaulting Party or the party that is not the Affected Party (in either case, “X”) may, without prior notice to any person, set off any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by the Defaulting Party or Affected Party (in either case, “Y”) to X or to any Affiliate of X, against any sum or obligation (whether or not arising under this Confirmation, whether matured or unmatured and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by X or any Affiliate of X to Y, and, for this purpose, may convert one currency into another. If any sum or obligation is unascertained, X may in good faith estimate that sum or obligation and set off in respect of that estimate, subject to X or Y, as the case may be, accounting to the other party when such sum or obligation is ascertained.

4. Account Details:

Payments to CSFBi:	As advised separately in writing
Payments to Counterparty:	As advised separately in writing

Credit Suisse First Boston International is Authorized and Regulated by the Financial Services Authority and has entered into this transaction as principal. The time at which the above transaction was executed will be notified to Counterparty on request.

External ID: 9188651 3

Please confirm that the foregoing correctly sets forth the terms of our agreement by signing and returning this Confirmation.

Yours faithfully,
Credit Suisse First Boston International
By:	/s/ Karen Newton
Name:	Karen Newton
Title:	Director

Confirmed as of the date first written above:

El Paso Electric Company
By:	/s/ Steven P. Busser
Name:	Steven P. Busser
Title:	VP, Regulatory Affairs & Treasurer

Our Reference Number: External ID: 9188651/ Risk ID: 550900049

4

EX-10.03

EXHIBIT 10.03

MASTER POWER PURCHASE AND SALE AGREEMENT

This Master Power Purchase and Sale Agreement (this “Master Agreement” and together with all Transaction Agreements, collectively, the “Agreement”) is entered into effective as of this 7th day of July, 2004 (the “Effective Date”) by and between Southwestern Public Service Company (“Company”), and El Paso Electric Company (“Counterparty”). Each of the Company and Counterparty may also be referred to individually as a “Party” or collectively as the “Parties.” Unless otherwise defined in this Master Agreement, capitalized terms shall have the meanings set forth in Appendix “1” attached to this Master Agreement.

SECTION 1.

SCOPE OF AGREEMENT

1.1. Scope of Agreement. (a) This Master Agreement is entered into in accordance with the Company’s Rate Schedule for Market-Based Power Sales (“Rate Schedule”), and the terms of that Rate Schedule, and the service agreement between the Parties entered thereunder (“Service Agreement”), apply to this Master Agreement and any Transaction Agreements as though set forth herein and therein. From time to time, the Parties may, but shall not be obligated to, enter into Transactions for the sale and purchase of Power hereunder. Certain terms of specific Transactions will be set forth in appropriate Transaction Agreements entered into in accordance with this Master Agreement. However, the Parties are relying upon the fact that all Transaction Agreements, together with this Master Agreement, shall constitute a single integrated agreement, and that the Parties would not otherwise enter into any agreement to undertake a specific Transaction. In the event of any conflict between or among the documents comprising this Agreement; the following order of precedence shall apply: (i) written Transaction Agreement (including Confirmations), (ii) Master Agreement, and (iii) oral Transaction Agreement. All purchases and sales between the Parties from and after the Effective Date shall be deemed to be under the Rate Schedule, the Service Agreement, and this Master Agreement unless expressly agreed to otherwise. The Parties acknowledge that this Master Agreement and any Transaction Agreement governed by it shall be subject to the filing, disclosure, or notification requirements, if any, of the FERC.

(b) Each Party conducts its operations in a manner intended to comply with FERC Order No. 2004, Standards of Conduct for Transmission Providers, requiring the separation of its transmission and merchant functions. Moreover, each Party’s transmission function offers transmission service on its system in a manner intended to comply with FERC policies and requirements relating to the provision of open-access transmission service. Accordingly, each Party acknowledges that the other Party’s responsibilities and obligations under the Master Agreement and any Transaction are those of that Party’s merchant function, not of its transmission function, and that neither this Master Agreement nor any Transaction Agreement imposes any responsibilities or obligations on that Party’s transmission function. To the extent either Party obligates itself to arrange transmission on its system in connection with a Transaction, it is understood that such Party will do so in a manner consistent with the open-access

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transmission tariff that is applicable to its system, and it will only communicate with its transmission function in a manner consistent with FERC Order No. 2004 (as it may be modified or superseded by subsequent FERC orders).

1.2. Transaction Procedures. During the term of this Agreement, the Parties may notify each other that Power is sought or available for purchase or sale. Each Transaction shall be effectuated and evidenced by the Authorized Representatives of the Parties at the time the Transaction is agreed to and shall be set forth as follows: (i) by a written Transaction Agreement executed by the Parties or (ii) in a telephone conversation between the Parties whereby an offer and acceptance shall constitute an oral Transaction Agreement of the Parties (which agreement may be subsequently set out in a Confirmation, as described below) provided each Party may stipulate by prior notice to the other Party that all Transactions or particular types of Transactions (e.g., having a certain duration or above a certain price) shall be effectuated and formed only by means of procedure (i) above. Long-term Transactions (i.e., having a duration of greater that a year) must be evidenced by a written Transaction Agreement. The specific terms to be established by the Parties for each Transaction in a Transaction Agreement shall include the Buyer and Seller, the nature of the Power to be provided (i.e., capacity, energy, or both), the Period of Delivery, the Contract Price, the Delivery Point, the Contract Quantity, whether the Transaction is Firm or Non-Firm, Scheduling, and such other terms as the Parties shall agree upon. The Seller may confirm a telephonic Transaction by forwarding to the Buyer a Confirmation, which shall be executed by the Buyer (with any objections noted thereon) and returned to the Seller within two (2) Business Days of Buyer’s receipt of it or else be deemed correct as sent, absent manifest error. Failure by the Seller to send a Confirmation shall not invalidate any Transaction agreed to by the Parties. The Parties agree not to contest or assert any defense to the validity or enforceability of telephonic Transactions entered into in accordance with this Master Agreement under Laws relating to whether certain agreements are to be in writing or signed by the Party to be bound, or the authority of any employee of the Party to enter into a Transaction. Each Party consents to the recording of its representatives’ telephone conversations without any further notice. All recordings may be introduced into evidence and used to prove oral agreements between the Parties permitted by this Section 1.2.

1.3. Term of Agreement. The Parties intend that the term of this Master Agreement shall commence on the Effective Date and continue until terminated by either Party upon thirty (30) days prior written notice; provided, however, that this Master Agreement shall remain in effect with respect to any Transaction(s) entered into prior to the effective date of the termination until both Parties have fulfilled all their obligations with respect to such Transaction(s).

1.4. Regulatory Approval. The Parties acknowledge that under current FERC policy, neither Company nor Counterparty are required to file this Master Agreement with the FERC for its approval. In the event that FERC changes its policy, either Party may file this Master Agreement with the FERC, and the other Party shall not oppose such filing.

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SECTION 2.

REPRESENTATIONS AND WARRANTIES

On the Effective Date and the date of entering into each Transaction, each Party represents and warrants to the other Party that: (i) it is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation and is qualified to conduct its business in each jurisdiction in which a Transaction will be performed by it, (ii) it has all regulatory authorizations necessary for it to legally perform its obligations under this Master Agreement and each Transaction, (iii) the execution, delivery and performance of this Master Agreement and each Transaction are within its powers, have been duly authorized by all necessary action and do not violate any of the terms and conditions in its governing documents, any contracts to which it is a party, or any Law applicable to it, (iv) this Master Agreement and each Transaction when entered into in accordance with this Master Agreement constitutes its legally valid and binding obligation enforceable against it in accordance with its terms, subject to any Equitable Defenses, (v) there are no Bankruptcy Proceedings pending or being contemplated by it or, to its knowledge, threatened against it (vi) there are no Legal Proceedings that materially adversely affect its ability to perform its obligations under this Master Agreement and each Transaction, and (vii) it has knowledge and experience in financial matters and the electric industry that enable it to evaluate the merits and risks of entering into this Master Agreement and each Transaction.

SECTION 3.

OBLIGATIONS AND DELIVERIES

3.1. Seller’s and Buyer’s Obligations. Subject to the terms of this Master Agreement and any applicable Transaction Agreement, Seller, with respect to each Transaction, shall sell and deliver, or cause to be delivered, and Buyer shall purchase and receive, or cause to be received, at the Delivery Point the Contract Quantity, and Buyer shall pay Seller the Contract Price. Seller shall be responsible for any costs or charges imposed on or associated with the delivery of the Contract Quantity up to the Delivery Point. Buyer shall be responsible for any costs or charges Imposed on or associated with the Contract Quantity at and from the Delivery Point.

3.2. Transmission and Scheduling. Seller shall arrange and be responsible for any necessary transmission service to the Delivery Point and shall Schedule or arrange for Scheduling services with its Transmission Providers to deliver the Power to the Delivery Point. Buyer shall arrange and be responsible for transmission service at and from the Delivery Point and shall Schedule or arrange for Scheduling services with its Transmission Providers to receive the Power at the Delivery Point. Each Party shall designate Authorized Representatives to effect the Scheduling of the Contract Quantity of Power.

3.3. Title. Risk of Loss and Indemnity. Seller warrants that it will deliver to Buyer the Contract Quantity free and clear of all liens, claims, and encumbrances arising prior to the Delivery Point. Title to and risk of loss related to the Contract Quantity shall transfer from Seller to Buyer at the Delivery Point.

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Notwithstanding any limitation or exclusion prescribed by Section 5.1 or any other provision of this Agreement, each Party shall indemnify and hold harmless the other Party, its directors, officers, employees, agents, and contractors for, against, and from any and all Claims for personal injury (including mental anguish), death, or damage to the property of any third party(s) arising from or out of any event circumstance, act, or incident first occurring or existing during the period when title to the Power is vested in the indemnitor; provided, however, the obligations prescribed by this sentence shall not apply to the extent such Claims are determined to be attributable to the negligence, gross negligence, willful misconduct or strict liability in tort of the indemnitee, its directors, officers, employees, agents and/or contractors, if any (it being the intent of the Parties that the indemnitee shall be entitled to comparative indemnification for such Claims).

3.4. Force Majeure. If either Party is rendered unable by Force Majeure to carry out in whole or part, its obligations with respect to a Transaction and such Party gives notice and full details of the event to the other Party as soon as practicable after the occurrence of the event then the obligations of the Party affected by the event (other than the obligation to make payments then due or becoming due with respect to performance prior to the event) shall be suspended for such period as is necessary for the Party claiming Force Majeure, using all reasonable dispatch, to remedy either the event of Force Majeure or the effects thereof so as to be able to resume performance; provided, however, that this provision shall not require Seller to deliver, or Buyer to receive, Power at points other than the Delivery Point.

3.5. Failure to Deliver/Receive in Firm Transactions. (a) Unless excused by Force Majeure in accordance with Section 3.4 or Buyer’s failure to perform any material obligation under this Agreement if Seller fails to deliver all or part of the Contract Quantity pursuant to a Firm Transaction that Buyer has Scheduled, Seller shall pay Buyer, on the date payment would otherwise be due to Seller, an amount for each MWh of such deficiency equal to the positive difference, if any, obtained by subtracting the Contract Price from the Replacement Price. “Replacement Price” means the price at which Buyer, acting in a commercially reasonable manner, purchases substitute Power not delivered by Seller (plus any (i) Costs (as the term “Cost” is defined in Section 4.2) reasonably incurred by Buyer in purchasing the substitute Power, and (ii) additional transmission charges incurred by Buyer to the Delivery Point) or, absent a purchase, the market price for such quantity at such Delivery Point as determined by Buyer in a commercially reasonable manner. For purposes of determining Buyer’s Replacement Price and its duty to mitigate damages under Section 5.2, Buyer shall not be required to use or change its use of its owned or controlled assets or market positions to minimize Seller’s liability.

(b) Unless excused by Force Majeure in accordance with Section 3.4 or Seller’s failure to perform any material obligation under this Agreement if Buyer fails to receive (i) the minimum requirement of the Contract Quantity, if any, as required to be received pursuant to a Firm Transaction or (ii) amounts of Power that the Parties agreed to Schedule pursuant to a Firm Transaction, Buyer shall pay Seller, on the date payment would otherwise be due, an amount for each MWh of such deficiency equal to the positive difference, if any, obtained by subtracting the Sales Price from the Contract Price. “Sales Price” means the price at which Seller, acting in a commercially reasonable manner, resells the Power not received by Buyer (plus any (i) Costs reasonably incurred by Seller in selling such minimum requirement,

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and (ii) additional transmission charges incurred by Seller) or, absent a resale, the market price for such quantity at the Delivery Point as determined by Seller in a commercially reasonable manner. For purposes of determining Seller’s Sales Price and its duty to mitigate damages under Section 5.2, Seller shall not be required to use or change its use of its owned or controlled assets or market positions to minimize Buyer’s liability.

(c) Notwithstanding the requirements and obligations specified in this Section 3.5, the Parties in a written Transaction Agreement may agree to alternative arrangements that would apply in the event of a Seller’s failure to deliver or a Buyer’s failure to accept the Contract Quantity or any portion thereof.

3.6. Failure to Deliver/Receive Non-Firm Transactions. A Party may be excused from delivering or receiving the Contract Quantity, in whole or in part, in a Non-Firm Transaction for any reason without liability.

3.7 Exclusive Remedy. Except as may be provided in a Transaction Agreement, the applicable remedy prescribed by Section 3.5 shall be the sole and exclusive remedy for a Party’s failure to deliver or receive the Contract Quantity referenced therein.

SECTION 4.

DEFAULTS AND REMEDIES

4.1. Events of Default. An “Event of Default” shall mean with respect to a Party (“Defaulting Party”): (i) the failure to make, when due, any payment required pursuant to this Agreement if such failure is not remedied within five (5) Business Days after written notice of such failure is received by the Defaulting Party from the other Party (“Non-Defaulting Party”) and provided the payment is not the subject of a good faith dispute as described in Section 6, (ii) any representation or warranty made by the Defaulting Party pursuant to Section 2 shall prove to be false or misleading in any material respect when made, (iii) the failure to perform any material covenant set forth in this Agreement (other than the events that are otherwise specifically covered in this Section 4.1 as a separate Event of Default or its obligations to deliver or receive Power the exclusive remedy for which is provided in Section 3) or any Transaction Agreement, and such failure is not excused by Force Majeure in accordance with Section 3.4 or cured within five (5) Business Days after written notice thereof is received by the Defaulting Party, (iv) the Defaulting Party shall be subject to a Bankruptcy Proceeding, or (v) Adequate Assurance of Performance is not provided in accordance with Section 4.4.

4.2. Remedies upon an Event of Default. (a) If an Event of Default occurs at any time during the term of this Agreement, the Non-Defaulting Party may, for so long as the Event of Default is continuing, (i) establish a date (which date shall be between 2 and 20 Business Days after the Non-Defaulting Party delivers notice) (“Early Termination Date”) on which (x) if the Event of Default arises under clauses (i) or (iii) of Section 4.1, the Transaction(s) underlying or giving rise to such Event of Default shall terminate (each a Terminated Transaction”) or (y) if the Event of Default arises under clauses (ii) (unless relating to the failure to obtain regulatory approval for any Transactions (Section 2(ii)), in which case only those specific Transactions may be terminated), (iv), or (v) of Section 4.1, all Transactions shall terminate, and (ii) withhold

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any payments due in respect of the Terminated Transaction(s). If an Early Termination Date has been designated, the Non-Defaulting Party shall in good faith calculate its Gains, Losses, and Costs resulting from the termination of the Terminated Transaction(s). The Gains and Losses shall be determined by comparing the value of the remaining term, Contract Quantities and Contract Prices under each Terminated Transaction had it not been terminated to the equivalent quantities and relevant market prices for the remaining term either quoted by a bona fide third-party offer or which are reasonably expected to be available in the market under a replacement contract for each Terminated Transaction. To ascertain the market prices of a replacement contract, the Non-Defaulting Party may consider, among other valuations, any or all of the settlement prices of NYMEX Power futures contracts, quotations from leading dealers in energy swap contracts, and other bona fide third-party offers, all adjusted for the length of the remaining term and differences in transmission. It is expressly agreed that a Non-Defaulting Party shall not be required to enter into replacement transactions in order to determine the amount due under Section 4.2. The Non-Defaulting Party shall aggregate such Gains and Losses, and all associated Costs with respect to all Terminated Transaction(s) into a single net amount and if the Non-Defaulting Party’s (i) aggregate Losses and Costs exceed (ii) its aggregate Gains, the Defaulting Party shall, . within five (5) Business Days of receipt of written demand, pay the; difference between the aggregate sums referenced in clauses (i) and (ii) of this sentence (the “Termination Payment”) to the Non-Defaulting Party, which Termination Payment shall bear interest at the Interest Rate from the Early Termination Date until paid. If the Non-Defaulting Party’s (i) aggregate Gains equal or exceed (ii) the sum of its aggregate Losses and Costs, the Termination Payment shall be zero, and the Defaulting Party shall have no interest in or right or entitlement to, and shall not claim that it should be owed, the difference, if any, between the aggregate sums referenced in clauses (i) and (ii) of this sentence.

(b) As used in this Agreement with respect to each Party: (i) “Costs” shall mean, with respect to a Party, brokerage fees, commissions, and other similar transaction costs and expenses reasonably incurred by such Party either in terminating any arrangement pursuant to which it has hedged its obligations or entering into new arrangements which replace a Terminated Transaction, and attorneys’ fees, if any, incurred in connection with enforcing its rights under this Agreement; (ii) “Gains” shall mean, with respect to a Party, an amount equal to the present value of the economic benefit (exclusive of Costs), if any, to it resulting from the termination of its obligations with respect to a Terminated Transaction, determined in a commercially reasonable manner, and (iii) “Losses” shall mean, with respect to a Party, an amount equal to the present value of the economic loss (exclusive of Costs), if any, to it resulting from the termination of its obligations with respect to a Terminated Transaction, determined in a commercially reasonable manner. At the time for payment of any amount due under this Section 4.2, each Party shall pay to the other Party all additional amounts payable

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by its pursuant to this Agreement (e.g., amounts owed for services provided prior to termination), but all such amounts shall be netted and aggregated with any Termination Payment payable hereunder.

(c) Notwithstanding any other provision of this Agreement if Buyer or Seller fails to pay to the other Party any amounts when due and such failure is not cured within five (5) Business Days following the delinquent Party’s receipt of written notice describing such nonpayment in reasonable detail, the Non-Defaulting Party may, regardless of whether it elects to exercise its remedies under Section 4.2(a), (i) suspend performance of any or all of its obligations related to any Transactions until . such amounts plus interest at the Interest Rate have been paid and/or (ii) exercise any remedy available at Law to enforce payment of such amount plus interest at the Interest Rate; provided, however, If the non-paying Party, in good faith, shall dispute the amount of any such billing or part thereof and shall pay such amounts as it concedes to be correct, no suspension shall be permitted.

4.3. Other Events. Unless the Parties agree otherwise in a Transaction Agreement, in the event Buyer or Seller is regulated by a federal, state, or local regulatory body, and such body shall either (i) disallow all or any portion of any. costs incurred or yet to be incurred by Buyer through a purchase, or (ii) through its setting of rates attribute costs to a sale made by Seller under any provision of this Agreement, such action shall not operate to excuse Buyer or Seller from performance of any obligation nor shall such action give rise to any right of Buyer or Seller to any refund or retroactive adjustment of the Contract Price provided in any Transaction. Notwithstanding the foregoing, if a Party’s activities hereunder become subject to regulation of any kind whatsoever under any Law to a greater or different extent than that existing on the Effective Date and such regulation renders this Agreement illegal or unenforceable in its entirety, the Parties shall, through their duly authorized representatives, convene to discuss and assess in good faith appropriate, modifications to or restructuring of this Agreement so that it is no longer rendered illegal or unenforceable; provided, however, if despite such good faith efforts the Agreement cannot be so modified or restructured, either Party shall have the right to declare an Early Termination Date effective as of the date this Agreement becomes illegal or unenforceable and no Termination Payment shall be owing to either Party.

4.4. Credit Assurances. (a) If either party (“X”) has reasonable grounds for insecurity regarding the performance of any obligation under this Contract (whether or not then due) by the other party (“Y”) (including, without limitation, the occurrence of a material change in the creditworthiness of Y), X may demand Adequate Assurance of Performance in an amount determined by X in a commercially reasonable manner. In the event that Y fails to provide Adequate Assurance of Performance reasonably acceptable to X within three (3) Business Days following Y’s receipt of such demand, an Event of Default under Section 4.1 will be deemed to have occurred and X will be entitled to the remedies set forth in Section 4.2 of this Master Agreement.

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Confidential treatment has been requested for the redacted portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities Exchange Commission.

(b) Absent a change in a Party’s (Y’s) financial circumstances that would justify a request by the other Party (X) for Adequate Assurance of Performance in accordance with Section 4.4, X may only request Adequate Assurance of Performance to the extent that Y’s obligations under this Agreement (after netting of all obligations pursuant to Section 6.2) exceed the applicable credit limit. The credit limit for each Party, which is based upon each Parties’ creditworthiness as of the Effective Date, is as follows: (i) for Counterparty, $ *****, and (ii) for Company, $ *****. Either Party may request Adequate Assurance of Performance to secure payment projected to be owed in excess of the applicable credit limit amount irrespective of whether a change in financial circumstances has occurred.

(c) Upon the occurrence of a material change in the creditworthiness of a Party (“X”). the Parties shall convene within a reasonable time (but in no event more than fifteen (15) days following a Party’s receipt of written request) to establish a revised credit limit for X based upon Y’s standard criteria for creditworthiness which, in turn, shall be based upon commercially reasonable criteria; provided, however, that in the event that the Parties are unable to agree to a revised credit line, each Party reserves its respective rights (i.e., (i) Y to either retain or modify X’s credit limits based on its standard criteria, and (ii) X to dispute the credit limit that Y retains or establishes).

SECTION 5.

LIMITATIONS; DUTY TO MITIGATE

5.1. Limitation of Remedies. Liability and Damages. THE PARTIES CONFIRM THAT THE EXPRESS REMEDIES AND MEASURES OF DAMAGES PROVIDED IN THIS AGREEMENT SATISFY THE ESSENTIAL PURPOSES HEREOF. FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, THE OBLIGOR’S LIABILITY SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY HEREIN PROVIDED, THE OBLIGOR’S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY, SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. EXCEPT FOR CLAIMS FOR INDEMNIFICATION UNDER SECTION 3.3, EACH TO WHICH THE PROVISIONS OF THIS SECTION 5.1 SHALL NOT APPLY, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, OR OTHERWISE. IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO,

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INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT, AND THE LIQUIDATED DAMAGES CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS.

5.2. Duty to Mitigate. Each Party agrees that it has a duty to mitigate damages and covenants that it will use commercially reasonable efforts to minimize any damages it may incur as a result of the other Party’s performance or non-performance of this Agreement.

5.3. Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SELLER EXPRESSLY NEGATES ANY OTHER REPRESENTATION OR WARRANTY, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY WITH RESPECT TO CONFORMITY TO MODELS OR SAMPLES MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE.

SECTION 6.

BILLING; PAYMENT

6.1. Billing and Payment. Seller shall render to Buyer (by regular mail, facsimile or other acceptable means pursuant to Section 8.3) for each calendar month during which purchases/sales are made, a statement setting forth the total quantity of Power that was Scheduled or that Buyer was obligated to purchase and any other charges due Seller, including Demand Charges or payments or credits between the Parties pursuant to Section 3.5, under this Agreement during the preceding month and the total net amounts due to Seller from Buyer therefor. Billing and payment will be based on Scheduled hourly quantities (with such amount adjusted as appropriate for curtailments that are allowable under a Transaction Agreement). On or before ten (10) days after receipt of Seller’s statement or if such day is not a Business Day, the immediately following Business Day, Buyer shall render, by wire transfer or as otherwise agreed between the Parties, the amount set forth on such statement to the payment address provided in Exhibit “A” appended to this Master Agreement. Overdue payments shall accrue interest from, and including, such tenth (10th) day (or following Business Day, as applicable) to, but excluding, the date of payment at the Interest Rate. If Buyer, in good faith, disputes a statement, Buyer shall provide a written explanation of the basis for the dispute and pay the portion of such statement conceded to be correct no later than such tenth (10th) day (or following Business Day, as applicable). If any amount disputed by Buyer is determined to be due to Seller, it shall be paid within ten (10) days of such determination, along with interest accrued at the Interest Rate from the date such payment was originally due to the date paid.

6.2. Mandatory Netting/Setoff. On or before the tenth (10th) calendar day of each month the Parties shall communicate by telephone to determine whether the netting and setoff provisions of this Section 6.2 are applicable to the payments to be made with respect to such month. Any amounts (other than amounts disputed in-good-faith) owed by the Parties under this Agreement shall be aggregated and the Parties shall discharge their obligations to

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pay through netting, in which case the Party, if any, owing the greater aggregate amount shall pay to the other Party the difference between the amounts owed. Each Party reserves to itself all rights, setoffs, counterclaims, and other remedies and defenses consistent with Section 4 (to the extent not expressly herein waived or denied) which such Party has or may be entitled to arising from or out of this Agreement. All outstanding Transactions and the obligations to make payment in connection therewith or under this Agreement (including any damages that may be determined and owed in accordance with Section 3.5 and any Termination Payment determined and owed in accordance with Section 4.2) may be offset against each other, set off, or recouped therefrom. A Party’s failure to net, offset, setoff, or recoup such obligations shall not alter, waive, or otherwise affect such Party’s right to payment under this Agreement.

6.3. Audit. Each Party (and its representative (s)) has the right, at its sole expense and during normal working hours, to examine the records of the other Party to the extent reasonably necessary to verify the accuracy of any statement, charge, or computation made pursuant to this Agreement. If requested, a Party shall provide to the other Party statements evidencing the quantities of Power delivered at the Delivery Point. If any such examination reveals any inaccuracy in any statement, the necessary adjustments with such statement and the payments thereof will be promptly made and shall bear interest calculated at the Interest Rate from the date the overpayment or underpayment was made until paid; provided, however, that no adjustment for any statement or payment will be made unless objection to the accuracy thereof was made prior to the lapse of four (4) years from the rendition thereof.

SECTION 7.

TAXES

7.1. Taxes. Seller shall pay or cause to be paid all taxes imposed by any governmental authority (“Taxes”) on or with respect to a Transaction arising prior to the Delivery Point Buyer shall pay or cause to be paid all Taxes on or with respect to a Transaction at and from the Delivery Point (other than ad valorem, franchise, or income Taxes that are related to the sale of Power and are, therefore, the responsibility of the Seller). In the event Seller is required by Law to remit or pay Taxes that are Buyer’s responsibility hereunder, Buyer shall promptly reimburse Seller for such Taxes. If Buyer is required by Law to remit or pay Taxes that are Seller’s responsibility hereunder, Buyer may deduct the amount of any such Taxes from the sums due to Seller under Section 6 of this Agreement. Nothing shall obligate or cause a Party to pay or be liable to pay any Taxes for which it is exempt under Law.

7.2. Cooperation. Each Party shall use reasonable efforts to implement the provisions of and to administer this Master Agreement in accordance with the intent of the parties to minimize all Taxes, so long as neither Party is adversely affected by such efforts.

SECTION 8.

MISCELLANEOUS

8.1. Assignment. Neither Party shall assign this Agreement or its rights hereunder without the prior written consent of the other Party; provided, however,

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either Party may, without the consent of the other Party (and without relieving itself from liability hereunder), (i) transfer, sell, pledge,-encumber or assign its rights under this Agreement or the accounts; revenues or proceeds hereof in connection with any financing or other financial arrangements, (ii) transfer or assign this Agreement to an Affiliate of such Party provided that the creditworthiness of such Affiliate is equal to or greater than that of the transferring entity, or (iii) transfer or assign this Agreement to any person or entity succeeding to all or substantially all of the assets of such Party, provided, however, that in each such case, any such assignee shall agree to in writing be bound by the terms and conditions hereof. Additionally, in the event a Party undertakes a reorganization to comply with any Law (including, without limitation, Section 39.051 of the Texas Utility Code), the Parties agree that such Party may transfer or assign this Agreement (including any Transaction Agreements entered into pursuant to this Master Agreement) to an Affiliate, and be released of its obligations thereunder, provided that the Affiliate’s ultimate parent company provides a guarantee of the Affiliate’s payment obligations at terms and conditions that are reasonably acceptable to the receiving Party.

8.2. Financial Information. If requested by Counterparty, the Company shall deliver within 120 days following the end of each fiscal year, a copy of its audited consolidated financial statements for such fiscal year certified by independent certified public accountants. If requested by the Company, Counterparty shall deliver within 120 days following the end of each fiscal year, a copy of its audited consolidated financial statements for such fiscal year certified by independent certified public accountants. In all cases the statements shall be for the most recent accounting period and prepared in accordance with GAAP or such other principles then in effect; provided, should any such statements not be available within such 120 day period due to a delay in preparation or certification, such delay shall not be considered a default so long as such Party diligently pursues the preparation, certification and delivery of the statements.

8.3. Notices. All notices, demands, requests, statements, Confirmations, payments, or other communications between the Parties shall be made as specified in Exhibit “A”. Notices and other communications required to be in writing shall be delivered by letter, facsimile, or other documentary form. All notices and other written communications shall be effective upon receipt if sent by facsimile, the next Business Day if sent by overnight courier, or three days later if mailed, provided, however, that receipt after 5:00 p.m. local time of the recipient shall be effective the following Business Day. A Party may change its addresses by providing notice of same in accordance herewith.

8.4. Governing Law. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED, ENFORCED AND PERFORMED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAWS.

8.5. Survival. The following provisions shall survive the expiration or termination of this Master Agreement Sections 1.3, 3.3, 3.5, 4.2, 5.1, 5.2, 6.2,

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6.3, 8.3, 8.4, 8.5, 8.6, 8.7, and 8.8. The provisions of any Transaction Agreement shall survive the expiration or termination of such Transaction Agreement to the extent necessary to give such provisions their intended meaning and effect.

8.6. General. This Master Agreement, the Exhibits and Appendices hereto, if any, and each Transaction Agreement constitute the entire agreement between the Parties relating to the subject matter contemplated by this Agreement. No amendment or modification to this Master Agreement shall be enforceable unless reduced to writing and executed by both Parties. This Master Agreement shall not impart any rights enforceable by any third-party other than a permitted successor or assignee bound to this Agreement. No waiver by a Party of any default by the other Party shall be construed as a waiver of any other default. Nothing in this Master Agreement shall be construed to create a partnership or joint venture between the Parties. Any provision declared or rendered unlawful by any applicable court of law or regulatory agency or deemed unlawful because of a statutory change will not otherwise affect the remaining lawful obligations that arise under this Agreement, and the Parties shall use their best efforts to reform this Agreement in order to give effect to the original intent of the Parties. The term “including” when used in this Agreement shall be by way of example only and shall not be considered in any way to be in limitation. The headings used herein are for convenience and reference purposes only.

8.7 Rate Changes. Mobile-Sierra. The terms and conditions and the rates-for service specified in this Agreement shall remain in effect for the term of each Transaction hereunder. Absent the Parties’ agreement in a written Transaction Agreement, this Master Agreement and any Transaction Agreement entered into pursuant to this Master Agreement shall not be subject to change by application of either Party pursuant to the provisions of Section 205 or 206 of the Federal Power Act.

Absent the agreement of all Parties to the proposed change, or a process by which or circumstances under which a Party may seek a change in rates, the standard of review for changes to this Master Agreement or any Transaction Agreement entered pursuant to this Master Agreement whether proposed by a Party, a non-party or FERC acting sua sponte shall be the “public interest” standard of review set forth in United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956), and Federal Power Commission v. Sierra Pacific Power Co., 350 U.S. 348 (1956) (the “Mobile-Sierra” doctrine).

8.8 Terminations.

The Parties acknowledge that under FERC regulations (specifically 18 C.F.R. §35.15(b)(2)), neither Party is required to provide FERC with a notice of termination before it may terminate any Transaction entered into under this Master Agreement, in accordance with the, terms of the Master Agreement and the corresponding Transaction Agreement. Neither Party will contend before any forum that such a notice of termination is required.

8.9 Bankruptcy.

Each Party further agrees that, for purposes of this Agreement, the other Party is not a “utility” as such term is used in 11 U.S.C. Section 366, and each Party waives and agrees not to assert the applicability of the provisions of 11 U.S.C. Section

12

366 (as may be amended from time to time) in any bankruptcy proceeding wherein such Party is a debtor. In any such proceeding, each Party further waives the right to assert that the other Party is a “provider of last resort.”

The Parties have executed this Master Agreement in multiple counterparts to be construed as one effective as of the Effective Date.

13

SOUTHWESTERN PUBLIC SERVICE
COMPANY
By:	/s/ Paul J. Bonavia
Name:	Paul J. Bonavia
Title:	Vice President
By:	/s/ Gary L. Gibson
Name:	Gary L. Gibson
Title:	President and CEO
EL PASO ELECTRIC COMPANY
By:	/s/ Gary R. Hedrick
Name:	Gary R. Hedrick
Title:	President and CEO
By:	/s/ J. Frank Bates
Name:	J. Frank Bates
Title:	Vice President and COO

14

APPENDIX “1” – DEFINITIONS

MASTER ENERGY PURCHASE AND SALE AGREEMENT

All references to Articles and Sections are to those set forth in this Agreement. Reference to any document means such document as amended from time to time and reference to any Party includes any permitted successor or assignee thereof. The following definitions and any terms defined internally in this Agreement shall apply to this Agreement and all notices and communications made pursuant to this Agreement.

“Adequate Assurance of Performance” shall mean sufficient security in the form, amount and for the term reasonably acceptable to the Party requesting such assurance, including, but not limited to, a standby irrevocable letter of credit, a prepayment, a security interest in an asset, guaranty from a creditworthy entity, or such other means as the Parties may mutually agree.

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

“Authorized Representatives” means those individuals, designated by a Party who has the authority to negotiate and enter into a Transaction on behalf of such Party. Each Party’s Authorized Representatives may be changed by written notice provided in accordance with Section 8.3.

“Bankruptcy Proceeding” means with respect to a Party or entity, such Party or entity (i) makes an assignment or any general arrangement for the benefit of creditors, (ii) files a petition or otherwise commences, authorizes, or acquiesces in the commencement of a proceeding or cause of action under any bankruptcy or similar law for the protection of creditors, or becomes a debtor pursuant to an order for relief entered under 11 U.S.C. §303(h) (as may be amended from time to time), (iii) otherwise becomes bankrupt or insolvent (however evidenced), or (iv) is unable to pay its debts as they fall due.

“Business Day” means a day on which banks in New York City are open for business; and a Business Day shall open at 8:00 a.m. and close at 5:00 p.m. local time for each Party’s principal place of business.

“Buyer” means the Party to a Transaction who is obligated to purchase and receive, or cause to be received, Power during a Period of Delivery.

“Claims” means all claims, demands, or actions, threatened or filed and whether groundless, false or fraudulent, that directly or indirectly relate to the subject matter of an indemnity, and the resulting losses, damages, expenses, attorneys’ fees

i

and court costs, whether incurred by settlement or otherwise, and whether such claims, demands, or actions are threatened or filed prior to or after the termination of this Agreement.

“Confirmation” means a written notice confirming the specific terms of an oral Transaction Agreement which may be in any form adequate at law; an example of a Confirmation which may be utilized hereunder is shown in “Exhibit B-1”.

“Contract Price” means the price in $U.S. per MWh (unless otherwise provided for) to be paid by Buyer to Seller for the purchase of Power, including the Power Price, Demand Charges, Transmission Charges, and any other charges, if any, pursuant to a Transaction.

“Contract Quantity” means that quantity of Power that Seller agrees to sell and deliver, or cause to be delivered, to Buyer, and that Buyer agrees to purchase and receive, or cause to be received, from Seller, pursuant to the terms of a Transaction.

“Costs” shall have the meaning defined in Section 4.2(b)(i).

“Delivery Point” means the agreed point of delivery and receipt of Power pursuant to a Transaction.

“Demand Charges” means the amount, if any, to be paid by Buyer to Seller for capacity as agreed to by the Parties in a Transaction.

“Equitable Defenses” means any bankruptcy, insolvency, reorganization and other laws affecting creditor’s rights generally, and with regard to equitable remedies, the discretion of the court before which proceedings to obtain same may be pending.

“Event of Default” shall have the meaning defined in Section 4.1.

“FERC” means the Federal Energy Regulatory Commission or any successor agency.

“Firm” means, with respect to a Transaction unless otherwise specified in a written Transaction Agreement, that the only excuse for the failure to deliver Power by Seller or the failure to receive Power by the Buyer pursuant to a Transaction is Force Majeure or the other Party’s non-performance of a material duty or obligation under this Master Agreement or any Transaction Agreement.

“Force Majeure” means (with respect to Firm Transactions) an event not anticipated as of the Effective Date, which is not within the reasonable control of the Party (or in the case of third party obligations or facilities, the third party) claiming suspension (the “Claiming Party”), which is not the result of negligence of the Claiming Party, and which by the exercise of due diligence the Claiming Party, or third party, is unable to prevent, overcome or obtain or cause to be obtained a commercially reasonable substitute therefor. Force Majeure may include, but is not restricted to: acts of God; fire; civil disturbance; labor dispute; labor or material shortage (unless caused

ii

by the Claiming Party’s failure to exercise reasonable diligence to secure such materials); sabotage; action or restraint by court order or public of governmental authority (so long as the Claiming Party has not applied for or assisted in the application for, and has opposed where and to the extent reasonable, such government action); provided, that none of (i) the loss of Buyer’s markets nor Buyer’s inability economically to use or resell Power purchased hereunder or (ii) Seller’s ability to sell Power to a market at a more advantageous price shall constitute an event of Force Majeure. Notwithstanding anything herein to the contrary, nothing in this Master Agreement shall obligate either Party to settle any strike or other labor dispute.

“GAAP” means generally accepted accounting principles, consistently applied.

“Gains” shall have the meaning defined in Section 4.2(b)(ii).

“Interest Rate” means, for any date, two percent over the per annum rate of interest equal to the prime lending rate as may from time to time be published in the Wall Street Journal under “Money Rates”; provided, the Interest Rate shall never exceed the maximum lawful rate permitted by applicable law.

“Law” means any law, rule, regulation, order, writ, judgment, decree or other legal or regulatory determination by a court, regulatory agency, regional transmission organization or governmental authority of competent jurisdiction.

“Legal Proceedings” means any suits, proceedings, judgments, rulings or orders by or before any court or any governmental authority.

“Losses” shall have the meaning defined in Section 4.2(b)(iii).

“Non-Firm” means with respect to a Transaction, unless otherwise set forth in a Transaction Agreement signed by both Parties, that delivery or receipt of Power may be interrupted for any reason, without liability by either Party, including, without limitation, price fluctuations.

“OATT” means Transmission Provider’s open-access transmission tariff satisfying the requirements of the FERC under Order No. 888 and subsequent orders.

“Period of Delivery” means the period of time from the date physical delivery of the Power is to commence to the date physical delivery is to terminate under a Transaction.

“Power” means energy expressed in megawatt hours (MWh) or capacity expressed in megawatts (MW) to the extent designated in a Transaction Agreement, or both. Unless expressly agreed to in a Transaction Agreement, energy supplied shall be of the character commonly known as three-phase, sixty-hertz electric energy that is delivered at the nominal voltage of the Delivery Point.

“Power Price” means the price in $U.S. (unless otherwise provided for) per MWh to be paid by Buyer to Seller for Power in a Transaction.

iii

“Replacement Price” shall have the meaning defined in Section 3.5(a).

“Sales Price” shall have the meaning defined in Section 3.5(b).

“Scheduling” or “Schedule” means the acts of Seller, Buyer and/or their designated representatives, including each Party’s Transmission Providers, if applicable, of notifying, requesting, and confirming to each other the quantity and type of Power to be delivered hourly on any given day or days during the Period of Delivery at a specified Delivery Point.

“Seller” means the Party to a Transaction who is obligated to sell and deliver or cause to be delivered Power during a Period of Delivery.

“Transaction” means a particular transaction agreed to by the Parties relating to the purchase and sale of Power pursuant to this Master Agreement.

“Transaction Agreement” means a written or oral agreement executed or reached by the Parties to form and effectuate a Transaction. Written Transaction Agreements shall be substantially in the form of Exhibit “B-2”; oral Transaction Agreements will include similar information.

“Transmission Charges” means the amount, if any, to be paid by Buyer to Seller for transmission services as agreed to by the Parties in a Transaction.

“Transmission Provider” means the entity or entities transmitting Power on behalf of Seller or Buyer (which may include Buyer’s or Seller’s transmission function) to or from the Delivery Point in a particular Transaction.

iv

Confidential treatment has been requested for the redacted portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities Exchange Commission.

EXHIBIT

“A”

MASTER ENERGY PURCHASE AND SALE AGREEMENT

NOTICES AND PAYMENT

COMPANY:
NOTICES & CORRESPONDENCE:
SOUTHWESTERN PUBLIC SERVICE COMPANY 1099 18TH STREET, SUITE 3000 DENVER, CO 80202 ATTN: DIRECTOR, CONTRACT ADMINISTRATION FAX NO: (303) 308-7639 PHONE NO: (303) 308-2710	PAYMENTS: SOUTHWESTERN PUBLIC SERVICE COMPANY WIRE TRANSFER: BNK: ***** ABA: ***** ACCOUNT NAME: ***** ACCOUNT: ***** PHONE NO.: ***** FAX NO.: *****

v

Confidential treatment has been requested for the redacted portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities Exchange Commission.

INVOICES: TAMMY GORDON, ACCOUNTING MANAGER FAX NO: (303)308-7657 PHONE NO: (303)308-7739
COUNTERPARTY:
NOTICES & CORRESPONDENCE: MR. STEVEN BURACZYK SUPERVISOR, RESOURCE MANAGEMENT EL PASO ELECTRIC COMPANY P.O. BOX 982 EL PASO, TEXAS 79960 PHONE NO. (915) 543-4368 FAX NO. (915) 521-4751	PAYMENTS: WIRE TRANSFER: COMPANY NAME: ***** TAXPAYER ID NUMBER: ***** COMPANY ADDRESS: ***** CONTACTS: ***** BANK: ***** LOCATION: ***** ABA (ROUTING TRANSIT NO.): ***** CREDIT: ***** ACCT: ***** TYPE OF ACCOUNT: *****
INVOICES: MS. KATHY PETERSON PHONE NO. (915) 543-2039 FAX NO. (915) 521-4751

OR TO SUCH OTHER ADDRESS AS COUNTERPARTY OR              SHALL FROM TIME TO TIME DESIGNATE BY LETTER PROPERLY ADDRESSED.

vi

EXHIBIT “B-1”

MASTER ENERGY PURCHASE AND SALE AGREEMENT

FORM OF CONFIRMATION FOR

TRANSACTIONS FORMED UNDER SECTION 1.2(ii)

[DATE]

[ADDRESS]

Attn.:                                 

CONFIRMATION LETTER

This letter shall confirm the agreement reached on             , 200   between                                                   (“Counterparty”) and Southwestern Public Service Company (the “Company”) regarding the sale/purchase of Power under the terms and conditions as follows:

SELLER:	_________________________________________________________________
BUYER:	_________________________________________________________________
PRODUCT:	_________________________________________________________________
CAPACITY:	_________________________________________________________________
ENERGY:	_________________________________________________________________
DELIVERY PERIOD:
DELIVERY HOURS:	_________________________________________________________________
DELIVERY POINT:	_________________________________________________________________
CONTRACT QUANTITY:
CONTRACT PRICE:
DEMAND CHARGES:	_________________________________________________________________
ENERGY PRICE:	_________________________________________________________________
TRANSMISSION CHARGES:	_________________________________________________________________
ANCILLARY SERVICES	_________________________________________________________________
OTHER (INCLUDING SPECIAL	_________________________________________________________________
PENALTIES)	_________________________________________________________________
	_________________________________________________________________
	________________________

B-1-1

FIRMNESS/CURTAILMENT:	_________________________________________________________________
FIRM/NONFIRM	_________________________________________________________________
SPECIAL CURTAILMENT     PROVISIONS	_________________________________________________________________
SCHEDULING:	_________________________________________________________________
OTHER:	_________________________________________________________________

This Confirmation Letter is being provided pursuant to and in accordance with the Master Power Purchase and Sale Agreement dated                     , 200     (the “Master Agreement”) between Counterparty and the Company, and constitutes part of and is subject to all of the terms and provisions of such Master Agreement. Terms used but not defined herein shall have the meanings ascribed to them in this Master Agreement.

Please confirm that the terms stated herein accurately reflect the agreement between you and the Company by returning an executed copy of this letter by facsimile to the Company. If you do not return this Confirmation Letter or object to this Confirmation Letter within two Business Days of your receipt of it, you will have accepted and agreed to all of the terms included herein, including the terms and provisions of the Agreement.

“COUNTERPARTY”

By:

Title:

Date:

“COMPANY”

By:

Title:

Date:

B-1-2

EXHIBIT “B-2”

MASTER ENERGY PURCHASE AND SALE AGREEMENT

FORM OF TRANSACTION AGREEMENT FOR

TRANSACTIONS FORMED UNDER SECTION 1.2(i)

[DATE]

[ADDRESS]

Attn.:                                     

TRANSACTION LETTER

This Transaction Agreement shall form and effectuate the current proposal between                                  (“Counterparty”) and Southwestern Public Service Company (the “Company”) regarding the purchase and sale of Power under the following terms and conditions:

SELLER:	_________________________________________________________________
BUYER:	_________________________________________________________________
PRODUCT:	_________________________________________________________________
CAPACITY:	_________________________________________________________________
ENERGY:	_________________________________________________________________
DELIVERY PERIOD:	_________________________________________________________________
DELIVERY HOURS:	_________________________________________________________________
DELIVERY POINT:	_________________________________________________________________
CONTRACT QUANTITY:
CONTRACT PRICE:
DEMAND CHARGES:	_________________________________________________________________
ENERGY PRICE:	_________________________________________________________________
TRANSMISSION CHARGES:	_________________________________________________________________
ANCILLARY SERVICES	_________________________________________________________________
OTHER (INCLUDING SPECIAL	_________________________________________________________________
PENALTIES)	_________________________________________________________________
	_________________________________________________________________
	__________________

B-2-1

FIRMNESS/CURTAILMENT:	_________________________________________________________________
FIRM/NONFIRM	_________________________________________________________________
SPECIAL CURTAILMENT     PROVISIONS	_________________________________________________________________
SCHEDULING:	_________________________________________________________________
OTHER:	_________________________________________________________________

This Transaction Agreement is being provided pursuant to and in accordance with the Master Power Purchase and Sale Agreement dated             , 200   (the “Master Agreement”) between Counterparty and the Company, and constitutes part of and is subject to all of the terms and provisions of such Master Agreement. Terms used but not defined herein shall have the meanings ascribed to them in this Master Agreement.

Please execute this Transaction Agreement and return an executed copy to the Company no later than      a.m. on                     , 200   (“Notification Time”). Your execution should reflect the appropriate party in your organization who has the authority to cause Counterparty to enter into this Transaction. In the event Counterparty fails to execute and deliver this Transaction Agreement by the Notification Time or alters the terms of this Transaction Agreement in any manner, there will be no Transaction pursuant to this Transaction Agreement.

“COUNTERPARTY”

By

Title:

Date:

“COMPANY”

By

Title:

Date:

B-2-2

TRANSACTION AGREEMENT

between

El Paso Electric Company

and

Southwestern Public Service Company

This Transaction Agreement is entered into and is effective as of this 7^th day of July, 2004, by and between El Paso Electric Company (“Buyer”) and Southwestern Public Service Company (“Seller”). This Transaction Agreement is entered into pursuant to and in accordance with the Master Power Purchase and Sale Agreement dated July 7, 2004 (“Master Agreement”) between the Buyer and the Seller. The terms of the Master Agreement shall apply to this Transaction Agreement as though set forth herein, provided that any conflict between the terms of the Master Agreement and this Transaction Agreement shall be resolved in favor of this Transaction Agreement. Unless defined herein, capitalized terms used herein shall have the meanings set forth in the Master Agreement.

Section 1 - Transaction

1.1 During the term of, and subject to the terms and conditions of, this Transaction Agreement, Seller agrees to sell and deliver and Buyer agrees to purchase and receive Firm Power service at the Delivery Point (as defined in Section 6 below). Subject to Seller’s curtailment rights under Section 2 below, such Firm Power service shall consist of (i) capacity at the Contract Quantity level specified in Section 4.2 below, and (ii) associated energy up to such Contract Quantity as may be Scheduled by Buyer pursuant to Section 5 below (“Scheduled Energy”).

Section 2 - Continuity of Service

2.1 The Power to be provided by Seller under this Agreement is Firm, subject to the curtailment rights specified in Section 2.2 below. The Seller will make Firm Power (both capacity and energy) up to the Contract Quantity continuously available to the Buyer from the Seller’s generation resources, which include not only existing resources, but future capacity purchases or additions made to meet planning reserves. Seller shall maintain generation resources, including capacity purchases and additions, adequate to meet its planning and operating reserves inclusive of the Contract Quantity as a Firm obligation.

2.2 Scheduled Energy cannot be curtailed except for the following reasons:

(i) In accordance with Section 3.4 of the Master Agreement (Force Majeure);

(ii) Due to the installation, maintenance, repair, testing, inspection, or

replacement of the Eddy County HVDC tie or transmission facilities related to the Eddy County HVDC tie on Seller’s side of the Delivery Point;

(iii) Due to the functioning of under-frequency relays, other automatic load shedding equipment, or manual curtailment, but in each instance only to the extent necessary to preserve the integrity of, or to limit any instability on, Seller’s system; or

(iv) Due to the interruption or curtailment of firm transmission service that prevents the delivery or receipt of Scheduled Energy at the Delivery Point, implemented by any Transmission Provider (including any Affiliate Transmission Provider of Seller).

If the delivery of Scheduled Energy to Buyer under this Transaction is curtailed because of any of the above circumstances and in conformance with the provisions of Section 2.3 below, Seller shall have no liability to Buyer (other than as provided in Sections 4.6 and 6.5 below), and the damages specified in Section 3.5 of the Master Agreement shall not apply.

2.3 In the event of an occurrence specified in Section 2.2 entitling Seller to curtail the delivery of Scheduled Energy, Seller may curtail the delivery of Scheduled Energy to Buyer prior to curtailing energy deliveries to its firm, native load customers (SPS’s retail customers and wholesale customers located within the boundaries of the SPS control area existing as of the effective date of this Transaction Agreement), but only if Seller has first curtailed energy deliveries to its interruptible retail and wholesale customers to the extent allowed by contract. To the extent practicable, Seller shall only curtail Scheduled Energy deliveries under this Transaction Agreement on a pro rata basis with its other sales of equal firmness.

2.4 In no circumstances shall Seller curtail deliveries of Scheduled Energy with the intention of enabling itself to make other sales of capacity or energy of greater value.

2.5 In the event that Buyer curtails deliveries of Scheduled Energy, it shall not be subject to the damages specified in Section 3.5 of the Master Agreement. Buyer shall, however, be obligated to pay Seller the Demand Charge and charges specified in Section 4.5 below in such instances.

2.6 Except as provided in this Section 2.6, Seller may not sell energy associated with the Contract Quantity to any third party. To the extent that Buyer does not Schedule energy up to the full level of the Contract Quantity for any delivery period, Seller may sell such unscheduled energy on an intraday basis subject to Buyer’s recall of such energy upon not less

than ninety (90) minutes notice to Seller. Moreover, in the event Buyer cannot, in whole or in part, receive or accept deliveries of energy provided for under this Transaction Agreement at the Delivery Point (or mutually agreeable alternative delivery point) due to a planned outage of the Eddy County HVDC tie or transmission facilities related to the Eddy County HVDC tie on either side of the Delivery Point, Seller shall have the right to sell such energy that would have otherwise been supplied to Buyer to third-parties for the expected period of the planned outage, subject to Buyer’s recall of the energy upon a Day Ahead Schedule basis in the event the Eddy County HVDC tie and related transmission facilities are restored to service sooner than expected. For unplanned outages that prevent the delivery of energy, in whole or in part, to Buyer or the receipt of energy by Buyer, Seller may sell energy on an intraday basis subject to Buyer’s recall of such energy upon not less than ninety (90) minutes notice in the event the Eddy County HVDC tie and related transmission facilities are restored to service, unless the Parties agree to a different time period.

Section 3-Term of the Transaction Agreement

The term of this Transaction Agreement shall commence with the hour ending (“HE”) 0100 Mountain Standard Time (“MST”), January 1, 2006, and continue through HE 2400 MST, December 31, 2025.

Section 4 - Contract Quantity and Contract Price

4.1 The Contract Price shall consist of the Demand Charge, the Power Price, and the Transmission Charges prescribed by this Section 4.

4.2 The level of the Contract Quantity and the Demand Charge shall be as set out in Table 4.2, unless changed in accordance with Section 6.3 or Section 6.4 below (in the case of the Contract Quantity) or Section 7 below (in the case of the Demand Charge). Buyer’s monthly Demand Charge shall equal the Contract Quantity multiplied by the Demand Charge, less any Demand Charge adjustments prescribed by Section 4.6 below.

Confidential treatment has been requested for the redacted portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities Exchange Commission.

Table 4.2

*****

4.3 The Power Price for energy delivered by Seller to the Delivery Point each calendar month shall consist of the sum of the following Energy Charge and Fuel Charge multiplied by the amount of Scheduled Energy (adjusted to reflect permitted curtailments or the non-acceptance of Scheduled Energy by Buyer):

(a) Energy Charge: $ ***** per kWh, unless changed in accordance with Section 7.

(b) Fuel Charge: Seller’s estimated average fuel cost per month adjusted for the preceding month’s estimate error. The fuel charge adjustment shall be calculated in compliance with the formula and conditions set forth in the Wholesale Fuel Cost Adjustment (“FCA”) clause contained in Attachment 1 to this Transaction Agreement, as that clause may be modified from time to time upon application or complaint to FERC. Buyer shall reimburse Seller for line losses to the extent such reimbursement is prescribed by the FCA or paid by Seller to the Southwest Power Pool (“SPP”) or any successor Transmission Provider under an OATT in connection with this Transaction Agreement.

4.4 The Transmission Charges shall consist of the cost to Seller for those transmission and ancillary services necessary to make delivery of Firm Power, up to the Contract Quantity, to the Delivery Point on a firm basis, as such Transmission Charges may be modified from time-to-time with the approval of FERC. The current applicable charges, as set forth in the SPP OATT, are as follows:

Firm Point-to-Point Transmission:	$*****/kW-month
Scheduling & Dispatch:	$*****/kW-month
Reactive Supply & Voltage Control:	$*****/kW-month
Administrative/Scheduling Fee	$ *****/MWh

Seller shall notify Buyer in writing in the event that these charges are modified.

Confidential treatment has been requested for the redacted portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities Exchange Commission.

Transmission Charges also include additional fees, if any, that the SPP, or any successor Transmission Provider, imposes on Seller in connection with this Transaction Agreement pursuant to its FERC-approved OATT, including, but not limited to, congestion fees and redispatch fees (“Additional Transmission Charges”). Losses shall not be considered an Additional Transmission Charge. To the extent that Additional Transmission Charges are not recovered through the Fuel Charge, Buyer shall reimburse Seller for those Additional Transmission Charges. If, during the term of this Transaction Agreement, the amount of Additional Transmission Charges averages more than $ ***** per month in any consecutive six (6) month period; Buyer may refer such matter to the Operating Committee (as described in Section 10 below) for discussion and resolution. If the Parties are unable to reach a mutually satisfactory resolution within six (6) months following such referral, Buyer shall have a ninety (90) day period in which it may terminate this Transaction Agreement by providing not less than two (2) years prior, written notice to Seller. In the event that Buyer terminates the Transaction Agreement in accordance with this Section 4.4, neither Party shall be obligated to pay the Termination Payment provided for in Section 4.2 of the Master Agreement.

The Buyer acknowledges that Transmission Charges are regulated by FERC and are subject to change pursuant to Section 205 or Section 206 of the Federal Power Act, as applicable, with the approval of FERC. Either Party may petition FERC to seek a change in any applicable Transmission Charges, in which event the other Party may contest or challenge such rate change request.

Confidential treatment has been requested for the redacted portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities Exchange Commission.

4.5 Buyer shall not be required to pay the Power Price (Energy Charge and Fuel Charge) for Scheduled Energy that is not delivered to or received or accepted at the Delivery Point (or a mutually agreeable alternative delivery point) regardless of cause, nor shall it be obligated to pay any charges under Section 3.5 of the Master Agreement if it fails to accept Scheduled Energy. However, if Buyer Schedules energy during a period and then either notifies Seller that it will not accept or actually fails to accept any portion of such Scheduled Energy, Buyer shall pay Seller the following: (i) the Power Price adjusted to reflect the portion of the Scheduled Energy that Buyer received, (ii) the Schedule Change Charge set forth in Section 5.3 of this Transaction Agreement as applied to the level of non-accepted Scheduled Energy, and (iii) any transmission-related charges that may be imposed upon Seller by the SPP or other Transmission Provider pursuant to the applicable OATT as a result of Buyer’s failure to accept Scheduled Energy (such charges not to be taken into account for purposes of determining the $ ***** limit set forth in Section 4.4). For the remainder of the applicable period for which Buyer has Scheduled energy but fails to accept all or a portion of such Scheduled Energy, Buyer shall not have any continuing rights to the unaccepted Scheduled Energy during that period, unless Seller, in its sole discretion, agrees to a request by Buyer to resume the delivery of Scheduled Energy for that period (in which case Buyer is to pay the Schedule Change charge specified in Section 5.3 and any other out-of-pocket costs that Seller may incur).

4.6 Each monthly Demand Charge shall be adjusted downward by the applicable product of the Reduction Factor set forth in Table 4.2 and the Scheduled Energy that Seller fails or is unable to deliver to the Delivery Point (or any mutually agreeable alternative delivery point) in any corresponding month for any reason (other than Buyer’s failure to perform any material obligation under the Agreement, including the obligation to accept Scheduled Energy). Notwithstanding the preceding sentence of this Section 4.6, no Reduction Factor shall be applied for periods of complete or partial (or any combination thereof) interruption or curtailment of Scheduled Energy totaling less than sixteen (16) continuous hours; provided, however, this exception to the Demand Charge adjustment shall not apply if (i) the interruption or curtailment arises from Seller’s breach of the Agreement, or (ii) the aggregate number of hours of complete or partial (or any combination thereof) interruption or curtailment exceeds forty-eight (48) hours in such month. The Reduction Factor adjustment prescribed by this Section 4.6 shall be in addition to the remedy provided for by Section 3.5 of the Master Agreement that compensates Buyer for Seller’s failure to deliver Scheduled Energy absent an excused interruption or curtailment; provided, however, any payment due Buyer under Section 3.5 of the Master Agreement shall be reduced by the amount of the Reduction Factor adjustment, if any, corresponding to the unexcused interruption or curtailment.

Section 5 - Scheduling

5.1. The Parties agree to comply with the scheduling policies or requirements of the North American Electric Reliability Council (“NERC”) and any applicable OATT. Tagging shall be performed according to Western Electric Coordinating Council guidelines and practices, as such may be in effect from time-to-time, or the guidelines and practices of any successor entity or other entity having responsibility for setting such guidelines or standards.

5.2 The Buyer shall provide a preliminary, non-binding schedule two (2) days prior to the delivery date. The Buyer will then Schedule energy in whole MW up to the Contract Quantity by notifying the Seller by 8:30 a.m. prevailing Mountain Time in El Paso, Texas for all energy to be delivered for the following prescheduled day(s) (“Day Ahead Schedule”).

Confidential treatment has been requested for the redacted portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities Exchange Commission.

5.3 Subject to transmission availability, the Buyer may change its Scheduled Energy for the Day Ahead Schedule as long as the Buyer provides the Seller no less than ninety (90) minutes notice prior to the top of the delivery hour in which such change is to be effective (each a “Schedule Change”). Seller will attempt to accommodate changes with less than ninety (90) minutes notice provided it does not unreasonably interfere with other commercial opportunities. All changes to the Day Ahead Schedule initiated by the Buyer will be assessed a Schedule Change Charge of $ *****/MWh multiplied by (i) the number of MWh of any such Schedule Change, whether an increase or a decrease, and by (ii) the number of hours for which such change is effective (a “Schedule Change Charge”). The Schedule Change Charge shall apply only to Schedule Changes initiated by the Buyer and shall not apply to changes necessitated by Force Majeure, transmission or converter constraints, or any interruption, curtailment or failure to deliver or receive Scheduled Energy referenced in Section 2 above. During times of system emergencies on the Buyer’s system, Seller will work in good faith to accommodate shorter noticed Schedule Changes within the constraints of transmission scheduling and tagging requirements.

5.4. The Parties recognize that although the Scheduling practices prescribed by Section 5 of this Transaction Agreement reflect existing commercial customs and standards, such customs and standards could change during the twenty (20) year term of the Transaction. If a Party believes that Scheduling customs and standards have changed, the matter will be referred to the Operating Committee for resolution, it being the intention of the Parties to reform the Scheduling provisions of this Transaction Agreement to conform to then prevailing customs and standards and Good Utility Practice (as defined in Section 11.3 of this Transaction Agreement).

Section 6 - Delivery Point and Transmission Arrangements

6.1 The Seller shall deliver Scheduled Energy utilizing a firm transmission path, to the east side of the interconnection of the Seller and Buyer systems located near the Eddy County HVDC tie (“Delivery Point”), unless another non-firm delivery point is mutually agreed to by the Parties.

6.2 Each Party shall have the responsibility for arranging firm transmission services (including associated ancillary services) under the applicable OATT (or other permissible arrangements) for the delivery (in the case of

the Seller) or receipt (in the case of the Buyer) of energy up to the Contract Quantity at the Delivery Point. Both Parties commit to make request of their applicable Transmission Providers expeditiously so as to obtain the necessary transmission services.

6.3 Each Party recognizes that there may be limitations on the ability to obtain firm transmission service (inclusive of service over and through the Eddy County HVDC tie) up to the full level of the Contract Quantity. In the event that a Party is informed that transmission service up to the full level of the Contract Quantity is unavailable, such Party may convene the Operating Committee to discuss and assess appropriate modifications to this Transaction Agreement (including termination). If the Parties are unable to reach a mutually satisfactory resolution within six (6) months following the referral to the Operating Committee and more than twenty-five percent (25%) of the Contract Quantity cannot be delivered or received due to the unavailability of firm transmission service, either Party shall have a ninety (90) day period in which it may terminate this Transaction Agreement by providing not less than two (2) years prior written notice to the other Party. In the event that a Party terminates the Transaction Agreement in accordance with this Section 6.3, neither Party shall be obligated to pay the Termination Payment provided for in Section 4.2 of the Master Agreement.

6.4 In the event that the unavailability of transmission referenced in Section 6.3 above prevents Seller from delivering or Buyer from receiving the full level of Contract Quantity, the Contract Quantity (and the corresponding monthly Demand Charge billings) shall be reduced to the level of Contract Capacity for which firm transmission service is available until such time as the Parties reach a mutually satisfactory resolution or this Transaction Agreement is terminated, all as prescribed by Section 6.3 above.

6.5 Seller shall cause, if possible, Buyer to be named as a third-party beneficiary in any agreement for firm transmission service entered into to perform its obligations under this Transaction Agreement. In the event that firm transmission service arranged by Seller is interrupted or curtailed by any Transmission Provider, Buyer’s damages shall be limited to such damages that Seller is able to recover from the applicable Transmission Provider. In the event Seller, exercising reasonable legal and commercial discretion, shall elect not to make a claim against the applicable Transmission Provider, Seller shall, at Buyer’s request, if possible, assign to Buyer its rights and remedies to enforce and collect damages under the affected transmission agreements. Each party to this Transaction Agreement shall retain whatever rollover rights it may have on transmission service it acquired in connection with the Transaction Agreement.

Section 7 - Rate Change

It is the intent of the Parties that the charges listed in Sections 4.2 and 4.3(a) are fixed charges that are applicable for the entire term of this Transaction Agreement and are not subject to change except as provided in this Section 7. However, given the length of the term, the Parties have agreed that if Seller experiences a change in its cost structure resulting in costs that cannot be recovered pursuant to the FCA, whether due to new investment, inflation, changes in Law (including, without limitation, changes in environmental Law), additional Taxes, fees, or charges imposed as the result of any changes in Laws after January 1, 2004, or any other causes, such that the charges set forth in Section 4.2 or 4.3(a) above, or both, result in under-recovery by Seller when compared to amounts that Seller would receive under a rate based on average system cost of service, Seller may file under Section 205 of the Federal Power Act (as may be amended or recodified from time to time) to change the Demand Charge or Energy Charge component of the Power Price, or both, solely for the purpose of increasing such charges up to the average system cost of service. Notwithstanding Section 8.7 of the Master Agreement, the “just and reasonable” standard shall apply to the review of such a rate filing. Once Seller has filed to change the Demand Charge or Energy Charge component of the Power Price through a Section 205 filing, Buyer shall subsequently have the right under Section 206 of the Federal Power Act (as may be amended or recodified from time to time) to file a complaint seeking a change in the Demand Charge or Energy Charge component or both if Buyer believes Seller is recovering through such charges more than it would receive under a rate based on an average system cost of service. The “just and reasonable” standard shall likewise apply to the review of such complaint. Either Party may contest and challenge at FERC (or other appropriate forum with jurisdiction, if any) the rate change request of the other Party. In the event that either (i) the rate increase(s) requested by Seller result in an aggregate increase of five percent (5 %) or more in the total non-fuel cost of Power (as specified in Section 4.2 and 4.3(a) of this Transaction Agreement) to the Buyer over the term of this Transaction Agreement, or (ii) an aggregate decrease of five percent (5%) or more in the total non-fuel cost of Power (as specified in Section 4.2 and 4.3(a) of this Transaction Agreement) to Buyer over the term of this Transaction Agreement is granted by FERC pursuant to a Section 206 proceeding(s) filed by Buyer, the Party adversely affected by such ruling may, for a period of ninety (90) days following the issuance of an order granting such increase or decrease, terminate this Transaction Agreement by providing not less than two (2) years prior written notice to the other Party. In such event, neither Party shall be obligated to pay the other Party the Termination Payment provided for in Section 4.2 of the Master Agreement.

Section 8 - Adequate Assurance of Performance

If a Party has reasonable grounds for seeking Adequate Assurance of Performance pursuant to Section 4.4 of the Master Agreement, a Party may only request, and the other Party shall only be required to provide, Adequate Assurance of Performance with respect to this Transaction for the following amounts (but only to the

extent that their sum is in excess of a Party’s applicable credit limit (as determined pursuant to Section 4.4 of the Master Agreement): (i) amounts due and owing (including any amounts in dispute for which payment may have been withheld in accordance with Section 6.1(b)) and (ii) amounts reasonably projected to become due and owing (assuming no default of the Master Agreement or this Transaction Agreement) for services to be provided pursuant to this Transaction Agreement during the sixty (60)-day period following such request.

Section 9 - Taxes

Invoices hereunder will be increased by an amount equal to the sum of the Taxes applicable to the purchase and sale of Power pursuant to this Transaction and payable under federal, state, and local sales Tax acts, including federal, state and local sales Taxes imposed as the result of any change in Law after January 1, 2004.

Section 10 - Operating Committee

10.1 The Parties will establish an Operating Committee to address issues that arise regarding the terms and conditions of this Transaction Agreement. Each Party shall designate by written notice to the other Party the representative who will be authorized to act in its behalf on the Operating Committee. A Party may change its representative on the Operating Committee upon written notice to the other Party. The principal duties of the Operating Committee shall be as follows:

(i) To establish operating (normal and emergency), scheduling, tagging, and control procedures;

(ii) To attempt to develop coordinated approaches in recommending maintenance schedules involving the HVDC Eddy County tie or transmission facilities related to such tie;

(iii) To address and attempt to develop resolutions to those matters that are to be referred to the Operating Committee under this Transaction Agreement, it being understood, however, that the Operating Committee shall have no authority to modify any provisions of this Transaction Agreement and that any recommendations that it makes to modify this Transaction Agreement must be approved by each Party;

(iv) To resolve disputes about such other matters as either Party may raise under this Transaction Agreement; and

(v) To perform any other duties necessary for the proper functioning of this Transaction Agreement.

10.2 If the Operating Committee is unable to agree on any matter over which it has authority under this Transaction Agreement, it may, within fifteen (15) days after determining that it cannot reach agreement, refer the matter in writing to the chief executive officers of the Parties. If the chief executive officers are unable to agree on the matter within forty-five (45) days after the referral, then either Party may initiate legal

or other proceedings in connection with such dispute; provided, however, the foregoing conditions precedent to initiation of such proceedings shall not apply to any action, claim, or other matter that, by reason of compliance with such conditions, would otherwise be barred by any statutory limitations.

10.3 Notwithstanding the provisions of Section 4.1 of the Master Agreement, a Party shall, as a condition precedent to the termination of this Transaction Agreement (other than a termination under Section 4.1 (i) and (iv) of the Master Agreement), (i) refer such matter to the Operating Committee for attempted resolution, and (ii) if the Operating Committee is unable to resolve such mater within thirty (30) days (or such longer time as the Parties may agree in writing) following referral, refer such matter to the chief executive officers of each Party for attempted resolution for a period of fifteen (15) days (or such longer time as the Parties may agree in writing) following such referral.

Section 11 - Other

11.1 Notwithstanding Section 4.3 of the Master Agreement, the Parties acknowledge that this Transaction Agreement may need to be terminated or amended in the event that it is subject to adverse regulatory action. In the case of Seller, adverse regulatory action would occur if FERC or any state commission having jurisdiction over Seller in a ratemaking case assigns or attributes costs to this Transaction Agreement in such a manner that this Transaction Agreement will result in an under-recovery of what Seller would receive under a rate based on average system cost of service, or if FERC requires a modification of rates on the basis of a conclusion that Seller should not be able to make the sale provided for herein at market-based rates. In the case of Buyer, adverse regulatory action would occur if FERC or any state commission having jurisdiction over Buyer disallows the recovery of costs incurred under this Transaction Agreement. In the event either Party is subject to such an adverse regulatory action, it may convene the Operating Committee to discuss and assess what modifications to this Transaction Agreement (including termination), may be appropriate. If the Parties are unable to reach a mutually satisfactory resolution within six (6) months following the referral to the Operating Committee, either Party shall have a ninety (90) day period in which it may terminate this Transaction Agreement by providing not less than two (2) years prior written notice to the other Party. In the event that a Party terminates the Transaction Agreement in accordance with this Section 11.1, neither Party shall be obligated to pay the Termination Payment provided for in Section 4.2 of the Master Agreement.

11.2 Where a Party may terminate this Transaction Agreement without being subject to the obligation to pay the Termination Payment provided for in Section 4.2 of the Master Agreement, such termination shall relieve neither Party from the obligation to pay amounts due and owing to the other Party under this Transaction Agreement that accrued prior to the effective date of such a termination.

Confidential treatment has been requested for the redacted portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities Exchange Commission.

11.3 Each Party shall undertake its obligations under this Transaction Agreement in accordance with Good Utility Practice, namely any of the practices, methods, and acts engaged in or approved by a significant portion of the electric utility industry (subject to regional variation), during the relevant time period, or any of the practices, methods, and acts which in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety, and expedition.

Section 12 – Economy Energy

Throughout the term of this Transaction Agreement, Seller shall have the right to provide Buyer with economy energy from time to time in an amount and at a time subject to the mutual agreement of the Parties. Economy energy is non-firm energy that can be curtailed by Seller or by Buyer for any reason. The Power Price of the economy energy shall be no greater than EPE’s actual avoided cost minus $ *****/MWH.

Section 13 – Signatories

The signatories hereto represent that they have been appropriately authorized to enter this Transaction Agreement on behalf of the Party for whom they sign. This Transaction Agreement is executed as of the date first above written.

EL PASO ELECTRIC COMPANY
By:	/s/ Gary R. Hedrick
Printed Name:	Gary R. Hedrick
Title:	President and Chief Executive Officer
By:	/s/ J. Frank Bates
Printed Name:	J. Frank Bates
Title:	Executive Vice President & COO
SOUTHWESTERN PUBLIC SERVICE COMPANY
By:	/s/ Paul J. Bonavia
Printed Name:	Paul J. Bonavia
Title:	Vice President
By:	/s/ Gary L. Gibson
Printed Name:	Gary L. Gibson
Title:	President and CEO

Confidential treatment has been requested for the redacted portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities Exchange Commission.

ATTACHMENT 1

WHOLESALE FUEL COST ADJUSTMENT CLAUSE

*****

EX-15

Exhibit 15

May 5, 2005

El Paso Electric Company

El Paso, Texas

Re: Registration Statement Nos. 333-17971, 333-82129, and 333-123646

With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated May 5, 2005 related to our review of interim financial information.

Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an independent registered accounting firm, or a report prepared or certified by an independent registered accounting firm within the meaning of Sections 7 and 11 of the Act.

KPMG LLP

El Paso, Texas

EX-31.01

EXHIBIT 31.01

CERTIFICATIONS

I, Gary R. Hedrick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of El Paso Electric Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Dated: May 6, 2005

EL PASO ELECTRIC COMPANY
By:	/s/ Gary R. Hedrick
	Gary R. Hedrick
	President and Chief Executive Officer
	(Principal Executive Officer)

I, Scott D. Wilson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of El Paso Electric Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Dated: May 6, 2005

EL PASO ELECTRIC COMPANY
By:	/s/ Scott D. Wilson
	Scott D. Wilson
	Senior Vice President and Chief
	Financial Officer
	(Principal Financial Officer)

EX-32.01

EXHIBIT 32.01

May 6, 2005                

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (the “Report”) of El Paso Electric Company (the “Company”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Gary R. Hedrick and Scott D. Wilson, each certifies that, to the best of his knowledge:

1. such Report fully complies with the requirements of Section 13(a) of the Exchange Act; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Gary R. Hedrick

Gary R. Hedrick

President and Chief Executive Officer

/s/ Scott D. Wilson

Scott D. Wilson

Senior Vice President and Chief Financial Officer