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 June 30, 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 August 1, 2005, there were 47,948,665 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 – June 30, 2005 and December 31, 2004		1
Consolidated Statements of Operations – Three Months, Six Months and Twelve Months Ended June 30, 2005 and 2004		3
Consolidated Statements of Comprehensive Operations – Three Months, Six Months and Twelve Months Ended June 30, 2005 and 2004		5
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2005 and 2004		6
Notes to Consolidated Financial Statements		7
Report of Independent Registered Public Accounting Firm		20
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II.     OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 4.	Submission of Matters to a Vote of Security Holders	36
Item 6.	Exhibits	36

(i)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

(In thousands)

	June 30, 2005 (Unaudited)			December 31, 2004
Utility plant:
Electric plant in service	$	1,843,846		$	1,839,924
Less accumulated depreciation and amortization		(710,500	)		(666,774	)
Net plant in service		1,133,346			1,173,150
Construction work in progress		102,894			74,853
Nuclear fuel; includes fuel in process of $6,800 and $7,128, respectively		67,367			69,239
Less accumulated amortization		(32,293	)		(34,195	)
Net nuclear fuel		35,074			35,044
Net utility plant		1,271,314			1,283,047
Current assets:
Cash and temporary investments		9,960			29,401
Accounts receivable, principally trade, net of allowance for doubtful accounts of $2,660 and $3,071, respectively		78,922			70,710
Accumulated deferred income taxes		2,644			6,509
Inventories, at cost		24,799			25,193
Undercollection of fuel revenues		37,355			19,302
Income taxes receivables		16,983			14,919
Prepayments and other		13,323			11,587
Total current assets		183,986			177,621
Deferred charges and other assets:
Decommissioning trust funds		91,560			89,363
Regulatory assets		23,944			18,487
Other		15,366			12,837
Total deferred charges and other assets		130,870			120,687
Total assets	$	1,586,170		$	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)

	June 30, 2005 (Unaudited)			December 31, 2004
Capitalization:
Common stock, stated value $1 per share, 100,000,000 shares authorized, 63,183,635 and 62,665,550 shares issued, and 129,189 and 102,630 restricted shares, respectively	$	63,313		$	62,768
Capital in excess of stated value		273,719			268,771
Deferred and unearned compensation		217			1,127
Retained earnings		386,905			386,110
Accumulated other comprehensive loss, net of tax		(25,933	)		(10,553	)
		698,221			708,223
Treasury stock, 15,365,108 shares, at cost		(176,076	)		(176,076	)
Common stock equity		522,145			532,147
Long-term debt, net of current portion		590,825			359,362
Financing obligations, net of current portion		20,120			20,274
Total capitalization		1,133,090			911,783
Current liabilities:
Current portion of long-term debt and financing obligations		25,850			214,092
Accounts payable, principally trade		30,034			34,404
Taxes accrued other than federal income taxes		12,341			15,719
Interest accrued		7,284			13,609
Overcollection of fuel revenues		492			520
Other		22,487			24,726
Total current liabilities		98,488			303,070
Deferred credits and other liabilities:
Accumulated deferred income taxes		101,077			111,991
Accrued postretirement benefit liability		101,956			98,827
Asset retirement obligation		63,256			60,388
Accrued pension liability		43,372			49,055
Regulatory liabilities		15,252			15,682
Other		29,679			30,559
Total deferred credits and other liabilities		354,592			366,502
Commitments and contingencies
Total capitalization and liabilities	$	1,586,170		$	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 June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Operating revenues	$	189,300		$	182,206		$	348,485		$	338,058
Energy expenses:
Fuel		56,827			47,804			101,055			86,853
Purchased and interchanged power		19,454			21,742			30,941			34,594
		76,281			69,546			131,996			121,447
Operating revenues net of energy expenses		113,019			112,660			216,489			216,611
Other operating expenses:
Other operations		43,686			41,368			85,555			82,828
Maintenance		13,112			10,751			22,066			19,954
Depreciation and amortization		23,855			23,247			47,425			46,426
Taxes other than income taxes		10,033			10,956			20,449			22,493
		90,686			86,322			175,495			171,701
Operating income		22,333			26,338			40,994			44,910
Other income (deductions):
Investment and interest income, net		1,013			441			1,938			712
Loss on extinguishments of debt		(19,418	)		(1,732	)		(19,418	)		(3,838	)
Miscellaneous other income		598			—			600			—
Miscellaneous other deductions		(723	)		(788	)		(1,559	)		(1,439	)
		(18,530	)		(2,079	)		(18,439	)		(4,565	)
Interest charges (credits):
Interest on long-term debt and financing obligations		11,434			12,306			23,417			24,979
Other interest		105			139			227			287
Interest capitalized and AFUDC		(1,303	)		(821	)		(2,389	)		(1,591	)
		10,236			11,624			21,255			23,675
Income (loss) before income taxes		(6,433	)		12,635			1,300			16,670
Income tax expense (benefit)		(2,471	)		4,936			505			6,057
Net income (loss)	$	(3,962	)	$	7,699		$	795		$	10,613
Basic earnings (losses) per share	$	(0.08	)	$	0.16		$	0.02		$	0.22
Diluted earnings (losses) per share	$	(0.08	)	$	0.16		$	0.02		$	0.22
Weighted average number of shares outstanding		47,703,969			47,500,257			47,555,444			47,475,778
Weighted average number of shares and dilutive potential shares outstanding		47,703,969			47,966,465			47,978,035			47,933,383

See accompanying notes to consolidated financial statements.

3

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands except for share data)

	Twelve Months Ended June 30,
	2005			2004
Operating revenues	$	719,055		$	692,436
Energy expenses:
Fuel		208,626			181,968
Purchased and interchanged power		62,798			63,555
		271,424			245,523
Operating revenues net of energy expenses		447,631			446,913
Other operating expenses:
Other operations		176,263			168,021
Impairment loss on CIS project		—			17,576
Maintenance		47,302			37,430
Depreciation and amortization		94,371			90,710
Taxes other than income taxes		40,540			43,121
		358,476			356,858
Operating income		89,155			90,055
Other income (deductions):
Investment and interest income, net		4,630			2,025
Loss on extinguishments of debt		(20,936	)		(3,838	)
Miscellaneous other income		849			614
Miscellaneous other deductions		(2,645	)		(2,615	)
		(18,102	)		(3,814	)
Interest charges (credits):
Interest on long-term debt and financing obligations		47,606			50,488
Other interest		475			793
Interest capitalized and AFUDC		(4,225	)		(4,498	)
		43,856			46,783
Income before income taxes and extraordinary item		27,197			39,458
Income tax expense		3,646			15,488
Income before extraordinary item		23,551			23,970
Extraordinary gain on re-application of SFAS No. 71, net of tax		1,802			—
Net income	$	25,353		$	23,970
Basic earnings per share:
Income before extraordinary item	$	0.49		$	0.50
Extraordinary gain on re-application of SFAS No. 71, net of tax		0.04			—
Net income	$	0.53		$	0.50
Diluted earnings per share:
Income before extraordinary item	$	0.49		$	0.50
Extraordinary gain on re-application of SFAS No. 71, net of tax		0.04			—
Net income	$	0.53		$	0.50
Weighted average number of shares outstanding		47,466,183			47,677,134
Weighted average number of shares and dilutive potential shares outstanding		48,037,571			48,123,497

See accompanying notes to consolidated financial statements.

4

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)

(In thousands)

	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
	2005			2004			2005			2004			2005			2004
Net income (loss)	$	(3,962	)	$	7,699		$	795		$	10,613		$	25,353		$	23,970
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		57			(1,066	)		(1,913	)		(779	)		(783	)		3,848
Reclassification adjustments for net (gains) losses included in net income		64			(115	)		155			(348	)		78			(422	)
Net unrealized losses on cash flow hedges:
Net holding losses arising during period		(19,536	)		—			(22,439	)		—			(22,439	)		—
Reclassification adjustment for interest expense included in net income		20			—			20			—			20			—
Total other comprehensive loss before income taxes		(19,395	)		(1,181	)		(24,177	)		(1,127	)		(24,537	)		(808	)
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		(24	)		236			352			225			142			(165	)
Net unrealized losses on cash flow hedges		7,352			—			8,445			—			8,445			—
Total income tax benefit		7,328			236			8,797			225			9,119			1,508
Other comprehensive income (loss), net of tax		(12,067	)		(945	)		(15,380	)		(902	)		(15,418	)		700
Comprehensive income (loss)	$	(16,029	)	$	6,754		$	(14,585	)	$	9,711		$	9,935		$	24,670

See accompanying notes to consolidated financial statements.

5

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended June 30,
	2005			2004
Cash flows from operating activities:
Net income	$	795		$	10,613
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of electric plant in service		47,425			46,426
Amortization of nuclear fuel		7,996			8,193
Deferred income taxes, net		1,783			(1,084	)
Loss on extinguishments of debt		19,418			3,838
Other amortization and accretion		5,757			4,456
Gain on sale of asset		(373	)		—
Other operating activities		—			1
Change in:
Accounts receivable		(8,212	)		(4,847	)
Inventories		98			71
Net (under)/overcollection of fuel revenues		(18,081	)		(8,411	)
Prepayments and other		(4,541	)		(3,573	)
Accounts payable		(4,370	)		11,104
Taxes accrued other than federal income taxes		(3,378	)		(1,248	)
Interest accrued		(6,325	)		(618	)
Other current liabilities		(2,239	)		(1,963	)
Deferred charges and credits		(5,189	)		4,653
Net cash provided by operating activities		30,564			67,611
Cash flows from investing activities:
Cash additions to utility property, plant and equipment		(35,769	)		(30,010	)
Cash additions to nuclear fuel		(7,844	)		(7,602	)
Proceeds from sale of asset		1,944			—
Capitalized interest and AFUDC:
Utility property, plant and equipment		(2,207	)		(1,476	)
Nuclear fuel		(182	)		(115	)
Decommissioning trust funds:
Purchases, including funding of $3.1 million		(8,003	)		(9,392	)
Sales and maturities		4,054			5,272
Other investing activities		1,689			(1,755	)
Net cash used for investing activities		(46,318	)		(45,078	)
Cash flows from financing activities:
Proceeds from exercise of stock options		3,637			305
Repurchases of treasury stock		—			(746	)
Proceeds from issuance of long-term notes payable		397,688			—
Repurchases of and payments on first mortgage bonds		(381,847	)		(29,067	)
Settlement on derivative instruments classified as cash flow hedges		(22,439	)		—
Financing obligations:
Proceeds		14,063			8,198
Payments		(9,291	)		(8,465	)
Other financing activities		(5,498	)		(256	)
Net cash used for financing activities		(3,687	)		(30,031	)
Net decrease in cash and temporary investments		(19,441	)		(7,498	)
Cash and temporary investments at beginning of period		29,401			34,426
Cash and temporary investments at end of period	$	9,960		$	26,928

See accompanying notes to consolidated financial statements.

6

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 June 30, 2005 and December 31, 2004; the results of its operations and comprehensive operations for the three, six and twelve months ended June 30, 2005 and 2004; and its cash flows for the six months ended June 30, 2005 and 2004. The results of operations and comprehensive operations for the three and six months ended June 30, 2005 and the cash flows for the six months ended June 30, 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):

	Three Months Ended June 30,					Six Months Ended June 30,
	2005			2004		2005		2004
Net income (loss), as reported	$	(3,962	)	$	7,699	$	795	$	10,613
Deduct: Compensation expense, net of tax		202			229		425		458
Pro forma net income	$	(4,164	)	$	7,470	$	370	$	10,155
Basic earnings (losses) per share:
As reported	$	(0.08	)	$	0.16	$	0.02	$	0.22
Pro forma		(0.09	)		0.16		0.01		0.21
Diluted earnings (losses) per share:
As reported		(0.08	)		0.16		0.02		0.22
Pro forma		(0.09	)		0.16		0.01		0.21

7

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Twelve Months Ended June 30,
	2005		2004
Net income, as reported	$	25,353	$	23,970
Deduct: Compensation expense, net of tax		879		916
Pro forma net income	$	24,474	$	23,054
Basic earnings per share:
As reported	$	0.53	$	0.50
Pro forma		0.52		0.48
Diluted earnings per share:
As reported		0.53		0.50
Pro forma		0.51		0.48

Unbilled Revenues. Accounts receivable include accrued unbilled revenues of $19.4 million and $18.0 million at June 30, 2005 and December 31, 2004, respectively.

Supplemental Cash Flow Disclosures (in thousands)

	Six Months Ended June 30,
	2005		2004
Cash paid for:
Interest on long-term debt and financing obligations	$	29,004	$	25,001
Income taxes		1,195		7,150
Non-cash financing activities:
Grants of restricted shares of common stock		1,984		776

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 (“City”). 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.

8

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Extension of Rate Freeze and Franchise Agreement. On July 21, 2005, the Company entered into an agreement with the City to extend its existing freeze period for an additional five years expiring June 30, 2010. Under the new rate agreement which became effective as of July 1, 2005, most retail base rates will remain at their current level for the next five years. If, during the term of the agreement, the Company’s return on equity falls below the bottom of a defined range, the Company has the right to initiate a rate case and seek an adjustment to base rates. If the Company’s return on equity exceeds the top of the range, the Company will refund, at the City’s direction, an amount equal to 50% of the pre-tax return in excess of the ceiling. The range is market-based, and at current rates, would be a range of approximately 8% to 12%.

In addition, the Company will share with its Texas customers 25% of off-system sales margins and wheeling revenues. Under the prior rate agreement, the Company shared 50% of off-system sales margins and wheeling revenues with Texas customers. The Company has committed to spend at least 0.3% of its El Paso revenues on civic and charitable causes within the City. The Company and the City have agreed to engage the services of an independent consultant to review the reasonableness of certain operating expenses of the Company. If the consultant finds such expenses to be unreasonable, the parties will seek to negotiate an appropriate remedy. If the parties are unable to agree on a remedy, the agreement will terminate at the end of one year, and thereafter the Company would be subject to traditional rate regulation by the Texas cities it serves and by the Texas Commission. Consistent with the prior rate agreement, the new rate agreement may also be reopened by the City in the event of a merger or change in control of the Company to urge rate reductions based on post-merger synergy savings.

Since the agreement requires a variance to the substantive rules of the Texas Commission regarding the sharing of margins, the Company will seek Texas Commission approval of the margin sharing provisions of the agreement. If the Texas Commission does not approve the margin sharing, the Company and the City have agreed to negotiate in good faith to amend the rate agreement to achieve a similar economic result to the parties. The Company is unable to predict when or if the Texas Commission will approve such provisions.

On July 21, 2005, the Company also entered into a new franchise with the City. The franchise governs the Company’s usage of City-owned property, including the payment of franchise fees.

Under the terms of the new franchise agreement which became effective August 2, 2005, the City granted to the Company a new 25-year franchise. The franchise fee payable to the City will increase from 2% to 3.25% of revenues from customers within the City, and, subject to regulatory approvals, the Company will agree to construct its next power generating plant within the city limits of El Paso. The agreement further provides that the franchise cannot be assigned by the Company to a third party without the consent of the City.

Fuel. Although the Company’s base rates are frozen in Texas, pursuant to Texas Commission rules and the Texas Rate Stipulation, the Company’s fuel costs are passed through to its customers. The Company can request adjustments to its fuel factor to more accurately reflect projected energy costs

9

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 purchased power costs. This proceeding has been scheduled for hearing in October 2005. 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 June 30, 2005 is appropriate.

Substantial increases in the cost of natural gas and outages at Palo Verde during the second quarter of 2005 have led to under recovery of the Company’s Texas jurisdictional portion of the cost of the Company’s fuel by $34 million for the period from March 2004 to June 2005. On July 8, 2005, the Company filed a petition with the Texas Commission to increase its composite fuel factor from $0.02494 to $0.03056 per kWh. As part of that same petition, the Company also requested a 12-month surcharge of $28.2 million to address the undercollection of its fuel costs through the end of May 2005.

10

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 second 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 June 30,
	2005							2004
	Income			Shares	Per Share			Income		Shares	Per Share
	(In thousands)							(In thousands)
Basic earnings per share:
Net income (loss)	$	(3,962	)	47,703,969	$	(0.08	)	$	7,699	47,500,257	$	0.16
Effect of dilutive securities:
Unvested restricted stock		—		—					—	17,505
Stock options		—		—					—	448,703
Diluted earnings per share:
Net income (loss)	$	(3,962	)	47,703,969	$	(0.08	)	$	7,699	47,966,465	$	0.16

	Six Months Ended June 30,
	2005					2004
	Income		Shares	Per Share		Income		Shares	Per Share
	(In thousands)					(In thousands)
Basic earnings per share:
Net income	$	795	47,555,444	$	0.02	$	10,613	47,475,778	$	0.22
Effect of dilutive securities:
Unvested restricted stock		—	68,462				—	20,431
Stock options		—	354,129				—	437,174
Diluted earnings per share:
Net income	$	795	47,978,035	$	0.02	$	10,613	47,933,383	$	0.22

11

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Twelve Months Ended June 30,
	2005					2004
	Income		Shares	Per Share		Income		Shares	Per Share
	(In thousands)					(In thousands)
Basic earnings per share:
Income before extraordinary item	$	23,551	47,466,183	$	0.49	$	23,970	47,677,134	$	0.50
Effect of dilutive securities:
Unvested restricted stock		—	104,935				—	50,111
Stock options		—	466,453				—	396,252
Diluted earnings per share:
Income before extraordinary item	$	23,551	48,037,571	$	0.49	$	23,970	48,123,497	$	0.50

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 June 30,		Six Months Ended June 30,		Twelve Months Ended June 30,
	2005	2004	2005	2004	2005	2004
Options excluded	—	154,449	—	356,597	546	686,054
Exercise price range	—	$14.50 - $15.99	—	$13.77 - $15.99	$15.65 - $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 greenhouse gas emissions, the Company’s fossil fuel generation assets will be faced with the additional cost of monitoring, controlling and reporting these emissions, although, given the Company’s significant nuclear and gas fired portfolio, the Company does not believe

12

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

such regulations would impose greater burdens on the Company than on most other electric utilities. In addition, unauthorized releases of pollutants or contaminants into the environment can result in costly cleanup obligations that are subject to enforcement by 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 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 $1.2 million as of June 30, 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, six and twelve months ended June 30, 2005 and 2004 to comply with federal environmental statutes (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,				Twelve Months Ended June 30,
	2005		2004		2005		2004		2005		2004
Clean Air Act	$	269	$	424	$	575	$	654	$	887	$	1,156
Clean Water Act (1)		237		130		336		356		1,186		623

(1) Includes $0.6 million in remediation costs for the twelve months ended June 30, 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

13

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

material liability it would face pursuant to the Comprehensive Environmental Response, Comprehensive Liability Act of 1980, also known as the Superfund law.

Tax Matters

The Company’s federal income tax returns for the years 1999 through 2002 have been examined by the IRS. On May 9, 2005, the Company received the IRS notice of proposed deficiency. The primary audit adjustments proposed by the IRS related to (i) whether the Company was entitled to deduct payments related to the repair of the Palo Verde Unit 2 steam generators and (ii) whether the Company was entitled to deduct payments related to the dry cask storage facilities for spent nuclear fuel. The Company has protested the audit adjustments through administrative appeals and believes that its treatment of the payments is supported by substantial legal authority. In the event that the IRS prevails, the resulting income tax and interest payments could be material to the Company’s cash flows. The Company believes that the audit adjustments can be resolved through administrative appeals and that adequate provision has been made through June 30, 2005, for any additional tax that may be due.

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

14

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. While the Company believes the lawsuit is without merit, the parties have reached a settlement to resolve this case. The parties filed a Stipulation of Settlement with the Court on June 2, 2005 which the Court preliminarily approved on June 17, 2005. This settlement remains subject to final approval by the Court, and 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 antitrust 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 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.

15

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

F. Employee Benefits

Retirement Plans

The net periodic benefit cost recognized for the three, six and twelve months ended June 30, 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 June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Components of net periodic benefit cost:
Service cost	$	1,349		$	1,113		$	2,582		$	2,226
Interest cost		2,680			2,522			5,316			5,044
Expected return on plan assets		(2,503	)		(1,927	)		(4,718	)		(3,854	)
Amortization of:
Net loss		1,048			843			2,097			1,686
Prior service cost		29			5			58			10
Net periodic benefit cost	$	2,603		$	2,556		$	5,335		$	5,112

	Twelve Months Ended June 30,
	2005			2004
Components of net periodic benefit cost:
Service cost	$	4,677		$	4,132
Interest cost		10,276			9,848
Expected return on plan assets		(8,502	)		(7,622	)
Amortization of:
Net loss		3,628			2,554
Prior service cost		139			21
Net periodic benefit cost	$	10,218		$	8,933

During the six months ended June 30, 2005, the Company contributed $10.2 million of its projected $18.5 million 2005 annual contribution to its retirement plans.

16

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other Postretirement Benefits

The net periodic benefit cost recognized for the three, six and twelve months ended June 30, 2005 and 2004 is made up of the components listed below (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Components of net periodic benefit cost:
Service cost	$	1,276		$	1,159		$	2,374		$	2,318
Interest cost		1,636			1,756			3,334			3,512
Expected return on plan assets		(352	)		(315	)		(691	)		(630	)
Amortization of:
Net gain		—			—			—			—
Prior service cost		(115	)		—			(178	)		—
Net periodic benefit cost	$	2,445		$	2,600		$	4,839		$	5,200

	Twelve Months Ended June 30,
	2005			2004
Components of net periodic benefit cost:
Service cost	$	3,913		$	4,275
Interest cost		5,719			6,746
Expected return on plan assets		(1,295	)		(1,140	)
Amortization of:
Net gain		(387	)		—
Prior service cost		(366	)		—
Net periodic benefit cost	$	7,584		$	9,881

During the six months ended June 30, 2005, the Company contributed $1.7 million of its projected $3.4 million 2005 annual contribution to its postretirement plan.

17

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

G. Franchises and Significant Customers

City of El Paso Franchise

On July 21, 2005, the Company entered into a new 25-year franchise with the City which became effective August 2, 2005. The franchise fee payable to the City will increase from 2% to 3.25% of revenues from customers within the City, and, subject to regulatory approvals, the Company will agree to construct its next power generating plant within the city limits of the City. The franchise agreement provides that the franchise cannot be assigned by the Company to a third party without the consent of the City.

Military Installations

The Company’s retail service contract with Holloman Air Force Base expires 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. Long-Term Debt

The Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission which became effective in May 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.

In May 2005, the Company 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 were callable by the Company beginning on February 1, 2006 (collectively, the “Bonds”). The total outstanding principal amount of the Bonds subject to the offer was approximately $359.4 million. On June 3, 2005, the Company completed the cash tender offer, and paid approximately $289.9 million for principal, premium and accrued and unpaid interest for all Bonds tendered and accepted for payment. On June 7, 2005, the Company exercised its right to defease all Bonds which were not tendered by the expiration date of the tender offer by depositing approximately $95.7 million with a trustee for payment of principal, premium and accrued interest through February 1, 2006. As a result of the cash tender offer and legal defeasance, the Company has concluded that the liabilities associated with the Bonds have been extinguished in accordance with SFAS No. 140, “Accounting for Transfers and Services of Financial Assets and Extinguishments of Liabilities.”

In May 2005, the Company issued $400.0 million aggregate principal amount of its 6% Senior Notes due May 15, 2035 (the “Notes”) under its shelf registration statement. The proceeds from the issuance of the Notes of $397.7 million (net of $2.3 million discount) were used to fund the retirement of the Bonds.

18

EL PASO ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 pending the issuance of the Notes. These treasury rate locks were terminated on May 11, 2005. The treasury rate lock agreements meet the criteria for hedge accounting and are designated as a cash flow hedge. In accordance with cash flow hedge accounting, the Company recorded the fair value of the cash flow hedge of approximately $14.0 million, net of tax, as a component of accumulated other comprehensive loss. In May 2005, the Company began to recognize in earnings the accumulated other comprehensive loss associated with the cash flow hedge as interest expense is accrued on the Notes.

I. Subsequent Event

On August 1, 2005, the Company issued three series of pollution control bonds in the amounts of $63.5 million, $59.2 million and $37.1 million. The $59.2 million bonds were issued with a fixed interest rate of 4.80% until maturity in 2040. The $63.5 million and $37.1 million bonds were issued with a variable rate that is repriced weekly until they mature in 2040. The Company also remarketed the $33.3 million pollution control bonds which bear a fixed interest rate of 4% until August 1, 2012 which is the date the bonds are due to be remarketed. The issuance and remarketing replaces four series of bonds which were subject to mandatory tender or remarketing as of August 1, 2005. As a result, the bonds which were outstanding as of June 30, 2005 are presented as non-current in the consolidated balance sheet as of June 30, 2005.

19

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 June 30, 2005, the related condensed consolidated statements of operations and comprehensive operations for the three-month, six-month, and twelve-month periods ended June 30, 2005 and 2004, and the related condensed consolidated statements of cash flows for the six-month periods ended June 30, 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

August 5, 2005

20

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 our 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 we “believe”, “anticipate”, “target”, “expect”, “pro forma”, “estimate”, “intend” and words of similar meaning. Forward-looking statements describe our future plans, objectives, expectations or goals. Such statements address future events and conditions concerning and include, but are not limited to such things as:

• 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 our service area.

These forward-looking statements involve known and unknown risks that may cause our 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:

• our rates following the end of the Texas freeze period ending August 1, 2010 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,

21

• political, legislative, judicial and regulatory developments,

• the impact of lawsuits filed against us,

• the impact of changes in interest rates,

• 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 our 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 we are 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 our 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 our financial condition and results of operations and require complex, subjective judgments and are more fully described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2004 Form 10-K.

Overview

We derive revenue principally from the sale of power to retail customers and economy sales as follows:

	Three Months Ended June 30,				Six Months Ended June 30,				Twelve Months Ended June 30,
	2005		2004		2005		2004		2005		2004
Retail sales	92	%	88	%	87	%	87	%	87	%	88	%
Economy sales	6		10		11		11		11		11

Revenues from the sale of electricity include fuel costs, which are passed through directly to customers, and base revenues. Base revenues refers to our revenues from the sale of electricity excluding such fuel costs. Economy sales are wholesale sales into markets outside our service territory.

22

Our retail base revenues percentages by customer class are presented below:

	Three Months Ended June 30,				Six Months Ended June 30,				Twelve Months Ended June 30,
	2005		2004		2005		2004		2005		2004
Residential	37	%	36	%	38	%	38	%	39	%	38	%
Commercial and industrial, small	37		38		37		36		36		36
Commercial and industrial, large	9		10		9		10		9		10
Sales to public authorities	17		16		16		16		16		16
Total base revenues	100	%	100	%	100	%	100	%	100	%	100	%

No retail customer accounted for more than 2% of our 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 our available net generating capacity and approximately 42%, 49% and 49% of our available energy for the three, six and twelve months ended June 30, 2005, respectively, is subject to performance standards in Texas. If such performance standards are not met, we are 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 June 30,					Six Months Ended June 30,
	2005			2004		2005		2004
Net income (loss) (in thousands)	$	(3,962	)	$	7,699	$	795	$	10,613
Diluted earnings (losses) per share		(0.08	)		0.16		0.02		0.22

	Twelve Months Ended June 30,
	2005		2004
Income before extraordinary item (in thousands)	$	23,551	$	23,970
Diluted earnings per share before extraordinary item		0.49		0.50

Net income for the three months ended June 30, 2005 decreased $11.7 million or $0.24 diluted earnings per share, compared to the results for the same period a year ago. This after-tax decrease resulted primarily from (i) the increased loss on extinguishments of debt of $11.0 million which is largely related to the retirement of our outstanding first mortgage bonds in the current quarter; (ii) a $1.3 million 2005 increase in Palo Verde operating and maintenance expenses; (iii) increased 2005 non-Palo Verde maintenance expenses of $1.0 million; and (iv) decreased 2005 economy sales margins of $0.8 million. These decreases were partially offset by the following items, which are presented on an after-tax basis: (i) increased 2005 retail base revenues of $1.2 million; (ii) decreased 2005 taxes other than income taxes of $0.6 million; (iii) decreased 2005 interest charges on long-term debt of $0.5 million; and (iv) increased 2005 investment and interest income of $0.4 million.

23

Net income for the six months ended June 30, 2005 decreased by $9.8 million or $0.20 diluted earnings per share, compared to the results for the same period a year ago. This after-tax decrease resulted primarily from (i) the increased loss on extinguishments of debt of $9.7 million which is largely related to the retirement of our outstanding first mortgage bonds in the current period; (ii) a $1.3 million 2005 increase in Palo Verde operating and maintenance expenses; (iii) increased 2005 non-Palo Verde maintenance expenses of $1.1 million; (iv) a 2005 decrease of $1.0 million in retail base revenues; and (v) increased 2005 pension and benefits expense of $0.8 million. These decreases were partially offset by the following items, which are presented on an after-tax basis: (i) a $1.3 million 2005 decrease in taxes other than income taxes; (ii) decreased 2005 interest charges on long-term debt of $1.0 million; (iii) a $0.8 million 2005 increase in investment and interest income; (iv) decreased 2005 insurance related expenses of $0.7 million; and (v) increased 2005 economy sales margins of $0.7 million.

Income before the extraordinary item for the twelve months ended June 30, 2005 decreased by $0.4 million or $0.01 diluted earnings per share, compared to the results for the same period a year ago. This after-tax decrease resulted primarily from (i) the increased loss on extinguishments of debt of $10.6 million which is largely related to the retirement of our outstanding first mortgage bonds in the current period; (ii) a $4.3 million 2005 increase in Palo Verde operating and maintenance expenses; (iii) increased 2005 non-Palo Verde maintenance expenses of $3.7 million; (iv) increased 2005 pension and benefits expense of $3.4 million; (v) decreased 2005 retail base revenues of $3.2 million; and (vi) increased 2005 depreciation expense of $2.3 million. These decreases were partially offset by the following items, which are presented on an after-tax basis: (i) the 2003 impairment loss on the CIS project of $10.7 million with no comparable amount 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) decreased 2005 interest charges on long-term debt of $1.8 million; (v) increased 2005 investment and interest income of $1.6 million; (vi) decreased 2005 taxes other than income taxes of $1.6 million; (vii) decreased 2005 insurance related expenses of $1.3 million; and (viii) increased 2005 economy sales margin of $1.0 million.

Operating revenues net of energy expenses increased $0.4 million for the three months ended June 30, 2005 compared to the same period last year primarily due to increased retail base revenues of $1.9 million. This increase was partially offset by decreased economy sales of $1.3 million.

Operating revenues net of energy expenses decreased $0.1 million for the six months ended June 30, 2005 compared to the same period last year primarily due to decreased retail base revenues of $1.6 million. This decrease was partially offset by increased economy sales of $1.1 million primarily due to higher prices.

Operating revenues net of energy expenses increased $0.7 million for the twelve months ended June 30, 2005 compared to the previous period primarily due to (i) the Texas fuel disallowance of $4.5 million recorded in the prior period with no comparable amount in the current period; (ii) increased 2005 economy sales of $1.6 million primarily due to higher prices; and (iii) $1.8 million expense related to fuel settlement agreements primarily with Enron North America Corporation 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 $5.2 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.

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

	2005		2004		Increase (Decrease)
Quarter Ended June 30:					Amount			Percent
kWh sales:
Retail:
Residential		486,420		468,486		17,934		3.8	%
Commercial and industrial, small		553,977		556,515		(2,538	)	(0.5	)
Commercial and industrial, large		307,020		315,445		(8,425	)	(2.7	)
Sales to public authorities		335,442		323,768		11,674		3.6
Total retail sales		1,682,859		1,664,214		18,645		1.1
Wholesale:
Sales for resale		13,051		13,486		(435	)	(3.2	)
Economy sales		246,031		431,354		(185,323	)	(43.0	)(1)
Total wholesale sales		259,082		444,840		(185,758	)	(41.8	)
Total kWh sales		1,941,941		2,109,054		(167,113	)	(7.9	)
Operating revenues:
Base revenues:
Retail:
Residential	$	43,462	$	41,981	$	1,481		3.5	%
Commercial and industrial, small		43,570		43,346		224		0.5
Commercial and industrial, large		10,836		11,013		(177	)	(1.6	)
Sales to public authorities		19,399		19,045		354		1.9
Total retail base revenues		117,267		115,385		1,882		1.6
Wholesale:
Sales for resale		507		520		(13	)	(2.5	)
Total base revenues		117,774		115,905		1,869		1.6
Fuel revenues		56,743		45,070		11,673		25.9	(2)
Economy sales		11,674		18,527		(6,853	)	(37.0	)(3)
Other		3,109		2,704		405		15.0	(4)(5)
Total operating revenues	$	189,300	$	182,206	$	7,094		3.9

(1) Primarily due to decreased available power.

(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.

(3) Primarily due to decreased available power offset in part by higher prices.

(4) Primarily due to increased transmission revenues.

(5) Represents revenues with no related kWh sales.

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	2005		2004		Increase (Decrease)
Six Months Ended June 30:					Amount			Percent
kWh sales:
Retail:
Residential		935,884		936,803		(919	)	(0.1	)%
Commercial and industrial, small		989,467		1,011,363		(21,896	)	(2.2	)
Commercial and industrial, large		574,860		618,835		(43,975	)	(7.1	)
Sales to public authorities		603,488		602,672		816		0.1
Total retail sales		3,103,699		3,169,673		(65,974	)	(2.1	)
Wholesale:
Sales for resale		21,216		22,753		(1,537	)	(6.8	)
Economy sales		833,142		917,974		(84,832	)	(9.2	)
Total wholesale sales		854,358		940,727		(86,369	)	(9.2	)
Total kWh sales		3,958,057		4,110,400		(152,343	)	(3.7	)
Operating revenues:
Base revenues:
Retail:
Residential	$	82,697	$	82,152	$	545		0.7	%
Commercial and industrial, small		78,934		79,447		(513	)	(0.6	)
Commercial and industrial, large		20,110		21,303		(1,193	)	(5.6	)
Sales to public authorities		35,136		35,603		(467	)	(1.3	)
Total retail base revenues		216,877		218,505		(1,628	)	(0.7	)
Wholesale:
Sales for resale		832		912		(80	)	(8.8	)
Total base revenues		217,709		219,417		(1,708	)	(0.8	)
Fuel revenues		86,271		76,344		9,927		13.0	(1)
Economy sales		38,384		37,491		893		2.4
Other		6,121		4,806		1,315		27.4	(2)(3)
Total operating revenues	$	348,485	$	338,058	$	10,427		3.1

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

(2) Primarily due to increased transmission revenues.

(3) Represents revenues with no related kWh sales.

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	2005		2004		Increase (Decrease)
Twelve Months Ended June 30:					Amount			Percent
kWh sales:
Retail:
Residential		1,985,166		1,990,524		(5,358	)	(0.3	)%
Commercial and industrial, small		2,093,926		2,135,519		(41,593	)	(1.9	)
Commercial and industrial, large		1,192,451		1,249,374		(56,923	)	(4.6	)
Sales to public authorities		1,243,819		1,253,573		(9,754	)	(0.8	)
Total retail sales		6,515,362		6,628,990		(113,628	)	(1.7	)
Wholesale:
Sales for resale		39,557		51,301		(11,744	)	(22.9	)(1)
Economy sales		1,753,635		1,805,272		(51,637	)	(2.9	)
Total wholesale sales		1,793,192		1,856,573		(63,381	)	(3.4	)
Total kWh sales		8,308,554		8,485,563		(177,009	)	(2.1	)
Operating revenues:
Base revenues:
Retail:
Residential	$	175,297	$	175,792	$	(495	)	(0.3	)%
Commercial and industrial, small		165,247		166,758		(1,511	)	(0.9	)
Commercial and industrial, large		41,957		43,687		(1,730	)	(4.0	)
Sales to public authorities		72,253		73,676		(1,423	)	(1.9	)
Total retail base revenues		454,754		459,913		(5,159	)	(1.1	)
Wholesale:
Sales for resale		1,595		2,188		(593	)	(27.1	)(1)
Total base revenues		456,349		462,101		(5,752	)	(1.2	)
Fuel revenues		170,979		147,138		23,841		16.2	(2)
Economy sales		79,426		73,357		6,069		8.3
Other		12,301		9,840		2,461		25.0	(3)(4)
Total operating revenues	$	719,055	$	692,436	$	26,619		3.8

(1) Primarily due to the expiration of a 2003 CFE wholesale power contract with no comparable contract in 2004.

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

(3) Primarily due to increased transmission revenues.

(4) Represents revenues with no related kWh sales.

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Other operations expense increased $2.3 million for the three months ended June 30, 2005 compared to the same period last year primarily due to (i) increased 2005 Palo Verde operations expense of $1.8 million; (ii) increased 2005 transmission and distribution expense of $0.8 million; and (iii) increased 2005 pension and benefits expense of $0.6 million (including a $0.8 million increase in employee bonuses). These increases were partially offset by (i) decreased 2005 insurance-related expenses of $0.5 million; (ii) decreased 2005 customer accounts expense of $0.4 million; and (iii) decreased 2005 regulatory expense of $0.4 million.

Other operations expense increased $2.7 million for the six months ended June 30, 2005 compared to the same period last year primarily due to (i) increased 2005 Palo Verde operations expense of $2.2 million; (ii) increased 2005 pensions and benefits expense of $1.4 million (including $1.3 million increase in employee bonuses); and (iii) increased 2005 transmission and distribution expense of $1.1 million. These increases were partially offset by a (i) decreased 2005 insurance related expenses of $1.2 million; and (ii) decreased 2005 outside services expense of $1.0 million.

Other operations expense increased $8.2 million for the twelve months ended June 30, 2005 compared to the same period last year primarily due to (i) increased 2005 pensions and benefits expense of $5.4 million (including $5.1 million increase in employee bonuses); (ii) increased 2005 Palo Verde operations expense of $4.2 million; (iii) increased 2005 transmission and distribution expenses of $1.9 million; and (iv) increased 2005 non-Palo Verde operations expense of $1.1 million. These increases were partially offset by (i) decreased 2005 insurance related expenses of $2.2 million; (ii) decreased 2005 customer accounts expense of $1.5 million; and (iii) decreased 2005 outside services expense of $1.1 million.

We abandoned a CIS project and recognized an asset impairment loss of $17.6 million in September 2003. We are now analyzing various options to meet our current and projected CIS needs.

Maintenance expense increased $2.4 million for the three months ended June 30, 2005 compared to the same period last year primarily due to (i) increased 2005 non-Palo Verde maintenance expense of $1.5 million and (ii) increased 2005 Palo Verde maintenance expense of $0.3 million.

Maintenance expense increased $2.1 million for the six months ended June 30, 2005 compared to the same period last year primarily due to an increased 2005 non-Palo Verde maintenance expense of $1.9 million.

Maintenance expense increased $9.9 million for the twelve months ended June 30, 2005 compared to the same period last year primarily due to (i) increased 2005 non-Palo Verde maintenance expense of $6.0 million due to scheduled major overhauls at Newman and (ii) increased 2005 Palo Verde maintenance expense of $2.7 million.

Depreciation and amortization expense increased $0.6 million, $1.0 million and $3.7 million for the three, six and twelve months ended June 30, 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 $0.9 million, $2.0 million and $2.6 million for the three, six and twelve months ended June 30, 2005, respectively, compared to the same periods last year.

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The decrease was primarily due to a decrease in property tax compared to the prior period and a June 2004 change in New Mexico law which changed the way the occupation street rental tax was recorded.

Other income (deductions) decreased $16.5 million, $13.9 million and $14.3 million for the three, six and twelve months ended June 30, 2005, respectively, compared to the same periods last year. The decrease was primarily due to an increase in the loss on extinguishments of debt of $17.7 million, $15.6 million and $17.1 million for the three, six and twelve month periods, respectively, as a result of our retirement of our first mortgage bonds in the second quarter of 2005.

Interest charges (credits) decreased $1.4 million, $2.4 million and $2.9 million for the three, six and twelve months ended June 30, 2005, respectively, compared to the same period last year. The decrease was primarily due to a $0.9 million, a $1.6 million and a $2.9 million decrease for the three, six and twelve month periods, respectively, resulting from the repurchase and retirement of our first mortgage bonds and the May 2005 issuance of unsecured senior notes at a lower interest rate than the first mortgage bonds. The decrease was also due to capitalized interest of $0.5 million and $0.8 million for the three and six month periods, respectively, due to an increase in construction work in progress expenditures related to Palo Verde Units 1 and 3 steam generators.

Income tax expense decreased $7.4 million and $5.6 million, respectively, for the three and six months ended June 30, 2005 compared to the same periods 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 $11.8 million for the twelve months ended June 30, 2005 compared to the same period last year, primarily due to the $6.2 million benefit for the IRS settlement and for changes in pretax income and certain permanent differences.

Extraordinary gain on re-application of SFAS No. 71 relates to our third quarter 2004 determination that we met the criteria necessary to re-apply SFAS No. 71 to our New Mexico jurisdiction. The decision was based on receiving the New Mexico Commission’s approval for new rates that were based upon our cost of service and the fact that New Mexico had repealed its electric utility restructuring law. The re-application of SFAS No. 71 to our 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

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disclosure under SFAS No. 123. We have not yet completed the analysis of the ultimate impact that this new pronouncement will have on our financial statements but do 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,” 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 December 15, 2005. We are evaluating the impact of FIN 47 on our consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20, and FASB Statement No. 3.” SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in contractual bonus payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this statement is issued. We will adopt the provisions of SFAS No. 154, if applicable, beginning in 2006.

Liquidity and Capital Resources

Our principal liquidity requirements in the near-term are expected to consist of the interest payments on our indebtedness, operating and capital expenditures related to our generating facilities and transmission and distribution systems, and income and other taxes. Additionally, increasing gas prices have resulted in substantial under collections of fuel costs in our Texas jurisdiction, which we must fund until we are permitted to increase our fuel factor. We expect that cash flows from operations will be sufficient for such purposes. As of June 30, 2005, we had approximately $10.0 million in cash and cash equivalents, a decrease of $19.4 million from the balance of $29.4 million on December 31, 2004.

We filed a shelf registration statement on Form S-3 with the SEC which became effective on May 5, 2005. The shelf registration statement enables us 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 19, 2005, pursuant to this shelf registration, we issued $400.0 million of 6% Senior Notes (the “Notes”) due May 15, 2035. The proceeds from the issuance of the Notes were $397.7 million net of a $2.3 million discount. In anticipation of issuing the Notes, we entered into treasury rate lock agreements to hedge against potential movements in the treasury reference interest rates. These treasury rate locks expired during the second quarter of 2005. Treasury rates fell after we

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entered into these agreements, and as a result, we made a cash payment of $22.4 million at the termination of these agreements in May 2005.

During the second quarter of 2005, we retired our outstanding 8.90% Series D First Mortgage Bonds due February 1, 2006 and our 9.40% Series E First Mortgage Bonds due May 1, 2011, which were callable by us beginning on February 1, 2006 (collectively, the “Bonds”). The total principal amount of the outstanding Bonds was approximately $359.4 million. The net proceeds from the issuance of the Notes were used to fund the retirement of the Bonds.

In addition to the contractual obligations disclosed in our 2004 Form 10-K, we have contractual obligations related to the Notes of $12.0 million for 2005, $48.0 million for 2006 and 2007, $48.0 million for 2008 and 2009 and $1.0 billion for 2010 and later. As discussed above, the contractual obligation associated with the first mortgage bonds as of December 31, 2004 have been eliminated because the related bonds were retired.

On August 1, 2005, we issued three series of pollution control bonds in the amounts of $63.5 million, $59.2 million and $37.1 million. The $59.2 million bonds were issued with a fixed interest rate of 4.80% until maturity in 2040. The $63.5 million and $37.1 million bonds were issued with a variable rate that is repriced weekly until they mature in 2040. We also remarketed the $33.3 million pollution control bonds, which bear a fixed interest rate of 4.00% until August 1, 2012, which is the date the bonds are due to be remarketed. The issuance and remarketing replaces four series of bonds which were subject to mandatory tender or remarketing as of August 1, 2005.

Our long-term capital requirements will consist primarily of construction of electric utility plant and the payment of interest on 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. Replacement power costs expected to be incurred during the replacement of Palo Verde steam generators are not included in construction costs. Studies indicate that we will need additional supply-side and demand-side resources to meet increasing load requirements on our system. As a result, we are currently evaluating various alternatives to meet our load requirements, including continuing to operate certain non-nuclear generation facilities beyond the assumed date of retirement.

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Our estimated cash construction costs for 2005 through 2008 are approximately $498 million. Actual costs may vary from the construction program estimates shown below. Such estimates do not reflect the impact, if any, of the alternatives to new construction discussed above, and 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 June 30, 2005 and 2004, we utilized $35.9 million and $2.5 million, respectively, of regular federal tax loss carryforwards. The significant reduction in federal tax loss carryforwards during the twelve months ended June 30, 2005 was primarily related to the IRS settlement. We anticipate that existing federal tax loss carryforwards will be fully utilized in 2005 and our cash flow requirements are expected to include greater amounts of cash for income taxes than has existed in recent years.

We continually evaluate our funding requirements related to our retirement plans, other postretirement benefit plans, and decommissioning trust funds. To date, we have contributed $10.2 million of the projected $18.5 million 2005 annual contribution to our retirement plans. We have also contributed $1.7 million of the projected $3.4 million 2005 annual contribution to our postretirement benefit plan and $3.1 million of the projected $6.2 million 2005 annual contribution to our decommissioning trust funds.

The $100 million revolving credit facility provides up to $70 million for nuclear fuel purchases. Any amounts not borrowed by us for nuclear fuel purchases are available for use for working capital needs. As of June 30, 2005, approximately $41.0 million had been drawn for nuclear fuel purchases and $5.0 million was 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 our request.

Since the inception of the stock repurchase programs in 1999, we have repurchased a total of approximately 15.3 million shares of our common stock at an aggregate cost of $175.6 million, including commissions. No shares were repurchased during the second quarter of 2005. We may continue making purchases of our stock pursuant to our 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. Common stock equity as a

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percentage of capitalization, including current portion of long-term debt and financing obligations, was 45% as of June 30, 2005.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our 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. Our 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 49% of our available energy for the six months ended June 30, 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, our retail base rates in Texas are effectively capped through June 2010. As a result, we cannot raise our base rates in Texas in the event of increases in non-fuel costs or loss of revenue unless our return on equity falls below the bottom of a market-based defined range which is currently approximately 8%. Additionally, should retail competition occur, there may be competitive pressure on our rates which could reduce our profitability. We cannot assure that our 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.

Our Rate Agreement with El Paso Could Terminate Early

Under our rate agreement with El Paso, we agreed to engage the services of an independent consultant to review the reasonableness of certain operating expenses. If the consultant finds such expenses to be unreasonable, the parties will seek to negotiate an appropriate remedy. If the parties are unable to agree on a remedy, the Freeze Period would expire on June 30, 2006. If that were to occur, we would be subject to traditional rate regulation by the City with appellate review by the Texas Commission beginning July 1, 2006. In such event, there can be no assurance that we would be able to maintain our Texas rates thereafter. In addition, the early termination of the Freeze Period may mean that

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we would no longer be entitled to retain 75% of our margins from off-system sales. If litigated rate 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.

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

In general, by law, we are entitled to pass through our prudently incurred fuel and purchased power expenses to our customers. Nevertheless, we agreed in 2004 to a fixed fuel factor for ten percent of the kilowatt-hours of our retail customers in New Mexico pursuant to a base rate freeze that expires in 2007. This agreement also allows us to price a portion of power from Palo Verde Unit 3 at market prices which tend to track gas prices. To the extent that this indirect “hedge” does not perfectly track our costs, 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, we record 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 we are allowed to collect 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 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 our operations in New Mexico will remain fully regulated. On October 13, 2004, the Texas Commission approved a rule delaying retail competition in our 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 our 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.

34

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk due to changes in interest rates, equity prices and commodity prices. See our 2004 Form 10-K, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” for a complete discussion of the market risks we face and our market risk sensitive assets and liabilities. As of June 30, 2005, there have been no material changes in the market risks we faced or the fair values of assets and liabilities disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our 2004 Form 10-K, except as discussed below.

During the first quarter of 2005, we entered into treasury rate lock agreements to hedge against potential movements in the treasury reference interest rates pending the issuance of the Notes. These treasury rate locks expired during the second quarter of 2005. The treasury rate lock agreements meet the criteria for hedge accounting and are designated as a cash flow hedge. In accordance with cash flow hedge accounting, we recorded the fair value of the cash flow hedge at June 30, 2005 of $14.0 million, net of tax, as a component of accumulated other comprehensive loss. In May 2005, we began recognizing the accumulated other comprehensive loss in earnings over the life of the related debt obligation.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. During the period covered by this report, our 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 June 30, 2005, (the “Evaluation Date”), concluded that as of the Evaluation Date, our 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 us and our 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 our 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 June 30, 2005, that materially affected, or that were reasonably likely to materially affect, our internal control over financial reporting.

35

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We hereby incorporate 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, our Board of Directors authorized a new stock repurchase program permitting the repurchase of up to 2 million shares of our outstanding common stock. Approximately 1.7 million shares remain authorized to be repurchased under the program. No shares were repurchased during the second quarter of 2005.

Item 4. Submission of Matters to a Vote of Security Holders

Our annual meeting of shareholders was held on May 4, 2005. As of March 7, 2005, the total number of common shares outstanding and entitled to vote at this annual meeting was 47,496,148, of which 43,072,910 were represented in person or by proxy. The following directors were elected to hold office for a three-year term expiring at the annual meeting of shareholders of the Company to be held in 2008:

Director	Votes For	Votes Withheld
Gary R. Hedrick	42,520,455	552,455
Kenneth R. Heitz	23,253,162	19,819,748
Michael K. Parks	42,323,612	749,298
Eric B. Siegel	42,325,611	747,299

In addition to the individuals set forth above, the following individuals continued as directors following the meeting: George W. Edwards, John R. Brown, James W. Cicconi, Patricia Z. Holland-Branch, Ramiro Guzman, James W. Harris, Stephen N. Wertheimer and Charles A. Yamarone.

Item 6. Exhibits

See Index to Exhibits incorporated herein by reference.

36

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: August 8, 2005

37

EL PASO ELECTRIC COMPANY

INDEX TO EXHIBITS

Exhibit Number	Exhibit
4.30	Indenture of Trust between Maricopa County, Arizona Pollution Control Corporation and Union Bank of California, N.A. as Trustee dated as of July 1, 2005 relating to $59,235,000 Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds 2005 Series A (El Paso Electric Company Palo Verde Project)
4.31	Loan Agreement dated July 1, 2005 between Maricopa County, Arizona Pollution Control Corporation and El Paso Electric Company relating to the Pollution Control Bonds referred to in Exhibit 4.30.
4.32	Representation and Indemnity Agreement dated July 27, 2005 among El Paso Electric Company, Citigroup Global Markets Inc., BNY Capital Markets, Inc., J.P. Morgan Securities Inc., and the Maricopa County, Arizona Pollution Control Corporation, relating to the Pollution Control Bonds referred to in Exhibit 4.30
4.33	Indenture of Trust between Maricopa County, Arizona Pollution Control Corporation and Union Bank of California, N.A. as Trustee dated as of July 1, 2005 relating to $63,500,000 Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds 2005 Series B (El Paso Electric Company Palo Verde Project)
4.34	Loan Agreement dated July 1, 2005 between Maricopa County, Arizona Pollution Control Corporation and El Paso Electric Company relating to the Pollution Control Bonds referred to in Exhibit 4.33.
4.35	Indenture of Trust between Maricopa County, Arizona Pollution Control Corporation and Union Bank of California, N.A. as Trustee dated as of July 1, 2005 relating to $37,100,000 Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds 2005 Series C (El Paso Electric Company Palo Verde Project)
4.36	Loan Agreement dated July 1, 2005 between Maricopa County, Arizona Pollution Control Corporation and El Paso Electric Company relating to the Pollution Control Bonds referred to in Exhibit 4.35.

38

Exhibit Number	Exhibit
4.37	Remarketing Agreement dated August 1, 2005 between El Paso Electric Company and Citigroup Global Markets Inc. relating to the Pollution Control Bonds referred to in Exhibits 4.30, 4.33 and 4.35.
4.38	Tender Agreement dated August 1, 2005 between El Paso Electric Company and Citigroup Global Markets Inc. relating to the Pollution Control Bonds referred to in Exhibits 4.30, 4.33 and 4.35.
4.39	Broker-Dealer Agreement dated August 1, 2005 among The Bank Of New York, as Auction Agent, Citigroup Global Markets Inc., as Broker-Dealer and El Paso Electric Company, as Borrower, relating to the Pollution Control Bonds referred to in Exhibits 4.33 and 4.35.
4.40	Auction Agent Agreement dated as of August 1, 2005 among El Paso Electric Company and Union Bank of California, N.A., as Trustee and The Bank Of New York, as Auction Agent, relating to the Pollution Control Bonds referred to in Exhibits 4.33 and 4.35.
4.41	Representation and Indemnity Agreement dated July 27, 2005 among El Paso Electric Company, Citigroup Global Markets Inc., BNY Capital Markets, Inc., J.P. Morgan Securities Inc., and the Maricopa County, Arizona Pollution Control Corporation, relating to the Pollution Control Bonds referred to in Exhibits 4.33 and 4.35.
4.42	Remarketing and Purchase Agreement dated July 27, 2005 among El Paso Electric Company and Citigroup Global Markets Inc., as remarketing agent, and Citigroup Global Markets Inc., BNY Capital Markets, Inc., and J.P. Morgan Securities Inc. relating to the Pollution Control Bonds referred to in Exhibit 4.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.
4.43	Tender Agreement dated August 1, 2005 between El Paso Electric Company and Citigroup Global Markets Inc. relating to the Pollution Control Bonds referred to in Exhibit. 4.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

39

Exhibit Number	Exhibit
4.44	Remarketing Agreement dated August 1, 2005 between El Paso Electric Company and Citigroup Global Markets Inc. relating to the Pollution Control Bonds referred to in Exhibit. 4.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.
†10.04	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 From 10-Q for the quarter ended June 30, 1999)
10.05	Rate Agreement between the Company and the City of El Paso, Texas, dated as of July 1, 2005
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, three agreements, dated as of 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.
	In lieu of non-employee director cash compensation, eleven agreements, dated as of May 4, 2005, substantially identical in all material respects to this Exhibit, were entered into with J. Robert Brown; James W. Cicconi; George W. Edwards, Jr.; Ramiro Guzman; James W. Harris; Kenneth R. Heitz; Patricia Z. Holland-Branch; Michael K. Parks; Eric B. Siegel; Stephen N. Wertheimer; and Charles A. Yamarone; directors of the Company.

40

EX-4.30

EXHIBIT 4.30

INDENTURE OF TRUST

between

MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION

and

UNION BANK OF CALIFORNIA, N.A.

as Trustee

Dated as of July 1, 2005

Relating to

$59,235,000

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds

2005 Series A

(El Paso Electric Company Palo Verde Project)

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS
Section 1.01	Definitions.	3
Section 1.02	Number and Gender.	12
Section 1.03	Articles, Sections, Etc.	12
Section 1.04	Content of Certificates and Opinions.	12
Section 1.05	Findings.	13
ARTICLE II THE BONDS
Section 2.01	Authorization and Terms of Bonds.	13
Section 2.02	Execution of Bonds.	27
Section 2.03	Transfer and Exchange of Bonds.	28
Section 2.04	Bond Register.	28
Section 2.05	Bonds Mutilated, Lost, Destroyed or Stolen.	28
Section 2.06	Disposition of Cancelled Bonds.	29
Section 2.07	CUSIP Numbers.	29
Section 2.08	Other Obligations	29
Section 2.09	Temporary Bonds	29
ARTICLE III
ISSUANCE OF BONDS
Section 3.01	Authentication and Delivery of Bonds.	30
Section 3.02	Application of Proceeds of Bonds.	30
Section 3.03	Payment of Principal and Interest	30
ARTICLE IV
REDEMPTION AND PURCHASE OF BONDS
Section 4.01	Redemption of Bonds.	31
Section 4.02	Selection of Bonds to be Redeemed.	35
Section 4.03	Notice for Redemption.	36
Section 4.04	Partial Redemption of Bonds.	37
Section 4.05	Effect of Redemption.	37
Section 4.06	Payment of Redemption Price.	37
Section 4.07	Bank Purchase Option.	38
Section 4.08	Purchase of Bonds.	40
Section 4.09	Delivery of Tendered Bonds.	43
Section 4.10	Bonds Deemed Purchased.	43

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Section 4.11	Payment Procedure Pursuant to Bond Insurance Policy.	44
ARTICLE V THE BOND FUND
Section 5.01	Creation of Bond Fund.	45
Section 5.02	Deposits into Bond Fund.	46
Section 5.03	Use of Moneys in Bond Fund	46
Section 5.04	Credit Facility.	47
Section 5.05	Custody of Bond Fund; Withdrawal of Moneys	48
Section 5.06	Bonds Not Presented for Payment	49
Section 5.07	Moneys Held in Trust	49
Section 5.08	Payment to the Bank and to the Borrower	49
ARTICLE VI [RESERVED]
ARTICLE VII INVESTMENTS
Section 7.01	Investments	50
ARTICLE VIII GENERAL COVENANTS
Section 8.01	Limited Obligation; Payment of Principal and Interest	50
Section 8.02	Performance of Agreements; Authority	51
Section 8.03	Maintenance of Corporate Existence; Compliance with Laws	51
Section 8.04	Enforcement of Borrower’s Obligations under the Agreement	51
Section 8.05	Further Assurances	51
Section 8.06	No Disposition or Encumbrance of Issuer’s Interests	51
Section 8.07	Trustee’s Access to Books Relating to Facilities	52
Section 8.08	Filing of Financing Statements	52
Section 8.09	Tax Covenant	52
Section 8.10	Notices by Trustee	52
Section 8.11	No Transfer of Credit Facility	53
ARTICLE IX DEFEASANCE
Section 9.01	Defeasance	53
Section 9.02	Survival of Certain Provisions	54

ii

ARTICLE X DEFAULTS AND REMEDIES
Section 10.01	Events of Default.	55
Section 10.02	Remedies	57
Section 10.03	Restoration to Former Position	58
Section 10.04	Bond Insurer’s Right to Direct Proceedings	58
Section 10.05	Limitation on Owners’ Right to Institute Proceedings	58
Section 10.06	No Impairment of Right to Enforce Payment	59
Section 10.07	Proceeding by Trustee Without Possession of Bonds	59
Section 10.08	No Remedy Exclusive	59
Section 10.09	No Waiver of Remedies	59
Section 10.10	Application of Moneys	59
Section 10.11	Severability of Remedies	61
Section 10.12	Waivers of Events of Default	61
Section 10.13	No Obligation of Issuer to Act.	62
ARTICLE XI TRUSTEE; PAYING AGENT; REGISTRAR
Section 11.01	Acceptance of Trusts	62
Section 11.02	Trustee Not Responsible for Recitals, Maintenance, Insurance, etc	62
Section 11.03	Limitations on Liability.	62
Section 11.04	Compensation, Expenses and Advances	63
Section 11.05	Notice of Events of Default	64
Section 11.06	Action by Trustee	64
Section 11.07	Good Faith Reliance	64
Section 11.08	Dealings in Bonds and with the Issuer and the Borrower	64
Section 11.09	Several Capacities	65
Section 11.10	Construction of Indenture	65
Section 11.11	Resignation of Trustee	65
Section 11.12	Removal of Trustee	65
Section 11.13	Appointment of Successor Trustee	65
Section 11.14	Qualifications of Successor Trustee	66
Section 11.15	Judicial Appointment of Successor Trustee	66
Section 11.16	Acceptance of Trusts by Successor Trustee	66
Section 11.17	Successor by Merger or Consolidation	67
Section 11.18	Standard of Care	67
Section 11.19	Notice of Event of Default	67
Section 11.20	Intervention in Litigation	67
Section 11.21	Paying Agent	67
Section 11.22	Qualifications of Paying Agent; Resignation; Removal	68
Section 11.23	Registrar	68
Section 11.24	Qualifications of Registrar; Resignation; Removal	69
Section 11.25	Appointment of Co-Trustee	69
Section 11.26	Notices to Rating Agencies	70

iii

ARTICLE XII EXECUTION OF INSTRUMENTS BY
OWNERS AND PROOF OF OWNERSHIP OF BONDS
Section 12.01	Execution of Instruments; Proof of Ownership	70
ARTICLE XIII MODIFICATION OF INDENTURE, DOCUMENTS
Section 13.01	Limitations	71
Section 13.02	Modification without Consent of Owners.	71
Section 13.03	Modification with Consent of Owners.	72
Section 13.04	Effect of Supplemental Indenture.	73
Section 13.05	Consent of the Borrower, the Bank and the Bond Insurer	73
Section 13.06	Amendment of Agreement without Consent of Owners	74
Section 13.07	Amendment of Agreement with Consent of Owners	74
Section 13.08	Issuance of Bonds Under Other Indentures; Recognition of Prior Pledges	74
ARTICLE XIV REMARKETING AGENT; TENDER AGENT; PURCHASE AND REMARKETING OF BONDS
Section 14.01	Remarketing Agent and Tender Agent.	75
Section 14.02	Qualifications of Remarketing Agent and Tender Agent; Resignation; Removal.	76
Section 14.03	Notice of Bonds Delivered for Purchase; Purchase of Bonds.	77
Section 14.04	Remarketing of Bonds; Notice of Interest Rates.	78
Section 14.05	Delivery of Bonds.	79
Section 14.06	Drawings on Credit Facility	80
Section 14.07	Delivery of Proceeds of Sale	81
ARTICLE XV MISCELLANEOUS
Section 15.01	Indenture to Bind and Inure to Benefit of Successors to Issuer	81
Section 15.02	Parties in Interest	81
Section 15.03	Severability	81
Section 15.04	No Personal Liability of Issuer Under Indenture	81
Section 15.05	Bonds Owned by the Issuer or the Borrower	82
Section 15.06	Governing Law	82
Section 15.07	Notices	82
Section 15.08	Non-Business Days.	84
Section 15.09	Opinions	84
Section 15.10	Headlines; Table of Contents	84
Section 15.11	Execution in Several Counterparts.	84

iv

Section 15.12	Bond Insurer as Third Party Beneficiary	84
Section 15.13	Additional Covenants of the Issuer to the Bond Insurer.	84
Section 15.14	Statutory Notice.	86

EXHIBIT A – Form of Bond

v

THIS INDENTURE OF TRUST is made and entered into as of July 1, 2005, by and between MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION, an Arizona nonprofit corporation designated as a political subdivision under the laws of the State of Arizona incorporated for and with the approval of the County of Maricopa, Arizona, pursuant to the provisions of the Constitution of the State of Arizona and Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972, renumbered as Title 35, Chapter 6, Arizona Revised Statutes, by Chapter 281, Section 2, Laws of Arizona of 1986, and all acts supplemental thereto or, amendatory thereof (hereinafter, together with any successor to its functions, called the “Issuer”), and Union Bank of California, N.A., a national banking corporation authorized to exercise corporate trust powers with a principal corporate trust office in Los Angeles, California (hereinafter, together with any successor in such capacity, called the “Trustee”).

W I T N E S S E T H:

WHEREAS, Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), as amended (hereinafter called the “Act”), empowers any pollution control corporation organized pursuant to Article 1 of the Act to issue revenue bonds in accordance with Article 2 of the Act and to make secured or unsecured loans for the purpose of financing or refinancing the acquisition, construction, improvement or equipping of pollution control facilities, to charge and collect interest on such loans and pledge the proceeds of loan agreements as security for the payment of the principal of and interest on bonds, or designated issues of bonds, issued by the corporation and any agreements made in connection therewith, whenever the board of directors finds such loans to be in furtherance of the purposes of the corporation; and

WHEREAS, Chapter 69, Section 1, Laws of Arizona of 1972, declares it to be the purpose of the Act to authorize the incorporation in the several municipalities and counties of the State of Arizona of corporations which shall constitute political subdivisions of the State, to finance the acquisition and installation of, or the construction and leasing of, properties, machinery and equipment intended to prevent or limit air, water and other forms of pollution for the purpose of protecting the health and welfare of the citizens of the State of Arizona, and to facilitate compliance with existing or future air, water and other quality standards designed to improve the environment, and declares that such corporations shall serve a public purpose and perform an essential governmental function; and

WHEREAS, in response to an application by four qualified electors of the County of Maricopa, Arizona (the “County”), a political subdivision of the State of Arizona, the Board of Supervisors of said County on December 5, 1983, adopted a resolution by which it determined that it was wise, expedient, advisable and in the public interest that said application be approved, approved said application, and authorized said four electors to proceed with the incorporation of the Issuer as a pollution control corporation for said County, all in accordance with Section 35-802 of the Act to issue bonds and to carry out the other functions and fulfill the purposes of the Issuer; and

WHEREAS, the Issuer was thereupon organized and incorporated in accordance with the provisions of the Act, and, on December 5, 1983, the Articles of Incorporation of the Issuer were filed with the Arizona Corporation Commission, in accordance with Section 35-809 of the Act; and

WHEREAS, the Issuer has heretofore issued and sold its $59,235,000 aggregate principal amount of Pollution Control Refunding Revenue Bonds, 1985 Series A (El Paso Electric Company Palo Verde Project) (the “Prior Bonds”), the proceeds of which were used to refinance a portion of the costs of acquisition, construction, improvement or equipping of the Project; and

WHEREAS, the Board of Directors of the Issuer on April 19, 2005 determined to sell additional revenue bonds of the Issuer to provide a portion of the moneys necessary to redeem and refund the outstanding principal amount of the Prior Bonds; and

WHEREAS, appropriate certifications have been received stating that the portion of the Generating Station which constitutes the pollution control facilities, as described in Exhibit A to the Agreement (defined below) (the “Generating Station”), as designed, are in furtherance of the purpose of abating or controlling atmospheric or water pollutants or contaminants resulting from the generation of electricity at the Generating Station; and

WHEREAS, the Issuer and the Borrower have executed and delivered that certain Loan Agreement, dated as of July 1, 2005 (hereinafter called the “Agreement”), setting forth the undertaking by the Issuer to issue and sell its revenue bonds under the Act (hereinafter called the “Bonds”), and to lend the proceeds of the Bonds to the Borrower to provide a portion of the moneys necessary to redeem and refund the outstanding principal amount of Prior Bonds; and

WHEREAS, in the Agreement the Borrower releases the Issuer and agrees that the Issuer shall not be liable for, and will indemnify and hold the Issuer and the Trustee harmless from, certain matters; and

WHEREAS, certain findings and determinations relating to the Agreement and the Generating Station and the Project have heretofore been made and are set forth in this Indenture; and

WHEREAS, the execution and delivery of the Agreement and this Indenture and the issuance of the Bonds have been in all respects duly and validly authorized, and duly adopted and approved by resolutions of the Board of Directors of the Issuer, and the Project, the plan of financing for the Project and the issuance of the Bonds have been duly approved by the Board of Supervisors of the County, as required by the Act and otherwise; and

WHEREAS, all other things necessary to make the Bonds, when issued, executed and delivered by the Issuer and authenticated by the Trustee pursuant to this Indenture, the valid, legal and binding limited obligations of the Issuer, and to constitute this Indenture a valid pledge and assignment of all right, title and interest of the Issuer in the Agreement (except as to certain payments to the Issuer under provisions for indemnification of, and reimbursement of expenses of, the Issuer), and of certain income and revenues derived from the Agreement, for the payment of the principal of and interest on the Bonds authenticated and delivered under this Indenture, and the creation, execution and issuance of the Bonds, subject to the terms hereof, have in all respects been duly authorized;

2

NOW, THEREFORE, the Issuer, in consideration of the covenants herein contained and of the purchase and acceptance of the Bonds by the holders thereof, in order to secure the payment of all Bonds at any time Outstanding under this Indenture, according to their tenor and effect, and the performance and observance of all the covenants and conditions in the Bonds and herein contained, and to declare the terms and conditions upon and subject to which the Bonds are issued and secured, does grant a security interest in and pledge to the Trustee (as hereinafter defined), and to its successors and assigns forever, the Trust Estate (as hereinafter defined) for the equal and proportionate benefit, security and protection of all holders and owners of the Bonds issued under and secured by this Indenture without privilege, priority or distinction as to the lien or otherwise of any of the Bonds over any other of the Bonds, all upon the terms stated in this Indenture.

ARTICLE I

DEFINITIONS

Section 1.01 Definitions. The terms defined in this Article I shall, for all purposes of this Indenture and of any indenture supplemental hereto have the meanings herein specified, unless the context clearly requires otherwise. Capitalized terms used herein, defined in the Agreement and not otherwise defined herein, shall have the meaning specified in the Agreement.

“Act” shall mean Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), and all acts supplemental thereto or amendatory thereof.

“Agreement” shall mean the Loan Agreement, of even date herewith, between the Issuer and the Borrower and relating to the loan of the proceeds of the Bonds, as originally executed or as it may from time to time be supplemented or amended.

“Alternate Credit Support” shall mean any letter of credit, credit facility, insurance policy, guarantee or other credit support agreement or security mechanism provided by the Borrower in accordance with Section 6.08 of the Agreement and any extension thereof.

“Authorized Borrower Representative” shall mean each person at the time designated to act on behalf of the Borrower by written certificate furnished to the Issuer and the Trustee containing the specimen signature of such person and signed on behalf of the Issuer.

“Authorized Denominations” shall mean (a) with respect to any Long-Term Interest Rate Period, $5,000 and any integral multiple thereof; (b) with respect to any Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period, $100,000 and any integral multiple of $5,000 in excess of $100,000.

“Available Moneys” shall mean (i) with respect to any date occurring during the term of a Credit Facility, (a) proceeds of a drawing under a Credit Facility which have been directly

3

deposited in the Bond Fund or the Purchase Fund, as applicable, (b) moneys deposited in the Bond Fund or the Purchase Fund by or on behalf of the Borrower and which have been on deposit with the Trustee or the Tender Agent, as applicable, for at least one hundred and twenty-four (124) days prior to and during which no petition by or against the Issuer or the Borrower or any affiliate of the Borrower, under any Bankruptcy Act shall have been filed or any bankruptcy or similar proceeding shall have been commenced, unless such petition or proceeding shall have been dismissed and such dismissal shall be final and not subject to appeal, (c) any other money (including the proceeds of the sale of refunding obligations of the Issuer) the application of which would not, in the written opinion of Bond Counsel or other nationally recognized counsel experienced in bankruptcy matters and acceptable to the Issuer, the Rating Agencies, if any, and the Trustee and delivered to the Trustee and the Tender Agent, constitute a voidable preference in the case of a filing for protection under the Bankruptcy Act of the Issuer or the Borrower or any affiliate of the Borrower and (d) the proceeds from the investment of moneys described above, and (ii) with respect to any date not occurring during the term of a Credit Facility, any moneys furnished to the Trustee or the Tender Agent, as applicable, and the proceeds from the investment thereof.

“Bank” shall mean the issuer of a Letter of Credit, if any, with respect to the Bonds, and, any subsequently issued Credit Facility, the issuer of such other Credit Facility so long as such other Credit Facility shall be in effect, in its capacity as such issuer, its successors in such capacity and their assigns.

“Bankruptcy Act” shall mean the United States Bankruptcy Code, any successor act thereto or amendment thereof or any other applicable federal or state bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law, now or hereafter in effect

“BMA Municipal Index” means The Bond Market Association Municipal Index as of the most recent date for which such index was published or such other weekly, high-grade index comprised of seven-day, Tax-Exempt variable rate demand notes produced by Municipal Market Data, Inc., or its successor, or as otherwise designated by The Bond Market Association; provided, however, that, if such index is no longer produced by Municipal Market Data, Inc. or its successor, then “BMA Municipal Index” shall mean such other reasonably comparable index selected by the Borrower with the advice of the Remarketing Agent, if any.

“Bond” or “Bonds” shall mean the bonds issued in accordance with this Indenture as referenced in Section 2.01(a).

“Bond Counsel” shall mean any firm of nationally recognized bond counsel which is experienced in the financing of pollution control facilities and acceptable to the Issuer, the Remarketing Agent, the Trustee and the Borrower.

“Bond Fund” shall mean the fund created by Section 5.01.

“Bond Insurance Policy” shall mean the municipal bond new issue insurance policy issued by the Bond Insurer that guarantees payment of principal of and interest on the Bonds.

“Bond Insurer” shall mean Financial Guaranty Insurance Company, a New York stock insurance company, or any successor thereto.

4

“Bond Interest Term” or “BIT” shall mean, with respect to each Bond bearing interest at a BIT Rate, the period established in accordance with the terms of Section 2.01(c)(v) hereof.

“Bond Interest Term Rate “ or “BIT Rate” shall mean the interest rate on any Bond established in accordance with Section 2.01(c)(v) hereof.

“Book-Entry Bonds” shall mean any Bonds which are then held in book-entry form as provided in Section 2.01(e) hereof.

“Borrower” shall mean (i) El Paso Electric Company, a corporation organized under the laws of the State of Texas and its successors and assigns, and (ii) any surviving, resulting or transferee corporation as provided in Section 6.02 of the Agreement.

“Business Day” shall mean any day other a Saturday, Sunday or other day on which the New York Stock Exchange, Inc. or banks are authorized or required to close in New York, New York, or in the cities in which the Principal Offices of the Trustee, the Registrar, the Paying Agent, the Tender Agent, if any, and the Remarketing Agent, if any, are located, and in the city or cities in which drawings under a Credit Facility are required to be made.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time. Each reference herein to a section of the Code shall be deemed to include the United States Treasury Regulations adopted under the Code, as the same may be in effect from time to time, unless the context clearly requires otherwise.

“Credit Facility” shall mean, collectively, the Letter of Credit, if any, and any extensions thereof, and, upon the issuance and delivery of any Alternate Credit Support in accordance with Section 6.08 of the Agreement, “Credit Facility” shall mean such Alternate Credit Support.

“County” shall mean the County of Maricopa, Arizona.

“Daily Interest Rate” shall mean the variable interest rate on any Bond established in accordance with Section 2.01(c)(ii) hereof.

“Daily Interest Rate Period” shall mean each period during which a Daily Interest Rate is in effect.

“Delayed Remarketing Period” has the meaning specified in Section 4.10(c) hereof.

“Determination of Taxability” means a determination that, due to the untruth or inaccuracy of any representation or warranty made by the Borrower in the Agreement or the breach of any covenant or warranty of the Borrower contained in the Agreement, interest on the Bonds, or any of them, is determined not to be Tax-Exempt by a final administrative determination of the Internal Revenue Service or a final judicial decision of a court of competent jurisdiction in a proceeding of which the Borrower received notice and in which the Borrower was afforded an opportunity to participate to the full extent permitted by law. A determination or decision will not be considered final for purposes of the preceding sentence unless (A) the Issuer or the holder or Owners of the Bonds involved in the proceeding in which the issue is raised (i) shall have given the Borrower and the Trustee prompt written notice of the

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commencement thereof, and (ii) shall have offered the Borrower the opportunity to control the proceeding; provided the Borrower agrees to pay all expenses in connection therewith and to indemnify such holder or holders against all liability for such expenses (except that any such holder may engage separate counsel, and the Borrower shall not be liable for the fees or expenses of such counsel); and (B) such proceeding shall not be subject to a further right of appeal or shall not have been timely appealed.

“Electronic” notice shall mean notice by any form of electronic transmission capable of producing a written record and shall constitute written notice as required herein.

“Facilities” or “Project” shall mean the pollution control, solid waste disposal and sewage disposal facilities at the Plant, which are described in Exhibit A to the Agreement, as from time to time revised, changed, amended or modified, and related improvements and any substitutions therefor.

“Favorable Opinion of Bond Counsel” shall mean an opinion of Bond Counsel addressed to the Issuer, the Bank and the Trustee to the effect that the action proposed to be taken (i) is authorized or permitted by the laws of the State of Arizona and federal law and this Indenture, and all conditions precedent, if any, have been satisfied and (ii) will not adversely affect any exclusion from gross income for federal income tax purposes of interest on the Bonds.

“Fitch” shall mean Fitch Ratings Services, a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Fitch” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“Government Obligations” shall mean direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed as to full and timely payment by, the United States of America and which are not subject to prepayment or redemption prior to maturity.

“Indenture” shall mean this Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any supplemental indenture entered into pursuant to the provisions hereof.

“Initial Interest Rate Period” shall mean the Interest Rate Period for the Bonds on the date of issuance and delivery of the Bonds as specified in Section 2.01(b) hereof.

“Initial Long-Term Interest Rate Period” shall mean the period commencing August 1, 2005 and ending on the Maturity Date.

“Insurance Agreement” shall mean the Insurance Agreement dated as of August 1, 2005 between the Bond Insurer and the Borrower, as amended or supplemented from time to time.

“Interest Accrual Date” shall mean (i) with respect to any Daily Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Daily Interest

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Rate Period, (ii) with respect to any Weekly Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Weekly Interest Rate Period, (iii) with respect to any Long-Term Interest Rate Period, the first day thereof and, thereafter, each Interest Payment Date in respect thereof, other than the last such Interest Payment Date, and (iv) with respect to each Bond Interest Term within a Short-Term Interest Rate Period, the first day thereof.

“Interest Payment Date” shall mean (i) with respect to any Daily Interest Rate Period or Weekly Interest Rate Period, the first Business Day of each calendar month, (ii) with respect to any Long-Term Interest Rate Period, each February 1 and August 1 occurring during such Long-Term Interest Rate Period and the Business Day next succeeding the last day thereof, (iii) with respect to any Short-Term Interest Rate Period, the Business Day next succeeding the last day of thereof, commencing February 1, 2006 with respect to the Initial Long-Term Interest Rate Period and (iv) in all events, the redemption date or the Maturity Date.

“Interest Rate Period” shall mean any Daily Interest Rate Period, Weekly Interest Rate Period, Short-Term Interest Rate Period or Long-Term Interest Rate Period.

“Investment Securities” shall mean any of the following obligations or securities (only to the extent investment therein would not violate the laws of the State of Arizona) on which the Borrower (or any affiliate) is not the obligor, maturing at such time or times as to enable disbursements to be made from the Bond Fund in accordance with the terms hereof, or which shall be marketable prior to the maturities thereof:

(i) direct obligations of, or obligations the principal and interest of which are guaranteed as to the full and timely payment by, the United States of America, which obligations, in either case, are not subject to redemption or prepayment at less than par by anyone other than the holder;

(ii) obligations issued or guaranteed by an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America, including obligations of the Federal National Mortgage Association, Federal Intermediate Credit Banks, Banks for Cooperatives, Federal Land Banks or Federal Home Loan Banks;

(iii) commercial paper rated at the time of investment in the highest short-term grade by the Rating Agencies;

(iv) bankers’ acceptances drawn on and accepted by commercial banks (including the Trustee, the Paying Agent, and the Bank) having at least $10,000,000 in capital stock, surplus and undivided profits the unsecured, uninsured obligations of which are rated not less than “Prime - 1” or “Aa2” by Moody’s and “A-1” or “A+” by S&P;

(v) certificates of deposit, deposit accounts and savings accounts fully insured by the Federal Deposit Insurance Corporation;

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(vi) repurchase agreements with solvent banking or other financial institutions (including the Trustee, the Paying Agent, and the Bank) rated at the time of investment not less than the then current rating of the Bonds by each of the Rating Agencies;

(vii) obligations of a state, a territory, Puerto Rico, or a possession of the United States of America, or any political subdivision of the foregoing, or of the District of Columbia and which are rated at the time of investment not less than the then current rating of the Bonds by each of the Rating Agencies;

(viii) money market funds registered under the federal Investment Company Act of 1940, whose shares are registered under the federal Securities Act of 1933, and having a rating by S&P of “AAAm-G”, “AAAm” or “Aam”, and by Moody’s of “Aaa” or “Aa” including funds for which the Trustee (or any affiliate of the Trustee) provides investment advice or other services;

(ix) custodial agreements providing for the investment of moneys through a custodian, reverse purchase agreements, option agreements and agreements to lend securities; and

(x) any other obligations and securities not prohibited by law and which are rated at least “Aaa” or “Aa” by Moody’s and “AAA” or “AA” by S&P.

“Issue Date” shall mean August 1, 2005, the date of issuance and delivery of the Bonds to the Underwriters against payment therefor.

“Issuer” shall mean Maricopa County, Arizona Pollution Control Corporation, an Arizona nonprofit corporation designated as a political subdivision existing under the laws of the State of Arizona, incorporated for and with the approval of the County, pursuant to the provisions of the Constitution of the State of Arizona and the Act, and its successors and assigns.

“Letter of Credit” shall mean the irrevocable direct pay letter of credit, if any, issued by the Bank and delivered to the Trustee in accordance with Section 6.08 of the Agreement and any extension thereof.

“Long-Term Interest Rate” shall mean with respect to each Bond, a fixed, non-variable interest rate on such Bond established in accordance with Section 2.01(c)(iv) hereof.

“Long-Term Interest Rate Period” shall mean each period during which a Long-Term Interest Rate is in effect.

“Maturity Date” shall mean August 1, 2040.

“Maximum Interest Rate” shall mean fifteen percent (15%) per annum.

“Moody’s” shall mean Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a

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securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“Nominee” shall have the meaning specified in Section 2.01(e) hereof.

“Outstanding” when used in reference to the Bonds, shall mean, as at any particular date, the aggregate of all Bonds authenticated and delivered in accordance with this Indenture except:

i. those cancelled at or prior to such date or delivered to or held by the Trustee at or prior to such date for cancellation;

ii. those deemed to be paid in accordance with Article IX hereof;

iii. those in lieu of or in exchange, replacement or substitution for which other Bonds shall have been authenticated and delivered in accordance with this Indenture, unless proof satisfactory to the Trustee and the Borrower is presented that such Bond is held by a bona fide holder in due course; and

iv. Bonds deemed purchased pursuant to Section 4.10 hereof.

“Owner” shall mean the person or entity in whose name any Bond is registered upon the registration books maintained pursuant to Section 2.04 hereof.

“Paying Agent” shall mean the initial and any successor paying agent or agents appointed in or in accordance with Section 11.21 hereof. “Principal Office” of the Paying Agent shall mean the Principal Office of the Trustee (if the Trustee is the Paying Agent) or such other office of the Paying Agent designated in writing to the Issuer, the Trustee, the Bank, the Bond Insurer, the Tender Agent and the Remarketing Agent.

“Plant” shall mean Units 1, 2 and 3 of the Palo Verde Nuclear Generating Station, a nuclear power generating plant located in Maricopa County, Arizona, at which the Project is located.

“Prior Bonds” shall have the meaning set forth in the 5th Whereas clause of this Indenture.

“Purchase Date” means any date on which any Bond is required to be purchased pursuant to Section 4.08(a) or (b) hereof.

“Purchase Fund” shall mean the fund created by Section 14.01 hereof.

“Rating Agencies” shall mean S&P or Moody or Fitch.

“Receipts and Revenues” shall mean (a) the Repayment Installments including all moneys drawn by the Trustee under a Credit Facility in satisfaction of the Borrower’s obligations to make Repayment Installments (b) all other moneys received by the Trustee (for the account of

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the Issuer) pursuant to the Agreement, (c) all moneys and investments in the Bond Fund and (d) all income and profit from the investment of the foregoing moneys. The term “Receipts and Revenues” does not include any moneys or investments in the Purchase Fund or amounts required to be paid to the Issuer pursuant to Sections 5.04, 5.08, 8.03 and 8.05 of the Agreement.

“Record Date” shall mean (a) with respect to any Interest Payment Date in respect of any Daily Interest Rate Period, the last Business Day of each calendar month or, in the case of the last Interest Payment Date in respect of a Daily Interest Rate Period, the Business Day immediately preceding such Interest Payment Date, (b) with respect to any Interest Payment Date in respect of any Weekly Interest Rate Period or any Bond Interest Term within a Short-Term Interest Rate Period, the Business Day immediately preceding such Interest Payment Date, and (c) with respect to any Interest Payment Date in respect of any Long-Term Interest Rate Period, the fifteenth day of the month immediately preceding such Interest Payment Date or, in the event that an Interest Payment Date shall occur within 16 days after the first day of a Long-Term Interest Rate Period, such first day.

“Registrar” shall mean the registrar or registrars appointed in or in accordance with Section 11.23 hereof. “Principal Office” of the Registrar shall mean the Principal Office of the Trustee (if the Trustee is the Registrar) or such other office of the Registrar designated in writing to the Issuer, the Trustee, the Tender Agent and the Remarketing Agent.

“Reimbursement Agreement” shall mean the Reimbursement Agreement, between the Borrower and the Bank issued in connection with the Letter of Credit and delivered to the Trustee in connection with Section 6.08 of the Agreement and any extension thereof.

“Remarketing Agent” shall mean Citigroup Global Markets Inc. and any successor remarketing agent appointed in accordance with Section 14.01 hereof. “Principal Office” of the Remarketing Agent shall mean Citigroup Global Markets Inc., 390 Greenwich Street, 5^th Floor, New York, New York 10013, Attention: Kevin Stowe, or such other office thereof designated in writing to the Issuer, the Trustee, the Bank, the Bond Insurer and the Tender Agent.

“Remarketing Agreement” shall mean the Remarketing Agreement, executed and delivered at or prior to the initial issuance of the Bonds, between the Borrower and the Remarketing Agent, relating to the Bonds, as supplemented or amended in accordance with the provisions thereof.

“Repayment Installment” shall mean any amount that the Borrower is required to pay to the Trustee pursuant to Section 5.02(a) of the Agreement as a repayment of the loan made by the Issuer under the Agreement.

“Representation Letter” shall have the meaning set forth in Section 2.01(e) hereof.

“S&P” shall mean Standard & Poor’s Ratings Group (a division of The McGraw-Hill Companies, Inc.), a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent, the Bank, and the Bond Insurer by notice to the Trustee, the Tender Agent and the Issuer.

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“Short-Term Interest Rate Period” shall mean, with respect to each Bond bearing interest at a BIT Rate, the period established in accordance with Section 2.01(c)(v) hereof.

“Special Record Date” shall mean, with respect to any Bond, the date established by the Trustee in connection with the payment of overdue interest on that Bond pursuant to Section 2.01(b) hereof.

“Supplemental Indenture” shall mean any supplemental indenture hereafter duly authorized and entered into between the Issuer and the Trustee in accordance with the provisions of this Indenture.

“Tax Certificate” shall mean “the “Tax Certificate”, executed by the Issuer in connection with the issuance of the Bonds.

“Tax-Exempt” shall mean, with respect to interest on any obligations of a state or local government, including the Bonds, that such interest is excluded from the gross income of the holders thereof (other than any holder who is a “substantial user” of facilities financed with such obligations or a “related person” within the meaning of Section 147(a) of the Code) for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax or environmental tax under the Code.

“Tender Agent” shall mean Citigroup Global Markets Inc. and any successor tender agent appointed in accordance with Section 14.01 hereof. “Principal Office” of the Tender Agent shall mean the Principal Office of the Remarketing Agent (if the Remarketing Agent is the Tender Agent), or such other office thereof designated in writing to the Issuer, the Trustee and the Remarketing Agent.

“Tender Agreement” shall mean the Tender Agreement, if any, executed and delivered at or prior to the initial issuance of the Bonds, between the Borrower and the Tender Agent, relating to the Bonds, as supplemented or amended in accordance with the provisions thereof.

“Trustee” shall mean Union Bank of California, N.A., as trustee under this Indenture, and its successor or successors hereunder. “Principal Office” of the Trustee shall mean a principal office of the Trustee at which at any particular time its corporate trust business shall be administered in California, which office at the date of the execution of this Indenture, is 120 S. San Pedro Street, 4^th Floor, Los Angeles, CA 90012, Attention: Corporate Trust Department; except that with respect to the presentation of Bonds for payment or for registration of transfer, exchange or tender, such term shall mean the office or agency of the Trustee at Union Bank of California, N.A., Corporate Trust Department, 120 S. San Pedro Street, 4th Floor, Los Angeles, CA 90012, Attn: Bond Redemption.

“Trust Estate” shall mean at any particular time all right, title and interest of the Issuer in and to the Agreement (except its rights under Sections 5.04, 5.08 and 8.05 thereof and any rights of the Issuer to receive notices, certificates, requests, requisitions, directions and other

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communications thereunder), including without limitation the Receipts and Revenues, all moneys and obligations which at such time are deposited or are required to be deposited with, or are held or are required to be held by or on behalf of, the Trustee or any Paying Agent in trust under any of the provisions of this Indenture and all other rights, titles and interests which at such time are subject to the lien of this Indenture, except for moneys or obligations deposited with or paid to the Trustee or any Paying Agent for the redemption or payment of Bonds which are deemed to have been paid in accordance with Article IX hereof and funds held pursuant to Section 5.06 hereof.

“Weekly Interest Rate” shall mean a variable interest rate on the Bonds established in accordance with Section 2.01(c)(iii) hereof.

“Weekly Interest Rate Period” means each period during which a Weekly Interest Rate is in effect.

Section 1.02 Number and Gender. The singular form of any word used herein, including the terms defined in Section 1.01, shall include the plural, and vice versa. The use herein of a word of any gender shall include all genders.

Section 1.03 Articles, Sections, Etc. All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture as originally executed; and the words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. The headings or titles of the several Articles and Sections hereof, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of this Indenture.

Section 1.04 Content of Certificates and Opinions. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture or the Agreement (except for the certificate of cancelled Bonds provided for in Sections 2.05, 2.06 and 4.05 hereof) shall include (a) a statement that the person or persons making or giving such certificate or opinion have read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of the signers, they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of the signers, such condition or covenant has been complied with.

Any such certificate or opinion made or given by an officer of the Issuer or the Borrower may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his or her certificate or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should have known that the same were erroneous. Any such certificate or opinion made or given by counsel may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the Issuer or the Borrower), upon the certificate or opinion of or representations by

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an officer of the Issuer or the Borrower, as applicable, unless such counsel knows that the certificate or opinion or representations with respect to the matters upon which his or her opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should have known that the same were erroneous.

Section 1.05 Findings. It is hereby found and determined by the Issuer that:

(a) The Borrower is a corporation which is conducting operations in the County and is qualified under the Act to borrow the proceeds of the sale of the Bonds from the Issuer to redeem and repay the outstanding principal amount of the Prior Bonds for purposes of the Act;

(b) The Project promotes the purposes of the Act by preventing or limiting air, water and other forms of pollution for the purpose of protecting the health and welfare of the citizens of the State of Arizona, and facilitates compliance by the Borrower with existing and possible future air, water and other quality standards designed to improve the environment in the State of Arizona;

(c) The loan pursuant to the Agreement is in furtherance of the purposes of the Issuer;

(d) It is advisable that the Bonds be subject to redemption as provided in this Indenture;

(e) The manner in which the Bonds are sold is most advantageous and it is necessary and advantageous that the expenses, premiums and commissions, if any, in connection with the issuance of the Bonds be paid by the Borrower; and

(f) It is advisable that this Indenture contain the provisions set forth herein.

ARTICLE II

THE BONDS

Section 2.01 Authorization and Terms of Bonds.

(a) Authorization. Bonds designated as “Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds 2005 Series A (El Paso Electric Company, Palo Verde Project)” may be issued under this Indenture. The aggregate principal amount of Bonds which may be issued and Outstanding under this Indenture shall not exceed Fifty-Nine Million Two Hundred Thirty-Five Thousand Dollars ($59,235,000). No Bonds may be issued hereunder except in accordance with this Article.

(b) General Terms. The Bonds shall be issued as fully registered Bonds, without coupons, in Authorized Denominations and shall be dated as of the Issue Date. The Bonds shall mature, subject to prior redemption as provided in Article IV, upon the terms and conditions hereinafter set forth, on the Maturity Date. The Bonds shall bear

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interest at a Long-Term Interest Rate for a Long-Term Interest Rate Period commencing August 1, 2005 and ending on the Maturity Date (the “Initial Interest Rate Period”). The Initial Long-Term Interest Rate shall be 4.80% per annum.

The Bonds shall be numbered from R-1 consecutively upwards in order of authentication. Each Bond shall bear interest from the last date to which interest has been paid in full or, if no interest has been paid in full or duly provided on such Bond from the Issue Date. All Bonds shall mature on the date set forth above and shall bear interest at the rates determined from time to time in accordance with the provisions of this Indenture. Payment of the interest on any Bond shall be made to the person appearing on the bond registration books of the Registrar as the registered holder thereof as of the close of business on the Record Date, such interest to be paid by the Paying Agent to such registered holder (i) in the event such Bond is a Book-Entry Bond, in immediately available funds on the Interest Payment Date in accordance with the Representation Letter, and (ii) in the event such Bond is not a Book-Entry Bond (A) in immediately available funds (by wire transfer or by deposit to the account of the holder of at least $1,000,000 of Bonds if such account is maintained with the Paying Agent), according to the written instructions given by such holder to the Registrar prior to the Record Date or (B) in all other cases, by check mailed by first class mail to the holder at such holder’s address as it appears as of the Record Date on the registration books of the Registrar; except, in each case, that, if and to the extent that there shall be a default in the payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid to the holders in whose name any such Bonds are registered as of a special record date to be fixed by the Trustee, notice of which shall be given to such holders not less than ten (10) days prior thereto. Both the principal of and premium, if any, on the Bonds shall be payable upon surrender thereof in lawful money of the United States of America at the Principal Office of the Paying Agent. Notwithstanding the foregoing, interest on any Bond bearing a Bond Interest Term Rate (except any such Bond which is a Book-Entry Bond) shall be paid only upon presentation to the Tender Agent of the Bond on which such payment is due. The Bonds shall be dated as of the Issue Date. The Bonds shall be substantially in the form attached hereto as Exhibit A.

If and to the extent, however, that the Issuer fails to make payment or provision for payment of interest on any Bond on any Interest Payment Date, that interest shall cease to be payable to the Owner of that Bond on the applicable Record Date. When moneys become available for payment of the interest, (a) the Trustee shall, pursuant to Section 10.10 hereof, establish a Special Record Date for the payment of that interest which shall be not more than 15 nor fewer than 10 days prior to the date of the proposed payment, and (b) the Trustee shall give notice by first-class mail of the proposed payment and of the Special Record Date to each owner not fewer than 10 days prior to the Special Record Date and, thereafter, the interest shall be payable to the owners of the Bonds as of the Special Record Date at the close of business on the Special Record Date.

(c) Interest Rates and Rate Periods. The Bonds shall bear interest until final payment of the principal or redemption price thereof shall have been made in accordance with the provisions hereof, whether at the Maturity Date, upon redemption or otherwise. During Daily Interest Rate Periods, interest on the Bonds shall be computed on the basis of a 365- or 366-day year for the number of days actually elapsed during Daily Interest Rate Periods. During Short-Term Interest Rate Periods or Weekly Interest Rate Periods,

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interest on the Bonds shall be computed on the basis of a 365- or 366-day year for the number of days actually elapsed based on the calendar year in which the Short-Term Interest Rate Period or Weekly Interest Rate Period commences. During any Long-Term Interest Rate Period, interest on the Bonds shall be computed upon the basis of a 360-day year, consisting of twelve 30-day months.

(i) Rate Periods. The Bonds shall initially bear interest as set forth in Section 2.01(b), and shall remain in such Interest Rate Period until adjusted to a different Interest Rate Period as provided herein. After any such adjustment, the term of the Bonds shall be divided into consecutive Interest Rate Periods during which the Bonds may bear interest at the Daily Interest Rate, Weekly Interest Rate, Bond Interest Term Rate or Long-Term Interest Rate. Any Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period established with respect to the Bonds shall continue in effect unless and until adjusted to a different Interest Rate Period as provided herein.

(ii) Daily Interest Rate.

(A) Determination of Daily Interest Rate. During each Daily Interest Rate Period, the Bonds shall bear interest at the Daily Interest Rate, determined by the Remarketing Agent on or before each Business Day for such Business Day. The Daily Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of the Daily Interest Rate determined by 10:30 a.m. (New York City time) on the date of determination. If the Remarketing Agent shall not have determined a Daily Interest Rate for any day by 10:30 a.m. (New York City time) on such day, the Daily Interest Rate shall be the same as the Daily Interest Rate for the immediately preceding day. In no event shall the Daily Interest Rate be greater than the Maximum Interest Rate.

(B) Adjustment to a Daily Interest Rate Period. At any time, the Borrower, by written notice to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear interest at a Daily Interest Rate. Such notice (1) shall specify the effective date of such adjustment to a Daily Interest Rate, which shall be (a) a Business Day not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee); (b) in the case of an adjustment from a Long-Term Interest Rate Period, a day on which the Bonds would be permitted to be redeemed at the option of the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Weekly Interest Rate Period or a Short-Term Interest Rate Period, an Interest Payment Date on which interest is payable for the Weekly Interest Rate Period or Bond Interest Term from which the adjustment is to be made; provided, however, that if prior to the Borrower’s making such election, any Bonds shall have been called for redemption and such

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redemption shall not have theretofore been effected, the effective date of such Daily Interest Rate Period shall not precede such redemption date; and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of the interest on the Bonds.

(C) Notice of Adjustment to a Daily Interest Rate. The Trustee shall give notice by first class mail of an adjustment to a Daily Interest Rate Period to the Owners of the Bonds not less than 15 days (30 days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Daily Interest Rate Period. Such notice shall state (1) that the interest rate on the Bonds will be adjusted to a Daily Interest Rate (subject to the Borrower’s ability to rescind its election as described in Section 2.01(c)(viii) hereof), (2) the effective date of the Daily Interest Rate Period, (3) that the Bonds are subject to mandatory tender for purchase on such effective date (except in the case of adjustment between Daily Interest Rate Periods and Weekly Interest Rate Periods), (4) the procedures for such mandatory tender, and (5) the purchase price of the Bonds on such effective date (expressed as a percentage of the principal amount thereof).

(iii) Weekly Interest Rate.

(A) Determination of Weekly Interest Rate. During each Weekly Interest Rate Period, the Bonds shall bear interest at the Weekly Interest Rate, which shall be determined by the Remarketing Agent no later than the first day of such Weekly Interest Rate Period and thereafter no later than 10:00 a.m. (New York City time) on Wednesday of each week during such Weekly Interest Rate Period, unless any such Wednesday shall not be a Business Day, in which event the Weekly Interest Rate shall be determined by the Remarketing Agent no later than the Business Day immediately preceding such Wednesday. The Weekly Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. If for any reason, a Weekly Interest Rate is not so established for any period by the time specified above by the Remarketing Agent, the Weekly Interest Rate shall be the same as the Weekly Interest Rate in effect for the immediately preceding week. In no event shall any Weekly Interest Rate exceed the Maximum Interest Rate. The first Weekly Interest Rate determined for each Weekly Interest Rate Period shall apply to the period commencing on the first day of such Weekly Interest Rate Period and ending on the next succeeding Tuesday. Thereafter, each Weekly Interest Rate shall apply to the period commencing on each Wednesday and ending on the next succeeding Tuesday, unless such Weekly Interest Rate Period shall end on a day other than Tuesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period shall apply to the period commencing on the Wednesday preceding the last day of

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such Weekly Interest Rate Period and ending on such last day. The Remarketing Agent shall provide the Trustee and the Borrower with written, telephonic or Electronic notice of each Weekly Interest Rate, as determined, by 12:00 noon (New York City time) on the effective date of such Weekly Interest Rate.

(B) Adjustment to Weekly Interest Rate. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear interest at a Weekly Interest Rate. Such direction (1) shall specify the effective date of such adjustment to a Weekly Interest Rate, which shall be (a) a Business Day not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee); (b) in the case of an adjustment from a Long-Term Interest Rate Period, a day on which the Bonds would otherwise be permitted to be redeemed at the option of the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Daily Interest Rate Period or Short-Term Interest Rate Period, an Interest Payment Date on which interest is payable for the Daily Interest Rate Period or Bond Interest Term from which the adjustment is to be made; provided, however, that if prior to the Borrower’s making such election, any Bonds shall have been called for redemption and such redemption shall not have theretofore been effected, the effective date of such Weekly Interest Rate Period shall not precede such redemption date; and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(C) Notice of Adjustment to a Weekly Interest Rate Period. The Trustee shall give notice by first class mail of an adjustment to a Weekly Interest Rate Period to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Weekly Interest Rate Period. Such notice shall state (1) that the Interest Rate on the Bonds will be adjusted to a Weekly Interest Rate (subject to the Borrower’s ability to rescind its election as provided in Section 2.01(c)(viii) hereof), (2) the effective date of the Weekly Interest Rate Period, (3) that the Bonds are subject to mandatory tender for purchase on such effective date (except in the case of adjustments between Daily Interest Rate Periods and Weekly Interest Rate Periods), (4) the procedures for such mandatory tender, and (5) the purchase price of such Bonds on such effective date (expressed as a percentage of the principal amount thereof).

(iv) Long-Term Interest Rate.

(A) Determination of Long-Term Interest Rate. During each Long-Term Interest Rate Period, the Bonds shall bear interest at the Long-Term Interest Rate, which shall be determined by the Remarketing Agent on a Business Day selected by the Remarketing Agent, but not more than forty (40) days prior to and

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not later than the effective date of such Long-Term Interest Rate Period. The Long-Term Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent on such date, and communicated by the close of business on such date to the Trustee, the Paying Agent and the Borrower, by written, telephonic or Electronic notice, as being the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such Long-Term Interest Rate Period at a price (without regard to accrued interest) equal to 100% of the principal amount thereof; provided, however, that if, for any reason, a Long-Term Interest Rate for any Long-Term Interest Rate Period shall not be determined or effective or if an adjustment from a Long-Term Interest Rate Period to another Interest Rate Period shall not be effective, the Interest Rate Period for the Bonds shall automatically convert to a Daily Interest Rate Period; provided, further, however, that if the Favorable Opinion of Bond Counsel required by Section 2.01(c)(ii)(B) in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) hereof, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Municipal Index. In no event shall any Long-Term Interest Rate be greater than the Maximum Interest Rate.

(B) Adjustment to or Continuation of a Long-Term Interest Rate Period. At any time, the Borrower, by written notice to the Issuer, the Bank, the Trustee, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear, or continue to bear, interest at a Long-Term Interest Rate, and if it shall so elect, shall determine the duration of the Long-Term Interest Rate Period during which the Bonds shall bear interest at such Long-Term Interest Rate. Each Long-Term Interest Rate Period shall have a duration such that the last day of such Long-Term Interest Rate Period is (1) a day which both immediately precedes a Business Day and is at least one year after the effective date of such Long-Term Interest Rate Period or (2) if earlier, the day immediately preceding the Maturity Date. At the time the Borrower so elects an adjustment to or continuation of a Long-Term Interest Rate Period, the Borrower may specify two or more consecutive Long-Term Interest Rate Periods and, if the Borrower so specifies, shall specify the duration of each such Long-Term Interest Rate Period as provided in this paragraph. Such notice shall specify the effective date of each Long-Term Interest Rate Period, which shall be (a) a Business Day not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee); (b) in the case of an adjustment from or continuation of a Long-Term Interest Rate Period, a day on which the Bonds would be permitted to be redeemed by the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Daily, Weekly or Short-Term Interest Rate Period, an Interest Payment Date on which interest is payable for the Daily or Weekly Interest Rate Period or Bond Interest Term from which the adjustment is to be made; provided, however, that if prior to the

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Borrower’s making such election, any Bonds shall have been called for redemption and such redemption shall not have theretofore been effected, the effective date of such Long-Term Interest Rate Period shall not precede such redemption date. In addition, such notice (i) shall specify the last day of such Long-Term Interest Rate Period, and (ii) if the adjustment is from a Daily, Weekly or Short-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

If, by the thirty-fifth day prior to the last day of any Long-Term Interest Rate Period, the Trustee shall not have received notice of the Borrower’s election that, during the next succeeding Interest Rate Period, the Bonds shall bear interest at a Daily Interest Rate, a Weekly Interest Rate, a Long-Term Interest Rate or a Bond Interest Term Rate accompanied by appropriate opinions of Bond Counsel, if required by Section 2.01(c)(ii)(B), (iii)(B), (iv)(B) or (v)(B) hereof, the next succeeding Interest Rate Period for the Bonds shall be a Daily Interest Rate Period; provided, however, that if the opinion of Bond Counsel required by Section 2.01(c)(ii)(B) in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) hereof, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Municipal Index.

At the same time that the Borrower elects to have the Bonds bear interest at a Long-Term Interest Rate or continue to bear interest at a Long-Term Interest Rate, the Borrower may also specify to the Trustee optional redemption prices and periods different from (including that there be no such optional redemption) those set out in Section 4.01(a)(ii)(C) during the Long-Term Interest Rate Period(s) with respect to which such election is made; provided, however, that such notice shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such changes (i) are authorized or permitted by the Act and this Indenture, and (ii) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(C) Notice of Adjustment to or Continuation of a Long-Term Interest Rate. The Trustee shall give notice by first class mail of an adjustment to or continuation of a Long-Term Interest Rate Period to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Long-Term Interest Rate Period. Such notice shall state (1) that the interest rate on the Bonds will be adjusted to, or continue to be, a Long-Term Interest Rate (subject to the Borrower’s ability to rescind its election as provided in Section 2.01(c)(viii) hereof), (2) the effective date of such Long-Term Interest Rate Period, (3) that the Bonds shall be subject to mandatory tender for purchase on such effective date,

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(4) the procedures for such mandatory tender, and (5) the purchase price of the Bonds on such effective date (expressed as a percentage of the principal amount thereof).

(D) Failure to Determine Long-Term Rate. If the Bonds are in a Long-Term Interest Rate Period and for any reason the new rate for another Interest Rate Period (including a new Long-Term Interest Rate Period) cannot be determined on or before the last day of the current Long-Term Interest Rate Period, the Bonds shall automatically convert to a Daily Interest Rate which rate following the Initial Long-Term Interest Rate Period shall be equal to 10% per annum and which rate following any other Long-Term Interest Rate Period, shall be the Maximum Interest Rate, unless the Bonds have been purchased by or on behalf of a Credit Facility, in which event such Bonds will bear interest as provided in the Credit Facility, or unless the Bonds are in default, in which event the Bonds will bear interest at the Maximum Interest Rate. In the event the Bonds are not required to be purchased by the Borrower and have been returned to the Holders as described in Section 4.10(c) hereof, the Borrower will cause the Remarketing Agent to continue to use its best efforts to remarket the Bonds as described in Section 4.10(c) hereof. If the Bonds are in any other Interest Rate Period, and a Long-Term Interest Rate cannot be determined, then the Interest Rate Period for Bonds (except Bonds in a Long-Term Interest Rate Period as described above), shall automatically convert to a Daily Interest Rate Period, as determined below. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) hereof, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be one hundred twenty percent (120%) of the most recent BMA Municipal Index theretofore published in The Bond Buyer or, in the event that such BMA Municipal Index is not published or is otherwise unavailable, one hundred twenty percent (120%) of such other comparable index as selected by the Borrower with the written consent of the Remarketing Agent, and such Daily Interest Rate shall be communicated to the Trustee and Paying Agent by or on behalf of the Borrower. In no event shall any Long-Term Interest Rate be greater than the Maximum Interest Rate.

(v) Bond Interest Term Rate.

(A) Determination of Bond Interest Terms and Bond Interest Term Rates. During each Short-Term Interest Rate Period, each Bond shall bear interest during each Bond Interest Term for such Bond at the Bond Interest Term Rate for such Bond. Each Bond Interest Term for any Bond shall be a period of at least one day but not more than the lesser of (x) 270 days or (y) the number of days of interest coverage on the Bonds provided for in any Credit Facility then in effect minus five (5) days. When a Credit Facility, if any, other than any initial Letter of Credit is in effect with respect to the Bonds or no Credit Facility is in effect with respect to the Bonds, each Bond Interest Term for any Bond shall be a period of at least one day but not more than 270 days. Each Bond Interest Term

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for any Bond shall be a period determined by the Remarketing Agent to be, in its judgment, the period which, taking into account prevailing market conditions and all other Bond Interest Terms and Bond Interest Term Rates for all Bonds then Outstanding, is likely to result in the lowest overall net interest expense on all such Bonds; provided, however, that any such Bond purchased on behalf of the Borrower and remaining unsold in the hands of the Remarketing Agent as of 1:00 p.m. (New York City time) on the effective date of the Bond Interest Term for such Bond shall have a Bond Interest Term of one day or, if such Bond Interest Term would not end on a day immediately preceding a Business Day, a Bond Interest Term of more than one day ending on the day immediately preceding the next Business Day; provided, further, however, that (1) each Bond Interest Term shall end on a day which immediately precedes a Business Day and no Bond Interest Term shall extend beyond the day immediately preceding the Maturity Date or, if a Credit Facility, if any, is then in effect with respect to the Bonds, the scheduled expiration date of such Credit Facility, and (2) if for any reason the Remarketing Agent fails or is unable to determine a Bond Interest Term on any Bond, the Bond Interest Term for such Bond shall be one day, unless such Bond Interest Term would end on a day which does not precede a Business Day, in which case such Bond Interest Term shall end on the day immediately preceding the next succeeding Business Day.

The Bond Interest Term Rate for each Bond Interest Term for each Bond shall be the rate of interest per annum determined by the Remarketing Agent no later than 1:00 p.m. (New York City time) on the first day of such Bond Interest Term to be the lowest interest rate which would enable the Remarketing Agent to sell such Bonds on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of each Bond Interest Term Rate and Bond Interest Term by 1:00 p.m. (New York City time) on the date of determination. If a Bond Interest Term Rate for a Bond Interest Term of one day is not determined or effective by 1:00 p.m. (New York City time) on such day, the Bond Interest Term Rate for such Bond Interest Term of one day shall be equal to the BMA Municipal Index. In no event shall any Bond Interest Term Rate exceed the Maximum Interest Rate.

Notwithstanding the foregoing, in the event that notice of redemption with respect to any Bond in a Short-Term Interest Rate Period shall have been given to the holder of such Bond by the Trustee pursuant to Section 4.03 hereof, no subsequent Bond Interest Terms or Bond Interest Term Rates shall be determined with respect to such Bond.

(B) Adjustment to or Continuation of Bond Interest Term Rates. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, if any, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear interest at Bond Interest Term Rates. Such direction (1) shall specify the effective date of the Short-Term Interest Rate Period during which the Bonds shall bear interest at Bond Interest Term Rates, which shall be (a) a Business Day

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not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee), (b) in the case of an adjustment from a Long-Term Interest Rate Period, a day on which the Bonds would be permitted to be redeemed at the option of the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Daily or Weekly Interest Rate Period, an Interest Payment Date on which interest is payable for the Daily or Weekly Interest Rate Period from which the adjustment is to be made; provided, however, that if prior to the Borrower’s making such election any Bonds shall have been called for redemption and such redemption shall not have theretofore been effected, the effective date of such Short-Term Interest Rate Period shall not precede such redemption date; and (2) shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(C) Notice of Adjustment to a Bond Interest Term. The Trustee shall give notice by first class mail of an adjustment to a Short-Term Interest Rate Period to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Short-Term Interest Rate Period. Such notice shall state (1) that the interest rate on the Bonds will be adjusted to Bond Interest Term Rates (subject to the Borrower’s ability to rescind its election as provided in Section 2.01(c)(viii) hereof), (2) the effective date of the Short-Term Interest Rate Period, (3) that the Bonds are subject to mandatory tender for purchase on the effective date of such Short-Term Interest Rate Period, (4) the procedures for such mandatory tender, and (5) the purchase price of the Bonds on such effective date (expressed as a percentage of the principal amount thereof).

(D) Adjustment from a Short-Term Interest Rate Period. At any time during a Short-Term Interest Rate Period, the Borrower may elect that the Bonds shall no longer bear interest at Bond Interest Term Rates and shall instead bear interest as otherwise permitted under this Indenture. The Borrower shall give written notice to the Issuer, the Trustee, the Paying Agent and the Remarketing Agent, if any, of such election and shall specify the Interest Rate Period to follow with respect to such Bonds upon cessation of the Short-Term Interest Rate Period and instruct the Remarketing Agent to (1) determine Bond Interest Terms of such duration that, as soon as possible, all Bond Interest Terms shall end on the same date, not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice, and upon the establishment of such Bond Interest Term the day next succeeding the last day of all such Bond Interest Terms shall be the effective date of the Interest Rate Period elected by the Borrower; or (2) determine Bond Interest Terms that will best promote an orderly transition to the next succeeding Interest Rate Period to apply to the Bonds, beginning not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice. If the alternative in clause (2) above is selected (and if the Trustee requests, a Favorable Opinion of Bond Counsel is received), the day next

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succeeding the last day of the Bond Interest Term for each Bond shall be with respect to such Bond the effective date of the Interest Rate Period elected by the Borrower. The Remarketing Agent, promptly upon the determination thereof, shall give written notice of such last day and such effective dates to the Borrower, the Trustee and the Tender Agent. During any transitional period from a Short-Term Interest Rate Period to the next succeeding Interest Rate Period in accordance with clause (2) above, the provisions of this Indenture shall be deemed to apply to the Bonds as follows: the Bonds continuing to bear interest at Bond Interest Term Rates shall have applicable to them the provisions hereunder theretofore applicable to such Bonds as if all Bonds were continuing to bear interest at Bond Interest Term Rates and the Bonds bearing interest in the Interest Rate Period to which the transition is being made will have applicable to them the provisions hereunder as if all Bonds were bearing interest in such Interest Rate Period.

(vi) Terms of Credit Facility, If Any. If a Credit Facility in the form of a letter of credit is to be held by the Trustee after the effective date of any adjustment from one Interest Rate Period to another Interest Rate Period, such Credit Facility, if any, shall be in an amount sufficient to provide payment of (x) the principal amount of the Outstanding Bonds plus (y) the amount of interest (computed on the basis of a 365-day year in the case of an adjustment to a Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period, and on the basis of a 360-day year consisting of twelve 30-day months in the case of an adjustment to a Long-Term Interest Rate Period) which will accrue on the Outstanding Bonds for a period equal to the maximum number of days between Interest Payment Dates during the new Interest Rate Period plus five (5) days. In the case of an adjustment to a Long-Term Interest Rate Period, a Credit Facility, if any, to be in effect after the effective date of such adjustment shall (i) extend for a period ending on a date no earlier than five (5) days after the first date on which the Bonds may be called for redemption pursuant to Section 4.01(a)(ii)(C) and (ii) cover the premium, if any, which would be included in the purchase price upon mandatory purchase of the Bonds pursuant to Section 4.08(b) hereof if the term of such Credit Facility was not extended beyond the expiration date set forth therein.

(vii) Determination Conclusive. The determination of any Bond Interest Term Rate, Daily Interest Rate, Weekly Interest Rate and Long-Term Interest Rate and each Bond Interest Term and the calculation of interest payable on the Bonds by the Remarketing Agent shall be conclusive and binding upon such Remarketing Agent, the Trustee, the Tender Agent, the Issuer, the Borrower, the Bank and the Owners of the Bonds.

(viii) Rescission of Election. Notwithstanding anything herein to the contrary, the Borrower may rescind any election by it to adjust to or continue an Interest Rate Period pursuant to Section 2.01(c)(ii)(B), (iii)(B), (iv)(B) or (v)(B) hereof prior to the effective date of such adjustment or continuation by giving written notice thereof to the Issuer, the Trustee, the Tender Agent and the

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Remarketing Agent, if any, prior to such effective date. If the Trustee receives notice of such rescission prior to the time the Trustee has given notice to the Owners of the Bonds pursuant to Section 2.01(c)(ii)(C), (iii)(C), (iv)(C) or (v)(C), as applicable, then the notice of adjustment or continuation previously delivered by the Borrower shall be of no force and effect. If the Trustee receives notice from the Borrower of rescission of an adjustment to or continuation of an Interest Rate Period after the Trustee has given notice to the Owners of the Bonds pursuant to Section 2.01(c)(ii)(C), (iii)(C), (iv)(C) or (v)(C), as applicable, then the Interest Rate Period for the Bonds shall automatically adjust to a Daily Interest Rate Period on the date originally scheduled for such adjustment or continuation; provided, however, that if the Bonds are then in a Long-Term Interest Rate Period and the Favorable Opinion of Bond Counsel required by Section 2.01(c)(ii)(B) in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) hereof, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Municipal Index.

(d) Form of Bonds. The Bonds may be engraved, printed, lithographed or typewritten, shall be in Authorized Denominations and may contain such references to any of the provisions of this Indenture as may be appropriate. The form of the Bonds, the certificate of authentication to be executed on all the Bonds by the Trustee and the forms for registration of transfer shall be in substantially the forms thereof set forth in Exhibit A hereto, with necessary or appropriate variations, omissions and insertions as permitted or required by this Indenture. The Bonds and the certificate of authentication to be executed thereon shall be in substantially the form attached hereto as Exhibit A, with such appropriate variations, omissions and insertions as are permitted or required by this Indenture. Pursuant to recommendations promulgated by the Committee on Uniform Security Identification Procedures, “CUSIP” numbers may be printed on the Bonds. The Bonds may bear such endorsement or legend relating thereto as may be required to conform to usage or law with respect thereto. If appropriate, the Bonds may be printed with a portion of the text printed on the reverse side thereof and with a legend printed on the front referring to such text to the following effect: “Reference is hereby made to the further provisions of this Bond set forth on the back hereof and such further provisions are hereby incorporated by reference as if set forth here in full.” Upon adjustment to a Long-Term Interest Rate Period, other than the Initial Long-Term Interest Rate Period established at the Closing Date, the revised form of Bond may include a summary of the mandatory and optional redemption provisions to apply to the Bonds during such Long-Term Interest Rate Period, or a statement to the effect that the Bonds will not be optionally redeemed during such Long-Term Interest Rate Period, provided that the Registrar shall not authenticate such a revised Bond form prior to receiving a Favorable Opinion of Bond Counsel that such Bond form conforms to the terms of the Act and of this Indenture and that authentication thereof will not adversely affect the Tax-Exempt status of the Bonds.

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(e) Book-Entry System.

Bonds shall be issued in the form of a single certificated fully registered Bond, registered in the name of Cede & Co., as nominee of the Depository Trust Company (such entity and its successors and assigns are referred to herein as “DTC”), or such other name as may be requested by an authorized representative of DTC, or any successor nominee (the “Nominee”). Except as provided in paragraph (C) below, all of the Outstanding Bonds shall be so registered in the registration books kept by the Registrar, and the provisions of this Section 2.01(e) shall apply thereto.

(i) The Issuer, the Borrower, the Remarketing Agent, the Tender Agent, the Trustee, the Registrar, the Paying Agent and any Co-Registrar and Co-Paying Agent shall have no responsibility or obligation to any DTC participant or to any person on behalf of which a DTC participant holds an interest in the Bonds, except as otherwise expressly provided herein. Without limiting the immediately preceding sentence, the Issuer, the Borrower, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent and any Co-Registrar and Co-Paying Agent shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, the Nominee, any DTC participant or indirect participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC participant or any other person, other than an Owner as shown in the registration books kept by the Registrar, of any notice with respect to the Bonds, including any notice of redemption (except that the Trustee and Tender Agent, if any, shall have the obligation to deliver notices of optional and mandatory tender to the Remarketing Agent, if any, as provided herein) or (iii) the payment to any DTC participant or any other person, other than an Owner, as shown in the registration books kept by the Registrar, of any amount with respect to principal or purchase price of, premium, if any, or interest on the Bonds. The Paying Agent shall pay all principal, premium, if any, and interest on the Bonds only to or upon the order of the respective Owners, as shown in the registration books kept by the Registrar, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Issuer’s obligations with respect to payment of principal of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. The Issuer, the Borrower, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent and any Co-Registrar and Co-Paying Agent may treat and consider the person in whose name each Bond is registered in the registration books kept by the Registrar as the holder and absolute owner of such Bond for the purpose of payment of principal, purchase price, premium and interest with respect to such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever; provided, however, notwithstanding the foregoing provisions, the Tender Agent, if any, shall accept any notice of optional tender pursuant to Section 4.08(a) from any Owner of any Book-Entry Bond, but shall make payment of the purchase price thereof only to the registered owner of such Bond in the manner provided in the Representation Letter (as defined below); and provided further, that no person other than an Owner, as

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shown in the registration books kept by the Registrar, shall receive a certificated Bond evidencing the obligation of the Issuer to make payments of principal, premium, if any, and interest pursuant to this Indenture.

(ii) The Issuer, the Paying Agent, the Registrar, the Tender Agent and/or the Trustee shall, if not previously on file, execute and deliver to DTC a letter of representation in customary form with respect to the Bonds (the “Representation Letter”), but such Representation Letter shall not in any way limit the provisions of the foregoing paragraph (i) or in any other way impose upon the Issuer any obligation whatsoever with respect to persons having interests in the Bonds other than the Owners, as shown on the registration books kept by the Registrar. The Trustee, the Tender Agent and the Paying Agent shall take all actions necessary for representations of the Issuer in the Representation Letter with respect to the Trustee, the Tender Agent and the Paying Agent to be complied with at all times.

(iii) The Issuer, with the consent of the Borrower, may, and upon request of the Borrower shall, terminate the services of DTC with respect to the Bonds. DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving written notice and all relevant information on the beneficial owners of the Bonds to the Issuer, the Borrower, the Tender Agent, if any, and the Trustee and discharging its responsibilities with respect thereto under applicable law. Upon the discontinuance or termination of the services of DTC with respect to the Bonds, unless a substitute securities depository is appointed by the Issuer (with the consent, or at the request, of the Borrower) to undertake the functions of DTC hereunder, the Issuer, at the expense of the Borrower, is obligated to deliver Bond certificates to the Owners of such Bonds, as described in this Indenture, and such Bonds shall no longer be restricted to being registered in the registration books kept by the Registrar in the name of the Nominee, but may be registered in whatever name or names Owners transferring or exchanging such Bonds shall designate, in accordance with the provisions of this Indenture.

(iv) In connection with any notice or other communication to be provided to Owners pursuant to this Indenture by the Issuer, the Borrower, the Remarketing Agent, the Tender Agent, the Trustee, the Registrar, the Paying Agent, and any Co-Registrar and Co-Paying Agent with respect to any consent or other action to be taken by the Owners of the Bonds, the Issuer, the Borrower the Remarketing Agent, the Tender Agent, the Trustee, the Registrar, the Paying Agent, any Co-Registrar and Co-Paying Agent, as the case may be, the Trustee shall establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible.

(v) So long as any Bond is registered in the name of the Nominee, all payments with respect to principal, purchase price, premium, if any, and interest on such Bond and all notices with respect to such Bond shall be made and given, respectively, in the manner provided in the Representation Letter. Owners shall

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have no lien or security interest in any rebate or refund paid by DTC to the Tender Agent, if any, or the Paying Agent which arises from the payment by the Tender Agent, if any, or Paying Agent of principal of or purchase price, premium, if any, or interest on the Bonds in immediately available funds to DTC.

Section 2.02 Execution of Bonds. The Bonds shall be executed on behalf of the Issuer by its President, a Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer and such execution shall be attested by its President, a Vice-President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer; provided that the officer so attesting such execution shall not be the same officer that executed such Bond. The signatures of the President, a Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer of the Issuer may be facsimile signatures.

The Bonds and the interest thereon shall not be general obligations or an indebtedness of the Issuer but shall be limited obligations of the Issuer, which is obliged to pay the principal and premium, if any, and interest on the Bonds only out of the Receipts and Revenues of the Issuer from the Agreement and other moneys pledged therefor under this Indenture. The Bonds shall never constitute an indebtedness of the State of Arizona, or the County, or the Issuer within the meaning of any Arizona Constitutional provision or statutory limitation and shall never constitute or give rise to a pecuniary liability of the State of Arizona, or the County, or the Issuer or a charge against the general credit or taxing powers of the State of Arizona, or the County, or the general credit of the Issuer and such fact shall be plainly stated on each Bond. The Issuer has no taxing power.

The Bonds shall then be delivered to the Trustee for authentication by the Trustee. In case any officer who shall have signed any of the Bonds shall cease to be such officer before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee or issued by the Issuer, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issuance, shall be as binding upon the Issuer as though those who signed and attested the same had continued to be such officers of the Issuer. Also, any Bond may be signed on behalf of the Issuer by such persons as on the actual date of the execution of such Bond shall be the proper officers although on the nominal date of such Bond any such person shall not have been such officer.

Only such of the Bonds as shall bear thereon a certificate of authentication in the form recited in Exhibit A hereto, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. The Trustee’s certificate of authentication on any Bond shall be deemed to have been executed by it if manually signed by an authorized signatory on behalf of the Trustee but it shall not be necessary that the same person sign the certificate of authentication on all of the Bonds issued hereunder.

Upon authentication of any Bond, the Trustee, Registrar or the Tender Agent, if any, as the case may be, shall set forth on such Bond (1) the date of such authentication and (2) in the case of a Bond bearing interest at a Bond Interest Term Rate which is not a Book-Entry Bond, such Bond Interest Term Rate, the day next succeeding the last day of the applicable Short-Term Interest Rate Period, the number of days comprising such Short-Term Interest Rate Period and the amount of interest to accrue during such Short-Term Interest Rate Period.

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So long as Union Bank of California, N.A. is serving as Trustee hereunder, it shall also serve as Registrar hereunder.

Section 2.03 Transfer and Exchange of Bonds. Registration of any Bond may, in accordance with the terms of this Indenture, be transferred, upon the books of the Registrar required to be kept pursuant to the provisions of Section 2.04, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by a written instrument of transfer in a form approved by the Registrar, duly executed. Whenever any Bond shall be surrendered for registration of transfer, the Issuer shall execute and the Trustee shall authenticate and deliver a new Bond or Bonds of the same tenor in Authorized Denominations. No registration of transfer of Bonds upon the books of the Registrar required to be kept pursuant to the provisions of Section 2.04 hereof shall be required to be made during the period after any Record Date and prior to the related Interest Payment Date or during the period of fifteen (15) days immediately preceding the date on which the Trustee mails any notice of redemption, nor shall any registration of transfer of Bonds called for redemption be required.

Bonds may be exchanged at the Principal Office of the Trustee for a like aggregate principal amount of Bonds of the same tenor of Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange, and there shall be no other charge to any Owners for any such exchange. Except with respect to Bonds remarketed after being purchased pursuant to Sections 4.07 and 4.08 hereof, no exchange of Bonds shall be required to be made during the period after any Record Date and prior to the related Interest Payment Date or during the period of fifteen (15) days immediately preceding the date on which the Trustee gives notice of redemption, nor shall any exchange of Bonds called for redemption be required. If a Bond is presented for transfer or exchange after notice of redemption of such Bond has been given as provided in Section 4.03 hereof, the Registrar shall deliver a copy of such notice of redemption to the new owner of such Bond.

Section 2.04 Bond Register. The Registrar will keep or cause to be kept at its Principal Office sufficient books for the registration and the registration of transfer of the Bonds, which shall at all times, during regular business hours, be open to inspection by the Issuer, the Trustee, the Bond Insurer and the Borrower; and, upon presentation for such purpose, the Registrar shall, under such reasonable regulations as it may prescribe, register the transfer or cause to be registered the transfer, on said books, of Bonds as hereinbefore provided.

Section 2.05 Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Issuer, upon the request and at the expense of the holder of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Registrar of the Bond so mutilated. Every mutilated Bond so surrendered to the Registrar shall be treated by the Trustee in accordance with its document retention policies (provided that the Trustee shall not be required to destroy such Bonds) and, upon the written request of the Issuer, a certificate

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evidencing such disposition shall be delivered to the Issuer, with a copy to the Borrower. If any Bond issued hereunder shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Issuer, the Borrower and the Registrar, and if such evidence be satisfactory to them and indemnity satisfactory to them shall be given by or on behalf of the holder of such lost, destroyed or stolen Bond, the Issuer, at the expense of the holder, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall be about to mature, instead of issuing a substitute Bond the Trustee shall, at the direction of the Issuer, pay the same without surrender thereof). The Issuer may require payment of a reasonable fee for each new Bond issued under this Section and payment of the expenses which may be incurred by the Issuer and the Trustee. Any Bond issued under the provisions of this Section in lieu of any Bond mutilated or alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Issuer whether or not the Bond mutilated or so alleged to be lost, destroyed or stolen shall be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Indenture with all other Bonds secured by this Indenture.

All Bonds shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing provisions are exclusive with respect to the replacement or payment of lost, destroyed or improperly cancelled Bonds, notwithstanding any law or statute now existing or hereafter enacted.

Section 2.06 Disposition of Cancelled Bonds. When paid in full, all Bonds shall be delivered to the Trustee, who shall forthwith cancel such Bonds and deliver upon request a certificate evidencing such cancellation to the Issuer and the Borrower. The Trustee shall treat such cancelled Bonds in accordance with its document retention policies and shall not be required to destroy such Bonds.

Section 2.07 CUSIP Numbers. As provided in Section 2.01(d) of this Indenture, the Issuer in issuing the Bonds may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to holders of Bonds; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Bonds or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Bonds, and any such redemption shall not be affected by any defect in or omission of such CUSIP numbers. The Issuer shall promptly notify the Trustee of any changes in the CUSIP numbers.

Section 2.08 Other Obligations. The Issuer expressly reserves the right to issue, to the extent permitted by law, obligations under another ordinance or ordinances and/or indenture to provide additional funds or, at the request of the Borrower, to refund all or any principal amount of the Bonds.

Section 2.09 Temporary Bonds. Pending the preparation of definitive Bonds, the Issuer may execute and the Trustee shall authenticate and deliver temporary Bonds. Temporary Bonds shall be issuable as fully registered Bonds, of any Authorized Denomination, and substantially in the form of the definitive Bonds but with such omissions, insertions and variations as may be appropriate for temporary Bonds, all as may be determined by the Issuer. Temporary Bonds may

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contain such reference to any provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Issuer and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Bonds. As promptly as practicable, the Issuer shall execute and shall furnish definitive Bonds and thereupon temporary Bonds may be surrendered in exchange therefor without charge at the Principal Office of the Trustee, and the Trustee shall authenticate and deliver in exchange for such temporary Bonds a like aggregate principal amount of the definitive Bonds of Authorized Denominations. Until so exchanged the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds.

ARTICLE III

ISSUANCE OF BONDS

Section 3.01 Authentication and Delivery of Bonds. Forthwith upon the execution and delivery of this Indenture, the Issuer shall execute and deliver to the Trustee and the Trustee shall authenticate the Bonds and deliver the Bonds to the initial purchasers thereof as directed hereinafter in this Section 3.01. Without any further action on the part of the Issuer, the Trustee shall authenticate the Bonds in an aggregate principal amount of Fifty-Nine Million Two Hundred Thirty-Five Thousand Dollars ($59,235,000). Prior to the delivery on original issuance by the Trustee of any authenticated Bonds there shall be or have been delivered to the Trustee:

(i) An original duly executed counterpart of this Indenture.

(ii) An original duly executed counterpart of the Agreement.

(iii) A written order of the Issuer to the Trustee to authenticate and deliver the Bonds to the purchaser or purchasers therein identified upon payment to the Trustee, but for the account of the Issuer, of a sum specified in such request and authorization plus any accrued interest on such Bonds to the date of delivery.

(iv) A written statement on behalf of the Borrower, executed by an Authorized Borrower Representative, (i) approving the issuance and delivery of the Bonds and (ii) consenting to each and every provision of this Indenture.

(v) The Bond Insurance Policy.

Section 3.02 Application of Proceeds of Bonds. The proceeds received by the Issuer from the sale of the Bonds in the amount of $59,235,000 shall be deposited with the Trustee, and the Trustee shall transfer such proceeds to JPMorgan Chase Bank, as trustee for the Prior Bonds, to be applied to the redemption of the Prior Bonds.

Section 3.03 Payment of Principal and Interest. For the payment of interest on the Bonds, the Issuer shall cause to be deposited in the Bond Fund established under Section 5.01 hereof, on or prior to each Interest Payment Date, solely out of the Receipts and Revenues, an amount sufficient to pay the interest to become due on such Interest Payment Date. The obligation of the Issuer to cause any such deposit to be made hereunder shall be reduced by the amount of moneys in the Bond Fund available on such Interest Payment Date for the payment of interest on the Bonds.

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For the payment of the principal of the Bonds on the Maturity Date or upon earlier redemption, the Issuer shall cause to be deposited in the Bond Fund, on or prior to the Maturity Date or redemption date of the Bonds, solely out of the Receipts and Revenues, an amount sufficient to pay the principal of the Bonds then due. The obligation of the Issuer to cause any such deposit to be made hereunder shall be reduced by the amount of moneys in the Bond Fund available on the Maturity Date or redemption date for the payment of the principal of the Bonds.

ARTICLE IV

REDEMPTION AND PURCHASE OF BONDS

Section 4.01 Redemption of Bonds. The Bonds shall be subject to redemption, at the option of the Issuer, upon the request of the Borrower, in whole or in part on any Business Day on or after August 1, 2008, at a redemption price equal to the principal amount being redeemed together with the accrued interest on such principal amount to the date fixed for redemption. The Bonds shall also be subject to redemption if and to the extent the Borrower is entitled or required to make and makes a prepayment pursuant to Article IX of the Agreement. The Trustee shall not give notice of any optional redemption under Section 4.01(a) hereof unless the Borrower has so directed in accordance with Section 9.02 of the Agreement. In the event of a failure by the Borrower to give a notice of mandatory prepayment under Section 9.03 of the Agreement, such notice may be given by the Issuer, the Trustee or any holder or holders of ten percent (10%) or more in aggregate principal amount of the Outstanding Bonds.

The Bonds shall be redeemed upon the following terms:

(a) Redemption Upon Optional Prepayment.

(i) Extraordinary Events. During any Long-Term Interest Rate Period, the Bonds shall be redeemed prior to the Maturity Date in whole or in part, and if in part by lot, at any time at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, upon receipt by the Trustee of a written notice of the Borrower and signed by an Authorized Borrower Representative stating that any of the following events has occurred (which determination shall be in the sole discretion of the Borrower) and that the Borrower therefore intends to exercise its option to prepay all payments due under the Agreement, including Repayment Installments, in whole or in part pursuant to Section 9.01 of the Agreement and thereby effect the redemption of Bonds in whole or in part to the extent of such prepayments:

(A) All or part of the Project or the Plant shall have been damaged or destroyed to such an extent that, in the opinion of the Borrower, (i) the Project or the Plant or such affected portion could not reasonably be restored within a period of four (4) months to the condition thereof immediately preceding such damage or destruction, and the

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Borrower or the operator of the Project or the Plant will be prevented, or is likely to be prevented for a period of four (4) consecutive months or more, from carrying on all or substantially all of its normal operation of the Project or the Plant, or (ii) the cost of restoration of the Project or the Plant or such affected portion will be substantially in excess of the net proceeds of insurance thereon.

(B) Title to, or the temporary use of, all or a part of the Project or the Plant shall have been taken under the exercise of the power of eminent domain.

(C) Changes in economic availability of raw materials, operating supplies or facilities necessary to operate all or a part of the Project or the Plant, or technological or other changes which make the continued operation of the Project or the Plant or such affected portion uneconomical, in the opinion of the Borrower, shall have occurred and shall have resulted in a cessation of all or substantially all of the Borrower’s normal operations of either the Project or the Plant.

(D) Unreasonable burdens or excessive liabilities shall have been imposed upon the Issuer or the Borrower in respect of all or a part of the Project or the Plant including, without limitation, federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Agreement, as well as any statute or regulation enacted or promulgated after the date of the Agreement that prevents the Borrower from deducting interest in respect of the Agreement for federal income tax purposes.

(E) All or substantially all of the property of the Borrower shall be transferred or sold to any entity other than an affiliate of the Borrower or the Borrower shall be consolidated with or merged into an entity other than an affiliate of the Borrower in such manner that the Borrower is not the surviving entity and the surviving, resulting or transferee entity does not agree to perform the obligations of the Borrower.

(ii) Borrower Option. The Bonds shall be subject to redemption prior to the Maturity Date by the exercise by the Borrower of any of its options to prepay all or part of the unpaid balance of the Repayment Installments and cause the Bonds to be redeemed, in whole, or in part by lot, prior to the Maturity Date, as follows:

(A) During any Short-Term Interest Rate Period, each Bond shall be subject to such redemption on the day next succeeding the last day of each Bond Interest Term for such Bond at a redemption price equal to 100% of the principal amount thereof.

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(B) During any Daily Interest Rate Period or Weekly Interest Rate Period, the Bonds shall be subject to such redemption on any Interest Payment Date at a redemption price equal to 100% of the principal amount thereof.

(C) On the day next succeeding the last scheduled day of any Long-Term Interest Rate Period, the Bonds shall be subject to such redemption at a redemption price of 100% of the principal amount thereof. During any Long-Term Interest Rate Period, the Bonds shall be subject to redemption during the periods specified below, in whole or in part, at the redemption prices (expressed as percentages of principal amount) hereinafter indicated (unless different redemption terms shall be specified by the Borrower pursuant to Section 2.01(c)(iv)(B)):

Length of Long-Term Interest Rate Period (expressed in years)	Redemption Prices
Greater than 17	After 10 years at 102% declining by 1% every 12 months to 100%
Less than or equal to 17 and greater than 10	After 8 years at 102%, declining by 1% every 12 months to 100%
Less than or equal to 10 and greater than 7	After 6 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 7 and greater than 4	After 3 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 4 and greater than 3	After 2 years at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%
Less than or equal to 3 and greater than 2	After 1 year at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%
Less than or equal to 2 and greater than 1	After 1 year at 100%
1 year or less	Not redeemable.

(iii) Change of Use. During any Long-Term Interest Rate Period, the Bonds shall be subject to redemption prior to the Maturity Date upon prepayment of the Repayment Installments attributable to the Bonds at the option of the

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Borrower in whole or in part by lot on any Interest Payment Date, at a redemption price equal to 100% of the principal amount thereof, if the Borrower delivers to the Trustee a written or Electronic notice to the effect that either:

(A) the Borrower has determined that some or all of the interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period is not or will not be deductible, in whole or in part, for federal income tax purposes by reason of Section 150(b) of the Code (or would not be deductible unless some or all of the Bonds are redeemed) due to a change in use of the Project or any portion thereof, and the Borrower will not claim deductions for such interest on its federal income tax returns; or

(B) the Borrower after reasonable effort has been unable to obtain an opinion of Bond Counsel that it is more likely than not that Section 150 of the Code will not prevent interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period from being deductible, in whole or in part, for federal income tax purposes.

In either such case, the Borrower shall only cause the Trustee to redeem Bonds pursuant to this Section 4.01(a)(iii) on or after the Interest Payment Date immediately preceding the date on which, due to a change in use in the Project or any portion thereof, the period of potential interest expense disallowance described above commences, and the Borrower may only cause the Trustee to redeem such principal amount of Bonds as the Borrower determines is necessary to assure that the Borrower retains its right to all such deductions otherwise allowable or, if a partial redemption will not enable the Borrower to retain the right to deduct such interest, the Borrower may cause the Trustee to redeem all the Outstanding Bonds.

Notwithstanding any term or provision of Section 4.01(a) of this Indenture to the contrary, the Bonds shall not be subject to optional redemption unless (i) the Bank, if any, shall consent thereto in writing and deliver such consent to the Borrower and the Trustee, (ii) in connection with such redemption, the proceeds of a refunding shall be sufficient to pay, and shall be used to pay, the redemption price of the Bonds so redeemed or (iii) sufficient Available Moneys (other than proceeds of any drawing under the Letter of Credit) shall have been deposited by the Borrower with the Trustee for the payment of all amounts due in respect of all Bonds called for redemption pursuant to Section 4.01(a) of this Indenture. This paragraph shall be inapplicable if at the time of such optional redemption there is no Letter of Credit or other Credit Facility with respect to the Bonds.

(b) Redemption Upon Mandatory Prepayment. The Bonds shall be subject to redemption prior to the Maturity Date from amounts which are required to be prepaid by the Borrower under Section 9.03 of the Agreement, as set forth below.

(i) The Bonds shall be redeemed in whole on any date at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date upon the occurrence of a Determination of Taxability; provided, however,

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that if, in the opinion of Bond Counsel delivered to the Trustee, the redemption of a specified portion of such Bonds Outstanding would have the result that interest payable on such Bonds remaining Outstanding after such redemption would remain Tax-Exempt, then such Bonds shall be redeemed in part by lot (in Authorized Denominations), in such amount as Bond Counsel in such opinion shall have determined is necessary to accomplish that result.

(ii) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that as a result of any changes in the Constitution of the United States of America or the Constitution of the State of Arizona or as a result of any legislative, judicial or administrative action, the Agreement shall have become void or unenforceable or impossible to perform in accordance with the intention and purposes of the parties thereto, or shall have been declared unlawful.

(iii) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that at least thirty-five (35) days prior to the expiration of any Credit Facility, if any, then in effect with respect to the Bonds the Trustee shall not have received (a) a renewal or extension of the existing Credit Facility, for a period of at least one (1) year (or, if shorter, the period to the Maturity Date) or (b) a substitute Credit Facility meeting the requirements of Section 6.08 of the Agreement. Such redemption shall occur on the last Business Day which is not less than five (5) calendar days preceding the expiration date of a Credit Facility, if any, then in effect.

(iv) The Bonds shall be redeemed in whole on any date at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date prior to any merger, consolidation, reorganization or conversion of the Borrower, or any sale or other disposition of any of the Borrower’s assets; provided, however, that if the successor to such merger, consolidation or disposition is a public utility regulated by the applicable state regulatory body or the Federal Energy Regulatory Commission, then this Section 4.01(b)(iv) shall not apply.

(c) Extraordinary Mandatory Redemption. The Bonds shall be subject to mandatory redemption prior to the Maturity Date on any date, in whole but not in part, at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date prior to any merger, consolidation, reorganization or conversion of the Borrower, or any sale or other disposition of all or substantially all of the Borrower’s assets if the successor to such merger, consolidation or disposition is not a public utility (including a holding company) regulated by the applicable state regulatory body or the Federal Energy Regulatory Commission.

Section 4.02 Selection of Bonds to be Redeemed. If less than all the Bonds shall be called for redemption, the Trustee shall select the Bonds or any given portion thereof to be redeemed, from Outstanding Bonds or any given portion thereof not previously called for

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redemption, by lot. For the purpose of any such selection the Trustee shall assign a separate number for each minimum Authorized Denomination of each Bond of a denomination of more than such minimum; provided that following any such selection, both the portion of such Bond to be redeemed and the portion remaining shall be in Authorized Denominations. The Trustee shall promptly notify the Issuer and the Borrower in writing of the numbers of the Bonds or portions thereof so selected for redemption. Notwithstanding the foregoing, if less than all of the Bonds are to be redeemed at any time while the Bonds are Book-Entry Bonds, selection of the Bonds to be redeemed shall be made in accordance with customary practices of DTC or the applicable successor depository, as the case may be.

Section 4.03 Notice for Redemption. The Trustee shall give notice, Electronically or by first class mail, in the name of the Issuer, of the redemption of the Bonds, not less than thirty (30) nor more than sixty (60) days prior to the redemption date for Bonds bearing interest fixed to the Maturity Date or at Daily, Weekly or Long-Term Interest Rates, and at any time not more than sixty (60) days prior to the redemption date for Bonds bearing interest at Bond Interest Term Rates. Each notice of redemption shall (i) specify the Bonds to be redeemed, the redemption date, the redemption price, the place where amounts due upon such redemption will be payable (which shall be the Principal Office of the Paying Agent) and the source of the funds to be used for such redemption, the principal amount, the CUSIP numbers (if any) of the Bonds to be redeemed and, if less than all, the distinctive certificate numbers of the Bonds to be redeemed and, in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that the interest on the Bonds designated for redemption shall cease to accrue from and after such redemption date and that on said date there will become due and payable on each of said Bonds the principal amount thereof to be redeemed, interest accrued thereon, if any, to the redemption date and the premium, if any, thereon (such premium to be specified) and shall require that such Bonds be then surrendered at the address or addresses of the Paying Agent specified in the redemption notice; provided, however, the failure to duly give such notice, or any defect therein, shall not affect the validity of any proceedings for the redemption of Bonds with respect to which no such failure or defect occurred. In the event that any Bond selected for redemption shall be tendered for purchase pursuant to Section 4.08 hereof, the Tender Agent shall note on each Bond delivered to an Owner pursuant to Section 14.05 hereof upon the purchase of such tendered Bond that such Bond has been called for redemption and the date of such redemption. Upon presentation and surrender of Bonds so called for redemption at the place or places of payment, such Bonds shall be redeemed and cancelled. Notice of any redemption hereunder shall also be given to the Tender Agent, the Bank and the Bond Insurer. The cost of mailing any such redemption notice shall be paid by the Borrower.

With respect to any notice of optional redemption of Bonds pursuant to Section 4.01(a), unless upon the giving of such notice such Bonds shall be deemed to have been paid within the meaning of Article IX hereof, such notice shall state that such redemption shall be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of Available Moneys sufficient to pay the principal of, premium, if any, and interest on, such Bonds to be redeemed, and that if such Available Moneys shall not have been so received said notice shall be of no force and effect and the Issuer shall not be required to redeem such Bonds. In the event that such notice of redemption contains such a condition and such Available Moneys are not so received, the redemption shall not be made and the Trustee shall within a reasonable time thereafter give notice, to the persons and in the manner in which the notice of redemption was given, that such Available Moneys were not so received.

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Any notice for the redemption of any Bond mailed as provided herein shall be conclusively deemed to have been duly given whether or not such notice is received. Failure to mail the notices required by this paragraph to any holder of a Bond, or any defect in any notice so mailed, shall not affect the validity of the proceedings for redemption of any Bonds nor impose any liability on the Trustee.

Section 4.04 Partial Redemption of Bonds. Upon surrender of any Bond redeemed in part only, the Registrar shall exchange the Bond redeemed for a new Bond of like tenor and in an Authorized Denomination without charge to the holder in the principal amount of the portion of the Bond not redeemed. In the event of any partial redemption of a Bond which is registered in the name of the Nominee, DTC may elect to make a notation on the Bond certificate which reflects the date and amount of the reduction in principal amount of said Bond in lieu of surrendering the Bond certificate to the Registrar for exchange. The Issuer, the Trustee and the Registrar shall be fully released and discharged from all liability upon, and to the extent of, payment of the redemption price for any partial redemption and upon the taking of all other actions required hereunder in connection with such redemption.

Section 4.05 Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the redemption price being held by the Trustee, the Bonds so called for redemption shall, on the redemption date designated in such notice, become due and payable at the redemption price specified in such notice, interest on the Bonds so called for redemption shall cease to accrue, said Bonds shall cease to be entitled to any lien, benefit or security under this Indenture, and the holders of said Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof (including interest, if any, accrued to the redemption date), without interest accrued on any funds held after the redemption date to pay such redemption price.

All Bonds fully redeemed pursuant to the provisions of this Article IV shall upon surrender thereof be cancelled by the Trustee, who shall deliver a certificate evidencing such cancellation to the Issuer and the Borrower. The Trustee shall treat such cancelled Bonds in accordance with its document retention policies and shall not be required to destroy such Bonds.

Section 4.06 Payment of Redemption Price.

(i) For the redemption of any of the Bonds, the Issuer shall cause to be deposited in the Bond Fund, on or prior to the date fixed for redemption, solely out of the Receipts and Revenues, an amount sufficient to pay the principal of and interest and any premium to become due on the date fixed for such redemption on the Bonds; provided that so long as a Credit Facility is in effect with respect to the Bonds and such Credit Facility does not cover some or all of the optional or mandatory redemption price, any amount payable as the optional or mandatory redemption price upon redemption of Bonds and not covered by such Credit Facility shall be on deposit in the Bond Fund and constitute Available Moneys prior to the Trustee giving any notice of redemption hereunder. The Bond

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Insurance Policy shall not cover payments for the redemption of any of the Bonds, other than payments of the redemption price and accrued interest due on the redemption date upon the mandatory redemption resulting from the occurrence of the Determination of Taxability pursuant to Section 4.01(b) hereof and payments of the redemption price and accrued interest due on the redemption date upon the extraordinary mandatory redemption pursuant to Section 4.01(c) hereof.

(ii) Moneys for payment of the principal of and interest and any premium to the date fixed for redemption on Bonds called for redemption and not presented for payment on the date fixed for redemption shall be set aside by the Trustee in trust for the Owners of such Bonds and shall be held uninvested. Interest on such Bonds shall cease to accrue on the date fixed for redemption.

Section 4.07 Bank Purchase Option.

(i) Notwithstanding any term or provision of this Indenture to the contrary, if a Credit Facility is in effect, (i) if an Event of Default shall occur and the Bonds are accelerated or (ii) if any Bonds shall be subject to redemption pursuant to Section 4.01 of this Indenture, or (iii) if the Remarketing Agent shall be unable to remarket Bonds as provided in Article XIV of this Indenture, then in any of such cases the Bank may from time to time in its discretion (in the manner provided in this Section 4.07) purchase all of the Bonds or the portion thereof that is subject to redemption, acceleration or which the Remarketing Agent has been unable to remarket, on the terms provided herein.

(ii) The Bank shall notify the Trustee in writing of its exercise of its purchase option pursuant hereto at or before the time by which payment of any drawing of a Credit Facility is required in respect of the relevant acceleration, redemption or failure to remarket Bonds which gives rise to such purchase option. Such notice may be given after presentation by the Trustee of any document or draft under such Credit Facility with respect to such acceleration, redemption or failure to remarket, in which case purchase of the relevant Bonds by the Bank shall take precedence over such drawing; provided, that if the Bank has not exercised its purchase option and paid the purchase price of the Bonds being purchased by the time by which payment is due under such Credit Facility in respect of such drawing, the Bank shall pay such drawing pursuant to such Credit Facility. If the Trustee shall have presented drafts or documents under such Credit Facility, the Bank’s notice of exercise of its purchase option may accompany payment of the purchase price of Bonds being acquired. The purchase price of Bonds purchased by the Bank pursuant hereto shall be paid to the Trustee at such account as it shall specify and shall be distributed by the Trustee to the former owners from which such Bonds shall have been purchased; provided, that in the case of any Bonds purchased upon a failed remarketing pursuant to paragraph (vi) of this Section 4.07, the purchase price shall be paid to the Remarketing Agent for distribution to the former Owners of such Bonds which tendered them to the Tender Agent.

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(iii) No purchase of any Bonds by the Bank in accordance herewith shall cause such Bonds to be extinguished or deemed paid, and upon payment of the purchase price of Bonds by the Bank, the Trustee shall authenticate and deliver to the Bank (or its nominee) as Owner a Bond or Bonds in an aggregate principal amount equal to the aggregate principal amount of Bonds so purchased (which shall be deemed to be in an “Authorized Denomination” for all purposes of this Indenture), and such Bonds so delivered shall be Outstanding Bonds that are entitled to the benefits of this Indenture equally and proportionately with all other Bonds; provided that the Trustee shall not make any drawing on a Credit Facility in respect of Bonds known by the Trustee to be held by the Bank (or its nominee) except as provided in paragraph (viii) of this Section 4.07. Bonds purchased by the Bank which are not delivered to the Trustee by the date upon which such Bonds were to have been purchased nonetheless will be deemed to have been purchased by the Bank, and the former Owner or Owners of such Bonds shall have no claim thereon, under this Indenture or otherwise, for any amount other than the purchase price thereof. Interest accruing after the purchase date of such Bonds shall no longer be payable to the former Owners thereof.

(iv) Bonds called for and subject to redemption pursuant to Section 4.01 of this Indenture may, at the option of the Bank, be purchased by the Bank pursuant to this Section 4.07 in lieu of such redemption on the date upon which such Bonds were to have been redeemed at a purchase price equal to the amount that would have been payable on such Bonds if such Bonds had been so redeemed, except as provided in paragraph (vii) of this Section 4.07; provided, that no Bond called for redemption shall be subject to purchase by the Bank pursuant to this Section 4.07 if (i) in connection with such redemption, the proceeds of a refunding shall be sufficient to pay, and shall be used to pay, the redemption price of the Bonds so redeemed or (ii) sufficient Available Moneys (other than proceeds of any drawing under a Credit Facility) shall have been deposited by the Borrower with the Trustee for the payment of all amounts due in respect of all Bonds called for redemption pursuant to Section 4.01 of this Indenture. The Bank shall pay the purchase price for Bonds purchased by the Bank on such redemption date.

(v) If an Event of Default occurs and the Bonds are accelerated, the Bank may purchase all Bonds, pursuant to this Section 4.07, for a purchase price equal to the principal amount of such Bonds plus interest accrued thereon to the date of purchase, except as otherwise provided in paragraph (vii) of this Section 4.07.

(vi) In the event that the Remarketing Agent shall be unable to remarket any Bonds as provided in Article XIV hereof, the Bank may, at its option, purchase all such unremarketed Bonds pursuant to this Section 4.07, at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, on the date on which such Bonds would otherwise be purchased by the Remarketing Agent pursuant to Section 14.03(b), except as otherwise provided in paragraph (vii) of this Section 4.07.

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(vii) Upon a purchase of Bonds by the Bank pursuant to this Section 4.07, the Bank may, in its discretion, purchase all Bonds, if any, then held by the Trustee which have been purchased by or on behalf of the Borrower with moneys drawn under a Credit Facility as to which drawing the Borrower has not reimbursed the Bank in accordance with the Reimbursement Agreement without the payment of any cash purchase price therefor, but the Borrower’s reimbursement obligations under the Reimbursement Agreement shall be reduced by an amount equal to the principal amount of such Bonds so deemed purchased. The Bank may exercise its option pursuant to the preceding sentence by a notice to the Trustee given with or included in the relevant notice to the Trustee under paragraph (ii) of this Section 4.07, together with a notice which shall confirm that a Credit Facility has been reinstated in an equal amount.

(viii) Notwithstanding any term or provision of this Indenture to the contrary, the Trustee shall not without the prior written consent of the Bank make any drawing under a Credit Facility with respect to the principal amount of any Bonds known by the Trustee to be held by the Bank or its nominee; provided, that the Trustee shall make drawings of interest under a Credit Facility with respect to the Bonds held by the Bank or its nominee, as provided in this Indenture.

(ix) The purchase price of any Bonds to be purchased by the Bank in accordance with this Section 4.07 shall be paid by the Bank with its general funds and not directly or indirectly from funds or collateral on deposit with or pledged to the Bank for the account of the Issuer or the Borrower or any affiliate thereof, and such payment by the Bank shall not be deemed to be a draw under a Credit Facility.

(x) Notwithstanding any term or provision of this Indenture or the Bonds to the contrary, if at any time all of the Outstanding Bonds are in aggregate held by the Bank or its nominee (whether pursuant to the provisions hereof or otherwise), the Bank shall not be entitled to exercise its rights under Section 4.08 of this Indenture or under the Bonds to require that the Bonds be purchased unless either (i) the Bank shall have given the Borrower, the Trustee and the Remarketing Agent at least 30 days prior written notice of its intention to exercise such rights or (ii) the Remarketing Agent shall have received from the Borrower offering materials relating to the Bonds which are, in the opinion of the counsel to the Borrower and the counsel to the Issuer, correct and complete in all material respects.

Section 4.08 Purchase of Bonds.

(a) Holder’s Option to Tender for Purchase.

(i) During any Daily Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased on any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest from the Interest Accrual Date immediately prior to the date of purchase to the

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date of purchase (unless the date of purchase shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office, by no later than 11:00 a.m. (New York City time) on such Business Day, of an irrevocable written, telephonic or Electronic notice which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 hereof. The Tender Agent shall keep a written record of the notice described in Clause (A).

(ii) During any Weekly Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased on any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, from the Interest Accrual Date immediately prior to the date of purchase to the date of purchase (unless the date of purchase shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office by no later than 5:00 p.m. (New York City time), on such Business Day at least seven (7) days prior to the date of purchase of an irrevocable written, telephonic or Electronic notice, which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 hereof. The Tender Agent shall keep a written record of the notice described in Clause (A).

(iii) If any Bond is to be purchased in part pursuant to (i) or (ii) above, the amount so purchased and the amount not so purchased must each be an Authorized Denomination.

(iv) Any instrument delivered to the Tender Agent in accordance with this Section 4.08 shall be irrevocable with respect to the purchase for which such instrument was delivered and shall be binding upon any subsequent Owner of the Bond to which it relates, including any Bond issued in exchange therefor or upon the registration of transfer thereof, and as of the date of such instrument, the Owner of the Bonds specified therein shall not have any right to optionally tender for purchase such Bonds prior to the date of purchase specified in such notice. The Tender Agent and the Trustee may conclusively assume that any person (other than a holder) providing notice of optional tender pursuant to (i) or (ii) above is the Owner of the Bond to which such notice relates, and neither the Tender Agent nor the Trustee shall assume any liability in accepting such notice from any person whom it reasonably believes to be an Owner of Bonds.

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(b) Mandatory Tender for Purchase.

(i) The Bonds shall be subject to mandatory tender for purchase at a purchase price, except as provided in paragraph (ii) below, equal to 100% of the principal amount thereof, plus accrued interest to the date of purchase described below, upon the occurrence of any of the events stated below:

(A) as to any Bond, on the effective date of any change in an Interest Rate Period for such Bond, other than the effective date of any change from a Daily Interest Rate Period to a Weekly Interest Rate Period or from a Weekly Interest Rate Period to a Daily Interest Rate Period; or

(B) as to each Bond in a Short-Term Interest Rate Period, on the day next succeeding the last day of each Bond Interest Term with respect to such Bond; or

(C) as to all Bonds, on the effective date of any Credit Facility which may be provided with respect to the Bonds pursuant to Section 6.08 of the Agreement or of any substitute Credit Facility provided with respect to the Bonds pursuant to Section 6.08 of the Agreement.

(ii) In the event that on a date the Bonds are subject to optional redemption pursuant to Section 4.01(a)(ii), the Borrower elects to change the Interest Rate Period with respect to the Bonds during a Long-Term Interest Rate Period to a different Interest Rate Period or to provide, substitute or terminate a Credit Facility, if any, during a Long-Term Interest Rate Period and thereby causes a mandatory tender of such Bonds as provided in Section 4.08(b)(i)(A) or (C), as the case may be, the Bonds shall be purchased on the applicable mandatory tender date at a purchase price equal to the principal amount thereof plus an amount equal to any premium which would have been payable on such day had the Borrower directed redemption of the Bonds pursuant to Section 4.01(a)(ii) hereof.

(iii) The Trustee shall give notice Electronically or by first class mail of the provision of any Credit Facility with respect to the Bonds or the provision of any substitute Credit Facility with respect to the Bonds to the holders of the Bonds at their addresses shown on the registration books kept by the Registrar, not later than the fifteenth day (thirtieth day if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the date on which the Bonds are subject to mandatory tender pursuant to Section 4.08(b)(i)(C), which notice shall (i) state the date of such provision or substitution; and (ii) state that such Bonds shall be subject to mandatory tender for purchase on the effective date of such provision or substitution in accordance with Section 4.08(b)(i)(C) hereof.

(c) Mandatory Tender for Purchase on Termination or Expiration of Credit Facility. In the event that any Credit Facility either is to terminate or is to expire in accordance with its terms (other than because a final drawing thereunder shall have been made in accordance with its terms), unless the term of the Credit Facility shall be extended or unless the Borrower shall provide the Trustee, no later than the 35^th day

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preceding the mandatory purchase date set forth herein with a substitute Credit Facility and with written evidence from Moody’s, if the Bonds shall be rated and the time by Moody’s, and from S&P, if the Bonds shall be rated at the time by S&P and from Fitch, if the Bonds shall be rated at the time by Fitch, to the effect that such substitute Credit Facility will not, by itself, result in a reduction or withdrawal of the rating on the Bonds by Moody’s or S&P or Fitch, as the case may be (and the Trustee shall have received written notice of such extension or such substitution and evidence thereof prior to giving the notice required in paragraph (b) above), the Bonds shall be subject to mandatory tender for purchase at a purchase price, payable in immediately available funds, of 100% of their principal amount, plus accrued interest, if any, to the mandatory purchase date, on the second Business Day prior to the date of such termination or expiration.

Section 4.09 Delivery of Tendered Bonds. With respect to any Book-Entry Bond, delivery of such Bond to the Tender Agent in connection with any optional or mandatory tender pursuant to Section 4.08 hereof shall be effected by the making of, or the irrevocable authorization to make, appropriate entries on the books of DTC or any DTC Participant to reflect the transfer of the beneficial ownership interest in such Bond to the account of the Tender Agent, or to the account of a DTC Participant acting on behalf of the Tender Agent. With respect to any Bond which is not a Book-Entry Bond, delivery of such Bond to the Tender Agent in connection with any optional or mandatory tender pursuant to Section 4.08 hereof shall be effected by physical delivery of such Bond to the Tender Agent at its Principal Office, by 1:00 p.m. (New York City time) on the purchase date, accompanied by a proper instrument of transfer thereof, in a form satisfactory to the Tender Agent, executed in blank by the holder thereof with the signature of such holder guaranteed in accordance with the guidelines set forth by one of the nationally recognized medallion signature programs.

Section 4.10 Bonds Deemed Purchased.

(a) If moneys sufficient to pay the purchase price of Bonds to be purchased pursuant to Section 4.08 shall be held by the Tender Agent on the date such Bonds are to be purchased, such Bonds shall be deemed to have been purchased for all purposes of this Indenture, irrespective of whether or not such Bonds shall have been delivered to the Tender Agent, and neither the former holder of such Bonds nor any other person shall have any claim thereon, under this Indenture or otherwise, for any amount other than the purchase price thereof.

(b) In the event of non-delivery of any Bond to be purchased pursuant to Section 4.08 hereof, the Tender Agent shall segregate and hold uninvested the moneys for the purchase price of such Bonds in trust, without liability for interest thereon, for the benefit of the former holders of such Bonds, who shall, except as provided in the following sentence, thereafter be restricted exclusively to such moneys for the satisfaction of any claim for the purchase price of such Bonds. Any moneys which the Tender Agent shall segregate and hold in trust for the payment of the purchase price of any Bond and remaining unclaimed for two (2) years after the date of purchase shall be paid, upon the Borrower’s written request, to the Borrower. After the payment of such unclaimed moneys to the Borrower, the former holder of such Bond shall look only to the Borrower for the payment thereof.

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(c) If moneys sufficient to pay the Purchase Price of Bonds to be purchased pursuant to Section 4.08(a) or 4.08(b) hereof shall not be held by the Tender Agent by 2:30 p.m. (New York City time) on the date such Bonds are to be purchased and:

(A) if a Credit Facility is in effect with respect to the Bonds, it shall not constitute an Event of Default under the Indenture or an Event of Default under the Loan Agreement if the Bonds are not purchased upon tender on any Purchase Date due to such insufficiency and (x) no purchase shall be consummated on such Purchase Date and the Tender Agent shall, after any applicable grace period, (1) return all tendered Bonds to the Holders thereof and (2) return all remarketing proceeds to the Remarketing Agent for return to the Persons providing such moneys; and (y) such Bonds shall bear interest at the interest rate specified in Section 2.01(c) hereof during the period of time from and including the applicable Purchase Date to (but not including) the date that all such Bonds are successfully remarketed (the “Delayed Remarketing Period”), but in no event shall such rate be greater than the Maximum Interest Rate; or

(B) if no Credit Facility is in effect with respect to the Bonds, it shall constitute an Event of Default under the Indenture or an Event of Default under the Loan Agreement if the Bonds are not purchased upon tender on any Purchase Date due to such insufficiency, and the Bonds shall bear interest at the Maximum Interest Rate from and after the Purchase Date.

Section 4.11. Payment Procedure Pursuant to Bond Insurance Policy. As long as the Bond Insurance Policy shall be in full force and effect, the Issuer and the Trustee shall comply with the following provisions:

(a) If, on the third day next preceding any Interest Payment Date for the Bonds there is not on deposit with the Trustee sufficient moneys available to pay all principal of and interest on the Bonds due on such date, the Trustee shall immediately notify the Bond Insurer and U.S. Bank Trust National Association, New York, New York, or its successor as its Fiscal Agent (the “Fiscal Agent”) of the amount of such deficiency. If, by said Interest Payment Date, the Issuer has not provided the amount of such deficiency, the Trustee shall simultaneously make available to the Bond Insurer and to the Fiscal Agent the Bond Register for the Bonds maintained by the Trustee. In addition:

(i) The Trustee shall provide the Bond Insurer with a list of the Owners entitled to receive principal or interest payments from the Bond Insurer under the terms of the Bond Insurance Policy and shall make arrangements for the Bond Insurer and its Fiscal Agent (1) to mail checks or drafts to Owners entitled to receive full or partial interest payments from the Bond Insurer and (2) to pay principal of the Bonds surrendered to the Fiscal Agent by the Owners entitled to receive full or partial principal payments from the Bond Insurer; and

(ii) The Trustee shall, at the time it makes the Bond Register available to the Bond Insurer pursuant to subsection (a) above, notify Owners entitled to receive the payment of principal of or interest on the Bonds from the Bond Insurer (1) as to the fact of such entitlement, (2) that the Bond Insurer will remit to them all or part of the interest payments coming due subject to the terms of the Bond Insurance Policy, (3) that, except as provided in subsection (b) below, in the event

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that any Owner is entitled to receive full payment of principal from the Bond Insurer, such Owner must tender its Bond with the instrument of transfer in the form provided on the Bond executed in the name of the Bond Insurer, and (4) that, except as provided in subsection (b) below, in the event that such Owner is entitled to receive partial payment of principal from the Bond Insurer, such Owner must tender its Bond for payment first to the Trustee, which shall note on such Bond the portion of principal paid by the Trustee, and then, with an acceptable form of assignment executed in the name of the Bond Insurer, to the Fiscal Agent, which will then pay the unpaid portion of principal to the Owner subject to the terms of the Bond Insurance Policy.

(b) In the event that the Trustee has notice that any payment of principal of or interest on a Bond has been recovered from an Owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee shall, at the time it provides notice to the Bond Insurer, notify all Owners that in the event that any Owner’s payment is so recovered, such Owner shall be entitled to payment from the Bond Insurer to the extent of such recovery, and the Trustee shall furnish to the Bond Insurer its records evidencing the payments of principal of and interest on the Bonds which have been made by the Trustee and subsequently recovered from Owners, and the dates on which such payments were made.

(c) The Bond Insurer shall, to the extent it makes payment of principal of or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Bond Insurance Policy and, to evidence such subrogation, (1) in the case of subrogation as to claims for past due interest, the Trustee shall note the Bond Insurer’s rights as subrogee on the Bond Register upon receipt from the Bond Insurer of proof of the payment of interest thereon to the Owners of such Bonds and (2) in the case of subrogation as to claims for past due principal, the Trustee shall note the Bond Insurer’s rights as subrogee on the Bond Register for the Bonds upon receipt of proof of the payment of principal thereof to the Owners of such Bonds. Notwithstanding anything in this Indenture or the Bonds to the contrary, the Trustee shall make payment of such past due interest and past due principal upon receipt thereof directly to the Bond Insurer to the extent that the Bond Insurer is a subrogee with respect thereto.

ARTICLE V

THE BOND FUND

Section 5.01 Creation of Bond Fund. There is hereby created by the Issuer and ordered established with the Trustee a trust fund in the name of the Issuer to be designated “Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds 2005 Series A (El Paso Electric Company, Palo Verde Project) Bond Fund,” (the “Bond Fund”). The Trustee shall establish one or more accounts within the Bond Fund for the purpose of segregating moneys drawn under a Credit Facility, if any, and Available Moneys therein, and may establish one or more accounts within the Bond Fund for other purposes.

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Section 5.02 Deposits into Bond Fund.

There shall be deposited in the Bond Fund:

(i) The accrued interest and purchase premium, if any, paid by the initial purchasers of the Bonds;

(ii) All Repayment Installments and moneys drawn by the Trustee under a Credit Facility for the payment of principal of and interest and any premium on the Bonds, other than moneys paid by the Bank pursuant to Section 4.07 hereof or drawn under a Credit Facility pursuant to subsection (b) of Section 14.03 hereof or Section 4.07 hereof;

(iii) All other moneys received by the Trustee under and pursuant to any provision of the Agreement, other than Sections 5.04, 5.08 and 8.05 thereof, or from any other source when accompanied by directions by the Borrower that such moneys are to be paid into the Bond Fund; and

(iv) All moneys required to be deposited therein under any other provision of this Indenture.

Section 5.03 Use of Moneys in Bond Fund. Except as otherwise provided in Sections 5.05, 5.06, 5.08, 9.01, 10.10 and 11.04 hereof, moneys in the Bond Fund shall be used solely for the payment of the principal of and interest and any premium on the Bonds as the same shall become due and payable on an Interest Payment Date or the Maturity Date, upon redemption or acceleration or otherwise. Funds for such payments of the principal of and interest and any premium on the Bonds shall be derived from the following sources in the order of priority indicated:

(i) moneys paid into the Bond Fund pursuant to Section 5.02(i) hereof, which shall be applied to the payment of interest on the Bonds;

(ii) proceeds of the sale of refunding obligations and proceeds from the investment thereof, deposited into the Bond Fund which constitute Available Moneys;

(iii) moneys furnished by the Borrower to the Trustee pursuant to the Agreement which have been deposited into the Bond Fund and constitute Available Moneys (other than funds under a Credit Facility) and proceeds from the investment thereof;

(iv) moneys drawn by the Trustee under a Credit Facility for the payment of the principal of or interest or any premium on the Bonds and deposited into the Bond Fund;

(v) moneys furnished by the Borrower to the Trustee pursuant to the Agreement and any other moneys available therefor and proceeds from the investment thereof;

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(vi) In addition to amounts required to be paid into the Bond Fund, the Trustee shall (i) in the case of Bonds to be purchased by the Tender Agent on behalf of the Borrower pursuant to Article IV hereof, draw moneys under a Credit Facility in accordance with the terms thereof to the extent necessary to make timely payments of the purchase price of the Bonds pursuant to such Article IV, but only to the extent moneys are not available from the sources set forth in clauses (i) and (ii) of Section 14.03(b) hereof, and furnish said moneys to the Tender Agent and (ii) in connection with the purchase of Bonds by the Trustee on behalf of or for the account of the Bank pursuant to Section 4.07, draw moneys under such Credit Facility in accordance with the terms hereof and of such Credit Facility in amounts sufficient to pay the purchase price of the Bonds so purchased to the extent sufficient funds are not otherwise timely furnished by the Bank to the Trustee; provided, however, that the principal of, premium, if any, and interest on Bonds held by the Borrower, the Tender Agent or the Trustee on behalf of the Borrower (or any affiliate thereof), shall not be paid from moneys drawn under such Credit Facility.

Section 5.04 Credit Facility.

(a) No Credit Facility relating to the Bonds will be delivered as of the date of issuance and delivery of the Bonds. A Credit Facility shall be required if the Bonds are converted to any Interest Rate Period other than a Long-Term Interest Rate Period and in such event, the Borrower shall be required to obtain prior written approval from the Bond Insurer for such Credit Facility and for a Bank providing such Credit Facility stating that the terms of such Credit Facility shall be satisfactory to the Bond Insurer, which approval shall not be unreasonably withheld.

(b) A Credit Facility shall be the obligation of a Bank to pay to the Trustee, in accordance with the terms thereof, such amounts as shall be specified therein and available to be drawn thereunder for the timely payment of the principal of and interest and, if permitted by a Credit Facility, any premium on the Bonds (whether at the Maturity Date, or upon acceleration or redemption or otherwise), and portions of the purchase price of Bonds corresponding to principal and interest thereon, and, if permitted by a Credit Facility, portions of the purchase price corresponding to premium on the Bonds, required to be made pursuant to, and in accordance with the provisions of this Indenture. Such Credit Facility shall be reduced to the extent of any drawings thereunder and reinstated in accordance with the terms thereof.

(c) The Trustee shall draw moneys under a Credit Facility in accordance with the terms thereof and the terms of the Tender Agreement to the extent necessary to make timely payments of principal of and interest and any premium, if drawings thereunder shall be available to pay premium, on the Bonds required to be made from the Bond Fund or to enable the Tender Agent to pay the purchase price of Bonds purchased pursuant to Section 14.03(b) hereof; provided, however, that, anything herein to the contrary notwithstanding, in no event shall the Trustee draw moneys under such Credit Facility in order to make payments of principal of or interest or any premium on, or to enable the Tender Agent to pay the purchase price of, Bonds held of record by the Borrower (or any

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affiliate thereof) or held by the Tender Agent or the Trustee for the account of the Borrower or delivered to and held of record by, or held for the account of, the Bank pursuant to Section 14.05(c) hereof if such Credit Facility prohibits by its terms a drawing thereunder for such purpose; provided, further, however, that the Trustee may draw moneys under such Credit Facility in order to make payment of interest on Bonds held of record by the Borrower (or any affiliate thereof), the Bank or by the Tender Agent or the Trustee for the account of the Borrower or the Bank pursuant to Section 14.05(c) hereof if such Bond was not so held by or for the account of the Borrower or the Bank on the immediately preceding Record Date. Upon any reduction in the aggregate principal amount of Bonds Outstanding, the Trustee shall request the Bank to permanently reduce the amounts that may be drawn under the applicable Credit Facility to those amounts which are then required pursuant to Section 6.08 of the Agreement. For extensions of the term of a Credit Facility, the Trustee shall surrender the applicable Credit Facility to the Bank (if so directed by the Bank) in exchange for a Credit Facility of the Bank conforming in all material respects to the applicable Credit Facility except that the expiration date shall be extended. If at any time there shall cease to be any Bonds Outstanding hereunder, the Trustee shall promptly surrender the applicable Credit Facility to the Bank, in accordance with the terms of the applicable Credit Facility, for cancellation.

(d) If at any time there shall have been delivered to the Trustee, all as described in and in accordance with Section 6.08 the Agreement, (i) a notice of the Borrower, (ii) the required opinion of Bond Counsel and (iii) a Credit Facility, if any, described in such notice, then the Trustee shall accept such Credit Facility, if any, and comply with the direction of the Borrower, if any, contained in such notice. If the delivery of such Credit Facility does not result in a mandatory tender for purchase of all Bonds pursuant to Section 4.08(b) hereof, the Trustee shall give notice by first-class mail of the delivery of such Credit Facility to the Owners of the Bonds not less than 20 days prior to the date of the expiration or termination of a Credit Facility then in effect. Such notice shall state that the Borrower has caused to be provided the new Credit Facility, shall describe the new Credit Facility (including. its effective date and scheduled expiration date) and shall state that the Borrower has delivered written evidence from Moody’s, if the Bonds are then rated by Moody’s and from S&P, if the Bonds are then rated by S&P, and from Fitch, if the Bonds are then rated by Fitch, that neither Moody’s nor S&P nor Fitch will reduce or withdraw its rating then in effect with respect to the Bonds as a result of the proposed delivery of the new Credit Facility.

Section 5.05 Custody of Bond Fund; Withdrawal of Moneys. The Bond Fund shall be in the custody of the Trustee but in the name of the Issuer and the Issuer hereby irrevocably authorizes and directs the Trustee to withdraw from the Bond Fund and furnish to the Paying Agent funds sufficient to pay the principal of and interest and any premium on the Bonds as the same shall become due and payable, and to withdraw from the Bond Fund funds sufficient to pay any other amounts payable therefrom as the same shall become due and payable. If and to the extent that moneys remain in the Bond Fund after payment of such principal, interest and premium, if any, and are not required to be held therein pursuant to Section 5.06, such moneys shall be paid to the Bank, to the extent that there shall then be amounts due and payable to the Bank pursuant to the Reimbursement Agreement and the Bank has notified the Trustee thereof and the Bond Insurer, to the extent that there shall then be amounts due and payable to the Bond Insurer pursuant to the Insurance Agreement and the Bond Insurer has notified the Trustee thereof..

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Section 5.06 Bonds Not Presented for Payment. In the event any Bond shall not be presented for payment when the principal thereof (or any portion of such principal) becomes due, either at the Maturity Date or at the date fixed for redemption thereof or otherwise or in the event that any interest payment remains unclaimed, if moneys sufficient to pay such Bonds or portions thereof or such interest are held by the Paying Agent for the benefit of the Owners thereof, the Paying Agent shall segregate and hold such moneys uninvested without liability for interest thereon, for the benefit of Owners of such Bonds, who shall, except as provided in the following paragraph, thereafter be restricted exclusively to such fund or funds for the satisfaction of any claim of whatever nature on their part under this Indenture or relating to said Bonds.

Any moneys which the Paying Agent shall segregate and hold for the payment of the principal of or interest or any premium on any Bond and remaining unclaimed for two years after such principal, interest or any premium shall have become due and payable shall be paid to the extent legally permissible (i) if, at the time, there shall be amounts due and payable to the Bond Insurer or to the Bank pursuant to the Reimbursement Agreement, or (ii) if no such amounts shall be due and payable, to the Borrower, with notice to the Trustee of such action. For purposes of this Indenture, the Paying Agent may conclusively assume that no such indebtedness, liability or obligation is owing to the Bond Insurer or the Bank unless the Bond Insurer or the Bank shall otherwise give written notice to the Paying Agent. After the payment of such unclaimed moneys to the Bond Insurer, the Bank or the Borrower, the Owner of such Bond shall look only to the Borrower for the payment thereof.

Section 5.07 Moneys Held in Trust. All moneys required to be deposited with or paid to the Trustee for deposit into the Bond Fund under any provision hereof and all moneys withdrawn from the Bond Fund and held by the Trustee or the Paying Agent shall be held by the Trustee or the Paying Agent, as the case may be, in trust, and such moneys (other than moneys held pursuant to Section 5.06 hereof) shall, while so held, constitute part of the Trust Estate and be subject to the lien hereof for the benefit of the Owners.

Section 5.08 Payment to the Bank and to the Borrower. Any moneys remaining in the Bond Fund after the right, title and interest of the Trustee in and to the Trust Estate and all covenants, agreements and other obligations of the Issuer under this Indenture shall have ceased, terminated and become void and shall have been satisfied and discharged in accordance with Article IX hereof, shall be paid (a) if, at that time, there shall be amounts due and payable to the Bank pursuant to the Reimbursement Agreement, if any, and the Bank has notified the Trustee thereof, to the Bank, or (b) if, at that time, there shall be amounts due and payable to the Bond Insurer pursuant to the Insurance Agreement, to the Bond Insurer, or (c) if no such amounts shall be so due and payable, to the Borrower.

ARTICLE VI

[RESERVED]

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ARTICLE VII

INVESTMENTS

Section 7.01 Investments. The moneys in the Bond Fund (other than the moneys described in Sections 4.06(ii), 5.04(c) and 5.06 hereof, which may not be invested) shall, but only at the direction of the Borrower, be invested and reinvested in Investment Securities to the extent not prohibited by applicable law as determined by the Borrower. The income from, and any gain or loss from, any investment shall be credited or charged to the Bond Fund from which such investment was made. Investment Securities will be registered in the name of the Trustee or its nominee and held by or under the control of the Trustee. Subject to the further provisions of this Section 7.01, such investment shall be made, and such agreements entered into, by the Trustee as directed and designated by the Borrower in a certificate of, or telephonic advice promptly confirmed by a certificate of, an Authorized Borrower Representative. In the absence of any such directions, the Trustee shall invest all funds in Investment Securities, as defined in clause (viii) of the definition thereof. As and when any amounts thus invested (including investments of Available Moneys) may be needed for disbursements from the Bond Fund, the Trustee shall cause a sufficient amount of such investments to be sold or otherwise converted into cash to the credit of such Bond Fund. As long as no Event of Default (as defined in Section 10.01 hereof) shall have occurred and be continuing, the Borrower shall have the right to designate the investments to be sold and to otherwise direct the Trustee in the sale or conversion to cash of the investments made with the moneys in the Bond Fund; provided that, the Trustee shall be entitled to conclusively assume the absence of any such Event of Default unless it has notice thereof within the meaning of Section 11.05 hereof. The Trustee shall have no responsibility under this Indenture with respect to the compliance by the Borrower or the Issuer with any covenant herein or in the Agreement regarding the yield on, or tax-exempt nature of investments made in accordance with this Section 7.01, other than to use its best efforts to comply with instructions from the Borrower or the Issuer regarding such investments and the Trustee shall bear no responsibility for losses incurred from such investments or the sale thereof. Moneys held by the Tender Agent in the Purchase Fund shall not be invested. The Trustee may acquire or sell any Investment Security through itself or an affiliate, as principal or agent.

ARTICLE VIII

GENERAL COVENANTS

Section 8.01 Limited Obligation; Payment of Principal and Interest. Each and every covenant herein made, including all covenants made in the various Sections of this Article VIII, is predicated upon the condition that any obligation for the payment of money incurred by the Issuer shall not be the general obligation of the Issuer within the meaning of the Constitution of Arizona, and shall never constitute an indebtedness of the Issuer within the meaning of any State of Arizona constitutional provision or statutory limitation, and shall never constitute or give rise to any pecuniary liability of the Issuer or a charge against its general credit or taxing powers, but shall be payable by the Issuer solely from the Receipts and Revenues from the Agreement, which are required to be set apart and transferred to the Bond Fund, and which, along with the balance of the Trust Estate, are hereby specifically pledged to the payment thereof in the manner and to the extent specified in this Indenture, and nothing in the Bonds or in this Indenture shall be considered as pledging or obligating any other funds or assets of the Issuer.

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The Issuer will in the manner provided herein and in the Bonds, according to the true intent and meaning thereof, promptly cause to be paid, solely from the sources stated herein, at the place and on the dates provided herein, the principal of and premium, if any, and interest on every Bond issued under this Indenture.

Section 8.02 Performance of Agreements; Authority. The Issuer will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in any and every Bond executed, authenticated and delivered hereunder, and in all proceedings pertaining thereto. The Issuer represents that it has the authority under the Constitution and laws of the State of Arizona to issue the Bonds authorized hereby, to enter into the Agreement, and to pledge to the Trustee the Receipts and Revenues from the Agreement and to pledge and assign to the Trustee all or any part of the Issuer’s right, title and interest under the Agreement pledged and assigned hereunder, and that the Bonds in the hands of the Owners thereof are and will be valid and enforceable obligations of the Issuer according to the import thereof.

Section 8.03 Maintenance of Corporate Existence; Compliance with Laws. The Issuer will at all times maintain its corporate existence or assure the assumption of its obligations under this Indenture by any public body succeeding to its powers under the Act, and it will use its best efforts to maintain, preserve and renew all the rights and powers provided to it by the Act; and it will comply with all valid acts, rules, regulations, orders and directions of any legislative, executive, administrative or judicial body applicable to the Agreement.

Section 8.04 Enforcement of Borrower’s Obligations under the Agreement. So long as any of the Bonds are Outstanding, upon receipt of written notification from the Trustee, the Issuer will, in the manner provided herein and giving due recognition to the role of the Trustee hereunder, enforce the obligation of the Borrower to pay, or cause to be paid, all the payments and other costs and charges payable by the Borrower under the Agreement, provided, however, that the Issuer shall not be required to spend any of its own funds in any such enforcement. The Issuer will not enter into any agreement with the Borrower amending the Agreement without the prior written consent of the Trustee and compliance with Sections 13.06 and 13.07 hereof.

Section 8.05 Further Assurances. The Issuer will, upon the reasonable request of the Trustee, from time to time execute and deliver such further instruments and take such further action as may be reasonable and as may be required to carry out the purpose of this Indenture; provided, however, that no such instruments or actions shall give rise to any pecuniary liability of the Issuer or pledge the credit or taxing power of the State of Arizona, the Issuer or any other political subdivision of said State.

Section 8.06 No Disposition or Encumbrance of Issuer’s Interests. Except as permitted by this Indenture, the Issuer will not sell, lease, pledge, assign or otherwise dispose of or encumber its interest in the Receipts and Revenues from the Agreement or its rights and interest under the Agreement pledged and assigned hereunder and will promptly pay or cause to be discharged or make adequate provision to satisfy and discharge any lien or charge on any part thereof not permitted by this Indenture.

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Section 8.07 Trustee’s Access to Books Relating to Facilities. All books and documents in the possession of the Issuer relating to the Facilities and the moneys, revenues and receipts derived from the Facilities shall at all reasonable times be open to inspection by such accountants or other agencies as the Trustee may from time to time designate. The Trustee shall permit the Borrower, the Bond Insurer or their designees reasonable access to records relating to the investment of the proceeds of the Bonds or any other records relating to the Bonds necessary to assure compliance with Section 148 of the Code.

Section 8.08 Filing of Financing Statements. Appropriate financing statements, naming the Trustee as secured party with respect to the Receipts and Revenues from the Agreement and the other moneys pledged by the Issuer under this Indenture for the payment of the principal of and premium, if any, and interest on the Bonds, and as pledgee and assignee of certain of the Issuer’s rights and interest under the Agreement, shall be duly filed and recorded in the appropriate state and county offices as required by the provisions of the Uniform Commercial Code or other similar law as adopted in the State of Arizona, the state in which lies the Principal Office of the Trustee and any other applicable jurisdiction, as from time to time amended. The Trustee will file and record, with such assistance as necessary from the Issuer and the Borrower, such necessary continuation statements from time to time as may be required pursuant to the provisions of said Uniform Commercial Code or other similar law to protect the interest of the Trustee.

Section 8.09 Tax Covenant. The Issuer covenants for the benefit of the purchasers of the Bonds that it will not take any action or fail to take any action reasonably within its control which would, under the Code, Regulations of the Department of the Treasury of the United States of America (including Temporary Regulations and Proposed Regulations) under the Code applicable to the Bonds, rulings and court decisions, cause the interest payable on the Bonds to be includable in the gross income of the holders thereof for Federal income tax purposes (other than a “substantial user” of the Facilities or a “related person” as those terms are used in Section 147(a) of the Code). Pursuant to such covenant, the Issuer obligates itself to comply throughout the term of the issue of the Bonds with the requirements of Section 148 of the Code and any regulations promulgated thereunder.

The Borrower by its execution of the Agreement has covenanted to restrict the investment of money in the funds created under this Indenture in such manner and to such extent, if any, as may be necessary, so that the Bonds will not constitute “arbitrage bonds” under Section 148 of the Code.

Section 8.10 Notices by Trustee. The Trustee shall give the same notices to the Issuer and the Bond Insurer that it is required to give to the Borrower, and to the Borrower that it is required to give to the Issuer, pursuant to the terms of this Indenture and, additionally, shall give written or Electronic notice to the Issuer, the Borrower, the Bond Insurer and the Remarketing Agent of any prior redemption pursuant to Section 4.01 hereof.

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Section 8.11 No Transfer of Credit Facility. Except as provided in Section 5.04 hereof, the Trustee shall not sell, assign or transfer a Credit Facility except to a successor trustee under this Indenture and as contemplated by Section 11.16 hereof.

ARTICLE IX

DEFEASANCE

Section 9.01 Defeasance. If the Issuer shall pay or cause to be paid with Available Moneys to the Owner of any Outstanding Bond secured hereby the principal of and interest and any premium due and payable, and thereafter to become due and payable, on such Bond, or any portion of such Bond in an Authorized Denomination, such Bond or portion thereof shall cease to be entitled to any lien, benefit or security under this Indenture (except as set forth in Section 9.02 hereof). If the Issuer shall pay or cause to be paid with Available Moneys to the owners of all the Bonds the principal thereof and interest and any premium due and payable and thereafter to become due and payable thereon, and shall pay or cause to be paid all other sums payable hereunder by the Issuer, or payable under the Agreement by the Borrower, then the right, title and interest of the Trustee in and to the Trust Estate shall thereupon cease, terminate and become void. In such event, the Trustee shall assign, transfer and turn over the Trust Estate, including, without limitation, any surplus in the Bond Fund and any balance remaining in any other fund created under this Indenture, (i) if, at that time, there shall be amounts due and payable to the Bank pursuant to the Reimbursement Agreement and the Bank has notified the Trustee thereof, to the Bank, or (ii) if no such amounts shall be so due and payable, to the Borrower.

All Outstanding Bonds shall, prior to the Maturity Date or redemption date thereof, be deemed to have been paid within the meaning and with the effect expressed in this Article IX (except as set forth in Section 9.02 hereof) when

(a) in the event the Bonds are to be redeemed, the Trustee shall have given, or the Borrower shall have given to the Trustee in form satisfactory to the Trustee irrevocable instruction to give, on a date in accordance with the provisions of Article IV hereof, notice of redemption of the Bonds,

(b) all Outstanding Bonds then bear interest at a Long-Term Interest Rate during a Long-Term Interest Rate Period ending on or after the redemption date or on the day immediately preceding the Maturity Date, as the case may be, or at Bond Interest Term Rates for Bond Interest Terms which end on the redemption date or the day immediately preceding the Maturity Date, as the case may be, and there shall have been deposited with the Trustee either moneys in an amount which shall be sufficient, or fixed rate Government Obligations (i) which shall not contain provisions permitting the redemption or prepayment thereof at the option of the issuer thereof, (ii) which mature no later than the earlier of (A) the date fixed for the redemption of the Bonds and (B) the Maturity Date, and (iii) the principal of and the interest on which, when due, and without any regard to reinvestment thereof, will provide moneys which, together with the moneys, if any, deposited with or held by the Trustee, shall be sufficient, based on the written opinion of an independent, nationally recognized firm of certified public

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accountants acceptable to the Trustee, delivered to the Trustee, to pay when due the principal of and interest and any premium due and to become due on the Bonds on and prior to the redemption date or Maturity Date, as the case may be; provided, however, that such moneys shall constitute Available Moneys and that such Government Obligations shall have been purchased with Available Moneys; and provided further, that if a forward supply contract is employed in connection with the redemption, such certified public accountant’s opinion shall expressly state that the adequacy of the Available Moneys and Government Obligations to accomplish the redemption relies solely on the initial deposited investments and the maturing principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract, and

(c) in the event the Bonds do not mature and are not to be redeemed within the next succeeding 60 days, the Borrower shall have given the Trustee, in form satisfactory to it, irrevocable instructions to give, as soon as practicable in the same manner as a notice of redemption is given pursuant to Section 4.03 hereof, a notice to the Owners that the deposit required by clause (b) above has been made with the Trustee and that the Bonds are deemed to have been paid in accordance with this Article IX and stating the Maturity Date or redemption date upon which moneys are to be available for the payment of the principal of and interest and any premium on the Bonds.

Neither the Government Obligations nor moneys deposited with the Trustee pursuant to this Article IX nor principal or interest payments on any such Government Obligations shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of and interest and any premium on the Bonds; provided that any cash received from such principal or interest payments on such Government Obligations deposited with the Trustee, if not then needed for such purpose, shall be invested, to the extent practicable, at the direction of the Borrower, in Government Obligations of the type and tenor described in clause (b) of the immediately preceding paragraph, and interest earned from such reinvestment shall be paid as received by the Trustee (i) if, at that time, there shall be amounts due and payable to the Bank pursuant to the Reimbursement Agreement and the Bank has notified the Trustee thereof, to the Bank, (ii) if, at that time, there shall be amounts due and payable to the Bond Insurer pursuant to the Insurance Agreement, to the Bond Insurer, or (iii) if no such amounts shall be so due and payable, to the Borrower.

Section 9.02 Survival of Certain Provisions. Notwithstanding the foregoing, any provisions of this Indenture which relate to the payment of the principal of or any premium on Bonds at the Maturity Date or pursuant to redemption, as the case may be, interest payments and dates thereof, exchange, transfer and registration of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, the holding of moneys in trust and repayments to the Bank, the Bond Insurer or the Borrower from the Bond Fund or the Purchase Fund and the duties of the Trustee, the Registrar, the Remarketing Agent and the Paying Agent in connection with all of the foregoing, shall remain in effect and be binding upon the Issuer, the Trustee, the Remarketing Agent, the Tender Agent, the Registrar, the Paying Agent and Owners notwithstanding the release and discharge of this Indenture. The provisions of this Section shall survive the release, discharge and satisfaction of this Indenture provided, however, that the provisions of Section 2.01 hereof, permitting adjustments in the Interest Rate Period with respect to the Bonds, shall not be in effect after the release and discharge of this Indenture.

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ARTICLE X

DEFAULTS AND REMEDIES

Section 10.01 Events of Default.

(a) Each of the following events shall constitute and is referred to in this Indenture as an “Event of Default”(except that in making such determination no effect shall be given to payments made under the Bond Insurance Policy):

(i) a failure to pay the principal of or any premium on any of the Bonds when the same shall become due and payable at the Maturity Date or upon redemption;

(ii) a failure to pay an installment of interest on any of the Bonds after such interest has become due and payable;

(iii) a failure to pay an amount due pursuant to Section 4.08 hereof after such payment has become due and payable;

(iv) an “Event of Default” as such term is defined in Section 8.01 of the Agreement;

(v) prior to termination or expiration of a Credit Facility, receipt by the Trustee, prior to the date set forth in a Credit Facility for automatic reinstatement of interest following a drawing under a Credit Facility to pay accrued interest on the Bonds, of notice from the Bank in accordance with a Credit Facility that a Credit Facility will not be reinstated in respect of such interest;

(vi) prior to termination or expiration of a Credit Facility and payment in full of all amounts due under the Reimbursement Agreement, receipt by the Trustee of written notice from the Bank that an “Event of Default” under the Reimbursement Agreement has occurred and is continuing; or

(vii) a failure by the Issuer to observe and perform any covenant, condition, agreement or provision (other than as specified in clauses (i), (ii) and (iii) of paragraph (a) of this Section 10.01) contained in the Bonds or in this Indenture on the part of the Issuer to be observed or performed, which failure shall continue for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, shall have been given to the Issuer and the Borrower by the Trustee, which may give such notice in its discretion and shall give such notice at the written request of the Owners of a majority in principal amount of the Bonds then Outstanding, unless the Trustee or the Owners of Bonds then Outstanding in principal amount not less than the principal amount of Bonds the Owners of which requested such notice, as the case may be, shall agree in

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writing to an extension of such period prior to its expiration; provided, however, that the Trustee, or the Trustee and the Owners of such principal amount of Bonds, as the case may be, shall be deemed to have agreed to an extension of such period if corrective action is initiated by the Issuer, or the Borrower on behalf of the Issuer, within such period and is being diligently pursued.;

(b) If:

(i) (A) a Credit Facility is then in effect and (B) an Event of Default described in clause (i), (ii) or (iii) of paragraph (a) of this Section 10.01 shall occur and be continuing, the Trustee may, and at the written request of the owners of a majority in principal amount of Bonds then Outstanding, the Trustee shall, or

(ii) (A) a Credit Facility is then in effect and (B) an Event of Default described in clause (iv) of paragraph (a) of this Section 10.01 shall occur and be continuing, at the written request of the Bank, the Trustee shall, or

(iii) (A) a Credit Facility is then in effect and (B) an Event of Default described in clause (v) or (vi) of paragraph (a) of this Section 10.01 shall occur and be continuing, the Trustee shall, or

(iv) (A) a Credit Facility is not then in effect or if the Bank shall have wrongfully failed to honor a drawing under such Credit Facility then in effect and (B) an Event of Default described in clause (i), (ii), (iii), (iv), (v), or (vi) of paragraph (a) of this Section 10.01 shall occur and be continuing, the Trustee may, and at the written request of the Owners of a majority in principal amount of Bonds then Outstanding, the Trustee shall, subject to the Bank’s right to purchase the Bonds pursuant to Section 4.07 in the circumstances set forth therein, by written notice to the Issuer, the Bank, and the Borrower, declare the Bonds to be immediately due and payable, whereupon they shall, without further action, become and be immediately due and payable, anything in this Indenture or in the Bonds to the contrary notwithstanding, and the Trustee shall give notice thereof to the Tender Agent, the Remarketing Agent, the Bond Insurer and the Owners and shall immediately (and in no event later than five (5) days thereafter) draw under a Credit Facility to the extent provided in Section 5.04 hereof. If the principal of all of the Bonds shall have been declared due and payable while a Credit Facility shall be in effect, interest on such Bonds shall cease to accrue on the date of the drawing on a Credit Facility with respect to such declaration unless such drawing is pursuant to the Bank’s purchase of the Bonds in accordance with Section 4.07 hereof. The Trustee shall not be entitled to accelerate the principal of the Bonds upon the occurrence of an Event of Default described in clause (vii) of paragraph (a) of this Section 10.01.

(c) The provisions of paragraph (b)(iv), however, are subject, when no Credit Facility shall be in effect, to the condition that if, after the principal of the Bonds shall have been so declared to be due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided,

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the Issuer shall cause to be deposited with the Trustee a sum sufficient to pay all matured installments of interest upon all Bonds, premium, if any, and the principal of any and all Bonds which shall have become due otherwise than by reason of such declaration (with interest upon such principal and, to the extent permissible by law, on overdue installments of interest, at the rate per annum borne by the Bonds on the date of such declaration) and such amounts as shall be sufficient to cover reasonable compensation and reimbursement of expenses payable to the Trustee, and all Events of Default hereunder other than nonpayment of the principal of Bonds which shall have become due by said declaration shall have been remedied or waived, then, in every such case, such Event of Default shall be deemed waived and such declaration and its consequences rescinded and annulled, and the Trustee shall promptly give written or Electronic notice of such waiver, rescission and annulment to the Issuer, the Borrower, the Remarketing Agent, and, if notice of the acceleration of the Bonds shall have been given to the Owners, shall give notice thereof to the Owners; but no such waiver, rescission and annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon.

(d) The provisions of paragraph (b) are, further, subject to the condition that (i) if an Event of Default described in clauses (v) or (vi) of paragraph (a) shall have occurred and the Trustee shall thereafter have received written notice from the Bank that the notice of the Bank which caused the occurrence of such Event of Default shall have been withdrawn and (ii) if any drawing under a Credit Facility shall have been made and a Credit Facility shall have been reinstated as to principal to an amount equal to the outstanding principal amount of the Bonds and as to interest to an amount which at least equals, depending on the type of Interest Rate Period then in effect, the coverage required by Section 2.01(c)(vi) hereof to permit such Interest Rate Period to go into effect, and the Trustee shall have received written notice from the Bank of such reinstatement, then such Event of Default shall be waived, and the consequences of such Event of Default rescinded and annulled and the Trustee shall promptly give written notice of such waiver, rescission and annulment to the Issuer, the Borrower, the Bank, the Tender Agent, the Bond Insurer, the Remarketing Agent, and, if notice of the acceleration of the Bonds shall have been given to the Owners, shall give notice thereof to the Owners; but no such waiver, rescission and annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon. Notwithstanding anything to the contrary set forth herein, any acceleration of the Bonds or annulment thereof shall be subject to the prior written consent of the Bond Insurer (so long as it has not failed to comply with its payment obligations under the Bond Insurance Policy).

Section 10.02 Remedies. In addition to the rights conferred, or obligation imposed, upon the Trustee under Section 10.01 hereof to accelerate the principal of the Bonds upon the occurrence and continuance of any Event of Default, then and in every such case the Trustee in its discretion may, and upon the written request of the Bank, the Bond Insurer or the Owners of a majority in principal amount of the Bonds then Outstanding and receipt of indemnity to its satisfaction shall, in its own name and as the Trustee of an express trust:

(i) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Owners of the Bonds and require the Issuer, the

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Bank, the Bond Insurer and the Borrower to carry out any agreements with or for the benefit of the Owners and to perform their duties under the Act, the Agreement, a Credit Facility, the Bond Insurance Policy and this Indenture;

(ii) bring suit upon the Bonds or a Credit Facility or the Bond Insurance Policy; or

(iii) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Owners of the Bonds.

Section 10.03 Restoration to Former Position. In the event that any proceeding taken by the Trustee to enforce any right under this Indenture shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every case the Issuer, the Trustee and the Owners of the Bonds shall be restored to their former positions and rights hereunder, respectively, and all rights, remedies and powers of the Trustee shall continue as though no such proceeding had been taken.

Section 10.04 Bond Insurer’s Right to Direct Proceedings. Subject to the provisions of Section 4.07 hereof relating to the rights of the Bank and subject in the circumstances set forth as described therein, anything in this Indenture to the contrary notwithstanding, so long as it is not in default on its payment obligations under the Bond Insurance Policy, the Bond Insurer shall be treated as the “Owner” of all of the Bonds and shall have the right, by an instrument in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all remedial proceedings available to the Trustee under this Indenture or exercising any trust or power conferred on the Trustee by this Indenture.

Section 10.05 Limitation on Owners’ Right to Institute Proceedings. No owner shall have any right to institute any suit, action or proceedings in equity or at law for the execution of any trust or power hereunder, or any other remedy hereunder or on said Bonds, unless (i) such Owner previously shall have given to the Trustee. written notice of an Event of Default as hereinabove provided, (ii) the owners of a majority in principal amount of the Bonds then Outstanding shall have made written request of the Trustee so to do, after the right to institute said suit, action or proceeding shall have accrued, and shall have afforded the Trustee a reasonable opportunity to proceed to institute the same in either its or their name, (iii) there also shall have been offered to the Trustee security and indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby, and (iv) the Trustee shall not have complied with such request within a reasonable time after such notice, request and offer of indemnity; and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the institution of said suit, action or proceeding; it being understood and intended that no one or more of the Owners shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Indenture, or to enforce any right hereunder or under the Bonds, except in the manner herein provided, and that all suits, actions and proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all Owners.

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Section 10.06 No Impairment of Right to Enforce Payment. Notwithstanding any other provision in this Indenture, the right of any Owner to receive payment of the principal of and interest and any premium on such Bond, on or after the respective due dates expressed therein or applicable redemption dates, or to institute suit for the enforcement of any such payment on or after such respective date, shall not be impaired or affected without the consent of such Owner.

Section 10.07 Proceeding by Trustee Without Possession of Bonds. All rights of action under this Indenture or under any of the Bonds secured hereby which are enforceable by the Trustee may be enforced by it without the possession of any of the Bonds or the production thereof at the trial or other proceedings relative thereto. Any such suit, action or proceeding instituted by the Trustee shall be brought in its name for the equal and ratable benefit of the Owners subject to the provisions of this Indenture.

Section 10.08 No Remedy Exclusive. No remedy herein conferred upon or reserved to the Trustee, the Bank, the Bond Insurer or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative, and shall be in addition to every other remedy given hereunder or under the Agreement, or now or hereafter existing at law or in equity or by statute.

Section 10.09 No Waiver of Remedies. No delay or omission of the Trustee, the Bank, the Bond Insurer or of any Owner of a Bond to exercise any right or power accruing upon any default shall impair any such right or power accruing upon any default or shall be construed to be a waiver of any such default, or an acquiescence therein. Every power and remedy given by this Article X to the Trustee, the Bank, the Bond Insurer and to the Owners of the Bonds, respectively, may be exercised from time to time as often as may be deemed expedient.

Section 10.10 Application of Moneys. Any moneys received by the Trustee, by any receiver or by any Owner of a Bond pursuant to any right given or action taken under the provisions of this Article X (other than moneys received by the Trustee in consequence of the exercise by the Bank of its right to purchase the Bonds pursuant to Section 4.07) or under the provisions of the Agreement after payment of the costs and expenses of the proceedings resulting in the collection of such moneys, including any amounts due to the Trustee pursuant to Section 11.04 hereof and under the Agreement (except that proceeds of a drawing under a Credit Facility and any moneys held pursuant to Section 5.06 hereof may not be so used), shall be deposited in the Bond Fund and all moneys so deposited in the Bond Fund during the continuance of an Event of Default (other than moneys for the payment of Bonds which had matured or otherwise become payable prior to such Event of Default or for the payment of interest due prior to such Event of Default) shall be applied as follows:

(a) Unless the principal of all the Bonds shall have been declared due and payable, all such moneys shall be applied (i) first, to the payment to the persons entitled thereto of all installments of interest then due on the Bonds, with interest on overdue installments, if lawful, at the rate per annum borne by the Bonds on the date of occurrence of such Event of Default, in the order of maturity of the installments of such interest and, if the amount available shall not be sufficient to pay in full any particular installment of interest, then to the payment ratably, according to the amounts due on such

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installment, and (ii) second, to the payment to the persons entitled thereto of the unpaid principal of and any premium on any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which money is held pursuant to the provisions of this Indenture) with interest on such Bonds at their rate on the date of occurrence of such Event of Default from the respective dates upon which they became due and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal and interest and any premium due on such date, in each case to the persons entitled thereto, without any discrimination or privilege; provided, however, that moneys derived from the exercise of rights by the Trustee under a Credit Facility shall not be applied to the payment of the principal of or premium or interest on Bonds held of record by the Borrower or any affiliate thereof or by the Tender Agent for the account of the Borrower.

(b) If the principal of all the Bonds shall have been declared due and payable and the Bank has not exercised its option to direct the Trustee to purchase all Bonds on behalf of the Bank pursuant to Section 4.07 hereof, all such moneys shall be applied to the payment of the principal and interest then due and unpaid upon the Bonds, with interest on overdue interest and principal, as aforesaid, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or privilege; provided, however, that moneys derived from the exercise of rights by the Trustee under a Credit Facility shall not be applied to the payment of the principal of or premium or interest on Bonds held of record by the Borrower or any affiliate thereof or by the Tender Agent for the account of the Borrower.

(c) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article X, subject to the provisions of clause (b) of this Section 10.10 which shall be applicable in the event that the principal of all the Bonds shall later become due and payable, the moneys shall be applied in accordance with the provisions of clause (a) of this Section 10.10.

Whenever moneys are to be applied pursuant to the provisions of this Section 10.10, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which, while a Credit Facility shall be in effect, shall be within five days of any declaration of acceleration and, if possible, an Interest Payment Date unless it shall deem another date more suitable) upon which such application is to be made and, upon such application, interest on the amounts of principal, premium and interest to be paid on such dates shall cease to accrue, except that if the principal of all of the Bonds shall have been declared due and payable when a Credit Facility shall be in effect, interest on such amounts shall cease to accrue on the date of the drawing on a Credit Facility with respect to such declaration unless such drawing is pursuant to the Bank’s purchase of the Bonds in accordance with Section 4.07 hereof. The Trustee shall give notice of the deposit with it of any such moneys and of the

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fixing of any such date to all Owners of Outstanding Bonds, consistent with the requirements of Section 2.01 hereof for the establishment of, and giving of notice with respect to, a Special Record Date for the payment of overdue interest. The Trustee shall not be required to make payment to any Owner of a Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid.

Notwithstanding anything in this Section 10.10 to the contrary, moneys received by the Trustee pursuant to draws on a Credit Facility, and moneys held by the Trustee pursuant to Section 4.10 for the payment of Bonds not presented for payment, shall be applied only to the payment of principal, redemption premium (if any) and interest due on the Bonds.

Section 10.11 Severability of Remedies. It is the purpose and intention of this Article X to provide rights and remedies to the Trustee, the Bank, the Bond Insurer and the Owners which may be lawfully granted under the provisions of the Act, but should any right or remedy granted herein be held to be unlawful, the Trustee, the Bank, the Bond Insurer and the Owners shall be entitled, as above set forth, to every other right and remedy provided in this Indenture and by law.

Section 10.12 Waivers of Events of Default. The Trustee in its discretion may waive any Event of Default hereunder (other than an Event of Default described in clauses (v) and (vi) of paragraph (a) of Section 10.01 and not waived in accordance with paragraph (d) of Section 10.01) and its consequences and shall in any event do so upon the written request of the Owners of a majority in principal amount of all Bonds then Outstanding; provided, however, that there shall not be waived

(i) any Event of Default pertaining to the payment of the principal of any Bond at the Maturity Date or redemption date prior to the Maturity Date, or

(ii) any Event of Default pertaining to the payment when due of the interest on any Bond,

unless, prior to such waiver (A) all arrears of principal (due otherwise than by declaration) and interest, with interest (to the extent permitted by law) at the rate per annum borne by the Bonds in respect of which such Event of Default shall have occurred on overdue installments of principal (due otherwise than by declaration) and interest, shall have been paid or provided for, (B) all expenses of the Trustee in connection with such Event of Default shall have been paid or provided for to the satisfaction of the Trustee, and (C) if a Credit Facility is in effect with respect to the Bonds, the coverage under a Credit Facility shall have been reinstated as to principal to an amount equal to the outstanding principal amount of the Bonds and as to interest to an amount which at least equals, depending on the type of Interest Rate Period then in effect, the coverage required by Section 2.01(c)(vi) hereof to permit such Interest Rate Period to go into effect, and provided further that, in case of any such waiver, or in case any proceeding taken by the Trustee on account of any such Event of Default shall be discontinued or abandoned or determined adversely, then and in every such case the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer and the Owners of the Bonds shall be restored to their former positions and rights hereunder, respectively, but no such waiver shall extend to any subsequent or other Event of Default, or impair any right consequent thereon. The Trustee shall not have any discretion to waive any Event of Default hereunder and its consequences except in the manner and subject to the terms expressed above.

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Section 10.13 No Obligation of Issuer to Act. Subject to Sections 8.04 and 8.05, the Issuer shall have no obligation to take any action or pursue any right or remedy of the Trustee or any Owner under this Indenture or otherwise, including, but not limited to, taking any action in a bankruptcy proceeding.

ARTICLE XI

TRUSTEE; PAYING AGENT; REGISTRAR

Section 11.01 Acceptance of Trusts. By executing the certificate of authentication endorsed upon the Bonds, the Trustee shall signify its acceptance and agree to execute the trusts hereby created but only upon the additional terms set forth in this Article XI, to all of which the Issuer agrees and the respective owners agree by their acceptance of delivery of any of the Bonds.

Section 11.02 Trustee Not Responsible for Recitals, Maintenance, Insurance, etc. The recitals, findings and representations in this Indenture or in the Bonds contained, save only the Trustee’s authentication upon the Bonds, shall be taken and construed as made by and on the part of the Issuer, and not by the Trustee, and the Trustee does not assume, and shall not have, any responsibility or obligation for the correctness of any thereof. In addition, the Trustee shall not have any responsibility for monitoring the Borrower’s obligations under Sections 5.06 and 5.07 of the Agreement to maintain the Facilities or to maintain or cause to be maintained the insurance required thereunder.

Section 11.03 Limitations on Liability.

(a) The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys, agents, receivers or employees, and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder and shall not be liable for any action taken or omitted to be taken in good faith on the basis of such advice, and the Trustee shall not be answerable for the default or misconduct of any such attorney, agent or employee selected by it with reasonable care. The Trustee shall not be answerable for the exercise of any discretion or power under this Indenture or for anything whatsoever in connection with the trust created hereby, except only for its own gross negligence or willful misconduct.

(b) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be liable for any action reasonably taken or omitted to be taken by it in good faith and reasonably believed by it to be within its discretion or power conferred upon it hereby.

(c) Whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder or under the Agreement, the Trustee may, in the absence of bad faith on its part, rely upon a Certificate of the Borrower.

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(d) Prior to taking any action under the Agreement or this Indenture, the Trustee shall be entitled to a certificate of an Authorized Borrower Representative and/or an opinion of counsel with respect to the proposed action, which certificate and/or opinion shall confirm that all conditions precedent, if any, have been satisfied.

(e) The Trustee shall not be required to give any bond or surety with respect to the performance of its duties or the exercise of its powers under this Indenture. No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its right or powers.

(f) The Trustee shall not be bound to ascertain or inquire as to performance or observance of any covenants, conditions or other agreements on the part of the Borrower or the Issuer under the Agreement or this Indenture, as the case may be, except as specifically provided for herein. The Trustee shall have no obligation to perform any of the duties of the Issuer or the Borrower under the Agreement or this Indenture.

Section 11.04 Compensation, Expenses and Advances. The Trustee, the Paying Agent, the Registrar and the Tender Agent under this Indenture shall be entitled to reasonable compensation for their services rendered hereunder including extraordinary services such as default administration (not limited by any provision of law in regard to the compensation of the trustee of an express trust) and to reimbursement for their actual out-of-pocket expenses (including counsel fees and expenses) reasonably incurred in connection therewith except as a result of their gross negligence or willful misconduct. If the Issuer shall fail to perform any of the covenants or agreements contained in this Indenture, other than the covenants or agreements in respect of the payment of the principal of, premium, if any, and interest on the Bonds, the Trustee may, in its uncontrolled discretion and without notice to the Owners of the Bonds, at any time and from time to time, make advances to effect performance of the same on behalf of the Issuer, but the Trustee shall be under no obligation to do so; but no such advance shall operate to relieve the Issuer from any default hereunder. In Section 5.04 of the Agreement, the Borrower has agreed that it will pay to the Trustee, the Paying Agent, the Registrar, the Remarketing Agent and the Tender Agent such compensation and reimbursement of expenses and advances, but the Borrower may, without creating a default hereunder, contest in good faith the reasonableness of any such services, expenses and advances. In Section 5.08 of the Agreement, the Borrower has agreed to indemnify the Trustee and the Registrar to the extent stated therein. If the Borrower shall have failed to make any payment to the Trustee under Sections 5.04 or 5.08 of the Agreement and such failure shall have resulted in an Event of Default under the Agreement, the Trustee shall have, in addition to any other rights hereunder, a claim, prior to the claim of the Owners of the Bonds, for the payment of its compensation and the reimbursement of its expenses and any advances made by it, as provided in this Section 11.04, upon the moneys and obligations in the Bond Fund, except for proceeds of drawings under a Credit Facility and except for moneys or obligations deposited with or paid to the Trustee for the purchase of Bonds by the Bank in accordance with Section 4.07 hereof or which are deemed to have been paid in accordance with Article IX hereof and funds held pursuant to Section 5.06 hereof.

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Section 11.05 Notice of Events of Default. The Trustee shall not be required to take notice, or be deemed to have notice, of any default or Event of Default under this Indenture or the Agreement other than an Event of Default under clauses (i), (ii), (iii) (but only if the Trustee and the Tender Agent are the same entity), (v) or (vi) of paragraph (a) of Section 10.01 hereof, unless specifically notified in writing of such default or Event of Default by Owners of at least a majority in principal amount of the Bonds then Outstanding or by the Bank or the Bond Insurer. The Trustee may, however, at any time, in its discretion, require of the Issuer full information and advice as to the performance of any of the covenants, conditions and agreements contained herein.

Section 11.06 Action by Trustee. The Trustee shall be under no obligation to take any action in respect of any default or Event of Default hereunder other than pursuant to Section 10.01(b) hereof, or toward the execution or enforcement of any of the trusts hereby created, or to institute, appear in or defend any suit or other proceeding in connection therewith, unless requested in writing to do so by Owners of at least a majority in principal amount of the Bonds then Outstanding or the Bank or the Bond Insurer, and, if in its opinion such action may tend to involve it in expense or liability, unless furnished, from time to time as often as it may require, with security and indemnity satisfactory to it. The foregoing provisions are intended only for the protection of the Trustee, and shall not affect any discretion or power given by any provisions of this Indenture to the Trustee to take action in respect of any default or Event of Default without such notice or request from Owners or the Bank or the Bond Insurer, or without such security or indemnity. Notwithstanding the foregoing, the Trustee shall submit draw requests under a Credit Facility as provided therein, make payments on the Bonds in accordance with this Indenture and give notice of acceleration in accordance with Section 10.01(b) hereof, without as a precondition to such action, demanding security and indemnity as hereinbefore provided.

Section 11.07 Good Faith Reliance. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any resolution, notice, telegram, request, consent, waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document, or upon telephonic instructions to the extent the giving of telephonic instructions is specifically authorized by this Indenture or the Agreement, in any case which the Trustee shall in good faith believe to be genuine and to have been passed, signed or given by the proper board, body or person or to have been prepared and furnished pursuant to any of the provisions of this Indenture or the Agreement, or upon the written opinion of any attorney, engineer, accountant or other expert believed by the Trustee to be qualified in relation to the subject matter, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument, but may accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. Neither the Trustee, the Paying Agent, the Registrar nor the Tender Agent shall be bound to recognize any person as an Owner or to take any action at his request unless his Bond shall be deposited with such entity or satisfactory evidence of the ownership of such Bond shall be furnished to such entity.

Section 11.08 Dealings in Bonds and with the Issuer and the Borrower. The Trustee, the Paying Agent, the Registrar, the Bank, the Bond Insurer, the Tender Agent or the Remarketing Agent and each of their officers and directors, may in good faith buy, sell, own,

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hold and deal in any of the Bonds, and may join in any action which any Owner may be entitled to take with like effect as if it did not act in any capacity hereunder. The Trustee, the Paying Agent, the Registrar, the Bank, the Bond Insurer, the Tender Agent or the Remarketing Agent, in its individual capacity, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Issuer or the Borrower, and may act as depositary, trustee or agent for any committee or body of Owners or other obligations of the Issuer as freely as if it did not act in any capacity hereunder.

Section 11.09 Several Capacities. Anything in this Indenture to the contrary notwithstanding, the same entity may serve hereunder as the Trustee, the Paying Agent, the Registrar, the Tender Agent and the Remarketing Agent and in any other combination of such capacities, to the extent permitted by law.

Section 11.10 Construction of Indenture. The Trustee may construe any of the provisions of this Indenture or the Agreement insofar as the same may appear to be ambiguous or inconsistent with any other provision hereof or thereof, and any construction of any such provisions hereof by the Trustee in good faith shall be binding upon the Owners, the Issuer and the Borrower.

Section 11.11 Resignation of Trustee. The Trustee may resign and be discharged of the trusts created by this Indenture by executing an instrument in writing resigning such trust and specifying the date when such resignation shall take effect, and the Trustee shall provide such notice to the Issuer, the Borrower and the Bank, if any, the Bond Insurer, and the Trustee shall give such notice of such resignation to all Owners. Such notice shall specify the date when such resignation shall take effect. Such resignation shall only take effect on the day a successor Trustee shall have been appointed as hereinafter provided and shall have accepted such appointment and agreed to assume all of the obligations as Trustee hereunder.

Section 11.12 Removal of Trustee. The Trustee may be removed by the Issuer at any time, at the written request of the Borrower (other than during the continuation of an Event of Default) or the Owners of not less than a majority in principal amount of the Bonds then Outstanding, by filing with the Trustee so removed, the Issuer, the Borrower, the Tender Agent, the Remarketing Agent, the Bank and the Bond Insurer an instrument or instruments in writing appointing a successor in accordance with Section 11.13 hereof. Promptly upon delivery of such instrument or instruments to the Trustee, the successor Trustee upon its acceptance of the trusts created hereby shall give notice thereof to all Owners.

Section 11.13 Appointment of Successor Trustee. If at any time the Trustee shall be removed, be dissolved or its property or affairs shall be taken under the control of any state or federal court or administrative body because of insolvency, bankruptcy or any other reason, a vacancy shall ipso facto be deemed to exist in the office of Trustee and a successor may be appointed, and in case at any time the Trustee shall resign, then a successor may be appointed, by giving written notice to the Issuer, the Borrower, the Tender Agent, the Remarketing Agent, the Bank and the Bond Insurer an instrument of appointment in writing, executed by Owners of not less than a majority in principal amount of Bonds then Outstanding with the consent of the Bank unless the Bank has wrongfully dishonored a draw on a Credit Facility and with the consent of the Bond Insurer so long as the Bond Insurer is not in default in its payment obligations under the Bond Insurance Policy. Copies of such instrument shall be promptly delivered by the Issuer to the predecessor Trustee and to the Trustee so appointed.

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Until a successor Trustee shall be appointed by the Owners of the Bonds as herein authorized with the consent of the Bank unless the Bank has wrongfully dishonored a draw on a Credit Facility and with the consent of the Bond Insurer so long as the Bond Insurer is not in default in its payment obligations under the Bond Insurance Policy, the Issuer, by an instrument authorized by resolution of the Issuer, may, but shall have no obligation to, appoint a successor Trustee acceptable to the Borrower and the Bank and the Bond Insurer. After any appointment by the Issuer, it shall cause notice of such appointment to be given to the Remarketing Agent and to all Owners of the Bonds. Any new Trustee so appointed by the Issuer shall immediately and without further act be superseded by a Trustee appointed by the Owners of the Bonds in the manner above provided. Notwithstanding anything herein to the contrary, no resignation or removal of the Trustee shall be effective until (i) a successor Trustee shall be appointed in accordance with the terms hereof and has accepted such appointment and (ii) each then existing Letter of Credit or other Credit Facility shall have been transferred to such successor in accordance with the terms thereof.

Section 11.14 Qualifications of Successor Trustee. Every successor Trustee (a) shall be a bank or trust company (other than the Bank) duly organized under the laws of the United States or any state or territory thereof and authorized by law to perform all the duties imposed upon it by this Indenture, (b) shall have a combined capital stock, surplus and undivided profits of at least $50,000,000 if there can be located, with reasonable effort, such an institution willing and able to accept the trust on reasonable and customary terms and (c) shall have its obligations rated or be a wholly-owned subsidiary of an entity whose obligations are rated, so long as the Bonds shall be rated by Moody’s, at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s.

Section 11.15 Judicial Appointment of Successor Trustee. If at any time the Trustee shall resign and no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Article XI prior to the date specified in the notice of resignation as the date when such resignation is to take effect, the retiring Trustee may forthwith apply to a court of competent jurisdiction for the appointment of a successor Trustee. If no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Article XI within six months after a vacancy shall have occurred in the office of Trustee, any Owner of a Bond or the Bank or the Bond Insurer may apply to any court of competent jurisdiction to appoint a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor Trustee.

Section 11.16 Acceptance of Trusts by Successor Trustee. Any successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Issuer, the Borrower, the Bank, if any, the Bond Insurer and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become duly vested with all the estates, property, rights, powers, trusts, duties and obligations of its predecessor in the trust hereunder, with like effect as if originally named Trustee herein. Upon request of such successor Trustee, such predecessor Trustee and the Issuer shall execute and deliver an instrument transferring to such successor Trustee all the estates,

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property, rights, powers and trusts hereunder of such predecessor Trustee and, subject to the provisions of Section 11.04 hereof and upon payment of its charges, such predecessor Trustee shall (i) pay over to the successor Trustee all moneys and other assets at the time held by it hereunder and (ii) transfer over to the successor Trustee its interest in any Credit Facility.

Section 11.17 Successor by Merger or Consolidation. Any corporation into which any Trustee hereunder may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which any Trustee hereunder shall be a party or any corporation to which substantially all the corporate trust business of the Trustee shall be sold or transferred, shall be the successor Trustee under this Indenture, without the execution or filing of any paper or any further act on the part of the parties hereto, anything in this Indenture to the contrary notwithstanding.

Section 11.18 Standard of Care. Notwithstanding any other provisions of this Article XI, the Trustee shall, during the existence of an Event of Default of which the Trustee is required to take notice or is deemed to have notice under Section 11.05 hereof, exercise such of the rights and powers vested in it by this Indenture and use the same degree of skill and care in their exercise as a prudent indenture trustee would use and exercise under the circumstances. Prior to the existence and after the curing or waiving of any such Event of Default, the duties of the Trustee hereunder shall be only such duties as are specifically set forth herein and no implied covenants shall be read into this Indenture or the Agreement against the Trustee.

Section 11.19 Notice of Event of Default. If an Event of Default occurs of which the Trustee is required by Section 11.05 hereof to take notice or has notice, or any other Event of Default occurs of which the Trustee has been specifically notified in accordance with Section 11.05 hereof, then (a) immediately upon Trustee taking or having notice of any Event of Default under Section 10.1(a)(i),(ii) or (iii) or (b) upon any other Event of Default continuing for at least five Business Days after the Trustee is required to take, or has received, notice thereof, the Trustee shall give notice thereof to the Issuer, the Remarketing Agent, the Tender Agent, the Bank, the Bond Insurer and the Owners of the Bonds.

Section 11.20 Intervention in Litigation. In any judicial proceeding to which the Issuer is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of the Owners of the Bonds, the Trustee may intervene on behalf of the Owners of the Bonds and shall, upon receipt of indemnity satisfactory to it, do so if requested in writing by Owners of at least a majority in principal amount of the Bonds then Outstanding if permitted by the court having jurisdiction in the premises.

Section 11.21 Paying Agent. The Issuer may at any time or from time to time by resolution, with the approval of the Trustee and the Borrower, appoint the Paying Agent for the Bonds, subject to the conditions set forth in Section 11.22 hereof. The Trustee is hereby appointed as the initial Paying Agent. Each Paying Agent (if not also the Trustee) shall designate to the Trustee, the Bank and the Bond Insurer its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Borrower and the Trustee under which such Paying Agent will agree, particularly:

(i) to hold all sums held by it for the payment of the principal of and interest and any premium on Bonds in trust for the benefit of the Owners until such sums shall be paid to the Owners or otherwise disposed of as herein provided; and

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(ii) to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee and the Borrower at all reasonable times.

The Issuer shall cooperate with the Trustee and the Borrower to cause the necessary arrangements to be made and to be thereafter continued whereby funds will be made available for the payment when due of the Bonds as presented at the Principal Office of the Paying Agent.

Section 11.22 Qualifications of Paying Agent; Resignation; Removal. The Paying Agent shall (i) be a bank, a trust company, national banking association or another corporation duly organized under the laws of the United States of America or any state or territory thereof, (ii) have its obligations rated or be a wholly-owned subsidiary of an entity whose obligations are rated, so long as the Bonds are rated by Moody’s, at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s, and (iii) be authorized by law to perform all the duties imposed upon it by this Indenture. The Paying Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 60 days’ notice to the Issuer, the Borrower and the Trustee (if no longer the Paying Agent). The Paying Agent shall be removed at any time, other than during the continuance of an Event of Default, at the direction of the Borrower, by an instrument, signed by the Issuer, filed with the Paying Agent and with the Trustee.

In the event of the resignation or removal of the Paying Agent, the Paying Agent shall pay over, assign and deliver any moneys held by it in such capacity to its successor or, if there be no successor, to the Trustee.

In the event that the Paying Agent shall resign, be removed or be dissolved, or if the property or affairs of the Paying Agent shall be taken under the control of any state or federal court or administrative body because of bankruptcy, insolvency or any other reason, and the Issuer shall not have appointed its successor as Paying Agent, the Trustee shall de facto be deemed to be the Paying Agent for all purposes of this Indenture until the appointment by the Issuer of the Paying Agent or successor Paying Agent, as the case may be.

Section 11.23 Registrar. The Trustee hereby is appointed as the initial Registrar. In the event of the resignation or removal of the Registrar, the Issuer shall, at the direction of the Borrower, appoint the Registrar for the Bonds, subject to the conditions set forth in Section 11.24 hereof. Each Registrar (if not also the Trustee) shall designate to the Trustee its Principal Office and signify its acceptance of the duties imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Borrower and the Trustee under which such Registrar will agree, particularly, to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee and the Borrower at all reasonable times.

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The Issuer shall cooperate with the efforts of the Trustee and the Borrower intended to cause the necessary arrangements to be made and to be thereafter continued whereby Bonds, executed by the Issuer and authenticated by the Trustee, shall be made available for exchange and registration of transfer at the Principal Office of the Registrar. The Issuer shall cooperate with the efforts of the Trustee, the Registrar and the Borrower to cause the necessary arrangements to be made and thereafter continued whereby the Paying Agent and the Remarketing Agent shall be furnished such records and other information, at such times, as shall be required to enable the Paying Agent and the Remarketing Agent to perform the duties and obligations imposed upon them hereunder.

Section 11.24 Qualifications of Registrar; Resignation; Removal. The Registrar shall be a corporation duly organized under the laws of the United States of America or any state or territory thereof, authorized by law to perform all the duties imposed upon it by this Indenture. The Registrar may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 60 days’ notice to the Issuer, the Trustee and the Borrower. The Registrar may be removed at any time, at the direction of the Borrower (other than during the continuance of an Event of Default), by an instrument, signed by the Issuer, filed with the Registrar and the Trustee.

In the event of the resignation or removal of the Registrar, the Registrar shall deliver any Bonds held by it in such capacity to its successor or, if there be no successor, to the Trustee.

In the event that the Registrar shall resign, be removed or be dissolved, or if the property or affairs of the Registrar shall be taken under the control of any state or federal court or administrative body because of bankruptcy, insolvency or any other reason, and the Issuer shall not have appointed its successor as Registrar, the Trustee shall de facto be deemed to be the Registrar for all purposes of this Indenture until the appointment by the Issuer of the Registrar or successor Registrar, as the case may be.

Section 11.25 Appointment of Co-Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State of Arizona) denying or restricting the right of banking corporations or associations to transact business as trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture or the Agreement, and in particular in the case of the enforcement thereof on default, or in the case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the properties, in trust, as herein granted, or take any action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate or co-trustee.

In the event that the Trustee shall appoint an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co-trustee, but only to the extent necessary to enable such separate or co-trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable by either of them.

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Should any reasonable instrument in writing from the Issuer be required by the separate or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such estates, property, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate or co-trustee or a successor to either shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a successor to such separate or co-trustee or a new separate or co-trustee. No trustee hereunder shall be liable by reason of any act or omission of any other trustee hereunder

Section 11.26 Notices to Rating Agencies. The Trustee shall provide Moody’s, if the Bonds are then rated by Moody’s, or S&P, if the Bonds are then rated by S&P, or Fitch, if the Bonds are then rated by Fitch, as appropriate, with prompt written notice at least 15 days prior to its execution and adoption of (i) the appointment of any successor Trustee, Paying Agent, Remarketing Agent or Tender Agent, (ii) any amendments to this Indenture or the Agreement, (iii) the payment (or provision for payment) in whole of the Bonds, (iv) the adjustment of any Bonds to a Short-Term or Long-Term Interest Rate Period, (v) the acquisition, extension, expiration or termination of a Credit Facility or (vi) any amendment to the Reimbursement Agreement or a Credit Facility of which the Trustee has actual knowledge.

ARTICLE XII

EXECUTION OF INSTRUMENTS BY

OWNERS AND PROOF OF OWNERSHIP OF BONDS

Section 12.01 Execution of Instruments; Proof of Ownership. Any request, direction, consent or other instrument in writing, whether or not required or permitted by this Indenture to be signed or executed by Owners of the Bonds, may be in any number of concurrent instruments of similar tenor and may be signed or executed by Owners of the Bonds in person or by agent appointed by an instrument in writing. Proof of the execution of any such instrument and of the ownership or former ownership of Bonds shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee with regard to any action taken by it under such instrument if made in the following manner:

(i) The fact and date of the execution by any person of any such instrument may be proved by the certificate of any officer in any jurisdiction who, by the laws thereof, has power to take acknowledgments within such jurisdiction, to the effect that the person signing such instrument acknowledged before him the execution thereof, or by an affidavit of a witness to such execution, or in any other manner reasonably acceptable to the Trustee.

(ii) The ownership or former ownership of Bonds shall be proved by the registration books kept under the provisions of Section 2.04 hereof and the records kept by the Trustee pursuant to Section 14.03(c) hereof.

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(iii) While the Bonds are in book-entry only form, the beneficial ownership or former ownership of Bonds shall be proved by an instrument in writing signed by such beneficial owner and acceptable to the Trustee.

Nothing contained in this Article XII shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of matters herein stated which it may deem to be sufficient. Any request or consent of any Owner of a Bond shall bind every future Owner of any Bond or Bonds issued in lieu thereof or upon registration of transfer or in exchange thereof in respect of anything done by the Trustee or the Issuer in pursuance of such request or consent.

ARTICLE XIII

MODIFICATION OF INDENTURE, DOCUMENTS

Section 13.01 Limitations. This Indenture and the Agreement shall not be modified or amended in any respect subsequent to the initial issuance of the Bonds, except as provided in and in accordance with and subject to the provisions of this Article XIII.

Section 13.02 Modification without Consent of Owners. The Issuer and the Trustee may, from time to time and at any time without the consent of or notice to the Owners of the Bonds but with the consent of the Bond Insurer subject to Section 13.05 hereof, enter into Supplemental Indentures as follows:

(i) to cure any formal defect, omission, inconsistency or ambiguity in this Indenture;

(ii) to grant to or confer upon the Trustee for the benefit of the Owners of the Bonds any additional rights, remedies, powers, authority or security which may lawfully be granted or conferred and which are not contrary to or inconsistent with this Indenture as theretofore in effect;

(iii) to add to the covenants and agreements of, and limitations and restrictions upon, the Issuer in this Indenture other covenants, agreements, limitations and restrictions to be observed by the Issuer which are not contrary to or inconsistent with this Indenture as theretofore in effect;

(iv) to confirm, as further assurance, any pledge or assignment under, and the subjection to any claim, lien, pledge or assignment created or to be created by this Indenture, of the Receipts and Revenues or of any other moneys, securities or funds;

(v) to authorize different Authorized Denominations of the Bonds and to make correlative amendments and modifications to this Indenture regarding exchangeability of Bonds of different Authorized Denominations, redemptions of portions of Bonds of particular Authorized Denominations and similar amendments and modifications of a technical nature;

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(vi) to modify, alter, supplement or amend this Indenture in such manner as shall permit the qualification hereof under the Trust Indenture Act of 1939, as from time to time amended;

(vii) to increase or decrease the number of days specified in Section 2.01(c) hereof and to make corresponding changes to Section 4.03 hereof; provided that no decreases in any such number of days shall become effective except during a Daily Interest Rate Period or a Weekly Interest Rate Period and until 30 days after the Trustee shall have given notice to the Owners;

(viii) to provide for the procedures required to permit or implement an uncertificated system of registration of the Bonds;

(ix) to modify, alter, amend or supplement this Indenture in any other respect which is not materially adverse to the Owners and which does not involve a change described in the provisions of Section 13.03(i) hereof; and

(x) to modify, alter, supplement or amend this Indenture to comply with changes in the Code affecting the status of interest on the Bonds as excluded from gross income for federal income tax purposes or the obligations of the Issuer or the Borrower in respect of Section 148 of the Code.

Before the Issuer shall adopt any Supplemental Indenture pursuant to this Section 13.02, there shall have been provided to the Issuer and the Trustee a Favorable Opinion of Bond Counsel.

Section 13.03 Modification with Consent of Owners.

(i) Except for any Supplemental Indenture entered into pursuant to Section 13.02 hereof, subject to the terms and provisions contained in this Section 13.03, the Owners of not less than a majority in aggregate principal amount of the Bonds shall have the right from time to time to consent to and approve with the consent of the Bond Insurer the adoption by the Issuer of any Supplemental Indenture deemed necessary or desirable by the Issuer for the purposes of modifying, altering, amending, supplementing or rescinding, in any particular, any of the terms or provisions contained in this Indenture; provided, however, that, unless approved in writing by the Owners of all the Bonds, nothing herein contained shall permit, or be construed as permitting, (i) a change in the times, amounts or currency of payment of the principal of or interest or any premium on any Bond, a change in the terms of the purchase of Bonds pursuant to Section 4.08 hereof (other than as permitted by Section 13.02(vii) hereof), or a reduction in the principal amount or redemption price of any Bond or a change in the method of determining the rate of interest thereon, or (ii) the creation of a claim or lien upon, or a pledge or assignment of, the Receipts and Revenues ranking prior to or on a parity with the claim, lien, pledge or assignment created by this Indenture, or (iii) a preference or priority of any Bond or Bonds over any other Bond or Bonds, or (iv) a reduction in the aggregate principal amount of Bonds the

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consent of the Owners of which is required for any such Supplemental Indenture or under Section 13.07 hereof, for any modification, alteration, amendment or supplement to the Agreement.

(ii) If at any time the Issuer shall determine to adopt any Supplemental Indenture for any of the purposes of this Section 13.03, the Trustee shall cause notice of the proposed Supplemental Indenture to be given to all Owners of the Bonds. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that a copy thereof is on file at the Principal Office of the Trustee for inspection by all Owners of the Bonds.

(iii) Within two years after the date of the giving of such notice, the Issuer may adopt (the date of adoption shall be the date of passage and not the effective date) such Supplemental Indenture in substantially the form described in such notice, but only if there shall have first been filed with the Trustee (i) the required consents, in writing, of the Owners of the Bonds and (ii) a Favorable Opinion of Bond Counsel stating that such Supplemental Indenture is authorized or permitted by this Indenture and the Act, complies with their respective terms, and, upon the adoption thereof, will be valid and binding upon the Issuer in accordance with its terms and will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds.

(iv) If Owners of not less than the percentage of Bonds required by this Section 13.03 shall have consented to and approved the adoption thereof as herein provided, no Owner shall have any right to object to the adoption of such Supplemental Indenture, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the propriety of the execution and delivery thereof, or to enjoin or restrain the Issuer from enacting the same or from taking any action pursuant to the provisions thereof.

Section 13.04 Effect of Supplemental Indenture. Upon the adoption of any Supplemental Indenture pursuant to the provisions of this Article XIII, this Indenture shall be, and be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Issuer, the Trustee and all Owners of Bonds then Outstanding shall thereafter be determined, exercised and enforced under this Indenture subject in all respects to such modifications and amendments.

Section 13.05 Consent of the Borrower, the Bank and the Bond Insurer. Anything herein to the contrary notwithstanding, the Trustee (i) shall not execute any Supplemental Indenture under this Article XIII which affects any rights, powers and authority of the Borrower under the Agreement, the Tender Agreement or the applicable Credit Facility or the Bond Insurance Policy or requires a revision of the Agreement, the Tender Agreement, the applicable Credit Facility or the Bond Insurance Policy unless and until the Borrower and the Bank and the Bond Insurer shall have consented to such Supplemental Indenture and (ii) need not accept any Supplemental Indenture which affects its rights, duties and responsibilities hereunder or under the Agreement.

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Section 13.06 Amendment of Agreement without Consent of Owners. Without the consent of or notice to the Owners of the Bonds but with the consent of the Borrower, the Bank and the Bond Insurer, the Issuer may modify, alter, amend or supplement the Agreement, and the Trustee may consent thereto, (a) as may be required by the provisions of the Agreement and this Indenture, (b) for the purpose of curing any formal defect, omission, inconsistency or ambiguity therein, or (c) in connection with any other change therein which is not materially adverse to the Owners. No extension, termination or provision of any substitute Credit Facility in accordance with the provisions of the Agreement shall be deemed a modification, alteration, amendment or supplement to the Agreement, or to this Indenture, for any purpose of this Indenture.

Before the Issuer shall enter into, and the Trustee shall consent to, any modification, alteration, amendment or supplement to the Agreement, pursuant to this Section 13.06, there shall have been delivered to the Issuer and the Trustee, a Favorable Opinion of Bond Counsel.

Section 13.07 Amendment of Agreement with Consent of Owners. Except in the cases of modifications, alterations, amendments or supplements referred to in Sections 13.02 and 13.06 hereof, the Issuer shall not enter into, and the Trustee shall not consent to, any modification, alteration, amendment or supplement of the Agreement, without the written approval or consent of the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding but with the consent of the Borrower, the Bank and the Bond Insurer, given and procured as provided in Sections 13.03 and 13.05 hereof; provided, however, that, unless approved in writing by the Owners of all Bonds then Outstanding, nothing in this Section 13.07 shall permit, or be construed as permitting, a change in the obligations of the Borrower under Section 5.02 or 10.01 of the Agreement. If at any time the Issuer or the Borrower shall request the consent of the Trustee to any such proposed modification, alteration, amendment or supplement, the Trustee shall cause notice thereof to be given in the same manner as provided by Section 13.03 hereof with respect to Supplemental Indentures. Such notice shall briefly set forth the nature of such proposed modification, alteration, amendment or supplement and shall state that copies of the instrument embodying the same are on file at the Corporate Trust office of the Trustee for inspection by all Owners of Bonds Outstanding. The Issuer may enter into, and the Trustee may consent to, any such proposed modification, alteration, amendment or supplement of the Agreement, subject to the same conditions and with the same effect as provided in Section 13.03 hereof with respect to Supplemental Indentures.

Section 13.08 Issuance of Bonds Under Other Indentures; Recognition of Prior Pledges. The Issuer hereby expressly reserves the right to issue, to the extent permitted by law, bonds in accordance with other ordinances and indentures for one or more purposes permitted by the Act. The Issuer hereby recognizes and protects any prior pledge or mortgage made to secure any prior issue of bonds.

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ARTICLE XIV

REMARKETING AGENT; TENDER AGENT; PURCHASE AND REMARKETING OF BONDS

Section 14.01 Remarketing Agent and Tender Agent.

(a) The Borrower shall appoint a Remarketing Agent for the Bonds, subject to the conditions set forth in Section 14.02(a) hereof. The Remarketing Agent shall designate its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Trustee, the Tender Agent and the Borrower under which the Remarketing Agent will agree, particularly, to keep such books and records with respect to the Bonds as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee, the Tender Agent and the Borrower at all reasonable times.

(b) The Borrower shall appoint a Tender Agent for the Bonds; subject to the conditions set forth in Section 14.02(b) hereof. The Tender Agent shall designate its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Trustee, the Borrower, the Bank, the Bond Insurer and the Remarketing Agent. By acceptance of its appointment hereunder, the Tender Agent agrees:

(A) to hold all Bonds delivered to it pursuant to Section 4.09 hereof, as agent and bailee of, and in escrow for the benefit of, the respective Owners which shall have so delivered such Bonds until moneys representing the purchase price of such Bonds shall have been delivered to or for the account of or to the order of such Owners;

(B) to establish and maintain, and there is hereby established with the Tender Agent, a separate segregated trust fund designated as the “Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds 2005 Series A (El Paso Electric Company, Palo Verde Project) Purchase Fund” (the “Purchase Fund”) until such time as it has been discharged from its duties as Tender Agent hereunder;

(C) to hold all moneys (without investment thereof) delivered to it hereunder in the Purchase Fund for the purchase of Bonds pursuant to Section 4.08 hereof, other than moneys delivered to it by the Borrower during the term of a Credit Facility, as agent and bailee of, and in escrow for the benefit of, the person or entity which shall have so delivered such moneys until the Bonds purchased with such moneys shall have been delivered to or for the account of such person or entity;

(D) to hold all moneys delivered to it by the Borrower for the purchase of Bonds pursuant to Section 4.08 hereof, as agent and bailee of, and in escrow for the benefit of, the Owners or former Owners who shall deliver Bonds to it for purchase until the Bonds purchased with such moneys shall have been delivered to or for the account of the Borrower; provided, however, that if the Bonds shall at any time become due and payable, the Tender Agent shall cause such moneys (other than moneys held pursuant to Section 14.03(d) hereof) to be deposited into the Bond Fund;

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(E) to hold all Bonds registered in the name of the new Owners thereof which have been delivered to it by the Trustee for delivery to the Remarketing Agent in accordance with the Tender Agreement;

(F) to hold Bonds for the account of the Borrower as contemplated by Section 14.05(c) hereof, such Bonds to be released to or upon the order of the Borrower upon receipt by the Tender Agent from the Bank of a notice to the effect that the Trustee is entitled to draw under a Credit Facility to pay principal of the Bonds and to pay the purchase price of Bonds tendered under Section 4.08 hereof and not remarketed in an amount equal to the amount that could be drawn under a Credit Facility if the drawing made to purchase such Bonds were disregarded;

(G) to hold Bonds for the account of the Bank (or its nominee), or to deliver Bonds to the Bank, as contemplated by Section 14.05(c) hereof; and

(H) to keep such books and records with respect to the Bonds as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee, the Borrower and the Remarketing Agent at all reasonable times.

The Issuer shall cooperate with the Borrower and the Trustee to cause the necessary arrangements to be made and to be thereafter continued to enable the Tender Agent to perform its duties and obligations described above.

Section 14.02 Qualifications of Remarketing Agent and Tender Agent; Resignation; Removal.

(a) The Remarketing Agent shall be a member of the National Association of Securities Dealers, Inc., having a combined capital stock, surplus and undivided profits of at least $15,000,000 and authorized by law to perform all the duties imposed upon it by this Indenture and the Remarketing Agreement. Any successor Remarketing Agent shall have its obligations rated or be a wholly-owned subsidiary of an entity whose obligations are rated, so long as the Bonds shall be rated by Moody’s, at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s. The Remarketing Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving notice to the Issuer, the Trustee, the Bank, if any, the Tender Agent and the Borrower. Such resignation shall take effect on the earlier of: (i) the day a successor Remarketing Agent shall have been appointed by the Borrower and shall have accepted such appointment or (ii) the 45th day after the receipt by the Issuer and the Borrower of the notice of resignation. The Remarketing Agent may be removed at any time, pursuant to the Remarketing Agreement.

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(b) The Tender Agent shall be a corporation duly organized under the laws of the United States of America or any state or territory thereof, and, if not a bank or trust company, for so long as the Bonds shall be rated by Moody’s, shall have its obligations rated at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s, and in any case having a combined capital stock, surplus and undivided profits of at least $25,000,000 and authorized by law to perform all the duties imposed upon it by this Indenture and the Tender Agreement. The Tender Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 30 days’ notice to the Issuer, the Trustee, the Borrower, the Remarketing Agent, the Bond Insurer and the Bank. Such resignation shall take effect on the day a successor Tender Agent shall have been appointed by the Borrower and shall have accepted such appointment. The Tender Agent may be removed at any time by an instrument signed by the Borrower, filed with the Tender Agent, the Issuer, the Trustee, the Remarketing Agent, the Bond Insurer and the Bank.

In the event of the resignation or removal of the Tender Agent, the Tender Agent shall deliver any Bonds and moneys held by it in such capacity to its successor, or if there is no successor, to the Trustee.

Section 14.03 Notice of Bonds Delivered for Purchase; Purchase of Bonds.

(a) The Tender Agent shall determine timely and proper delivery of Bonds pursuant to this Indenture and the proper endorsement of such Bonds. Such determination shall be binding on the Owners of such Bonds, the Issuer, the Borrower, the Remarketing Agent, the Trustee, the Bond Insurer and the Bank absent manifest error. As promptly as practicable, the Tender Agent shall give telephonic or Electronic notice, promptly confirmed by a written notice, to the Bank, if any, the Trustee, the Remarketing Agent, the Registrar and the Borrower specifying the principal amount of Bonds, if any, for which it has received notice of tender for purchase in accordance with Section 4.08(a)(i) or 4.08(a)(ii) hereof.

(b) Bonds required to be purchased in accordance with Section 4.08 hereof shall be purchased from the Owners thereof by the Tender Agent, on the date and at the purchase price at which such Bonds are required to be purchased if the Bank shall not have exercised its option to purchase such Bonds pursuant to Section 4.07 hereof. Funds for the payment of such purchase price by the Tender Agent from the Owners of Bonds shall be derived from the following sources in the order of priority indicated:

(i) moneys furnished to the Tender Agent for deposit into the Purchase Fund representing moneys provided by the Borrower pursuant to Section 10.02 of the Agreement, which constitute Available Moneys;

(ii) proceeds of the sale of such Bonds remarketed to any person, other than the Issuer, the Borrower or an affiliate thereof, pursuant to Section 14.04 hereof and furnished to the Tender Agent by the Remarketing Agent for deposit into the Purchase Fund;

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(iii) moneys furnished to the Tender Agent by the Trustee for deposit into the Purchase Fund representing the proceeds of a drawing under a Credit Facility; and

(iv) moneys furnished to the Tender Agent representing moneys provided by the Borrower (or any affiliate thereof) pursuant to Section 10.01 or 10.02 of the Agreement or otherwise available for such purpose.

Moneys described in clause (iii) may not be used to purchase Bonds held of record by the Borrower (or any affiliate thereof) or by the Tender Agent for the account of the Borrower.

The Tender Agent shall establish separate accounts or subaccounts within the Purchase Fund for each deposit made into the Purchase Fund so that (1) the Tender Agent may at all times ascertain the date of deposit of the funds in each account or subaccount, and (2) the amounts derived from the source described in clause (iii) may be segregated from other sources and such amounts shall not be commingled with any funds from the sources described in clause (D).

(c) The Trustee shall authenticate a new Bond or Bonds in an aggregate principal amount equal to the principal amount of Bonds purchased in accordance with Section 14.03(b), whether or not the Bonds so purchased are presented by the Owners thereof, bearing a number or numbers not contemporaneously outstanding. Every Bond authenticated and delivered as provided in this Section 14.03(c) shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Bonds duly issued hereunder, except as provided in Section 5.04(c) hereof. The Tender Agent shall maintain a record of the Bonds purchased as provided in this Section 14.03, together with the names and addresses of the former Owners thereof.

(d) In the event any Bonds purchased as provided in this Section 14.03 shall not be presented to the Tender Agent, the Tender Agent shall segregate and hold the moneys for the purchase price of such Bonds in trust for the benefit of the former Owners of such Bonds, who shall, except as provided in the following sentence, thereafter be restricted exclusively to such moneys for the satisfaction of any claim for the purchase price of such Bonds. Any moneys which the Tender Agent shall segregate and hold in trust for the payment of the purchase price of any Bond and remaining unclaimed for two years after the date of purchase shall, to the extent legally permissible, upon the Borrower’s written request to the Tender Agent, be paid to the Bank, if the Borrower then owes funds under the Reimbursement Agreement, to the Bond Insurer, if the Borrower owes funds under the Insurance Agreement or otherwise to the Borrower. After the payment of such unclaimed moneys to the Borrower, the former Owner of such Bond shall look only to the Borrower for the payment thereof.

Section 14.04 Remarketing of Bonds; Notice of Interest Rates.

(a) Upon notice of the tender for purchase of Bonds in accordance with Section 4.08 hereof, the Remarketing Agent shall offer for sale and use its best efforts to sell such Bonds (other than Bonds purchased with moneys derived from the source described in clause (i) of Section 14.03(b) hereof, if so directed by the Borrower), any

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such sale to be made on the date of such purchase in accordance with Section 4.08 at the best price available in the marketplace; provided, however, that, if a Credit Facility shall be in effect, the Remarketing Agent shall not sell any of such Bonds at a price below the principal amount thereof plus accrued interest thereon, if any. Any Bond which is tendered for purchase, pursuant to Section 4.08 hereof, and any Bond that has become subject to mandatory tender for purchase pursuant to Section 4.08 hereof, shall be sold only to a purchaser who agrees to refrain from selling that Bond other than under the terms of this Indenture and hold that Bond only to the date of mandatory purchase.

(b) The Remarketing Agent shall determine the rate of interest to be borne by the Bonds during each Interest Rate Period and by each Bond during each Bond Interest Term for such Bond and the Bond Interest Terms for each Bond during each Short-Term Interest Rate Period as provided in Section 2.01 hereof and shall furnish to the Trustee, the Tender Agent, the Borrower and the Bank on the Business Day of determination each rate of interest and Bond Interest Term so determined.

(c) The Remarketing Agent shall give telephonic or telegraphic notice, promptly confirmed by a written notice, to the Trustee and the Tender Agent on each date on which Bonds shall have been purchased pursuant to Section 14.03(b) hereof, specifying the principal amount of Bonds, if any, sold by it pursuant to Section 14.04(a) hereof.

Section 14.05 Delivery of Bonds.

(a) Bonds purchased with moneys described in clause (i) of Section 14.03(b) hereof shall be delivered to the Borrower and shall be registered in accordance with instructions from the Borrower.

(b) Bonds purchased with moneys described in clause (ii) of Section 14.03(b) hereof shall be delivered by the Trustee to the Tender Agent or the Remarketing Agent for delivery to the purchasers thereof against payment therefor in accordance with the Tender Agreement.

(c) Bonds purchased with moneys described in clause (iii) of Section 14.03(b) hereof shall be:

(i) except as otherwise provided in Section 14.05(c)(ii) or (iii) hereof, held by the Tender Agent for the account of the Borrower, if a Credit Facility provides for reinstatement in respect of the drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed by reimbursement to the Bank of the amount of such drawing together with interest thereon;

(ii) delivered to the Bank, as applicable, if a Credit Facility provides for immediate reinstatement in respect of drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed by the delivery to the Bank of such Bonds or otherwise requires that Bonds be delivered to the Bank;

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(iii) held by the Tender Agent. for the account of the Bank, if a Credit Facility provides for immediate reinstatement in respect of drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed by the holding for the account of the Bank of such Bonds or otherwise requires that Bonds be held for the account of the Bank; or

(iv) delivered to the Trustee for cancellation, if a Credit Facility does not provide for reinstatement in respect of drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed.

Upon delivery to the Bank, or to the Tender Agent for the account of the Bank, of the Bonds in accordance with clause (ii) or (iii) above, the Trustee shall deliver any certificate evidencing such reimbursement or delivery of Bonds to or for the account of the Bank, as applicable, required for reinstatement, in whole or in part, of any Credit Facility. Bonds held pursuant to clauses (i), (ii) and (iii) above shall be released for the purpose of remarketing or released to or upon the order of the Borrower only upon receipt by the Tender Agent from the Bank of a written notice to the effect that the Trustee is entitled to draw under a Credit Facility to pay principal of and interest on the Bonds and to pay the purchase price of Bonds purchased pursuant to Section 4.08 hereof and not remarketed in an amount equal to the amount that could be drawn under a Credit Facility if the drawing made to purchase such Bonds were disregarded.

(d) Bonds purchased with moneys described in clause (iv) of Section 14.03(b) hereof shall, at the direction of the Borrower, be (i) held by the Tender Agent for the account of the Borrower, (ii) delivered to the Trustee for cancellation or (iii) delivered to the Borrower; provided, however, that any Bonds so purchased after the selection thereof by the Trustee for redemption shall be delivered to the Trustee for cancellation.

(e) Bonds delivered as provided in this Section 14.05 shall be registered in the manner directed by the recipient thereof.

(f) Bonds purchased by the Trustee on behalf of or for the account of the Bank (or its nominee) pursuant to Section 4.07 shall be delivered promptly to the Bank (or its nominee, as the case may be), or as the Bank shall otherwise direct and thereafter, if requested by the Bank, remarketed in accordance with the provisions of Section 14.04 hereof and the Remarketing Agreement.

Section 14.06 Drawings on Credit Facility. In accordance with the provisions of the Tender Agreement, on each day on which Bonds are to be purchased pursuant to Section 4.08 hereof, except to the extent that (i) moneys described in Section 14.03(b)(i) hereof shall be available for the purchase of such Bonds, or (ii) the Trustee shall have received telephonic or Electronic notification from the Remarketing Agent or the Tender Agent that such Bonds shall have been remarketed pursuant to Section 14.04 hereof and that the moneys described in Section 14.03(b)(ii) hereof will be sufficient to pay the purchase price of such Bonds or (iii) the Bank shall have purchased the Bonds pursuant to Section 4.07 hereof, the Trustee promptly shall draw under a Credit Facility, in accordance with its terms, an amount sufficient to make timely payment of the purchase price of such Bonds and furnish the proceeds of such drawing to the Tender Agent. Following payment of all amounts payable in respect of the purchase of Bonds

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pursuant to Section 4.08 hereof, the Trustee shall remit to the Bank any amount drawn under a Credit Facility in excess of the amount sufficient to make timely payment of the purchase price of such Bonds.

Section 14.07 Delivery of Proceeds of Sale. The proceeds of the sale by the Remarketing Agent of any Bonds delivered to it by, or held by it for the account of, the Borrower or the Bank, or delivered to it by the Bank or any other Owner, shall be turned over to the Borrower, the Bank or such other Owner, as the case may be. If the applicable Credit Facility provides for reinstatement in respect of the drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof by reimbursement to the Bank of the amount of such drawing, the Remarketing Agent shall deliver the proceeds of such remarketing to the Bank to the extent the Bank has not been reimbursed, and in connection therewith, the Trustee shall deliver any certificate required for reinstatement, in whole or in part, of any Credit Facility.

ARTICLE XV

MISCELLANEOUS

Section 15.01 Indenture to Bind and Inure to Benefit of Successors to Issuer. In the event of the dissolution of the Issuer, all the covenants, stipulations, promises and agreements in this Indenture contained, by or on behalf of, or for the benefit of, the Issuer, shall bind or inure to the benefit of the successors of the Issuer from time to time and any entity, officer, board, commission, agency or instrumentality to whom or to which any power or duty of the Issuer shall be transferred.

Section 15.02 Parties in Interest. Except as herein otherwise specifically provided, nothing in this Indenture expressed or implied is intended or shall be construed to confer upon any person, firm or corporation, other than the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer and the Owners, any right, remedy or claim under or by reason of this Indenture, this Indenture being intended to be for the sole and exclusive benefit of the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer and the Owners of the Bonds. Nothing in this Indenture is intended to create in the Borrower any interest in the Bond Fund or the moneys or Investment Securities therein.

Section 15.03 Severability. In case any one or more of the provisions of this Indenture or of the Bonds issued hereunder shall, for any reason, be held to be illegal or invalid, such illegality or invalidity shall not affect any other provisions of this Indenture, the Agreement, the Remarketing Agreement, the Tender Agreement or said Bonds, and this Indenture, the Agreement, the Remarketing Agreement, the Tender Agreement and the Bonds shall be construed and enforced as if such illegal or invalid provisions had not been contained herein or therein.

Section 15.04 No Personal Liability of Issuer Under Indenture. No covenant or agreement contained in the Bonds or in this Indenture shall be deemed to be the covenant or agreement of any official, officer, agent, or employee of the Issuer in his individual capacity, and neither the members of the Issuer’s Board of Directors nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof.

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Section 15.05 Bonds Owned by the Issuer or the Borrower. In determining whether Owners of the requisite aggregate principal amount of the Bonds have concurred in any direction, consent or waiver under this Indenture, Bonds which are owned by the Issuer or the Borrower or by any affiliate of the Borrower (unless the Issuer, the Borrower and such persons own all Bonds which are then Outstanding, determined without regard to this Section 15.05) shall be disregarded and deemed not to be Outstanding for purpose of any such determination, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Bonds which the Trustee knows are so owned shall be so disregarded. Bonds so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Bonds and that the pledgee is not the Issuer or the Borrower or any affiliate of the Borrower. Bonds delivered to the Bond Insurer, the Bank or held by the Tender Agent for the account of the Bank pursuant to Section 14.05(c) hereof shall be regarded as Outstanding for purposes of this Section 15.05 and shall be owned by the Bond Insurer or the Bank, as applicable, for purposes of this Section 15.05.

Section 15.06 Governing Law. This Indenture and the Bonds shall be construed in accordance with and governed by the Constitution and laws of the State of Arizona; provided however, that the rights, protections and immunities of the Trustee shall be governed by the laws of the State of California.

Section 15.07 Notices. Except as otherwise provided in this Indenture, all notices, certificates, requests, requisitions or other communications by the Issuer, the Borrower, the Trustee, the Bond Insurer, the Fiscal Agent, the Tender Agent, the Paying Agent, the Registrar, the Remarketing Agent, Moody’s, S&P, Fitch and the Bank pursuant to this Indenture shall be in writing and shall be sufficiently given and shall be deemed given when mailed by first-class mail, postage prepaid, addressed as follows:

If to the Issuer:

Maricopa County, Arizona

Pollution Control Corporation

c/o Ryley Carlock & Applewhite

One North Central Avenue, Suite 1200

Phoenix, Arizona 85004-4417

Attention: President

If to the Borrower:

El Paso Electric Company

100 North Stanton

El Paso, Texas 79901

Attention: Treasurer

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If to the Trustee:

Union Bank of California, N.A.

120 S. San Pedro Street, 4^th Floor

Los Angeles, CA 90012

Attention : Corporate Trust Department

If to the Remarketing Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

If to the Tender Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

If to the Bond Insurer:

Financial Guaranty Insurance Company

125 Park Avenue

New York, New York 10017

Attention: Risk Management

Fax: (212) 312-3093

If to the Fiscal Agent (for the Bond Insurer):

U.S. Bank Trust National Association

100 Wall Street, 19^th Floor

New York, New York 10005

Attention: Corporate Trust Department

If to Moody’s:

Moody’s Investors Service

99 Church St.

New York, New York 10007-2796

Attention: Structured Finance Group

If to S&P:

Standard & Poor’s Rating Services

55 Water Street, 38^th Floor

New York, New York 10041

Attention: Public Finance Department

                 Structured Finance Group

If to Fitch:

Fitch Ratings

One State Street Plaza

New York, New York 10004

Attention: Municipal Structured Finance

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If to the Registrar, the Paying Agent and the Bank, at the address designated herein or designated to the Issuer, the Borrower and the Trustee. Any of the foregoing may, by notice given hereunder to each of the others, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent hereunder.

Section 15.08 Non-Business Days. If the last day of any period of grace, or the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Indenture, is not a Business Day, the last day of such period of grace shall be deemed to be, any such payment may be made or act performed or right exercised, with the same force and effect as if done on the nominal date provided in this Indenture, on the next succeeding Business Day, and no interest shall accrue for the period after such nominal date.

Section 15.09 Opinions. Each opinion with respect to the validity of documents or Bonds may be qualified to the extent of the application of bankruptcy, insolvency, moratorium or reorganization laws or laws affecting the remedies for the enforcement of the rights and security provided therein and need not pass on the availability of the remedy of specific enforcement, injunctive relief or any other equitable remedy.

Section 15.10 Headlines; Table of Contents. The division of this Indenture into sections, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof.

Section 15.11 Execution in Several Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Issuer and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument.

Section 15.12 Bond Insurer as Third-Party Beneficiary. To the extent that this Indenture confers upon or gives or grants to the Bond Insurer any right, remedy, benefit, or claim under or by reason of this Indenture, the Bond Insurer is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy, benefit, or claim conferred, given, or granted hereunder.

Section 15.13 Additional Covenants of the Issuer to Bond Insurer.. The Issuer covenants to provide the Bond Insurer with the following information:

(a) Notice of the redemption, other than mandatory sinking fund redemption, of any of the Bonds, or of any advance refunding of Bonds, including the principal amount, maturities, and CUSIP numbers thereof;

(b) Notice of any material events pursuant to Rule 15c2-12 under the Securities Exchange Act of 1934, as amended;

(c) Notice of any rate covenant violation with respect to the Bonds;

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(d) Full transcripts of all proceedings related to the execution of any Supplemental Indenture or any modification, alteration, amendment or supplement of the Agreement pursuant to Section 13 hereof; and

(e) Such additional information as the Bond Insurer may reasonably request from time to time.

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Section 15.14 Statutory Notice. In accordance with the terms thereof, notice is hereby given of Title 38, Chapter 3, Section 38-511, Arizona Revised Statutes, which provides, among other things, that the State of Arizona, its political subdivisions or any department or agency of either may, within three years after its execution, cancel any contract, without penalty or further obligation, made by said State, its political subdivisions, or any of the departments or agencies of either if any person significantly involved in initiating, negotiating, securing, drafting or creating the contract on behalf of said State, its political subdivisions or any of the departments or agencies of either is, at any time while the contract or any extension of the contract is in effect, an employee or agent of any other party to the contract in any capacity or a consultant to any other party of the contract with respect to the subject matter of the contract.

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IN WITNESS WHEREOF, the Issuer has caused this Indenture to be signed in its name by its duly authorized officer, and the Trustee, in token of its acceptance of the trust created hereunder, has caused this Indenture to be signed in its name by its duly authorized signatory, all as of the day and year first above written.

MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION
By:
	President
UNION BANK OF CALIFORNIA, N.A., as Trustee
By:
	Authorized Officer

EXHIBIT A

[FORM OF BOND]

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE, BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

AS PROVIDED IN THE INDENTURE REFERRED TO HEREIN, UNTIL THE TERMINATION OF THE SYSTEM OF BOOK-ENTRY ONLY TRANSFERS THROUGH DTC, AND NOTWITHSTANDING ANY OTHER PROVISION OF THE INDENTURE TO THE CONTRARY, A PORTION OF THE PRINCIPAL AMOUNT OF THIS BOND MAY BE PAID OR REDEEMED WITHOUT SURRENDER HEREOF TO THE PAYING AGENT. DTC OR A NOMINEE, TRANSFEREE OR ASSIGNEE OF DTC AS OWNER OF THIS BOND MAY NOT RELY UPON THE PRINCIPAL AMOUNT INDICATED HEREON AS THE PRINCIPAL AMOUNT HEREOF OUTSTANDING AND UNPAID. THE PRINCIPAL AMOUNT HEREOF OUTSTANDING AND UNPAID SHALL FOR ALL PURPOSES BE THE AMOUNT DETERMINED IN THE MANNER PROVIDED IN THE INDENTURE AND INDICATED ON THE BOOKS OF THE TRUSTEE.

No. $

MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION

Pollution Control Refunding

Revenue Bond, 2005 Series A

(El Paso Electric Company Palo Verde Project)

Maturity Date	Original Issue Date	CUSIP
August 1, 2040	August 1, 2005	566854DG7
Interest Rate: 4.80%

Registered Owner: Cede & Co.

Principal Sum: $59,235,000

Maricopa County, Arizona Pollution Control Corporation, a political subdivision of the State of Arizona (the “Issuer”), for value received, hereby promises to pay (but only from the source and in the manner provided herein) to the registered owner named above, or registered assigns, on the Maturity Date specified above upon the presentation and surrender hereof, the Principal Sum specified above and to pay (but only out of the Receipts and Revenues from the Agreement and other moneys pledged therefor) interest on said Principal Sum, from and including the date of authentication hereof until payment of said Principal Sum has been made or duly provided for, at the rates and on the dates determined as described herein and in the Indenture (as hereinafter defined). The principal of and any premium on this Bond are payable at a principal corporate trust office of Union Bank of California, N.A., in Los Angeles, California, as Trustee and Paying Agent. Interest on this Bond is payable to the person appearing on the bond registration books of the Registrar as the registered holder thereof as of the close of business on the Record Date, such interest to be paid by the Paying Agent to such registered holder (i) in the event such Bond is a Book-Entry Bond, in immediately available funds on the Interest Payment Date in accordance with the Representation Letter, and (ii) in the event such Bond is not a Book-Entry Bond (A) in immediately available funds (by wire transfer or by deposit to the account of the holder of at least $1,000,000 of Bonds if such account is maintained with the Paying Agent), according to the written instructions given by such holder to the Registrar prior to the Record Date or (B) in all other cases, by check mailed by first class mail to the holder at such holder’s address as it appears as of the Record Date on the registration books of the Registrar; except, in each case, that, if and to the extent that there shall be a default in the payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid to the holder in whose name any such Bond is registered as of a special record date to be fixed by the Trustee, notice of which shall be given to such holder not less than ten (10) days prior thereto. Notwithstanding the foregoing, interest on any Bond bearing a Bond Interest Term Rate (except any such Bond which is a Book-Entry Bond) shall be paid only upon presentation to the Tender Agent of the Bond on which such payment is due. Payment of the principal of and interest and any premium on this Bond shall be in such coin or currency of the United States of America as, at the respective times of payment, shall be legal tender for the payment of public and private debts.

Unless otherwise defined herein, all terms herein shall have the same meanings, respectively, as such terms are given in the Indenture.

THE BOND AND INTEREST THEREON ARE LIMITED OBLIGATIONS OF THE ISSUER ISSUED UNDER AND SECURED AND ENTITLED EQUALLY AND RATABLY TO THE PROTECTION GIVEN BY THE INDENTURE. NEITHER THE GENERAL CREDIT OF MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION NOR THE GENERAL CREDIT OR THE TAXING POWER OF THE STATE OF ARIZONA OR OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED FOR THE PAYMENT OF THE BOND, THE BOND SHALL NEVER CONSTITUTE AN INDEBTEDNESS OF THE MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION WITHIN THE MEANING OF ANY STATE CONSTITUTIONAL PROVISION OR STATUTORY

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LIMITATION AND SHALL NEVER GIVE RISE TO A PECUNIARY LIABILITY OF THE MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION OR A CHARGE AGAINST ITS GENERAL CREDIT OR TAXING POWER; NOR SHALL THE BOND AND INTEREST THEREON BE DEEMED A GENERAL OBLIGATION OF MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION OR OF THE STATE OF ARIZONA OR OF ANY POLITICAL SUBDIVISION THEREOF.

This Bond is one of the duly authorized issue of bonds designated as Maricopa County, Arizona Pollution Control Refunding Revenue Bonds, 2005 Series A (El Paso Electric Company Palo Verde Project), of the Issuer, aggregating fifty-nine million two hundred thirty-five thousand Dollars ($59,235,000) in principal amount (the “Bonds”), as provided in, and issued under and secured by, an Indenture of Trust, dated as of July 1, 2005 (the “Indenture”), between the Issuer and Union Bank of California, N.A., or its successors and assigns, as trustee (the “Trustee”). The Bond is authorized to be issued pursuant to a resolution duly adopted by the Issuer on April 19, 2005 and the provisions of the Constitution of the State of Arizona and Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), and all acts supplemental thereto or amendatory thereof (the “Act”).

The Bonds are equally and ratably secured, to the extent provided in the Indenture by a pledge of and lien on, the “Receipts and Revenues,” consisting primarily of loan repayments made by El Paso Electric Company (the “Borrower”) under the terms of a Loan Agreement dated as of July 1, 2005 (the “Agreement”), between the Issuer and the Borrower. The Bonds are all issued under and equally and ratably secured by and entitled to the benefits of the Indenture, including the security of a pledge and assignment of certain revenues and receipts derived by the Issuer pursuant to the Agreement and any Credit Facility provided by the Borrower with respect to the Bonds (as described herein) and all receipts of the Trustee credited under the provisions of the Indenture against such payments and from any other moneys held by the Trustee under the Indenture for such purpose, and there shall be no other recourse against the Issuer or any property now or hereafter owned by it. This Bond and all other Bonds of the series of which it forms a part are issued pursuant to and in full compliance with the Constitution and laws of the State of Arizona, particularly the Act, and pursuant to further proceedings adopted by the governing body of the Issuer, which proceedings authorized the execution and delivery of the Indenture and the Agreement. This Bond and the series of which it forms a part are limited obligations of the Issuer payable solely from the amounts derived under the Agreement and pledged under the Indenture, including all amounts payable from time to time by the Borrower in respect of the indebtedness under the Agreement and all receipts of the Trustee credited under the provisions of the Indenture against said amounts payable. No owner of any Bond issued under the Act has the right to compel any exercise of the taxing power of the Issuer to pay the Bonds, or the interest or premium, if any, thereon. The Project (as defined in the Agreement) is not security for the Bonds.

In the manner hereinafter provided, the term of this Bond will be divided into consecutive Interest Rate Periods during each of which this Bond shall bear interest at a Daily Interest Rate (a “Daily Interest Rate Period”), a Weekly Interest Rate (a “Weekly Interest Rate Period”), a Long-Term Interest Rate or Rates (a “Long-Term Interest Rate Period”), or each Bond may bear interest at a Bond Interest Term Rate during one or more consecutive Bond Interest Terms (a “Short-Term Interest Rate Period”). The first Interest Rate Period shall be the Interest Rate Period as specified in the Indenture.

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This Bond shall bear interest from and including the Interest Accrual Date (as hereinafter defined) to which interest has been paid in full or duly provided for immediately preceding the date of authentication hereof, or, if such date of authentication shall be an Interest Accrual Date to which interest on this Bond has been paid in full or duly provided for, or the date of initial authentication hereof, from its date of authentication; provided, however, that if, as shown by the records of the Trustee, interest on this Bond shall be in default, any Bond issued in exchange for this Bond if it is surrendered for registration of transfer or exchange shall bear interest from the date to which interest has been paid in full on this Bond or duly provided for or, if no interest has been paid on this Bond or duly provided for, the date of the first authentication of this Bond under the provisions of the Indenture. For any Daily Interest Rate Period and any Weekly Interest Rate Period, interest on this Bond shall be payable on each Interest Payment Date for the period commencing on the preceding Interest Accrual Date (unless such Interest Payment Date does not fall on an Interest Accrual Date, in which case on the second preceding Interest Accrual Date) and ending on the day immediately preceding the Interest Accrual Date on which such Interest Payment Date falls (unless such Interest Payment Date does not fall on an Interest Accrual Date, in which case on the day immediately preceding the immediately preceding Interest Accrual Date). For any Short-Term Interest Rate Period or Long-Term Interest Rate Period, interest on this Bond shall be payable on each Interest Payment Date for the period commencing on the immediately preceding Interest Accrual Date and ending on the day immediately preceding such Interest Payment Date. In any event, interest on this Bond shall be payable for the final Interest Rate Period to the date on which this Bond shall have been paid in full. Interest shall be computed, in the case of a Long-Term Interest Rate Period, on the basis of a 360-day year consisting of twelve 30-day months, and in the case of any other Interest Rate Period, on the basis of a 365- or 366-day year, as appropriate, and the actual number of days elapsed. The Bonds shall be issuable in the form of registered Bonds without coupons in the denomination of (i) $5,000 and any integral multiple thereof, during any Long-Term Interest Rate Period and (ii) $100,000 and any integral multiple of $5,000 in excess of $100,000 during any Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period (such denominations referred to herein as “Authorized Denominations”).

The term “Interest Accrual Date” shall mean (i) with respect to any Daily Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Daily Interest Rate Period, (ii) with respect to any Weekly Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Weekly Interest Rate Period, (iii) with respect to any Long-Term Interest Rate Period, the first day thereof and, thereafter, each Interest Payment Date in respect thereof, other than the last such Interest Payment Date, and (iv) with respect to each Bond Interest Term within a Short-Term Interest Rate Period, the first day thereof. The Term “Interest Payment Date” shall mean (i) with respect to any Daily or Weekly Interest Rate Period, the first Business Day of each calendar month, (ii) with respect to any Long-Term Interest Rate Period, each February 1 and August 1 occurring during such Long-Term Interest Rate Period, and the Business Day next succeeding the last day thereof, (iii) with respect to any Short-Term Interest Rate Period, the Business Day next succeeding the last day thereof, and (iv) in all events, the redemption date or the Maturity Date. The term “Business Day” shall mean a day on which banks located in the cities in which the Principal Offices of the

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Trustee and the Tender Agent are located, and in the city or cities in which drawings under a Credit Facility are required to be made, are not required or authorized by law or executive order to remain closed and on which the New York Stock Exchange, Inc. is not closed.

(1) Daily Interest Rate

(i) Determination of Daily Interest Rate. During each Daily Interest Rate Period, the Bonds shall bear interest at the Daily Interest Rate determined by the Remarketing Agent on or before each Business Day for such Business Day. The Daily Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of the Daily Interest Rate determined by 10:30 a.m. (New York City time) on the date of determination. If the Remarketing Agent shall not have determined a Daily Interest Rate for any day by 10:30 a.m. (New York City time) on such day, the Daily Interest Rate shall be the same as the Daily Interest Rate for the immediately preceding day. In no event shall the Daily Interest Rate be greater than the Maximum Interest Rate.

(ii) Adjustment to Daily Interest Rate Period. At any time, the Borrower, by written notice to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear interest at a Daily Interest Rate. Such notice (1) shall specify the effective date of such adjustment to a Daily Interest Rate and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of the interest on the Bonds.

(2) Weekly Interest Rate.

(i) Determination of Weekly Interest Rate. During each Weekly Interest Rate Period, the Bonds shall bear interest at the Weekly Interest Rate, which shall be determined by the Remarketing Agent no later than the first day of such Weekly Interest Rate Period and thereafter no later than 10:00 a.m. (New York City time) on Wednesday of each week during such Weekly Interest Rate Period, unless any such Wednesday shall not be a Business Day, in which event the Weekly Interest Rate shall be determined by the Remarketing Agent no later than the Business Day immediately preceding such Wednesday. The Weekly Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. If for any reason, a Weekly Interest Rate is not so established for any period by the time specified above by the Remarketing Agent, the Weekly Interest Rate shall be the same as the Weekly Interest Rate in effect for the immediately preceding week. In no

6

event shall any Weekly Interest Rate exceed the Maximum Interest Rate. The first Weekly Interest Rate determined for each Weekly Interest Rate Period shall apply to the period commencing on the first day of such Weekly Interest Rate Period and ending on the next succeeding Tuesday, unless such Weekly Interest Rate Period shall end on a day other than Tuesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period shall apply to the period commencing on the Wednesday preceding the last day of such Weekly Interest Rate Period and ending on such last day. The Remarketing Agent shall provide the Trustee and the Borrower with written, telephonic or Electronic notice of each Weekly Rate, as determined, by 12:00 noon (New York City time) on the effective date of such Weekly Rate.

(ii) Adjustment to Weekly Interest Rate. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear interest at a Weekly Interest Rate. Such direction (1) shall specify the effective date of such adjustment to a Weekly Interest Rate; and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(3) Long-Term Interest Rate.

(i) Determination of Long-Term Interest Rate. During each Long-Term Interest Rate Period, the Bonds shall bear interest at the Long-Term Interest Rate, which shall be determined by the Remarketing Agent on a Business Day selected by the Remarketing Agent but not more than forty (40) days prior to and not later than the effective date of such Long-Term Interest Rate Period. The Long-Term Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent on such date, and communicated by the close of business on such date to the Trustee, the Paying Agent and the Borrower, by written, telephonic or Electronic notice as being the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such Long-Term Interest Rate Period at a price (without regard to accrued interest) equal to 100% of the principal amount thereof; provided, however, that if, for any reason, a Long-Term Interest Rate for any Long-Term Interest Rate Period shall not be determined or effective or if an adjustment from a Long-Term Interest Rate Period to another Interest Rate Period shall not be effective, the Interest Rate Period for the Bonds shall automatically convert to a Daily Interest Rate Period; provided, further, however, that if the Favorable Opinion of Bond Counsel required by Section 2.01(c)(ii)(B) of the Indenture in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii)(A) of the Indenture, the Daily Interest Rate for

7

the first day of such Daily Interest Rate Period shall be equal to the BMA Municipal Index. In no event shall any Long-Term Interest Rate be greater than the Maximum Interest Rate.

(ii) Adjustment to or Continuation of Long-Term Interest Rate. At any time, the Borrower, by written notice to the Issuer, the Bank, the Trustee, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear or continue to bear interest at a Long-Term Interest Rate and if it shall so elect, shall determine the duration of the Long-Term Interest Rate Period during which the Bonds shall bear interest at such Long-Term Interest Rate. Each Long-Term Interest Rate Period shall have a duration such that the last day of such Long-Term Interest Rate Period is (1) a day which both immediately precedes a Business Day and is at least one year after the effective date of such Long-Term Interest Rate Period or (2) if earlier, the day immediately preceding the Maturity Date. At the time the Borrower so elects an adjustment to or continuation of a Long-Term Interest Rate Period, the Borrower may specify two or more consecutive Long-Term Interest Rate Periods and, if the Borrower so specifies, shall specify the duration of each such Long-Term Interest Rate Period as provided in this paragraph. Such notice shall specify the effective date of each such Long-Term Interest Rate Period. In addition, such notice (i) shall specify the last day of such Long-Term Interest Rate Period, and (ii) if the adjustment is from a Daily, Weekly or Short-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

If, by the thirty-fifth day prior to the last day of any Long-Term Interest Rate Period, the Trustee shall not have received notice of the Borrower’s election that, during the next succeeding Interest Rate Period, the Bonds shall bear interest at a Daily Interest Rate, a Weekly Interest Rate, a Long-Term Interest Rate, or a Bond Interest Term Rate accompanied by appropriate opinions of Bond Counsel, if required by Section 2.01(c)(ii)(B), (iii)(B), (iv)(B) or (v)(B) of the Indenture, the next succeeding Interest Rate Period for the Bonds shall be a Daily Interest Rate Period; provided, however, that if the opinion of Bond Counsel required by Section 2.01(c)(ii)(B) of the Indenture in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) of the Indenture, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Municipal Index.

At the same time that the Borrower elects to have the Bonds bear interest at a Long-Term Interest Rate or continue to bear interest at a Long-Term Interest Rate, the Borrower may also specify to the Trustee optional redemption prices and periods different from (including that there be no such optional redemption)

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those set out in Section 4.01(a)(ii)(C) of the Indenture during the Long-Term Interest Rate Period(s) with respect to which such election is made; provided, however, that such notice shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such changes (i) are authorized or permitted by the Act and the Indenture, and (ii) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(iii) Failure to Determine Long-Term Rate. If the Bonds are in a Long-Term Interest Rate Period and for any reason the new rate for another Interest Rate Period (including a new Long-Term Interest Rate Period) cannot be determined on or before the last day of the current Long-Term Interest Rate Period, the Bonds shall automatically convert to a Daily Interest Rate which rate following the Initial Long-Term Interest Rate Period shall be equal to 10% per annum and which rate following any other Long-Term Interest Rate Period, shall be the Maximum Interest Rate, unless the Bonds have been purchased by or on behalf of a Credit Facility, in which event such Bonds will bear interest as provided in the Credit Facility, or unless the Bonds are in default, in which event the Bonds will bear interest at the Maximum Interest Rate. In the event the Bonds are not required to be purchased by the Borrower and have been returned to the Holders as described in Section 4.10(c) of the Indenture, the Borrower will cause the Remarketing Agent to continue to use its best efforts to remarket the Bonds as described in Section 4.10(c) of the Indenture. If the Bonds are in any other Interest Rate Period, and a Long-Term Interest Rate cannot be determined, then the Interest Rate Period for Bonds (except Bonds in a Long-Term Interest Rate Period as described above), shall automatically convert to a Daily Interest Rate Period, as determined below. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) of the Indenture, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be one hundred twenty percent (120%) of the most recent BMA Municipal Index theretofore published in The Bond Buyer or, in the event that such BMA Municipal Index is not published or is otherwise unavailable, one hundred twenty percent (120%) of such other comparable index as selected by the Borrower with the written consent of the Remarketing Agent, and such Daily Interest Rate shall be communicated to the Trustee and Paying Agent by or on behalf of the Borrower. In no event shall any Long-Term Interest Rate be greater than the Maximum Interest Rate.

(4) Bond Interest Term Rate.

(i) Determination of Bond Interest Terms and Bond Interest Term Rates.

During each Short-Term Interest Rate Period, each Bond shall bear interest during each Bond Interest Term for such Bond at the Bond Interest Term Rate for such Bond. Each Bond Interest Term and Bond Interest Term Rate for any Bond shall be a period of at least one day but not more than the lesser of (x) 270 days or (y) the number of days of interest coverage on the Bonds provided for in any Credit Facility then in effect minus five (5) days. When a Credit Facility, if any, other

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than a Letter of Credit is in effect with respect to the Bonds or no Credit Facility is in effect with respect to the Bonds, each Bond Interest Term for any Bond shall be a period of at least one day but not more than 270 days. Each Bond Interest Term for any Bond shall be a period determined by the Remarketing Agent to be, in its judgment, the period which, taking into account prevailing market conditions and all other Bond Interest Terms and Bond Interest Term Rates for all Bonds then Outstanding, is likely to result in the lowest overall net interest expense on all such Bonds; provided, however, that any such Bond purchased on behalf of the Borrower and remaining unsold in the hands of the Remarketing Agent as of 1:00 p.m. (New York City time) on the effective date of the Bond Interest Term for such Bond shall have a Bond Interest Term of one day or, if such Bond Interest Term would not end on a day immediately preceding a Business Day, a Bond Interest Term of more than one day ending on the day immediately preceding the next Business Day; provided, further, however, that (1) each Bond Interest Term shall end on a day which immediately precedes a Business Day and no Bond Interest Term shall extend beyond the day immediately preceding the Maturity Date or, if a Credit Facility, if any, is then in effect with respect to the Bonds, the scheduled expiration date of such Credit Facility, and (2) if for any reason the Remarketing Agent fails or is unable to determine a Bond Interest Term on any Bond, the Bond Interest Term for such Bond shall be one day, unless such Bond Interest Term would end on a day which does not precede a Business Day, in which case such Bond Interest Term shall end on the day immediately preceding the next succeeding Business Day.

The Bond Interest Term Rate for each Bond Interest Term for each Bond shall be the rate of interest per annum determined by the Remarketing Agent no later than 1:00 p.m. (New York City time) on the first day of such Bond Interest Term to be the lowest interest rate which would enable the Remarketing Agent to sell such Bonds on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of each Bond Interest Term Rate and Bond Interest Term by 1:00 p.m. (New York City time) on the date of determination. If a Bond Interest Term Rate for a Bond Interest Term of one day is not determined or effective by 1:00 p.m. (New York City time) on such day, the Bond Interest Term Rate for such Bond Interest Term of one day shall be equal to the BMA Municipal Index. In no event shall any Bond Interest Term Rate exceed the Maximum Interest Rate.

Notwithstanding the foregoing, in the event that notice of redemption with respect to any Bond in a Short-Term Interest Rate Period shall have been given to the holder of such Bond by the Trustee pursuant to Section 4.03 of the Indenture, no subsequent Bond Interest Terms or Bond Interest Term Rates shall be determined with respect to such Bond.

(ii) Adjustment to or Continuation of Bond Interest Term Rates. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, if any, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear

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interest at Bond Interest Term Rates. Such direction (1) shall specify the effective date of the Short-Term Interest Rate Period during which the Bonds shall bear interest at Bond Interest Term Rates; and (2) shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(iii) Adjustment from Short-Term Interest Rate Period. At any time during a Short-Term Interest Rate Period, the Borrower may elect that the Bonds shall no longer bear interest at Bond Interest Term Rates and shall instead bear interest as otherwise permitted under the Indenture. The Borrower shall give written notice to the Issuer, the Trustee, the Paying Agent and the Remarketing Agent, if any, of such election and shall specify the Interest Rate Period to follow with respect to such Bonds upon cessation of the Short-Term Interest Rate Period and instruct the Remarketing Agent to (1) determine Bond Interest Terms of such duration that, as soon as possible, all Bond Interest Terms shall end on the same date, not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice, and upon the establishment of such Bond Interest Term the day next succeeding the last day of all such Bond Interest Terms shall be the effective date of the Interest Rate Period elected by the Borrower; or (2) determine Bond Interest Terms that will best promote an orderly transition to the next succeeding Interest Rate Period to apply to the Bonds, beginning not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice. If the alternative in clause (2) above is selected, the day next succeeding the last day of the Bond Interest Term for each Bond shall be with respect to such Bond the effective date of the Interest Rate Period elected by the Borrower. The Remarketing Agent, promptly upon the determination thereof, shall give written notice of such last day and such effective dates to the Issuer, the Borrower, the Trustee and the Tender Agent. During any transitional period from a Short-Term Interest Rate Period to the next succeeding Interest Rate Period in accordance with clause (2) above, the provisions of the Indenture shall be deemed to apply to the Bonds as follows: the Bonds continuing to bear interest at Bond Interest Term Rates shall have applicable to them the provisions thereunder theretofore applicable to such Bonds as if all Bonds were continuing to bear interest at Bond Interest Term Rates and the Bonds bearing interest in the Interest Rate Period to which the transition is being made will have applicable to them the provisions thereunder as if all Bonds were bearing interest in such Interest Rate Period.

(5) Terms of Credit Facility, If Any. The Bonds shall be insured by a Bond Insurance Policy provided by the Bond Insurer. No Credit Facility is currently in effect for the Bonds. A Credit Facility shall be required if the Bonds are converted to any Interest Rate Period other than a Long-Term Interest Rate Period and in such event, the Borrower shall be required to obtain prior written approval from the Bond Insurer for such Credit Facility and for a Bank providing such Credit Facility stating that the terms of such Credit Facility shall be satisfactory to the Bond Insurer, which approval shall not be

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unreasonably withheld. If a Credit Facility in the form of a letter of credit is to be held by the Trustee after the effective date of any adjustment from one Interest Rate Period to another Interest Rate Period, such Credit Facility, if any, shall be in an amount sufficient to provide payment of (x) the principal amount of the Outstanding Bonds plus (y) the amount of interest (computed on the basis of a 365-day year in the case of an adjustment to a Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period, and on the basis of a 360-day year consisting of twelve 30-day months in the case of an adjustment to a Long-Term Interest Rate Period) which will accrue on the Outstanding Bonds for a period equal to the maximum number of days between Interest Payment Dates during the new Interest Rate Period plus five (5) days. In the case of an adjustment to a Long-Term Interest Rate Period, a Credit Facility, if any, to be in effect after the effective date of such adjustment shall (i) extend for a period ending on a date no earlier than five (5) days after the first date on which the Bonds may be called for redemption pursuant to Section 4.01(a)(ii) of the Indenture and (ii) cover the premium, if any, which would be included in the purchase price upon mandatory purchase of the Bonds pursuant to Section 4.08(b) of the Indenture if the term of such Credit Facility was not extended beyond the expiration date set forth therein.

(6) Notice of Adjustment to Daily, Weekly or Long-Term Interest Rate or Bond Interest Terms Rates; Bonds Counsel Opinions; Remarketing Agent; Tender Agent.

(i) Except as otherwise provided in the Indenture, the Trustee shall give notice by first-class mail of an adjustment to a Daily, Weekly, Short-Term or Long-Term Interest Rate Period, as the case may be, to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Daily, Weekly, Short-Term or Long-Term Interest Rate Period.

(ii) Adjustment to a Daily, Weekly, Short-Term or Long-Term Interest Rate Period, except for successive Long-Term Interest Rate Periods, requires a contemporaneous Favorable Opinion of Bond Counsel. “Favorable Opinion of Bond Counsel” means an opinion of Bond Counsel to the effect that the action proposed to be taken is authorized by the laws of the State of Arizona and the Indenture and will not adversely affect any exclusion from gross income for federal income tax purposes of interest on the Bonds.

(iii) The initial Remarketing Agent appointed under the Indenture shall be Citigroup Global Markets Inc.

(iv) The initial Tender Agent appointed under the Indenture shall be Citigroup Global Markets Inc.

(7) (i) Purchase of Bonds During Daily Interest Rate Period. During any Daily Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest from the Interest Accrual Date immediately prior to the date of purchase to the date of purchase (unless the date of purchase

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shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office, by no later than 11:00 a.m. (New York City time), on such Business Day, of an irrevocable written, telephonic or Electronic notice which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 of the Indenture. The Tender Agent shall keep a written record of the notice described in Clause (A).

(ii) Purchase of Bonds During Weekly Interest Rate Period. During any Weekly Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased on any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, from the Interest Accrual Date immediately prior to the date of purchase to the date of purchase (unless the date of purchase shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office, by no later than 5:00 p.m. (New York City time), on such Business Day at least seven (7) days prior to the date of purchase of an irrevocable written, telephonic or Electronic notice which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 of the Indenture. The Tender Agent shall keep a written record of the notice described in Clause (A).

(iii) Mandatory Tender for Purchase On Day Next Succeeding the Last Day of Each Bond Interest Term. Each Bond in a Short-Term Interest Rate Period shall be subject to mandatory tender for purchase on the day next succeeding the last day of each Bond Interest Term with respect to such Bond, at a purchase price equal to 100% of the principal amount thereof, plus accrued interest to the date of purchase, except as provided in Section 4.08(b)(ii) of the Indenture; or

(iv) Mandatory Tender for Purchase on First Day of Each Interest Rate Period. The Bonds shall be subject to mandatory tender for purchase on the effective date of any change in an Interest Rate Period for such Bond, other than the effective date of any change from a Daily Interest Rate Period to a Weekly Interest Rate Period or from a Weekly Interest Rate Period to a Daily Interest Rate Period, at a purchase price equal to 100% of the principal amount thereof, plus accrued interest to the date of purchase, except as provided in Section 4.08(b)(ii) of the Indenture; or

(v) Mandatory Tender for Purchase on First Day of Long-Term Interest Rate Period Following Prior Long-Term Interest Rate Period. This Bond shall be subject to mandatory tender for purchase, at the purchase price, payable in immediately available funds, specified in the Indenture, on the first day of each Long-Term Interest Rate Period which was preceded by a Long-Term Interest Rate Period.

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(vi) Mandatory Tender for Purchase on Effective Date of any Credit Facility. This Bond shall be subject to mandatory tender for purchase, at the purchase price, payable in immediately available funds, specified in the Indenture, on the effective date of any Credit Facility which may be provided with respect to the Bonds pursuant to Section 6.08 of the Agreement or of any substitute Credit Facility provided with respect to the Bonds pursuant to Section 6.08 of the Agreement.

(vii) Mandatory Tender for Purchase on Termination or Expiration of Credit Facility. In the event that any Credit Facility either is to terminate or is to expire in accordance with its terms (other than because a final drawing thereunder shall have been made in accordance with its terms), unless the term of the Credit Facility shall be extended or unless the Borrower shall provide the Trustee, no later than the 35^th day preceding the mandatory purchase date set forth herein with a substitute Credit Facility and with written evidence from Moody’s, if the Bonds shall be rated at the time by Moody’s, and from S&P, if the Bonds shall be rated at the time by S&P, and Fitch, if the Bonds shall be rated at the time by Fitch, to the effect that such substitute Credit Facility will not, by itself, result in a reduction or withdrawal of the rating on the Bonds by Moody’s or S&P or Fitch, as the case may be (and the Trustee shall have received written notice of such extension or such substitution and evidence thereof prior to giving the notice required in paragraph (viii) below), the Bonds shall be subject to mandatory tender for purchase at a purchase price, payable in immediately available funds, of 100% of their principal amount, plus accrued interest, if any, to the mandatory purchase date, on the second Business Day prior to the date of such termination or expiration.

(viii) Notice of Mandatory Tender for Purchase. In connection with any mandatory tender for purchase of this Bond in accordance with paragraph 7(iii), (iv), (v), (vi) or (vii) above, the Trustee shall give notice by first-class mail to the Owner of this Bond at the time and in the form specified in the Indenture.

(ix) Bonds Deemed Purchased. If moneys sufficient to pay the purchase price of Bonds to be purchased pursuant to Section 4.08 of the Indenture shall be held by the Tender Agent on the date such Bonds are to be purchased, such Bonds shall be deemed to have been purchased for all purposes of the Indenture, irrespective of whether or not such Bonds shall have been delivered to the Tender Agent, and neither the former holder of such Bonds nor any other person shall have any claim thereon, under the Indenture or otherwise, for any amount other than the purchase price thereof.

In the event of non-delivery of any Bond to be purchased pursuant to Section 4.08 of the Indenture, the Tender Agent shall segregate and hold uninvested the moneys for the purchase price of such Bonds in trust, without liability for interest thereon, for the benefit of the former holders of such Bonds, who shall, except as provided in the following sentence, thereafter be restricted exclusively to such moneys for the satisfaction of any claim for the purchase price of such Bonds. Any moneys which the Tender Agent shall segregate and hold in trust for the payment of the purchase price of any Bond and remaining unclaimed for two (2) years after the

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date of purchase shall be paid, upon the Borrower’s written request, to the Borrower. After the payment of such unclaimed moneys to the Borrower, the former holder of such Bond shall look only to the Borrower for the payment thereof.

If moneys sufficient to pay the Purchase Price of Bonds to be purchased pursuant to Section 4.08(a) or 4.08(b) of the Indenture shall not be held by the Tender Agent by 2:30 p.m. (New York City time) on the date such Bonds are to be purchased and if a Credit Facility is in effect with respect to the Bonds, it shall not constitute an Event of Default under the Indenture or an Event of Default under the Loan Agreement if the Bonds are not purchased upon tender on any Purchase Date due to such insufficiency and (x) no purchase shall be consummated on such Purchase Date and the Tender Agent shall, after any applicable grace period, (1) return all tendered Bonds to the Holders thereof and (2) return all remarketing proceeds to the Remarketing Agent for return to the Persons providing such moneys; and (y) such Bonds shall bear interest at the interest rate specified in Section 2.01(c) of the Indenture during the period of time from and including the applicable Purchase Date to (but not including) the date that all such Bonds are successfully remarketed (the “Delayed Remarketing Period”), but in no event shall such rate be greater than the Maximum Interest Rate; or if no Credit Facility is in effect with respect to the Bonds, it shall constitute an Event of Default under the Indenture or an Event of Default under the Loan Agreement if the Bonds are not purchased upon tender on any Purchase Date due to such insufficiency, and the Bonds shall bear interest at the Maximum Interest Rate from and after the Purchase Date.

(8) Redemption Provisions.

The Bonds shall be subject to redemption, at the option of the Issuer, upon the request of the Borrower, in whole or in part on any Business Day on or after August 1, 2008, at a redemption price equal to the principal amount being redeemed together with the accrued interest on such principal amount to the date fixed for redemption.

The Bonds shall be subject to redemption prior to the Maturity Date by the exercise by the Borrower of any of its options to prepay all or a part of the unpaid balance of the Repayment Installments and cause the Bonds to be redeemed, in whole, or in part by lot, prior to the Maturity Date, as follows:

(i) During any Short-Term Interest Rate Period, each Bond shall be subject to such redemption on the day next succeeding the last day of each Bond Interest Term for such Bond at a redemption price equal to 100% of the principal amount thereof.

(ii) During any Daily Interest Rate Period or Weekly Interest Rate Period, the Bonds shall be subject to such redemption on any Interest Payment Date at a redemption price equal to 100% of the principal amount thereof.

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(iii) On the day next succeeding the last scheduled day of any Long-Term Interest Rate Period, the Bonds shall be subject to such redemption at a redemption price of 100% of the principal amount thereof. During any Long-Term Interest Rate Period, the Bonds shall be subject to redemption during the periods specified below, in whole or in part, at the redemption prices (expressed as percentages of principal amount) hereinafter indicated (unless different redemption terms shall be specified by the Borrower pursuant to Section 2.01(c)(iv)(B) of the Indenture):

Length of Long-Term Interest Rate Period (expressed in years)	Redemption Prices
Greater than 17	After 10 years at 102% declining by 1% every 12 months to 100%
Less than or equal to 17 and greater than 10	After 8 years at 102%, declining by 1% every 12 months to 100%
Less than or equal to 10 and greater than 7	After 6 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 7 and greater than 4	After 3 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 4 and greater than 3	After 2 years at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%
Less than or equal to 3 and greater than 2	After 1 year at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%
Less than or equal to 2 and greater than 1	After 1 year at 100%
1 year or less	Not redeemable

(iv) During any Long-Term Interest Rate Period, the Bonds shall be subject to redemption prior to the Maturity Date at the option of the Borrower in whole or in

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part by lot on any Interest Payment Date, at a redemption price equal to 100% of the principal amount thereof, if the Borrower delivers to the Trustee a written or Electronic notice to the effect that either:

(a) the Borrower has determined that some or all of the interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period is not or will not be deductible, in whole or in part, for federal income tax purposes by reason of Section 150(b) of the Code (or would not be deductible unless some or all of the Bonds are redeemed) due to a change in use of the Project or any portion thereof, and the Borrower will not claim deductions for such interest on its federal income tax returns; or

(b) the Borrower after reasonable effort has been unable to obtain an opinion of Bond Counsel that it is more likely than not that Section 150 of the Code will not prevent interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period from being deductible, in whole or in part, for federal income tax purposes.

In either such case, the Borrower shall only cause the Trustee to redeem Bonds as provided in this paragraph 8(iv) on or after the Interest Payment Date immediately preceding the date on which, due to a change in use in the Project or any portion thereof, the period of potential interest expense disallowance described above commences, and the Borrower may only cause the Trustee to redeem such principal amount of Bonds as the Borrower determines is necessary to assure that the Borrower retains its right to all such deductions otherwise allowable or, if a partial redemption will not enable the Borrower to retain the right to deduct such interest, the Borrower may cause the Trustee to redeem all the Outstanding Bonds.

(v) During any Long-Term Interest Rate Period, the Bonds shall be redeemed prior to the Maturity Date in whole or in part, and if in part by lot, at any time at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, upon receipt by the Trustee of a written notice of the Borrower and signed by an Authorized Borrower Representative stating that any of the following events has occurred (which determination shall be in the sole discretion of the Borrower) and that the Borrower therefore intends to exercise its option to prepay all payments due under the Agreement in whole or in part pursuant to Section 9.01 of the Agreement and thereby effect the redemption of Bonds in whole or in part to the extent of such prepayments:

(a) All or part of the Project or the Plant (as defined in the Loan Agreement) shall have been damaged or destroyed to such an extent that, in the opinion of the Borrower, (i) the Project or the Plant or such affected portion could not reasonably be restored within a period of four (4) months to the condition thereof immediately preceding such damage or destruction, and the Borrower or the operator of the Project or the Plant will be prevented, or is likely to be prevented for a period of four (4)

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consecutive months or more, from carrying on all or substantially all of its normal operation of the Project or the Plant, or (ii) the cost of restoration of the Project or the Plant or such affected portion will be substantially in excess of the net proceeds of insurance thereon.

(b) Title to, or the temporary use of, all or a part of the Project or the Plant shall have been taken under the exercise of the power of eminent domain.

(c) Changes in economic availability of raw materials, operating supplies or facilities necessary to operate all or a part of the Project or the Plant, or technological or other changes which make the continued operation of the Project or the Plant or such affected portion uneconomical, in the opinion of the Borrower, shall have occurred and shall have resulted in a cessation of all or substantially all of the Borrower’s normal operations of either the Project or the Plant.

(d) Unreasonable burdens or excessive liabilities shall have been imposed upon the Issuer or the Borrower in respect of all or a part of the Project or the Plant including, without limitation, federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Agreement, as well as any statute or regulation enacted or promulgated after the date of the Agreement that prevents the Borrower from deducting interest in respect of the Agreement for federal income tax purposes.

(e) All or substantially all of the property of the Borrower shall be transferred or sold to any entity other than an affiliate of the Borrower or the Borrower shall be consolidated with or merged into an entity other than an affiliate of the Borrower in such manner that the Borrower is not the surviving entity and the surviving, resulting or transferee entity does not agree to perform the obligations of the Borrower.

Notwithstanding any term or provision of this paragraph 8(v) to the contrary, the Bonds shall not be subject to optional redemption unless (i) the Bank, if any, shall consent thereto in writing and deliver such consent to the Borrower and the Trustee, (ii) in connection with such redemption, the proceeds of such refunding shall be sufficient to pay, and shall be used to pay, the redemption price of the Bonds so redeemed or (iii) sufficient Available Moneys (other than proceeds of any drawing under a Letter of Credit, if any) shall have been deposited by the Borrower with the Trustee for the payment of all amounts due in respect of all Bonds called for redemption pursuant to this paragraph 8(v). This paragraph shall be inapplicable if at the time of such optional redemption there is no Letter of Credit or other Credit Facility with respect to the Bonds.

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(vi) The Bonds shall be subject to redemption prior to the Maturity Date from amounts which are required to be prepaid by the Borrower under Section 9.03 of the Agreement, as set forth below:

(a) The Bonds shall be redeemed in whole on any date at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date upon the occurrence of a Determination of Taxability; provided, however, that if, in the opinion of Bond Counsel delivered to the Trustee, the redemption of a specified portion of such Bonds Outstanding would have the result that interest payable on such Bonds remaining Outstanding after such redemption would remain Tax-Exempt, then such Bonds shall be redeemed in part by lot (in Authorized Denominations), in such amount as Bond Counsel in such opinion shall have determined is necessary to accomplish that result.

(b) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that as a result of any changes in the Constitution of the United States of America or the Constitution of the State or as a result of any legislative, judicial or administrative action, the Agreement shall have become void or unenforceable or impossible to perform in accordance with the intention and purposes of the parties thereto, or shall have been declared unlawful.

(c) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that at least thirty-five (35) days prior to the expiration of any Credit Facility, if any, then in effect with respect to the Bonds the Trustee shall not have received (a) a renewal or extension of the existing Credit Facility for a period of at least one (1) year (or, if shorter, the period to the Maturity Date) or (b) a substitute Credit Facility meeting the requirements of Section 6.08 of the Agreement. Such redemption shall occur on the last Business Day which is not less than five (5) calendar days preceding the expiration date of a Credit Facility, if any, then in effect.

(vii) The Bonds shall be subject to mandatory redemption prior to the Maturity Date on any date, in whole but not in part, at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date prior to any merger, consolidation, reorganization or conversion of the Borrower, or any sale or other disposition of all or substantially all of the Borrower’s assets if the successor to such merger, consolidation or disposition is not a public utility (including a holding company) regulated by the applicable state regulatory body or the Federal Energy Regulatory Commission.

(9) Selection of Bonds to be Redeemed. If less than all the Bonds shall be called for redemption the Trustee shall select the Bonds or any given portion thereof to be redeemed, from Outstanding Bonds or any given portion thereof not previously called for redemption, by lot. For the purpose of any such selection the Trustee shall assign a separate number for each minimum Authorized Denomination of each Bond of a denomination of more than such minimum; provided that following any such selection,

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both the portion of such Bond to be redeemed and the portion remaining shall be in Authorized Denominations. The Trustee shall promptly notify the Issuer and the Borrower in writing of the numbers of the Bonds or portions thereof so selected for redemption.

(10) Miscellaneous.

(i) The transfer of this Bond shall be registered upon the registration books kept at the corporate trust office of the Trustee in Los Angeles, California, as Registrar, at the written request of the Owner hereof or his attorney duly authorized in writing, upon surrender of this Bond at said office, together with the attached instrument of transfer duly executed by the Owner or his duly authorized attorney.

(ii) The Owner of this Bond shall have no right to enforce the provisions of the Indenture, or to institute action to enforce the covenants therein, or to take any action with respect to any default under the Indenture, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture.

(iii) With certain exceptions as provided therein, the Indenture and the Agreement may be modified or amended only with the consent of the owners of not less than a majority in aggregate principal amount of all Bonds Outstanding under the Indenture.

(iv) Reference is hereby made to the Indenture and the Agreement, copies of which are on file with the Trustee, for the provisions, among others, with respect to the nature and extent of the rights, duties and obligations of the Issuer, the Borrower, the Trustee, the Tender Agent and the Remarketing Agent appointed pursuant to the Indenture and the Owners of the Bonds. The owner of this Bond, by the acceptance hereof, is deemed to have agreed and consented to the terms and provisions of the Indenture and the Agreement.

(v) The Issuer, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent and the Bank may deem and treat the person in whose name this Bond is registered on the registration books of the Issuer maintained by the Registrar as the absolute owner hereof for all purposes, whether or not this Bond is overdue, and neither the Issuer, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent nor the Bank shall be affected by any notice to the contrary.

(vi) No covenant or agreement contained in this Bond or the Indenture shall be deemed to be the covenant or agreement of any elected or appointed commissioner, official, officer, agent, servant or employee of the Issuer in his individual capacity, and neither the members of the Board of Directors of the Issuer, nor any official executing this Bond, shall be liable personally on this Bond or be subject to any personal liability or accountability by reason of the issuance of this Bond.

IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required by the Constitution and the statutes of the State of Arizona, the governing rules and procedures of the Issuer and the Indenture to exist, to have happened and to have been performed precedent to and in the issuance of this Bond, do exist, have happened and have been performed.

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No officer or official of the Issuer shall be individually or personally liable for payment of the Bonds or the interest thereon or be subject to any personal liability or accountability by reason of the issuance thereof.

This Bond shall not be entitled to any right or benefit under the Indenture, or be valid or become obligatory for any purpose, until this Bond shall have been authenticated by the manual execution by the Trustee, or its successor as Trustee, of the certificate of authentication inscribed hereon.

21

IN WITNESS WHEREOF, Maricopa County, Arizona Pollution Control Corporation has caused this Bond to be executed by its President, Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer by his or her manual or facsimile signature and has caused such execution to be attested by its President, Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer with his or her manual or facsimile signature; provided, however, that the officer so attesting this Bond shall not be the same officer who executed this Bond.

Dated as of the Original

Issue Date set forth above.

MARICOPA COUNTY, ARIZONA
POLLUTION CONTROL CORPORATION
By:
	Authorized Officer

ATTEST:
By:
	Authorized Officer

STATEMENT OF INSURANCE

Financial Guaranty Insurance Company (“Financial Guaranty”) has issued a policy containing the following provisions with respect to the Bonds, such policy being on file at the principal office of Union Bank of California, N.A., as paying agent (the “Paying Agent”):

Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal or accreted value (if applicable) of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the “Issuer”) shall have failed to provide. Due for payment means, with respect to principal or accreted value (if applicable), the stated maturity date thereof, or the date on which the same shall have been duly called for mandatory sinking fund redemption and the date on which the Bonds shall have been duly called for mandatory redemption as a result of the interest on the Bonds having been determined to have become subject to federal income taxation, and does not refer to any earlier date on which the payment of principal or accreted value (if applicable) of the Bonds is due by reason of call for redemption (other than mandatory sinking fund redemption), acceleration or other advancement of maturity, and with respect to interest, the stated date for payment of such interest.

Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that the required payment of principal, accreted value or interest (as applicable) has not been made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, or its successor as its agent (the “Fiscal Agent”), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder’s right to receive such payment and any appropriate instruments of assignment required to vest all of such Bondholder’s right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder.

As used herein the term “Bondholder” means the person other than the Issuer or the borrower(s) of bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof.

The policy is non-cancellable for any reason.

FINANCIAL GUARANTY INSURANCE COMPANY

23

(Form of Trustee’s Certificate of Authentication).

CERTIFICATE OF AUTHENTICATION

This is to certify that this Bond is one of the Bonds described in the within-mentioned Indenture.

UNION BANK OF CALIFORNIA, N.A.
as Trustee
By:
	Authorized Signature
	Date of Authentication:

(Form for Transfer)

COMPLETE AND SIGN THIS FORM FOR

REGISTRATION OF TRANSFER OR TRANSFER

For value received              hereby sells, assigns and transfers unto              this Bond and hereby irrevocably constitutes and appoints             , Attorney, to register such transfer on the books of registration in the office of the Registrar with full power of substitution in the premises.

Dated: ___________________________

NOTE: The signatures on this assignment must correspond with the names as written on the face of this Bond in every particular, without alteration, enlargement or any change whatsoever.

Signatures must be guaranteed in

accordance with the terms of one of

the nationally recognized medallion

signature guarantee programs.

A-1

EX-4.31

EXHIBIT 4.31

LOAN AGREEMENT

Between

MARICOPA COUNTY, ARIZONA

POLLUTION CONTROL CORPORATION

and

EL PASO ELECTRIC COMPANY

relating to

$59,235,000

Maricopa County, Arizona

Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series A

(El Paso Electric Company, Palo Verde Project)

Dated as of July 1, 2005

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS
Section 1.01	Definitions of Terms.	2
Section 1.02	Interpretation.	7
Section 1.03	Captions and Headings.	7
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.01	Representations and Warranties of the Issuer.	7
Section 2.02	Representations and Warranties of the Borrower.	8
ARTICLE III
[RESERVED]
ARTICLE IV
[RESERVED]
ARTICLE V
LOAN TO BORROWER; REPAYMENT PROVISIONS
Section 5.01	Loan to Borrower.	9
Section 5.02	Amounts and Dates for Payment.	9
Section 5.03	Payments by Borrower to be Assigned to the Trustee; Obligation for Payments Absolute.	10
Section 5.04	Payment of Expenses.	10
Section 5.05	Issuer Access to Facilities.	10
Section 5.06	Maintenance of Facilities.	10
Section 5.07	Insurance.	11
Section 5.08	Indemnification of Issuer; Statements for Services.	11
Section 5.09	Notices of Damage.	13
Section 5.10	No Warranty by the Issuer.	14
Section 5.11	Liens.	14

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Section 5.12	Payments of Taxes and Assessments; No Liens or Charges.	14
Section 5.13	Additional Payments by the Borrower.	14
ARTICLE VI
SPECIAL COVENANTS; CREDIT FACILITY
Section 6.01	[RESERVED].	14
Section 6.02	Maintenance of Existence.	14
Section 6.03	Agreement as to Ownership and Use of the Project.	15
Section 6.04	Cooperation in Applications for Permits and Licenses.	15
Section 6.05	Recordation and Other Instruments.	15
Section 6.06	Issuer’s Access to Facilities.	15
Section 6.07	Tax Covenants.	15
Section 6.08	Credit Facility.	16
Section 6.09	Annual Statement.	17
ARTICLE VII
[RESERVED]
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Section 8.01	Events of Default.	18
Section 8.02	Force Majeure.	19
Section 8.03	Remedies.	19
Section 8.04	No Remedy Exclusive.	19
Section 8.05	Reimbursement of Attorneys’ Fees.	20
Section 8.06	Waiver of Breach.	20
ARTICLE IX
OPTIONS OF BORROWER TO PREPAY.
Section 9.01	Options of Borrower to Prepay Repayment Installments.	20
Section 9.02	Exercise of Option.	20
Section 9.03	Mandatory Prepayment of Repayment Installments.	21
Section 9.04	Amount of Prepayment.	21

ii

ARTICLE X
PURCHASE AND REMARKETING OF BONDS
Section 10.01	Purchase of Bonds.	21
Section 10.02	Optional Purchase of Bonds.	22
Section 10.03	Determination of Interest Rate Periods.	22
ARTICLE XI
MISCELLANEOUS
Section 11.01	Term of Agreement.	22
Section 11.02	Notices.	22
Section 11.03	Parties in Interest.	23
Section 11.04	Extent of Covenants of the Issuer; No Personal Liability.	24
Section 11.05	Confirmation of Request by the Borrower.	24
Section 11.06	Amendments.	24
Section 11.07	Counterparts.	24
Section 11.08	Severability.	24
Section 11.09	Governing Law; Venue.	24
Section 11.10	Statutory Notice.	24
Section 11.11	Bond Insurer as Third-Party Beneficiary.	25
EXHIBIT A	DESCRIPTION OF THE PROJECT

iii

LOAN AGREEMENT

THIS LOAN AGREEMENT, dated as of July 1, 2005 (this “Agreement”), is made by and between MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION, a nonprofit corporation designated as a political subdivision of the State of Arizona, incorporated for and with the approval of the County of Maricopa, Arizona, existing under the Constitution and laws of the State of Arizona (the “Issuer”), and EL PASO ELECTRIC COMPANY, a corporation organized and existing under the laws of the State of Texas (the “Borrower”).

W I T N E S S E T H :

WHEREAS, Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), as amended (hereinafter called the “Act”), empowers any pollution control corporation organized pursuant to Article 1 of the Act to issue revenue bonds in accordance with Article 2 of the Act and to make secured or unsecured loans for the purpose of financing or refinancing the acquisition, construction, improvement or equipping of pollution control facilities, to charge and collect interest on such loans and pledge the proceeds of loan agreements as security for the payment of the principal of and interest on bonds, or designated issues of bonds, issued by the corporation and any agreements made in connection therewith, whenever the board of directors finds such loans to be in furtherance of the purposes of the corporation; and

WHEREAS, Chapter 69, Section 1, Laws of Arizona of 1972 declares it to be the purpose of the Act to authorize the incorporation in the several municipalities and counties of the State of Arizona (the “State”) of corporations which shall constitute political subdivisions of the State, to finance the acquisition and installation of, or the construction and leasing of, properties, machinery and equipment intended to prevent or limit air, water and other forms of pollution for the purpose of protecting the health and welfare of the citizens of the State, and to facilitate compliance with existing or future air, water and other quality standards designed to improve the environment, and declares that such corporations shall serve a public purpose and perform an essential governmental function; and

WHEREAS, in response to an application by four qualified electors of the County of Maricopa, Arizona (the “County”), a political subdivision of the State, the Board of Supervisors of said County on December 5, 1983, adopted a resolution by which it determined that it was wise, expedient, advisable and in the public interest that said application be approved, approved said application, and authorized said four electors to proceed with the incorporation of the Issuer as a pollution control corporation for said County, all in accordance with Section 35-802 of the Act to issue bonds and to carry out the other functions and fulfill the purposes of the Issuer; and

WHEREAS, the Issuer was thereupon organized and incorporated in accordance with the provisions of the Act, and, on December 5, 1983, the Articles of Incorporation of the Issuer were filed with the Arizona Corporation Commission, in accordance with Section 35-809 of the Act; and

WHEREAS, the Issuer has heretofore issued and sold its $59,235,000 aggregate principal amount of Pollution Control Refunding Revenue Bonds, 1985 Series A (El Paso Electric Company, Palo Verde Project) (the “Prior Bonds”), the proceeds of which were used to refinance a portion of the costs of acquisition, construction, improvement or equipping of the Project; and

WHEREAS, the Issuer intends to issue its Pollution Control Refunding Revenue Bonds, 2005 Series A (El Paso Electric Company, Palo Verde Project) (the “Bonds”) pursuant to an Indenture of Trust dated as of July 1, 2005, between the Issuer and Union Bank of California, N.A., as Trustee (the “Indenture”), and to lend the proceeds of the Bonds to the Borrower for the purpose of providing a portion of the moneys necessary to refund the outstanding principal amount of the Prior Bonds; and

WHEREAS, the appropriate agencies exercising jurisdiction over the Project have certified that the Project, as described in Exhibit A hereto, as designed, is in furtherance of the purpose of abating or controlling atmospheric or water pollutants or contaminants resulting from the generation of electricity at the Plant;

NOW, THEREFORE, in consideration of the premises and the respective representations and covenants herein contained, the parties hereto agree as follows (provided, that in the performance of the agreements of the Issuer herein contained, any obligation it may thereby incur shall not constitute or give rise to a pecuniary liability or a charge upon its general credit or against its taxing powers but shall be payable solely out of the Receipts and Revenues (as defined in the hereinabove defined Indenture) derived from this Agreement and the Bonds):

ARTICLE I

DEFINITIONS

Section 1.01 Definitions of Terms.

As used herein:

“Act” shall mean Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), and all acts supplemental thereto or amendatory thereof.

“Administration Expenses” shall mean the reasonable expenses incurred by the Issuer with respect to this Agreement, the Indenture and any transaction or event contemplated by this Agreement or the Indenture, including, without limitation, the reasonable fees and disbursements of counsel and out-of-pocket expenses of the Issuer incurred in connection with the authorization, issuance and sale of the Bonds and the compensation and reimbursement of reasonable fees, expenses and advances payable to the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Bank and the Remarketing Agent under the Indenture.

“Agreement” shall mean this Loan Agreement dated as of July 1, 2005 and any and all modifications, alterations, amendments and supplements hereto.

“Alternate Credit Support” shall mean any letter of credit, credit facility, insurance policy, guarantee or other credit support agreement or security mechanism provided by the Borrower in accordance with Section 6.08 hereof and any extension thereof.

2

“Authorized Borrower Representative” shall mean each person at the time designated to act on behalf of the Borrower by written certificate furnished to the Issuer and the Trustee containing the specimen signature of such person and signed on behalf of the Borrower.

“Bank” shall mean the issuer of a Letter of Credit, if any, delivered in conjunction with the Bonds, and the issuer of any subsequently issued Credit Facility so long as such other Credit Facility shall be in effect, and in its capacity as such issuer, its successors in such capacity and their assigns.

“Bond” or “Bonds” shall mean the bonds authorized to be issued under the Indenture.

“Bond Counsel” shall mean any firm of nationally recognized bond counsel experienced in the financing of pollution control facilities and acceptable to the Issuer, the Remarketing Agent, the Trustee and the Borrower.

“Bond Fund” shall mean the fund created by Section 5.01 of the Indenture.

“Bond Insurance Policy” shall mean the municipal bond new issue insurance policy issued by the Bond Insurer that guarantees payment of principal of and interest on the Bonds.

“Bond Insurer” shall mean Financial Guaranty Insurance Company, a New York stock insurance company, or any successor thereto.

“Borrower” shall mean El Paso Electric Company, a corporation formed and existing under the laws of the State of Texas, its successors and their assigns and any transferee entity to the extent permitted by Section 6.02 hereof.

“Borrower Indentures” shall mean (i) that certain Indenture of Mortgage, dated as of October 1, 1946, between the Borrower and State Street Bank and Trust Company, as trustee, as supplemented and modified by the indentures supplemental thereto, (ii) that certain Indenture of Mortgage, dated as of June 1, 1981, from the Borrower to IBJ Schroder Bank & Trust Company, as successor trustee, as the same has heretofore been supplemented and may be hereafter supplemented and modified or (iii) any indenture or mortgage made by the Borrower in accordance with the plan of reorganization to secure substantially the same obligations as are currently secured by the Borrower Indentures, and subjecting thereto substantially the same property, and subject to substantially the same prior liens and encumbrances, and having substantially similar provisions for the issuance of additional debt thereunder, as the Borrower Indentures.

“Claim” shall mean liabilities, obligations, losses, damages, taxes (other than taxes on income), penalties, claims (including, without limitation, claims involving liability in tort, whether strict or otherwise), actions, suits, judgments, costs, interest, expenses and disbursements, whether or not any of the foregoing shall be founded or unfounded, contingent or otherwise (including, without limitation, legal fees and expenses and costs of investigation) of any kind and nature whatsoever without any limitation as to amount.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time. Each reference herein to a section of the Code shall be deemed to include the United States Treasury Regulations adopted under the Code, as the same may be in effect from time to time, unless the context clearly requires otherwise.

3

“Counsel” shall mean an attorney at law selected by the Borrower (who may be counsel to either or both of the Issuer and the Borrower) and acceptable to the Trustee or, if not selected by the Borrower within a reasonable time following any request therefor, by the Issuer and acceptable to the Trustee.

“County” shall mean the County of Maricopa, Arizona.

“Credit Facility” shall mean, collectively, a Letter of Credit, if any, and any extensions thereof, and, upon the issuance and delivery of any Alternate Credit Support in accordance with Section 6.08 hereof, “Credit Facility” shall mean such Alternate Credit Support.

“Environmental Law” shall mean any federal, state or local law, rule, regulation, order, writ, judgment, injunction, decree, determination or award relating to the environment, health or safety or to the release or threatened release of any materials into the environment, including, without limitation, the Clean Air Act, as amended, the Clean Water Act of 1977, as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, the Toxic Substance Control Act, as amended, and the Resource Conservation and Recovery Act of 1976, as amended.

“Facilities” or “Project” shall mean the pollution control systems and facilities presently existing, under construction and to be constructed at the Plant, which are described in Exhibit A hereto, as from time to time revised, changed, amended or modified and related improvements and any substitutions therefor.

“Fitch” shall mean Fitch Ratings Services, a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Fitch” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“Hazardous Materials” shall mean all materials that are, or become, subject to any Environmental Law, including, without limitation, materials listed in 49 I.E. §172.101, materials defined as hazardous pursuant to Section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, flammable, explosive or radioactive materials, hazardous or toxic wastes or substances, petroleum or petroleum distillates, PCB’s or asbestos or urea formaldehyde-containing materials.

“Insurance Agreement” shall mean the Insurance Agreement dated as of August 1, 2005 between the Bond Insurer and the Borrower, as amended or supplemented from time to time.

“Issuance Expenses” shall mean any and all expenses incurred in connection with the issuance of the Bonds including, but not limited to, any (a) underwriters’ compensation; (b) counsel fees; (c) financing advisor fees; (d) rating agency fees; (e) trustee fees; (f) paying agent and certifying and authenticating agent fees; (g) accounting fees; (h) printing costs; (i) costs

4

incurred in connection with the required public approval process; (j) costs of engineering and feasibility studies necessary to the issuance of the Bonds (as opposed to such studies relating to completion of the Project); and (k) the issuance fee charged by, and expenses and disbursements of, the Issuer. Notwithstanding anything to the contrary herein, “Issuance Expenses” shall not include any bond insurance premiums and certain letter of credit fees that would be treated as interest expenses under the arbitrage restrictions of the Code.

“Issuer” shall mean Maricopa County, Arizona Pollution Control Corporation, an Arizona nonprofit corporation designated as a political subdivision existing under the laws of the State of Arizona, incorporated for and with the approval of the County, pursuant to the provisions of the Constitution of the State of Arizona and the Act, and its successors and assigns.

“Letter of Credit” shall mean an irrevocable, direct-pay letter of credit, if any, issued by the Bank and delivered to the Trustee in accordance with Section 6.08 hereof and any extension thereof.

“Moody’s” shall mean Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally-recognized securities rating-agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank, by notice to the Trustee, the Tender Agent and the Issuer.

“Outstanding”, when used in reference to the Bonds, shall mean, as at any particular date, the aggregate of all Bonds authenticated and delivered under the Indenture except;

(i) those cancelled at or prior to such date or delivered to or held by the Trustee at or prior to such date for cancellation;

(ii) those deemed to have been paid in accordance with Article IX of the Indenture;

(iii) those in lieu of, or in exchange, replacement or substitution for which, other Bonds shall have been authenticated and delivered pursuant to the Indenture unless proof satisfactory to the Trustee and the Borrower is presented that such Bond is held by a bona fide holder in due course; and

(iv) undelivered Bonds.

“Owner” or “Bondholder” or “holders” used with reference to the Bonds shall mean the person or entity in whose name any Bond is registered upon the registration books maintained pursuant to Section 2.04 of the Indenture.

“Permitted Encumbrances” shall mean and include (a) liens for taxes, assessments and other governmental charges not delinquent or which can be paid without penalty; (b) unfiled, inchoate mechanics’ and materialmen’s liens for construction work in progress; (c) workmen’s, repairmen’s, warehousemen’s and carriers’ liens and other similar liens, if any, arising in the ordinary course of business; (d) all the following, if they do not individually or in the aggregate

5

materially impair the use of the Facilities or materially detract from the value thereof to the Borrower, viz. any easements, restrictions, mineral, oil, gas and mining rights and reservations, zoning laws and defects in title or other encumbrances to which the Facilities may be subject because of the installation thereof at the Plant; (e) any lien for the satisfaction and discharge of which a sum of money or surety bond deemed adequate by the Trustee is on deposit with the Trustee; (f) the rights of the Issuer under this Agreement or any other sale agreement or lease agreement between the Issuer and the Borrower relating to the issuance of bonds under the Act; and (g) the lien of the Borrower Indentures and the permitted encumbrances and other prior liens referred to therein.

“Plant” shall mean the Palo Verde Nuclear Generating Station in Maricopa County, Arizona, at which the Project is located.

“Prior Bonds” shall mean the Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 1985 Series A (El Paso Electric Company, Palo Verde Project).

“Reimbursement Agreement” shall mean (i) any Reimbursement Agreement, made by the Borrower in favor of the Bank, relating to payments for moneys drawn under the Letter of Credit, if any, and any amendments, modifications and supplements thereto, and (ii) from and after the issuance of an Alternate Credit Support, any letter of credit reimbursement agreement or other arrangement between the Borrower and the issuer of any Alternate Credit Support, and any amendments, modifications and supplements thereto.

“Remarketing Agent” shall mean any remarketing agent appointed in accordance with Section 14.01(a) of the Indenture.

“Repayment Installment” shall mean any amount that the Borrower is required to pay to the Trustee pursuant to Section 5.02 hereof as a repayment of the loan made by the Issuer under this Agreement.

“Representation and Indemnity Agreement” shall mean the Representation and Indemnity Agreement dated as of July 27, 2005 among the Issuer, the Borrower and the Underwriters.

“S&P” shall mean Standard & Poor’s Ratings Group (a division of The McGraw-Hill Companies, Inc.), a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally-recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“State” shall mean the State of Arizona.

“Tax Exempt” shall mean, with respect to interest on any obligations of a state or local government, including the Bonds, that such interest is excluded from the gross income of the holders thereof (other than any holder who is a “substantial user” of facilities financed with such obligations or a “related person” within the meaning of Section 147(a) of the Code) for federal

6

income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax or environmental tax under the Code.

“Tender Agent” shall mean any tender agent appointed in accordance with Section 14.01(b) of the Indenture.

“Trustee” shall mean Union Bank of California, N.A., as trustee under this Indenture, and its successor or successors hereunder. “Principal Office” of the Trustee shall mean the principal office of the Trustee so designated at which at any particular time its corporate trust business shall be administered in California, which office at the date of the execution of this Loan Agreement, is 120 South San Pedro Street, 4^th Floor, Los Angeles, CA 90012, Attention: Corporate Trust Department; except that with respect to the presentation of Bonds for payment or for registration of transfer, exchange or tender, such term shall mean the office or agency of the Trustee at Union Bank of California, N.A., Corporate Trust Department, 120 South San Pedro Street, 4th Floor, Los Angeles, CA 90012, Attn: Bond Redemption.

“Underwriters” shall have the meaning set forth in the Official Statement for the Bonds.

Section 1.02 Interpretation. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa: the terms “hereof”, “hereby”, “herein”, “hereto”, “hereunder” and similar terms refer to this Agreement: and the term “hereafter” means after, and the term “heretofore” means before, the date of delivery of the Bonds. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise.

Section 1.03 Captions and Headings. The captions and headings in this Agreement are solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs, subparagraphs or clauses hereof.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

Section 2.01 Representations and Warranties of the Issuer. The Issuer makes the following representations and warranties as the basis for its undertakings herein contained:

(a) The Issuer is an Arizona nonprofit corporation designated as a political subdivision under the laws of the State, incorporated pursuant to the Act for and with the approval of the County, created and existing under the Constitution and laws of the State;

(b) The Issuer has the power to enter into the transactions contemplated by this Agreement and the Indenture and to carry out its obligations hereunder and thereunder;

(c) The Issuer has the power to enter into this Agreement and by proper corporate action has duly authorized the execution and delivery hereof; and

7

(d) The execution and delivery of this Agreement and the Indenture and compliance with the provisions hereof and thereof will not conflict with, or constitute on the part of the Issuer a breach of or a default under, any existing law, court or administrative regulation, decree or order to which the Issuer is subject or any agreement, ordinance, indenture, mortgage, lease or other instrument by which the Issuer is or may be bound.

Section 2.02 Representations and Warranties of the Borrower. The Borrower makes the following representations and warranties as the basis for the undertakings on the part of the Issuer herein contained:

(a) (i) The Borrower is a corporation duly incorporated under the laws of the State of Texas and is in good standing under the laws of the State of Texas, has power to enter into this Agreement and to perform and observe the agreements and covenants on its part contained herein, and by proper corporate action has duly authorized the execution and delivery hereof, (ii) the Borrower is duly qualified to hold property and transact business as a foreign corporation and is in good standing under the laws of the State of Arizona, (iii) all of the proceeds of the Bonds will be used to redeem and refund the Prior Bonds, (iv) prior to the issuance of the Bonds, the Federal Energy Regulatory Commission will have approved all matters relating to the Borrower’s participation in the transactions contemplated by this Agreement which require said approval, and no other consent, approval, authorization or other order of any regulatory body or administrative agency or other governmental body is legally required for the Borrower’s participation therein except such as have been or will have been obtained prior to the issuance of the Bonds or such, if any, as may be required under state securities or Blue Sky laws, and (v) the execution and delivery of this Agreement by the Borrower do not, and consummation of the transactions contemplated hereby and fulfillment of the terms hereof will not, result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Borrower is a party, or the Restated Articles of Incorporation or Bylaws of the Borrower, or any order, rule or regulation applicable to the Borrower of any court or of any Federal or state regulatory body or administrative agency or other governmental body having jurisdiction over the Borrower or over any of its properties, or any statute of any jurisdiction applicable to the Borrower other than breaches or defaults that individually or in the aggregate are not expected to have a material adverse effect on the Borrower.

(b) The Facilities meet applicable Federal, state and local requirements for the control of pollution now in effect and are used for the reduction, abatement and prevention of pollution;

(c) The Borrower does not presently expect that the description of the Facilities contained in Exhibit A hereto will be revised;

(d) To the extent necessary to preserve the security for the Bonds, the validity of the Bonds under the Act and the Tax-Exempt status of interest on the Bonds, all material certificates, approvals, permits and authorizations of agencies of applicable local governmental entities, the State and the federal government have been obtained with respect to the construction of the Project and, pursuant to such certificates, approvals, permits and authorizations, the Project has been constructed and is in operation.

8

(e) To the best knowledge of the Borrower, no member, officer or other official of the Issuer has any interest whatsoever in the Borrower or in the transactions contemplated by this Agreement.

ARTICLE III

[RESERVED]

ARTICLE IV

[RESERVED]

ARTICLE V

LOAN TO BORROWER; REPAYMENT PROVISIONS

Section 5.01 Loan to Borrower. The Issuer covenants and agrees, upon the terms and conditions in this Agreement, to make a loan to the Borrower for the purpose of refunding the Prior Bonds. Pursuant to said covenant and agreement, the Issuer will issue the Bonds upon the terms and conditions contained in this Agreement and the Indenture. The Issuer and the Borrower agree that the application of the proceeds of sale of the Bonds to refund and redeem the Prior Bonds will be deemed to be and treated for all purposes as a loan to the Borrower of an amount equal to the aggregate principal amount of the Bonds. The Borrower covenants and agrees to pay to the trustee for the Prior Bonds an amount which, when added to the amounts transferred to such trustee pursuant to Section 3.02 of the Indenture, will be sufficient to pay, on or before August 1, 2005, the redemption price of the Prior Bonds and all other amounts due under the indenture pursuant to which such Prior Bonds were issued all in accordance with the terms of such indenture.

Section 5.02 Amounts and Dates for Payment.

(a) With respect to the Bonds, the Borrower covenants and agrees to pay to the Trustee as a Repayment Installment on or before each date provided in the Indenture, an amount equal to the aggregate principal, premium, if any, and interest due on the Bonds, whether at maturity or by reason of redemption, or otherwise. The Borrower shall, and hereby agrees to, pay the Repayment Installment by delivery or causing delivery of such further installments, in immediately available funds, necessary on the dates and in the amounts and in the manner in the Indenture as may be necessary to enable the Issuer to cause payment to be made to the Trustee of principal of and premium, if any, and interest on the Bonds, whether at maturity, upon redemption, or otherwise, provided that any amount credited under the Indenture against any cash payment required to be made by the Issuer thereunder shall be credited against the corresponding cash payment required to be made by the Borrower hereunder.

(b) The Borrower shall, and hereby agrees to, pay in addition to the Repayment Installment an amount equal to the aggregate of all other payments to be made out of the Bond Fund, payment thereof to be made not later than the principal or interest payment date next following any such payment out of the Bond Fund but in any event in time to prevent any failure to pay when due the principal of, premium, if any, and interest on any of the Bonds.

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(c) In the event the Borrower shall fail to make any of the payments required in this Section 5.02, the item or installment so in default shall continue as an obligation of the Borrower until the amount in default shall have been fully paid. Draws by the Trustee under the Credit Facility to pay the principal of, premium, if any, or interest on the Bonds shall be deemed to satisfy the Borrower’s obligation to make purchase price payments to the extent of such draws.

(d) The obligation of the Borrower to make the payments described in subsection (a) of this Section may be accelerated or prepaid in accordance with the provisions of this Agreement, notwithstanding the provisions of this Section.

Section 5.03 Payments by Borrower to be Assigned to the Trustee; Obligation for Payments Absolute.

It is understood and agreed that all payments under Section 5.02 of this Agreement are, by the Indenture, to be pledged by the Issuer to the Trustee, and that all rights and interest of the Issuer under this Agreement, except for the Issuer’s rights under Sections 5.04, 5.08 and 8.05 of this Agreement and any rights of the Issuer to receive notices, certificates, requests, requisitions, directions and other communications hereunder, are to be pledged and assigned to the Trustee. The Borrower assents to such pledge and assignment and agrees that the obligation of the Borrower to make the payments under Section 5.02 hereof shall be absolute, irrevocable and unconditional and shall not be subject to any defense (other than payment) or any right of set-off, counterclaim, abatement, offset, diminution or recoupment arising out of any breach under this Agreement, the Reimbursement Agreement, the Indenture, the Credit Facility or otherwise by the Issuer, the Trustee, the Tender Agent, the Remarketing Agent, the Bank or any other party, or out of any obligation or liability at any time owing to the Borrower by the Issuer, the Trustee, the Tender Agent, the Remarketing Agent, the Bank or any other party. The Issuer directs the Borrower, and the Borrower agrees, to pay to the Trustee at its Corporate Trust Office all payments pursuant to Section 5.02 of this Agreement.

Section 5.04 Payment of Expenses. The Borrower agrees to pay all compensation and reasonable fees and expenses of, and to reimburse for the expenses and advances incurred by each of the Trustee, the Registrar, the Remarketing Agent, the Paying Agent and the Tender Agent under the Indenture. So long as any Bonds are Outstanding, the Borrower will pay to the Issuer semiannually, on a date to be agreed upon, or within 30 days of receipt of a statement therefor submitted to the Borrower pursuant to Section 5.08 hereof, the amount of any other Administration Expenses not theretofore provided for which have accrued and become payable.

Section 5.05 Issuer Access to Facilities. See Section 6.06 herein for a discussion thereof.

Section 5.06 Maintenance of Facilities. So long as any Bonds are Outstanding, the Borrower will maintain, preserve and keep the Facilities or to cause such Facilities to be maintained, preserved and kept in good repair, working order or condition and from time to time

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to make or cause to be made all necessary and proper repairs, replacements and renewals; provided, however, that the Borrower will have no obligation to maintain, preserve, keep, repair, replace or renew any item or portion of such Facilities (a) the maintenance, preservation, keeping, repair, replacement or renewal of which becomes uneconomic to the Borrower because of damage or destruction by a cause not within the control of the Borrower, or obsolescence (including economic obsolescence) or change in governmental standards and regulations, or the termination by the Borrower of the operation of the generating facilities to which the portion of such Facilities is an adjunct, and (b) with respect to which the Borrower has furnished to the Issuer and the Trustee a certificate executed by an Authorized Borrower Representative that the maintenance, preservation, keeping, repair, replacement or renewal of such portion of such Facilities is being discontinued for one of the foregoing reasons, which shall be stated therein.

The Borrower shall have the privilege at its own expense of remodeling such Facilities or making substitutions, modifications and improvements to such Facilities from time to time as it, in its discretion, may deem to be desirable for its uses and purposes, which remodeling, substitutions, modifications and improvements shall be included under the terms of this Agreement as part of such Facilities.

Section 5.07 Insurance. So long as any Bonds are Outstanding and the Borrower, itself or through its agents, operates the Facilities, the Borrower shall maintain or cause to be maintained, through a program of self-insurance or otherwise, such fire, casualty, public liability and other insurance with respect to the Facilities owned or leased by the Borrower as is customarily carried by electric utility companies with respect to similar facilities.

Section 5.08 Indemnification of Issuer; Statements for Services. The Borrower agrees, whether or not any of the transactions contemplated hereby shall be consummated and whether or not this Agreement, the Indenture, the Credit Facility or any other document relating to the Bonds shall have expired or been terminated, to release, to assume liability for, and to indemnify and hold harmless, on an after-tax basis, the Issuer, the Trustee, the Paying Agent and the Registrar and each of the officers, officials, directors, employees, staff members, agents, shareholders and partners of each of the Trustee, the Paying Agent and the Registrar (each an “Indemnified Party” and collectively, the “Indemnified Parties”) from and against, any and all Claims that are imposed on, incurred by or asserted against any Indemnified Party (whether or not because of an act or omission by such Indemnified Party and whether or not such Indemnified Party shall also be indemnified by another person), in whole or in part, as a result of, caused by, arising out of or in any way relating to:

(a) any injury to or death of any person or damage to property in or upon the Facilities or growing out of or connected with the use, non-use, condition or occupancy of the Facilities or any part thereof;

(b) violation of any agreement or condition of this Agreement;

(c) violation by the Borrower of any contract, agreement or restriction relating to the Facilities;

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(d) violation of any law, ordinance or regulation affecting the Facilities or a part thereof or the ownership, occupancy or use thereof;

(e) any statement or information contained in the Indenture, this Agreement, any official statement, any certificate or any other documents relating to the Bonds and the proceedings relating to their issuance and sale, furnished by the Borrower to the Issuer which is misleading, untrue or incorrect in any material respect or use thereof;

(f) any investigation, litigation, proceeding, cleanup, audit, violation or other matter, related to, of, or involving the application or compliance with any Environmental Law, the protection of the environment or the release by the Borrower of any Hazardous Material;

(g) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any property owned or operated by the Borrower of any Hazardous Material, whether caused by, or within the control of, the Borrower; and

(h) the administration of the trust created by the Indenture, the exercise of any rights under the Indenture and the performance of any remedial measures permitted by the Indenture,

except for (i) a Claim against an Indemnified Party (other than the Issuer) that arises by reason of such Indemnified Party’s gross negligence or willful misconduct or, in the case of clause (h) above, negligence or willful misconduct; provided, however, if and to the extent the foregoing agreement to indemnify is unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction of each of the agreed indemnities that is permissible under applicable law.

In addition, the Borrower will indemnify and hold the Issuer, the Trustee, the Paying Agent, the Registrar, the Trustee’s, the Paying Agent’s and the Registrar’s officers, directors, employees and agents free and harmless from any loss, claim, damage, tax, penalty, liability (including but not limited to liability for any patent infringement), disbursement, cause of action, suit, demand, judgment, litigation expenses, attorneys’ fees and expenses or court costs arising out of, or in any way relating to (a) any errors or omissions of any nature whatsoever contained in any legal proceedings or other official representation or inducement made by the Issuer pertaining to the Bonds, (b) any fraud or misrepresentations or omissions contained in the proceedings of the Issuer relating to the issuance of the Bonds or pertaining to the financial condition of the Borrower which, if known to a purchaser or holder of the Bonds, might be considered a material factor in a decision whether or not to buy the Bonds, and (c) the execution or performance of this Agreement, the issuance or sale of the Bonds and actions taken under the Indenture or any other cause whatsoever pertaining to the Facilities and the approval under the Act.

Promptly after receipt by an Indemnified Party under this Section 5.08 of written notice of the existence of a claim in respect of which indemnity hereunder may be sought or of the commencement of any action against the Indemnified Party in respect of which indemnity hereunder may be sought, the Indemnified Party shall notify the Borrower in writing of the existence of such Claim or commencement of such action. In case any such action shall be

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brought against an Indemnified Party under this Section 5.08, the Indemnified Party shall notify the Borrower of the commencement thereof and the Borrower shall be entitled to participate in and, to the extent that it may wish, to assume the defense thereof, with counsel satisfactory to the Indemnified Party; provided, however, that if the Indemnified Party shall have been advised in an opinion of counsel to the Indemnified Party that there may be legal defenses available to it which are adverse to or in conflict with those available to the Borrower or other Indemnified Parties, which in the opinion of counsel to the Indemnified Party, should be handled by separate counsel, the Borrower shall not have the right to assume the defense of such action on behalf of the Indemnified Party, but shall be responsible for the reasonable fees and expenses of the Indemnified Party in conducting its defense; and provided, further, that if the Borrower shall not have assumed the defense of such action, and shall not have employed counsel therefor satisfactory to the Indemnified Party within a reasonable time after notice of commencement of such action, such reasonable fees and expenses incurred by the Indemnified Party in conducting its own defense shall be borne by the Borrower.

The Borrower’s responsibility for the reasonable fees and expenses of any Indemnified Party in conducting its defense as provided in the preceding paragraph shall commence from the time the Claim is known of by the Borrower, and such responsibility shall exist and continue regardless of the merits of the Claim.

In addition, the Borrower agrees that if it initiates any action, suit or other proceeding with respect to any claim, demand or request for relief, whether judicial or administrative, in which the Issuer, the Trustee, the Registrar or the Paying Agent is named or joined as a party, the Borrower will pay and reimburse to such party the full amount of all reasonable fees and expenses incurred by such party with respect to such party’s defense of or participation in such action, suit or other proceeding.

The Issuer may submit to the Borrower periodic statements, not more frequently than monthly, for the reasonable value of services of any Issuer employees utilized, and for the full amount of any Issuer expenses incurred by the Issuer in connection with the performance or attainment by the Issuer of its obligations and rights under the Indenture, the Bonds or this Agreement, and the Borrower shall make payment to the Issuer of the full amount of each such statement within 30 days after the Borrower receives such statement; provided that the Borrower within such 30-day period may in writing and in good faith specifically protest all or any portion of the amounts included in such statement and in such event the Borrower shall not be obligated to make payment to the Issuer of the amount which has been protested in such manner until ten days after such protest shall have been resolved either by agreement between the Issuer and the Borrower or by an appropriate tribunal.

Under this Section 5.08, the Borrower shall also be deemed to release, indemnify and agree to hold harmless each employee, official or officer of the Issuer to the same extent as the Issuer.

Section 5.09 Notices of Damage. After the occurrence of any material damage or loss to the Facilities, if any Bonds are then Outstanding, the Borrower shall notify the Issuer and the Trustee as to the nature and extent of such damage or loss and whether it is practicable and desirable to rebuild, repair, or restore such damage or loss.

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Section 5.10 No Warranty by the Issuer. The Issuer makes no warranty, either express or implied, as to the Project or that it will be suitable for the purposes of the Borrower or needs of the Borrower.

Section 5.11 Liens. The Borrower hereby agrees not to create any lien upon the Bond Fund or upon the Receipts and Revenues (as defined in the Indenture) other than the lien created in the Indenture. The Borrower hereby agrees that it shall not have any interest in the Bond Fund or the moneys or Investment Securities (as defined in the Indenture) therein.

Section 5.12 Payments of Taxes and Assessments; No Liens or Charges.

The Borrower will: (a) pay, or make provision for payment of, (i) all lawful taxes and assessments, including income, profits, property or excise taxes, if any, or (ii) other municipal or governmental charges, levied or assessed by any Federal, state or municipal government or political body, upon the Project, or upon any part of either (i) or (ii) above, or upon any installment payments hereunder when the same shall become due and (b) pay or cause to be discharged or make adequate provision to satisfy and discharge, within sixty (60) days after the same shall accrue, any lien or charge upon any installment payment hereunder and all lawful claims or demands for labor, materials, supplies or other charges which, if unpaid, might be or become a lien upon any installment payment hereunder, except Permitted Encumbrances; provided with respect to both clause (a) and clause (b) of this Section 5.12 that the Borrower may in good faith contest any such tax, assessment, lien, charge, claim or demand in appropriate legal proceedings if the Borrower shall notify the Issuer and the Trustee of its intention so to do at or prior to the time of initiating such contest, and in such event may permit the items so contested to remain unpaid, undischarged and unsatisfied during the period of such contest and any appeal therefrom, unless the Issuer or the Trustee shall notify the Borrower in writing that, in the opinion of Counsel, by nonpayment of any such items the lien of the Indenture as to the payments of the Repayment Installments will be materially endangered, in which event the Borrower shall promptly pay and cause to be satisfied and discharged all such unpaid items. The Issuer will cooperate fully with the Borrower in any such contest.

Section 5.13 Additional Payments by the Borrower. The Borrower will pay, or cause to be paid, in addition to the payments provided for in Section 5.02(a) hereof, all of the expenses of operation of the portions of the Project including, without limitation, the cost of all necessary and proper repairs, replacements and renewals made pursuant to Section 5.06 hereof and premiums for insurance pursuant to Section 5.07 hereof.

ARTICLE VI

SPECIAL COVENANTS; CREDIT FACILITY

Section 6.01 [RESERVED].

Section 6.02 Maintenance of Existence. The Borrower covenants that it will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all its assets and will not consolidate with or merge into another corporation; provided, however, that the Borrower may consolidate with or merge with or into, or sell or otherwise transfer all or

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substantially all of its assets (and may thereafter dissolve), to another corporation, incorporated under the laws of the United States, one of the states thereof or the District of Columbia, provided, in the event the Borrower is not the surviving, resulting or transferee corporation, as the case may be, such corporation prior to such merger, consolidation, sale or transfer assumes, by delivery to the Trustee of an instrument in writing satisfactory in form and substance to the Trustee, all the obligations of the Borrower herein.

If consolidation, merger or sale or other transfer is made as permitted by this Section, the provisions of this Section shall continue in full force and effect and no further consolidation, merger or sale or other transfer shall be made except in compliance with the provisions of this Section. The Borrower shall notify the Trustee of its affiliates from time to time and of the filing of a petition in bankruptcy by or on behalf of any of itself or its affiliates from time to time.

Section 6.03 Agreement as to Ownership and Use of the Project. The Issuer and the Borrower agree that title to the Project shall be in and remain in the Borrower, and that the Project shall be the sole property of the Borrower in which the Issuer shall have no interest. Notwithstanding the provisions of this Section 6.03, the Borrower in its sole discretion and business judgment may choose to cease operation of the Project or transfer the Project to another entity which may cease such operation, and in such circumstances the covenants contained in this Section 6.03 shall no longer apply.

Section 6.04 Cooperation in Applications for Permits and Licenses. In the event it may be necessary for the proper performance of this Agreement on the part of the Issuer or the Borrower that any application or applications for any permit or license to do or to perform certain things be made to any governmental or other agency by or on behalf of the Borrower or the Issuer, the Borrower and the Issuer each agree, upon the request of either, to execute such application or applications.

Section 6.05 Recordation and Other Instruments. The Borrower shall cause such security agreements, financing statements and all supplements thereto and other instruments as may be required from time to time to be kept, to be recorded and to be filed in such manner and in such places as may be required by law in order to fully preserve, protect and perfect the security of the holders of the Bonds and the rights of the Trustee and to perfect the security interest created by the Indenture.

Section 6.06 Issuer’s Access to Facilities. The Borrower agrees that the Issuer and the Trustee shall have the right, upon appropriate prior notice to the Borrower, to have reasonable access to the Facilities owned or leased by the Borrower during normal business hours for the purpose of making examinations and inspections of the same; provided, however, that the Borrower reserves the right to restrict access to any of its generating facilities in accordance with reasonably adopted procedures relating to safety and security.

Section 6.07 Tax Covenants. The Borrower covenants that it will not take any action or fail to take any action reasonably within its control which would, under the Code, cause the interest payable on the Bonds to be includable in gross income of the holders thereof for Federal income tax purposes (other than a “substantial user” of the Facilities or a “related person” as those terms are used in Section 147(a) of the Code).

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The Borrower covenants that it will pay to the United States of America, on behalf of the Issuer, at or before the times required by or under Section 148(f) of the Code, the amounts required to cause to be met with respect to the Bonds the rebate requirement of said Section and such rules and regulations applicable to the Bonds. The Borrower covenants that in directing the investment of the gross proceeds of the Bonds it will comply with the applicable requirements of Section 148 of the Code. The Borrower covenants that it will maintain on behalf of the Issuer such records and file such reports, and file copies thereof with the Issuer and, if requested by the Trustee, with the Trustee, as may be necessary to be maintained to demonstrate compliance with this paragraph.

Section 6.08 Credit Facility.

(a) A Credit Facility shall be required if the Bonds are converted into any Interest Rate Period other than a Long-Term Interest Rate Period, and the terms of such Credit Facility in such event shall be satisfactory to the Bond Insurer. The Borrower hereby authorizes and directs the Trustee to draw moneys under the Credit Facility, if any, in accordance with the terms thereof and of the Indenture.

(b) Any Credit Facility, at the option of the Borrower, may provide that drawings may be made thereunder to pay to the Trustee, in accordance with the terms thereof, (i) an amount equal to (A) the principal of the Bonds when due upon maturity, redemption or acceleration and (B) the portion of the purchase price of Bonds purchased pursuant to Section 14.03(b) of the Indenture equal to the principal amount thereof; (ii) an amount equal to a specified number of days’ interest, computed at the Maximum Interest Rate (as defined in the Indenture), on the Bonds to pay (A) accrued and unpaid interest on the Bonds and (B) the portion of the purchase price of Bonds purchased pursuant to Section 14.03(b) of the Indenture equal to the accrued interest thereon; (iii) any part of the portion of the purchase price of Bonds purchased pursuant to Section 14.03(b) of the Indenture corresponding to redemption premium on the Bonds; and, (iv) an amount to pay redemption premium, if any, on the Bonds which may be payable upon the redemption thereof. The Credit Facility shall be reduced to the extent of any drawings thereunder and reinstated in accordance with the terms thereof.

The Borrower may, at its election, provide for one or more extensions of any Credit Facility in accordance with the terms of the Reimbursement Agreement in respect thereof.

(c) On or prior to the 35th day preceding the mandatory purchase date occurring pursuant to Section 4.08(c) of the Indenture, the Borrower shall deliver to the Trustee, the Tender Agent, the Remarketing Agent and the Bank:

(i) a notice which (A) states the effective date of expiration or termination of the existing Credit Facility, (B) describes any substitute Credit Facility which may be provided in lieu thereof, and (C) directs the Trustee, after taking such actions thereunder as are required to be taken to provide moneys due under the Indenture in respect of the Bonds or the purchase thereof, to surrender the Credit Facility to expire or to be terminated to the obligor thereon on the effective date of the substitute Credit Facility to be provided in lieu of the Credit Facility to expire or to be terminated or, if no such Credit Facility is to be so provided, on the effective date of such expiration or termination; and

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(ii) written evidence from Moody’s, if the Bonds are then rated by Moody’s, and S&P, if the Bonds are then rated by S&P, and Fitch, if the Bonds are then rated by Fitch, of the action that such rating agency will take with respect to the rating assigned to the Bonds on such expiration or termination and delivery of a new Credit Facility, if any.

(d) On or prior to the 35th day preceding the effective date of expiration or termination of any Credit Facility and the substitution of another Credit Facility that does not result in a downgrading or withdrawal of any rating assigned to the Bonds, the Borrower shall deliver to the Trustee, the Tender Agent, the Remarketing Agent and the Bank:

(i) a notice which (A) states the effective date of expiration or termination of the existing Credit Facility, (B) describes the Credit Facility which is to be provided in lieu thereof, and (C) directs the Trustee to surrender the Credit Facility to expire or to be terminated to the obligor thereon on the effective date of the substitute Credit Facility to be provided in lieu of the Credit Facility to expire or to be terminated; and

(ii) written evidence from Moody’s, if the Bonds are then rated by Moody’s, and S&P, if the Bonds are then rated by S&P, and Fitch, if the Bonds are then rated by Fitch, that such expiration or termination and delivery of a new Credit Facility will not result in a downgrading or withdrawal of the rating assigned to the Bonds by such rating agency.

(e) In connection with any termination of a Credit Facility and/or the provision of a new Credit Facility, if any, the Borrower also shall furnish to the Trustee a Favorable Opinion of Bond Counsel (as defined in the Indenture) and such other opinions of counsel as to such other matters as the Issuer or the Trustee may request.

Section 6.09 Annual Statement. The Borrower agrees during the term of this Agreement to have an annual audit made by its regular independent certified public accountants and to furnish the Trustee (within 30 days after receipt by the Borrower) with a balance sheet and statement of income and surplus showing the financial condition of the Borrower and its consolidated subsidiaries, if any, at the close of each fiscal year and the results of operations of the Borrower and its consolidated subsidiaries, if any, for each fiscal year, accompanied by a report of said accountants that such statements have been prepared in accordance with generally accepted accounting principles. The Borrower’s obligations under this Section 6.09 may be satisfied by delivering a copy of the Borrower’s Annual Report to the Trustee at the same time that it is mailed to stockholders. The Trustee shall have no duty or obligation with respect to such financial statements or reports except to make them available to any requesting Bondholders.

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ARTICLE VII

[RESERVED]

ARTICLE VIII

EVENTS OF DEFAULT AND REMEDIES

Section 8.01 Events of Default. Each of the following events shall be and is referred to in this Agreement as an “Event of Default”:

(a) failure by the Borrower to pay or cause to be paid any amounts required to be paid under Section 5.02 or Section 10.01(a) hereof when due which failure shall have resulted in an “Event of Default” under clause (i), (ii) or (iii) of Section 10.01(a) of the Indenture;

(b) a failure by the Borrower (i) to pay when due any other payment required to be made under this Agreement or (ii) to observe and perform any other covenant, condition or agreement on its part to be observed or performed, other than as referred to in this Section 8.01, which failure continues for a period of 30 days after written notice, specifying such failure and requesting that it be remedied, is given to the Borrower by the Issuer or the Trustee, which may give such notice in its discretion and shall give such notice at the written request of the holders of not less than a majority in principal amount of the Bonds then Outstanding (other than Bonds held by, or on behalf of the Borrower), unless the Issuer and the Trustee or the Issuer, the Trustee and the holders of a principal amount of Bonds not less than the principal amount of Bonds the holders of which requested such notice, as the case may be, shall agree to an extension of such period prior to its expiration; or

(c) the dissolution or liquidation of the Borrower, or the filing by the Borrower of a voluntary petition in bankruptcy, or failure by the Borrower promptly to forestall or lift any execution, garnishment or attachment of such consequence as will impair its ability to continue its business or to make any payments under this Agreement, or the entry of an order for relief by a court of competent jurisdiction in any proceeding for its liquidation or reorganization under the provisions of any bankruptcy act or under any similar act which may be hereafter enacted, or an assignment by the Borrower for the benefit of its creditors, or the entry by the Borrower into an agreement of composition with its creditors (the term “dissolution or liquidation of the Borrower”, as used in this clause, shall not be construed to include the cessation of the existence of the Borrower resulting from a dissolution or liquidation of the Borrower following a transfer of all or substantially all its assets as an entirety, under the conditions permitting such actions contained in Section 6.02 hereof); or

(d) the occurrence and continuance of an Event of Default under the Indenture; or

(e) the occurrence and continuance of an Event of Default under the Insurance Agreement.

The Issuer (or the Borrower, in the case of clause (c)) shall promptly notify the Trustee and the Bank of the occurrence of any Event of Default under this Section 8.01.

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Section 8.02 Force Majeure. The provisions of Section 8.01(b) hereof are subject to the following limitations: If by reason of acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; orders of any kind of the government of the United States or of the State of Arizona or any department, agency, political subdivision, court or official of any of them, or any civil or military authority; insurrections; riots; epidemics; landslides; lightning; earthquakes; volcanoes; fires; hurricanes; tornados; floods; washouts; droughts; arrests; restraint of government and civil disturbances; explosions; breakage or accident to machinery; or entire failure of utilities; or any cause or event not reasonably under the control of the Borrower, the Borrower is unable in whole or in part to carry out any one or more of its agreements or obligations contained herein other than its obligations under Sections 5.02, 5.04, 5.08, 5.12, 6.02, 8.05 and 10.01(a) hereof, the Borrower shall not be deemed in default by reason of not carrying out said agreement or agreements or performing said obligation or obligations during the continuance of such inability. The Borrower shall use reasonable efforts to remedy the cause or causes preventing it from carrying out its agreements; provided, that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Borrower, and the Borrower shall not be required to make settlement of strikes, lockouts and other disturbances by acceding to the demands of the opposing party or parties when such course is, in the judgment of the Borrower, unfavorable to the Borrower.

Section 8.03 Remedies.

(a) Upon the occurrence and continuance of any Event of Default described in Section 8.01 hereof, and further upon the condition that, in accordance with the terms of the Indenture, the Bonds shall have been declared to be immediately due and payable pursuant to any provision of the Indenture, the unpaid balance of the loan payable under Section 5.02 hereof shall, without further action, become and be immediately due and payable.

(b) Any waiver of any “Event of Default” under the Indenture and a rescission and annulment of its consequences shall constitute a waiver of the corresponding Event or Events of Default under this Agreement and a rescission and annulment of the consequences thereof.

(c) Upon the occurrence and continuance of any Event of Default, the Issuer may take, or cause to be taken, any action at law or in equity to collect any payments then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Borrower hereunder.

(d) Any amounts collected from the Borrower pursuant to this Section 8.03 shall be applied in accordance with the Indenture.

Section 8.04 No Remedy Exclusive. No remedy conferred upon or reserved to the Issuer hereby is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer to exercise any remedy reserved to it in this Article VIII, it shall not be necessary to give any notice other than such notice as may be herein expressly required.

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Section 8.05 Reimbursement of Attorneys’ Fees. If the Borrower shall default under any of the provisions hereof (i) and the Issuer or the Trustee shall employ attorneys or incur other reasonable expenses for the collection of payments due hereunder or for the enforcement of performance or observance of any obligation or agreement on the part of the Borrower contained herein, the Borrower will on demand therefor reimburse the Issuer or the Trustee, as may be, for the reasonable fees of such attorneys and such other reasonable expenses so incurred, to the extent permitted by law, and (ii) the Borrower shall pay the Trustee reasonable compensation for extraordinary services, including default administration.

Section 8.06 Waiver of Breach. In the event any obligation created hereby shall be breached by either of the parties and such breach shall thereafter be waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. In view of the assignment of certain of the Issuer’s rights and interests hereunder to the Trustee, the Issuer shall have no power to waive any default hereunder by the Borrower in respect of such rights and interests without the consent of the Trustee, and the Trustee may exercise any of the rights of the Issuer hereunder.

ARTICLE IX

OPTIONS OF BORROWER TO PREPAY.

Section 9.01 Options of Borrower to Prepay Repayment Installments.

(a) The Borrower shall have, and is hereby granted, the option to prepay the loan payable under Section 5.02 hereof in whole or in part by causing the Bonds to be called for redemption pursuant to Section 4.01 of the Indenture in which case all or a portion of the balance of the loan payable under Section 5.02 hereof shall become due and payable on the redemption date specified pursuant to Section 9.02 hereof in an amount sufficient to pay the principal of any premium, if any, and interest on the Bonds so called for redemption.

(b) The Borrower shall also have, and is hereby granted, the option to prepay the amounts payable under Section 5.02 hereof in whole or in part by causing Bonds to be deemed to have been paid pursuant to Section 9.01 of the Indenture by depositing with the Trustee moneys or obligations, or a combination thereof, as required by such Section 9.01 and by giving the irrevocable instructions required by such Section 9.01.

Section 9.02 Exercise of Option.

(a) To exercise an option granted in Section 9.01 hereof, the Borrower shall give written notice to the Trustee which shall designate therein the principal amount of the Bonds to be caused to be redeemed, or to be deemed to be paid in accordance with Section 9.01 of the Indenture and, in the event a redemption of Bonds is to be effected, such notice shall be given to the Trustee not less than five Business Days (as defined in the Indenture) prior to the day on which the Trustee shall be required to give notice of any such redemption and shall specify therein (i) the date or dates of redemption and (ii) the applicable redemption provision of the

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Indenture. The exercise of an option granted in Section 9.01 hereof shall be revocable by the Borrower at any time before the receipt by the Trustee of the Repayment Installments to be prepaid.

(b) Upon receipt of a notice furnished pursuant to this Section 9.02, the Issuer shall cooperate fully with the Trustee to permit the Trustee to take or cause to be taken all actions required of it under the Indenture to cause Bonds to be paid or redeemed in accordance with such notice.

(c) In the event the Borrower exercises its rights to cause the Bonds to be redeemed or deemed to have been paid as provided in Section 9.01 hereof, it shall give the Trustee directions to draw moneys under the applicable Credit Facility in accordance with the terms hereof and of the Indenture in the amounts so specified by the Borrower in such direction or order to effect the redemption of the Bonds entitled to the benefits of the Credit Facility or cause such Bonds to be deemed to have been paid as provided in Section 9.01 of the Indenture.

Section 9.03 Mandatory Prepayment of Repayment Installments.

The Borrower shall prepay the necessary portion of the unpaid balance of the Repayment Installments on such dates on which the Bonds are required to be redeemed pursuant to Section 4.01(b) of the Indenture.

Section 9.04 Amount of Prepayment.

The Borrower agrees to and shall pay (or cause to be paid) directly to the Trustee any amount permitted or required to be paid by it under this Article IX. The Trustee shall use the moneys so paid to it by the Borrower to effect redemption of the Bonds in accordance with Article IV of the Indenture.

ARTICLE X

PURCHASE AND REMARKETING OF BONDS

Section 10.01 Purchase of Bonds.

(a) In consideration of the issuance of the Bonds by the Issuer, but for the benefit of the Owners of the Bonds, the Borrower does hereby covenant and agree to cause the necessary arrangements to be made and to be thereafter continued whereby, from time to time, the Bonds will be purchased from the owners thereof under the circumstances provided in Section 4.08 of the Indenture. In furtherance of the foregoing covenant of the Borrower, the Issuer, at the direction of the Borrower, has set forth in Section 4.08 of the Indenture the terms and conditions relating to such purchases and has set forth in Article XIV of the Indenture the duties and responsibilities of the Tender Agent with respect to the purchase of Bonds and of the Remarketing Agent with respect to the remarketing of Bonds. At the direction of the Borrower, Citigroup Global Markets Inc. has been designated as the initial Remarketing Agent and as the initial Tender Agent and the Borrower hereby authorizes and directs the Tender Agent and the Remarketing Agent to purchase, offer, sell and deliver Bonds in accordance with the provisions of Section 4.08 and Article XIV of the Indenture.

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Without limiting the generality of the foregoing covenant of the Borrower, and in consideration of the Issuer’s having set forth in the Indenture the aforesaid provisions of Section 4.08 and Article XIV thereof, the Borrower covenants, for the benefit of the Owners of the Bonds, to pay, or cause to be paid, to the Tender Agent such amounts as shall be necessary to enable the Tender Agent to pay the purchase price of Bonds, all as more particularly described in Section 4.08 and Article XIV of the Indenture.

(b) The Issuer shall have no obligation or responsibility financial or otherwise, with respect to the purchase or remarketing of Bonds or the making or continuation of arrangements therefor, except that the Issuer shall generally cooperate with the Borrower, the Trustee, the Tender Agent and the Remarketing Agent as contemplated in Article XIV of the Indenture.

Section 10.02 Optional Purchase of Bonds. Subject to the limitations of the Indenture, the Borrower, at any time and from time to time, may furnish moneys to the Tender Agent accompanied by a notice directing that such moneys be applied to the purchase of Bonds to be purchased pursuant to Section 4.08 and Article XIV of the Indenture. Bonds so purchased shall be delivered to the Borrower in accordance with Section 14.05(a) of the Indenture.

Section 10.03 Determination of Interest Rate Periods. The Borrower may determine the duration and type of the Interest Rate Periods and certain other provisions relating to Interest Rate Periods as, and to the extent, set forth in Section 2.01 of the Indenture.

ARTICLE XI

MISCELLANEOUS

Section 11.01 Term of Agreement. This Agreement shall remain in full force and effect from the date hereof until the right, title and interest of the Trustee in and to the Trust Estate shall have ceased, terminated or become void in accordance with Article IX of the Indenture and until all payments required under this Agreement shall have been made.

Section 11.02 Notices. All notices, certificates, requests or other communications hereunder shall be sufficiently given and shall be deemed given when delivered or telecopied or if mailed, when mailed by registered mail, postage prepaid, addressed as follows:

If to the Issuer:

Maricopa County, Arizona

Pollution Control Corporation

c/o Ryley Carlock & Applewhite

One North Central Avenue, Suite 1200

Phoenix, Arizona 85004-4417

Attention: President

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If to the Borrower:

El Paso Electric Company

100 North Stanton

El Paso, Texas 79901

Attention: Treasurer

If to the Trustee:

Union Bank of California, N.A.

120 S San Pedro Street, 4th Floor

Los Angeles, CA 90012

Attention: Corporate Trust Department

If to the Remarketing Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

If to the Tender Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

If to the Bond Insurer:

Financial Guaranty Insurance Company

125 Park Avenue

New York, New York 10017

Attention: Risk Management

Fax: (212) 312-3093

If to the Fiscal Agent (for the Bond Insurer):

U.S. Bank Trust National Association

100 Wall Street, 19^th Floor

New York, New York 10005

Attention: Corporate Trust Department

A copy of each notice, certificate, request or other communication given hereunder to the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer, the Tender Agent or the Remarketing Agent shall also be given to the others. The Issuer, the Borrower, the Trustee, the Bank, the Tender Agent and the Remarketing Agent may, by notice given hereunder, designate further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Such notice shall be given to all others listed above.

Section 11.03 Parties in Interest. This Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Borrower, and their respective successors and assigns, and no other person, firm or corporation, other than the Owners, the Trustee, the Registrar or the Paying Agent under the Indenture, the Tender Agent, the Remarketing Agent, the Bank, and the

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Bond Insurer shall have any right, remedy or claim under or by reason of this Agreement; provided, however, that the obligations of the Borrower under Section 5.08 hereof shall inure to the benefit of the persons specified therein, and such obligations shall be enforceable by such persons as a third-party beneficiary; and subject to the limitation that any obligation of the Issuer created by or arising out of this Agreement shall not be a general debt of the Issuer, but shall be payable solely out of the revenues derived from this Agreement or the sale of the Bonds or income earned on invested funds as provided herein and in the Indenture.

Section 11.04 Extent of Covenants of the Issuer; No Personal Liability. All covenants, obligations and agreements of the Issuer contained in this Agreement or the Indenture shall be effective to the extent authorized and permitted by applicable law. No such covenant, obligation or agreement shall be deemed to be a covenant, obligation or agreement of any official, officer, agent, or employee of the Issuer in other than his official capacity, and neither the members of the Issuer’s Board of Directors nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or by reason of the covenants, obligations or agreements of the Issuer contained in this Agreement or in the Indenture.

Section 11.05 Confirmation of Request by the Borrower. The Borrower hereby confirms that it has requested that the Issuer enter into the Indenture including, without limitation, all of the terms and provisions relating to the Bonds, the Trustee, Paying Agent, Registrar, Remarketing Agent and Tender Agent and designating the parties named therein as Trustee, Paying Agent, Registrar, Remarketing Agent and Tender Agent.

Section 11.06 Amendments. This Agreement may be amended only by written agreement of the parties hereto with the consent of the Bank, the Bond Insurer or the provider of any other Credit Facility, for so long as the Credit Facility is in effect, subject to the limitations set forth herein and in the Indenture.

Section 11.07 Counterparts. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original; but such counterparts shall together constitute but one and the same Agreement.

Section 11.08 Severability. If any clause, provision or section of this Agreement shall, for any reason, be held illegal or invalid, such illegality or invalidity shall not affect any other provision of this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provisions had not been contained herein.

Section 11.09 Governing Law; Venue. This Agreement shall be construed in accordance with and governed by the Constitution and laws of the State of Arizona.

Section 11.10 Statutory Notice. In accordance with the terms thereof, notice is hereby given of Title 38, Chapter 3, Section 38-511, Arizona Revised Statutes, which provides, among other things, that the State, its political subdivisions or any department or agency of either may, within three years after its execution, cancel any contract, without penalty or further obligation, made by said State, its political subdivisions, or any of the departments or agencies of either if any person significantly involved in initiating, negotiating, securing,

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drafting or creating the contract on behalf of said State, its political subdivisions, or any of the departments or agencies of either is, at any time while the contract or any extension of the contract is in effect, an employee or agent of any other party to the contract in any capacity or a consultant to any other party of the contract with respect to the subject matter of the contract.

Section 11.11. Bond Insurer as Third-Party Beneficiary. To the extent that this Agreement confers upon or gives or grants to the Bond Insurer any right, remedy, benefit, or claim under or by reason of this Agreement, the Bond Insurer is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy, benefit or claim conferred, given or granted hereunder.

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IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed in its name by its duly authorized officer, and the Borrower has caused this Agreement to be executed in its name all as of the date first above written.

MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION
By:
	President
EL PASO ELECTRIC COMPANY
By:
	Treasurer

[Seal]
Attest:
By
	Assistant Secretary

EXHIBIT A

DESCRIPTION OF THE PROJECT

The Project consists of the following systems at the Plant and, in each case, include related machinery, equipment and facilities:

Section 1.01 Condensate Demineralizer Resin Regeneration System. The Condensate Demineralizer Resin Regeneration System for each Unit recycles spent resin from the full flow condensate demineralizers, and is located in the Unit’s turbine building. This system recycles spent resin by chemical regeneration using acid and caustic treatment. Spent resin is transferred from the condensate demineralizers to the regeneration vessels where it is chemically regenerated and then transferred to the resin mix and hold vessel prior to transfer back to the demineralizer.

The resin regeneration system includes the following components and equipment:

(a) One resin separation cation regeneration vessel that is a rubber-lined, vertical-cylindrical tank, with internal baffles and distributors.

(b) One anion regeneration vessel that is a rubber-lined vertical-cylindrical tank, with internal baffles and distributors.

(c) One resin mix and hold vessel that is a rubber-lined, vertical-cylindrical tank, with internal baffle and distributor plate.

(d) One acid day-tank that is a vertical-cylindrical tank of 400-gallon capacity, with a hinged cover, desiccant air breather and gauge glass.

(e) Two motor-driven, diaphragm type, acid pumps with adjustable stroke.

(f) One caustic day-tank that is a plastic-lined vertical-cylindrical tank of 2500 gallon capacity, with a gauge glass and electric heaters.

(g) Two motor-driven centrifugal type caustic pumps.

(h) Waste collection tank.

(i) The portions of the central acid and caustic chemical supply systems that are dedicated solely to the Condensate Demineralizer Resin Regeneration System.

(j) Associated piping, valves, instrumentation and mechanical equipment.

Section 1.02 Steam Generator Blowdown Demineralizer Resin Regeneration System. The Steam Generator Blowdown Demineralizer Resin Regeneration System for each Unit recycles spent resin in the steam generator blowdown demineralizer and is located in the Unit’s turbine building. This system recycles spent resin by chemical regeneration using acid and caustic treatment. Spent resin is treated in place by injecting these chemicals directly into the

steam generator blowdown demineralizer vessels that hold the resin. There are two mixed-bed demineralizer vessels operated in series for each Unit. This allows isolation of an individual vessel for chemical regeneration while blowdown flow is maintained in the other vessel.

The Steam Generator Blowdown Demineralizer Resin Regeneration System includes the following equipment and components:

(a) One acid day-tank that is a 30 inch diameter x 36 inch plasite lined tank.

(b) One acid supply package including acid supply pumps with associated piping and instrumentation.

(c) One caustic day-tank with immersion heater.

(d) One caustic supply package including caustic supply pumps, instantaneous heater and associated piping and instrumentation.

(e) Waste collection equipment including sumps and piping.

(f) The portions of the central acid and caustic chemical supply systems that are dedicated solely to the Steam Generator Blowdown Demineralizer Resin Regeneration System.

(g) Associated piping, valves, instrumentation and mechanical equipment.

Section 1.03 Make-up Demineralizer Resin Regeneration System. The Make-up Demineralizer Resin Regeneration System serves all three Units and recycles spent resin from the make-up water demineralizer by chemical regeneration using acid and caustic treatment. Spent resin is treated in place by injecting chemicals directly into the make-up demineralizer vessels that hold the resin. There are three mixed bed demineralizers. The system is operated with two mixed beds in series with the third bed isolated for regeneration.

The Make-up Demineralizer Resin Regeneration System includes the following components and equipment:

(a) One acid regenerant day tank that is a 238 gallon unlined steel tank.

(b) One caustic regenerant day tank that is a fiberglass reinforced tank of 3,396 gallon capacity and contains an electric immersion heater.

(c) Two plasite lined hot water storage tanks each with a 5519 gallon capacity and two electric immersion heaters.

(d) Two rinse water pumps.

(e) Two acid injection pumps.

(f) Two caustic feed pumps.

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(g) The portions of the central acid and caustic chemical supply systems that are dedicated solely to the Make-up Demineralizer Resin Regeneration System.

(h) Associated piping, valves, instrumentation and mechanical equipment.

Section 1.04 Decontamination Facilities. The Decontamination Facilities recycle solid waste consisting of contaminated tools and equipment by removing radioactive contamination from such items.

There are four Decontamination Facilities; one in the Radwaste Building for each Unit and a central facility for handling heavier tools and equipment that cannot be handled by the smaller individual Decontamination Facilities.

The central decontamination facility includes the following equipment:

(a) Ultrasonic cleaning system.

(b) Spray booth with pressure and steam washers.

(c) Filtered turbulator apparatus.

(d) Decontamination tanks and sinks.

(e) Central decontamination building consisting of shielded walls, filtered ventilation systems, air lock, laydown areas and associated building services.

Each of the three Radwaste Building Decontamination Facilities includes the following equipment:

(a) Ultrasonic cleaning system.

(b) Spray booth with turntable, pressure and steam washers.

(c) Tank, workbench and sink.

(d) The portion of each Radwaste Building housing Decontamination Facilities.

Section 1.05 Water Reclamation Facility. The Water Reclamation Facility will receive the sewage effluent from the Effluent Pipeline System and provide a multistage biochemical treatment process, including (a) reduction of ammonia and alkalinity by the use of trickling filters; (b) addition of lime slurry and polymer in first stage solid contact clarifiers to remove phosphate, magnesium, silica and some calcium; (c) addition of soda ash, polymer and carbon dioxide gas in second-stage solid contact clarifiers to remove calcium carbonate; (d) injection of sulfuric acid to reduce pH, polymer to aid in removal of suspended solids and chlorine to control biological growth; and (e) gravity filtration through graded media filters equipped for backwash. Sludge extracted from the backwash and solid contact clarifier and dewatered in the Water Reclamation Facility Water Pollution Control Facilities (which are not a part of the Series A Facilities) will be recalcined in a furnace provided for this purpose. The Water Reclamation Facility also includes related valves, piping, instrumentation, monitoring and other equipment.

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Section 1.06 Sanitary Drainage and Treatment System (ST). The sanitary drainage system collects and transports sanitary waste from Power Block facilities, Water Reclamation Facility ancillary buildings and construction facilities to the on-site sanitary treatment system.

The sanitary treatment system treats, clarifies, and returns the wastewater to the WRF for reuse. Equipment includes: a wet well, a sewage lift station, a surge tank, three package sewage treatment plants, a chlorine contact chamber, a sump with two sump pumps, and piping, valves, controls, and instrumentation.

Also included are related groundwater monitoring wells and equipment.

Section 1.07 Oily Waste and Nonradioactive Waste Systems (OW). The oily waste system for each Unit collects, for processing and disposal, nonradioactive waste from normally nonradioactive areas where oil may be present.

(a) Turbine building - OW drains and collects waste from the equipment and floor drains. The waste is collected in one turbine building sump and two condenser area sumps. The waste is normally discharged from the sumps to the oil/water separator, oil/water separator sump, retention basin, and eventually to the evaporation pond.

(b) Control building and diesel generator building - OW drains and collects waste from the equipment and floor drains. The waste is discharged from two control room sumps and two diesel generator sumps to the oil/water separator, oil water separator sump, retention basin, and eventually to the evaporation pond.

Each oily waste system consists of floor drains, equipment drains, vertical drain risers, pipes, sumps, sump pumps, an oil/water separator, an oil/water separator sump and associated valves, instrumentation and controls. Also included are related groundwater monitoring wells and equipment.

Section 1.08 Chemical Waste Systems (CM). The chemical waste system for each Unit consists of five subsystems:

(a) The radioactive chemical waste subsystem collects by gravity the corrosive radioactive waste from the chemical laboratory and decontamination stations and transfers the waste to the chemical drain tank. The chemical drain tank effluent is handled by the liquid radwaste system. This subsystem consists only of drains and piping.

(b) The cooling water waste subsystem collects by gravity the chemically treated cooling water from the auxiliary and radwaste building for disposal. The waste collects in the cooling water holdup tank and is pumped to the chemical waste neutralizer tank. From the neutralizer tank it is pumped to either the retention basin and evaporation pond or the liquid radwaste holdup tank. This subsystem consists of drains, a cooling water holdup tank, pumps, valves, piping, controls and instrumentation.

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(c) The condensate polishing demineralizer waste subsystem collects and neutralizes the potentially radioactive waste for disposal to the retention basin or the evaporation pond if it is nonradioactive, or discharges to the liquid radwaste system if it is radioactive. This subsystem consists of drains, sumps, sump pumps, chemical waste neutralizer tanks with agitators, transfer pumps, piping, valves, controls and instrumentation.

(d) The spent regenerate waste subsystem collects and neutralizes the rinse wastes from the makeup demineralizers for disposal. This subsystem consists of drains, sumps, sump pumps, valves, controls and instrumentation.

(e) The chemical tank drains located in the yard areas are installed on concrete slabs with retaining curbs. Small sumps are provided to collect equipment leakage. In some locations portable pumps are used to dispose of the waste.

Also included is related groundwater monitoring equipment.

Section 1.09 Retention Basin (Sedimentation Basin - J. Hook). The retention basin collects and disposes (by evaporation) of yard drainage to prevent discharge of sedimentation to the Gila River and the groundwater regional aquifer well water system. The basin consists of earthen dikes and related groundwater monitoring wells and equipment.

Section 1.10 Evaporation Pond. The evaporation pond collects start-up flush water and cooling tower blowdown wastewater for disposal. This allows for disposal of settleable solids and pollutants on a rubberized liner which prevents the start-up and blowdown wastewater from entering the Gila River and the groundwater regional aquifer well water system. The present pond is 250 surface acres. The future ponds will comprise an additional 455 acres. This system includes the earthen dike surrounding the pond, a rubberized liner and related environmental monitoring wells and equipment.

Section 1.11 Water Reclamation Facility Pollution Control Systems. The Water Reclamation Facility (WRF) air and water pollution control facilities collect environmental pollutants to prevent their discharge to the environment and/or treat such pollutants prior to such discharge. This pollution control equipment includes:

(a) Air Pollution Control Facilities - Furnace stack gas pollution control components include the cyclone separator, lime dust return screw and rotary feeder, the precooler and venturi scrubber, the impingement tray separator, the induced draft fan, all associated ducting, piping, valves, controls and instrumentation and all piping to supply process water to this equipment.

Lime and soda ash dust collection equipment includes dust collectors on each of the storage and supply silos and associated instrumentation and piping, and the filter separator at each unloading station and the associated piping and instrumentation.

(b) Water Pollution Control Facilities - Sludge handling and dewatering equipment includes:

(i) Sludge pumps and associated piping, valves, controls, instrumentation and flush water piping at the first and second stage clarifiers;

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(ii) Thickeners and associated structures and sludge pumps, tunnel sump pumps and associated piping, valves, controls, instrumentation, and flush water piping for the first and second stage thickeners, the waste thickeners, and the spent washwater thickeners;

(iii) Centrifuges, piping, valves, controls, instrumentation, flush water piping, screw conveyors, and associated structures for the classification, dewatering, and waste centrifuges;

(iv) Also included is related groundwater monitoring equipment.

Section 1.12 Gaseous Radwaste Systems (GRS). The gaseous radwaste system (GRS) for each Unit collects and processes potentially radioactive gases generated within the Plant so that offsite exposure is kept as low as reasonably achievable (ALARA). High activity waste gas, containing primarily hydrogen and nitrogen, is collected and stored in the oxygen-free system to guard against a rapid hydrogen/oxygen reaction and to permit decay of short-lived isotopes. Subsequent to decay, the decayed gases are sampled to determine their constituency and radioactivity content, filtered, monitored, and released at a controlled rate to the plant vent.

Each system is comprised of a surge tank, two prefilters, two waste gas compressors, three waste gas decay tanks, one discharge filter, discharge flow control valves and instrumentation and related radiation monitoring equipment.

Section 1.13 Solid Radwaste Systems (SRS). The solid radwaste system (SRS) for each Unit handles radioactive waste consisting of trash, spent ion exchange resins, waste evaporator concentrates, chemical drain tank effluents, crud tank effluents, used filter cartridges, contaminated steam generator blowdown demineralizer resins and contaminated condensate polishing demineralizer resins. The wastes are solidified in the waste solidification system and stored in a shielded storage location while awaiting shipment off site.

Spent resin from the fuel pool cooling system, liquid radwaste system ion exchangers, the chemical and volume control system preholdup ion exchanger, deborating ion exchanger and purification ion exchangers are sluiced to the high activity spent resin tank or the low activity spent resin tank. The spent resin tanks hold the resin until it is ready to be sluiced to the waste feed tank.

Radwaste from the crud tank, chemical drain tanks, spent resin tanks, and concentrates from the liquid radwaste system are piped directly into the waste feed tank.

Chemicals are added to the waste feed tank to adjust pH by the chemical addition storage and feed subsystem. The cement handling and storage subsystem delivers cement to the radwaste/cement mixing and filling subsystem.

The dry additive storage and feed subsystem delivers the dry chemical additive to the radwaste/cement mixing and filling subsystem.

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The radwaste/cement mixing and filling subsystem delivers radwaste from the waste feed tank, mixes the radwaste with cement and dry chemical additives and discharges the mixture to either a 55 gallon drum or disposable liner. This subsystem also provides for capping, decontamination, swiping and placement of solidified waste containers in a shielded storage location in the Unit, transportation and temporary storage of the solidified waste containers.

Spent filter cartridges are transported to the solidification system disposable liner or drum via a monorail, and remotely placed in a filter basket inside the container. The filter basket holds the filter cartridge in place while cement is poured around the filter cartridge encapsulating it.

Each system consists of a low activity spent resin tank and associated piping, a high activity spent resin tank and associated piping, a resin transfer/dewatering pump, a waste feed pump, a waste feed tank, a chemical addition pump, a chemical addition tank, a waste/cement processor, a 30-ton capacity overhead bridge crane, a container transfer cart and related switches, valves and instrumentation. The system also includes related radiation monitoring equipment.

Section 1.14 Future Interim on Site Low-level Radioactive Waste Storage Facility (RS). The function of the Future Interim On Site Low-Level Radioactive Waste Storage Facility (RS) is to provide the capabilities for handling and storing for up to a maximum of five (5) years, solidified wastes and dry active wastes, prior to shipment off site. Wastes temporarily held in the RS will be ready for shipment off site without further processing.

This facility consists of a non-seismic concrete building, a metal sided building, a truck bay and docking area, a control room, a container inspection and decontamination station, a truck washdown station, a remotely operated overhead crane, associated lighting, heating and ventilation systems, sumps, drains and related instrumentation and monitoring equipment and related access road and fencing.

Section 1.15 Liquid Radwaste Systems (LRS). The major functions of the liquid radwaste system (LRS) for each Unit are to:

(a) Collect and store for processing radioactive or potentially radioactive waste fluids from the following sources external to the Liquid Radwaste System:

(i) Containment radwaste sumps

(ii) Radwaste building sumps

(iii) Auxiliary building sumps

(iv) Fuel building sumps

(v) Decontamination facility (Unit One only)

(vi) Radiochemistry lab

(vii) Solid radwaste resin transfer/dewatering pump

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(viii) Condensate polishing and blowdown demineralizer regenerant wastes

(ix) Turbine building sumps

(x) Auxiliary steam condensate receiver tank

(xi) Chemical waste neutralizer tank

(xii) Boric acid concentrator (BAC) bottoms

(xiii) BAC distillate.

(b) Process revived wastes by filtration, absorption, ion exchange, and evaporation to obtain a maximum amount of high grade water for reuse in the reactor plant systems. This system also includes related radiation monitoring equipment.

(c) Minimize the quantity of liquid wastes which must be solidified for offsite disposal.

Each system consists of three holdup tanks, two holdup pumps, chemical drain tanks and pumps, ion exchange prefilters, an evaporator package, mixed bed ion exchangers and an adsorption bed, recycle monitor tanks and pump, concentrate monitor tanks and pumps, a caustic tank and batch tank, an acid tank and batch tank, an anti-foam tank and pump, Y-strainers, a desiccant breather and associated instrumentation, switches, valves and piping.

Section 1.16 Radwaste Buildings. The radwaste building for each Unit contains systems used for the processing of liquid, solid, and gaseous radioactive wastes generated in such Unit. The hot machine shop and the decontamination station which have not been financed are also housed in the radwaste building.

Each radwaste building is a three-story rectangular, seismic (category IIe), reinforced concrete structure. A series of interior reinforced concrete walls form compartments for housing waste-related equipment and provide radiation shielding. The solid waste solidification, storage, and disposal areas are serviced by a crane and monorail system. Each radwaste building is designed to be independent of any other structure and is supported on a rigid foundation mat.

Section 1.17 Filtration Equipment. The auxiliary building and the containment building for each Unit each contain normal exhaust air filtration units (AFU). Each AFU contains high efficiency particulate air (HEPA) filter banks and charcoal absorbers that have been included in the financing. The laundry and decontamination facility AFU contains HEPA filters that have been included in the financing. The function of the HEPA filter banks and charcoal absorbers is to maintain offsite exposure ALARA.

The condenser air removal system for each Unit contains HEPA filters, charcoal absorbers and related mechanical equipment necessary to remove radioactive contaminants from condenser vacuum pump discharges in order to maintain offsite exposure ALARA. Also included is related effluent monitoring equipment.

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Section 1.18 Radiation Laundry. The system is housed in the laundry and decontamination facility which is located near the radwaste building of Unit 1, and is a common facility for three units. The system uses four “RADKLEEN” dry cleaning machines, especially designed by Health Physics Systems, Inc., for decontamination of cloth and rubber protective clothing, and utilizes Dupont’s Valclene dry cleaning solvent. The system consists of cleaning chamber, solvent tank, still drying fan, evaporator refrigeration compressor, and several filters. The system contains two separate filtration systems. One set of micron filters, arranged in the parallel banks, filters solvent before it enters the cleaning drum. The other set of filters, arranged in series, comprises a recirculation filtration system which continually removes contamination from solvent in the contaminated sump, then returns the solvent to the clean sump. The system does not require any cooling water, plumbing, or connected cooling towers.

Section 1.19 Spent Fuel Storage and Handling System (SFS). There are three Fuel Buildings at this three unit plant, one for each unit. Each Fuel Building is a five-story reinforced concrete structure located adjacent to the Containment Building. Each Fuel Building is approximately 107 feet tall (above and below grade), 88 feet wide, and 124 feet long. Each Fuel Building contains one spent fuel storage pool, new fuel unloading and storage areas, spent fuel cask loading pit, fuel transfer canal, spent fuel cask washdown area, spent fuel pool equipment rooms, spent fuel equipment laydown area, new fuel container storage area and a railroad loading bay for spent fuel containers. The SFS for each Unit includes the spent fuel storage pool, spent fuel cask loading pit, spent fuel cask washdown area, spent fuel pool equipment rooms, spent fuel equipment laydown area and the railroad loading bay and the portion of the Fuel Building that houses such equipment.

Fuel assemblies are brought into the fuel handling building by truck in shipping containers containing two assemblies each. The assemblies are unloaded by means of the new fuel handling crane and stored on racks in the new fuel storage pit. When needed, the new fuel handling crane lifts the fuel assembly from the new fuel storage pit and carries it to a new fuel elevator, located at the containment building end of the transfer canal, which lowers the assembly to the floor of the transfer canal. The fuel handling machine then picks up the assembly and places it on an upending device (upender) in the transfer canal. The upender lowers the upright fuel assembly to a horizontal position and puts it on the fuel transfer car. The car carries the assembly through the transfer tube to the reactor containment building. Spent fuel is removed from the containment building and transferred back to the fuel handling building in the reverse process. Once inside the fuel handling building, the spent fuel handling machine places the spent fuel into high density storage racks in the spent fuel pool for storage. Spent fuel is stored in the spent fuel pools prior to shipment offsite. When spent fuel is to be shipped offsite a spent fuel cask is brought into the fuel handling building by rail. The cask is then cleaned. The cask handling bridge crane lifts the cask from the railcar into the cask loading pit and the lid of the cask is removed. The cask loading pit is then flooded and the spent fuel handling machine removes the fuel assembly to be shipped from the spent fuel pool storage rack and transfers them into the spent fuel cask in the cask loading pit. The cask is then capped and transferred by the bridge crane to the spent fuel cask washdown area where it is inspected, cleaned and decontaminated. The cask handling bridge crane then lifts the loaded cask to a railcar for shipment offsite.

Each SFS consists of the following components:

(a) Spent Fuel Cask Handling Bridge Crane - - This 150-ton crane is designed to lift and transport the spent fuel casks.

A-9

(b) Spent Fuel Pool (SFP) - The SFP is designed to contain 1329 spent fuel assemblies in high density storage racks after addition of inserts which have not been included in the financing. It is 41 feet 6 inches deep, 28 feet wide, and 39 feet long and contains approximately 352,000 gallons of borated water at operating level. The outer walls of the Fuel Building form two walls of the SFP and the SFP is an integral structural part of the Fuel Building. It is lined with stainless steel plate.

(c) Cask Loading Pit (CLP) - The CLP is designed to allow loading of spent fuel into a cask for shipment offsite. It is approximately 45 feet deep, 16 feet wide and 16 feet long. It is connected to the SFP by a short canal.

(d) Cask Washdown Area - This area is designed to washdown a loaded cask and inspect it prior to shipment.

(e) Spent Fuel Railroad Loading Bay - This area is 76 feet long by 25 feet wide and is used to bring railroad cars into the building in order to load the spent fuel casks on the railroad cars for off-site shipment.

(f) Spent Fuel Equipment Laydown Area - This area is reserved for the spent fuel cask handling tools and crane rigging.

(g) Spent-Fuel Pool Cooling and Cleanup System - This system is designed to remove decay heat from the spent fuel assemblies and maintain clarity and chemistry of the spent fuel pool water. The system is composed of two subsystems, the spent fuel pool cooling system (SFPCS) and the spent fuel pool cleanup system. The SFPCS is a closed loop system consisting of two pumps, two heat exchangers, piping, valves, controls and instrumentation required to form a complete functional system. All equipment is located within the Fuel Building.

The spent fuel pool cleanup system is composed of two flow trains, each consisting of a strainer, pump, filter and a mixed bed ion exchanger. Either one or both trains can be aligned to clean the water in the Spent Fuel Pool. The system also consists of the piping, valves, controls and instrumentation to form a complete functional system. The pumps are located in the Fuel Building with the remaining equipment contained in the Auxiliary Building. Only the equipment and piping related to the spent fuel pool cleanup system that is located in the Auxiliary Building itself is financed. No part of the Auxiliary Building is included as part of the SFS.

(h) Fuel Building Ventilation System - This system filters, purifies, and monitors normal building exhaust.

Section 1.20 Effluent Pipeline System. The Effluent Pipeline system is an underground sewage effluent conveyance pipeline system to convey sewage effluent from the Phoenix 91st Avenue and City of Tolleson water treatment plants to the water reclamation facility at the site of the Plant, and includes (a) approximately 28.5 miles of 114- and 96-inch diameter pipe operating by gravity flow from the 91st Avenue and Tolleson interfaces to the Hassayampa Pumping Station, (b) the Hassayampa Pumping Station, and (c) approximately 8 miles of 66-inch diameter pipe from the Hassayampa Pumping Station to the water reclamation facility.

A-10

Section 1.21 Containment Building. Each Unit has a Containment Building housing the reactor and reactor coolant system for such Unit.

Each Containment Building is a Seismic Category I pre-stressed concrete cylinder with a hemispherical dome. The base mat is a flat circular slab of reinforced concrete. The interior of the structure is lined with a continuous, welded steel plate one quarter inch thick. The Containment Building has an approximate inside diameter of 106 feet and an inside height of 206.5 feet. The base mat has an approximate diameter of 161 feet and a thickness of 10.5 feet. Wall thickness varies from approximately 4 feet in the vertical walls to approximately 3.5 feet at the apex of the dome.

Under the most severe of postulated loading conditions — including the combined effects of permanent loads, design basis Loss of Coolant Accident loads, and either the safe-shutdown earthquake or tornado loads — the Containment Building is designed to maintain its structural and leak-tight integrity. Together with isolation valves, penetration assemblies, and its continuous, welded-steel liner, the structure contains the released fission products and maintains a leak rate below the design leak rate levels.

The Containment Building is designed to provide long-term control of fission products following an accident.

Housed within the Containment Building and supported by the base mat are the reinforced concrete and structural steel internal structures which support the reactor and reactor coolant system. These internal structures, the reactor and reactor coolant system are not included in this financing.

A-11

EX-4.32

EXHIBIT 4.32

EL PASO ELECTRIC COMPANY

100 North Stanton

El Paso, TX 79901

July 27, 2005

Citigroup Global Markets Inc.

BNY Capital Markets, Inc.

J.P. Morgan Securities Inc.

Maricopa County, Arizona Pollution Control Corporation

c/o Ryley Carlock & Applewhite

One North Central Avenue

Suite 1200

Phoenix, Arizona 85004

Attention: President

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds,

2005 Series A

(El Paso Electric Company Palo Verde Project)

Representation and Indemnity Agreement

Ladies and Gentlemen:

In order to induce the Maricopa County, Arizona Pollution Control Corporation (the “Issuer”) and Citigroup Global Markets Inc., BNY Capital Markets, Inc. and J.P. Morgan Securities Inc. as Underwriters (the “Underwriters”), to enter into the Bond Purchase Agreement to be dated the date hereof (the “Bond Purchase Agreement”) relating to the purchase by the Underwriters, and the issuance and sale by the Issuer, of $59,235,000 aggregate principal amount of its Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series A (El Paso Electric Company Palo Verde Project) (the “Bonds”), bearing interest and maturing as stated in the Official Statement (as defined in the Bond Purchase Agreement) for the price stated in the Bond Purchase Agreement, the proceeds of which sale will be used to provide for refinancing of certain pollution control facilities of the Company (the

“Project”), pursuant to a Loan Agreement dated as of July 1, 2005 (the “Loan Agreement”), between the Issuer and El Paso Electric Company (the “Company”), and in accordance with the provisions of a Tax Certificate dated the date of issuance of the Bonds (the “Tax Certificate”) from the Issuer and agreed to by the Underwriters and the Company (with the Tax Certificate of the Company attached as Exhibit A to the Tax Certificate from the Issuer) and in consideration of the foregoing and the execution and delivery of the Bond Purchase Agreement by the parties thereto, the Company hereby represents and warrants to and covenants with each of the Issuer and the Underwriters as follows:

1. Bond Purchase Agreement. The Company has received the form of, and will receive an executed counterpart of, the Bond Purchase Agreement and acknowledges its acceptance of, and concurrence in, the terms and conditions thereof.

2. Representations and Warranties. The Company represents and warrants to the Issuer and the Underwriters that the representations and warranties of the Company set forth in Schedule I to the Bond Purchase Agreement are true and will be true on and as of the date of Closing (such term and the other capitalized terms used herein without definition having the respective meanings specified in the Bond Purchase Agreement).

3. Indemnification and Contribution Between the Company and the Underwriters. (a) The Company agrees to indemnify and hold harmless the Underwriters and each person, if any, who controls any Underwriters within the meaning of Section 20 of the Securities Exchange Act of 1934 (the “Exchange Act”), or Section 15 of the Securities Act of 1933 (the “Securities Act”), from and against any and all losses, claims, damages, and liabilities (including, without limitation, any legal or other expenses reasonably incurred by any Underwriters or any such controlling person in connection with investigating or defending any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Official Statement (as amended or supplemented if the Company shall have furnished any amendments or supplements in accordance with paragraph 5(c) hereof) used during the period set forth in paragraph 5(e) hereof, or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein not misleading; except insofar as such losses, claims, damages, or liabilities are caused by any untrue statement or omission or alleged untrue statement or alleged omission based on information furnished in writing to the Company by the Underwriters expressly for use therein or in connection with the offering of the Bonds.

(b) The Underwriters agree to indemnify and hold harmless the Company and any person controlling the Company within the meaning of Section 20 of the Exchange Act or Section 15 of the Securities Act to the same extent as the foregoing indemnity from the Company to the Underwriters, but only with reference to information relating to the Underwriters furnished in writing by the Underwriters expressly for use in the Official Statement.

(c) In case any proceeding (including any governmental or regulatory investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either paragraph (a) or (b) of this paragraph 3, such person (the “indemnified party”) shall promptly notify the person against whom such indemnity may be sought (the “indemnifying

2

party”) in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties. Such firm shall be designated in writing by the Company in the case of parties indemnified pursuant to the paragraph (b) above and by the Underwriters in the case of parties indemnified pursuant to the paragraph (a) above. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding.

(d) If the indemnification provided in paragraph (a) or (b) of this paragraph 3 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein in connection with the offering of the Bonds, then the indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Issuer on the one hand and the Underwriters on the other from the offering of the Bonds or (ii) if the allocation provided in clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Issuer on the one hand and the Underwriters on the other in connection with the matters which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Issuer on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Bonds (before deducting expenses) received by the Issuer bears to the total fees received by the Underwriters from the offering of the Bonds. In the case of an untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact, the relative fault of the Company and the Issuer, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Issuer or by the Underwriters and the parties’ relative intent, knowledge, access to information

3

and opportunity to correct or prevent such untrue statement or omission. In no case shall the Underwriters be responsible for any amount in excess of the purchase discount or commission applicable to the Bonds purchased by the Underwriters hereunder.

(e) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this paragraph 3 were determined by pro rata allocation or other method of allocation which does not take into account the equitable considerations referred to in paragraph (d) above. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of paragraph (d) above shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim. The remedies provided in this paragraph 3 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.

4. Indemnification and Contribution Between the Company and the Issuer. In further consideration of the premises and of the execution and delivery of the Bond Purchase Agreement by the parties thereto, the Company covenants and agrees with the Issuer as follows:

(a) Subject to the conditions set forth below, the Company will indemnify and hold harmless the Issuer, and each member, officer, official and employee of the Issuer against the following:

(i) any and all loss, liability, claim, damage and expense whatsoever, joint or several, to which it or they may become subject, under the Securities Act, the Exchange Act, the Trust Indenture Act of 1939 (the “Trust Indenture Act”), any state securities laws or otherwise, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Official Statement (as from time to time amended and supplemented), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

(ii) any and all loss, liability, claim, damage and expense whatsoever, joint or several, to which it or they may become subject, under the Securities Act, the Exchange Act, the Trust Indenture Act, any state securities laws or otherwise, to the extent of the aggregate amount paid in settlement of any litigation, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and

(iii) any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission or any such alleged untrue statement or omission to the extent that any such expense is not paid under (i) or (ii) above.

In no case shall the Company be liable under this paragraph (a) with respect to any claim made against the Issuer or any such member, officer, official or employee unless the Company shall be

4

notified in writing of the nature of the claim within a reasonable time after the assertion thereof, but failure so to notify the Company shall not relieve it from any liability which it may have otherwise than on account of this Representation and Indemnity Agreement (this “Agreement”). The Company shall be entitled to participate at its own expense in the defense, or if it so elects within a reasonable time after receipt of such notice, to assume the defense, of a suit brought to enforce any such claim, but if the Company elects to assume the defense, it shall be conducted by counsel chosen by the Company and satisfactory to the Issuer and each member, officer, official or employee of the Issuer, defendant or defendants in any suit so brought. In the event that the Company elects to assume the defense of any such suit and retains such counsel, the Issuer and each member, officer, official or employee of the Issuer, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel thereafter retained by them. The Company agrees to notify the Issuer within a reasonable time of the assertion of any claim against it or them, any of the officers or directors or any person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection with the sale of the Bonds.

(b) If the indemnification provided for in paragraph (a) is for any reason, other than as specified therein, held by a court to be unavailable and the Issuer has been required to pay damages as a result of a determination by a court that the Official Statement (as from time to time amended or supplemented) contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, then the Company shall contribute to the damages paid by the Issuer, but only to the extent that such damages arise out of or are based upon such untrue statement or omission, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by the Issuer on the other from the offering of the Bonds or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Issuer on the other in connection with the statements or omissions which resulted in such damages as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and by the Issuer on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) applied to the financing bear to any fees paid to the Issuer in connection with the issuance and sale of the Bonds. The relative fault shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company or by the Issuer and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. For purposes of this paragraph, the term “damages” shall include any legal or other expenses reasonably incurred by the Issuer in connection with investigating or defending any action or claim which is the subject of the contribution provisions of this paragraph (b). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation pursuant to this paragraph (b). If the Issuer shall have reasonably concluded that there may be defenses available to it which are different from or additional to and which conflict with those available to the Company, the Company shall not have the right to assume the defense of any such action on behalf of the Issuer and all legal and other expenses incurred by the Issuer pursuant to this paragraph (b) shall

5

be borne by the Company. Anything in this paragraph (b) to the contrary notwithstanding, the Company shall not be liable for (i) the fees and expenses for more than one firm of attorneys for the Issuer in connection with any one action or separate but related actions within the same jurisdiction arising out of the same allegation or causes of action or (ii) any settlement of any such claim or action effected without its written consent.

5. Covenants and Agreements. The Company covenants and agrees:

(a) Within one (1) business day hereof (but not later than the date that any confirmation requesting payment from any customer for any of the Bonds is mailed or delivered thereto), the Company shall deliver to the Underwriters copies of the Official Statement, dated the date hereof, relating to the Bonds, in sufficient quantity as may be reasonably be requested by the Underwriters in order to comply with Rule 15c2-12 (“Rule 15c2-12”) under the Exchange Act, in substantially the form attached to the Bond Purchase Agreement as Exhibit A, with such changes as shall have been accepted by the Underwriters;

(b) Not to take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner other than as provided in the Indenture and the Loan Agreement;

(c) Before amending or supplementing the Official Statement to furnish the Underwriters with a copy of each such proposed amendment or supplement and not to use any such proposed amendment or supplement to which the Underwriters reasonably object;

(d) Prior to the date hereof, the Company shall have delivered to the Underwriters a document or documents together with a certificate of the Company which states that such document or documents are deemed final as of their date for purposes of Rule 15c2-12 except for the information not required to be included therein under Rule 15c2-12;

(e) If, after the date of the Bond Purchase Agreement until twenty-five (25) days after the end of the underwriting period (as defined in the Bond Purchase Agreement), any event shall occur as a result of which it is necessary to amend or supplement the Official Statement in order to make the statements therein, in light of the circumstances when the Official Statement is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Official Statement to comply with applicable law, to notify the Underwriters (and for the purpose of this clause (e) to provide the Underwriters with such information as they may from time to time request), and to prepare and furnish, at the Company’s sole expense (in a form and manner approved by the Underwriters) a reasonable number of copies of either amendments of or supplements to the Official Statement so that (x) the statements in the Official Statement as so amended or supplemented will not, in light of the circumstances when the Official Statement is delivered to a purchaser, be misleading or (y) the Official Statement, as so amended or supplemented, will comply with applicable law;

(f) Between the date of this Agreement and the Closing, the Company will not, without the prior written consent of the Underwriters, offer, sell, contract to sell or otherwise dispose of any securities of the Issuer or the Company (other than the sale to the Underwriters of the Other Bonds), respectively, which are substantially similar to the Bonds;

6

(g) The Company will not take or fail to take any action which would, under the Internal Revenue Code of 1986, as amended and in effect on the date of issuance of the Bonds (the “Code”), Regulations of the Department of the Treasury of the United States of America (including Temporary Regulations and Proposed Regulations) under the Code applicable to the Bonds, rulings and court decisions, cause the interest payable on the Bonds to be includable in gross income for Federal income tax purposes of the holders thereof (other than a “substantial user” of the Facilities or a “related person” as those terms are used in Section 147(a) of the Code);

(h) To endeavor in good faith to cooperate with the Underwriters and the Issuer in qualifying the Bonds for sale under the securities laws of such jurisdictions as the Underwriters may designate and in continuing such qualification in effect so long as required for the distribution of the Bonds;

(i) To pay the expenses set forth in Section 10 of the Bond Purchase Agreement as expenses to be borne by the Company in accordance with the terms thereof and, if the Bond Purchase Agreement shall be terminated by the Underwriters because the Issuer is unable or otherwise fails to perform its obligations under the Bond Purchase Agreement or refuses or otherwise fails to comply with the terms of or to fulfill any of the conditions of the Bond Purchase Agreement or if for any reason the Company shall be unable, refuse or otherwise fails to perform the agreements and actions or comply with the terms and conditions contemplated to be performed, complied with, or fulfilled on the Company’s part under the Bond Purchase Agreement or this Agreement or if the Issuer shall decline to enter into the Bond Purchase Agreement by 11:59 p.m. Maricopa County, Arizona time on the date hereof, to reimburse the Underwriters for all out-of-pocket expenses (including fees and expenses of its counsel) reasonably incurred by them in connection with the Bond Purchase Agreement, this Agreement and the offering of the Bonds contemplated under the Bond Purchase Agreement;

(j) For a period of five years from the date of this Agreement, to furnish, upon request, to each of the Underwriters, the following:

a) as soon as practicable after the end of each fiscal year a consolidated balance sheet and consolidated statements of earnings (loss) and retained earnings (deficit) of the Company as at the end of and for such years, all in reasonable detail and certified by independent public accountants, and also copies of the annual and interim reports of the Company to its stockholders as soon as the same have been sent to such stockholders; and

b) as soon as practicable after the end of each quarter of its fiscal year one copy of a consolidated balance sheet as at the end of such period and consolidated statements of earnings (loss) and retained earnings (deficit) for said period in reasonable detail, none of which statements need be audited but shall be certified as correct by a Vice President, the Treasurer or Assistant Treasurer of the Company;

(k) To file timely all reports required to be filed by the Company with the Commission pursuant to Section 13 or 15(d) of the Exchange Act subsequent to the date of the Official Statement and for so long as the delivery of a copy of such Official Statement is required to be delivered in connection with sales by the Underwriters or any securities dealer;

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(l) That all representations and warranties and covenants and agreements of the Company contained herein, including the indemnity agreements of the Company contained herein, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriters or controlling person of any Underwriters, or by or on behalf of the Issuer, or any member, officer, official or employee of the Issuer or by or on behalf of the Company, or any officer, director or controlling person of the Company, or of any termination of this Agreement or the Bond Purchase Agreement, and shall survive delivery of and payment for the Bonds; and

(m) That any certificate signed by any officer of the Company and delivered to the Issuer, the Underwriters or to Underwriters’ counsel shall be deemed a representation and warranty by the Company to the Issuer and to the Underwriters as to the statements made therein.

6. Parties in Interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person or corporation, other than the parties hereto and their respective successors and assigns and the members, officers, officials, employees and controlling persons and the officers and directors referred to herein, any legal or equitable right, remedy or claim under or in respect to this Agreement or any provision herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and their respective successors and assigns and said members, officers, officials, employees and controlling persons and said officers and directors and for the benefit of no other person or corporation. No purchaser of any of the Bonds from either Underwriters shall be construed a successor or assign merely by reason of such purchase.

7. Choice of Law. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

8. Notices. All communications hereunder shall be in writing and if sent to the Issuer or the Underwriters shall be in accordance with Section 12 of the Bond Purchase Agreement and if sent to the Company shall be mailed, delivered or sent electronically or by facsimile and confirmed to it at 100 North Stanton, El Paso, TX 79901, Attention: Treasurer.

9. Counterparts. This Agreement may be executed in several counterparts each of which shall be an original and all of which shall constitute but one and the same instrument.

10. Statutory Notice. In accordance with the terms thereof, notice is hereby given of Title 38, Chapter 3, Section 38-511, Arizona Revised Statutes, which provides, among other things, that the State of Arizona, its political subdivisions or any department or agency of either may, within three years after its execution, cancel any contract, without penalty or further

8

obligation, made by said State, its political subdivisions, or any of the departments or agencies of either if any person significantly involved in initiating, negotiating, securing, drafting or creating the contract on behalf of said State, its political subdivisions or any of the departments or agencies of either is, at any time while the contract or any extension of the contract is in effect, an employee or agent of any other party to the contract in any capacity or a consultant to any other party of the contract with respect to the subject matter of the contract.

9

EXHIBIT 4.32

If the foregoing is in accordance with your understanding of the agreement between you and the Company, kindly sign and return to the Company the enclosed duplicate of this letter agreement whereupon it will constitute a binding agreement between you and the Company in accordance with its terms.

Very truly yours,

EL PASO ELECTRIC COMPANY

By:

Name:

Title:

Accepted and agreed to this

     day of             , 2005

MARICOPA COUNTY, ARIZONA

POLLUTION CONTROL CORPORATION

By:

Name:

Title:

CITIGROUP GLOBAL MARKETS INC.

By:

Name:

Title:

BNY CAPITAL MARKETS, INC.

By:

Name:

Title:

J.P. MORGAN SECURITIES INC.

By:

Name:

Title:

EX-4.33

EXHIBIT 4.33

INDENTURE OF TRUST

between

MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION

and

UNION BANK OF CALIFORNIA, N.A.,

as Trustee

Dated as of July 1, 2005

Relating to

$63,500,000

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds

2005 Series B

(El Paso Electric Company Palo Verde Project)

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS
Section 1.01	Definitions	3
Section 1.02	Number and Gender	19
Section 1.03	Articles, Sections, Etc	19
Section 1.04	Content of Certificates and Opinions	19
Section 1.05	Findings	20
ARTICLE II THE BONDS
Section 2.01	Authorization and Terms of Bonds	20
Section 2.02	Execution of Bonds	33
Section 2.03	Transfer and Exchange of Bonds	34
Section 2.04	Bond Register	35
Section 2.05	Bonds Mutilated, Lost, Destroyed or Stolen	35
Section 2.06	Disposition of Cancelled Bonds	36
Section 2.07	CUSIP Numbers	36
Section 2.08	Other Obligations	36
Section 2.09	Temporary Bonds	36
ARTICLE III ISSUANCE OF BONDS
Section 3.01	Authentication and Delivery of Bonds	36
Section 3.02	Application of Proceeds of Bonds	37
Section 3.03	Payment of Principal and Interest	37
ARTICLE IIIA ARS PROVISIONS
Section 3A.01	Payments with Respect to ARS	37
Section 3A.02	Calculation of All-Hold Rate	40
Section 3A.03	Notification of Rates, Amounts and Payment Dates	40
Section 3A.04	Adjustments with Respect to ARS Provisions	41
Section 3A.05	Maximum Bond Interest Rate, Non-Payment Rate	41
Section 3A.06	Auction Agent	41
Section 3A.07	Broker-Dealers	42

i

Section 3A.08	Provisions Relating to Auctions	43
Section 3A.09	Agreement of Holders	43
Section 3A.10	Changes in Auction Period or Auction Date	43
Section 3A.11	Conversion of Bonds to Applicable ARS Rate	44
ARTICLE IV REDEMPTION AND PURCHASE OF BONDS
Section 4.01	Redemption of Bonds	45
Section 4.02	Selection of Bonds to be Redeemed	50
Section 4.03	Notice for Redemption	50
Section 4.04	Partial Redemption of Bonds	51
Section 4.05	Effect of Redemption	51
Section 4.06	Payment of Redemption Price	52
Section 4.07	Bank Purchase Option	52
Section 4.08	Purchase of Bonds	55
Section 4.09	Delivery of Tendered Bonds	57
Section 4.10	Bonds Deemed Purchased	58
Section 4.11	Payment Procedure Pursuant to Bond Insurance Policy	58
ARTICLE V THE BOND FUND
Section 5.01	Creation of Bond Fund	59
Section 5.02	Deposits into Bond Fund	60
Section 5.03	Use of Moneys in Bond Fund	60
Section 5.04	Credit Facility	61
Section 5.05	Custody of Bond Fund; Withdrawal of Moneys	62
Section 5.06	Bonds Not Presented for Payment	63
Section 5.07	Moneys Held in Trust	63
Section 5.08	Payment to the Bank and to the Borrower	63
ARTICLE VI [RESERVED] ARTICLE VII INVESTMENTS
Section 7.01	Investments	64

ii

ARTICLE VIII GENERAL COVENANTS
Section 8.01	Limited Obligation; Payment of Principal and Interest	64
Section 8.02	Performance of Agreements; Authority	65
Section 8.03	Maintenance of Corporate Existence; Compliance with Laws	65
Section 8.04	Enforcement of Borrower’s Obligations under the Agreement	65
Section 8.05	Further Assurances	65
Section 8.06	No Disposition or Encumbrance of Issuer’s Interests	65
Section 8.07	Trustee’s Access to Books Relating to Facilities	66
Section 8.08	Filing of Financing Statements	66
Section 8.09	Tax Covenant	66
Section 8.10	Notices by Trustee	66
Section 8.11	No Transfer of Credit Facility	67
ARTICLE IX DEFEASANCE
Section 9.01	Defeasance	67
Section 9.02	Survival of Certain Provisions	68
ARTICLE X DEFAULTS AND REMEDIES
Section 10.01	Events of Default	69
Section 10.02	Remedies	71
Section 10.03	Restoration to Former Position	72
Section 10.04	Bond Insurer’s Right to Direct Proceedings	72
Section 10.05	Limitation on Owners’ Right to Institute Proceedings	72
Section 10.06	No Impairment of Right to Enforce Payment	72
Section 10.07	Proceeding by Trustee Without Possession of Bonds	73
Section 10.08	No Remedy Exclusive	73
Section 10.09	No Waiver of Remedies	73
Section 10.10	Application of Moneys	73
Section 10.11	Severability of Remedies	75
Section 10.12	Waivers of Events of Default	75
Section 10.13	No Obligation of Issuer to Act	75
ARTICLE XI TRUSTEE, PAYING AGENT, REGISTRAR
Section 11.01	Acceptance of Trusts	76

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Section 11.02	Trustee Not Responsible for Recitals, Maintenance, Insurance, etc	76
Section 11.03	Limitations on Liability	76
Section 11.04	Compensation, Expenses and Advances	77
Section 11.05	Notice of Events of Default	78
Section 11.06	Action by Trustee	78
Section 11.07	Good Faith Reliance	78
Section 11.08	Dealings in Bonds and with the Issuer and the Borrower	79
Section 11.09	Several Capacities	79
Section 11.10	Construction of Indenture	79
Section 11.11	Resignation of Trustee	79
Section 11.12	Removal of Trustee	79
Section 11.13	Appointment of Successor Trustee	79
Section 11.14	Qualifications of Successor Trustee	80
Section 11.15	Judicial Appointment of Successor Trustee	80
Section 11.16	Acceptance of Trusts by Successor Trustee	80
Section 11.17	Successor by Merger or Consolidation	81
Section 11.18	Standard of Care	81
Section 11.19	Notice of Event of Default	81
Section 11.20	Intervention in Litigation	81
Section 11.21	Paying Agent	81
Section 11.22	Qualifications of Paying Agent; Resignation; Removal	82
Section 11.23	Registrar	82
Section 11.24	Qualifications of Registrar; Resignation; Removal	83
Section 11.25	Appointment of Co-Trustee	83
Section 11.26	Notices to Rating Agencies	84
	ARTICLE XII EXECUTION OF INSTRUMENTS BY OWNERS AND PROOF OF OWNERSHIP OF BONDS
Section 12.01	Execution of Instruments; Proof of Ownership	84
	ARTICLE XIII MODIFICATION OF INDENTURE, DOCUMENTS
Section 13.01	Limitations	85
Section 13.02	Modification without Consent of Owners	85
Section 13.03	Modification with Consent of Owners	86
Section 13.04	Effect of Supplemental Indenture	87
Section 13.05	Consent of the Borrower, the Bank and the Bond Insurer	87
Section 13.06	Amendment of Agreement without Consent of Owners	88
Section 13.07	Amendment of Agreement with Consent of Owners	88
Section 13.08	Issuance of Bonds Under Other Indentures; Recognition of Prior Pledges	88

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	ARTICLE XIV REMARKETING AGENT; TENDER AGENT; PURCHASE AND REMARKETING OF BONDS
Section 14.01	Remarketing Agent and Tender Agent	89
Section 14.02	Qualifications of Remarketing Agent and Tender Agent; Resignation; Removal	90
Section 14.03	Notice of Bonds Delivered for Purchase; Purchase of Bonds	91
Section 14.04	Remarketing of Bonds; Notice of Interest Rates	92
Section 14.05	Delivery of Bonds	93
Section 14.06	Drawings on Credit Facility	94
Section 14.07	Delivery of Proceeds of Sale	95
	ARTICLE XV MISCELLANEOUS
Section 15.01	Indenture to Bind and Inure to Benefit of Successors to Issuer	95
Section 15.02	Parties in Interest	95
Section 15.03	Severability	95
Section 15.04	No Personal Liability of Issuer Under Indenture	95
Section 15.05	Bonds Owned by the Issuer or the Borrower	96
Section 15.06	Governing Law	96
Section 15.07	Notices	96
Section 15.08	Non-Business Days	97
Section 15.09	Opinions	98
Section 15.10	Headlines; Table of Contents	98
Section 15.11	Execution in Several Counterparts	98
Section 15.12	Bond Insurer as Third-Party Beneficiary	98
Section 15.13	Additional Covenants of the Issuer to Bond Insurer	98
Section 15.14	Statutory Notice	98
Exhibit A – Form of Bond		A-1
Exhibit B – Auction Procedures		B-1

v

THIS INDENTURE OF TRUST is made and entered into as of July 1, 2005, by and between MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION, an Arizona nonprofit corporation designated as a political subdivision under the laws of the State of Arizona incorporated for and with the approval of the County of Maricopa, Arizona, pursuant to the provisions of the Constitution of the State of Arizona and Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972, renumbered as Title 35, Chapter 6, Arizona Revised Statutes, by Chapter 281, Section 2, Laws of Arizona of 1986, and all acts supplemental thereto or, amendatory thereof (hereinafter, together with any successor to its functions, called the “Issuer”), and Union Bank of California, N.A., a national banking corporation authorized to exercise corporate trust powers, with a principal corporate trust office in Los Angeles, California (hereinafter, together with any successor in such capacity, called the “Trustee”).

W I T N E S S E T H:

WHEREAS, Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), as amended (hereinafter called the “Act”), empowers any pollution control corporation organized pursuant to Article 1 of the Act to issue revenue bonds in accordance with Article 2 of the Act and to make secured or unsecured loans for the purpose of financing or refinancing the acquisition, construction, improvement or equipping of pollution control facilities, to charge and collect interest on such loans and pledge the proceeds of loan agreements as security for the payment of the principal of and interest on bonds, or designated issues of bonds, issued by the corporation and any agreements made in connection therewith, whenever the board of directors finds such loans to be in furtherance of the purposes of the corporation; and

WHEREAS, Chapter 69, Section 1, Laws of Arizona of 1972, declares it to be the purpose of the Act to authorize the incorporation in the several municipalities and counties of the State of Arizona of corporations which shall constitute political subdivisions of the State, to finance the acquisition and installation of, or the construction and leasing of, properties, machinery and equipment intended to prevent or limit air, water and other forms of pollution for the purpose of protecting the health and welfare of the citizens of the State of Arizona, and to facilitate compliance with existing or future air, water and other quality standards designed to improve the environment, and declares that such corporations shall serve a public purpose and perform an essential governmental function; and

WHEREAS, in response to an application by four qualified electors of the County of Maricopa, Arizona (the “County”), a political subdivision of the State of Arizona, the Board of Supervisors of said County on December 5, 1983, adopted a resolution by which it determined that it was wise, expedient, advisable and in the public interest that said application be approved, approved said application, and authorized said four electors to proceed with the incorporation of the Issuer as a pollution control corporation for said County, all in accordance with Section 35-802 of the Act to issue bonds and to carry out the other functions and fulfill the purposes of the Issuer; and

WHEREAS, the Issuer was thereupon organized and incorporated in accordance with the provisions of the Act, and, on December 5, 1983, the Articles of Incorporation of the Issuer were filed with the Arizona Corporation Commission, in accordance with Section 35-809 of the Act; and

WHEREAS, the Issuer has heretofore issued and sold its $63,500,000 aggregate principal amount of Pollution Control Refunding Revenue Bonds, 1994 Series A (El Paso Electric Company Palo Verde Project) (the “Prior Bonds”), the proceeds of which were used to refinance a portion of the costs of acquisition, construction, improvement or equipping of the Project; and

WHEREAS, the Board of Directors of the Issuer on April 19, 2005 determined to sell additional revenue bonds of the Issuer to provide a portion of the moneys necessary to redeem and refund the outstanding principal amount of the Prior Bonds; and

WHEREAS, appropriate certifications have been received stating that the portion of the Generating Station which constitutes the pollution control facilities, as described in Exhibit A to the Agreement (defined below) (the “Generating Station”), as designed, are in furtherance of the purpose of abating or controlling atmospheric or water pollutants or contaminants resulting from the generation of electricity at the Generating Station; and

WHEREAS, the Issuer and the Borrower have executed and delivered that certain Loan Agreement, dated as of July 1, 2005 (hereinafter called the “Agreement”), setting forth the undertaking by the Issuer to issue and sell its revenue bonds under the Act (hereinafter called the “Bonds”), and to lend the proceeds of the Bonds to the Borrower to provide a portion of the moneys necessary to redeem and refund the outstanding principal amount of Prior Bonds; and

WHEREAS, in the Agreement the Borrower releases the Issuer and agrees that the Issuer shall not be liable for, and will indemnify and hold the Issuer and the Trustee harmless from, certain matters; and

WHEREAS, certain findings and determinations relating to the Agreement and the Generating Station and the Project have heretofore been made and are set forth in this Indenture; and

WHEREAS, the execution and delivery of the Agreement and this Indenture and the issuance of the Bonds have been in all respects duly and validly authorized, and duly adopted and approved by resolutions of the Board of Directors of the Issuer, and the Project, the plan of financing for the Project and the issuance of the Bonds have been duly approved by the Board of Supervisors of the County, as required by the Act and otherwise; and

WHEREAS, all other things necessary to make the Bonds, when issued, executed and delivered by the Issuer and authenticated by the Trustee pursuant to this Indenture, the valid, legal and binding limited obligations of the Issuer, and to constitute this Indenture a valid pledge and assignment of all right, title and interest of the Issuer in the Agreement (except as to certain payments to the Issuer under provisions for indemnification of, and reimbursement of expenses of, the Issuer), and of certain income and revenues derived from the Agreement, for the payment of the principal of and interest on the Bonds authenticated and delivered under this Indenture, and the creation, execution and issuance of the Bonds, subject to the terms hereof, have in all respects been duly authorized;

2

NOW, THEREFORE, the Issuer, in consideration of the covenants herein contained and of the purchase and acceptance of the Bonds by the holders thereof, in order to secure the payment of all Bonds at any time Outstanding under this Indenture, according to their tenor and effect, and the performance and observance of all the covenants and conditions in the Bonds and herein contained, and to declare the terms and conditions upon and subject to which the Bonds are issued and secured, does grant a security interest in and pledge to the Trustee (as hereinafter defined), and to its successors and assigns forever, the Trust Estate (as hereinafter defined) for the equal and proportionate benefit, security and protection of all holders and owners of the Bonds issued under and secured by this Indenture without privilege, priority or distinction as to the lien or otherwise of any of the Bonds over any other of the Bonds, all upon the terms stated in this Indenture.

ARTICLE I

DEFINITIONS

Section 1.01 Definitions. The terms defined in this Article I shall, for all purposes of this Indenture and of any indenture supplemental hereto have the meanings herein specified, unless the context clearly requires otherwise. Capitalized terms used herein, defined in the Agreement and not otherwise defined herein, shall have the meaning specified in the Agreement.

“Act” shall mean Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), and all acts supplemental thereto or amendatory thereof.

“Agreement” shall mean the Loan Agreement, of even date herewith, between the Issuer and the Borrower and relating to the loan of the proceeds of the Bonds, as originally executed or as it may from time to time be supplemented or amended.

“All-Hold Rate” shall mean, on any date of determination, the interest rate per annum equal to 65% of the Index on such date; provided, that in no event shall the All-Hold Rate be more than the Maximum Lawful Rate.

“Alternate Credit Support” shall mean any letter of credit, credit facility, insurance policy, guarantee or other credit support agreement or security mechanism provided by the Borrower in accordance with Section 6.08 of the Agreement and any extension thereof.

“Applicable ARS Rate” shall mean, with respect to ARS, the rate per annum at which interest accrues on the Bonds for any Auction Period.

“ARS” or “Auction Rate Securities” shall mean, on any date, the Bonds when bearing interest as auction rate securities as provided in Article IIIA of this Indenture and the Auction Procedures applicable thereto.

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“ARS Beneficial Owner” shall mean the Person who is the beneficial owner of ARS according to the records of (i) DTC or its participants or a successor Securities Depository while such ARS are in book-entry form or (ii) the Trustee while such ARS are not in book-entry form.

“ARS Defaulted Interest” shall mean interest on any ARS which is payable but is not punctually paid or duly provided for on any ARS Interest Payment Date.

“ARS Interest Payment Date” shall mean, when used with respect to ARS in an Auction Period other than a Special Auction Period, the Business Day immediately following each Auction Period, and, when used with respect to a Special Auction Period of seven days or more but fewer than 183 days, the Business Day immediately following such Special Auction Period, and, when used with respect to a Special Auction Period of 183 days or more, each January 1 and July 1 and on the Business Day immediately following such Special Auction Period.

“ARS Interest Period” shall mean the period commencing on and including an ARS Interest Payment Date and ending on but excluding the next succeeding ARS Interest Payment Date; provided, that the first ARS Interest Period within each ARS Interest Rate Period shall commence on and include the Issue Date or the Conversion Date, as the case may be.

“ARS Interest Rate Period” shall mean each period during which the Bonds are ARS.

“ARS Maximum Rate” shall mean 15% per annum; provided that in no event shall the ARS Maximum Rate be more than the Maximum Lawful Rate.

“ARS Payment Default” shall mean (a) (i) a default by the Issuer in the due and punctual payment of any installment of interest on ARS or (ii) a default by the Issuer in the due and punctual payment of any principal of ARS at stated maturity or pursuant to a mandatory redemption and (b) a payment default by the Bond Insurer under the Bond Insurance Policy.

“ARS Rating Agency” shall mean Moody’s, Fitch or S&P, or if any of Moody’s, Fitch or S&P discontinues its securities rating service, then such other nationally recognized securities rating agency as may be specified by the Broker-Dealer with the consent of the Borrower.

“Auction” shall mean the implementation of the Auction Procedures on an Auction Date.

“Auction Agent” shall mean the Initial Auction Agent unless and until a Substitute Auction Agent Agreement becomes effective, after which “Auction Agent” shall include both the Initial Auction Agent (if it is continuing to act in such capacity under this Indenture) and each such Substitute Auction Agent so acting.

“Auction Agent Agreement” shall mean, on any date, each Initial Auction Agent Agreement and each Substitute Auction Agent Agreement, in each case as from time to time in effect.

“Auction Agent Fee” shall have the meaning provided in each Auction Agent Agreement.

“Auction Date” shall mean, with respect to ARS, the Business Day next preceding the first day of each Auction Period, other than

4

(i) each Auction Period commencing after the ownership of such ARS is no longer maintained in book-entry form by a Securities Depository;

(ii) each Auction Period commencing after the occurrence and during the continuance of an ARS Payment Default; or

(iii) any Auction Period commencing less than two Business Days after the cure or waiver of an ARS Payment Default.

The Auction Date determined as provided in this definition may be adjusted as provided in Section 3A.10(b).

“Auction Period” shall mean (i) with respect to ARS in a seven-day mode, any of (A) a period, generally of seven days, beginning on and including a Monday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Sunday) and ending on and including the Sunday thereafter (unless such Sunday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day), (B) a period, generally of seven days, beginning on and including a Tuesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Monday) and ending on and including the Monday thereafter (unless such Monday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day), (C) a period, generally of seven days, beginning on and including a Wednesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Tuesday) and ending on and including the Tuesday thereafter (unless such Tuesday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day), (D) a period, generally of seven days, beginning on and including a Thursday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Wednesday) and ending on and including the Wednesday thereafter (unless such Wednesday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day) or (E) a period, generally of seven days, beginning on and including a Friday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Thursday) and ending on and including the Thursday thereafter (unless such Thursday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day); (ii) with respect to ARS in a 28-day mode, any of (A) a period, generally of 28 days, beginning on and including a Monday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Sunday) and ending on and including the fourth Sunday thereafter (unless such Sunday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day), (B) a period, generally of 28 days, beginning on and including a Tuesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Monday) and ending on and including the fourth Monday thereafter (unless such Monday is not followed by a Business Day, in which case ending on and including the next succeeding day followed by a Business Day), (C) a period, generally of 28 days, beginning on and including a Wednesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Tuesday) and ending on and including the fourth Tuesday thereafter (unless such Tuesday is not followed by a Business Day, in which case ending on and including

5

the next succeeding day followed by a Business Day), (D) a period, generally of 28 days, beginning on and including a Thursday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Wednesday) and ending on and including the fourth Wednesday thereafter (unless such Wednesday is not followed by a Business Day, in which case ending on and including the next succeeding day followed by a Business Day) or (E) a period, generally of 28 days, beginning on and including a Friday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Thursday) and ending on and including the fourth Thursday thereafter (unless such Thursday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day); (iii) with respect to ARS in a 35-day mode, any of (A) a period, generally of 35 days, beginning on and including a Monday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Sunday) and ending on and including the fifth Sunday thereafter (unless such Sunday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day), (B) a period, generally of 35 days, beginning on and including a Tuesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Monday) and ending on and including the fifth Monday thereafter (unless such Monday is not followed by a Business Day, in which case ending on and including the next succeeding day followed by a Business Day), (C) a period, generally of 35 days, beginning on and including a Wednesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Tuesday) and ending on and including the fifth Tuesday thereafter (unless such Tuesday is not followed by a Business Day, in which case ending on and including the next succeeding day followed by a Business Day), (D) a period, generally of 35 days, beginning on and including a Thursday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Wednesday) and ending on and including the fifth Wednesday thereafter (unless such Wednesday is not followed by a Business Day, in which case ending on and including the next succeeding day followed by a Business Day) or (E) a period, generally of 35 days, beginning on and including a Friday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Thursday) and ending on and including the fifth Thursday thereafter (unless such Thursday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day) and (iv) a Special Auction Period; provided, however, that the initial Auction Period with respect to the Bonds shall begin on and include the Issue Date, and that in the event of a Conversion of the Bonds from another Interest Rate Period to an ARS Interest Rate Period the initial Auction Period following such Conversion shall begin on and include the Conversion Date.

“Auction Procedures” shall mean the provisions set forth in Exhibit B to this Indenture.

“Auction Rate” shall mean, with respect to the interest rate on ARS, the rate of interest per annum that results from implementation of the Auction Procedures, and determined as described in Section 1.03 of the Auction Procedures; provided, however, that the Auction Rate shall not exceed the ARS Maximum Rate. While Auction Procedures are suspended, the Auction Rate will be determined as otherwise described herein.

6

“Authorized Borrower Representative” shall mean each person at the time designated to act on behalf of the Borrower by written certificate furnished to the Issuer and the Trustee containing the specimen signature of such person and signed on behalf of the Issuer.

“Authorized Denominations” shall mean (a) with respect to any Long-Term Interest Rate Period, $5,000 and any integral multiple thereof; (b) with respect to any Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period, $100,000 and any integral multiple of $5,000 in excess of $100,000; and (c) with respect to ARS, $25,000 and any integral multiple thereof while the ARS are in any Auction Period.

“Available ARS” shall have the meaning provided in Section 1.03(b) of the Auction Procedures.

“Available Moneys” shall mean (i) with respect to any date occurring during the term of a Credit Facility, (a) proceeds of a drawing under a Credit Facility which have been directly deposited in the Bond Fund or the Purchase Fund, as applicable, (b) moneys deposited in the Bond Fund or the Purchase Fund by or on behalf of the Borrower and which have been on deposit with the Trustee or the Tender Agent, as applicable, for at least one hundred and twenty-four (124) days prior to and during which no petition by or against the Issuer or the Borrower or any affiliate of the Borrower, under any Bankruptcy Act shall have been filed or any bankruptcy or similar proceeding shall have been commenced, unless such petition or proceeding shall have been dismissed and such dismissal shall be final and not subject to appeal, (c) any other money (including the proceeds of the sale of refunding obligations of the Issuer) the application of which would not, in the written opinion of Bond Counsel or other nationally recognized counsel experienced in bankruptcy matters and acceptable to the Issuer, the Rating Agencies, if any, and the Trustee and delivered to the Trustee and the Tender Agent, constitute a voidable preference in the case of a filing for protection under the Bankruptcy Act of the Issuer or the Borrower or any affiliate of the Borrower and (d) the proceeds from the investment of moneys described above, and (ii) with respect to any date not occurring during the term of a Credit Facility, any moneys furnished to the Trustee or the Tender Agent, as applicable, and the proceeds from the investment thereof.

“Bank” shall mean the issuer of a Letter of Credit, if any, with respect to the Bonds, and, any subsequently issued Credit Facility, the issuer of such other Credit Facility so long as such other Credit Facility shall be in effect, in its capacity as such issuer, its successors in such capacity and their assigns.

“Bankruptcy Act” shall mean the United States Bankruptcy Code, any successor act thereto or amendment thereof or any other applicable federal or state bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law, now or hereafter in effect..

“Beneficial Owner” shall mean any Person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond (including any Person holding a Bond through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bond for federal income tax purposes.

“Bid” shall have the meaning provided in Section 1.01(a) of the Auction Procedures.

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“BMA Index” shall mean on any date, a rate determined on the basis of the seven-day high grade market index of tax-exempt variable rate demand obligations, as produced by Municipal Market Data and published or made available by the Bond Market Association (“BMA”) or any person acting in cooperation with or under the sponsorship of BMA and acceptable to the Remarketing Agent and effective from such date.

“Bond” or “Bonds” shall mean the bonds issued in accordance with this Indenture as referenced in Section 2.01(a).

“Bond Counsel” shall mean Pillsbury Winthrop Shaw Pittman LLP, New York, New York or any firm of nationally recognized bond counsel which is experienced in the financing of pollution control facilities and acceptable to the Issuer, the Remarketing Agent, the Trustee and the Borrower.

“Bond Fund” shall mean the fund created by Section 5.01.

“Bond Insurance Policy” shall mean the municipal bond new issue insurance policy issued by the Bond Insurer that guarantees payment of principal of and interest on the Bonds.

“Bond Insurer” shall mean Financial Guaranty Insurance Company, a New York stock insurance company, or any successor thereto.

“Bond Interest Term” or “BIT” shall mean, with respect to each Bond bearing interest at a BIT Rate, the period established in accordance with the terms of Section 2.01(c)(v) hereof.

“Bond Interest Term Rate “ or “BIT Rate” shall mean the interest rate on any Bond established in accordance with Section 2.01(c)(v) hereof.

“Book-Entry Bonds” shall mean any Bonds which are then held in book-entry form as provided in Section 2.01(e) hereof.

“Borrower” shall mean (i) El Paso Electric Company, a corporation organized under the laws of the State of Texas and its successors and assigns, and (ii) any surviving, resulting or transferee corporation as provided in Section 6.02 of the Agreement.

“Broker-Dealer” shall mean Citigroup Global Markets Inc. or any other broker or dealer (each as defined in the Securities Exchange Act), commercial bank or other entity permitted by law to perform the functions required of a Broker-Dealer set forth in the Auction Procedures which (i) is a participant in or member of the Securities Depository as determined by the rules or bylaws of the Securities Depository (or an affiliate of such a participant or member), (ii) has been appointed as such by the Borrower pursuant to Section 3A.07 of this Indenture, and (iii) has entered into a Broker-Dealer Agreement that is in effect on the date of reference. When used herein at a time when more than one Broker-Dealer is acting under this Indenture, the term “the Broker-Dealer” shall mean, as the context dictates, either all such Broker-Dealers collectively, or only each Broker-Dealer acting with respect to the ARS.

“Broker-Dealer Agreement” means each agreement among the Auction Agent, Borrower and a Broker-Dealer pursuant to which the Broker-Dealer agrees to participate in Auctions as set

8

forth in the Auction Procedures, as from time to time amended or supplemented. Each Broker-Dealer Agreement shall be substantially in the form of the Broker-Dealer Agreement dated as of August 1, 2005 among the Initial Auction Agent, the Borrower and Citigroup Global Markets Inc.

“Business Day” shall mean any day other than a Saturday, Sunday or other day on which the New York Stock Exchange, Inc. or banks are authorized or required to close in New York, New York, or in the cities in which the Principal Offices of the Trustee, the Auction Agent, the Registrar, the Paying Agent, the Tender Agent, if any, and the Remarketing Agent, if any, are located, and in the city or cities in which drawings under a Credit Facility are required to be made.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time. Each reference herein to a section of the Code shall be deemed to include the United States Treasury Regulations adopted under the Code, as the same may be in effect from time to time, unless the context clearly requires otherwise.

“Conversion” shall mean a conversion of the Bonds from one Interest Rate Period to another Interest Rate Period (including the establishment of a new interest period within the Long-Term Interest Rate Period) as provided in Sections 2.01(c)(ii)(B), (iii)(B), (iv)(B), (v)(B) or 3A.11 of this Indenture.

“Conversion Date” shall mean the effective date of a Conversion of the Bonds.

“Credit Facility” shall mean, collectively, the Letter of Credit, if any, and any extensions thereof, and, upon the issuance and delivery of any Alternate Credit Support in accordance with Section 6.08 of the Agreement, “Credit Facility” shall mean such Alternate Credit Support.

“County” shall mean the County of Maricopa, Arizona.

“Daily Interest Rate” shall mean the variable interest rate on any Bond established in accordance with Section 2.01(c)(ii) hereof.

“Daily Interest Rate Period” shall mean each period during which a Daily Interest Rate is in effect.

“Default” shall mean any Event of Default or any event or condition which, with the passage of time or giving of notice or both, would constitute an Event of Default.

“Determination of Taxability” means a determination that, due to the untruth or inaccuracy of any representation or warranty made by the Borrower in the Agreement or the breach of any covenant or warranty of the Borrower contained in the Agreement, interest on the Bonds, or any of them, is determined not to be Tax-Exempt by a final administrative determination of the Internal Revenue Service or a final judicial decision of a court of competent jurisdiction in a proceeding of which the Borrower received notice and in which the Borrower was afforded an opportunity to participate to the full extent permitted by law. A determination or decision will not be considered final for purposes of the preceding sentence unless (A) the Issuer or the holder or Owners of the Bonds involved in the proceeding in which the issue is

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raised (i) shall have given the Borrower and the Trustee prompt written notice of the commencement thereof, and (ii) shall have offered the Borrower the opportunity to control the proceeding; provided the Borrower agrees to pay all expenses in connection therewith and to indemnify such holder or holders against all liability for such expenses (except that any such holder may engage separate counsel, and the Borrower shall not be liable for the fees or expenses of such counsel); and (B) such proceeding shall not be subject to a further right of appeal or shall not have been timely appealed.

“DTC” shall mean The Depository Trust Company, New York, New York.

“Electronic” notice shall mean notice by any form of electronic transmission capable of producing a written record and shall constitute written notice as required herein.

“Event of Default” shall mean any of the events listed in Section 10.01.

“Existing Owner” shall mean, with respect to any Auction, a Person who is the Beneficial Owner of ARS at the close of business on the Business Day immediately preceding such Auction; provided, however, that for purposes of conducting an Auction, the Auction Agent may consider a Broker-Dealer acting on behalf of its customer as an Existing Owner.

“Facilities” or “Project” shall mean the pollution control, solid waste disposal and sewage disposal facilities at the Plant, which are described in Exhibit A to the Agreement, as from time to time revised, changed, amended or modified, and related improvements and any substitutions therefor.

“Favorable Opinion of Bond Counsel” shall mean, with respect to any action relating to the Bonds, the occurrence of which requires such an opinion, a written legal opinion of Bond Counsel addressed to the Issuer, the Bank, the Trustee, the Borrower, the Remarketing Agent or the Broker-Dealers, as applicable, to the effect that the action proposed to be taken (i) is authorized or permitted by the laws of the State of Arizona and federal law and this Indenture, and all conditions precedent, if any, have been satisfied and (ii) will not adversely affect any exclusion from gross income for federal income tax purposes of interest on the Bonds.

“Fitch” shall mean Fitch Ratings, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower by notice to the Issuer and the Trustee.

“Government Obligations” shall mean direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed as to full and timely payment by, the United States of America and which are not subject to prepayment or redemption prior to maturity.

“Hold Order” shall have the meaning provided in Section 1.01(a) of the Auction Procedures.

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“Indenture” shall mean this Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any supplemental indenture entered into pursuant to the provisions hereof.

“Index” shall mean, on any Auction Date with respect to the Bonds in any Auction Period of 35 days or less, the One Month LIBOR Rate on such date and, with respect to ARS in any Auction Period of more than 35 days, the yield on United States Treasury securities on the date the Auction Period began which has a maturity which most closely matches the last day of the Auction Period. If such rate is unavailable, the Index for the Bonds means an index or rate agreed to by all Broker-Dealers. If for any reason on any Auction Date the Index shall not be determined as provided above, the Index shall mean the Index for the Auction Period ending on such Auction Date.

“Initial Auction Agent” shall mean The Bank of New York, its successors and assigns.

“Initial Auction Agent Agreement” shall mean the Auction Agent Agreement dated as of August 1, 2005 among the Trustee, the Borrower and the Initial Auction Agent, relating to the Bonds, including any amendment thereof or supplement thereto.

“Initial Interest Rate Period” shall mean the Interest Rate Period for the Bonds on the date of issuance and delivery of the Bonds as specified in Section 2.01(b) hereof.

“Insurance Agreement” shall mean the Insurance Agreement dated as of August 1, 2005 between the Bond Insurer and the Borrower, as amended or supplemented from time to time.

“Interest Accrual Date” shall mean (i) with respect to any Daily Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Daily Interest Rate Period, (ii) with respect to any Weekly Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Weekly Interest Rate Period, (iii) with respect to any Long-Term Interest Rate Period, the first day thereof and, thereafter, each Interest Payment Date in respect thereof, other than the last such Interest Payment Date, and (iv) with respect to each Bond Interest Term within a Short-Term Interest Rate Period, the first day thereof.

“Interest Payment Date” shall mean (i) with respect to any Daily Interest Rate Period or Weekly Interest Rate Period, the first Business Day of each calendar month, (ii) with respect to any Long-Term Interest Rate Period, each January 1 and July 1 occurring during such Long-Term Interest Rate Period and the Business Day next succeeding the last day thereof, (iii) with respect to any Short-Term Interest Rate Period, the Business Day next succeeding the last day of thereof, (iv) with respect to ARS, each ARS Interest Payment Date, and (v) in all events, the redemption date or the Maturity Date.

“Interest Rate Period” shall mean any Daily Interest Rate Period, Weekly Interest Rate Period, Short-Term Interest Rate Period, Long- Term Interest Rate Period or ARS Interest Rate Period.

“Investment Securities” shall mean any of the following obligations or securities (only to the extent investment therein would not violate the laws of the State of Arizona) on which the

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Borrower (or any affiliate) is not the obligor, maturing at such time or times as to enable disbursements to be made from the Bond Fund in accordance with the terms hereof, or which shall be marketable prior to the maturities thereof:

(i) direct obligations of, or obligations the principal and interest of which are guaranteed as to the full and timely payment by, the United States of America, which obligations, in either case, are not subject to redemption or prepayment at less than par by anyone other than the holder;

(ii) obligations issued or guaranteed by an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America, including obligations of the Federal National Mortgage Association, Federal Intermediate Credit Banks, Banks for Cooperatives, Federal Land Banks or Federal Home Loan Banks;

(iii) commercial paper rated at the time of investment in the highest short-term grade by the Rating Agencies;

(iv) bankers’ acceptances drawn on and accepted by commercial banks (including the Trustee, the Paying Agent, and the Bank) having at least $10,000,000 in capital stock, surplus and undivided profits the unsecured, uninsured obligations of which are rated not less than “Prime - 1” or “Aa2” by Moody’s and “A-1” or “A+” by S&P;

(v) certificates of deposit, deposit accounts and savings accounts fully insured by the Federal Deposit Insurance Corporation;

(vi) repurchase agreements with solvent banking or other financial institutions (including the Trustee, the Paying Agent, and the Bank) rated at the time of investment not less than the then current rating of the Bonds by each of the Rating Agencies;

(vii) obligations of a state, a territory, Puerto Rico, or a possession of the United States of America, or any political subdivision of the foregoing, or of the District of Columbia and which are rated at the time of investment not less than the then current rating of the Bonds by each of the Rating Agencies;

(viii) money market funds registered under the federal Investment Company Act of 1940, whose shares are registered under the federal Securities Act of 1933, and having a rating by S&P of “AAAm-G”, “AAAm” or “Aam”, and by Moody’s of “Aaa” or “Aa”, including funds for which the Trustee (or any affiliate of the Trustee) provides investment advice or other services;

(ix) custodial agreements providing for the investment of moneys through a custodian, reverse purchase agreements, option agreements and agreements to lend securities; and

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(x) any other obligations and securities not prohibited by law and which are rated at least “Aaa” or “Aa” by Moody’s and “AAA” or “AA” by S&P.

“Issue Date” shall mean August 1, 2005, the date of issuance and delivery of the Bonds to the Underwriters against payment therefor.

“Issuer” shall mean Maricopa County, Arizona Pollution Control Corporation, an Arizona nonprofit corporation designated as a political subdivision existing under the laws of the State of Arizona, incorporated for and with the approval of the County, pursuant to the provisions of the Constitution of the State of Arizona and the Act, and its successors and assigns.

“Letter of Credit” shall mean the irrevocable direct pay letter of credit, if any, issued by the Bank and delivered to the Trustee in accordance with Section 6.08 of the Agreement and any extension thereof.

“Long-Term Interest Rate” shall mean with respect to each Bond, a fixed, non-variable interest rate on such Bond established in accordance with Section 2.01(c)(iv) hereof.

“Long-Term Interest Rate Period” shall mean each period during which a Long-Term Interest Rate is in effect.

“Maturity Date” shall mean July 1, 2040.

“Maximum Bond Interest Rate” shall mean (a) with respect to Bonds other than ARS the lesser of 12% per annum and the Maximum Lawful Rate and (b) with respect to ARS, the lesser of 15% per annum and the Maximum Lawful Rate, in each case calculated in the same manner as interest is calculated for the particular interest rate on the Bonds.

“Maximum Lawful Rate” shall mean the maximum rate of interest on the relevant obligation permitted by applicable law.

“Moody’s” shall mean Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent, the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“Nominee” shall have the meaning specified in Section 2.01(e) hereof.

“Non-Payment Rate” shall mean, on any date of determination, 15% per annum; provided, that in no event shall the Non-Payment Rate be more than the Maximum Lawful Rate.

“Notice of ARS Payment Default” shall mean a notice substantially in the form of Exhibit A to the Auction Agent Agreement.

“Notice of Cure of ARS Payment Default” shall mean a notice substantially in the form of Exhibit B to the Auction Agent Agreement.

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“Official Statement” shall mean the Official Statement relating to the Bonds, including all appendices thereto.

“One Month LIBOR Rate” shall mean, as of any date of determination, the offered rate (rounded up to the next highest 0.001%) for deposits in U.S. dollars for a one-month period which appears on the Telerate Page 3750 at approximately 11:00 a.m., London time, on such date, or if such date is not a date on which dealings in U.S. dollars are transacted in the London interbank market, then on the next preceding day on which such dealings were transacted in such market.

“Order” shall have the meaning provided in Section 1.01(a) of the Auction Procedures.

“Outstanding” when used in reference to the Bonds, shall mean, as at any particular date, the aggregate of all Bonds authenticated and delivered in accordance with this Indenture except:

i. those cancelled at or prior to such date or delivered to or held by the Trustee at or prior to such date for cancellation;

ii. those deemed to be paid in accordance with Article IX hereof;

iii. those in lieu of or in exchange, replacement or substitution for which other Bonds shall have been authenticated and delivered in accordance with this Indenture, unless proof satisfactory to the Trustee and the Borrower is presented that such Bond is held by a bona fide holder in due course; and

iv. Bonds deemed purchased pursuant to Section 4.10 hereof.

“Owner” shall mean the person or entity in whose name any Bond is registered upon the registration books maintained pursuant to Section 2.04 hereof.

“Participant” shall mean, with respect to DTC or another Securities Depository, a member of or participant in DTC or such other Securities Depository, respectively.

“Paying Agent” shall mean the initial and any successor paying agent or agents appointed in or in accordance with Section 11.21 hereof. “Principal Office” of the Paying Agent shall mean the Principal Office of the Trustee (if the Trustee is the Paying Agent) or such other office of the Paying Agent designated in writing to the Issuer, the Trustee, the Auction Agent, the Broker-Dealers, the Bank, the Tender Agent and the Remarketing Agent, as applicable.

“Payment Date” shall mean each Interest Payment Date or any other date on which any principal of, premium, if any, or interest on any Bond is due and payable for any reason, including without limitation upon any redemption of Bonds pursuant to Section 4.01.

“Person” shall mean a corporation, association, partnership, limited liability company, joint venture, trust, organization, business, individual or government or any governmental agency or political subdivision thereof.

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“Plant” shall mean Units 1, 2 and 3 of the Palo Verde Nuclear Generating Station, a nuclear power generating plant located in Maricopa County, Arizona, at which the Project is located.

“Potential Owner” shall mean, with respect to any Auction, any Person, including any Existing Owner, who may be interested in acquiring a beneficial interest in ARS subject to such Auction in addition to the ARS, if any, currently owned by such Person.

“Prior Bonds” shall have the meaning set forth in the 5th Whereas clause of this Indenture.

“Purchase Fund” shall mean the fund created by Section 14.01 hereof.

“Rating Agencies” shall mean S&P, Moody’s or Fitch.

“Receipts and Revenues” shall mean (a) the Repayment Installments including all moneys drawn by the Trustee under a Credit Facility in satisfaction of the Borrower’s obligations to make Repayment Installments (b) all other moneys received by the Trustee (for the account of the Issuer) pursuant to the Agreement, (c) all moneys and investments in the Bond Fund and (d) all income and profit from the investment of the foregoing moneys. The term “Receipts and Revenues” does not include any moneys or investments in the Purchase Fund or amounts required to be paid to the Issuer pursuant to Sections 5.04, 5.08, 8.03 and 8.05 of the Agreement.

“Record Date” shall mean (a) with respect to any Interest Payment Date in respect of any Daily Interest Rate Period, the last Business Day of each calendar month or, in the case of the last Interest Payment Date in respect of a Daily Interest Rate Period, the Business Day immediately preceding such Interest Payment Date, (b) with respect to any Interest Payment Date in respect of any Weekly Interest Rate Period or any Bond Interest Term within a Short-Term Interest Rate Period, the Business Day immediately preceding such Interest Payment Date, (c) with respect to any Interest Payment Date in respect of any Long-Term Interest Rate Period, the fifteenth day of the month immediately preceding such Interest Payment Date or, in the event that an Interest Payment Date shall occur within 16 days after the first day of a Long-Term Interest Rate Period, such first day, and (d) with respect to ARS, the second Business Day next preceding each ARS Interest Payment Date.

“Registrar” shall mean the registrar or registrars appointed in or in accordance with Section 11.23 hereof. “Principal Office” of the Registrar shall mean the Principal Office of the Trustee (if the Trustee is the Registrar) or such other office of the Registrar designated in writing to the Issuer, the Trustee, the Tender Agent and the Remarketing Agent.

“Reimbursement Agreement” shall mean the Reimbursement Agreement, between the Borrower and the Bank issued in connection with the Letter of Credit and delivered to the Trustee in connection with Section 6.08 of the Agreement and any extension thereof.

“Remarketing Agent” shall mean Citigroup Global Markets Inc. and any successor remarketing agent appointed in accordance with Section 14.01 hereof. “Principal Office” of the Remarketing Agent shall mean Citigroup Global Markets Inc., 390 Greenwich Street, 5^th Floor, New York, New York 10013, Attention: Kevin Stowe, or such other office thereof designated in writing to the Issuer, the Trustee, the Bank and the Tender Agent.

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“Remarketing Agreement” shall mean the Remarketing Agreement, executed and delivered at or prior to the initial issuance of the Bonds, between the Borrower and the Remarketing Agent, relating to the Bonds other than ARS, as supplemented or amended in accordance with the provisions thereof.

“Repayment Installment” shall mean any amount that the Borrower is required to pay to the Trustee pursuant to Section 5.02(a) of the Agreement as a repayment of the loan made by the Issuer under the Agreement.

“Representation Letter” shall have the meaning set forth in Section 2.01(e) hereof.

“S&P” shall mean Standard & Poor’s Ratings Group (a division of The McGraw-Hill Companies, Inc.), a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“Securities Act” shall mean the Securities Act of 1933, as amended, and any successor thereto.

“Securities Depository” shall mean DTC or, if applicable, any successor securities depository appointed pursuant to this Indenture.

“Securities Exchange Act” shall mean the Securities and Exchange Act of 1934, as amended, and any successor thereto.

“Sell Order” shall have the meaning provided in Section 1.01(a) of the Auction Procedures.

“Short-Term Interest Rate Period” shall mean, with respect to each Bond bearing interest at a BIT Rate, the period established in accordance with Section 2.01(c)(v) hereof.

“Special Auction Period” shall mean, with respect to ARS, (a) any period of less than 183 days which is not another Auction Period and which is divisible by seven and which begins on an Interest Payment Date and ends (i) in the case of ARS with Auctions generally conducted on Fridays, on a Sunday unless such Sunday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day, (ii) in the case of ARS with Auctions generally conducted on Mondays, on a Monday unless such Monday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day, (iii) in the case of ARS with Auctions generally conducted on Tuesdays, on a Tuesday unless such Tuesday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day, (iv) in the case of ARS with Auctions generally conducted on Wednesdays, on a Wednesday unless such Wednesday is not followed by a Business Day, in

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which case on the next succeeding day which is followed by a Business Day, and (v) in the case of ARS with Auctions generally conducted on Thursdays, on a Thursday unless such Thursday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day or (b) any period which is 183 days or longer which begins on an Interest Payment Date and ends not later than the day prior to the final scheduled maturity date of ARS.

“Special Record Date” shall mean, (a) with respect to any Bond other than ARS, the date established by the Trustee in connection with the payment of overdue interest on that Bond pursuant to Section 2.01(b) hereof and (b) with respect to ARS, a special date fixed to determine the names and addresses of holders of ARS for purposes of paying interest on a special interest payment date for the payment of defaulted interest, all as further provided in Section 3A.01(f)(ii) hereof.

“State” shall mean the State of Arizona.

“Submission Processing Deadline” shall mean the earlier of (i) 40 minutes after the Submission Deadline and (ii) the time when the Auction Agent begins to disseminate the results of the Auction to the Broker-Dealers.

“Submission Processing Representation” shall mean the written representation in the form attached to the Broker-Dealer Agreement as Exhibit D to be used in the event that Broker-Dealers submit an Order after the Submission Deadline and prior to the Submission Processing Deadline and the Order was (i) received by the Broker-Dealer from Existing Owners or Potential Owners prior to the Submission Deadline or (ii) initiated internally by the Broker-Dealer for its own account prior to the Submission Deadline. Each Order submitted to the Auction Agent after the Submission Deadline and prior to the Submission Processing Deadline shall constitute a representation by the Broker-Dealer that such Order was (i) received from an Existing Owner or Potential Owner prior to the Submission Deadline or (ii) initiated internally by the Broker-Dealer for its own account prior to the Submission Deadline (the “Submission Processing Representation”).

“Submitted Hold Order” shall have the meaning provided in Section 1.03(b) of the Auction Procedures.

“Substitute Auction Agent” shall mean the Person with whom the Trustee at the direction of the Borrower enters into a Substitute Auction Agent Agreement.

“Substitute Auction Agent Agreement” shall mean an auction agent agreement containing terms substantially similar to the terms of the Initial Auction Agent Agreement whereby a Person having the qualifications required by Section 3A.06 of this Indenture agrees with the Trustee at the direction of the Borrower to perform the duties of the Auction Agent herein with respect to the Bonds.

“Sufficient Clearing Bids” shall have the meaning provided in Section 1.03(b) of the Auction Procedures.

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“Supplemental Indenture” shall mean any supplemental indenture hereafter duly authorized and entered into between the Issuer and the Trustee in accordance with the provisions of this Indenture.

“Tax Certificate” shall mean the “Tax Certificate”, executed by the Issuer in connection with the issuance of the Bonds.

“Tax-Exempt” shall mean, with respect to interest on any obligations of a state or local government, including the Bonds, that such interest is excluded from the gross income of the holders thereof (other than any holder who is a “substantial user” of facilities financed with such obligations or a “related person” within the meaning of Section 147(a) of the Code) for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax or environmental tax under the Code.

“Tender Agent” shall mean Citigroup Global Markets Inc. and any successor tender agent appointed in accordance with Section 14.01 hereof. “Principal Office” of the Tender Agent shall mean the Principal Office of the Remarketing Agent (if the Remarketing Agent is the Tender Agent), or such other office thereof designated in writing to the Issuer, the Trustee and the Remarketing Agent.

“Tender Agreement” shall mean the Tender Agreement, if any, executed and delivered at or prior to the initial issuance of the Bonds, between the Borrower and the Tender Agent, relating to the Bonds other than ARS, as supplemented or amended in accordance with the provisions thereof.

“Trustee” shall mean Union Bank of California, N.A., as trustee under this Indenture, and its successor or successors hereunder. “Principal Office” of the Trustee shall mean a principal office of the Trustee at which at any particular time its corporate trust business shall be administered in California, which office at the date of the execution of this Indenture, is 120 South San Pedro Street, 4th Floor, Los Angeles, CA 90012, Corporate Trust Department; except that with respect to the presentation of Bonds for payment or for registration of transfer, exchange or tender, such term shall mean the office or agency of the Trustee at Union Bank of California, N.A., Corporate Trust Department, 120 South San Pedro Street, 4th Floor, Los Angeles, CA 90012, Attn: Bond Redemption.

“Trust Estate” shall mean at any particular time all right, title and interest of the Issuer in and to the Agreement (except its rights under Sections 5.04, 5.08 and 8.05 thereof and any rights of the Issuer to receive notices, certificates, requests, requisitions, directions and other communications thereunder), including without limitation the Receipts and Revenues, all moneys and obligations which at such time are deposited or are required to be deposited with, or are held or are required to be held by or on behalf of, the Trustee or any Paying Agent in trust under any of the provisions of this Indenture and all other rights, titles and interests which at such time are subject to the lien of this Indenture, except for moneys or obligations deposited with or paid to the Trustee or any Paying Agent for the redemption or payment of Bonds which are deemed to have been paid in accordance with Article IX hereof and funds held pursuant to Section 5.06 hereof.

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“Trust Indenture Act” shall mean the Trust Indenture Act of 1939, as amended, and any successor thereto.

“Underwriters” means Citigroup Global Markets Inc., BNY Capital Markets, Inc. and J.P. Morgan Securities Inc.

“Weekly Interest Rate” shall mean a variable interest rate on the Bonds established in accordance with Section 2.01(c)(iii) hereof.

“Weekly Interest Rate Period” shall mean each period during which a Weekly Interest Rate is in effect.

“Winning Bid Rate” shall have the meaning provided in Section 1.03(b) of the Auction Procedures.

Section 1.02 Number and Gender. The singular form of any word used herein, including the terms defined in Section 1.01, shall include the plural, and vice versa. The use herein of a word of any gender shall include all genders.

Section 1.03 Articles, Sections, Etc. All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture as originally executed; and the words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. The headings or titles of the several Articles and Sections hereof, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of this Indenture.

Section 1.04 Content of Certificates and Opinions. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture or the Agreement (except for the certificate of cancelled Bonds provided for in Sections 2.05, 2.06 and 4.05 hereof) shall include (a) a statement that the person or persons making or giving such certificate or opinion have read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of the signers, they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of the signers, such condition or covenant has been complied with.

Any such certificate or opinion made or given by an officer of the Issuer or the Borrower may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his or her certificate or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should have known that the same were erroneous. Any such certificate or opinion made or given by counsel may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the Issuer or the Borrower), upon the certificate or opinion of or representations by an officer of the Issuer or the Borrower, as applicable, unless such counsel knows that the

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certificate or opinion or representations with respect to the matters upon which his or her opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should have known that the same were erroneous.

Section 1.05 Findings. It is hereby found and determined by the Issuer that:

(a) The Borrower is a corporation which is conducting operations in the County and is qualified under the Act to borrow the proceeds of the sale of the Bonds from the Issuer to redeem and repay the outstanding principal amount of the Prior Bonds for purposes of the Act;

(b) The Project promotes the purposes of the Act by preventing or limiting air, water and other forms of pollution for the purpose of protecting the health and welfare of the citizens of the State of Arizona, and facilitates compliance by the Borrower with existing and possible future air, water and other quality standards designed to improve the environment in the State of Arizona;

(c) The loan pursuant to the Agreement is in furtherance of the purposes of the Issuer;

(d) It is advisable that the Bonds be subject to redemption as provided in this Indenture;

(e) The manner in which the Bonds are sold is most advantageous and it is necessary and advantageous that the expenses, premiums and commissions, if any, in connection with the issuance of the Bonds be paid by the Borrower; and

(f) It is advisable that this Indenture contain the provisions set forth herein.

ARTICLE II

THE BONDS

Section 2.01 Authorization and Terms of Bonds.

(a) Authorization.

Bonds designated as “Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company Palo Verde Project)” may be issued under this Indenture. The aggregate principal amount of Bonds which may be issued and Outstanding under this Indenture shall not exceed Sixty-Three Million Five Hundred Thousand Dollars ($63,500,000). No Bonds may be issued hereunder except in accordance with this Article.

(b) General Terms. The Bonds shall be issued as fully registered Bonds, without coupons, in Authorized Denominations and shall be dated as of the Issue Date. The Bonds shall mature, subject to prior redemption as provided in Article IV, upon the terms and conditions hereinafter set forth, on the Maturity Date. The initial interest rate

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on the Bonds will be the rate the Underwriters determine is necessary to sell the Bonds at par. The Bonds shall initially be issued as ARS. While the Bonds are ARS and except as otherwise specifically provided herein, the provisions of Article IIIA shall govern the interest rates per annum and the payment terms of the Bonds. The provisions of this Section 2.01 shall govern the interest rates per annum and payment terms of Bonds other than ARS.

The Bonds shall be numbered from R-1 consecutively upwards in order of authentication. Each Bond shall bear interest from the last date to which interest has been paid in full or, if no interest has been paid in full or duly provided on such Bond, from the Issue Date. All Bonds shall mature on the date set forth above and shall bear interest at the rates determined from time to time in accordance with the provisions of this Indenture. Payment of the interest on any Bond shall be made to the person appearing on the bond registration books of the Registrar as the registered holder thereof as of the close of business on the Record Date, such interest to be paid by the Paying Agent to such registered holder (i) in the event such Bond is a Book-Entry Bond, in immediately available funds on the Interest Payment Date in accordance with the Representation Letter, and (ii) in the event such Bond is not a Book-Entry Bond (A) in immediately available funds (by wire transfer or by deposit to the account of the holder of at least $1,000,000 of Bonds if such account is maintained with the Paying Agent), according to the written instructions given by such holder to the Registrar prior to the Record Date or (B) in all other cases, by check mailed by first class mail to the holder at such holder’s address as it appears as of the Record Date on the registration books of the Registrar; except, in each case, that, if and to the extent that there shall be a default in the payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid to the holders in whose name any such Bonds are registered as of a Special Record Date to be fixed by the Trustee, notice of which shall be given to such holders not less than ten (10) days prior thereto. Both the principal of and premium, if any, on the Bonds shall be payable upon surrender thereof in lawful money of the United States of America at the Principal Office of the Paying Agent. Notwithstanding the foregoing, interest on any Bond bearing a Bond Interest Term Rate (except any such Bond which is a Book-Entry Bond) shall be paid only upon presentation to the Tender Agent of the Bond on which such payment is due. The Bonds shall be dated as of the Issue Date. The Bonds shall be substantially in the form attached hereto as Exhibit A.

If and to the extent, however, that the Issuer fails to make payment or provision for payment of interest on any Bond on any Interest Payment Date, that interest shall cease to be payable to the Owner of that Bond on the applicable Record Date. When moneys become available for payment of the interest, (a) the Trustee shall, pursuant to Section 10.10 hereof, establish a Special Record Date for the payment of that interest which shall be not more than 15 nor fewer than 10 days prior to the date of the proposed payment, and (b) the Trustee shall give notice by first-class mail of the proposed payment and of the Special Record Date to each owner not fewer than 10 days prior to the Special Record Date and, thereafter, the interest shall be payable to the owners of the Bonds as of the Special Record Date at the close of business on the Special Record Date.

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(c) Interest Rates and Rate Periods.

The Bonds shall bear interest until final payment of the principal or redemption price thereof shall have been made in accordance with the provisions hereof, whether at the Maturity Date, upon redemption or otherwise. During Daily Interest Rate Periods, interest on the Bonds shall be computed on the basis of a 365- or 366-day year for the number of days actually elapsed during Daily Interest Rate Periods. During Short-Term Interest Rate Periods or Weekly Interest Rate Periods, interest on the Bonds shall be computed on the basis of a 365- or 366-day year for the number of days actually elapsed based on the calendar year in which the Short-Term Interest Rate Period or Weekly Interest Rate Period commences. During any Long-Term Interest Rate Period, interest on the Bonds shall be computed upon the basis of a 360-day year, consisting of twelve 30-day months.

(i) Rate Periods.

The Bonds shall initially bear interest as set forth in Section 2.01(b), and shall remain in such Interest Rate Period until adjusted to a different Interest Rate Period as provided herein. After any such adjustment, the term of the Bonds shall be divided into consecutive Interest Rate Periods during which the Bonds may bear interest at the Daily Interest Rate , Weekly Interest Rate, Bond Interest Term Rate or Long-Term Interest Rate. Any Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period established with respect to the Bonds shall continue in effect unless and until adjusted to a different Interest Rate Period as provided herein.

(ii) Daily Interest Rate.

(A) Determination of Daily Interest Rate . During each Daily Interest Rate Period, the Bonds shall bear interest at the Daily Interest Rate , determined by the Remarketing Agent on or before each Business Day for such Business Day. The Daily Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of the Daily Interest Rate determined by 10:30 a.m. (New York City time) on the date of determination. If the Remarketing Agent shall not have determined a Daily Interest Rate for any day by 10:30 a.m. (New York City time) on such day, the Daily Interest Rate shall be the same as the Daily Interest Rate for the immediately preceding day. In no event shall the Daily Interest Rate be greater than the Maximum Bond Interest Rate.

(B) Adjustment to a Daily Interest Rate Period. At any time, the Borrower, by written notice to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear interest at a Daily

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Interest Rate. Such notice (1) shall specify the effective date of such adjustment to a Daily Interest Rate, which shall be (a) a Business Day not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee); (b) in the case of an adjustment from a Long-Term Interest Rate Period, a day on which the Bonds would be permitted to be redeemed at the option of the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Weekly Interest Rate Period or a Short-Term Interest Rate Period, an Interest Payment Date on which interest is payable for the Weekly Interest Rate Period or Bond Interest Term from which the adjustment is to be made; provided, however, that if prior to the Borrower’s making such election, any Bonds shall have been called for redemption and such redemption shall not have theretofore been effected, the effective date of such Daily Interest Rate Period shall not precede such redemption date; and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of the interest on the Bonds.

(C) Notice of Adjustment to a Daily Interest Rate Period. The Trustee shall give notice by first class mail of an adjustment to a Daily Interest Rate Period to the Owners of the Bonds not less than 15 days (30 days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Daily Interest Rate Period. Such notice shall state (1) that the interest rate on the Bonds will be adjusted to a Daily Interest Rate (subject to the Borrower’s ability to rescind its election as described in Section 2.01(c)(viii) hereof), (2) the effective date of the Daily Interest Rate Period, (3) that the Bonds are subject to mandatory tender for purchase on such effective date (except in the case of adjustment between Daily Interest Rate Periods and Weekly Interest Rate Periods), (4) the procedures for such mandatory tender, and (5) the purchase price of the Bonds on such effective date (expressed as a percentage of the principal amount thereof).

(iii) Weekly Interest Rate.

(A) Determination of Weekly Interest Rate. During each Weekly Interest Rate Period, the Bonds shall bear interest at the Weekly Interest Rate, which shall be determined by the Remarketing Agent no later than the first day of such Weekly Interest Rate Period and thereafter no later than 10:00 a.m. (New York City time) on Wednesday of each week during such Weekly Interest Rate Period, unless any such Wednesday shall not be a Business Day, in which event the Weekly Interest Rate shall be determined by the Remarketing Agent no later than the Business Day immediately preceding such Wednesday. The Weekly Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. If for any reason, a Weekly Interest Rate is not so

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established for any period by the time specified above by the Remarketing Agent, the Weekly Interest Rate shall be the same as the Weekly Interest Rate in effect for the immediately preceding week. In no event shall any Weekly Interest Rate exceed the Maximum Bond Interest Rate. The first Weekly Interest Rate determined for each Weekly Interest Rate Period shall apply to the period commencing on the first day of such Weekly Interest Rate Period and ending on the next succeeding Tuesday. Thereafter, each Weekly Interest Rate shall apply to the period commencing on each Wednesday and ending on the next succeeding Tuesday, unless such Weekly Interest Rate Period shall end on a day other than Tuesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period shall apply to the period commencing on the Wednesday preceding the last day of such Weekly Interest Rate Period and ending on such last day. The Remarketing Agent shall provide the Trustee and the Borrower with written, telephonic or Electronic notice of each Weekly Interest Rate, as determined, by 12:00 noon (New York City time) on the effective date of such Weekly Interest Rate.

(B) Adjustment to Weekly Interest Rate. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear interest at a Weekly Interest Rate. Such direction (1) shall specify the effective date of such adjustment to a Weekly Interest Rate, which shall be (a) a Business Day not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee); (b) in the case of an adjustment from a Long-Term Interest Rate Period, a day on which the Bonds would otherwise be permitted to be redeemed at the option of the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Daily Interest Rate Period or Short-Term Interest Rate Period, an Interest Payment Date on which interest is payable for the Daily Interest Rate Period or Bond Interest Term from which the adjustment is to be made; provided, however, that if prior to the Borrower’s making such election, any Bonds shall have been called for redemption and such redemption shall not have theretofore been effected, the effective date of such Weekly Interest Rate Period shall not precede such redemption date; and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(C) Notice of Adjustment to a Weekly Interest Rate Period. The Trustee shall give notice by first class mail of an adjustment to a Weekly Interest Rate Period to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Weekly Interest Rate Period. Such notice shall state (1) that the Interest Rate on the Bonds will be adjusted to a Weekly Interest Rate (subject to the Borrower’s ability to rescind its election as provided in Section 2.01(c)(viii) hereof), (2) the effective date of the Weekly Interest Rate

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Period, (3) that the Bonds are subject to mandatory tender for purchase on such effective date (except in the case of adjustments between Daily Interest Rate Periods and Weekly Interest Rate Periods), (4) the procedures for such mandatory tender, and (5) the purchase price of such Bonds on such effective date (expressed as a percentage of the principal amount thereof).

(iv) Long-Term Interest Rate.

(A) Determination of Long-Term Interest Rate. During each Long-Term Interest Rate Period, the Bonds shall bear interest at the Long-Term Interest Rate, which shall be determined by the Remarketing Agent on a Business Day selected by the Remarketing Agent, but not more than forty (40) days prior to and not later than the effective date of such Long-Term Interest Rate Period. The Long-Term Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent on such date, and communicated by the close of business on such date to the Trustee, the Paying Agent and the Borrower, by written, telephonic or Electronic notice, as being the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such Long-Term Interest Rate Period at a price (without regard to accrued interest) equal to 100% of the principal amount thereof; provided, however, that if, for any reason, a Long-Term Interest Rate for any Long-Term Interest Rate Period shall not be determined or effective or if an adjustment from a Long-Term Interest Rate Period to another Interest Rate Period shall not be effective, the Interest Rate Period for the Bonds shall automatically convert to a Daily Interest Rate Period; provided, further, however, that if the Favorable Opinion of Bond Counsel required by Section 2.01(c)(ii)(B) in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) hereof, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Index. In no event shall any Long-Term Interest Rate be greater than the Maximum Bond Interest Rate.

(B) Adjustment to or Continuation of a Long-Term Interest Rate Period. At any time, the Borrower, by written notice to the Issuer, the Bank, the Trustee, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear, or continue to bear, interest at a Long-Term Interest Rate, and if it shall so elect, shall determine the duration of the Long-Term Interest Rate Period during which the Bonds shall bear interest at such Long-Term Interest Rate. Each Long-Term Interest Rate Period shall have a duration such that the last day of such Long-Term Interest Rate Period is (1) a day which both immediately precedes a Business Day and is at least one year after the effective date of such Long-Term Interest Rate Period or (2) if earlier, the day immediately preceding the Maturity Date. At the time the Borrower so elects an adjustment to or continuation of a Long-Term Interest Rate Period, the Borrower may specify two

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or more consecutive Long-Term Interest Rate Periods and, if the Borrower so specifies, shall specify the duration of each such Long-Term Interest Rate Period as provided in this paragraph. Such notice shall specify the effective date of each Long-Term Interest Rate Period, which shall be (a) a Business Day not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee); (b) in the case of an adjustment from or continuation of a Long-Term Interest Rate Period, a day on which the Bonds would be permitted to be redeemed by the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Daily, Weekly or Short-Term Interest Rate Period, an Interest Payment Date on which interest is payable for the Daily or Weekly Interest Rate Period or Bond Interest Term from which the adjustment is to be made; provided, however, that if prior to the Borrower’s making such election, any Bonds shall have been called for redemption and such redemption shall not have theretofore been effected, the effective date of such Long-Term Interest Rate Period shall not precede such redemption date. In addition, such notice (i) shall specify the last day of such Long-Term Interest Rate Period, and (ii) if the adjustment is from a Daily, Weekly or Short-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

If, by the thirty-fifth day prior to the last day of any Long-Term Interest Rate Period, the Trustee shall not have received notice of the Borrower’s election that, during the next succeeding Interest Rate Period, the Bonds shall bear interest at a Daily Interest Rate, a Weekly Interest Rate, a Long-Term Interest Rate or a Bond Interest Term Rate accompanied by appropriate opinions of Bond Counsel, if required by Section 2.01(c)(ii)(B), (iii)(B), (iv)(B) or (v)(B) hereof, the next succeeding Interest Rate Period for the Bonds shall be a Daily Interest Rate Period; provided, however, that if the opinion of Bond Counsel required by Section 2.01(c)(ii)(B) in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) hereof, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Index.

At the same time that the Borrower elects to have the Bonds bear interest at a Long-Term Interest Rate or continue to bear interest at a Long-Term Interest Rate, the Borrower may also specify to the Trustee optional redemption prices and periods different from (including that there be no such optional redemption) those set out in Section 4.01(a)(ii)(C) during the Long-Term Interest Rate Period(s) with respect to which such election is made; provided, however, that such notice shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such changes (i) are authorized or permitted by the Act and this Indenture, and (ii) will not adversely affect the Tax-Exempt status of interest on the Bonds.

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(C) Notice of Adjustment to or Continuation of a Long-Term Interest Rate Period. The Trustee shall give notice by first class mail of an adjustment to or continuation of a Long-Term Interest Rate Period to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Long-Term Interest Rate Period. Such notice shall state (1) that the interest rate on the Bonds will be adjusted to, or continue to be, a Long-Term Interest Rate (subject to the Borrower’s ability to rescind its election as provided in Section 2.01(c)(viii) hereof), (2) the effective date of such Long-Term Interest Rate Period, (3) that the Bonds shall be subject to mandatory tender for purchase on such effective date, (4) the procedures for such mandatory tender, and (5) the purchase price of the Bonds on such effective date (expressed as a percentage of the principal amount thereof).

(v) Bond Interest Term Rate.

(A) Determination of Bond Interest Terms and Bond Interest Term Rates. During each Short-Term Interest Rate Period, each Bond shall bear interest during each Bond Interest Term for such Bond at the Bond Interest Term Rate for such Bond. Each Bond Interest Term for any Bond shall be a period of at least one day but not more than the lesser of (x) 270 days or (y) the number of days of interest coverage on the Bonds provided for in any Credit Facility then in effect minus five (5) days. When a Credit Facility, if any, other than any initial Letter of Credit is in effect with respect to the Bonds or no Credit Facility is in effect with respect to the Bonds, each Bond Interest Term for any Bond shall be a period of at least one day but not more than 270 days. Each Bond Interest Term for any Bond shall be a period determined by the Remarketing Agent to be, in its judgment, the period which, taking into account prevailing market conditions and all other Bond Interest Terms and Bond Interest Term Rates for all Bonds then Outstanding, is likely to result in the lowest overall net interest expense on all such Bonds; provided, however, that any such Bond purchased on behalf of the Borrower and remaining unsold in the hands of the Remarketing Agent as of 1:00 p.m. (New York City time) on the effective date of the Bond Interest Term for such Bond shall have a Bond Interest Term of one day or, if such Bond Interest Term would not end on a day immediately preceding a Business Day, a Bond Interest Term of more than one day ending on the day immediately preceding the next Business Day; provided, further, however, that (1) each Bond Interest Term shall end on a day which immediately precedes a Business Day and no Bond Interest Term shall extend beyond the day immediately preceding the Maturity Date or, if a Credit Facility, if any, is then in effect with respect to the Bonds, the scheduled expiration date of such Credit Facility, and (2) if for any reason the Remarketing Agent fails or is unable to determine a Bond Interest Term on any Bond, the Bond Interest Term for such Bond shall be one day, unless such Bond Interest Term would end on a day which does not precede a Business Day, in which case such Bond Interest Term shall end on the day immediately preceding the next succeeding Business Day.

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The Bond Interest Term Rate for each Bond Interest Term for each Bond shall be the rate of interest per annum determined by the Remarketing Agent no later than 1:00 p.m. (New York City time) on the first day of such Bond Interest Term to be the lowest interest rate which would enable the Remarketing Agent to sell such Bonds on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of each Bond Interest Term Rate and Bond Interest Term by 1:00 p.m. (New York City time) on the date of determination. If a Bond Interest Term Rate for a Bond Interest Term of one day is not determined or effective by 1:00 p.m. (New York City time) on such day, the Bond Interest Term Rate for such Bond Interest Term of one day shall be equal to the BMA Index. In no event shall any Bond Interest Term Rate exceed the Maximum Bond Interest Rate.

Notwithstanding the foregoing, in the event that notice of redemption with respect to any Bond in a Short-Term Interest Rate Period shall have been given to the holder of such Bond by the Trustee pursuant to Section 4.03 hereof, no subsequent Bond Interest Terms or Bond Interest Term Rates shall be determined with respect to such Bond.

(B) Adjustment to or Continuation of Bond Interest Term Rates. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, if any, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear interest at Bond Interest Term Rates. Such direction (1) shall specify the effective date of the Short-Term Interest Rate Period during which the Bonds shall bear interest at Bond Interest Term Rates, which shall be (a) a Business Day not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee), (b) in the case of an adjustment from a Long-Term Interest Rate Period, a day on which the Bonds would be permitted to be redeemed at the option of the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Daily or Weekly Interest Rate Period, an Interest Payment Date on which interest is payable for the Daily or Weekly Interest Rate Period from which the adjustment is to be made; provided, however, that if prior to the Borrower’s making such election any Bonds shall have been called for redemption and such redemption shall not have theretofore been effected, the effective date of such Short-Term Interest Rate Period shall not precede such redemption date; and (2) shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(C) Notice of Adjustment to a Bond Interest Term. The Trustee shall give notice by first class mail of an adjustment to a Short-Term Interest Rate Period to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days

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if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Short-Term Interest Rate Period. Such notice shall state (1) that the interest rate on the Bonds will be adjusted to Bond Interest Term Rates (subject to the Borrower’s ability to rescind its election as provided in Section 2.01(c)(viii) hereof), (2) the effective date of the Short-Term Interest Rate Period, (3) that the Bonds are subject to mandatory tender for purchase on the effective date of such Short-Term Interest Rate Period, (4) the procedures for such mandatory tender, and (5) the purchase price of the Bonds on such effective date (expressed as a percentage of the principal amount thereof).

(D) Adjustment from a Short-Term Interest Rate Period. At any time during a Short-Term Interest Rate Period, the Borrower may elect that the Bonds shall no longer bear interest at Bond Interest Term Rates and shall instead bear interest as otherwise permitted under this Indenture. The Borrower shall give written notice to the Issuer, the Trustee, the Paying Agent and the Remarketing Agent, if any, of such election and shall specify the Interest Rate Period to follow with respect to such Bonds upon cessation of the Short-Term Interest Rate Period and instruct the Remarketing Agent to (1) determine Bond Interest Terms of such duration that, as soon as possible, all Bond Interest Terms shall end on the same date, not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice, and upon the establishment of such Bond Interest Term the day next succeeding the last day of all such Bond Interest Terms shall be the effective date of the Interest Rate Period elected by the Borrower; or (2) determine Bond Interest Terms that will best promote an orderly transition to the next succeeding Interest Rate Period to apply to the Bonds, beginning not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice. If the alternative in clause (2) above is selected (and if the Trustee requests, a Favorable Opinion of Bond Counsel is received), the day next succeeding the last day of the Bond Interest Term for each Bond shall be with respect to such Bond the effective date of the Interest Rate Period elected by the Borrower. The Remarketing Agent, promptly upon the determination thereof, shall give written notice of such last day and such effective dates to the Borrower, the Trustee and the Tender Agent. During any transitional period from a Short-Term Interest Rate Period to the next succeeding Interest Rate Period in accordance with clause (2) above, the provisions of this Indenture shall be deemed to apply to the Bonds as follows: the Bonds continuing to bear interest at Bond Interest Term Rates shall have applicable to them the provisions hereunder theretofore applicable to such Bonds as if all Bonds were continuing to bear interest at Bond Interest Term Rates and the Bonds bearing interest in the Interest Rate Period to which the transition is being made will have applicable to them the provisions hereunder as if all Bonds were bearing interest in such Interest Rate Period.

(vi) Terms of Credit Facility, If Any. If a Credit Facility in the form of a letter of credit is to be held by the Trustee after the effective date of any adjustment from one Interest Rate Period to another Interest Rate Period, such

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Credit Facility, if any, shall be in an amount sufficient to provide payment of (x) the principal amount of the Outstanding Bonds plus (y) the amount of interest (computed on the basis of a 365-day year in the case of an adjustment to a Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period, and on the basis of a 360-day year consisting of twelve 30-day months in the case of an adjustment to a Long-Term Interest Rate Period) which will accrue on the Outstanding Bonds for a period equal to the maximum number of days between Interest Payment Dates during the new Interest Rate Period plus five (5) days. In the case of an adjustment to a Long-Term Interest Rate Period, a Credit Facility, if any, to be in effect after the effective date of such adjustment shall (i) extend for a period ending on a date no earlier than five (5) days after the first date on which the Bonds may be called for redemption pursuant to Section 4.01(a)(ii)(C) and (ii) cover the premium, if any, which would be included in the purchase price upon mandatory purchase of the Bonds pursuant to Section 4.08(b) hereof if the term of such Credit Facility was not extended beyond the expiration date set forth therein.

(vii) Determination Conclusive. The determination of any Bond Interest Term Rate, Daily Interest Rate, Weekly Interest Rate and Long-Term Interest Rate and each Bond Interest Term and the calculation of interest payable on the Bonds by the Remarketing Agent shall be conclusive and binding upon such Remarketing Agent, the Trustee, the Tender Agent, the Issuer, the Borrower, the Bank and the Owners of the Bonds.

(viii) Rescission of Election. Notwithstanding anything herein to the contrary, the Borrower may rescind any election by it to adjust to or continue an Interest Rate Period pursuant to Sections 2.01(c)(ii)(B), (iii)(B), (iv)(B), (v)(B) or 3A.11 hereof prior to the effective date of such adjustment or continuation by giving written notice thereof to the Issuer, the Trustee, the Tender Agent, the Auction Agent, the Broker-Dealers and the Remarketing Agent, if any, prior to such effective date. If the Trustee receives notice of such rescission prior to the time the Trustee has given notice to the Owners of the Bonds pursuant to Section 2.01(c)(ii)(C), (iii)(C), (iv)(C) or (v)(C), as applicable, then the notice of adjustment or continuation previously delivered by the Borrower shall be of no force and effect. If the Trustee receives notice from the Borrower of rescission of an adjustment to or continuation of an Interest Rate Period after the Trustee has given notice to the Owners of the Bonds pursuant to Section 2.01(c)(ii)(C), (iii)(C), (iv)(C) or (v)(C), as applicable, then the Interest Rate Period for the Bonds shall automatically adjust to a Daily Interest Rate Period on the date originally scheduled for such adjustment or continuation; provided, however, that if the Bonds are then in a Long-Term Interest Rate Period and the Favorable Opinion of Bond Counsel required by Section 2.01(c)(ii)(B) in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) hereof, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Index.

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(d) Form of Bonds. The Bonds may be engraved, printed, lithographed or typewritten, shall be in Authorized Denominations and may contain such references to any of the provisions of this Indenture as may be appropriate. The form of the Bonds, the certificate of authentication to be executed on all the Bonds by the Trustee and the forms for registration of transfer shall be in substantially the forms thereof set forth in Exhibit A hereto, with necessary or appropriate variations, omissions and insertions as permitted or required by this Indenture. The Bonds and the certificate of authentication to be executed thereon shall be in substantially the form attached hereto as Exhibit A, with such appropriate variations, omissions and insertions as are permitted or required by this Indenture. Pursuant to recommendations promulgated by the Committee on Uniform Security Identification Procedures, “CUSIP” numbers may be printed on the Bonds. The Bonds may bear such endorsement or legend relating thereto as may be required to conform to usage or law with respect thereto. If appropriate, the Bonds may be printed with a portion of the text printed on the reverse side thereof and with a legend printed on the front referring to such text to the following effect: “Reference is hereby made to the further provisions of this Bond set forth on the back hereof and such further provisions are hereby incorporated by reference as if set forth here in full.” Upon adjustment to a Long-Term Interest Rate Period, the form of Bond may include a summary of the mandatory and optional redemption provisions to apply to the Bonds during such Long-Term Interest Rate Period, or a statement to the effect that the Bonds will not be optionally redeemed during such Long-Term Interest Rate Period, provided that the Registrar shall not authenticate such a revised Bond form prior to receiving a Favorable Opinion of Bond Counsel that such Bond form conforms to the terms of the Act and of this Indenture and that authentication thereof will not adversely affect the Tax-Exempt status of the Bonds.

(e) Book-Entry System. Bonds shall be issued in the form of a single certificated fully registered Bond, registered in the name of Cede & Co., as nominee of the Depository Trust Company (such entity and its successors and assigns are referred to herein as “DTC”), or such other name as may be requested by an authorized representative of DTC, or any successor nominee (the “Nominee”). Except as provided in paragraph (C) below, all of the Outstanding Bonds shall be so registered in the registration books kept by the Registrar, and the provisions of this Section 2.01(e) shall apply thereto.

(i) The Issuer, the Borrower, the Remarketing Agent, the Tender Agent, the Trustee, the Registrar, the Paying Agent and any Co-Registrar and Co-Paying Agent shall have no responsibility or obligation to any DTC participant or to any person on behalf of which a DTC participant holds an interest in the Bonds, except as otherwise expressly provided herein. Without limiting the immediately preceding sentence, the Issuer, the Borrower, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent and any Co-Registrar and Co-Paying Agent shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, the Nominee, any DTC participant or indirect

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participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC participant or any other person, other than an Owner as shown in the registration books kept by the Registrar, of any notice with respect to the Bonds, including any notice of redemption (except that the Trustee and Tender Agent, if any, shall have the obligation to deliver notices of optional and mandatory tender to the Remarketing Agent, if any, as provided herein) or (iii) the payment to any DTC participant or any other person, other than an Owner, as shown in the registration books kept by the Registrar, of any amount with respect to principal or purchase price of, premium, if any, or interest on the Bonds. The Paying Agent shall pay all principal, premium, if any, and interest on the Bonds only to or upon the order of the respective Owners, as shown in the registration books kept by the Registrar, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Issuer’s obligations with respect to payment of principal of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. The Issuer, the Borrower, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent and any Co-Registrar and Co-Paying Agent may treat and consider the person in whose name each Bond is registered in the registration books kept by the Registrar as the holder and absolute owner of such Bond for the purpose of payment of principal, purchase price, premium and interest with respect to such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever; provided, however, notwithstanding the foregoing provisions, the Tender Agent, if any, shall accept any notice of optional tender pursuant to Section 4.08(a) from any Owner of any Book-Entry Bond, but shall make payment of the purchase price thereof only to the registered owner of such Bond in the manner provided in the Representation Letter (as defined below); and provided further, that no person other than an Owner, as shown in the registration books kept by the Registrar, shall receive a certificated Bond evidencing the obligation of the Issuer to make payments of principal, premium, if any, and interest pursuant to this Indenture.

(ii) The Issuer, the Paying Agent, the Registrar, the Tender Agent and/or the Trustee shall, if not previously on file, execute and deliver to DTC a letter of representation in customary form with respect to the Bonds (the “Representation Letter”), but such Representation Letter shall not in any way limit the provisions of the foregoing paragraph (i) or in any other way impose upon the Issuer any obligation whatsoever with respect to persons having interests in the Bonds other than the Owners, as shown on the registration books kept by the Registrar. The Trustee, the Tender Agent and the Paying Agent shall take all actions necessary for representations of the Issuer in the Representation Letter with respect to the Trustee, the Tender Agent and the Paying Agent to be complied with at all times.

(iii) The Issuer, with the consent of the Borrower, may, and upon request of the Borrower shall, terminate the services of DTC with respect to the Bonds. DTC may determine to discontinue providing its services with respect to

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the Bonds at any time by giving written notice and all relevant information on the Beneficial Owners of the Bonds to the Issuer, the Borrower, the Tender Agent, if any, and the Trustee and discharging its responsibilities with respect thereto under applicable law. Upon the discontinuance or termination of the services of DTC with respect to the Bonds, unless a substitute securities depository is appointed by the Issuer (with the consent, or at the request, of the Borrower) to undertake the functions of DTC hereunder, the Issuer, at the expense of the Borrower, is obligated to deliver Bond certificates to the Owners of such Bonds, as described in this Indenture, and such Bonds shall no longer be restricted to being registered in the registration books kept by the Registrar in the name of the Nominee, but may be registered in whatever name or names Owners transferring or exchanging such Bonds shall designate, in accordance with the provisions of this Indenture.

(iv) In connection with any notice or other communication to be provided to Owners pursuant to this Indenture by the Issuer, the Borrower the Remarketing Agent, the Tender Agent, the Trustee, the Registrar, the Paying Agent, and any Co-Registrar and Co-Paying Agent with respect to any consent or other action to be taken by the Owners of the Bonds, the Issuer, the Borrower the Remarketing Agent, the Tender Agent, the Trustee, the Registrar, the Paying Agent, any Co-Registrar and Co-Paying Agent, as the case may be, the Trustee shall establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible.

(v) So long as any Bond is registered in the name of the Nominee, all payments with respect to principal, purchase price, premium, if any, and interest on such Bond and all notices with respect to such Bond shall be made and given, respectively, in the manner provided in the Representation Letter. Owners shall have no lien or security interest in any rebate or refund paid by DTC to the Tender Agent, if any, or the Paying Agent which arises from the payment by the Tender Agent, if any, or Paying Agent of principal of or purchase price, premium, if any, or interest on the Bonds in immediately available funds to DTC.

Section 2.02 Execution of Bonds. The Bonds shall be executed on behalf of the Issuer by its President, a Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer and such execution shall be attested by its President, a Vice-President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer; provided that the officer so attesting such execution shall not be the same officer that executed such Bond. The signatures of the President, a Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer of the Issuer may be facsimile signatures.

The Bonds and the interest thereon shall not be general obligations or an indebtedness of the Issuer but shall be limited obligations of the Issuer, which is obliged to pay the principal and premium, if any, and interest on the Bonds only out of the Receipts and Revenues of the Issuer from the Agreement and other moneys pledged therefor under this Indenture. The Bonds shall never constitute an indebtedness of the State of Arizona, or the County, or the Issuer within the meaning of any Arizona Constitutional provision or statutory limitation and shall never

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constitute or give rise to a pecuniary liability of the State of Arizona, or the County, or the Issuer or a charge against the general credit or taxing powers of the State of Arizona, or the County, or the general credit of the Issuer and such fact shall be plainly stated on each Bond. The Issuer has no taxing power.

The Bonds shall then be delivered to the Trustee for authentication by the Trustee. In case any officer who shall have signed any of the Bonds shall cease to be such officer before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee or issued by the Issuer, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issuance, shall be as binding upon the Issuer as though those who signed and attested the same had continued to be such officers of the Issuer. Also, any Bond may be signed on behalf of the Issuer by such persons as on the actual date of the execution of such Bond shall be the proper officers although on the nominal date of such Bond any such person shall not have been such officer.

Only such of the Bonds as shall bear thereon a certificate of authentication in the form recited in Exhibit A hereto, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. The Trustee’s certificate of authentication on any Bond shall be deemed to have been executed by it if manually signed by an authorized signatory on behalf of the Trustee but it shall not be necessary that the same person sign the certificate of authentication on all of the Bonds issued hereunder.

Upon authentication of any Bond, the Trustee, Registrar or the Tender Agent, if any, as the case may be, shall set forth on such Bond (1) the date of such authentication and (2) in the case of a Bond bearing interest at a Bond Interest Term Rate which is not a Book-Entry Bond, such Bond Interest Term Rate, the day next succeeding the last day of the applicable Short-Term Interest Rate Period, the number of days comprising such Short-Term Interest Rate Period and the amount of interest to accrue during such Short-Term Interest Rate Period.

So long as Union Bank of California, N.A. is serving as Trustee hereunder, it shall also serve as Registrar hereunder.

Section 2.03 Transfer and Exchange of Bonds. Registration of any Bond may, in accordance with the terms of this Indenture, be transferred, upon the books of the Registrar required to be kept pursuant to the provisions of Section 2.04, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by a written instrument of transfer in a form approved by the Registrar, duly executed. Whenever any Bond shall be surrendered for registration of transfer, the Issuer shall execute and the Trustee shall authenticate and deliver a new Bond or Bonds of the same tenor in Authorized Denominations. No registration of transfer of Bonds upon the books of the Registrar required to be kept pursuant to the provisions of Section 2.04 hereof shall be required to be made during the period after any Record Date and prior to the related Interest Payment Date or during the period of fifteen (15) days immediately preceding the date on which the Trustee mails any notice of redemption, nor shall any registration of transfer of Bonds called for redemption be required.

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Bonds may be exchanged at the Principal Office of the Trustee for a like aggregate principal amount of Bonds of the same tenor of Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange, and there shall be no other charge to any Owners for any such exchange. Except with respect to Bonds remarketed after being purchased pursuant to Sections 4.07 and 4.08 hereof, no exchange of Bonds shall be required to be made during the period after any Record Date and prior to the related Interest Payment Date or during the period of fifteen (15) days immediately preceding the date on which the Trustee gives notice of redemption, nor shall any exchange of Bonds called for redemption be required. If a Bond is presented for transfer or exchange after notice of redemption of such Bond has been given as provided in Section 4.03 hereof, the Registrar shall deliver a copy of such notice of redemption to the new owner of such Bond.

Section 2.04 Bond Register. The Registrar will keep or cause to be kept at its Principal Office sufficient books for the registration and the registration of transfer of the Bonds, which shall at all times, during regular business hours, be open to inspection by the Issuer, the Trustee, the Bond Insurer and the Borrower; and, upon presentation for such purpose, the Registrar shall, under such reasonable regulations as it may prescribe, register the transfer or cause to be registered the transfer, on said books, of Bonds as hereinbefore provided.

Section 2.05 Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Issuer, upon the request and at the expense of the holder of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Registrar of the Bond so mutilated. Every mutilated Bond so surrendered to the Registrar shall be treated by the Trustee in accordance with its document retention policies (provided that the Trustee shall not be required to destroy such Bonds) and, upon the written request of the Issuer, a certificate evidencing such disposition shall be delivered to the Issuer, with a copy to the Borrower. If any Bond issued hereunder shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Issuer, the Borrower and the Registrar, and if such evidence be satisfactory to them and indemnity satisfactory to them shall be given by or on behalf of the holder of such lost, destroyed or stolen Bond, the Issuer, at the expense of the holder, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall be about to mature, instead of issuing a substitute Bond the Trustee shall, at the direction of the Issuer, pay the same without surrender thereof). The Issuer may require payment of a reasonable fee for each new Bond issued under this Section and payment of the expenses which may be incurred by the Issuer and the Trustee. Any Bond issued under the provisions of this Section in lieu of any Bond mutilated or alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Issuer whether or not the Bond mutilated or so alleged to be lost, destroyed or stolen shall be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Indenture with all other Bonds secured by this Indenture.

All Bonds shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing provisions are exclusive with respect to the replacement or payment of lost, destroyed or improperly cancelled Bonds, notwithstanding any law or statute now existing or hereafter enacted.

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Section 2.06 Disposition of Cancelled Bonds. When paid in full, all Bonds shall be delivered to the Trustee, who shall forthwith cancel such Bonds and deliver upon request a certificate evidencing such cancellation to the Issuer and the Borrower. The Trustee shall treat such cancelled Bonds in accordance with its document retention policies and shall not be required to destroy such Bonds.

Section 2.07 CUSIP Numbers. As provided in Section 2.01(d) of this Indenture, the Issuer in issuing the Bonds may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to holders of Bonds; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Bonds or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Bonds, and any such redemption shall not be affected by any defect in or omission of such CUSIP numbers. The Issuer shall promptly notify the Trustee of any changes in the CUSIP numbers.

Section 2.08 Other Obligations. The Issuer expressly reserves the right to issue, to the extent permitted by law, obligations under another ordinance(s) and/or indenture(s) to provide additional funds or, at the request of the Borrower, to refund all or any principal amount of the Bonds.

Section 2.09 Temporary Bonds. Pending the preparation of definitive Bonds, the Issuer may execute and the Trustee shall authenticate and deliver temporary Bonds. Temporary Bonds shall be issuable as fully registered Bonds, of any Authorized Denomination, and substantially in the form of the definitive Bonds but with such omissions, insertions and variations as may be appropriate for temporary Bonds, all as may be determined by the Issuer. Temporary Bonds may contain such reference to any provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Issuer and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Bonds. As promptly as practicable, the Issuer shall execute and shall furnish definitive Bonds and thereupon temporary Bonds may be surrendered in exchange therefor without charge at the Principal Office of the Trustee, and the Trustee shall authenticate and deliver in exchange for such temporary Bonds a like aggregate principal amount of the definitive Bonds of Authorized Denominations. Until so exchanged the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds.

ARTICLE III

ISSUANCE OF BONDS

Section 3.01 Authentication and Delivery of Bonds. Forthwith upon the execution and delivery of this Indenture, the Issuer shall execute and deliver to the Trustee and the Trustee shall authenticate the Bonds and deliver the Bonds to the initial purchasers thereof as directed hereinafter in this Section 3.01. Without any further action on the part of the Issuer, the Trustee shall authenticate the Bonds in an aggregate principal amount of Sixty-Three Million Five Hundred Thousand Dollars ($63,500,000). Prior to the delivery on original issuance by the Trustee of any authenticated Bonds there shall be or have been delivered to the Trustee:

(i) An original duly executed counterpart of this Indenture.

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(ii) An original duly executed counterpart of the Agreement.

(iii) A written order of the Issuer to the Trustee to authenticate and deliver the Bonds to the purchaser or purchasers therein identified upon payment to the Trustee, but for the account of the Issuer, of a sum specified in such request and authorization plus any accrued interest on such Bonds to the date of delivery.

(iv) A written statement on behalf of the Borrower, executed by an Authorized Borrower Representative, (i) approving the issuance and delivery of the Bonds and (ii) consenting to each and every provision of this Indenture.

(v) The Bond Insurance Policy.

Section 3.02 Application of Proceeds of Bonds. The proceeds received by the Issuer from the sale of the Bonds in the amount of $63,500,000 shall be deposited with the Trustee, and the Trustee shall transfer such proceeds to JPMorgan Chase Bank, National Association, as trustee for the Prior Bonds, to be applied to the redemption of the Prior Bonds.

Section 3.03 Payment of Principal and Interest. For the payment of interest on the Bonds, the Issuer shall cause to be deposited in the Bond Fund established under Section 5.01 hereof, on or prior to each Interest Payment Date, solely out of the Receipts and Revenues, an amount sufficient to pay the interest to become due on such Interest Payment Date. The obligation of the Issuer to cause any such deposit to be made hereunder shall be reduced by the amount of moneys in the Bond Fund available on such Interest Payment Date for the payment of interest on the Bonds.

For the payment of the principal of the Bonds on the Maturity Date or upon earlier redemption, the Issuer shall cause to be deposited in the Bond Fund, on or prior to the Maturity Date or redemption date of the Bonds, solely out of the Receipts and Revenues, an amount sufficient to pay the principal of the Bonds then due. The obligation of the Issuer to cause any such deposit to be made hereunder shall be reduced by the amount of moneys in the Bond Fund available on the Maturity Date or redemption date for the payment of the principal of the Bonds.

ARTICLE IIIA

ARS PROVISIONS

Section 3A.01 Payments with Respect to ARS.

(a) Interest with respect to ARS shall accrue from and including, as applicable, the Issue Date, the Conversion Date or the most recent ARS Interest Payment Date to which interest has been paid or duly provided for.

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(b) The Trustee shall determine the aggregate amount of interest payable in accordance with subsection (e) below with respect to ARS on each ARS Interest Payment Date. Interest due on any ARS Interest Payment Date with respect to each $25,000 in principal amount of ARS shall equal (i) the Applicable ARS Rate multiplied by (ii) the principal amount of $25,000 multiplied by (iii) if the number of days in the Auction Period is less than 183, the number of days in the applicable ARS Interest Period, and, if the number of days in the Auction Period is 183 or greater, the number of days in the applicable ARS Interest Period assuming twelve 30-day months, divided by (iv) 360, and rounding the resultant figure to the nearest cent (a half cent being rounded upward). The Trustee shall notify the Securities Depository of its calculations, as provided in Section 3A.03(b) of this Indenture.

(c) Interest on the ARS shall be computed on the basis of a 360-day year for the actual number of days elapsed, except in the case of a Special Auction Period of 183 days or more in which case it will be computed on the basis of twelve 30-day months. The Applicable ARS Rate for each ARS Interest Period after the first ARS Interest Period shall be the Auction Rate; provided that

(i) Reserved.

(ii) in the event the Auction Agent fails to calculate or, for any reason, fails to timely provide the Auction Rate for any Auction Period (except as contemplated otherwise herein pursuant to (x), (y) and (z) below), the new Auction Period shall be the same as the preceding Auction Period if the preceding Auction Period was a period of 35 days or less and the new Auction Period shall be a seven-day Auction Period if the preceding Auction Period was a period of greater than 35 days and the Auction Rate for the new Auction Period shall be the same as the Auction Rate for the preceding Auction Period. The ARS shall continue in such Auction Period until changed pursuant to Section 3A.10(a) hereof.

Notwithstanding the foregoing:

(x) if the ownership of the ARS is no longer maintained in book-entry form by a Securities Depository, the Applicable ARS Rate for any Auction Period commencing after the delivery of certificates representing the ARS shall equal the ARS Maximum Rate;

(y) if an ARS Payment Default shall have occurred with respect to the ARS, the Applicable ARS Rate for the Auction Period commencing on or immediately after such ARS Payment Default and for each Auction Period thereafter, to and including the Auction Period, if any, during which, or commencing less than two Business Days after, such ARS Payment Default is cured in accordance with this Indenture, shall equal the Non-Payment Rate on the first day of each such Auction Period, provided that if an Auction occurred on the Business Day immediately preceding any such Auction Period, the Applicable ARS Rate for such Auction Period shall be the Non-Payment Rate; or

(z) for any Auction Period during which there is no duly appointed Auction Agent, or during which there is no duly appointed Broker-Dealer, no Auction will be held

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and, if the preceding Auction Period was 35 days or less, the new Auction Period shall be the same as the preceding Auction Period and, if the preceding Auction Period was more than 35 days, the new Auction Period shall be a seven-day Auction Period and the Auction Rate in each case shall be the ARS Maximum Rate. The ARS shall continue in such Auction Period until changed pursuant to Section 3A.10(a) hereof.

(d) Medium of Payment.

(i) The principal of and interest on the ARS shall be payable in any currency of the United States of America which on the respective dates for payment thereof is legal tender for the payment of public and private debts. The principal of and interest on the ARS (other than at maturity) shall be payable by check mailed on the date due to the registered owner thereof on the Record Date at the address of such registered owner as it appears on the registration books maintained by the Trustee.

(ii) Interest payable on any ARS Interest Payment Date to a registered owner of ARS in the aggregate principal amount of $1,000,000 or more may, upon written request by such registered owner received by the Trustee prior to the Record Date preceding such ARS Interest Payment Date, be paid by wire transfer on the date due to a designated account in the United States. Such written request shall remain in effect until rescinded in writing by such registered owner. The principal of each ARS at maturity will be paid upon presentation and surrender thereof at the Principal Office of the Trustee.

(iii) Unless otherwise requested by the Securities Depository, payments of the principal of ARS, at maturity or upon redemption, and payments of interest on ARS made by wire transfer, shall be made by the Trustee in immediately available funds, provided, however, that such method of payment may be modified by written agreement among the Trustee, the Securities Depository and the Auction Agent.

(e) Computation of Interest Distributable on ARS. The amount of interest distributable to ARS Beneficial Owners, in respect of each $25,000 in principal amount thereof for any ARS Interest Period or part thereof, shall be calculated by the Trustee by applying the Applicable ARS Rate with respect to the ARS, for such ARS Interest Period or part thereof, to the principal amount of $25,000, multiplying such product by the actual number of days in such ARS Interest Period or part thereof if the number of days in the Auction Period is less than 183 and multiplying the product by the number of days in such ARS Interest Period assuming twelve 30-day months if the number of days in the Auction Period is 183 days or more in each case divided by 360 and rounding the resultant figure to the nearest cent (half a cent being rounded upward).

(f) ARS Defaulted Interest.

(i) The Trustee shall determine not later than 2:00 p.m., New York City time, on each ARS Interest Payment Date, whether an ARS Payment Default has occurred. If an ARS Payment Default has occurred, the Trustee shall, not later than 2:30 p.m. New York City time on such Business Day, send a Notice of ARS Payment Default to the

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Auction Agent and each Broker-Dealer by telecopy or similar means and, if such ARS Payment Default is cured, the Trustee shall immediately send a Notice of Cure of ARS Payment Default to the Auction Agent and each Broker-Dealer by telecopy or similar means.

(ii) ARS Defaulted Interest shall forthwith cease to be payable to the ARS Beneficial Owner on the relevant Record Date by virtue of having been such ARS Beneficial Owner and such ARS Defaulted Interest shall be payable to the Person in whose name the ARS are registered at the close of business on a Special Record Date fixed therefor by the Trustee, which shall not be more than 15 days and not less than ten days prior to the date of the proposed payment of ARS Defaulted Interest. The Trustee shall promptly notify the Issuer and the Borrower of the Special Record Date and, at the Borrower’s expense, mail to each ARS Beneficial Owner of which it has knowledge pursuant to Section 11.01, not less than ten days before the Special Record Date, notice of the Special Record Date and the date of the proposed payment of such ARS Defaulted Interest.

Section 3A.02 Calculation of All-Hold Rate. The Auction Agent shall calculate the All-Hold Rate on each Auction Date. If the ownership of the ARS is no longer maintained in book-entry form by the Securities Depository, the Auction Agent shall announce the ARS Maximum Rate on the Business Day immediately preceding each ARS Interest Payment Date after the delivery of certificates representing the ARS. If an ARS Payment Default shall have occurred, the Trustee shall announce the Non-Payment Rate on the first day of (i) each Auction Period commencing on or after the date of the occurrence and during the continuance of such ARS Payment Default and (ii) any Auction Period commencing less than two Business Days after the cure of any ARS Payment Default. The determination by the Auction Agent of the All-Hold Rate shall (in the absence of manifest error) be final and binding upon all ARS Beneficial Owners and all other parties. The Auction Agent shall promptly advise the Trustee of the All-Hold Rate.

Section 3A.03 Notification of Rates, Amounts and Payment Dates.

(a) So long as the ownership of the ARS is maintained in book-entry form by the Securities Depository, the Trustee shall advise the Securities Depository (i) of each Record Date for the ARS at least two Business Days prior thereto and (ii) of each succeeding Interest Payment Date on each Interest Payment Date.

(b) On the Issue Date, or as soon as practicable thereafter, and on the Business Day preceding each ARS Interest Payment Date with respect to the ARS, the Trustee shall advise the Securities Depository, so long as the ownership of the ARS is maintained in book-entry form by the Securities Depository, of the amount of interest distributable in respect of each $25,000 in principal amount of ARS for any ARS Interest Period or part thereof, calculated in accordance with Section 3A.01(e) of this Indenture.

If any day scheduled to be an ARS Interest Payment Date shall be changed after the Trustee shall have given notice, the Trustee shall, not later than 9:15 a.m., New York City time, on the Business Day next preceding the earlier of the new ARS Interest Payment Date or the old

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ARS Interest Payment Date, by such means as the Trustee deems practicable, give notice of such change to the Auction Agent, so long as no ARS Payment Default has occurred and is continuing and the ownership of the ARS is maintained in book-entry form by the Securities Depository.

Section 3A.04 Adjustments with Respect to ARS Provisions. Notwithstanding any other provision of this Indenture relating to ARS, including without limitation the mandatory tender provisions and the definitions of terms used in this Article IIIA (including without limitation the definitions of Applicable ARS Rate, All-Hold Rate, ARS Maximum Rate and Non-Payment Rate), the ARS provisions may be amended by the Issuer at the written request of the Borrower, (i) upon obtaining an opinion of Counsel that the same does not materially adversely affect the rights of the ARS Beneficial Owners or (ii) by obtaining the consent of a majority of the ARS Beneficial Owners and, in each case, delivering a Favorable Opinion of Bond Counsel. In the case of clause (ii) above, the Trustee shall mail notice of such amendment to the ARS Beneficial Owners of which it has knowledge pursuant to Section 11.01, and if, on the first Auction Date occurring at least 20 days after the date on which the Trustee mailed such notice, Sufficient Clearing Bids have been received or all of the ARS are subject to Submitted Hold Orders, the proposed amendment shall be deemed to have been consented to by the ARS Beneficial Owners. Written notice of each such amendment shall be delivered by the Issuer to the Trustee, the Borrower, the Auction Agent, and each Broker-Dealer.

Section 3A.05 Maximum Bond Interest Rate, Non-Payment Rate. If the Auction Rate on the Bonds shall be the Maximum Bond Interest Rate, the ARS Maximum Rate, or Non-Payment Rate for a period (A) in excess of thirty (30) days, the Borrower agrees to take all steps necessary to ensure that the Auction Rate does not exceed the interest rate payable on similar securities (taking into account the interest period and enhanced/insured rating of the Bonds) or (B) in excess of sixty (60) days, the Borrower agrees to convert, or cause to be converted, all Bonds to a Long-Term Interest Rate Period extending through the maturity of the Bonds or, with the approval of the Bond Insurer, to a variable interest rate mode, in each case at the lowest interest rate that will permit the Remarketing Agent to sell all the Bonds on the conversion date at a price equal to 100% of the principal amount thereof plus accrued interest thereon. If an Event of Default shall have occurred and be continuing under the Indenture or the Borrower fails to cause a conversion of the Bonds to another interest rate mode as required by the foregoing sentence, the Bond Insurer may, in its discretion, direct the conversion of the Bonds to a fixed rate or any other interest rate mode.

Section 3A.06 Auction Agent.

(a) The Trustee is hereby directed to enter into the Initial Auction Agent Agreement with the Initial Auction Agent and to appoint The Bank of New York as the Initial Auction Agent. Any Substitute Auction Agent shall be (i) subject to the written approval of each Broker-Dealer, (ii) a bank or trust company duly organized under the laws of the United States of America or any state or territory thereof and having a combined capital stock, surplus and undivided profits of at least $30,000,000, or (iii) a member of the National Association of Securities Dealers, Inc., having a capitalization of at least $30,000,000, and, in either case, authorized by law to perform all the duties imposed upon it hereunder and under the Auction Agent Agreement and a member of or a participant in, the Securities Depository. The Auction Agent may at any time resign and be discharged of the duties and obligations created by this

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Indenture by giving at least 45 days’ notice to the Trustee, the Broker-Dealer, the Issuer, the Borrower, and the Bond Insurer. The Auction Agent may be removed at any time by the Trustee, upon the written direction of (i) the Borrower, with the consent of the Bond Insurer, (ii) the Bond Insurer, or (iii) the ARS Beneficial Owners of 66 ²/3% of the aggregate principal amount of the ARS then Outstanding, with the consent of the Bond Insurer, by an instrument signed by the Trustee and filed with the Auction Agent, the Bond Insurer, the Issuer and the Borrower upon at least 30 days’ notice. Neither the resignation nor the removal of the Auction Agent pursuant to the preceding two sentences shall be effective until and unless a Substitute Auction Agent has been appointed and has accepted such appointment; provided, however, that if a Substitute Auction Agent has not been so appointed within 45 days of the notice of resignation of the Auction Agent, the Auction Agent may petition a court of competent jurisdiction to appoint a Substitute Auction Agent. Notwithstanding the foregoing, the Auction Agent may terminate the Auction Agent Agreement if, within 30 days after notifying the Trustee, the Issuer, the Borrower, and the Bond Insurer in writing that it has not received payment of any Auction Agent Fee due it in accordance with the terms of the Auction Agent Agreement, the Auction Agent does not receive such payment.

(b) If the Auction Agent shall resign or be removed or be dissolved, or if the property or affairs of the Auction Agent shall be taken under the control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, the Trustee, at the direction of the Borrower, shall use its best efforts to appoint a Substitute Auction Agent.

(c) In the absence of willful misconduct, grossly negligent failure to act or gross negligence on its part, the Auction Agent shall not be liable for any action taken, suffered or omitted or any error of judgment made by it in the performance of its duties under the Auction Agent Agreement and shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining (or failing to ascertain) the pertinent facts necessary to make such judgment. The Trustee shall not be liable for any action, omission or error in judgment by the Auction Agent. In no event shall the Auction Agent be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit), even if the Auction Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.

(d) The Auction Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Indenture arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; acts of terrorism; epidemics; riots; interruptions, loss or malfunctions of utilities; computer (software or hardware) or communications services; accidents; labor disputes; acts of civil or military authority or governmental actions; it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

Section 3A.07 Broker-Dealers.

(a) The Auction Agent shall enter into a Broker-Dealer Agreement with Citigroup Global Markets Inc., as the initial Broker-Dealer. The Borrower may, from time to time,

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approve one or more additional Persons to serve as Broker-Dealers under Broker-Dealer Agreements and shall be responsible for providing such Broker-Dealer Agreements to the Trustee and the Auction Agent. No such party shall constitute a Broker-Dealer until a fully executed Broker-Dealer Agreement is delivered to the Trustee and the Auction Agent.

(b) Any Broker-Dealer may be removed at any time, at the written request of the Borrower, with the written consent of the Issuer.

Section 3A.08 Provisions Relating to Auctions. None of the Borrower, the Issuer, the Trustee or the Auction Agent shall be responsible for any failure of a Broker-Dealer to submit an Order to the Auction Agent on behalf of any Existing Owner or Potential Owner, nor shall any of the Borrower, the Issuer, the Trustee or the Auction Agent be responsible for failure by any Securities Depository to effect any transfer or to provide the Auction Agent with current information regarding registration of transfers. None of the Borrower, the Issuer, the Trustee, the Broker-Dealers or the Auction Agent shall have any liability in the event that there are not Sufficient Clearing Bids from time to time pursuant to the Auction Procedures.

Section 3A.09 Agreement of Holders. By purchasing ARS, whether in an Auction or otherwise, each prospective purchaser of ARS and its Broker-Dealer will be deemed to have agreed to the provisions for the replacement of the Auction Agent and each Broker-Dealer as provided in this Indenture, and relevant agreements among the Issuer, the Borrower, the Trustee, the Auction Agent, and the Broker-Dealer, as appropriate.

Section 3A.10 Changes in Auction Period or Auction Date.

(a) Changes in Auction Period.

(i) The Auction Period for the ARS Interest Rate Period commencing on the Issue Date initially shall be a seven-day period commencing generally on a Thursday. The Auction Period for the Bonds with respect to each subsequent ARS Interest Rate Period, if any, initially shall be either a seven-day period, a 28-day period, a 35-day period or a Special Auction Period, commencing generally on a Monday, generally on a Tuesday, generally on a Wednesday, generally on a Thursday or generally on a Friday, in each case as announced by the Borrower in its notice of the proposed Conversion to such subsequent ARS Interest Rate Period as provided in Section 3A.11.

(ii) During any Auction Period, the Borrower may from time to time and on any ARS Interest Payment Date immediately following an Auction Period, change the length of the Auction Period between seven-days, 28-days, 35-days and a Special Auction Period in order to accommodate economic and financial factors that may affect or be relevant to the length of the Auction Period and the interest rate borne by the Bonds. The Borrower shall initiate the change in the length of the Auction Period by giving written notice to the Trustee, the Issuer, the Auction Agent, the Broker-Dealer and the Securities Depository that the Auction Period shall change if the conditions described herein are satisfied and the proposed effective date of the change, at least three Business Days prior to the Auction Date for such Auction Period.

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(iii) Any such changed Auction Period shall be for a period of seven days, 28 days, 35 days or for a Special Auction Period and shall apply for all of the Bonds.

(iv) The change in length of the Auction Period for the Bonds shall take effect only if Sufficient Clearing Bids exist at the Auction on the Auction Date for the first such Auction Period. For purposes of the Auction for such first Auction Period only, each Existing Owner shall be deemed to have submitted Sell Orders with respect to all of its ARS except to the extent such Existing Owner submits an Order with respect to such ARS. If the condition referred to in the first sentence of this clause (iv) is not met, the Auction Rate for the next Auction Period shall be the ARS Maximum Rate, and the Auction Period shall be a seven-day Auction Period.

(b) Changes in Auction Date. During any Auction Period, the Auction Agent, with the written consent of the Borrower, may specify an earlier Auction Date (but in no event more than five Business Days earlier) than the Auction Date that would otherwise be determined in accordance with the definition of “Auction Date” in order to conform with then current market practice with respect to similar securities or to accommodate economic and financial factors that may affect or be relevant to the day of the week constituting an Auction Date and the interest rate borne on the ARS. The Auction Agent shall provide notice of its determination to specify an earlier Auction Date for an Auction Period by means of a written notice delivered at least 45 days prior to the proposed changed Auction Date to the Trustee, the Paying Agent, the Borrower, the Issuer, the Broker-Dealers and the Securities Depository, which will, in turn, notify the holders. In the event the Auction Agent specifies an earlier Auction Date, the days of the week on which a Special Auction Period begins and ends and the Interest Payment Date relating to a Special Auction Period shall be adjusted accordingly.

(c) Conditions Precedent. No change in the length or the day of commencement of the Auction Period for the Bonds (as provided in subsection (a) or (b), as applicable) shall be allowed unless Sufficient Clearing Bids exist at the Auction immediately preceding the proposed change and, in the sole discretion of the Broker-Dealer, at the Auction before the date on which the notice of the proposed change was given.

Section 3A.11 Conversion of Bonds to Applicable ARS Rate.

(a) Conversion to Applicable ARS Rate. Subject to Section 2.01 hereof, the Borrower on behalf of the Issuer may, from time to time, by written direction to the Issuer, the Trustee, the Tender Agent (if any), the Bank (if any), the Remarketing Agent (if any), the Auction Agent (if any) and each Broker-Dealer (if any), elect that the Bonds shall bear interest at the Applicable ARS Rate. The direction of the Borrower shall specify (A) the proposed effective date of the Conversion to the Applicable ARS Rate, which shall be (1) in each case, a Business Day not earlier than the 30^th day following the second Business Day after receipt by the Trustee of such direction, (2) in the case of a Conversion from a Long-Term Interest Rate Period, the day immediately following the last day of the then-current Long-Term Interest Rate Period or a day on which the Bonds would otherwise be subject to optional redemption pursuant to Section 4.01(a) hereof if such Conversion did not occur, and (3) in the case of a Conversion from a Short-Term Interest Rate Period, the day immediately following the last day of the Short-Term

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Interest Rate Period, (B) the Tender Date for the Bonds to be purchased, which shall be the proposed effective date of the adjustment to the Applicable ARS Rate and (C) the initial Auction Period. In addition, the direction of the Borrower shall be accompanied by a form of notice to be mailed to the holders of the Bonds by the Trustee as provided in Section 3A.11(b). During each ARS Interest Rate Period for the Bonds commencing on the Conversion Date and ending on the day immediately preceding the Conversion Date to the next succeeding Interest Rate Period, the interest rate borne by the Bonds shall be the Applicable ARS Rate.

(b) Notice of Conversion to Applicable ARS Rate. The Trustee shall give notice by first-class mail of an adjustment to an ARS Interest Rate Period to the holders of the Bonds not less than 30 days prior to the proposed effective date of such ARS Interest Rate Period. Such notice shall state (A) that the interest rate shall be adjusted to the Applicable ARS Rate unless the Borrower rescinds its election to adjust the interest rate to the Applicable ARS Rate as provided in Section 2.01(c)(viii); (B) the proposed effective date of the ARS Interest Rate Period; (C) that the Bonds are subject to mandatory tender for purchase on the proposed effective date and setting forth the Tender Price and the place of delivery for purchase of the Bonds; and (D) the information set forth in Section 4.08(b).

ARTICLE IV

REDEMPTION AND PURCHASE OF BONDS

Section 4.01 Redemption of Bonds. The Bonds shall be subject to redemption if and to the extent the Borrower is entitled or required to make and makes a prepayment pursuant to Article IX of the Agreement. The Trustee shall not give notice of any optional redemption under Section 4.01(a) hereof unless the Borrower has so directed in accordance with Section 9.02 of the Agreement. In the event of a failure by the Borrower to give a notice of mandatory prepayment under Section 9.03 of the Agreement, such notice may be given by the Issuer, the Trustee or any holder or holders of ten percent (10%) or more in aggregate principal amount of the Outstanding Bonds.

The Bonds shall be redeemed upon the following terms:

(a) Redemption Upon Optional Prepayment.

(i) Extraordinary Events. During any Long-Term Interest Rate Period, the Bonds shall be redeemed prior to the Maturity Date in whole or in part, and if in part by lot, at any time at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, upon receipt by the Trustee of a written notice of the Borrower and signed by an Authorized Borrower Representative stating that any of the following events has occurred (which determination shall be in the sole discretion of the Borrower) and that the Borrower therefore intends to exercise its option to prepay all payments due under the Agreement, including Repayment Installments, in whole or in part pursuant to Section 9.01 of the Agreement and thereby effect the redemption of Bonds in whole or in part to the extent of such prepayments:

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(A) All or part of the Project or the Plant shall have been damaged or destroyed to such an extent that, in the opinion of the Borrower, (i) the Project or the Plant or such affected portion could not reasonably be restored within a period of four (4) months to the condition thereof immediately preceding such damage or destruction, and the Borrower or the operator of the Project or the Plant will be prevented, or is likely to be prevented for a period of four (4) consecutive months or more, from carrying on all or substantially all of its normal operation of the Project or the Plant, or (ii) the cost of restoration of the Project or the Plant or such affected portion will be substantially in excess of the net proceeds of insurance thereon.

(B) Title to, or the temporary use of, all or a part of the Project or the Plant shall have been taken under the exercise of the power of eminent domain.

(C) Changes in economic availability of raw materials, operating supplies or facilities necessary to operate all or a part of the Project or the Plant, or technological or other changes which make the continued operation of the Project or the Plant or such affected portion uneconomical, in the opinion of the Borrower, shall have occurred and shall have resulted in a cessation of all or substantially all of the Borrower’s normal operations of either the Project or the Plant.

(D) Unreasonable burdens or excessive liabilities shall have been imposed upon the Issuer or the Borrower in respect of all or a part of the Project or the Plant including, without limitation, federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Agreement, as well as any statute or regulation enacted or promulgated after the date of the Agreement that prevents the Borrower from deducting interest in respect of the Agreement for federal income tax purposes.

(E) All or substantially all of the property of the Borrower shall be transferred or sold to any entity other than an affiliate of the Borrower or the Borrower shall be consolidated with or merged into an entity other than an affiliate of the Borrower in such manner that the Borrower is not the surviving entity and the surviving, resulting or transferee entity does not agree to perform the obligations of the Borrower.

(ii) Borrower Option. The Bonds shall be subject to redemption prior to the Maturity Date by the exercise by the Borrower of any of its options to prepay all or part of the unpaid balance of the Repayment Installments and cause the Bonds to be redeemed, in whole, or in part by lot, prior to the Maturity Date, as follows:

(A) During any Short-Term Interest Rate Period, each Bond shall be subject to such redemption on the day next succeeding the last day of each Bond Interest Term for such Bond at a redemption price equal to 100% of the principal amount thereof.

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(B) During any Daily Interest Rate Period or Weekly Interest Rate Period, the Bonds shall be subject to such redemption on any Interest Payment Date at a redemption price equal to 100% of the principal amount thereof.

(C) On the day next succeeding the last scheduled day of any Long-Term Interest Rate Period, the Bonds shall be subject to such redemption at a redemption price of 100% of the principal amount thereof. During any Long-Term Interest Rate Period, the Bonds shall be subject to redemption during the periods specified below, in whole or in part, at the redemption prices (expressed as percentages of principal amount) hereinafter indicated (unless different redemption terms shall be specified by the Borrower pursuant to Section 2.01(c)(iv)(B)):

Length of Long-Term Interest Rate Period (expressed in years)	Redemption Prices
Greater than 17	After 10 years at 102% declining by 1% every 12 months to 100%
Less than or equal to 17 and greater than 10	After 8 years at 102%, declining by 1% every 12 months to 100%
Less than or equal to 10 and greater than 7	After 6 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 7 and greater than 4	After 3 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 4 and greater than 3	After 2 years at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%
Less than or equal to 3 and greater than 2	After 1 year at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%
Less than or equal to 2 and greater than 1	After 1 year at 100%
1 year or less	Not redeemable.

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(iii) Change of Use. During any Long-Term Interest Rate Period, the Bonds shall be subject to redemption prior to the Maturity Date upon prepayment of the Repayment Installments attributable to the Bonds at the option of the Borrower in whole or in part by lot on any Interest Payment Date, at a redemption price equal to 100% of the principal amount thereof, if the Borrower delivers to the Trustee a written or Electronic notice to the effect that either:

(A) the Borrower has determined that some or all of the interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period is not or will not be deductible, in whole or in part, for federal income tax purposes by reason of Section 150(b) of the Code (or would not be deductible unless some or all of the Bonds are redeemed) due to a change in use of the Project or any portion thereof, and the Borrower will not claim deductions for such interest on its federal income tax returns; or

(B) the Borrower after reasonable effort has been unable to obtain an opinion of Bond Counsel that it is more likely than not that Section 150 of the Code will not prevent interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period from being deductible, in whole or in part, for federal income tax purposes.

(iv) ARS Interest Rate Period. The ARS shall be subject to redemption prior to the Maturity Date by the Issuer, at the written direction of the Borrower, on the ARS Interest Payment Date immediately following an Auction Period, in whole or in part in an Authorized Denomination, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued but unpaid interest to the redemption date, without premium.

In either such case, the Borrower shall only cause the Trustee to redeem Bonds pursuant to this Section 4.01(a) (iii) on or after the Interest Payment Date immediately preceding the date on which, due to a change in use in the Project or any portion thereof, the period of potential interest expense disallowance described above commences, and the Borrower may only cause the Trustee to redeem such principal amount of Bonds as the Borrower determines is necessary to assure that the Borrower retains its right to all such deductions otherwise allowable or, if a partial redemption will not enable the Borrower to retain the right to deduct such interest, the Borrower may cause the Trustee to redeem all the Outstanding Bonds.

Notwithstanding any term or provision of Section 4.01(a) of this Indenture to the contrary, the Bonds shall not be subject to optional redemption unless (i) the Bank, if any, shall consent thereto in writing and deliver such consent to the Borrower and the Trustee, (ii) in connection with such redemption, the proceeds of a refunding shall be sufficient to pay, and shall be used to pay, the redemption price of the Bonds so redeemed or (iii) sufficient Available Moneys (other than proceeds of any drawing under the Letter of Credit) shall have been deposited by the Borrower with the Trustee for the payment of all amounts due in respect of all Bonds called for redemption pursuant to Section 4.01(a) of this Indenture. This paragraph shall be inapplicable if at the time of such optional redemption there is no Letter of Credit or other Credit Facility with respect to the Bonds.

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(b) Redemption Upon Mandatory Prepayment. The Bonds shall be subject to redemption prior to the Maturity Date from amounts which are required to be prepaid by the Borrower under Section 9.03 of the Agreement, as set forth below.

(i) The Bonds shall be redeemed in whole on any date at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date upon the occurrence of a Determination of Taxability; provided, however, that if, in the opinion of Bond Counsel delivered to the Trustee, the redemption of a specified portion of such Bonds Outstanding would have the result that interest payable on such Bonds remaining Outstanding after such redemption would remain Tax-Exempt, then such Bonds shall be redeemed in part by lot (in Authorized Denominations), in such amount as Bond Counsel in such opinion shall have determined is necessary to accomplish that result.

(ii) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that as a result of any changes in the Constitution of the United States of America or the Constitution of the State of Arizona or as a result of any legislative, judicial or administrative action, the Agreement shall have become void or unenforceable or impossible to perform in accordance with the intention and purposes of the parties thereto, or shall have been declared unlawful.

(iii) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that at least thirty-five (35) days prior to the expiration of any Credit Facility, if any, then in effect with respect to the Bonds the Trustee shall not have received (a) a renewal or extension of the existing Credit Facility, for a period of at least one (1) year (or, if shorter, the period to the Maturity Date) or (b) a substitute Credit Facility meeting the requirements of Section 6.08 of the Agreement. Such redemption shall occur on the last Business Day which is not less than five (5) calendar days preceding the expiration date of a Credit Facility, if any, then in effect.

(iv) The Bonds shall be redeemed in whole on any date at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date prior to any merger, consolidation, reorganization or conversion of the Borrower, or any sale or other disposition of any of the Borrower’s assets; provided, however, that if the successor to such merger, consolidation or disposition is a public utility regulated by the applicable state regulatory body or the Federal Energy Regulatory Commission, then this Section 4.01(b)(iv) shall not apply.

(c) Extraordinary Mandatory Redemption. The Bonds shall be subject to mandatory redemption prior to the Maturity Date on any date, in whole but not in part, at

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a redemption price equal to the principal amount thereof plus interest accrued to the redemption date prior to any merger, consolidation, reorganization or conversion of the Borrower, or any sale or other disposition of all or substantially all of the Borrower’s assets if the successor to such merger, consolidation or disposition is not a public utility (including a holding company) regulated by the applicable state regulatory body or the Federal Energy Regulatory Commission.

Section 4.02 Selection of Bonds to be Redeemed. If less than all the Bonds shall be called for redemption, the Trustee shall select the Bonds or any given portion thereof to be redeemed, from Outstanding Bonds or any given portion thereof not previously called for redemption, by lot. For the purpose of any such selection the Trustee shall assign a separate number for each minimum Authorized Denomination of each Bond of a denomination of more than such minimum; provided that following any such selection, both the portion of such Bond to be redeemed and the portion remaining shall be in Authorized Denominations. The Trustee shall promptly notify the Issuer and the Borrower in writing of the numbers of the Bonds or portions thereof so selected for redemption. Notwithstanding the foregoing, if less than all of the Bonds are to be redeemed at any time while the Bonds are Book-Entry Bonds, selection of the Bonds to be redeemed shall be made in accordance with customary practices of DTC or the applicable successor depository, as the case may be.

Section 4.03 Notice for Redemption. The Trustee shall give notice, Electronically or by first class mail, in the name of the Issuer, of the redemption of the Bonds, not less than thirty (30) nor more than sixty (60) days prior to the redemption date for Bonds bearing interest fixed to the Maturity Date or at Daily, Weekly or Long-Term Interest Rates, and at any time not more than sixty (60) days prior to the redemption date for Bonds bearing interest at Bond Interest Term Rates. Each notice of redemption shall (i) specify the Bonds to be redeemed, the redemption date, the redemption price, the place where amounts due upon such redemption will be payable (which shall be the Principal Office of the Paying Agent) and the source of the funds to be used for such redemption, the principal amount, the CUSIP numbers (if any) of the Bonds to be redeemed and, if less than all, the distinctive certificate numbers of the Bonds to be redeemed and, in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that the interest on the Bonds designated for redemption shall cease to accrue from and after such redemption date and that on said date there will become due and payable on each of said Bonds the principal amount thereof to be redeemed, interest accrued thereon, if any, to the redemption date and the premium, if any, thereon (such premium to be specified) and shall require that such Bonds be then surrendered at the address or addresses of the Paying Agent specified in the redemption notice; provided, however, the failure to duly give such notice, or any defect therein, shall not affect the validity of any proceedings for the redemption of Bonds with respect to which no such failure or defect occurred. In the event that any Bond selected for redemption shall be tendered for purchase pursuant to Section 4.08 hereof, the Tender Agent shall note on each Bond delivered to an Owner pursuant to Section 14.05 hereof upon the purchase of such tendered Bond that such Bond has been called for redemption and the date of such redemption. Upon presentation and surrender of Bonds so called for redemption at the place or places of payment, such Bonds shall be redeemed and cancelled. Notice of any redemption hereunder shall also be given to the Tender Agent and the Bank. The cost of the mailing of any such notice of redemption shall be paid by the Borrower.

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With respect to any notice of optional redemption of Bonds pursuant to Section 4.01(a), unless upon the giving of such notice such Bonds shall be deemed to have been paid within the meaning of Article IX hereof, such notice shall state that such redemption shall be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of Available Moneys sufficient to pay the principal of, premium, if any, and interest on, such Bonds to be redeemed, and that if such Available Moneys shall not have been so received said notice shall be of no force and effect and the Issuer shall not be required to redeem such Bonds. In the event that such notice of redemption contains such a condition and such Available Moneys are not so received, the redemption shall not be made and the Trustee shall within a reasonable time thereafter give notice, to the persons and in the manner in which the notice of redemption was given, that such Available Moneys were not so received.

Any notice for the redemption of any Bond mailed as provided herein shall be conclusively deemed to have been duly given whether or not such notice is received. Failure to mail the notices required by this paragraph to any holder of a Bond, or any defect in any notice so mailed, shall not affect the validity of the proceedings for redemption of any Bonds nor impose any liability on the Trustee.

Section 4.04 Partial Redemption of Bonds. Upon surrender of any Bond redeemed in part only, the Registrar shall exchange the Bond redeemed for a new Bond of like tenor and in an Authorized Denomination without charge to the holder in the principal amount of the portion of the Bond not redeemed. In the event of any partial redemption of a Bond which is registered in the name of the Nominee, DTC may elect to make a notation on the Bond certificate which reflects the date and amount of the reduction in principal amount of said Bond in lieu of surrendering the Bond certificate to the Registrar for exchange. The Issuer, the Trustee and the Registrar shall be fully released and discharged from all liability upon, and to the extent of, payment of the redemption price for any partial redemption and upon the taking of all other actions required hereunder in connection with such redemption.

If any Auction Bonds are to be redeemed and those Bonds are held by a Securities Depository, the Borrower shall include in the notice of the call for redemption delivered to the Securities Depository (i) a date placed under an item entitled “Publication Date for Securities Depository Purposes” and such date shall be three Business Days after the Auction Date immediately preceding such redemption date and (ii) an instruction to Securities Depository to (x) determine on such Publication Date after the Auction held on the immediately preceding Auction Date has settled, the Participants whose Securities Depository positions will be redeemed and the principal amount of such Auction Bonds to be redeemed from each such position (the “Securities Depository Redemption Information”), and (y) notify the Auction Agent immediately after such determination of the positions of the Participants in such Auction Bonds immediately prior to such Auction settlement, the position of the Participants in such Auction Bonds immediately following such auction settlement, and the Securities Depository Redemption Information.

Section 4.05 Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the redemption price being held by the Trustee, the Bonds so called for redemption shall, on the redemption date designated in such notice, become due and payable at the redemption price specified in such notice, interest on the Bonds so called for

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redemption shall cease to accrue, said Bonds shall cease to be entitled to any lien, benefit or security under this Indenture, and the holders of said Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof (including interest, if any, accrued to the redemption date), without interest accrued on any funds held after the redemption date to pay such redemption price.

All Bonds fully redeemed pursuant to the provisions of this Article IV shall upon surrender thereof be cancelled by the Trustee, who shall deliver a certificate evidencing such cancellation to the Issuer and the Borrower. The Trustee shall treat such cancelled Bonds in accordance with its document retention policies and shall not be required to destroy such Bonds.

Section 4.06 Payment of Redemption Price.

(i) For the redemption of any of the Bonds, the Issuer shall cause to be deposited in the Bond Fund, on or prior to the date fixed for redemption, solely out of the Receipts and Revenues, an amount sufficient to pay the principal of and interest and any premium to become due on the date fixed for such redemption on the Bonds; provided that so long as a Credit Facility is in effect with respect to the Bonds and such Credit Facility does not cover some or all of the optional or mandatory redemption price, any amount payable as the optional or mandatory redemption price upon redemption of Bonds and not covered by such Credit Facility shall be on deposit in the Bond Fund and constitute Available Moneys prior to the Trustee giving any notice of redemption hereunder. The Bond Insurance Policy shall not cover payments for the redemption of any of the Bonds, other than payments of the redemption price and accrued interest due on the redemption date upon the mandatory redemption resulting from the occurrence of the Determination of Taxability pursuant to Section 4.01(b) hereof and payments of the redemption price and accrued interest due on the redemption date upon the extraordinary mandatory redemption pursuant to Section 4.01(c) hereof.

(ii) Moneys for payment of the principal of and interest and any premium to the date fixed for redemption on Bonds called for redemption and not presented for payment on the date fixed for redemption shall be set aside by the Trustee in trust for the Owners of such Bonds and shall be held uninvested. Interest on such Bonds shall cease to accrue on the date fixed for redemption.

Section 4.07 Bank Purchase Option.

(i) Notwithstanding any term or provision of this Indenture to the contrary, if a Credit Facility is in effect, (i) if an Event of Default shall occur and the Bonds are accelerated or (ii) if any Bonds shall be subject to redemption pursuant to Section 4.01 of this Indenture, or (iii) if the Remarketing Agent shall be unable to remarket Bonds as provided in Article XIV of this Indenture, then in any of such cases the Bank may from time to time in its discretion (in the manner provided in this Section 4.07) purchase all of the Bonds or the portion thereof that is subject to redemption, acceleration or which the Remarketing Agent has been unable to remarket, on the terms provided herein.

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(ii) The Bank shall notify the Trustee in writing of its exercise of its purchase option pursuant hereto at or before the time by which payment of any drawing of a Credit Facility is required in respect of the relevant acceleration, redemption or failure to remarket Bonds which gives rise to such purchase option. Such notice may be given after presentation by the Trustee of any document or draft under such Credit Facility with respect to such acceleration, redemption or failure to remarket, in which case purchase of the relevant Bonds by the Bank shall take precedence over such drawing; provided, that if the Bank has not exercised its purchase option and paid the purchase price of the Bonds being purchased by the time by which payment is due under such Credit Facility in respect of such drawing, the Bank shall pay such drawing pursuant to such Credit Facility. If the Trustee shall have presented drafts or documents under such Credit Facility, the Bank’s notice of exercise of its purchase option may accompany payment of the purchase price of Bonds being acquired. The purchase price of Bonds purchased by the Bank pursuant hereto shall be paid to the Trustee at such account as it shall specify and shall be distributed by the Trustee to the former owners from which such Bonds shall have been purchased; provided, that in the case of any Bonds purchased upon a failed remarketing pursuant to paragraph (vi) of this Section 4.07, the purchase price shall be paid to the Remarketing Agent for distribution to the former Owners of such Bonds which tendered them to the Tender Agent.

(iii) No purchase of any Bonds by the Bank in accordance herewith shall cause such Bonds to be extinguished or deemed paid, and upon payment of the purchase price of Bonds by the Bank, the Trustee shall authenticate and deliver to the Bank (or its nominee) as Owner a Bond or Bonds in an aggregate principal amount equal to the aggregate principal amount of Bonds so purchased (which shall be deemed to be in an “Authorized Denomination” for all purposes of this Indenture), and such Bonds so delivered shall be Outstanding Bonds that are entitled to the benefits of this Indenture equally and proportionately with all other Bonds; provided that the Trustee shall not make any drawing on a Credit Facility in respect of Bonds known by the Trustee to be held by the Bank (or its nominee) except as provided in paragraph (viii) of this Section 4.07. Bonds purchased by the Bank which are not delivered to the Trustee by the date upon which such Bonds were to have been purchased nonetheless will be deemed to have been purchased by the Bank, and the former Owner or Owners of such Bonds shall have no claim thereon, under this Indenture or otherwise, for any amount other than the purchase price thereof. Interest accruing after the purchase date of such Bonds shall no longer be payable to the former Owners thereof.

(iv) Bonds called for and subject to redemption pursuant to Section 4.01 of this Indenture may, at the option of the Bank, be purchased by the Bank pursuant to this Section 4.07 in lieu of such redemption on the date upon which such Bonds were to have been redeemed at a purchase price equal to the amount that would have been payable on such Bonds if such Bonds had been so redeemed, except as provided in paragraph (vii) of this Section 4.07; provided, that no Bond called for redemption shall be subject to purchase by the Bank

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pursuant to this Section 4.07 if (i) in connection with such redemption, the proceeds of a refunding shall be sufficient to pay, and shall be used to pay, the redemption price of the Bonds so redeemed or (ii) sufficient Available Moneys (other than proceeds of any drawing under a Credit Facility) shall have been deposited by the Borrower with the Trustee for the payment of all amounts due in respect of all Bonds called for redemption pursuant to Section 4.01 of this Indenture. The Bank shall pay the purchase price for Bonds purchased by the Bank on such redemption date.

(v) If an Event of Default occurs and the Bonds are accelerated, the Bank may purchase all Bonds, pursuant to this Section 4.07, for a purchase price equal to the principal amount of such Bonds plus interest accrued thereon to the date of purchase, except as otherwise provided in paragraph (vii) of this Section 4.07.

(vi) In the event that the Remarketing Agent shall be unable to remarket any Bonds as provided in Article XIV hereof, the Bank may, at its option, purchase all such unremarketed Bonds pursuant to this Section 4.07, at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, on the date on which such Bonds would otherwise be purchased by the Remarketing Agent pursuant to Section 14.03(b), except as otherwise provided in paragraph (vii) of this Section 4.07.

(vii) Upon a purchase of Bonds by the Bank pursuant to this Section 4.07, the Bank may, in its discretion, purchase all Bonds, if any, then held by the Trustee which have been purchased by or on behalf of the Borrower with moneys drawn under a Credit Facility as to which drawing the Borrower has not reimbursed the Bank in accordance with the Reimbursement Agreement without the payment of any cash purchase price therefor, but the Borrower’s reimbursement obligations under the Reimbursement Agreement shall be reduced by an amount equal to the principal amount of such Bonds so deemed purchased. The Bank may exercise its option pursuant to the preceding sentence by a notice to the Trustee given with or included in the relevant notice to the Trustee under paragraph (ii) of this Section 4.07, together with a notice which shall confirm that a Credit Facility has been reinstated in an equal amount.

(viii) Notwithstanding any term or provision of this Indenture to the contrary, the Trustee shall not without the prior written consent of the Bank make any drawing under a Credit Facility with respect to the principal amount of any Bonds known by the Trustee to be held by the Bank or its nominee; provided, that the Trustee shall make drawings of interest under a Credit Facility with respect to the Bonds held by the Bank or its nominee, as provided in this Indenture.

(ix) The purchase price of any Bonds to be purchased by the Bank in accordance with this Section 4.07 shall be paid by the Bank with its general funds and not directly or indirectly from funds or collateral on deposit with or pledged to the Bank for the account of the Issuer or the Borrower or any affiliate thereof, and such payment by the Bank shall not be deemed to be a draw under a Credit Facility.

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(x) Notwithstanding any term or provision of this Indenture or the Bonds to the contrary, if at any time all of the Outstanding Bonds are in aggregate held by the Bank or its nominee (whether pursuant to the provisions hereof or otherwise), the Bank shall not be entitled to exercise its rights under Section 4.08 of this Indenture or under the Bonds to require that the Bonds be purchased unless either (i) the Bank shall have given the Borrower, the Trustee and the Remarketing Agent at least 30 days prior written notice of its intention to exercise such rights or (ii) the Remarketing Agent shall have received from the Borrower offering materials relating to the Bonds which are, in the opinion of the counsel to the Borrower and the counsel to the Issuer, correct and complete in all material respects.

Section 4.08 Purchase of Bonds.

(a) Holder’s Option to Tender for Purchase.

(i) During any Daily Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased on any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest from the Interest Accrual Date immediately prior to the date of purchase to the date of purchase (unless the date of purchase shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office, by no later than 11:00 a.m. (New York City time) on such Business Day, of an irrevocable written, telephonic or Electronic notice which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 hereof. The Tender Agent shall keep a written record of the notice described in Clause (A).

(ii) During any Weekly Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased on any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, from the Interest Accrual Date immediately prior to the date of purchase to the date of purchase (unless the date of purchase shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office by no later than 5:00 p.m. (New York City time), on such Business Day at least seven (7) days prior to the date of purchase of an irrevocable written, telephonic or Electronic notice, which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 hereof. The Tender Agent shall keep a written record of the notice described in Clause (A).

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(iii) If any Bond is to be purchased in part pursuant to (i) or (ii) above, the amount so purchased and the amount not so purchased must each be an Authorized Denomination.

(iv) Any instrument delivered to the Tender Agent in accordance with this Section 4.08 shall be irrevocable with respect to the purchase for which such instrument was delivered and shall be binding upon any subsequent Owner of the Bond to which it relates, including any Bond issued in exchange therefor or upon the registration of transfer thereof, and as of the date of such instrument, the Owner of the Bonds specified therein shall not have any right to optionally tender for purchase such Bonds prior to the date of purchase specified in such notice. The Tender Agent and the Trustee may conclusively assume that any person (other than a holder) providing notice of optional tender pursuant to (i) or (ii) above is the Owner of the Bond to which such notice relates, and neither the Tender Agent nor the Trustee shall assume any liability in accepting such notice from any person whom it reasonably believes to be an Owner of Bonds.

(b) Mandatory Tender for Purchase.

(i) The Bonds shall be subject to mandatory tender for purchase at a purchase price, except as provided in paragraph (ii) below, equal to 100% of the principal amount thereof, plus accrued interest to the date of purchase described below, upon the occurrence of any of the events stated below:

(A) as to any Bond, on the effective date of any change in an Interest Rate Period for such Bond, other than the effective date of any change from a Daily Interest Rate Period to a Weekly Interest Rate Period or from a Weekly Interest Rate Period to a Daily Interest Rate Period; or

(B) as to each Bond in a Short-Term Interest Rate Period, on the day next succeeding the last day of each Bond Interest Term with respect to such Bond; or

(C) as to all Bonds, on the effective date of any Credit Facility which may be provided with respect to the Bonds pursuant to Section 6.08 of the Agreement or of any substitute Credit Facility provided with respect to the Bonds pursuant to Section 6.08 of the Agreement.

(ii) In the event that on a date the Bonds are subject to optional redemption pursuant to Section 4.01(a)(ii), the Borrower elects to change the Interest Rate Period with respect to the Bonds during a Long-Term Interest Rate Period to a different Interest Rate Period or to provide, substitute or terminate a Credit Facility, if any, during a Long-Term Interest Rate Period and thereby causes a mandatory tender of such Bonds as provided in Section 4.08(b)(i)(A) or

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(C), as the case may be, the Bonds shall be purchased on the applicable mandatory tender date at a purchase price equal to the principal amount thereof plus an amount equal to any premium which would have been payable on such day had the Borrower directed redemption of the Bonds pursuant to Section 4.01(a)(ii) hereof.

(iii) The Trustee shall give notice Electronically or by first class mail of the provision of any Credit Facility with respect to the Bonds or the provision of any substitute Credit Facility with respect to the Bonds to the holders of the Bonds at their addresses shown on the registration books kept by the Registrar, not later than the fifteenth day (thirtieth day if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the date on which the Bonds are subject to mandatory tender pursuant to Section 4.08(b)(i)(C), which notice shall (i) state the date of such provision or substitution; and (ii) state that such Bonds shall be subject to mandatory tender for purchase on the effective date of such provision or substitution in accordance with Section 4.08(b)(i)(C) hereof.

(c) Mandatory Tender for Purchase on Termination or Expiration of Credit Facility. In the event that any Credit Facility either is to terminate or is to expire in accordance with its terms (other than because a final drawing thereunder shall have been made in accordance with its terms), unless the term of the Credit Facility shall be extended or unless the Borrower shall provide the Trustee, no later than the 35^th day preceding the mandatory purchase date set forth herein with a substitute Credit Facility and with written evidence from Moody’s, if the Bonds shall be rated at the time by Moody’s, and from S&P, if the Bonds shall be rated at the time by S&P, and from Fitch, if the Bonds shall be rated at the time by Fitch to the effect that such substitute Credit Facility will not, by itself, result in a reduction or withdrawal of the rating on the Bonds by Moody’s, S&P or Fitch, as the case may be (and the Trustee shall have received written notice of such extension or such substitution and evidence thereof prior to giving the notice required in paragraph (b) above), the Bonds shall be subject to mandatory tender for purchase at a purchase price, payable in immediately available funds, of 100% of their principal amount, plus accrued interest, if any, to the mandatory purchase date, on the second Business Day prior to the date of such termination or expiration.

Section 4.09 Delivery of Tendered Bonds. With respect to any Book-Entry Bond, delivery of such Bond to the Tender Agent in connection with any optional or mandatory tender pursuant to Section 4.08 hereof shall be effected by the making of, or the irrevocable authorization to make, appropriate entries on the books of DTC or any DTC Participant to reflect the transfer of the beneficial ownership interest in such Bond to the account of the Tender Agent, or to the account of a DTC Participant acting on behalf of the Tender Agent. With respect to any Bond which is not a Book-Entry Bond, delivery of such Bond to the Tender Agent in connection with any optional or mandatory tender pursuant to Section 4.08 hereof shall be effected by physical delivery of such Bond to the Tender Agent at its Principal Office, by 1:00 p.m. (New York City time) on the purchase date, accompanied by a proper instrument of transfer thereof, in a form satisfactory to the Tender Agent, executed in blank by the holder thereof with the signature of such holder guaranteed in accordance with the guidelines set forth by one of the nationally recognized medallion signature programs.

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Section 4.10 Bonds Deemed Purchased.

(a) If moneys sufficient to pay the purchase price of Bonds to be purchased pursuant to Section 4.08 shall be held by the Tender Agent on the date such Bonds are to be purchased, such Bonds shall be deemed to have been purchased for all purposes of this Indenture, irrespective of whether or not such Bonds shall have been delivered to the Tender Agent, and neither the former holder of such Bonds nor any other person shall have any claim thereon, under this Indenture or otherwise, for any amount other than the purchase price thereof.

(b) In the event of non-delivery of any Bond to be purchased pursuant to Section 4.08 hereof, the Tender Agent shall segregate and hold uninvested the moneys for the purchase price of such Bonds in trust, without liability for interest thereon, for the benefit of the former holders of such Bonds, who shall, except as provided in the following sentence, thereafter be restricted exclusively to such moneys for the satisfaction of any claim for the purchase price of such Bonds. Any moneys which the Tender Agent shall segregate and hold in trust for the payment of the purchase price of any Bond and remaining unclaimed for two (2) years after the date of purchase shall be paid, upon the Borrower’s written request, to the Borrower. After the payment of such unclaimed moneys to the Borrower, the former holder of such Bond shall look only to the Borrower for the payment thereof.

Section 4.11 Payment Procedure Pursuant to Bond Insurance Policy. As long as the Bond Insurance Policy shall be in full force and effect, the Issuer and the Trustee shall comply with the following provisions:

(a) If, on the third day next preceding any Interest Payment Date for the Bonds there is not on deposit with the Trustee sufficient moneys available to pay all principal of and interest on the Bonds due on such date, the Trustee shall immediately notify the Bond Insurer and U.S. Bank Trust National Association, New York, New York, or its successor as its Fiscal Agent (the “Fiscal Agent”) of the amount of such deficiency. If, by said Interest Payment Date, the Issuer has not provided the amount of such deficiency, the Trustee shall simultaneously make available to the Bond Insurer and to the Fiscal Agent the Bond Register for the Bonds maintained by the Trustee. In addition:

(i) The Trustee shall provide the Bond Insurer with a list of the Owners entitled to receive principal or interest payments from the Bond Insurer under the terms of the Bond Insurance Policy and shall make arrangements for the Bond Insurer and its Fiscal Agent (1) to mail checks or drafts to Owners entitled to receive full or partial interest payments from the Bond Insurer and (2) to pay principal of the Bonds surrendered to the Fiscal Agent by the Owners entitled to receive full or partial principal payments from the Bond Insurer; and

(ii) The Trustee shall, at the time it makes the Bond Register available to the Bond Insurer pursuant to subsection (a) above, notify Owners entitled to receive the payment of principal of or interest on the Bonds from the Bond Insurer (1) as to the fact of such entitlement, (2) that the Bond Insurer will remit to them all or

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part of the interest payments coming due subject to the terms of the Bond Insurance Policy, (3) that, except as provided in subsection (b) below, in the event that any Owner is entitled to receive full payment of principal from the Bond Insurer, such Owner must tender its Bond with the instrument of transfer in the form provided on the Bond executed in the name of the Bond Insurer, and (4) that, except as provided in subsection (b) below, in the event that such Owner is entitled to receive partial payment of principal from the Bond Insurer, such Owner must tender its Bond for payment first to the Trustee, which shall note on such Bond the portion of principal paid by the Trustee, and then, with an acceptable form of assignment executed in the name of the Bond Insurer, to the Fiscal Agent, which will then pay the unpaid portion of principal to the Owner subject to the terms of the Bond Insurance Policy.

(b) In the event that the Trustee has notice that any payment of principal of or interest on a Bond has been recovered from an Owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee shall, at the time it provides notice to the Bond Insurer, notify all Owners that in the event that any Owner’s payment is so recovered, such Owner shall be entitled to payment from the Bond Insurer to the extent of such recovery, and the Trustee shall furnish to the Bond Insurer its records evidencing the payments of principal of and interest on the Bonds which have been made by the Trustee and subsequently recovered from Owners, and the dates on which such payments were made.

(c) The Bond Insurer shall, to the extent it makes payment of principal of or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Bond Insurance Policy and, to evidence such subrogation, (1) in the case of subrogation as to claims for past due interest, the Trustee shall note the Bond Insurer’s rights as subrogee on the Bond Register upon receipt from the Bond Insurer of proof of the payment of interest thereon to the Owners of such Bonds and (2) in the case of subrogation as to claims for past due principal, the Trustee shall note the Bond Insurer’s rights as subrogee on the Bond Register for the Bonds upon receipt of proof of the payment of principal thereof to the Owners of such Bonds. Notwithstanding anything in this Indenture or the Bonds to the contrary, the Trustee shall make payment of such past due interest and past due principal upon receipt thereof directly to the Bond Insurer to the extent that the Bond Insurer is a subrogee with respect thereto.

ARTICLE V

THE BOND FUND

Section 5.01 Creation of Bond Fund. There is hereby created by the Issuer and ordered established with the Trustee a trust fund in the name of the Issuer to be designated “Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company Palo Verde Project) Bond Fund,” (the “Bond Fund”). The Trustee shall establish one or more accounts within the Bond Fund for the purpose of segregating moneys drawn under a Credit Facility, if any, and Available Moneys therein, and may establish one or more accounts within the Bond Fund for other purposes.

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Section 5.02 Deposits into Bond Fund. There shall be deposited in the Bond Fund:

(i) The accrued interest and purchase premium, if any, paid by the initial purchasers of the Bonds;

(ii) All Repayment Installments and moneys drawn by the Trustee under a Credit Facility for the payment of principal of and interest and any premium on the Bonds, other than moneys paid by the Bank pursuant to Section 4.07 hereof or drawn under a Credit Facility pursuant to subsection (b) of Section 14.03 hereof or Section 4.07 hereof;

(iii) All other moneys received by the Trustee under and pursuant to any provision of the Agreement, other than Sections 5.04, 5.08 and 8.05 thereof, or from any other source when accompanied by directions by the Borrower that such moneys are to be paid into the Bond Fund; and

(iv) All moneys required to be deposited therein under any other provision of this Indenture.

Section 5.03 Use of Moneys in Bond Fund. Except as otherwise provided in Sections 5.05, 5.06, 5.08, 9.01, 10.10 and 11.04 hereof, moneys in the Bond Fund shall be used solely for the payment of the principal of and interest and any premium on the Bonds as the same shall become due and payable on an Interest Payment Date or at the Maturity Date, upon redemption or acceleration or otherwise. Funds for such payments of the principal of and interest and any premium on the Bonds shall be derived from the following sources in the order of priority indicated:

(i) moneys paid into the Bond Fund pursuant to Section 5.02(i) hereof, which shall be applied to the payment of interest on the Bonds;

(ii) proceeds of the sale of refunding obligations and proceeds from the investment thereof, deposited into the Bond Fund which constitute Available Moneys;

(iii) moneys furnished by the Borrower to the Trustee pursuant to the Agreement which have been deposited into the Bond Fund and constitute Available Moneys (other than funds under a Credit Facility) and proceeds from the investment thereof;

(iv) moneys drawn by the Trustee under a Credit Facility for the payment of the principal of or interest or any premium on the Bonds and deposited into the Bond Fund;

(v) moneys furnished by the Borrower to the Trustee pursuant to the Agreement and any other moneys available therefor and proceeds from the investment thereof;

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(vi) In addition to amounts required to be paid into the Bond Fund, the Trustee shall (i) in the case of Bonds to be purchased by the Tender Agent on behalf of the Borrower pursuant to Article IV hereof, draw moneys under a Credit Facility in accordance with the terms thereof to the extent necessary to make timely payments of the purchase price of the Bonds pursuant to such Article IV, but only to the extent moneys are not available from the sources set forth in clauses (i) and (ii) of Section 14.03(b) hereof, and furnish said moneys to the Tender Agent and (ii) in connection with the purchase of Bonds by the Trustee on behalf of or for the account of the Bank pursuant to Section 4.07, draw moneys under such Credit Facility in accordance with the terms hereof and of such Credit Facility in amounts sufficient to pay the purchase price of the Bonds so purchased to the extent sufficient funds are not otherwise timely furnished by the Bank to the Trustee; provided, however, that the principal of, premium, if any, and interest on Bonds held by the Borrower, the Tender Agent or the Trustee on behalf of the Borrower (or any affiliate thereof), shall not be paid from moneys drawn under such Credit Facility.

Section 5.04 Credit Facility.

(a) No Credit Facility relating to the Bonds will be delivered as of the date of issuance and delivery of the Bonds. A Credit Facility shall be required if the Bonds are converted to any Interest Rate Period other than a Long-Term Interest Rate Period and in such event, the Borrower shall be required to obtain prior written approval from the Bond Insurer for such Credit Facility and for a Bank providing such Credit Facility stating that the terms of such Credit Facility shall be satisfactory to the Bond Insurer, which approval shall not be unreasonably withheld.

(b) A Credit Facility shall be the obligation of a Bank to pay to the Trustee, in accordance with the terms thereof, such amounts as shall be specified therein and available to be drawn thereunder for the timely payment of the principal of and interest and, if permitted by a Credit Facility, any premium on the Bonds (whether at the Maturity Date, or upon acceleration or redemption or otherwise), and portions of the purchase price of Bonds corresponding to principal and interest thereon, and, if permitted by a Credit Facility, portions of the purchase price corresponding to premium on the Bonds, required to be made pursuant to, and in accordance with the provisions of this Indenture. Such Credit Facility shall be reduced to the extent of any drawings thereunder and reinstated in accordance with the terms thereof.

(c) The Trustee shall draw moneys under a Credit Facility in accordance with the terms thereof and the terms of the Tender Agreement to the extent necessary to make timely payments of principal of and interest and any premium, if drawings thereunder shall be available to pay premium, on the Bonds required to be made from the Bond Fund or to enable the Tender Agent to pay the purchase price of Bonds purchased pursuant to Section 14.03(b) hereof; provided, however, that, anything herein to the contrary notwithstanding, in no event shall the Trustee draw moneys under such Credit Facility in order to make payments of principal of or interest or any premium on, or to enable the Tender Agent to pay the purchase price of, Bonds held of record by the Borrower (or any

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affiliate thereof) or held by the Tender Agent or the Trustee for the account of the Borrower or delivered to and held of record by, or held for the account of, the Bank pursuant to Section 14.05(c) hereof if such Credit Facility prohibits by its terms a drawing thereunder for such purpose; provided, further, however, that the Trustee may draw moneys under such Credit Facility in order to make payment of interest on Bonds held of record by the Borrower (or any affiliate thereof), the Bank or by the Tender Agent or the Trustee for the account of the Borrower or the Bank pursuant to Section 14.05(c) hereof if such Bond was not so held by or for the account of the Borrower or the Bank on the immediately preceding Record Date. Upon any reduction in the aggregate principal amount of Bonds Outstanding, the Trustee shall request the Bank to permanently reduce the amounts that may be drawn under the applicable Credit Facility to those amounts which are then required pursuant to Section 6.08 of the Agreement. For extensions of the term of a Credit Facility, the Trustee shall surrender the applicable Credit Facility to the Bank (if so directed by the Bank) in exchange for a Credit Facility of the Bank conforming in all material respects to the applicable Credit Facility except that the expiration date shall be extended. If at any time there shall cease to be any Bonds Outstanding hereunder, the Trustee shall promptly surrender the applicable Credit Facility to the Bank, in accordance with the terms of the applicable Credit Facility, for cancellation.

(d) If at any time there shall have been delivered to the Trustee, all as described in and in accordance with Section 6.08 the Agreement, (i) a notice of the Borrower, (ii) the required opinion of Bond Counsel and (iii) a Credit Facility, if any, described in such notice, then the Trustee shall accept such Credit Facility, if any, and comply with the direction of the Borrower, if any, contained in such notice. If the delivery of such Credit Facility does not result in a mandatory tender for purchase of all Bonds pursuant to Section 4.08(b) hereof, the Trustee shall give notice by first-class mail of the delivery of such Credit Facility to the Owners of the Bonds not less than 20 days prior to the date of the expiration or termination of a Credit Facility then in effect. Such notice shall state that the Borrower has caused to be provided the new Credit Facility, shall describe the new Credit Facility (including. its effective date and scheduled expiration date) and shall state that the Borrower has delivered written evidence from Moody’s, if the Bonds are then rated by Moody’s and from S&P, if the Bonds are then rated by S&P, and from Fitch, if the Bonds are then rated by Fitch, that none of Moody’s nor S&P nor Fitch will reduce or withdraw its rating then in effect with respect to the Bonds as a result of the proposed delivery of the new Credit Facility.

Section 5.05 Custody of Bond Fund; Withdrawal of Moneys. The Bond Fund shall be in the custody of the Trustee but in the name of the Issuer and the Issuer hereby irrevocably authorizes and directs the Trustee to withdraw from the Bond Fund and furnish to the Paying Agent funds sufficient to pay the principal of and interest and any premium on the Bonds as the same shall become due and payable, and to withdraw from the Bond Fund funds sufficient to pay any other amounts payable therefrom as the same shall become due and payable. If and to the extent that moneys remain in the Bond Fund after payment of such principal, interest and premium, if any, and are not required to be held therein pursuant to Section 5.06, such moneys shall be paid to the Bank, to the extent that there shall then be amounts due and payable to the Bank pursuant to the Reimbursement Agreement and the Bank has notified the Trustee thereof

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and the Bond Insurer, to the extent that there shall then be amounts due and payable to the Bond Insurer pursuant to the Insurance Agreement and the Bond Insurer has notified the Trustee thereof.

Section 5.06 Bonds Not Presented for Payment. In the event any Bond shall not be presented for payment when the principal thereof (or any portion of such principal) becomes due, either at the Maturity Date or at the date fixed for redemption thereof or otherwise or in the event that any interest payment remains unclaimed, if moneys sufficient to pay such Bonds or portions thereof or such interest are held by the Paying Agent for the benefit of the Owners thereof, the Paying Agent shall segregate and hold such moneys uninvested without liability for interest thereon, for the benefit of Owners of such Bonds, who shall, except as provided in the following paragraph, thereafter be restricted exclusively to such fund or funds for the satisfaction of any claim of whatever nature on their part under this Indenture or relating to said Bonds.

Any moneys which the Paying Agent shall segregate and hold for the payment of the principal of or interest or any premium on any Bond and remaining unclaimed for two years after such principal, interest or any premium shall have become due and payable shall be paid to the extent legally permissible (i) if, at the time, there shall be amounts due and payable to the Bond Insurer or the Bank pursuant to the Reimbursement Agreement, or (ii) if no such amounts shall be due and payable, to the Borrower, with notice to the Trustee of such action. For purposes of this Indenture, the Paying Agent may conclusively assume that no such indebtedness, liability or obligation is owing to the Bond Insurer or the Bank unless the Bond Insurer or the Bank shall otherwise give written notice to the Paying Agent. After the payment of such unclaimed moneys to the Bond Insurer, the Bank or the Borrower, the Owner of such Bond shall look only to the Borrower for the payment thereof.

Section 5.07 Moneys Held in Trust. All moneys required to be deposited with or paid to the Trustee for deposit into the Bond Fund under any provision hereof and all moneys withdrawn from the Bond Fund and held by the Trustee or the Paying Agent shall be held by the Trustee or the Paying Agent, as the case may be, in trust, and such moneys (other than moneys held pursuant to Section 5.06 hereof) shall, while so held, constitute part of the Trust Estate and be subject to the lien hereof for the benefit of the Owners.

Section 5.08 Payment to the Bank and to the Borrower. Any moneys remaining in the Bond Fund after the right, title and interest of the Trustee in and to the Trust Estate and all covenants, agreements and other obligations of the Issuer under this Indenture shall have ceased, terminated and become void and shall have been satisfied and discharged in accordance with Article IX hereof, shall be paid (a) if, at that time, there shall be amounts due and payable to the Bank pursuant to the Reimbursement Agreement, if any, and the Bank has notified the Trustee thereof, to the Bank, or (b) if, at that time, there shall be amounts due and payable to the Bond Insurer pursuant to the Insurance Agreement, to the Bond Insurer, or (c) no such amounts shall be so due and payable, to the Borrower.

ARTICLE VI

[RESERVED]

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ARTICLE VII

INVESTMENTS

Section 7.01 Investments. The moneys in the Bond Fund (other than the moneys described in Sections 4.06(ii), 5.04(c) and 5.06 hereof, which may not be invested) shall, but only at the direction of the Borrower, be invested and reinvested in Investment Securities to the extent not prohibited by applicable law as determined by the Borrower. The income from, and any gain or loss from, any investment shall be credited or charged to the Bond Fund from which such investment was made. Investment Securities will be registered in the name of the Trustee or its nominee and held by or under the control of the Trustee. Subject to the further provisions of this Section 7.01, such investment shall be made, and such agreements entered into, by the Trustee as directed and designated by the Borrower in a certificate of, or telephonic advice promptly confirmed by a certificate of, an Authorized Borrower Representative. In the absence of any such direction, the Trustee shall invest all funds in the Investment Securities defined by clause (viii) of the definition thereof. As and when any amounts thus invested (including investments of Available Moneys) may be needed for disbursements from the Bond Fund; the Trustee shall cause a sufficient amount of such investments to be sold or otherwise converted into cash to the credit of such Bond Fund. As long as no Event of Default (as defined in Section 10.01 hereof) shall have occurred and be continuing, the Borrower shall have the right to designate the investments to be sold and to otherwise direct the Trustee in the sale or conversion to cash of the investments made with the moneys in the Bond Fund; provided that, the Trustee shall be entitled to conclusively assume the absence of any such Event of Default unless it has notice thereof within the meaning of Section 11.05 hereof. The Trustee shall have no responsibility under this Indenture with respect to the compliance by the Borrower or the Issuer with any covenant herein or in the Agreement regarding the yield on, or tax-exempt nature of investments made in accordance with this Section 7.01, other than to use its best efforts to comply with instructions from the Borrower or the Issuer regarding such investments and the Trustee shall bear no responsibility for losses incurred from such investments or the sale thereof. Moneys held by the Tender Agent in the Purchase Fund shall not be invested. The Trustee may acquire or sell any Investment Security through itself or an affiliate, as principal or agent.

ARTICLE VIII

GENERAL COVENANTS

Section 8.01 Limited Obligation; Payment of Principal and Interest. Each and every covenant herein made, including all covenants made in the various Sections of this Article VIII, is predicated upon the condition that any obligation for the payment of money incurred by the Issuer shall not be the general obligation of the Issuer within the meaning of the Constitution of Arizona, and shall never constitute an indebtedness of the Issuer within the meaning of any State of Arizona constitutional provision or statutory limitation, and shall never constitute or give rise to any pecuniary liability of the Issuer or a charge against its general credit or taxing powers, but shall be payable by the Issuer solely from the Receipts and Revenues from the Agreement, which are required to be set apart and transferred to the Bond Fund, and which, along with the balance of the Trust Estate, are hereby specifically pledged to the payment thereof in the manner and to the extent specified in this Indenture, and nothing in the Bonds or in this Indenture shall be considered as pledging or obligating any other funds or assets of the Issuer.

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The Issuer will in the manner provided herein and in the Bonds, according to the true intent and meaning thereof, promptly cause to be paid, solely from the sources stated herein, at the place and on the dates provided herein, the principal of and premium, if any, and interest on every Bond issued under this Indenture.

Section 8.02 Performance of Agreements; Authority. The Issuer will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in any and every Bond executed, authenticated and delivered hereunder, and in all proceedings pertaining thereto. The Issuer represents that it has the authority under the Constitution and laws of the State of Arizona to issue the Bonds authorized hereby, to enter into the Agreement, and to pledge to the Trustee the Receipts and Revenues from the Agreement and to pledge and assign to the Trustee all or any part of the Issuer’s right, title and interest under the Agreement pledged and assigned hereunder, and that the Bonds in the hands of the Owners thereof are and will be valid and enforceable obligations of the Issuer according to the import thereof.

Section 8.03 Maintenance of Corporate Existence; Compliance with Laws. The Issuer will at all times maintain its corporate existence or assure the assumption of its obligations under this Indenture by any public body succeeding to its powers under the Act, and it will use its best efforts to maintain, preserve and renew all the rights and powers provided to it by the Act; and it will comply with all valid acts, rules, regulations, orders and directions of any legislative, executive, administrative or judicial body applicable to the Agreement.

Section 8.04 Enforcement of Borrower’s Obligations under the Agreement. So long as any of the Bonds are Outstanding, upon receipt of written notification from the Trustee, the Issuer will, in the manner provided herein and giving due recognition to the role of the Trustee hereunder, enforce the obligation of the Borrower to pay, or cause to be paid, all the payments and other costs and charges payable by the Borrower under the Agreement, provided, however, that the Issuer shall not be required to spend any of its own funds in any such enforcement. The Issuer will not enter into any agreement with the Borrower amending the Agreement without the prior written consent of the Trustee and compliance with Sections 13.06 and 13.07 hereof.

Section 8.05 Further Assurances. The Issuer will, upon the reasonable request of the Trustee, from time to time execute and deliver such further instruments and take such further action as may be reasonable and as may be required to carry out the purpose of this Indenture; provided, however, that no such instruments or actions shall give rise to any pecuniary liability of the Issuer or pledge the credit or taxing power of the State of Arizona, the Issuer or any other political subdivision of said State.

Section 8.06 No Disposition or Encumbrance of Issuer’s Interests. Except as permitted by this Indenture, the Issuer will not sell, lease, pledge, assign or otherwise dispose of or encumber its interest in the Receipts and Revenues from the Agreement or its rights and interest under the Agreement pledged and assigned hereunder and will promptly pay or cause to be discharged or make adequate provision to satisfy and discharge any lien or charge on any part thereof not permitted by this Indenture.

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Section 8.07 Trustee’s Access to Books Relating to Facilities. All books and documents in the possession of the Issuer relating to the Facilities and the moneys, revenues and receipts derived from the Facilities shall at all reasonable times be open to inspection by such accountants or other agencies as the Trustee may from time to time designate. The Trustee shall permit the Borrower or its designee reasonable access to records relating to the investment of the proceeds of the Bonds or any other records relating to the Bonds necessary to assure compliance with Section 148 of the Code.

Section 8.08 Filing of Financing Statements. Appropriate financing statements, naming the Trustee as secured party with respect to the Receipts and Revenues from the Agreement and the other moneys pledged by the Issuer under this Indenture for the payment of the principal of and premium, if any, and interest on the Bonds, and as pledgee and assignee of certain of the Issuer’s rights and interest under the Agreement, shall be duly filed and recorded in the appropriate state and county offices as required by the provisions of the Uniform Commercial Code or other similar law as adopted in the State of Arizona, the state in which lies the Principal Office of the Trustee and any other applicable jurisdiction, as from time to time amended. The Trustee will file and record, with such assistance as necessary from the Issuer and the Borrower, such necessary continuation statements from time to time as may be required pursuant to the provisions of said Uniform Commercial Code or other similar law to protect the interest of the Trustee.

Section 8.09 Tax Covenant. The Issuer covenants for the benefit of the purchasers of the Bonds that it will not take any action or fail to take any action reasonably within its control which would, under the Code, Regulations of the Department of the Treasury of the United States of America (including Temporary Regulations and Proposed Regulations) under the Code applicable to the Bonds, rulings and court decisions, cause the interest payable on the Bonds to be includable in the gross income of the holders thereof for Federal income tax purposes (other than a “substantial user” of the Facilities or a “related person” as those terms are used in Section 147(a) of the Code). Pursuant to such covenant, the Issuer obligates itself to comply throughout the term of the issue of the Bonds with the requirements of Section 148 of the Code and any regulations promulgated thereunder.

The Borrower by its execution of the Agreement has covenanted to restrict the investment of money in the funds created under this Indenture in such manner and to such extent, if any, as may be necessary, so that the Bonds will not constitute “arbitrage bonds” under Section 148 of the Code.

Section 8.10 Notices by Trustee. The Trustee shall give the same notices to the Issuer that it is required to give to the Borrower, and to the Borrower that it is required to give to the Issuer, pursuant to the terms of this Indenture and, additionally, shall give written or Electronic notice to the Issuer, the Borrower and the Remarketing Agent of any prior redemption pursuant to Section 4.01 hereof.

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Section 8.11 No Transfer of Credit Facility. Except as provided in Section 5.04 hereof, the Trustee shall not sell, assign or transfer a Credit Facility except to a successor trustee under this Indenture and as contemplated by Section 11.16 hereof.

ARTICLE IX

DEFEASANCE

Section 9.01 Defeasance. If the Issuer shall pay or cause to be paid with Available Moneys to the Owner of any Outstanding Bond secured hereby the principal of and interest and any premium due and payable, and thereafter to become due and payable, on such Bond, or any portion of such Bond in an Authorized Denomination, such Bond or portion thereof shall cease to be entitled to any lien, benefit or security under this Indenture (except as set forth in Section 9.02 hereof). If the Issuer shall pay or cause to be paid with Available Moneys to the owners of all the Bonds the principal thereof and interest and any premium due and payable and thereafter to become due and payable thereon, and shall pay or cause to be paid all other sums payable hereunder by the Issuer, or payable under the Agreement by the Borrower, then the right, title and interest of the Trustee in and to the Trust Estate shall thereupon cease, terminate and become void. In such event, the Trustee shall assign, transfer and turn over the Trust Estate, including, without limitation, any surplus in the Bond Fund and any balance remaining in any other fund created under this Indenture, (i) if, at that time, there shall be amounts due and payable to the Bank pursuant to the Reimbursement Agreement and the Bank has notified the Trustee thereof, to the Bank, or (ii) if no such amounts shall be so due and payable, to the Borrower.

All Outstanding Bonds shall, prior to the Maturity Date or redemption date thereof, be deemed to have been paid within the meaning and with the effect expressed in this Article IX (except as set forth in Section 9.02 hereof) when

(a) in the event the Bonds are to be redeemed, the Trustee shall have given, or the Borrower shall have given to the Trustee in form satisfactory to the Trustee irrevocable instruction to give, on a date in accordance with the provisions of Article IV hereof, notice of redemption of the Bonds,

(b) all Outstanding Bonds then bear interest at a Long-Term Interest Rate during a Long-Term Interest Rate Period ending on or after the redemption date or on the day immediately preceding the Maturity Date, as the case may be, or at Bond Interest Term Rates for Bond Interest Terms which end on the redemption date or the day immediately preceding the Maturity Date, as the case may be, and there shall have been deposited with the Trustee either moneys in an amount which shall be sufficient, or fixed rate Government Obligations (i) which shall not contain provisions permitting the redemption or prepayment thereof at the option of the issuer thereof, (ii) which mature no later than the earlier of (A) the date fixed for the redemption of the Bonds and (B) the Maturity Date, and (iii) the principal of and the interest on which, when due, and without any regard to reinvestment thereof, will provide moneys which, together with the moneys, if any, deposited with or held by the Trustee, shall be sufficient, based on the written opinion of a firm of certified public accountants acceptable to the Trustee, delivered to the Trustee, to pay when due the principal of and interest and any premium

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due and to become due on the Bonds on and prior to the redemption date or Maturity Date, as the case may be; provided, however, that such moneys shall constitute Available Moneys and that such Government Obligations shall have been purchased with Available Moneys, and provided further, that if a forward supply contract is employed in connection with the redemption, such certified public accountant’s opinion shall expressly state that the adequacy of the Available Moneys and Government Obligations to accomplish the redemption relies solely on the initial deposited investments and the maturing principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract, and

(c) in the event the Bonds do not mature and are not to be redeemed within the next succeeding 60 days, the Borrower shall have given the Trustee, in form satisfactory to it, irrevocable instructions to give, as soon as practicable in the same manner as a notice of redemption is given pursuant to Section 4.03 hereof, a notice to the Owners that the deposit required by clause (b) above has been made with the Trustee and that the Bonds are deemed to have been paid in accordance with this Article IX and stating the Maturity Date or redemption date upon which moneys are to be available for the payment of the principal of and interest and any premium on the Bonds.

Neither the Government Obligations nor moneys deposited with the Trustee pursuant to this Article IX nor principal or interest payments on any such Government Obligations shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of and interest and any premium on the Bonds; provided that any cash received from such principal or interest payments on such Government Obligations deposited with the Trustee, if not then needed for such purpose, shall be invested, to the extent practicable, at the direction of the Borrower, in Government Obligations of the type and tenor described in clause (b) of the immediately preceding paragraph, and interest earned from such reinvestment shall be paid as received by the Trustee (i) if, at that time, there shall be amounts due and payable to the Bank pursuant to the Reimbursement Agreement and the Bank has notified the Trustee thereof, to the Bank, (ii) if, at that time, there shall be amounts due and payable to the Bond Insurer pursuant to the Insurance Agreement, to the Bond Insurer, or (iii) if no such amounts shall be so due and payable, to the Borrower.

Section 9.02 Survival of Certain Provisions. Notwithstanding the foregoing, any provisions of this Indenture which relate to the payment of the principal of or any premium on Bonds at the Maturity Date or pursuant to redemption, as the case may be, interest payments and dates thereof, exchange, transfer and registration of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, the holding of moneys in trust and repayments to the Bank, the Bond Insurer or the Borrower from the Bond Fund or the Purchase Fund and the duties of the Trustee, the Registrar, the Remarketing Agent and the Paying Agent in connection with all of the foregoing, shall remain in effect and be binding upon the Issuer, the Trustee, the Remarketing Agent, the Tender Agent, the Registrar, the Paying Agent and Owners notwithstanding the release and discharge of this Indenture. The provisions of this Section shall survive the release, discharge and satisfaction of this Indenture provided, however, that the provisions of Section 2.01 hereof, permitting adjustments in the Interest Rate Period with respect to the Bonds, shall not be in effect after the release and discharge of this Indenture.

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ARTICLE X

DEFAULTS AND REMEDIES

Section 10.01 Events of Default.

(a) Each of the following events shall constitute and is referred to in this Indenture as an “Event of Default” ( except that in making such determination no effect shall be given to payments made under the Bond Insurance Policy):

(i) a failure to pay the principal of or any premium on any of the Bonds when the same shall become due and payable at the Maturity Date or upon redemption;

(ii) a failure to pay an installment of interest on any of the Bonds after such interest has become due and payable;

(iii) a failure to pay an amount due pursuant to Section 4.08 hereof after such payment has become due and payable;

(iv) an “Event of Default” as such term is defined in Section 8.01 of the Agreement;

(v) prior to termination or expiration of a Credit Facility, receipt by the Trustee, prior to the date set forth in a Credit Facility for automatic reinstatement of interest following a drawing under a Credit Facility to pay accrued interest on the Bonds, of notice from the Bank in accordance with a Credit Facility that a Credit Facility will not be reinstated in respect of such interest;

(vi) prior to termination or expiration of a Credit Facility and payment in full of all amounts due under the Reimbursement Agreement, receipt by the Trustee of written notice from the Bank that an “Event of Default” under the Reimbursement Agreement has occurred and is continuing; or

(vii) a failure by the Issuer to observe and perform any covenant, condition, agreement or provision (other than as specified in clauses (i), (ii) and (iii) of paragraph (a) of this Section 10.01) contained in the Bonds or in this Indenture on the part of the Issuer to be observed or performed, which failure shall continue for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, shall have been given to the Issuer and the Borrower by the Trustee, which may give such notice in its discretion and shall give such notice at the written request of the Owners of a majority in principal amount of the Bonds then Outstanding, unless the Trustee or the Owners of Bonds then Outstanding in principal amount not less than the principal amount of Bonds the Owners of which requested such notice, as the case may be, shall agree in writing to an extension of such period prior to its expiration; provided, however, that the Trustee, or the Trustee and the Owners of such principal amount of Bonds, as the case may be, shall be deemed to have agreed to an extension of such period if corrective action is initiated by the Issuer, or the Borrower on behalf of the Issuer, within such period and is being diligently pursued.

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(b) If:

(i) (A) a Credit Facility is then in effect and (B) an Event of Default described in clause (i), (ii) or (iii) of paragraph (a) of this Section 10.01 shall occur and be continuing, the Trustee may, and at the written request of the owners of a majority in principal amount of Bonds then Outstanding, the Trustee shall, or

(ii) (A) a Credit Facility is then in effect and (B) an Event of Default described in clause (iv) of paragraph (a) of this Section 10.01 shall occur and be continuing, at the written request of the Bank, the Trustee shall, or

(iii) (A) a Credit Facility is then in effect and (B) an Event of Default described in clause (v) or (vi) of paragraph (a) of this Section 10.01 shall occur and be continuing, the Trustee shall, or

(iv) (A) a Credit Facility is not then in effect or if the Bank shall have wrongfully failed to honor a drawing under such Credit Facility then in effect and (B) an Event of Default described in clause (i), (ii), (iii), (iv), (v), or (vi) of paragraph (a) of this Section 10.01 shall occur and be continuing, the Trustee may, and at the written request of the Owners of a majority in principal amount of Bonds then Outstanding, the Trustee shall, subject to the Bank’s right to purchase the Bonds pursuant to Section 4.07 in the circumstances set forth therein, by written notice to the Issuer, the Bank, and the Borrower, declare the Bonds to be immediately due and payable, whereupon they shall, without further action, become and be immediately due and payable, anything in this Indenture or in the Bonds to the contrary notwithstanding, and the Trustee shall give notice thereof to the Tender Agent, the Remarketing Agent, the Bond Insurer and the Owners and shall immediately (and in no event later than five (5) days thereafter) draw under a Credit Facility to the extent provided in Section 5.04 hereof. If the principal of all of the Bonds shall have been declared due and payable while a Credit Facility shall be in effect, interest on such Bonds shall cease to accrue on the date of the drawing on a Credit Facility with respect to such declaration unless such drawing is pursuant to the Bank’s purchase of the Bonds in accordance with Section 4.07 hereof. The Trustee shall not be entitled to accelerate the principal of the Bonds upon the occurrence of an Event of Default described in clause (vii) of paragraph (a) of this Section 10.01.

(c) The provisions of paragraph (b)(iv), however, are subject, when no Credit Facility shall be in effect, to the condition that if, after the principal of the Bonds shall have been so declared to be due and payable, and before any judgment or decree-for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Issuer shall cause to be deposited with the Trustee a sum sufficient to pay all matured installments of interest upon all Bonds, premium, if any, and the principal of any and all Bonds which shall have become due otherwise than by reason of such declaration (with

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interest upon such principal and, to the extent permissible by law, on overdue installments of interest, at the rate per annum borne by the Bonds on the date of such declaration) and such amounts as shall be sufficient to cover reasonable compensation and reimbursement of expenses payable to the Trustee, and all Events of Default hereunder other than nonpayment of the principal of Bonds which shall have become due by said declaration shall have been remedied or waived, then, in every such case, such Event of Default shall be deemed waived and such declaration and its consequences rescinded and annulled, and the Trustee shall promptly give written or Electronic notice of such waiver, rescission and annulment to the Issuer, the Borrower, the Remarketing Agent, and, if notice of the acceleration of the Bonds shall have been given to the Owners, shall give notice thereof to the Owners; but no such waiver, rescission and annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon.

(d) The provisions of paragraph (b) are, further, subject to the condition that (i) if an Event of Default described in clauses (v) or (vi) of paragraph (a) shall have occurred and the Trustee shall thereafter have received written notice from the Bank that the notice of the Bank which caused the occurrence of such Event of Default shall have been withdrawn and (ii) if any drawing under a Credit Facility shall have been made and a Credit Facility shall have been reinstated as to principal to an amount equal to the outstanding principal amount of the Bonds and as to interest to an amount which at least equals, depending on the type of Interest Rate Period then in effect, the coverage required by Section 2.01(c)(vi) hereof to permit such Interest Rate Period to go into effect, and the Trustee shall have received written notice from the Bank of such reinstatement, then such Event of Default shall be waived, and the consequences of such Event of Default rescinded and annulled and the Trustee shall promptly give written notice of such waiver, rescission and annulment to the Issuer, the Borrower, the Bank, the Tender Agent, the Bond Insurer, the Remarketing Agent, and, if notice of the acceleration of the Bonds shall have been given to the Owners, shall give notice thereof to the Owners; but no such waiver, rescission and annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon. Notwithstanding anything to the contrary set forth herein, any acceleration of the Bonds or annulment thereof shall be subject to the prior written consent of the Bond Insurer (so long as it has not failed to comply with its payment obligations under the Bond Insurance Policy).

Section 10.02 Remedies. In addition to the rights conferred, or obligation imposed, upon the Trustee under Section 10.01 hereof to accelerate the principal of the Bonds upon the occurrence and continuance of any Event of Default, then and in every such case the Trustee in its discretion may, and upon the written request of the Bank, the Bond Insurer or the Owners of a majority in principal amount of the Bonds then Outstanding and receipt of indemnity to its satisfaction shall, in its own name and as the Trustee of an express trust:

(i) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Owners of the Bonds, and require the Issuer, the Bank, the Bond Insurer and the Borrower to carry out any agreements with or for the benefit of the Owners and to perform their duties under the Act, the Agreement, a Credit Facility, the Bond Insurance Policy and this Indenture;

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(ii) bring suit upon the Bonds or a Credit Facility or the Bond Insurance Policy; or

(iii) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Owners of the Bonds.

Section 10.03 Restoration to Former Position. In the event that any proceeding taken by the Trustee to enforce any right under this Indenture shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every case the Issuer, the Trustee and the Owners of the Bonds shall be restored to their former positions and rights hereunder, respectively, and all rights, remedies and powers of the Trustee shall continue as though no such proceeding had been taken.

Section 10.04 Bond Insurer’s Right to Direct Proceedings. Subject to the provisions of Section 4.07 hereof relating to the rights of the Bank and subject in the circumstances set forth as described therein, anything in this Indenture to the contrary notwithstanding, so long as it is not in default on its payment obligations under the Bond Insurance Policy, the Bond Insurer shall be treated as the “Owner” of the Bonds and shall have the right, by an instrument in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all remedial proceedings available to the Trustee under this Indenture or exercising any trust or power conferred on the Trustee by this Indenture.

Section 10.05 Limitation on Owners’ Right to Institute Proceedings. No owner shall have any right to institute any suit, action or proceedings in equity or at law for the execution of any trust or power hereunder, or any other remedy hereunder or on said Bonds, unless (i) such Owner previously shall have given to the Trustee. written notice of an Event of Default as hereinabove provided, (ii) the owners of a majority in principal amount of the Bonds then Outstanding shall have made written request of the Trustee so to do, after the right to institute said suit, action or proceeding shall have accrued, and shall have afforded the Trustee a reasonable opportunity to proceed to institute the same in either its or their name, (iii) there also shall have been offered to the Trustee security and indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby, and (iv) the Trustee shall not have complied with such request within a reasonable time after such notice, request and offer of indemnity; and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the institution of said suit, action or proceeding; it being understood and intended that no one or more of the Owners shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Indenture, or to enforce any right hereunder or under the Bonds, except in the manner herein provided, and that all suits, actions and proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all Owners.

Section 10.06 No Impairment of Right to Enforce Payment. Notwithstanding any other provision in this Indenture, the right of any Owner to receive payment of the principal of and interest and any premium on such Bond, on or after the respective due dates expressed therein or applicable redemption dates, or to institute suit for the enforcement of any such payment on or after such respective date, shall not be impaired or affected without the consent of such Owner.

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Section 10.07 Proceeding by Trustee Without Possession of Bonds. All rights of action under this Indenture or under any of the Bonds secured hereby which are enforceable by the Trustee may be enforced by it without the possession of any of the Bonds or the production thereof at the trial or other proceedings relative thereto. Any such suit, action or proceeding instituted by the Trustee shall be brought in its name for the equal and ratable benefit of the Owners subject to the provisions of this Indenture.

Section 10.08 No Remedy Exclusive. No remedy herein conferred upon or reserved to the Trustee, the Bank, the Bond Insurer or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative, and shall be in addition to every other remedy given hereunder or under the Agreement, or now or hereafter existing at law or in equity or by statute.

Section 10.09 No Waiver of Remedies. No delay or omission of the Trustee, the Bank, the Bond Insurer or of any Owner of a Bond to exercise any right or power accruing upon any default shall impair any such right or power accruing upon any default or shall be construed to be a waiver of any such default, or an acquiescence therein. Every power and remedy given by this Article X to the Trustee, the Bank, the Bond Insurer and to the Owners of the Bonds, respectively, may be exercised from time to time as often as may be deemed expedient.

Section 10.10 Application of Moneys. Any moneys received by the Trustee, by any receiver or by any Owner of a Bond pursuant to any right given or action taken under the provisions of this Article X (other than moneys received by the Trustee in consequence of the exercise by the Bank of its right to purchase the Bonds pursuant to Section 4.07) or under the provisions of the Agreement after payment of the costs and expenses of the proceedings resulting in the collection of such moneys, including any amounts due to the Trustee pursuant to Section 11.04 hereof and under the Agreement (except that proceeds of a drawing under a Credit Facility and any moneys held pursuant to Section 5.06 hereof may not be so used), shall be deposited in the Bond Fund and all moneys so deposited in the Bond Fund during the continuance of an Event of Default (other than moneys for the payment of Bonds which had matured or otherwise become payable prior to such Event of Default or for the payment of interest due prior to such Event of Default) shall be applied as follows:

(a) Unless the principal of all the Bonds shall have been declared due and payable, all such moneys shall be applied (i) first, to the payment to the persons entitled thereto of all installments of interest then due on the Bonds, with interest on overdue installments, if lawful, at the rate per annum borne by the Bonds on the date of occurrence of such Event of Default, in the order of maturity of the installments of such interest and, if the amount available shall not be sufficient to pay in full any particular installment of interest, then to the payment ratably, according to the amounts due on such installment, and (ii) second, to the payment to the persons entitled thereto of the unpaid principal of and any premium on any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which money is held pursuant to the provisions of this Indenture) with interest on such Bonds at their rate on the date of occurrence of such Event of Default from the respective dates upon which they became due and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the

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amount of principal and interest and any premium due on such date, in each case to the persons entitled thereto, without any discrimination or privilege; provided, however, that moneys derived from the exercise of rights by the Trustee under a Credit Facility shall not be applied to the payment of the principal of or premium or interest on Bonds held of record by the Borrower or any affiliate thereof or by the Tender Agent for the account of the Borrower.

(b) If the principal of all the Bonds shall have been declared due and payable and the Bank has not exercised its option to direct the Trustee to purchase all Bonds on behalf of the Bank pursuant to Section 4.07 hereof, all such moneys shall be applied to the payment of the principal and interest then due and unpaid upon the Bonds, with interest on overdue interest and principal, as aforesaid, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or privilege; provided, however, that moneys derived from the exercise of rights by the Trustee under a Credit Facility shall not be applied to the payment of the principal of or premium or interest on Bonds held of record by the Borrower or any affiliate thereof or by the Tender Agent for the account of the Borrower.

(c) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article X, subject to the provisions of clause (b) of this Section 10.10 which shall be applicable in the event that the principal of all the Bonds shall later become due and payable, the moneys shall be applied in accordance with the provisions of clause (a) of this Section 10.10.

Whenever moneys are to be applied pursuant to the provisions of this Section 10.10, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which, while a Credit Facility shall be in effect, shall be within five days of any declaration of acceleration and, if possible, an Interest Payment Date unless it shall deem another date more suitable) upon which such application is to be made and, upon such application, interest on the amounts of principal, premium and interest to be paid on such dates shall cease to accrue, except that if the principal of all of the Bonds shall have been declared due and payable when a Credit Facility shall be in effect, interest on such amounts shall cease to accrue on the date of the drawing on a Credit Facility with respect to such declaration unless such drawing is pursuant to the Bank’s purchase of the Bonds in accordance with Section 4.07 hereof. The Trustee shall give notice of the deposit with it of any such moneys and of the fixing of any such date to all Owners of Outstanding Bonds, consistent with the requirements of Section 2.01 hereof for the establishment of, and giving of notice with respect to, a Special Record Date for the payment of overdue interest. The Trustee shall not be required to make payment to any Owner of a Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid.

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Notwithstanding anything in this Section 10.10 to the contrary, moneys received by the Trustee pursuant to draws on a Credit Facility, and moneys held by the Trustee pursuant to Section 4.10 for the payment of Bonds not presented for payment, shall be applied only to the payment of principal, redemption premium (if any) and interest due on the Bonds.

Section 10.11 Severability of Remedies. It is the purpose and intention of this Article X to provide rights and remedies to the Trustee, the Bank, the Bond Insurer and the Owners which may be lawfully granted under the provisions of the Act, but should any right or remedy granted herein be held to be unlawful, the Trustee, the Bank, the Bond Insurer and the Owners shall be entitled, as above set forth, to every other right and remedy provided in this Indenture and by law.

Section 10.12 Waivers of Events of Default. The Trustee in its discretion may waive any Event of Default hereunder (other than an Event of Default described in clauses (v) and (vi) of paragraph (a) of Section 10.01 and not waived in accordance with paragraph (d) of Section 10.01) and its consequences and shall in any event do so upon the written request of the Owners of a majority in principal amount of all Bonds then outstanding; provided, however, that there shall not be waived

(i) any Event of Default pertaining to the payment of the principal of any Bond at the Maturity Date or redemption date prior to the Maturity Date, or

(ii) any Event of Default pertaining to the payment when due of the interest on any Bond,

unless, prior to such waiver (A) all arrears of principal (due otherwise than by declaration) and interest, with interest (to the extent permitted by law) at the rate per annum borne by the Bonds in respect of which such Event of Default shall have occurred on overdue installments of principal (due otherwise than by declaration) and interest, shall have been paid or provided for, (B) all expenses of the Trustee in connection with such Event of Default shall have been paid or provided for to the satisfaction of the Trustee, and (C) if a Credit Facility is in effect with respect to the Bonds, the coverage under a Credit Facility shall have been reinstated as to principal to an amount equal to the outstanding principal amount of the Bonds and as to interest to an amount which at least equals, depending on the type of Interest Rate Period then in effect, the coverage required by Section 2.01(c)(vi) hereof to permit such Interest Rate Period to go into effect, and provided further that, in case of any such waiver, or in case any proceeding taken by the Trustee on account of any such Event of Default shall be discontinued or abandoned or determined adversely, then and in every such case the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer and the Owners of the Bonds shall be restored to their former positions and rights hereunder, respectively, but no such waiver shall extend to any subsequent or other Event of Default, or impair any right consequent thereon. The Trustee shall not have any discretion to waive any Event of Default hereunder and its consequences except in the manner and subject to the terms expressed above.

Section 10.13 No Obligation of Issuer to Act. Subject to Sections 8.04 and 8.05, the Issuer shall have no obligation to take any action or pursue any right or remedy of the Trustee or any Owner under this Indenture or otherwise, including, but not limited to, taking any action in a bankruptcy proceeding.

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ARTICLE XI

TRUSTEE, PAYING AGENT, REGISTRAR

Section 11.01 Acceptance of Trusts. By executing the certificate of authentication endorsed upon the Bonds, the Trustee shall signify its acceptance and agree to execute the trusts hereby created but only upon the additional terms set forth in this Article XI, to all of which the Issuer agrees and the respective owners agree by their acceptance of delivery of any of the Bonds.

To the extent that it is necessary for the Trustee to determine whether any Person is a Beneficial Owner or an ARS Beneficial Owner, the Trustee shall make such determination based on a certification of such Person (on which the Trustee may conclusively rely) setting forth in satisfactory detail the principal balance and bond certificate owned and any intermediaries through which such bond certificate is held. The Trustee shall be entitled to rely conclusively on information it receives from DTC or other applicable Securities Depository, its direct participants and the indirect participating brokerage firms for such participants with respect to the identity of a Beneficial Owner or ARS Beneficial Owner. The Trustee shall not be deemed to have actual or constructive knowledge of the books and records of DTC or its participants.

Section 11.02 Trustee Not Responsible for Recitals, Maintenance, Insurance, etc. The recitals, findings and representations in this Indenture or in the Bonds contained, save only the Trustee’s authentication upon the Bonds, shall be taken and construed as made by and on the part of the Issuer, and not by the Trustee, and the Trustee does not assume, and shall not have, any responsibility or obligation for the correctness of any thereof. In addition, the Trustee shall not have any responsibility for monitoring the Borrower’s obligations under Sections 5.06 and 5.07 of the Agreement to maintain the Facilities or to maintain or cause to be maintained the insurance required thereunder.

Section 11.03 Limitations on Liability.

(a) The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys, agents, receivers or employees, and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder and shall not be liable for any action taken or omitted to be taken in good faith on the basis of such advice, and the Trustee shall not be answerable for the default or misconduct of any such attorney, agent or employee selected by it with reasonable care. The Trustee shall not be answerable for the exercise of any discretion or power under this Indenture or for anything whatsoever in connection with the trust created hereby, except only for its own gross negligence or willful misconduct.

(b) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be liable for any action reasonably taken or omitted to be taken by it in good faith and reasonably believed by it to be within its discretion or power conferred upon it hereby.

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(c) Whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder or under the Agreement, the Trustee may, in the absence of bad faith on its part, rely upon a Certificate of the Borrower.

(d) Prior to taking any action under the Agreement or this Indenture, the Trustee shall be entitled to a certificate of an Authorized Borrower Representative and/or an opinion of counsel with respect to the proposed action, which certificate and/or opinion shall confirm that all conditions precedent, if any, have been satisfied.

(e) The Trustee shall not be required to give any bond or surety with respect to the performance of its duties or the exercise of its powers under this Indenture. No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers.

(f) The Trustee shall not be bound to ascertain or inquire as to performance or observance of any covenants, conditions or other agreements on the part of the Borrower or the Issuer under the Agreement or this Indenture, as the case may be, except as specifically provided for herein. The Trustee shall have no obligation to perform any of the duties of the Issuer or the Borrower under the Agreement or this Indenture.

Section 11.04 Compensation, Expenses and Advances. The Trustee, the Paying Agent, the Registrar and the Tender Agent under this Indenture shall be entitled to reasonable compensation for their services rendered hereunder including extraordinary services such as default administration (not limited by any provision of law in regard to the compensation of the trustee of an express trust) and to reimbursement for their actual out-of-pocket expenses (including counsel fees and expenses) reasonably incurred in connection therewith except as a result of their gross negligence or willful misconduct. If the Issuer shall fail to perform any of the covenants or agreements contained in this Indenture, other than the covenants or agreements in respect of the payment of the principal of, premium, if any, and interest on the Bonds, the Trustee may, in its uncontrolled discretion and without notice to the Owners of the Bonds, at any time and from time to time, make advances to effect performance of the same on behalf of the Issuer, but the Trustee shall be under no obligation to do so; but no such advance shall operate to relieve the Issuer from any default hereunder. In Section 5.04 of the Agreement, the Borrower has agreed that it will pay to the Trustee, the Paying Agent, the Registrar, the Remarketing Agent and the Tender Agent such compensation and reimbursement of expenses and advances, but the Borrower may, without creating a default hereunder, contest in good faith the reasonableness of any such services, expenses and advances. In Section 5.08 of the Agreement, the Borrower has agreed to indemnify the Trustee and the Registrar to the extent stated therein. If the Borrower shall have failed to make any payment to the Trustee under Sections 5.04 or 5.08 of the Agreement and such failure shall have resulted in an Event of Default under the Agreement, the Trustee shall have, in addition to any other rights hereunder, a claim, prior to the claim of the Owners of the Bonds, for the payment of its compensation and the reimbursement of its expenses

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and any advances made by it, as provided in this Section 11.04, upon the moneys and obligations in the Bond Fund, except for proceeds of drawings under a Credit Facility and except for moneys or obligations deposited with or paid to the Trustee for the purchase of Bonds by the Bank in accordance with Section 4.07 hereof or which are deemed to have been paid in accordance with Article IX hereof and funds held pursuant to Section 5.06 hereof.

Section 11.05 Notice of Events of Default. The Trustee shall not be required to take notice, or be deemed to have notice, of any default or Event of Default under this Indenture or the Agreement other than an Event of Default under clauses (i), (ii), (iii) (but only if the Trustee and the Tender Agent are the same entity), (v) or (vi) of paragraph (a) of Section 10.01 hereof, unless specifically notified in writing of such default or Event of Default by Owners of at least a majority in principal amount of the Bonds then Outstanding or by the Bank or the Bond Insurer. The Trustee may, however, at any time, in its discretion, require of the Issuer full information and advice as to the performance of any of the covenants, conditions and agreements contained herein.

Section 11.06 Action by Trustee. The Trustee shall be under no obligation to take any action in respect of any default or Event of Default hereunder other than pursuant to Section 10.01(b) hereof, or toward the execution or enforcement of any of the trusts hereby created, or to institute, appear in or defend any suit or other proceeding in connection therewith, unless requested in writing to do so by Owners of at least a majority in principal amount of the Bonds then Outstanding or the Bank, and, if in its opinion such action may tend to involve it in expense or liability, unless furnished, from time to time as often as it may require, with security and indemnity satisfactory to it. The foregoing provisions are intended only for the protection of the Trustee, and shall not affect any discretion or power given by any provisions of this Indenture to the Trustee to take action in respect of any default or Event of Default without such notice or request from Owners or the Bank, or without such security or indemnity. Notwithstanding the foregoing, the Trustee shall submit draw requests under a Credit Facility as provided therein, make payments on the Bonds in accordance with this Indenture and give notice of acceleration in accordance with Section 10.01(b) hereof, without as a precondition to such action, demanding security and indemnity as hereinbefore provided.

Section 11.07 Good Faith Reliance. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any resolution, notice, telegram, request, consent, waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document, or upon telephonic instructions to the extent the giving of telephonic instructions is specifically authorized by this Indenture or the Agreement, in any case which the Trustee shall in good faith believe to be genuine and to have been passed, signed or given by the proper board, body or person or to have been prepared and furnished pursuant to any of the provisions of this Indenture or the Agreement, or upon the written opinion of any attorney, engineer, accountant or other expert believed by the Trustee to be qualified in relation to the subject matter, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument, but may accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. Neither the Trustee, the Paying Agent, the Registrar nor the Tender Agent shall be bound to recognize any person as an Owner or to take any action at his request unless his Bond shall be deposited with such entity or satisfactory evidence of the ownership of such Bond shall be furnished to such entity.

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Section 11.08 Dealings in Bonds and with the Issuer and the Borrower. The Trustee, the Paying Agent, the Registrar, the Bank, the Bond Insurer, the Tender Agent or the Remarketing Agent and each of their officers and directors, may in good faith buy, sell, own, hold and deal in any of the Bonds, and may join in any action which any Owner may be entitled to take with like effect as if it did not act in any capacity hereunder. The Trustee, the Paying Agent, the Registrar, the Bank, the Bond Insurer, the Tender Agent or the Remarketing Agent, in its individual capacity, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Issuer or the Borrower, and may act as depositary, trustee or agent for any committee or body of Owners or other obligations of the Issuer as freely as if it did not act in any capacity hereunder.

Section 11.09 Several Capacities. Anything in this Indenture to the contrary notwithstanding, the same entity may serve hereunder as the Trustee, the Paying Agent, the Registrar, the Tender Agent and the Remarketing Agent and in any other combination of such capacities, to the extent permitted by law.

Section 11.10 Construction of Indenture. The Trustee may construe any of the provisions of this Indenture or the Agreement insofar as the same may appear to be ambiguous or inconsistent with any other provision hereof or thereof, and any construction of any such provisions hereof by the Trustee in good faith shall be binding upon the Owners, the Issuer and the Borrower.

Section 11.11 Resignation of Trustee. The Trustee may resign and be discharged of the trusts created by this Indenture by executing an instrument in writing resigning such trust and specifying the date when such resignation shall take effect, and the Trustee shall provide such notice to the Issuer, the Borrower, the Bank, if any, and the Bond Insurer and the Trustee shall give such notice of such resignation to all Owners. Such notice shall specify the date when such resignation shall take effect. Such resignation shall only take effect on the day a successor Trustee shall have been appointed as hereinafter provided and shall have accepted such appointment and agreed to assume all of the obligations as Trustee hereunder.

Section 11.12 Removal of Trustee. The Trustee may be removed by the Issuer at any time, at the written request of the Borrower (other than during the continuation of an Event of Default) or the Owners of not less than a majority in principal amount of the Bonds then Outstanding, by filing with the Trustee so removed, the Issuer, the Borrower, the Tender Agent, the Remarketing Agent, the Bank and the Bond Insurer an instrument or instruments in writing appointing a successor in accordance with Section 11.13 hereof. Promptly upon delivery of such instrument or instruments to the Trustee, the successor Trustee upon its acceptance of the trusts created hereby shall give notice thereof to all Owners.

Section 11.13 Appointment of Successor Trustee. If at any time the Trustee shall be removed, be dissolved or its property or affairs shall be taken under the control of any state or federal court or administrative body because of insolvency, bankruptcy or any other reason, a vacancy shall ipso facto be deemed to exist in the office of Trustee and a successor may be appointed, and in case at any time the Trustee shall resign, then a successor may be appointed, by giving written notice to the Issuer, the Borrower, the Tender Agent, the Remarketing Agent, the Bank and the Bond Insurer an instrument of appointment in writing, executed by Owners of not

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less than a majority in principal amount of Bonds then Outstanding with the consent of the Bank unless the Bank has wrongfully dishonored a draw on a Credit Facility and with the consent of the Bond Insurer so long as the Bond Insurer is not in default in its payment obligations under the Bond Insurance Policy. Copies of such instrument shall be promptly delivered by the Issuer to the predecessor Trustee and to the Trustee so appointed.

Until a successor Trustee shall be appointed by the Owners of the Bonds as herein authorized with the consent of the Bank unless the Bank has wrongfully dishonored a draw on a Credit Facility and with the consent of the Bond Insurer so long as the Bond Insurer is not in default in its payment obligations under the Bond Insurance Policy, the Issuer, by an instrument authorized by resolution of the Issuer, may, but shall have no obligation to, appoint a successor Trustee acceptable to the Borrower, the Bank and the Bond Insurer. After any appointment by the Issuer, it shall cause notice of such appointment to be given to the Remarketing Agent and to all Owners of the Bonds. Any new Trustee so appointed by the Issuer shall immediately and without further act be superseded by a Trustee appointed by the Owners of the Bonds in the manner above provided. Notwithstanding anything herein to the contrary, no resignation or removal of the Trustee shall be effective until (i) a successor Trustee shall be appointed in accordance with the terms hereof and has accepted such appointment and (ii) each then existing Letter of Credit or other Credit Facility shall have been transferred to such successor in accordance with the terms thereof.

Section 11.14 Qualifications of Successor Trustee. Every successor Trustee (a) shall be a bank or trust company (other than the Bank) duly organized under the laws of the United States or any state or territory thereof and authorized by law to perform all the duties imposed upon it by this Indenture, (b) shall have a combined capital stock, surplus and undivided profits of at least $50,000,000 if there can be located, with reasonable effort, such an institution willing and able to accept the trust on reasonable and customary terms and (c) shall have its obligations rated or be a wholly-owned subsidiary of an entity whose obligations are rated, so long as the Bonds shall be rated by Moody’s, at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s.

Section 11.15 Judicial Appointment of Successor Trustee. If at any time the Trustee shall resign and no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Article XI prior to the date specified in the notice of resignation as the date when such resignation is to take effect, the retiring Trustee may forthwith apply to a court of competent jurisdiction for the appointment of a successor Trustee. If no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Article XI within six months after a vacancy shall have occurred in the office of Trustee, any Owner of a Bond or the Bank or the Bond Insurer may apply to any court of competent jurisdiction to appoint a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor Trustee.

Section 11.16 Acceptance of Trusts by Successor Trustee. Any successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Issuer, the Borrower, the Bank, if any, the Bond Insurer and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become duly vested with all the estates, property, rights, powers, trusts, duties and obligations of its predecessor in the trust hereunder, with like effect as if originally named

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Trustee herein. Upon request of such successor Trustee, such predecessor Trustee and the Issuer shall execute and deliver an instrument transferring to such successor Trustee all the estates, property, rights, powers and trusts hereunder of such predecessor Trustee and, subject to the provisions of Section 11.04 hereof and upon payment of its charges, such predecessor Trustee shall (i) pay over to the successor Trustee all moneys and other assets at the time held by it hereunder and (ii) transfer over to the successor Trustee its interest in any Credit Facility.

Section 11.17 Successor by Merger or Consolidation. Any corporation into which any Trustee hereunder may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which any Trustee hereunder shall be a party or any corporation to which all or substantially all of the corporate trust business of the Trustee shall be sold or transferred, shall be the successor Trustee under this Indenture, without the execution or filing of any paper or any further act on the part of the parties hereto, anything in this Indenture to the contrary notwithstanding.

Section 11.18 Standard of Care. Notwithstanding any other provisions of this Article XI, the Trustee shall, during the existence of an Event of Default of which the Trustee is required to take notice or is deemed to have notice under Section 11.05 hereof, exercise such of the rights and powers vested in it by this Indenture and use the same degree of skill and care in their exercise as a prudent indenture trustee would use and exercise under the circumstances. Prior to the existence and after the curing or waiving of any such Event of Default, the duties of the Trustee hereunder shall be only such duties as are specifically set forth herein and no implied covenants shall be read into this Indenture or the Agreement against the Trustee.

Section 11.19 Notice of Event of Default. If an Event of Default occurs of which the Trustee is required by Section 11.05 hereof to take notice or has notice, or any other Event of Default occurs of which the Trustee has been specifically notified in accordance with Section 11.05 hereof, then (a) immediately upon the Trustee taking or having notice of any Event of Default under Section 10.1(a)(i),(ii) or (iii) or Section 10.01(b) upon any other Event of Default continuing for at least five Business Days after the Trustee is required to take, or has received, notice thereof, the Trustee shall give notice thereof to the Issuer, the Remarketing Agent, the Tender Agent, the Bank, the Bond Insurer and the Owners of the Bonds.

Section 11.20 Intervention in Litigation. In any judicial proceeding to which the Issuer is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of the Owners of the Bonds, the Trustee may intervene on behalf of the Owners of the Bonds and shall, upon receipt of indemnity satisfactory to it, do so if requested in writing by Owners of at least a majority in principal amount of the Bonds then Outstanding if permitted by the court having jurisdiction in the premises.

Section 11.21 Paying Agent. The Issuer may at any time or from time to time by resolution, with the approval of the Trustee and the Borrower, appoint the Paying Agent for the Bonds, subject to the conditions set forth in Section 11.22 hereof. The Trustee is hereby appointed as the initial Paying Agent. Each Paying Agent (if not also the Trustee) shall designate to the Trustee, the Bank and the Bond Insurer its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Borrower and the Trustee under which such Paying Agent will agree, particularly:

(i) to hold all sums held by it for the payment of the principal of and interest and any premium on Bonds in trust for the benefit of the Owners until such sums shall be paid to the Owners or otherwise disposed of as herein provided; and

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(ii) to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee and the Borrower at all reasonable times.

The Issuer shall cooperate with the Trustee and the Borrower to cause the necessary arrangements to be made and to be thereafter continued whereby funds will be made available for the payment when due of the Bonds as presented at the Principal Office of the Paying Agent.

Section 11.22 Qualifications of Paying Agent; Resignation; Removal. The Paying Agent shall (i) be a bank, a trust company, national banking association or another corporation duly organized under the laws of the United States of America or any state or territory thereof, (ii) have its obligations rated or be a wholly-owned subsidiary of an entity whose obligations are rated, so long as the Bonds are rated by Moody’s, at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s, and (iii) be authorized by law to perform all the duties imposed upon it by this Indenture. The Paying Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 60 days’ notice to the Issuer, the Borrower and the Trustee (if no longer the Paying Agent). The Paying Agent shall be removed at any time, other than during the continuance of an Event of Default, at the direction of the Borrower, by an instrument, signed by the Issuer, filed with the Paying Agent and with the Trustee.

In the event of the resignation or removal of the Paying Agent, the Paying Agent shall pay over, assign and deliver any moneys held by it in such capacity to its successor or, if there be no successor, to the Trustee.

In the event that the Paying Agent shall resign, be removed or be dissolved, or if the property or affairs of the Paying Agent shall be taken under the control of any state or federal court or administrative body because of bankruptcy, insolvency or any other reason, and the Issuer shall not have appointed its successor as Paying Agent, the Trustee shall de facto be deemed to be the Paying Agent for all purposes of this Indenture until the appointment by the Issuer of the Paying Agent or successor Paying Agent, as the case may be.

Section 11.23 Registrar. The Trustee hereby is appointed as the initial Registrar. In the event of the resignation or removal of the Registrar, the Issuer shall, at the direction of the Borrower, appoint the Registrar for the Bonds, subject to the conditions set forth in Section 11.24 hereof. Each Registrar (if not also the Trustee) shall designate to the Trustee its Principal Office and signify its acceptance of the duties imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Borrower and the Trustee under which such Registrar will agree, particularly, to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee and the Borrower at all reasonable times.

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The Issuer shall cooperate with the efforts of the Trustee and the Borrower intended to cause the necessary arrangements to be made and to be thereafter continued whereby Bonds, executed by the Issuer and authenticated by the Trustee, shall be made available for exchange and registration of transfer at the Principal Office of the Registrar. The Issuer shall cooperate with the efforts of the Trustee, the Registrar and the Borrower to cause the necessary arrangements to be made and thereafter continued whereby the Paying Agent and the Remarketing Agent shall be furnished such records and other information, at such times, as shall be required to enable the Paying Agent and the Remarketing Agent to perform the duties and obligations imposed upon them hereunder.

Section 11.24 Qualifications of Registrar; Resignation; Removal. The Registrar shall be a corporation duly organized under the laws of the United States of America or any state or territory thereof, authorized by law to perform all the duties imposed upon it by this Indenture. The Registrar may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 60 days’ notice to the Issuer, the Trustee and the Borrower. The Registrar may be removed at any time, at the direction of the Borrower (other than during the continuance of an Event of Default), by an instrument, signed by the Issuer, filed with the Registrar and the Trustee.

In the event of the resignation or removal of the Registrar, the Registrar shall deliver any Bonds held by it in such capacity to its successor or, if there be no successor, to the Trustee.

In the event that the Registrar shall resign, be removed or be dissolved, or if the property or affairs of the Registrar shall be taken under the control of any state or federal court or administrative body because of bankruptcy, insolvency or any other reason, and the Issuer shall not have appointed its successor as Registrar, the Trustee shall de facto be deemed to be the Registrar for all purposes of this Indenture until the appointment by the Issuer of the Registrar or successor Registrar, as the case may be.

Section 11.25 Appointment of Co-Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State of Arizona) denying or restricting the right of banking corporations or associations to transact business as trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture or the Agreement, and in particular in the case of the enforcement thereof on default, or in the case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the properties, in trust, as herein granted, or take any action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate or co-trustee.

In the event that the Trustee shall appoint an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in

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such separate or co-trustee, but only to the extent necessary to enable such separate or co-trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable by either of them.

Should any reasonable instrument in writing from the Issuer be required by the separate or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such estates, property, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate or co-trustee or a successor to either shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a successor to such separate or co-trustee or a new separate or co-trustee. No trustee hereunder shall be liable by reason of any act or omission of any other trustee hereunder.

Section 11.26 Notices to Rating Agencies. The Trustee shall provide Moody’s, if the Bonds are then rated by Moody’s, or S&P, if the Bonds are then rated by S&P, or Fitch, if the Bonds are then rated by Fitch, as appropriate, with prompt written notice at least 15 days prior to its execution and adoption of (i) the appointment of any successor Trustee, Paying Agent, Remarketing Agent or Tender Agent (ii) any amendments to this Indenture or the Agreement, (iii) the payment (or provision for payment) in whole of the Bonds, (iv) the adjustment of any Bonds to a Short-Term or Long-Term Interest Rate Period, (v) the acquisition, extension, expiration or termination of a Credit Facility or (vi) any amendment to the Reimbursement Agreement or a Credit Facility of which the Trustee has actual knowledge.

ARTICLE XII

EXECUTION OF INSTRUMENTS BY

OWNERS AND PROOF OF OWNERSHIP OF BONDS

Section 12.01 Execution of Instruments; Proof of Ownership. Any request, direction, consent or other instrument in writing, whether or not required or permitted by this Indenture to be signed or executed by Owners of the Bonds, may be in any number of concurrent instruments of similar tenor and may be signed or executed by Owners of the Bonds in person or by agent appointed by an instrument in writing. Proof of the execution of any such instrument and of the ownership or former ownership of Bonds shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee with regard to any action taken by it under such instrument if made in the following manner:

(i) The fact and date of the execution by any person of any such instrument may be proved by the certificate of any officer in any jurisdiction who, by the laws thereof, has power to take acknowledgments within such jurisdiction, to the effect that the person signing such instrument acknowledged before him the execution thereof, or by an affidavit of a witness to such execution, or in any other manner reasonably acceptable to the Trustee.

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(ii) The ownership or former ownership of Bonds shall be proved by the registration books kept under the provisions of Section 2.04 hereof and the records kept by the Trustee pursuant to Section 14.03(c) hereof.

(iii) While the Bonds are in book-entry only form, the beneficial ownership or former ownership of Bonds shall be proved by an instrument in writing signed by such Beneficial Owner and acceptable to the Trustee.

Nothing contained in this Article XII shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of matters herein stated which it may deem to be sufficient. Any request or consent of any Owner of a Bond shall bind every future Owner of any Bond or Bonds issued in lieu thereof or upon registration of transfer or in exchange thereof in respect of anything done by the Trustee or the Issuer in pursuance of such request or consent.

ARTICLE XIII

MODIFICATION OF INDENTURE, DOCUMENTS

Section 13.01 Limitations. This Indenture and the Agreement shall not be modified or amended in any respect subsequent to the initial issuance of the Bonds, except as provided in and in accordance with and subject to the provisions of this Article XIII.

Section 13.02 Modification without Consent of Owners. The Issuer and the Trustee may, from time to time and at any time without the consent of or notice to the Owners of the Bonds but with the consent of the Bond Insurer subject to Section 13.05 hereof, enter into Supplemental Indentures as follows:

(i) to cure any formal defect, omission, inconsistency or ambiguity in this Indenture;

(ii) to grant to or confer upon the Trustee for the benefit of the Owners of the Bonds any additional rights, remedies, powers, authority or security which may lawfully be granted or conferred and which are not contrary to or inconsistent with this Indenture as theretofore in effect;

(iii) to add to the covenants and agreements of, and limitations and restrictions upon, the Issuer in this Indenture other covenants, agreements, limitations and restrictions to be observed by the Issuer which are not contrary to or inconsistent with this Indenture as theretofore in effect;

(iv) to confirm, as further assurance, any pledge or assignment under, and the subjection to any claim, lien, pledge or assignment created or to be created by this Indenture, of the Receipts and Revenues or of any other moneys, securities or funds;

(v) to authorize different Authorized Denominations of the Bonds and to make correlative amendments and modifications to this Indenture regarding

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exchangeability of Bonds of different Authorized Denominations, redemptions of portions of Bonds of particular Authorized Denominations and similar amendments and modifications of a technical nature;

(vi) to modify, alter, supplement or amend this Indenture in such manner as shall permit the qualification hereof under the Trust Indenture Act of 1939, as from time to time amended;

(vii) to increase or decrease the number of days specified in Section 2.01(c) hereof and to make corresponding changes to Section 4.03 hereof; provided that no decreases in any such number of days shall become effective except during a Daily Interest Rate Period or a Weekly Interest Rate Period and until 30 days after the Trustee shall have given notice to the Owners;

(viii) to provide for the procedures required to permit or implement an uncertificated system of registration of the Bonds;

(ix) to modify, alter, amend or supplement this Indenture in any other respect which is not materially adverse to the Owners and which does not involve a change described in the provisions of Section 13.03(i) hereof; and

(x) to modify, alter, supplement or amend this Indenture to comply with changes in the Code affecting the status of interest on the Bonds as excluded from gross income for federal income tax purposes or the obligations of the Issuer or the Borrower in respect of Section 148 of the Code.

Before the Issuer shall adopt any Supplemental Indenture pursuant to this Section 13.02, there shall have been provided to the Issuer and the Trustee a Favorable Opinion of Bond Counsel.

Section 13.03 Modification with Consent of Owners.

(i) Except for any Supplemental Indenture entered into pursuant to Section 13.02 hereof, subject to the terms and provisions contained in this Section 13.03, the Owners of not less than a majority in aggregate principal amount of the Bonds shall have the right from time to time to consent to and approve with the consent of the Bond Insurer the adoption by the Issuer of any Supplemental Indenture deemed necessary or desirable by the Issuer for the purposes of modifying, altering, amending, supplementing or rescinding, in any particular, any of the terms or provisions contained in this Indenture; provided, however, that, unless approved in writing by the Owners of all the Bonds, nothing herein contained shall permit, or be construed as permitting, (i) a change in the times, amounts or currency of payment of the principal of or interest or any premium on any Bond, a change in the terms of the purchase of Bonds pursuant to Section 4.08 hereof (other than as permitted by Section 13.02(vii) hereof), or a reduction in the principal amount or redemption price of any Bond or a change in the method of determining the rate of interest thereon, or (ii) the creation of a claim or lien upon, or a pledge or assignment of, the Receipts and Revenues ranking prior to

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or on a parity with the claim, lien, pledge or assignment created by this Indenture, or (iii) a preference or priority of any Bond or Bonds over any other Bond or Bonds, or (iv) a reduction in the aggregate principal amount of Bonds the consent of the Owners of which is required for any such Supplemental Indenture or under Section 13.07 hereof, for any modification, alteration, amendment or supplement to the Agreement.

(ii) If at any time the Issuer shall determine to adopt any Supplemental Indenture for any of the purposes of this Section 13.03, the Trustee shall cause notice of the proposed Supplemental Indenture to be given to all Owners of the Bonds. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that a copy thereof is on file at the Principal Office of the Trustee for inspection by all Owners of the Bonds.

(iii) Within two years after the date of the giving of such notice, the Issuer may adopt (the date of adoption shall be the date of passage and not the effective date) such Supplemental Indenture in substantially the form described in such notice, but only if there shall have first been filed with the Trustee (i) the required consents, in writing, of the Owners of the Bonds and (ii) a Favorable Opinion of Bond Counsel stating that such Supplemental Indenture is authorized or permitted by this Indenture and the Act, complies with their respective terms, and, upon the adoption thereof, will be valid and binding upon the Issuer in accordance with its terms and will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds.

(iv) If Owners of not less than the percentage of Bonds required by this Section 13.03 shall have consented to and approved the adoption thereof as herein provided, no Owner shall have any right to object to the adoption of such Supplemental Indenture, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the propriety of the execution and delivery thereof, or to enjoin or restrain the Issuer from enacting the same or from taking any action pursuant to the provisions thereof.

Section 13.04 Effect of Supplemental Indenture. Upon the adoption of any Supplemental Indenture pursuant to the provisions of this Article XIII, this Indenture shall be, and be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Issuer, the Trustee and all Owners of Bonds then Outstanding shall thereafter be determined, exercised and enforced under this Indenture subject in all respects to such modifications and amendments.

Section 13.05 Consent of the Borrower, the Bank and the Bond Insurer. Anything herein to the contrary notwithstanding, the Trustee (i) shall not execute any Supplemental Indenture under this Article XIII which affects any rights, powers and authority of the Borrower under the Agreement, the Tender Agreement or the applicable Credit Facility or the Bond Insurance Policy or requires a revision of the Agreement, the Tender Agreement or the applicable Credit Facility or the Bond Insurance Policy unless and until the Borrower, the Bank and the Bond Insurer shall have consented to such Supplemental Indenture and (ii) need not accept any Supplemental Indenture which affects its rights, duties and responsibilities hereunder or under the Agreement.

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Section 13.06 Amendment of Agreement without Consent of Owners. Without the consent of or notice to the Owners of the Bonds but with the consent of the Borrower, the Bank and the Bond Insurer, the Issuer may modify, alter, amend or supplement the Agreement, and the Trustee may consent thereto, (a) as may be required by the provisions of the Agreement and this Indenture, (b) for the purpose of curing any formal defect, omission, inconsistency or ambiguity therein, or (c) in connection with any other change therein which is not materially adverse to the Owners. No extension, termination or provision of any substitute Credit Facility in accordance with the provisions of the Agreement shall be deemed a modification, alteration, amendment or supplement to the Agreement, or to this Indenture, for any purpose of this Indenture.

Before the Issuer shall enter into, and the Trustee shall consent to, any modification, alteration, amendment or supplement to the Agreement, pursuant to this Section 13.06, there shall have been delivered to the Issuer and the Trustee, a Favorable Opinion of Bond Counsel.

Section 13.07 Amendment of Agreement with Consent of Owners. Except in the cases of modifications, alterations, amendments or supplements referred to in Sections 13.02 and 13.06 hereof, the Issuer shall not enter into, and the Trustee shall not consent to, any modification, alteration, amendment or supplement of the Agreement, without the written approval or consent of the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding but with the consent of the Borrower, the Bank and the Bond Insurer, given and procured as provided in Sections 13.03 and 13.05 hereof; provided, however, that, unless approved in writing by the Owners of all Bonds then Outstanding, nothing in this Section 13.07 shall permit, or be construed as permitting, a change in the obligations of the Borrower under Section 5.02 or 10.01 of the Agreement. If at any time the Issuer or the Borrower shall request the consent of the Trustee to any such proposed modification, alteration, amendment or supplement, the Trustee shall cause notice thereof to be given in the same manner as provided by Section 13.03 hereof with respect to Supplemental Indentures. Such notice shall briefly set forth the nature of such proposed modification, alteration, amendment or supplement and shall state that copies of the instrument embodying the same are on file at the Corporate Trust office of the Trustee for inspection by all Owners of Bonds Outstanding. The Issuer may enter into, and the Trustee may consent to, any such proposed modification, alteration, amendment or supplement of the Agreement, subject to the same conditions and with the same effect as provided in Section 13.03 hereof with respect to Supplemental Indentures.

Section 13.08 Issuance of Bonds Under Other Indentures; Recognition of Prior Pledges. The Issuer hereby expressly reserves the right to issue, to the extent permitted by law, bonds in accordance with other ordinances and indentures for one or more purposes permitted by the Act. The Issuer hereby recognizes and protects any prior pledge or mortgage made to secure any prior issue of bonds.

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ARTICLE XIV

REMARKETING AGENT; TENDER AGENT;

PURCHASE AND REMARKETING OF BONDS

Section 14.01 Remarketing Agent and Tender Agent.

(a) The Borrower shall appoint a Remarketing Agent for the Bonds, subject to the conditions set forth in Section 14.02(a) hereof. The Remarketing Agent shall designate its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Trustee, the Tender Agent and the Borrower under which the Remarketing Agent will agree, particularly, to keep such books and records with respect to the Bonds as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee, the Tender Agent and the Borrower at all reasonable times.

(b) The Borrower shall appoint a Tender Agent for the Bonds; subject to the conditions set forth in Section 14.02(b) hereof. The Tender Agent shall designate its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Trustee, the Borrower, the Bank, the Bond Insurer and the Remarketing Agent. By acceptance of its appointment hereunder, the Tender Agent agrees:

(A) to hold all Bonds delivered to it pursuant to Section 4.09 hereof, as agent and bailee of, and in escrow for the benefit of, the respective Owners which shall have so delivered such Bonds until moneys representing the purchase price of such Bonds shall have been delivered to or for the account of or to the order of such Owners;

(B) to establish and maintain, and there is hereby established with the Tender Agent, a separate segregated trust fund designated as the “Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company Palo Verde Project) Purchase Fund” (the “Purchase Fund”) until such time as it has been discharged from its duties as Tender Agent hereunder;

(C) to hold all moneys (without investment thereof) delivered to it hereunder in the Purchase Fund for the purchase of Bonds pursuant to Section 4.08 hereof, other than moneys delivered to it by the Borrower during the term of a Credit Facility, as agent and bailee of, and in escrow for the benefit of, the person or entity which shall have so delivered such moneys until the Bonds purchased with such moneys shall have been delivered to or for the account of such person or entity;

(D) to hold all moneys delivered to it by the Borrower for the purchase of Bonds pursuant to Section 4.08 hereof, as agent and bailee of, and in escrow for the benefit of, the Owners or former Owners who shall deliver Bonds to it for purchase until the Bonds purchased with such moneys shall have been delivered to or for the account of the Borrower; provided, however, that if the Bonds shall at any time become

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due and payable, the Tender Agent shall cause such moneys (other than moneys held pursuant to Section 14.03(d) hereof) to be deposited into the Bond Fund;

(E) to hold all Bonds registered in the name of the new Owners thereof which have been delivered to it by the Trustee for delivery to the Remarketing Agent in accordance with the Tender Agreement;

(F) to hold Bonds for the account of the Borrower as contemplated by Section 14.05(c) hereof, such Bonds to be released to or upon the order of the Borrower upon receipt by the Tender Agent from the Bank of a notice to the effect that the Trustee is entitled to draw under a Credit Facility to pay principal of the Bonds and to pay the purchase price of Bonds tendered under Section 4.08 hereof and not remarketed in an amount equal to the amount that could be drawn under a Credit Facility if the drawing made to purchase such Bonds were disregarded;

(G) to hold Bonds for the account of the Bank (or its nominee), or to deliver Bonds to the Bank, as contemplated by Section 14.05(c) hereof; and

(H) to keep such books and records with respect to the Bonds as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee, the Borrower and the Remarketing Agent at all reasonable times.

The Issuer shall cooperate with the Borrower and the Trustee to cause the necessary arrangements to be made and to be thereafter continued to enable the Tender Agent to perform its duties and obligations described above.

Section 14.02 Qualifications of Remarketing Agent and Tender Agent; Resignation; Removal.

(a) The Remarketing Agent shall be a member of the National Association of Securities Dealers, Inc., having a combined capital stock, surplus and undivided profits of at least $15,000,000 and authorized by law to perform all the duties imposed upon it by this Indenture and the Remarketing Agreement. Any successor Remarketing Agent shall have its obligations rated or be a wholly-owned subsidiary of an entity whose obligations are rated, so long as the Bonds shall be rated by Moody’s, at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s. The Remarketing Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving notice to the Issuer, the Trustee, the Bank, if any, the Tender Agent and the Borrower. Such resignation shall take effect on the earlier of: (i) the day a successor Remarketing Agent shall have been appointed by the Borrower and shall have accepted such appointment or (ii) the 45th day after the receipt by the Issuer and the Borrower of the notice of resignation. The Remarketing Agent may be removed at any time, pursuant to the Remarketing Agreement.

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(b) The Tender Agent shall be a corporation duly organized under the laws of the United States of America or any state or territory thereof, and, if not a bank or trust company, for so long as the Bonds shall be rated by Moody’s, shall have its obligations rated at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s, and in any case having a combined capital stock, surplus and undivided profits of at least $25,000,000 and authorized by law to perform all the duties imposed upon it by this Indenture and the Tender Agreement. The Tender Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 30 days’ notice to the Issuer, the Trustee, the Borrower, the Remarketing Agent, the Bank and the Bond Insurer. Such resignation shall take effect on the day a successor Tender Agent shall have been appointed by the Borrower and shall have accepted such appointment. The Tender Agent may be removed at any time by an instrument signed by the Borrower, filed with the Tender Agent, the Issuer, the Trustee, the Remarketing Agent, the Bank and the Bond Insurer.

In the event of the resignation or removal of the Tender Agent, the Tender Agent shall deliver any Bonds and moneys held by it in such capacity to its successor, or if there is no successor, to the Trustee.

Section 14.03 Notice of Bonds Delivered for Purchase; Purchase of Bonds.

(a) The Tender Agent shall determine timely and proper delivery of Bonds pursuant to this Indenture and the proper endorsement of such Bonds. Such determination shall be binding on the Owners of such Bonds, the Issuer, the Borrower, the Remarketing Agent, the Trustee and the Bank absent manifest error. As promptly as practicable, the Tender Agent shall give telephonic or Electronic notice, promptly confirmed by a written notice, to the Bank, if any, the Bond Insurer, the Trustee, the Remarketing Agent, the Registrar and the Borrower specifying the principal amount of Bonds, if any, for which it has received notice of tender for purchase in accordance with Section 4.08(a)(i) or 4.08(a)(ii) hereof.

(b) Bonds required to be purchased in accordance with Section 4.08 hereof shall be purchased from the Owners thereof by the Tender Agent, on the date and at the purchase price at which such Bonds are required to be purchased if the Bank shall not have exercised its option to purchase such Bonds pursuant to Section 4.07 hereof. Funds for the payment of such purchase price by the Tender Agent from the Owners of Bonds shall be derived from the following sources in the order of priority indicated:

(i) moneys furnished to the Tender Agent for deposit into the Purchase Fund representing moneys provided by the Borrower pursuant to Section 10.02 of the Agreement, which constitute Available Moneys;

(ii) proceeds of the sale of such Bonds remarketed to any person, other than the Issuer, the Borrower or an affiliate thereof, pursuant to Section 14.04 hereof and furnished to the Tender Agent by the Remarketing Agent for deposit into the Purchase Fund;

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(iii) moneys furnished to the Tender Agent by the Trustee for deposit into the Purchase Fund representing the proceeds of a drawing under a Credit Facility; and

(iv) moneys furnished to the Tender Agent representing moneys provided by the Borrower (or any affiliate thereof) pursuant to Section 10.01 or 10.02 of the Agreement or otherwise available for such purpose.

Moneys described in clause (iii) may not be used to purchase Bonds held of record by the Borrower (or any affiliate thereof) or by the Tender Agent for the account of the Borrower.

The Tender Agent shall establish separate accounts or subaccounts within the Purchase Fund for each deposit made into the Purchase Fund so that (1) the Tender Agent may at all times ascertain the date of deposit of the funds in each account or subaccount, and (2) the amounts derived from the source described in clause (iii) may be segregated from other sources and such amounts shall not be commingled with any funds from the sources described in clause (D).

(c) The Trustee shall authenticate a new Bond or Bonds in an aggregate principal amount equal to the principal amount of Bonds purchased in accordance with Section 14.03(b), whether or not the Bonds so purchased are presented by the Owners thereof, bearing a number or numbers not contemporaneously outstanding. Every Bond authenticated and delivered as provided in this Section 14.03(c) shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Bonds duly issued hereunder, except as provided in Section 5.04(c) hereof. The Tender Agent shall maintain a record of the Bonds purchased as provided in this Section 14.03, together with the names and addresses of the former Owners thereof.

(d) In the event any Bonds purchased as provided in this Section 14.03 shall not be presented to the Tender Agent, the Tender Agent shall segregate and hold the moneys for the purchase price of such Bonds in trust for the benefit of the former Owners of such Bonds, who shall, except as provided in the following sentence, thereafter be restricted exclusively to such moneys for the satisfaction of any claim for the purchase price of such Bonds. Any moneys which the Tender Agent shall segregate and hold in trust for the payment of the purchase price of any Bond and remaining unclaimed for two years after the date of purchase shall, to the extent legally permissible, upon the Borrower’s written request to the Tender Agent, be paid to the Bank, if the Borrower then owes funds under the Reimbursement Agreement, to the Bond Insurer, if the Borrower owes funds under the Insurance Agreement or otherwise to the Borrower. After the payment of such unclaimed moneys to the Borrower, the former Owner of such Bond shall look only to the Borrower for the payment thereof.

Section 14.04 Remarketing of Bonds; Notice of Interest Rates.

(a) Upon notice of the tender for purchase of Bonds in accordance with Section 4.08 hereof, the Remarketing Agent shall offer for sale and use its best efforts to

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sell such Bonds (other than Bonds purchased with moneys derived from the source described in clause (i) of Section 14.03(b) hereof, if so directed by the Borrower), any such sale to be made on the date of such purchase in accordance with Section 4.08 at the best price available in the marketplace; provided, however, that, if a Credit Facility shall be in effect, the Remarketing Agent shall not sell any of such Bonds at a price below the principal amount thereof plus accrued interest thereon, if any. Any Bond which is tendered for purchase, pursuant to Section 4.08 hereof, and any Bond that has become subject to mandatory tender for purchase pursuant to Section 4.08 hereof, shall be sold only to a purchaser who agrees to refrain from selling that Bond other than under the terms of this Indenture and hold that Bond only to the date of mandatory purchase.

(b) The Remarketing Agent shall determine the rate of interest to be borne by the Bonds during each Interest Rate Period and by each Bond during each Bond Interest Term for such Bond and the Bond Interest Terms for each Bond during each Short-Term Interest Rate Period as provided in Section 2.01 hereof and shall furnish to the Trustee, the Tender Agent, the Borrower and the Bank on the Business Day of determination each rate of interest and Bond Interest Term so determined.

(c) The Remarketing Agent shall give telephonic or telegraphic notice, promptly confirmed by a written notice, to the Trustee and the Tender Agent on each date on which Bonds shall have been purchased pursuant to Section 14.03(b) hereof, specifying the principal amount of Bonds, if any, sold by it pursuant to Section 14.04(a) hereof.

Section 14.05 Delivery of Bonds.

(a) Bonds purchased with moneys described in clause (i) of Section 14.03(b) hereof shall be delivered to the Borrower and shall be registered in accordance with instructions from the Borrower.

(b) Bonds purchased with moneys described in clause (ii) of Section 14.03(b) hereof shall be delivered by the Trustee to the Tender Agent or the Remarketing Agent for delivery to the purchasers thereof against payment therefor in accordance with the Tender Agreement.

(c) Bonds purchased with moneys described in clause (iii) of Section 14.03(b) hereof shall be:

(i) except as otherwise provided in Section 14.05(c)(ii) or (iii) hereof, held by the Tender Agent for the account of the Borrower, if a Credit Facility provides for reinstatement in respect of the drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed by reimbursement to the Bank of the amount of such drawing together with interest thereon;

(ii) delivered to the Bank, as applicable, if a Credit Facility provides for immediate reinstatement in respect of drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed by the delivery to the Bank of such Bonds or otherwise requires that Bonds be delivered to the Bank;

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(iii) held by the Tender Agent. for the account of the Bank, if a Credit Facility provides for immediate reinstatement in respect of drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed by the holding for the account of the Bank of such Bonds or otherwise requires that Bonds be held for the account of the Bank; or

(iv) delivered to the Trustee for cancellation, if a Credit Facility does not provide for reinstatement in respect of drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed.

Upon delivery to the Bank, or to the Tender Agent for the account of the Bank, of the Bonds in accordance with clause (ii) or (iii) above, the Trustee shall deliver any certificate evidencing such reimbursement or delivery of Bonds to or for the account of the Bank, as applicable, required for reinstatement, in whole or in part, of any Credit Facility. Bonds held pursuant to clauses (i), (ii) and (iii) above shall be released for the purpose of remarketing or released to or upon the order of the Borrower only upon receipt by the Tender Agent from the Bank of a written notice to the effect that the Trustee is entitled to draw under a Credit Facility to pay principal of and interest on the Bonds and to pay the purchase price of Bonds purchased pursuant to Section 4.08 hereof and not remarketed in an amount equal to the amount that could be drawn under a Credit Facility if the drawing made to purchase such Bonds were disregarded.

(d) Bonds purchased with moneys described in clause (iv) of Section 14.03(b) hereof shall, at the direction of the Borrower, be (i) held by the Tender Agent for the account of the Borrower, (ii) delivered to the Trustee for cancellation or (iii) delivered to the Borrower; provided, however, that any Bonds so purchased after the selection thereof by the Trustee for redemption shall be delivered to the Trustee for cancellation.

(e) Bonds delivered as provided in this Section 14.05 shall be registered in the manner directed by the recipient thereof.

(f) Bonds purchased by the Trustee on behalf of or for the account of the Bank (or its nominee) pursuant to Section 4.07 shall be delivered promptly to the Bank (or its nominee, as the case may be), or as the Bank shall otherwise direct and thereafter, if requested by the Bank, remarketed in accordance with the provisions of Section 14.04 hereof and the Remarketing Agreement.

Section 14.06 Drawings on Credit Facility. In accordance with the provisions of the Tender Agreement, on each day on which Bonds are to be purchased pursuant to Section 4.08 hereof, except to the extent that (i) moneys described in Section 14.03(b)(i) hereof shall be available for the purchase of such Bonds, or (ii) the Trustee shall have received telephonic or Electronic notification from the Remarketing Agent or the Tender Agent that such Bonds shall have been remarketed pursuant to Section 14.04 hereof and that the moneys described in Section 14.03(b)(ii) hereof will be sufficient to pay the purchase price of such Bonds or (iii) the Bank shall have purchased the Bonds pursuant to Section 4.07 hereof, the Trustee promptly shall draw under a Credit Facility, in accordance with its terms, an amount sufficient to make timely payment of the purchase price of such Bonds and furnish the proceeds of such drawing to the Tender Agent. Following payment of all amounts payable in respect of the purchase of Bonds

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pursuant to Section 4.08 hereof, the Trustee shall remit to the Bank any amount drawn under a Credit Facility in excess of the amount sufficient to make timely payment of the purchase price of such Bonds.

Section 14.07 Delivery of Proceeds of Sale. The proceeds of the sale by the Remarketing Agent of any Bonds delivered to it by, or held by it for the account of, the Borrower or the Bank, or delivered to it by the Bank or any other Owner, shall be turned over to the Borrower, the Bank or such other Owner, as the case may be. If the applicable Credit Facility provides for reinstatement in respect of the drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof by reimbursement to the Bank of the amount of such drawing, the Remarketing Agent shall deliver the proceeds of such remarketing to the Bank to the extent the Bank has not been reimbursed, and in connection therewith, the Trustee shall deliver any certificate required for reinstatement, in whole or in part, of any Credit Facility.

ARTICLE XV

MISCELLANEOUS

Section 15.01 Indenture to Bind and Inure to Benefit of Successors to Issuer. In the event of the dissolution of the Issuer, all the covenants, stipulations, promises and agreements in this Indenture contained, by or on behalf of, or for the benefit of, the Issuer, shall bind or inure to the benefit of the successors of the Issuer from time to time and any entity, officer, board, commission, agency or instrumentality to whom or to which any power or duty of the Issuer shall be transferred.

Section 15.02 Parties in Interest. Except as herein otherwise specifically provided, nothing in this Indenture expressed or implied is intended or shall be construed to confer upon any person, firm or corporation, other than the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer and the Owners, any right, remedy or claim under or by reason of this Indenture, this Indenture being intended to be for the sole and exclusive benefit of the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer and the Owners of the Bonds. Nothing in this Indenture is intended to create in the Borrower any interest in the Bond Fund or the moneys or Investment Securities therein.

Section 15.03 Severability. In case any one or more of the provisions of this Indenture or of the Bonds issued hereunder shall, for any reason, be held to be illegal or invalid, such illegality or invalidity shall not affect any other provisions of this Indenture, the Agreement, the Remarketing Agreement, the Tender Agreement or said Bonds, and this Indenture, the Agreement, the Remarketing Agreement, the Tender Agreement and the Bonds shall be construed and enforced as if such illegal or invalid provisions had not been contained herein or therein.

Section 15.04 No Personal Liability of Issuer Under Indenture. No covenant or agreement contained in the Bonds or in this Indenture shall be deemed to be the covenant or agreement of any official, officer, agent, or employee of the Issuer in his individual capacity, and neither the members of the Issuer’s Board of Directors nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof.

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Section 15.05 Bonds Owned by the Issuer or the Borrower. In determining whether Owners of the requisite aggregate principal amount of the Bonds have concurred in any direction, consent or waiver under this Indenture, Bonds which are owned by the Issuer or the Borrower or by any affiliate of the Borrower (unless the Issuer, the Borrower and such persons own all Bonds which are then Outstanding, determined without regard to this Section 15.05) shall be disregarded and deemed not to be Outstanding for purpose of any such determination, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Bonds which the Trustee knows are so owned shall be so disregarded. Bonds so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Bonds and that the pledgee is not the Issuer or the Borrower or any affiliate of the Borrower. Bonds delivered to the Bank, the Bond Insurer or held by the Tender Agent for the account of the Bank pursuant to Section 14.05(c) hereof shall be regarded as Outstanding for purposes of this Section 15.05 and shall be owned by the Bank or the Bond Insurer for purposes of this Section 15.05.

Section 15.06 Governing Law. This Indenture and the Bonds shall be construed in accordance with and governed by the Constitution and laws of the State of Arizona; provided however, that the rights, protections and immunities of the Trustee shall be governed by the laws of the State of California.

Section 15.07 Notices. Except as otherwise provided in this Indenture, all notices, certificates, requests, requisitions or other communications by the Issuer, the Borrower, the Trustee, the Bond Insurer, the Tender Agent, the Paying Agent, the Registrar, the Remarketing Agent, Moody’s, S&P, Fitch, the Bond Insurer and the Bank pursuant to this Indenture shall be in writing and shall be sufficiently given and shall be deemed given when mailed by first-class mail, postage prepaid, addressed as follows:

If to the Trustee:

Union Bank of California, N.A.

120 S. San Pedro Street, 4^th Floor

Los Angeles, CA 90012

Attention: Corporate Trust Department

If to the Remarketing Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

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If to the Tender Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

If to the Bond Insurer:

Financial Guaranty Insurance Company

125 Park Avenue

New York, New York 10017

Attention: Risk Management

Fax: (212) 312-3093

If to the Fiscal Agent (for the Bond Insurer):

U.S. Bank Trust National Association

100 Wall Street, 19^th Floor

New York, New York 10005

Attention: Corporate Trust Department

If to Moody’s:

Moody’s Investors Service

99 Church St.

New York, New York 10007-2796

Attention: Structured Finance Group

If to S&P:

Standard & Poor’s Rating Services

55 Water Street, 38^th Floor

New York, New York 10041

Attention: Public Finance Department

Structured Finance Group

If to Fitch:

Fitch Ratings

One State Street Plaza

New York, New York 10004

Attention: Municipal Structured Finance

If to the Registrar, the Paying Agent and the Bank, at the address designated herein or designated to the Issuer, the Borrower and the Trustee. Any of the foregoing may, by notice given hereunder to each of the others, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent hereunder.

Section 15.08 Non-Business Days. If the last day of any period of grace, or the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Indenture, is not a Business Day, the last day of such period of grace shall be deemed to be, any such payment may be made or act performed or right exercised, with the same force and effect as if done on the nominal date provided in this Indenture, on the next succeeding Business Day, and no interest shall accrue for the period after such nominal date.

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Section 15.09 Opinions. Each opinion with respect to the validity of documents or Bonds may be qualified to the extent of the application of bankruptcy, insolvency, moratorium or reorganization laws or laws affecting the remedies for the enforcement of the rights and security provided therein and need not pass on the availability of the remedy of specific enforcement, injunctive relief or any other equitable remedy.

Section 15.10 Headlines; Table of Contents. The division of this Indenture into sections, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof.

Section 15.11 Execution in Several Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Issuer and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument.

Section 15.12 Bond Insurer as Third-Party Beneficiary. To the extent that this Indenture confers upon or gives or grants to the Bond Insurer any right, remedy, benefit, or claim under or by reason of this Indenture, the Bond Insurer is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy, benefit, or claim conferred, given, or granted hereunder.

Section 15.13 Additional Covenants of the Issuer to Bond Insurer. The Issuer covenants to provide the Bond Insurer with the following information:

(a) Notice of the redemption, other than mandatory sinking fund redemption, of any of the Bonds, or of any advance refunding of Bonds, including the principal amount, maturities, and CUSIP numbers thereof;

(b) Notice of any material events pursuant to Rule 15c2-12 under the Securities Exchange Act of 1934, as amended;

(c) Notice of any rate covenant violation with respect to the Bonds;

(d) Full transcripts of all proceedings related to the execution of any Supplemental Indenture or any modification, alteration, amendment or supplement of the Agreement pursuant to Article XIII hereof; and

(e) Such additional information as the Bond Insurer may reasonably request from time to time.

Section 15.14 Statutory Notice. In accordance with the terms thereof, notice is hereby given of Title 38, Chapter 3, Section 38-511, Arizona Revised Statutes, which provides, among other things, that the State of Arizona, its political subdivisions or any department or agency of either may, within three years after its execution, cancel any contract, without penalty or further obligation, made by said State, its political subdivisions, or any of the departments or agencies of

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either if any person significantly involved in initiating, negotiating, securing, drafting or creating the contract on behalf of said State, its political subdivisions or any of the departments or agencies of either is, at any time while the contract or any extension of the contract is in effect, an employee or agent of any other party to the contract in any capacity or a consultant to any other party of the contract with respect to the subject matter of the contract.

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IN WITNESS WHEREOF, the Issuer has caused this Indenture to be signed in its name by its duly authorized officer, and the Trustee, in token of its acceptance of the trust created hereunder, has caused this Indenture to be signed in its name by its duly authorized signatory, all as of the day and year first above written.

MARICOPA COUNTY, ARIZONA
POLLUTION CONTROL CORPORATION
By:
	President
UNION BANK OF CALIFORNIA, N.A., as Trustee
By:
	Authorized Officer

EXHIBIT A

[FORM OF BOND]

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE, BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

AS PROVIDED IN THE INDENTURE REFERRED TO HEREIN, UNTIL THE TERMINATION OF THE SYSTEM OF BOOK-ENTRY ONLY TRANSFERS THROUGH DTC, AND NOTWITHSTANDING ANY OTHER PROVISION OF THE INDENTURE TO THE CONTRARY, A PORTION OF THE PRINCIPAL AMOUNT OF THIS BOND MAY BE PAID OR REDEEMED WITHOUT SURRENDER HEREOF TO THE PAYING AGENT. DTC OR A NOMINEE, TRANSFEREE OR ASSIGNEE OF DTC AS OWNER OF THIS BOND MAY NOT RELY UPON THE PRINCIPAL AMOUNT INDICATED HEREON AS THE PRINCIPAL AMOUNT HEREOF OUTSTANDING AND UNPAID. THE PRINCIPAL AMOUNT HEREOF OUTSTANDING AND UNPAID SHALL FOR ALL PURPOSES BE THE AMOUNT DETERMINED IN THE MANNER PROVIDED IN THE INDENTURE AND INDICATED ON THE BOOKS OF THE TRUSTEE.

No. $

MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION

Pollution Control Refunding

Revenue Bond, 2005 Series B

(El Paso Electric Company Palo Verde Project)

Maturity Date	Original Issue Date	CUSIP
July 1, 2040	August 1, 2005	566854DE2
Registered Owner: Cede & Co.
Principal Sum: $63,500,000

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Maricopa County, Arizona Pollution Control Corporation, a political subdivision of the State of Arizona (the “Issuer”), for value received, hereby promises to pay (but only from the source and in the manner provided herein) to the registered owner named above, or registered assigns, on the Maturity Date specified above upon the presentation and surrender hereof, the Principal Sum specified above and to pay (but only out of the Receipts and Revenues from the Agreement and other moneys pledged therefor) interest on said Principal Sum, from and including the date of authentication hereof until payment of said Principal Sum has been made or duly provided for, at the rates and on the dates determined as described herein and in the Indenture (as hereinafter defined). The principal of and any premium on this Bond are payable at a principal corporate trust office of Union Bank of California, N.A., as Trustee and Paying Agent. Interest on this Bond is payable to the person appearing on the bond registration books of the Registrar as the registered holder thereof as of the close of business on the Record Date, such interest to be paid by the Paying Agent to such registered holder (i) in the event such Bond is a Book-Entry Bond, in immediately available funds on the Interest Payment Date in accordance with the Representation Letter, and (ii) in the event such Bond is not a Book-Entry Bond (A) in immediately available funds (by wire transfer or by deposit to the account of the holder of at least $1,000,000 of Bonds if such account is maintained with the Paying Agent), according to the written instructions given by such holder to the Registrar prior to the Record Date or (B) in all other cases, by check mailed by first class mail to the holder at such holder’s address as it appears as of the Record Date on the registration books of the Registrar; except, in each case, that, if and to the extent that there shall be a default in the payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid to the holder in whose name any such Bond is registered as of a Special Record Date to be fixed by the Trustee, notice of which shall be given to such holder not less than ten (10) days prior thereto. Notwithstanding the foregoing, interest on any Bond bearing a Bond Interest Term Rate (except any such Bond which is a Book-Entry Bond) shall be paid only upon presentation to the Tender Agent of the Bond on which such payment is due. Payment of the principal of and interest and any premium on this Bond shall be in such coin or currency of the United States of America as, at the respective times of payment, shall be legal tender for the payment of public and private debts.

Unless otherwise defined herein, all terms herein shall have the same meanings, respectively, as such terms are given in the Indenture.

THE BOND AND INTEREST THEREON ARE LIMITED OBLIGATIONS OF THE ISSUER ISSUED UNDER AND SECURED AND ENTITLED EQUALLY AND RATABLY TO THE PROTECTION GIVEN BY THE INDENTURE. NEITHER THE GENERAL CREDIT OF MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION NOR THE GENERAL CREDIT OR THE TAXING POWER OF THE STATE OF ARIZONA OR OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED FOR THE PAYMENT OF THE BOND, THE BOND SHALL NEVER CONSTITUTE AN INDEBTEDNESS OF THE MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION WITHIN THE MEANING OF ANY STATE CONSTITUTIONAL PROVISION OR STATUTORY LIMITATION AND SHALL NEVER GIVE RISE TO A PECUNIARY LIABILITY OF THE MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION OR A CHARGE AGAINST ITS GENERAL CREDIT OR TAXING POWER; NOR SHALL THE BOND AND INTEREST THEREON BE DEEMED A GENERAL OBLIGATION OF MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION OR OF THE STATE OF ARIZONA OR OF ANY POLITICAL SUBDIVISION THEREOF.

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This Bond is one of the duly authorized issue of bonds designated as Maricopa County, Arizona Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company Palo Verde Project), of the Issuer, aggregating sixty-three million five hundred thousand Dollars ($63,500,000) in principal amount (the “Bonds”), as provided in, and issued under and secured by, an Indenture of Trust, dated as of July 1, 2005 (the “Indenture”), between the Issuer and Union Bank of California, N.A, or its successors and assigns, as trustee (the “Trustee”). The Bond are authorized to be issued pursuant to a resolution duly adopted by the Issuer on April 19, 2005 and the provisions of the Constitution of the State of Arizona and Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), and all acts supplemental thereto or amendatory thereof (the “Act”).

The Bonds are equally and ratably secured, to the extent provided in the Indenture by a pledge of and lien on, the “Receipts and Revenues,” consisting primarily of loan repayments made be El Paso Electric Company (the “Borrower”) under the terms of a Loan Agreement dated as of July 1, 2005 (the “Agreement”), between the Issuer and the Borrower. The Bonds are all issued under and equally and ratably secured by and entitled to the benefits of the Indenture, including the security of a pledge and assignment of certain revenues and receipts derived by the Issuer pursuant to the Agreement and any Credit Facility provided by the Borrower with respect to the Bonds (as described herein) and all receipts of the Trustee credited under the provisions of the Indenture against such payments and from any other moneys held by the Trustee under the Indenture for such purpose, and there shall be no other recourse against the Issuer or any property now or hereafter owned by it. This Bond and all other Bonds of the series of which it forms a part are issued pursuant to and in full compliance with the Constitution and laws of the State of Arizona, particularly the Act, and pursuant to further proceedings adopted by the governing body of the Issuer, which proceedings authorized the execution and delivery of the Indenture and the Agreement. This Bond and the series of which it forms a part are limited obligations of the Issuer payable solely from the amounts derived under the Agreement and pledged under the Indenture, including all amounts payable from time to time by the Borrower in respect of the indebtedness under the Agreement and all receipts of the Trustee credited under the provisions of the Indenture against said amounts payable. No owner of any Bond issued under the Act has the right to compel any exercise of the taxing power of the Issuer to pay the Bonds, or the interest or premium, if any, thereon. The Project (as defined in the Agreement) is not security for the Bonds.

In the manner hereinafter provided, the term of this Bond will be divided into consecutive Interest Rate Periods during each of which this Bond shall bear interest at a Daily Interest Rate (a “Daily Interest Rate Period”), a Weekly Interest Rate (a “Weekly Interest Rate Period”), a Long-Term Interest Rate or Rates (a “Long-Term Interest Rate Period”), or each Bond may bear interest at a Bond Interest Term Rate during one or more consecutive Bond Interest Terms (a “Short-Term Interest Rate Period”). The first Interest Rate Period shall be the Interest Rate Period as specified in the Indenture.

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This Bond is initially issued as an ARS bearing interest as an auction rate security in a 7-day mode as provided in Article IIIA of the Indenture and the Auction Procedures described in and attached to the Indenture as Exhibit B. As provided in and subject to the terms of the Indenture, the Bonds from time to time may be converted to pay interest at the Daily Interest Rate, Weekly Interest Rate, Long-Term Interest Rate or Bond Interest Term Rates or to be ARS paying interest in the same or a different mode. Determinations of interest rates, adjustments between interest rates, and conversion of Interest Rate Periods and ARS modes shall be as provided in the Indenture.

When this Bond is an ARS, interest shall be computed on the basis of a 360-day year for the actual number of days elapsed. For each ARS Interest Period after the first ARS Interest Period, the interest rate shall be the Auction Rate determined according to the Auction Procedures. When this Bond bears interest at a Daily Interest Rate, a Weekly Interest Rate or Bond Interest Term Rates, interest shall accrue on the basis of the actual number of days elapsed during the Interest Rate Period and a year of 365 days (366 days in a leap year). When this Bond bears interest at a Long-Term Interest Rate, interest shall accrue on the basis of a 360-day year composed of twelve 30-day months. While in an ARS Interest Period this Bond shall be issued in denominations of $25,000 or integral multiples thereof.

This Bond shall bear interest from and including the Interest Accrual Date (as hereinafter defined) to which interest has been paid in full or duly provided for immediately preceding the date of authentication hereof, or, if such date of authentication shall be an Interest Accrual Date to which interest on this Bond has been paid in full or duly provided for, or the date of initial authentication hereof, from its date of authentication; provided, however, that if, as shown by the records of the Trustee, interest on this Bond shall be in default, any Bond issued in exchange for this Bond if it is surrendered for registration of transfer or exchange shall bear interest from the date to which interest has been paid in full on this Bond or duly provided for or, if no interest has been paid on this Bond or duly provided for, the date of the first authentication of this Bond under the provisions of the Indenture. For any Daily Interest Rate Period and any Weekly Interest Rate Period, interest on this Bond shall be payable on each Interest Payment Date for the period commencing on the preceding Interest Accrual Date (unless such Interest Payment Date does not fall on an Interest Accrual Date, in which case on the second preceding Interest Accrual Date) and ending on the day immediately preceding the Interest Accrual Date on which such Interest Payment Date falls (unless such Interest Payment Date does not fall on an Interest Accrual Date, in which case on the day immediately preceding the immediately preceding Interest Accrual Date). For any Short-Term Interest Rate Period or Long-Term Interest Rate Period, interest on this Bond shall be payable on each Interest Payment Date for the period commencing on the immediately preceding Interest Accrual Date and ending on the day immediately preceding such Interest Payment Date. In any event, interest on this Bond shall be payable for the final Interest Rate Period to the date on which this Bond shall have been paid in full. Interest shall be computed, in the case of a Long-Term Interest Rate Period, on the basis of a 360-day year consisting of twelve 30-day months, and in the case of any other Interest Rate Period, on the basis of a 365- or 366-day year, as appropriate, and the actual number of days elapsed. The Bonds shall be issuable in the form of registered Bonds without coupons in the denomination of (i) $25,000 and any integral multiple thereof, during any Long-Term Interest Rate Period and (ii) $100,000 and any integral multiple of $5,000 in excess of $100,000 during any Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period (such denominations referred to herein as “Authorized Denominations”).

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The term “Interest Accrual Date” shall mean (i) with respect to any Daily Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Daily Interest Rate Period, (ii) with respect to any Weekly Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Weekly Interest Rate Period, (iii) with respect to any Long-Term Interest Rate Period, the first day thereof and, thereafter, each Interest Payment Date in respect thereof, other than the last such Interest Payment Date, and (iv) with respect to each Bond Interest Term within a Short Term Interest Rate Period, the first day thereof. The Term “Interest Payment Date” shall mean (i) with respect to any Daily or Weekly Interest Rate Period, the first Business Day of each calendar month, (ii) with respect to any Long-Term Interest Rate Period, each January 1 and July 1 occurring during such Long-Term Interest Rate Period, and the Business Day next succeeding the last day thereof, (iii) with respect to any Short-Term Interest Rate Period, the Business Day next succeeding the last day thereof, and (iv) in all events, the redemption date or the Maturity Date. The term “Business Day” shall mean a day on which banks located in the cities in which the Principal Offices of the Trustee and the Tender Agent are located, and in the city or cities in which drawings under a Credit Facility are required to be made, are not required or authorized by law or executive order to remain closed and on which the New York Stock Exchange, Inc. is not closed.

(1) Daily Interest Rate

(i) Determination of Daily Interest Rate. During each Daily Interest Rate Period, the Bonds shall bear interest at the Daily Interest Rate determined by the Remarketing Agent on or before each Business Day for such Business Day. The Daily Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of the Daily Interest Rate determined by 10:30 a.m. (New York City time) on the date of determination. If the Remarketing Agent shall not have determined a Daily Interest Rate for any day by 10:30 a.m. (New York City time) on such day, the Daily Interest Rate shall be the same as the Daily Interest Rate for the immediately preceding day. In no event shall the Daily Interest Rate be greater than the Maximum Bond Interest Rate.

(ii) Adjustment to Daily Interest Rate Period. At any time, the Borrower, by written notice to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear interest at a Daily Interest Rate. Such notice (1) shall specify the effective date of such adjustment to a Daily Interest Rate and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of the interest on the Bonds.

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(2) Weekly Interest Rate.

(i) Determination of Weekly Interest Rate. During each Weekly Interest Rate Period, the Bonds shall bear interest at the Weekly Interest Rate, which shall be determined by the Remarketing Agent no later than the first day of such Weekly Interest Rate Period and thereafter no later than 10:00 a.m. (New York City time) on Wednesday of each week during such Weekly Interest Rate Period, unless any such Wednesday shall not be a Business Day, in which event the Weekly Interest Rate shall be determined by the Remarketing Agent no later than the Business Day immediately preceding such Wednesday. The Weekly Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. If for any reason, a Weekly Interest Rate is not so established for any period by the time specified above by the Remarketing Agent, the Weekly Interest Rate shall be the same as the Weekly Interest Rate in effect for the immediately preceding week. In no event shall any Weekly Interest Rate exceed the Maximum Bond Interest Rate. The first Weekly Interest Rate determined for each Weekly Interest Rate Period shall apply to the period commencing on the first day of such Weekly Interest Rate Period and ending on the next succeeding Tuesday, unless such Weekly Interest Rate Period shall end on a day other than Tuesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period shall apply to the period commencing on the Wednesday preceding the last day of such Weekly Interest Rate Period and ending on such last day. The Remarketing Agent shall provide the Trustee and the Borrower with written, telephonic or Electronic notice of each Weekly Rate, as determined, by 12:00 noon (New York City time) on the effective date of such Weekly Rate.

(ii) Adjustment to Weekly Interest Rate. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear interest at a Weekly Interest Rate. Such direction (1) shall specify the effective date of such adjustment to a Weekly Interest Rate; and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(3) Long-Term Interest Rate.

(i) Determination of Long-Term Interest Rate. During each Long-Term Interest Rate Period, the Bonds shall bear interest at the Long-Term Interest Rate, which shall be determined by the Remarketing Agent on a Business Day selected by the Remarketing Agent but not more than forty (40) days prior to and not later than the effective date of such Long-Term Interest Rate Period. The Long Term Interest Rate shall be the rate of interest per annum determined by the

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Remarketing Agent on such date, and communicated by the close of business on such date to the Trustee, the Paying Agent and the Borrower, by written, telephonic or Electronic notice as being the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such Long-Term Interest Rate Period at a price (without regard to accrued interest) equal to 100% of the principal amount thereof; provided, however, that if, for any reason, a Long-Term Interest Rate for any Long-Term Interest Rate Period shall not be determined or effective or if an adjustment from a Long-Term Interest Rate Period to another Interest Rate Period shall not be effective, the Interest Rate Period for the Bonds shall automatically convert to a Daily Interest Rate Period; provided, further, however, that if the Favorable Opinion of Bond Counsel required by Section 2.01(c)(ii)(B) of the Indenture in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii)(A) of the Indenture, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Index. In no event shall any Long-Term Interest Rate be greater than the Maximum Bond Interest Rate.

(ii) Adjustment to or Continuation of Long-Term Interest Rate. At any time, the Borrower, by written notice to the Issuer, the Bank, the Trustee, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear or continue to bear interest at a Long-Term Interest Rate and if it shall so elect, shall determine the duration of the Long-Term Interest Rate Period during which the Bonds shall bear interest at such Long-Term Interest Rate. Each Long-Term Interest Rate Period shall have a duration such that the last day of such Long-Term Interest Rate Period is (1) a day which both immediately precedes a Business Day and is at least one year after the effective date of such Long-Term Interest Rate Period or (2) if earlier, the day immediately preceding the Maturity Date. At the time the Borrower so elects an adjustment to or continuation of a Long-Term Interest Rate Period, the Borrower may specify two or more consecutive Long-Term Interest Rate Periods and, if the Borrower so specifies, shall specify the duration of each such Long-Term Interest Rate Period as provided in this paragraph. Such notice shall specify the effective date of each such Long-Term Interest Rate Period. In addition, such notice (i) shall specify the last day of such Long-Term Interest Rate Period, and (ii) if the adjustment is from a Daily, Weekly or Short-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

If, by the thirty-fifth day prior to the last day of any Long-Term Interest Rate Period, the Trustee shall not have received notice of the Borrower’s election that, during the next succeeding Interest Rate Period, the Bonds shall bear interest at a Daily Interest Rate, a Weekly Interest Rate, a Long-Term Interest Rate, or a Bond

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Interest Term Rate accompanied by appropriate opinions of Bond Counsel, if required by Section 2.01(c)(ii)(B), (iii)(B), (iv)(B) or (v)(B) of the Indenture, the next succeeding Interest Rate Period for the Bonds shall be a Daily Interest Rate Period; provided, however, that if the opinion of Bond Counsel required by Section 2.01(c)(ii)(B) of the Indenture in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) of the Indenture, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Index.

At the same time that the Borrower elects to have the Bonds bear interest at a Long-Term Interest Rate or continue to bear interest at a Long-Term Interest Rate, the Borrower may also specify to the Trustee optional redemption prices and periods different from (including that there be no such optional redemption) those set out in Section 4.01(a)(ii)(C) of the Indenture during the Long-Term Interest Rate Period(s) with respect to which such election is made; provided, however, that such notice shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such changes (i) are authorized or permitted by the Act and the Indenture, and (ii) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(4) Bond Interest Term Rate.

(i) Determination of Bond Interest Terms and Bond Interest Term Rates.

During each Short-Term Interest Rate Period, each Bond shall bear interest during each Bond Interest Term for such Bond at the Bond Interest Term Rate for such Bond. Each Bond Interest Term and Bond Interest Term Rate for any Bond shall be a period of at least one day but not more than the lesser of (x) 270 days or (y) the number of days of interest coverage on the Bonds provided for in any Credit Facility then in effect minus five (5) days. When a Credit Facility, if any, other than a Letter of Credit is in effect with respect to the Bonds or no Credit Facility is in effect with respect to the Bonds, each Bond Interest Term for any Bond shall be a period of at least one day but not more than 270 days. Each Bond Interest Term for any Bond shall be a period determined by the Remarketing Agent to be, in its judgment, the period which, taking into account prevailing market conditions and all other Bond Interest Terms and Bond Interest Term Rates for all Bonds then Outstanding, is likely to result in the lowest overall net interest expense on all such Bonds; provided, however, that any such Bond purchased on behalf of the Borrower and remaining unsold in the hands of the Remarketing Agent as of 1:00 p.m. (New York City time) on the effective date of the Bond Interest Term for such Bond shall have a Bond Interest Term of one day or, if such Bond Interest Term would not end on a day immediately preceding a Business Day, a Bond Interest Term of more than one day ending on the day immediately preceding the next Business Day; provided, further, however, that

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(1) each Bond Interest Term shall end on a day which immediately precedes a Business Day and no Bond Interest Term shall extend beyond the day immediately preceding the Maturity Date or, if a Credit Facility, if any, is then in effect with respect to the Bonds, the scheduled expiration date of such Credit Facility, and (2) if for any reason the Remarketing Agent fails or is unable to determine a Bond Interest Term on any Bond, the Bond Interest Term for such Bond shall be one day, unless such Bond Interest Term would end on a day which does not precede a Business Day, in which case such Bond Interest Term shall end on the day immediately preceding the next succeeding Business Day.

The Bond Interest Term Rate for each Bond Interest Term for each Bond shall be the rate of interest per annum determined by the Remarketing Agent no later than 1:00 p.m. (New York City time) on the first day of such Bond Interest Term to be the lowest interest rate which would enable the Remarketing Agent to sell such Bonds on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of each Bond Interest Term Rate and Bond Interest Term by 1:00 p.m. (New York City time) on the date of determination. If a Bond Interest Term Rate for a Bond Interest Term of one day is not determined or effective by 1:00 p.m. (New York City time) on such day, the Bond Interest Term Rate for such Bond Interest Term of one day shall be equal to the BMA Index. In no event shall any Bond Interest Term Rate exceed the Maximum Bond Interest Rate.

Notwithstanding the foregoing, in the event that notice of redemption with respect to any Bond in a Short-Term Interest Rate Period shall have been given to the holder of such Bond by the Trustee pursuant to Section 4.03 of the Indenture, no subsequent Bond Interest Terms or Bond Interest Term Rates shall be determined with respect to such Bond.

(ii) Adjustment to or Continuation of Bond Interest Term Rates. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, if any, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear interest at Bond Interest Term Rates. Such direction (1) shall specify the effective date of the Short-Term Interest Rate Period during which the Bonds shall bear interest at Bond Interest Term Rates; and (2) shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(iii) Adjustment from Short-Term Interest Rate Period. At any time during a Short-Term Interest Rate Period, the Borrower may elect that the Bonds shall no longer bear interest at Bond Interest Term Rates and shall instead bear interest as otherwise permitted under the Indenture. The Borrower shall give written notice to the Issuer, the Trustee, the Paying Agent and the Remarketing Agent, if any, of such election and shall specify the Interest Rate Period to follow with respect to such Bonds upon cessation of the Short-Term Interest Rate Period and instruct the

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Remarketing Agent to (1) determine Bond Interest Terms of such duration that, as soon as possible, all Bond Interest Terms shall end on the same date, not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice, and upon the establishment of such Bond Interest Term the day next succeeding the last day of all such Bond Interest Terms shall be the effective date of the Interest Rate Period elected by the Borrower; or (2) determine Bond Interest Terms that will best promote an orderly transition to the next succeeding Interest Rate Period to apply to the Bonds, beginning not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice. If the alternative in clause (2) above is selected, the day next succeeding the last day of the Bond Interest Term for each Bond shall be with respect to such Bond the effective date of the Interest Rate Period elected by the Borrower. The Remarketing Agent, promptly upon the determination thereof, shall give written notice of such last day and such effective dates to the Issuer, the Borrower, the Trustee and the Tender Agent. During any transitional period from a Short-Term Interest Rate Period to the next succeeding Interest Rate Period in accordance with clause (2) above, the provisions of the Indenture shall be deemed to apply to the Bonds as follows: the Bonds continuing to bear interest at Bond Interest Term Rates shall have applicable to them the provisions thereunder theretofore applicable to such Bonds as if all Bonds were continuing to bear interest at Bond Interest Term Rates and the Bonds bearing interest in the Interest Rate Period to which the transition is being made will have applicable to them the provisions thereunder as if all Bonds were bearing interest in such Interest Rate Period.

(5) Terms of Credit Facility, If Any. The Bonds shall be insured by a Bond Insurance Policy provided by the Bond Insurer. No Credit Facility is currently in effect for the Bonds. A Credit Facility shall be required if the Bonds are converted to any Interest Rate Period other than a Long-Term Interest Rate Period and in such event, the Borrower shall be required to obtain prior written approval from the Bond Insurer for such Credit Facility and for a Bank providing such Credit Facility stating that the terms of such Credit Facility shall be satisfactory to the Bond Insurer, which approval shall not be unreasonably withheld. If a Credit Facility in the form of a letter of credit is to be held by the Trustee after the effective date of any adjustment from one Interest Rate Period to another Interest Rate Period, such Credit Facility, if any, shall be in an amount sufficient to provide payment of (x) the principal amount of the Outstanding Bonds plus (y) the amount of interest (computed on the basis of a 365-day year in the case of an adjustment to a Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period, and on the basis of a 360-day year consisting of twelve 30-day months in the case of an adjustment to a Long-Term Interest Rate Period) which will accrue on the Outstanding Bonds for a period equal to the maximum number of days between Interest Payment Dates during the new Interest Rate Period plus five (5) days. In the case of an adjustment to a Long-Term Interest Rate Period, a Credit Facility, if any, to be in effect after the effective date of such adjustment shall (i) extend for a period ending on a date no earlier than five (5)

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days after the first date on which the Bonds may be called for redemption pursuant to Section 4.01(a)(ii) of the Indenture and (ii) cover the premium, if any, which would be included in the purchase price upon mandatory purchase of the Bonds pursuant to Section 4.08(b) of the Indenture if the term of such Credit Facility was not extended beyond the expiration date set forth therein.

(6) Notice of Adjustment to Daily, Weekly or Long-Term Interest Rate or Bond Interest Terms Rates; Bonds Counsel Opinions; Remarketing Agent; Tender Agent.

(i) Except as otherwise provided in the Indenture, the Trustee shall give notice by first-class mail of an adjustment to a Daily, Weekly, Short-Term or Long-Term Interest Rate Period, as the case may be, to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Daily, Weekly, Short-Term or Long-Term Interest Rate Period.

(ii) Adjustment to a Daily, Weekly, Short-Term or Long-Term Interest Rate Period, except for successive Long-Term Interest Rate Periods, requires a contemporaneous Favorable Opinion of Bond Counsel. “Favorable Opinion of Bond Counsel” means an opinion of Bond Counsel to the effect that the action proposed to be taken is authorized by the laws of the State of Arizona and the Indenture and will not adversely affect any exclusion from gross income for federal income tax purposes of interest on the Bonds.

(iii) The initial Remarketing Agent appointed under the Indenture shall be Citigroup Global Markets Inc.

(iv) The initial Tender Agent appointed under the Indenture shall be Citigroup Global Markets Inc.

(7) (i) Purchase of Bonds During Daily Interest Rate Period. During any Daily Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest from the Interest Accrual Date immediately prior to the date of purchase to the date of purchase (unless the date of purchase shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office, by no later than 11:00 a.m. (New York City time), on such Business Day, of an irrevocable written, telephonic or Electronic notice which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 of the Indenture. The Tender Agent shall keep a written record of the notice described in Clause (A).

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(ii) Purchase of Bonds During Weekly Interest Rate Period. During any Weekly Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased on any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, from the Interest Accrual Date immediately prior to the date of purchase to the date of purchase (unless the date of purchase shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office, by no later than 5:00 p.m. (New York City time), on such Business Day at least seven (7) days prior to the date of purchase of an irrevocable written, telephonic or Electronic notice which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 of the Indenture. The Tender Agent shall keep a written record of the notice described in Clause (A).

(iii) Mandatory Tender for Purchase On Day Next Succeeding the Last Day of Each Bond Interest Term. Each Bond in a Short-Term Interest Rate Period shall be subject to mandatory tender for purchase on the day next succeeding the last day of each Bond Interest Term with respect to such Bond, at a purchase price equal to 100% of the principal amount thereof, plus accrued interest to the date of purchase, except as provided in Section 4.08(b)(ii) of the Indenture; or

(iv) Mandatory Tender for Purchase on First Day of Each Interest Rate Period. The Bonds shall be subject to mandatory tender for purchase on the effective date of any change in an Interest Rate Period for such Bond, other than the effective date of any change from a Daily Interest Rate Period to a Weekly Interest Rate Period or from a Weekly Interest Rate Period to a Daily Interest Rate Period, at a purchase price equal to 100% of the principal amount thereof, plus accrued interest to the date of purchase, except as provided in Section 4.08(b)(ii) of the Indenture; or

(v) Mandatory Tender for Purchase on First Day of Long-Term Interest Rate Period Following Prior Long-Term Interest Rate Period. This Bond shall be subject to mandatory tender for purchase, at the purchase price, payable in immediately available funds, specified in the Indenture, on the first day of each Long-Term Interest Rate Period which was preceded by a Long-Term Interest Rate Period.

(vi) Mandatory Tender for Purchase on Effective Date of any Credit Facility. This Bond shall be subject to mandatory tender for purchase, at the purchase price, payable in immediately available funds, specified in the Indenture, on the effective date of any Credit Facility which may be provided with respect to the Bonds pursuant to Section 6.08 of the Agreement or of any substitute Credit Facility provided with respect to the Bonds pursuant to Section 6.08 of the Agreement.

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(vii) Mandatory Tender for Purchase on Termination or Expiration of Credit Facility. In the event that any Credit Facility either is to terminate or is to expire in accordance with its terms (other than because a final drawing thereunder shall have been made in accordance with its terms), unless the term of the Credit Facility shall be extended or unless the Borrower shall provide the Trustee, no later than the 35^th day preceding the mandatory purchase date set forth herein with a substitute Credit Facility and with written evidence from Moody’s, if the Bonds shall be rated at the time by Moody’s, and from S&P, if the Bonds shall be rated at the time by S&P, to the effect that such substitute Credit Facility will not, by itself, result in a reduction or withdrawal of the rating on the Bonds by Moody’s or S&P, as the case may be (and the Trustee shall have received written notice of such extension or such substitution and evidence thereof prior to giving the notice required in paragraph (viii) below), the Bonds shall be subject to mandatory tender for purchase at a purchase price, payable in immediately available funds, of 100% of their principal amount, plus accrued interest, if any, to the mandatory purchase date, on the second Business Day prior to the date of such termination or expiration.

(viii) Notice of Mandatory Tender for Purchase. In connection with any mandatory tender for purchase of this Bond in accordance with paragraph 7(iii), (iv), (v), (vi) or (vii) above, the Trustee shall give notice by first-class mail to the Owner of this Bond at the time and in the form specified in the Indenture.

(ix) Bonds Deemed Purchased. If moneys sufficient to pay the purchase price of Bonds to be purchased pursuant to Section 4.08 of the Indenture shall be held by the Tender Agent on the date such Bonds are to be purchased, such Bonds shall be deemed to have been purchased for all purposes of the Indenture, irrespective of whether or not such Bonds shall have been delivered to the Tender Agent, and neither the former holder of such Bonds nor any other person shall have any claim thereon, under the Indenture or otherwise, for any amount other than the purchase price thereof, provided, however, that in the case of a failed Conversion of ARS, no mandatory purchase described above shall apply.

In the event of non-delivery of any Bond to be purchased pursuant to Section 4.08 of the Indenture, the Tender Agent shall segregate and hold uninvested the moneys for the purchase price of such Bonds in trust, without liability for interest thereon, for the benefit of the former holders of such Bonds, who shall, except as provided in the following sentence, thereafter be restricted exclusively to such moneys for the satisfaction of any claim for the purchase price of such Bonds. Any moneys which the Tender Agent shall segregate and hold in trust for the payment of the purchase price of any Bond and remaining unclaimed for two (2) years after the date of purchase shall be paid, upon the Borrower’s written request, to the Borrower. After the payment of such unclaimed moneys to the Borrower, the former holder of such Bond shall look only to the Borrower for the payment thereof.

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(8) Redemption Provisions. The Bonds shall be subject to redemption prior to the Maturity Date by the exercise by the Borrower of any of its options to prepay all or a part of the unpaid balance of the Repayment Installments and cause the Bonds to be redeemed, in whole, or in part by lot, prior to the Maturity Date, as follows:

(i) During any Short-Term Interest Rate Period, each Bond shall be subject to such redemption on the day next succeeding the last day of each Bond Interest Term for such Bond at a redemption price equal to 100% of the principal amount thereof.

(ii) During any Daily Interest Rate Period or Weekly Interest Rate Period, the Bonds shall be subject to such redemption on any Interest Payment Date at a redemption price equal to 100% of the principal amount thereof.

(iii) On the day next succeeding the last scheduled day of any Long-Term Interest Rate Period, the Bonds shall be subject to such redemption at a redemption price of 100% of the principal amount thereof. During any Long-Term Interest Rate Period, the Bonds shall be subject to redemption during the periods specified below, in whole or in part, at the redemption prices (expressed as percentages of principal amount) hereinafter indicated (unless different redemption terms shall be specified by the Borrower pursuant to Section 2.01(c)(iv)(B) of the Indenture):

Length of Long-Term Interest Rate Period (expressed in years)	Redemption Prices
Greater than 17	After 10 years at 102% declining by 1% every 12 months to 100%
Less than or equal to 17 and greater than 10	After 8 years at 102%, declining by 1% every 12 months to 100%
Less than or equal to 10 and greater than 7	After 6 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 7 and greater than 4	After 3 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 4 and greater than 3	After 2 years at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%

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Length of Long-Term Interest Rate Period (expressed in years)	Redemption Prices
Less than or equal to 3 and greater than 2	After 1 year at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%
Less than or equal to 2 and greater than 1	After 1 year at 100%
1 year or less	Not redeemable

(iv) During any Long-Term Interest Rate Period, the Bonds shall be subject to redemption prior to the Maturity Date at the option of the Borrower in whole or in part by lot on any Interest Payment Date, at a redemption price equal to 100% of the principal amount thereof, if the Borrower delivers to the Trustee a written or Electronic notice to the effect that either:

(a) the Borrower has determined that some or all of the interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period is not or will not be deductible, in whole or in part, for federal income tax purposes by reason of Section 150(b) of the Code (or would not be deductible unless some or all of the Bonds are redeemed) due to a change in use of the Project or any portion thereof, and the Borrower will not claim deductions for such interest on its federal income tax returns; or

(b) the Borrower after reasonable effort has been unable to obtain an opinion of Bond Counsel that it is more likely than not that Section 150 of the Code will not prevent interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period from being deductible, in whole or in part, for federal income tax purposes.

In either such case, the Borrower shall only cause the Trustee to redeem Bonds as provided in this paragraph 8(iv) on or after the Interest Payment Date immediately preceding the date on which, due to a change in use in the Project or any portion thereof, the period of potential interest expense disallowance described above commences, and the Borrower may only cause the Trustee to redeem such principal amount of Bonds as the Borrower determines is necessary to assure that the Borrower retains its right to all such deductions otherwise allowable or, if a partial redemption will not enable the Borrower to retain the right to deduct such interest, the Borrower may cause the Trustee to redeem all the Outstanding Bonds.

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(v) During any Long-Term Interest Rate Period, the Bonds shall be redeemed prior to the Maturity Date in whole or in part, and if in part by lot, at any time at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, upon receipt by the Trustee of a written notice of the Borrower and signed by an Authorized Borrower Representative stating that any of the following events has occurred (which determination shall be in the sole discretion of the Borrower) and that the Borrower therefore intends to exercise its option to prepay all payments due under the Agreement in whole or in part pursuant to Section 9.01 of the Agreement and thereby effect the redemption of Bonds in whole or in part to the extent of such prepayments:

(a) All or part of the Project or the Plant shall have been damaged or destroyed to such an extent that, in the opinion of the Borrower, (i) the Project or the Plant or such affected portion could not reasonably be restored within a period of four (4) months to the condition thereof immediately preceding such damage or destruction, and the Borrower or the operator of the Project or the Plant will be prevented, or is likely to be prevented for a period of four (4) consecutive months or more, from carrying on all or substantially all of its normal operation of the Project or the Plant, or (ii) the cost of restoration of the Project or the Plant or such affected portion will be substantially in excess of the net proceeds of insurance thereon.

(b) Title to, or the temporary use of, all or a part of the Project or the Plant shall have been taken under the exercise of the power of eminent domain.

(c) Changes in economic availability of raw materials, operating supplies or facilities necessary to operate all or a part of the Project or the Plant, or technological or other changes which make the continued operation of the Project or the Plant or such affected portion uneconomical, in the opinion of the Borrower, shall have occurred and shall have resulted in a cessation of all or substantially all of the Borrower’s normal operations of either the Project or the Plant.

(d) Unreasonable burdens or excessive liabilities shall have been imposed upon the Issuer or the Borrower in respect of all or a part of the Project or the Plant including, without limitation, federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Agreement, as well as any statute or regulation enacted or promulgated after the date of the Agreement that prevents the Borrower from deducting interest in respect of the Agreement for federal income tax purposes.

(e) All or substantially all of the property of the Borrower shall be transferred or sold to any entity other than an affiliate of the Borrower or the Borrower shall be consolidated with or merged into an entity other than an affiliate of the Borrower in such manner that the Borrower is not the surviving entity and the surviving, resulting or transferee entity does not agree to perform the obligations of the Borrower.

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Notwithstanding any term or provision of this paragraph 8(v) to the contrary, the Bonds shall not be subject to optional redemption unless (i) the Bank, if any, shall consent thereto in writing and deliver such consent to the Borrower and the Trustee, (ii) in connection with such redemption, the proceeds of such refunding shall be sufficient to pay, and shall be used to pay, the redemption price of the Bonds so redeemed or (iii) sufficient Available Moneys (other than proceeds of any drawing under a Letter of Credit, if any) shall have been deposited by the Borrower with the Trustee for the payment of all amounts due in respect of all Bonds called for redemption pursuant to this paragraph 8(v). This paragraph shall be inapplicable if at the time of such optional redemption there is no Letter of Credit or other Credit Facility with respect to the Bonds.

(vi) The Bonds shall be subject to redemption prior to the Maturity Date from amounts which are required to be prepaid by the Borrower under Section 9.03 of the Agreement, as set forth below:

(a) The Bonds shall be redeemed in whole on any date at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date upon the occurrence of a Determination of Taxability; provided, however, that if, in the opinion of Bond Counsel delivered to the Trustee, the redemption of a specified portion of such Bonds Outstanding would have the result that interest payable on such Bonds remaining Outstanding after such redemption would remain Tax-Exempt, then such Bonds shall be redeemed in part by lot (in Authorized Denominations), in such amount as Bond Counsel in such opinion shall have determined is necessary to accomplish that result.

(b) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that as a result of any changes in the Constitution of the United States of America or the Constitution of the State or as a result of any legislative, judicial or administrative action, the Agreement shall have become void or unenforceable or impossible to perform in accordance with the intention and purposes of the parties thereto, or shall have been declared unlawful.

(c) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that at least thirty-five (35) days prior to the expiration of any Credit Facility, if any, then in effect with respect to the Bonds the Trustee shall not have received (a) a renewal or extension of the existing Credit Facility for a period of at least one (1) year (or, if shorter, the period to the Maturity Date) or (b) a substitute Credit Facility meeting the requirements of Section 6.08 of the Agreement. Such redemption shall occur on the last Business Day which is not less than five (5) calendar days preceding the expiration date of a Credit Facility, if any, then in effect.

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(vii) ARS Interest Rate Period. The ARS are subject to redemption by the Issuer, at the written direction of the Borrower, on any ARS Interest Payment Date, in whole or in part in an Authorized Denomination, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued but unpaid interest to the redemption date, without premium.

(viii) The Bonds shall be subject to mandatory redemption prior to the Maturity Date on any date, in whole but not in part, at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date prior to any merger, consolidation, reorganization or conversion of the Borrower, or any sale or other disposition of all or substantially all of the Borrower’s assets if the successor to such merger, consolidation or disposition is not a public utility (including a holding company) regulated by the applicable state regulatory body or the Federal Energy Regulatory Commission.

(9) Selection of Bonds to be Redeemed. If less than all the Bonds shall be called for redemption the Trustee shall select the Bonds or any given portion thereof to be redeemed, from Outstanding Bonds or any given portion thereof not previously called for redemption, by lot. For the purpose of any such selection the Trustee shall assign a separate number for each minimum Authorized Denomination of each Bond of a denomination of more than such minimum; provided that following any such selection, both the portion of such Bond to be redeemed and the portion remaining shall be in Authorized Denominations. The Trustee shall promptly notify the Issuer and the Borrower in writing of the numbers of the Bonds or portions thereof so selected for redemption.

(10) Miscellaneous.

(i) The transfer of this Bond shall be registered upon the registration books kept at the corporate trust office of the Trustee, as Registrar, at the written request of the Owner hereof or his attorney duly authorized in writing, upon surrender of this Bond at said office, together with the attached instrument of transfer duly executed by the Owner or his duly authorized attorney.

(ii) The Owner of this Bond shall have no right to enforce the provisions of the Indenture, or to institute action to enforce the covenants therein, or to take any action with respect to any default under the Indenture, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture.

(iii) With certain exceptions as provided therein, the Indenture and the Agreement may be modified or amended only with the consent of the owners of not less than a majority in aggregate principal amount of all Bonds Outstanding under the Indenture.

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(iv) Reference is hereby made to the Indenture and the Agreement, copies of which are on file with the Trustee, for the provisions, among others, with respect to the nature and extent of the rights, duties and obligations of the Issuer, the Borrower, the Trustee, the Tender Agent and the Remarketing Agent appointed pursuant to the Indenture and the Owners of the Bonds. The owner of this Bond, by the acceptance hereof, is deemed to have agreed and consented to the terms and provisions of the Indenture and the Agreement.

(v) The Issuer, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent and the Bank may deem and treat the person in whose name this Bond is registered on the registration books of the Issuer maintained by the Registrar as the absolute owner hereof for all purposes, whether or not this Bond is overdue, and neither the Issuer, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent nor the Bank shall be affected by any notice to the contrary.

(vi) No covenant or agreement contained in this Bond or the Indenture shall be deemed to be the covenant or agreement of any elected or appointed commissioner, official, officer, agent, servant or employee of the Issuer in his individual capacity, and neither the members of the Board of Directors of the Issuer, nor any official executing this Bond, shall be liable personally on this Bond or be subject to any personal liability or accountability by reason of the issuance of this Bond.

IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required by the Constitution and the statutes of the State of Arizona, the governing rules and procedures of the Issuer and the Indenture to exist, to have happened and to have been performed precedent to and in the issuance of this Bond, do exist, have happened and have been performed.

No officer or official of the Issuer shall be individually or personally liable for payment of the Bonds or the interest thereon or be subject to any personal liability or accountability by reason of the issuance thereof.

This Bond shall not be entitled to any right or benefit under the Indenture, or be valid or become obligatory for any purpose, until this Bond shall have been authenticated by the manual execution by the Trustee, or its successor as Trustee, of the certificate of authentication inscribed hereon.

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IN WITNESS WHEREOF, Maricopa County, Arizona Pollution Control Corporation has caused this Bond to be executed by its President, Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer by his or her manual or facsimile signature and has caused such execution to be attested by its President, Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer with his or her manual or facsimile signature; provided, however, that the officer so attesting this Bond shall not be the same officer who executed this Bond.

Dated as of the Original

Issue Date set forth above.

MARICOPA COUNTY, ARIZONA
POLLUTION CONTROL CORPORATION
By:
	Authorized Officer

ATTEST:
By:
	Authorized Officer

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STATEMENT OF INSURANCE

Financial Guaranty Insurance Company (“Financial Guaranty”) has issued a policy containing the following provisions with respect to the Bonds, such policy being on file at the principal office of Union Bank of California, N.A., as paying agent (the “Paying Agent”):

Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal or accreted value (if applicable) of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the “Issuer”) shall have failed to provide. Due for payment means, with respect to principal or accreted value (if applicable), the stated maturity date thereof, or the date on which the same shall have been duly called for mandatory sinking fund redemption and the date on which the Bonds shall have been duly called for mandatory redemption as a result of the interest on the Bonds having been determined to have become subject to federal income taxation, and does not refer to any earlier date on which the payment of principal or accreted value (if applicable) of the Bonds is due by reason of call for redemption (other than mandatory sinking fund redemption), acceleration or other advancement of maturity, and with respect to interest, the stated date for payment of such interest.

Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that the required payment of principal, accreted value or interest (as applicable) has not been made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, or its successor as its agent (the “Fiscal Agent”), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder’s right to receive such payment and any appropriate instruments of assignment required to vest all of such Bondholder’s right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder.

As used herein the term “Bondholder” means the person other than the Issuer or the borrower(s) of bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof.

The policy is non-cancellable for any reason.

FINANCIAL GUARANTY INSURANCE COMPANY

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(Form of Trustee’s Certificate of Authentication).

CERTIFICATE OF AUTHENTICATION

This is to certify that this Bond is one of the Bonds described in the within-mentioned Indenture.

UNION BANK OF CALIFORNIA, N.A.,
as Trustee
By:
	Authorized Signature
Date of Authentication: ______________________

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(Form for Transfer)

COMPLETE AND SIGN THIS FORM FOR

REGISTRATION OF TRANSFER OR TRANSFER

For value received              hereby sells, assigns and transfers unto              this Bond and hereby irrevocably constitutes and appoints             , Attorney, to register such transfer on the books of registration in the office of the Registrar with full power of substitution in the premises.

Dated: _____________________________________ _____________________________________

NOTE: The signatures on this assignment must correspond with the names as written on the face of this Bond in every particular, without alteration, enlargement or any change whatsoever.

Signatures must be guaranteed in

accordance with the terms of

one of the nationally recognized medallion

signature guarantee programs.

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EXHIBIT B

AUCTION PROCEDURES

Section 1.01. Orders by Existing Owners and Potential Owners. (a) Prior to the Submission Deadline on each Auction Date:

(i) each Existing Owner of ARS may submit to a Broker-Dealer by telephone or otherwise an Order, consisting of information as to:

(A) the principal amount of Outstanding ARS, if any, held by such Existing Owner which such Existing Owner desires to continue to hold without regard to the Auction Rate for the next succeeding ARS Interest Period (a “Hold Order”);

(B) the principal amount of Outstanding ARS, if any, held by such Existing Owner which such Existing Owner offers to sell if the Auction Rate for the next succeeding ARS Interest Period shall be less than the rate per annum specified by such Existing Owner (a “Bid”); and/or

(C) the principal amount of Outstanding ARS, if any, held by such Existing Owner which such Existing Owner irrevocably offers to sell without regard to the Auction Rate for the next succeeding ARS Interest Period (a “Sell Order”); and

(ii) for the purpose of implementing the Auctions and thereby to achieve the lowest possible Auction Rate, one or more Broker-Dealers may contact Potential Owners, including Persons that are Existing Owners, to determine the principal amount of the ARS, if any, which each such Potential Owner irrevocably offers to purchase if the Auction Rate for the next succeeding ARS Interest Period is not less than the rate per annum then specified by such Potential Owner (also a “Bid”).

For the purposes hereof, each Hold Order, Bid and Sell Order is herein referred to as an “Order” and each Existing Owner and each Potential Owner placing an Order is herein referred to as “Bidder”.

(b) (i) Subject to provisions of Section 1.02 hereof, a Bid by an Existing Owner shall constitute an irrevocable offer to sell, in each case for settlement in same day funds on the next ARS Interest Payment Date therefor at a price equal to 100% of the principal amount thereof:

(A) the principal amount of Outstanding ARS specified in such Sell Order if Sufficient Clearing Bids exist; or

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(B) such principal amount or a lesser principal amount of Outstanding ARS to be determined as described in subsection (a)(v) of Section 1.04 hereof, if the Auction Rate shall be equal to the rate specified in such Bid; or

(C) such principal amount or a lesser principal amount of Outstanding ARS to be determined as described in subsection (b)(iv) of Section 1.04 hereof, if such specified rate shall be higher than the ARS Maximum Rate and Sufficient Clearing Bids have not been made.

(ii) Subject to provisions of Section 1.02 hereof, a Sell Order by an Existing Owner shall constitute an irrevocable offer to sell, in each case for settlement in same day funds on the next ARS Interest Payment Date therefor at a price equal to 100% of the principal amount thereof:

(A) the principal amount of Outstanding ARS specified in such Sell Order if Sufficient Clearing Bids exist; or

(B) such principal amount or a lesser principal amount of Outstanding ARS as described in subsection (b)(iv) of Section 1.04 hereof, if Sufficient Clearing Bids have not been made.

(iii) Subject to provisions of Section 1.02 hereof, a Bid by a Potential Owner shall constitute an irrevocable offer to purchase, in each case for settlement in same day funds on the next ARS Interest Payment Date therefor at a price equal to 100% of the principal amount thereof:

(A) the principal amount of Outstanding ARS specified in such Bid if the Auction Rate shall be higher than the rate specified in such Bid; or

(B) such principal amount or a lesser principal amount of Outstanding ARS as described in subsection (a)(vi) of Section 1.04 hereof, if the Auction Rate shall be equal to the rate specified in such Bid.

(c) Anything herein to the contrary notwithstanding:

(i) for purposes of any Auction, any Order which specifies the ARS to be held, purchased or sold in a principal amount which is not $25,000 or an integral multiple of $5,000 in excess thereof shall be rounded down to the nearest $25,000 or an integral multiple of $5,000 in excess thereof, and the Auction Agent shall conduct the Auction Procedures as if such Order had been submitted in such lower amount;

(ii) for purposes of any Auction, any portion of an Order of an Existing Owner which relates to an ARS which has been called for redemption on or prior to the Interest Payment Date next succeeding such Auction shall be invalid with respect to such portion and the Auction Agent shall conduct the Auction Procedures as if such portion of such Order had not been submitted;

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(iii) for purposes of any Auction, no portion of an ARS which has been called for redemption on or prior to the Interest Payment Date next succeeding such Auction shall be included in the calculation of Available ARS for such Auction.

Section 1.02. Submission of Orders by Broker-Dealers to Auction Agent. (a) Each Broker-Dealer shall submit to the Auction Agent in writing or by such other method as shall be reasonably acceptable to the Auction Agent, including such electronic communication acceptable to the parties, prior to the Submission Deadline on each Auction Date, all Orders obtained by such Broker-Dealer and, if requested, specifying with respect to each Order:

(i) the name of the Bidder placing such Order;

(ii) the aggregate principal amount of the ARS, if any, that are the subject to such Order;

(iii) to the extent that such Bidder is an Existing Owner, each Broker-Dealer shall specify:

(A) the principal amount of the ARS, if any, subject to any Hold Order placed by such Existing Owner;

(B) the principal amount of the ARS, if any, subject to any Bid placed by such Existing Owner and the rate specified in such Bid; and

(C) the principal amount of the ARS, if any, subject to any Sell Order placed by such Existing Owner.

(iv) to the extent such Bidder is a Potential Owner, each Broker-Dealer shall specify the rate specified in such Potential Owner’s Bid.

(b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next higher one-thousandth of one percent (0.001%).

(c) If an Order or Orders covering all Outstanding ARS held by an Existing Owner is not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to have been submitted on behalf of such Existing Owner covering the principal amount of Outstanding ARS held by such Existing Owner and not subject to Orders submitted to the Auction Agent; provided, however, that if there is a change from one Auction Period to another Auction Period and Orders have not been submitted to the Auction Agent prior to the Submission Deadline covering the aggregate principal amount of Outstanding ARS held by such Existing Owner, the Auction Agent shall deem a Sell Order to have been submitted on behalf of such Existing Owner covering the principal amount of Outstanding ARS held by such Existing Owner not subject to Orders submitted to the Auction Agent.

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(d) If any Existing Owner submits through a Broker-Dealer to the Auction Agent one or more Orders covering in the aggregate more than the principal amount of Outstanding ARS held by such Existing Owner a, such Orders shall be considered valid as follows and in the order of priority described below:

(i) all Hold Orders shall be considered valid Hold Orders, but only up to and including in the aggregate the principal amount of Outstanding ARS held by such Existing Owner, and if the aggregate principal amount of ARS subject to such Hold Orders exceeds the aggregate principal amount of ARS held by such Existing Owner, the aggregate principal amount of ARS subject to each such Hold Order shall be reduced so that the aggregate principal amount of ARS subject to such Hold Orders equals the aggregate principal amount of Outstanding ARS held by such Existing Owner;

(ii) (A) any Bid of an Existing Owner shall be considered valid Bid of an Existing Owner up to and including the excess of the principal amount of Outstanding ARS held by such Existing Owner over the aggregate principal amount of the ARS subject to any Hold Orders referred to in paragraph (i) above;

(B) subject to clause (A) above, if more than one Bid with the same rate is submitted on behalf of such Existing Owner and the aggregate principal amount of Outstanding ARS subject to such Bids is greater than such excess, such Bids shall be considered valid up to and including the amount of such excess;

(C) subject to clauses (A) and (B) above, if more than one Bid with different rates is submitted on behalf of such Existing Owner, such Bids shall be considered valid Bids of an Existing Owner first in the ascending order of their respective rates until the highest rate is reached at which such excess exists and then at such rate up to and including the amount of such excess; and

(D) in any such event, the principal amount, if any, of such Outstanding ARS subject to Bids not considered to be valid Bids of an Existing Owner under the provisions described in this paragraph (ii) shall be treated as the subject of a Bid by a Potential Owner at the rate therein specified.

(iii) all Sell Orders shall be considered valid Sell Orders, but only up to and including the excess of the principal amount of Outstanding ARS subject to Hold Orders and valid Bids referred to in paragraphs (i) and (ii) above.

(e) If more than one Bid for ARS is submitted on behalf of any Potential Owner, each Bid submitted shall be a separate Bid with the rate and principal amount therein specified. Any Bid or Sell Order submitted by an Existing Owner covering an aggregate principal amount of ARS not equal to an Authorized Denomination shall be rejected and shall be deemed a Hold Order. Any Bid submitted by a Potential Owner covering an aggregate principal amount of ARS not equal to an Authorized Denomination shall be rejected. Any Bid specifying a rate higher than ARS Maximum Rate shall be treated as a Sell Order if submitted by an Existing Owner and will not be accepted if submitted by a Potential Owner. Any Bids submitted by Existing Owners

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or on behalf of Potential Owners specifying a rate lower than the All-Hold Rate shall be considered as valid Bids and shall be selected in the ascending order of their respective rates contained in the Submitted Bids.

A Hold Order, a Bid or a Sell Order that has been determined valid pursuant to the procedures described in paragraphs (a) through (e) above is referred to as a “Submitted Hold Order”, a “Submitted Bid” and a “Submitted Sell Order”, respectively (collectively, the “Submitted Orders”).

(f) Any Order submitted in an Auction by a Broker-Dealer to the Auction Agent prior to the Submission Deadline on any Auction Date shall be irrevocable.

(g) Neither the Borrower, the Issuer, the Trustee nor the Auction Agent shall be responsible for any failure of any Broker-Dealer to submit an Order to the Auction Agent on behalf of any Existing Owner or Potential Owner, nor shall any of the Borrower, the Issuer, the Trustee or the Auction Agent be responsible for failure by any Securities Depository to effect any transfer or to provide the Auction Agent with current information regarding registration or transfers..

Section 1.03. Determination of Auction Rate. (a) Not later than 9:30 a.m., New York, New York time, on each Auction Date, the Auction Agent shall advise the Broker-Dealers and the Paying Agent by telephone or other electronic communication acceptable to the parties of the All-Hold Rate and the Index. Prior to the Submission Deadline, the Broker-Dealers will assemble information received from each Bidder and any internally initiated Broker-Dealers’ Bids.

(b) Not later than the Submission Processing Deadline on each Auction Date, the Auction Agent shall accept any Submitted Orders subject to a Submission Processing Representation and shall assemble all Submitted Orders and shall determine:

(i) the excess, if any, of the total principal amount of Outstanding ARS over the sum of the aggregate principal amount of Outstanding ARS subject to Submitted Hold Orders (such excess being hereinafter referred to as the “Available ARS”); and

(ii) from the Submitted Orders whether or not the aggregate principal amount of Outstanding ARS subject to Submitted Bids by Potential Owners specifying one or more rates equal to or lower than the ARS Maximum Rate exceeds or is equal to the sum of:

(A) the aggregate principal amount of Outstanding ARS subject to Submitted Bids by Existing Owners specifying one or more rates higher than the ARS Maximum Rate; and

(B) the aggregate principal amount of Outstanding ARS subject to Submitted Sell Orders;

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(it being understood that, in the event of such excess or such equality (other than because the sum of the principal amounts of Outstanding ARS in clauses (A) and (B) above is zero because all of the ARS are subject to Submitted Hold Orders), there shall be deemed to exist, and such Submitted Bids by Potential Owners shall be hereinafter called, collectively, “Sufficient Clearing Bids”); and

(iii) if Sufficient Clearing Bids exist, the lowest rate specified in the Submitted Bids (the “Winning Bid Rate”) such that if:

(A) (I) each such Submitted Bid from Existing Owners specifying such lowest rate and (II) all other Submitted Bids from Existing Ownders specifying lower rates were accepted, thus entitling such Existing Owners to continue to hold the ARS that are the subject of such Submitted Bids; and

(B) (I) each such Submitted Bid from Potential Owners specifying such lowest rate and (II) all other Submitted Bids from Potential Owners specifying such lower rates were accepted, thus entitling and requiring such Potential Owners to purchase the ARS that are the subject of such Submitted Bids;

the result would be that such Existing Owners described in clause (A) above would continuing to hold an aggregate principal amount of Outstanding ARS, which, when added to the aggregate principal amount of Outstanding ARS to be purchased by such Potential Owners described in clause (B) above, would equal not less than the Available ARS.

(c) Promptly after the Auction Agent has made the determinations pursuant to subsection (b) above, the Auction Agent shall advise the Broker-Dealer and the Trustee by telephone (promptly confirmed in writing), telex or facsimile transmission or other electronic communication acceptable to the parties of the All-Hold Rate and the components thereof on the Auction Date and, based on such determinations, the Auction Rate for the next succeeding ARS Interest Period as follows:

(i) if Sufficient Clearing Bids exist, that the Auction Rate for the next succeeding ARS Interest Period shall equal the Winning Bid Rate;

(ii) if Sufficient Clearing Bids do not exist (other than because all of the Outstanding ARS are subject to Submitted Hold Orders), that the Auction Rate for the next succeeding ARS Interest Period shall equal the ARS Maximum Rate; or

(iii) if all Outstanding ARS are subject to Submitted Hold Orders, that the Auction Rate for the next succeeding ARS Interest Period shall equal the All-Hold Rate.

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(d) In the event the Auction Agent shall fail to calculate, or for any reason, shall fail to timely provide the Auction Rate for any Auction Period (i) if the preceding Auction Period was a period of 35 days or less, the new Auction Period shall be the same as the preceding Auction Period and the Auction Rate for the new Auction Period shall be the same as the Auction Rate for the preceding Auction Period, and (ii) if the preceding Auction Period was a period of greater than 35 days, the preceding Auction Period shall be extended to the seventh day following the day that would have been the last day of such Auction Period had it not been extended (or if such seventh day is not followed by a Business Day then to the next succeeding day which is followed by a Business Day) and the Auction Rate in effect for the preceding Auction Period shall continue in effect for the Auction Period as so extended. In the event an Auction Period is extended as set forth in clause (ii) of the preceding sentence, an Auction shall be held on the last Business Day of the Auction Period as so extended to take effect for an Auction Period beginning on the Business Day immediately following the last day of the Auction Period as extended which Auction Period will end on the date it would otherwise have ended on had the prior Auction Period not been extended. Notwithstanding the foregoing, no Auction Rate shall be extended for more than 35 days. If at the end of 35 days, the Auction Agent fails to calculate or provide the Auction Rate, the Auction Rate shall be the ARS Maximum Rate.

(e) In the event of a failed conversion to a Daily Interest Rate Period, a Weekly Interest Rate Period, a Short-Term Interest Rate Period or a Long-Term Interest Rate Period or in the event of a failure to change the length of the current Auction Period due to the lack of Sufficient Clearing Bids at the Auction on the Auction Date for the first new Auction Period, the Auction Rate for the next Auction Period shall be the ARS Maximum Rate and the Auction Period shall be a seven-day Auction Period.

(f) If the ARS are no longer maintained in book-entry-only form by the Securities Depository, then the Applicable ARS Rate for any Auction Period commencing after the delivery of certificates representing the ARS shall be the ARS Maximum Rate.

Section 1.04. Allocation of the ARS. Existing Owners shall continue to hold the principal amount of ARS that are subject to Submitted Hold Orders. Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall take such other action as set forth below:

(a) If the Sufficient Clearing Bids have been made, subject to the further provisions of subsections (c) and (d) below, all Submitted Sell Orders shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids shall be rejected:

(i) the Submitted Hold Order of each Existing Owner shall be accepted, thus requiring each such Existing Owner to continue to hold the aggregate principal amount of ARS that are the subject of such Submitted Hold Order;

(ii) the Submitted Sell Order of each Existing Owner shall be accepted and the Submitted Bid of each Existing Owner specifying any rate that is higher than the Winning Bid Rate shall be rejected, thus requiring each such Existing Owner to sell the aggregate principal amount of ARS that are the subject of such Submitted Sell Order or such Submitted Bid;

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(iii) the Submitted Bid of each Existing Owner specifying any rate that is lower than the Winning Bid Rate shall be accepted, thus requiring each such Existing Owner to continue to hold the aggregate principal amount of ARS that are the subject of such Submitted Bid;

(iv) the Submitted Bid of each Potential Owner specifying any rate that is lower than the Winning Bid Rate shall be accepted, thus requiring each such Potential Owner to purchase the principal amount of ARS that are the subject of such Submitted Bid;

(v) the Submitted Bid of each Existing Owner specifying a rate that is equal to the Winning Bid Rate shall be accepted, thus requiring each such Existing Owner to continue to hold the aggregate principal amount of the ARS that are the subject of such Submitted Bid, but only up to and including the principal amount of the ARS obtained by multiplying (A) the aggregate principal amount of the Outstanding ARS which are not the subject of Submitted Hold Orders described in paragraph (i) above or of Submitted Bids described in paragraphs (iii) or (iv) above by (B) a fraction the numerator of which shall be the principal amount of the Outstanding ARS held by such Existing Owner subject to such Submitted Bid and the denominator of which shall be the aggregate principal amount of the Outstanding ARS subject to such Submitted Bids made by all such Existing Owners that specified a rate equal to the Winning Bid Rate, and the remainder, if any, of such Submitted Bid shall be rejected, thus requiring each such Existing Owner to sell any excess amount of the ARS;

(vi) the Submitted Bid of each Potential Owner specifying a rate that is equal to the Winning Bid Rate shall be accepted, thus requiring each such Potential Owner to purchase the ARS that are the subject of such Submitted Bid, but only in an amount equal to the principal amount of the ARS obtained by multiplying (A) the aggregate principal amount of the Outstanding ARS which are not the subject of Submitted Hold Orders described in paragraph (i) above or of Submitted Bids described in paragraphs (iii), (iv) or (v) above by (B) a fraction the numerator of which shall be the principal amount of the Outstanding ARS subject to such Submitted Bid and the denominator of which shall be the sum of the aggregate principal amount of the Outstanding ARS subject to such Submitted Bids made by all such Potential Owners that specified a rate equal to the Winning Bid Rate, and the remainder of such Submitted Bid shall be rejected; and

(vii) the Submitted Bid of each Potential Owner specifying any rate that is higher than the Winning Bid Rate shall be rejected.

(b) If Sufficient Clearing Bids have not been made (other than because all of the Outstanding ARS are subject to Submitted Hold Orders), subject to the further provisions of subsections (c) and (d) below, Submitted Orders shall be accepted or rejected as follows in the following order of priority:

(i) the Submitted Hold Order of each Existing Owner shall be accepted, thus requiring each such Existing Owner to continue to hold the aggregate principal amount of the ARS that are the subject of such Submitted Hold Order;

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(ii) the Submitted Bid of each Existing Owner specifying any rate that is not higher than the ARS Maximum Rate shall be accepted, thus requiring each such Existing Owner to continue to hold the aggregate principal amount of the ARS that are the subject of such Submitted Bid;

(iii) the Submitted Bid of each Potential Owner specifying any rate that is not higher than the ARS Maximum Rate shall be accepted, thus requiring each such Potential Owner to purchase the aggregate principal amount of the ARS that are the subject of such Submitted Bid;

(iv) the Submitted Sell Orders of each Existing Owner shall be accepted as Submitted Sell Orders and the Submitted Bids of each Existing Owner specifying any rate that is higher than the ARS Maximum Rate shall be deemed to be and shall be accepted as Submitted Sell Orders, in both cases only up to and including the principal amount of the ARS obtained by multiplying (A) the aggregate principal amount of the ARS subject to Submitted Bids described in paragraph (iii) of this subsection (b) by (B) a fraction the numerator of which shall be the principal amount of the Outstanding ARS held by such Existing Owner subject to such Submitted Sell Order or such Submitted Bid deemed to be a Submitted Sell Order and the denominator of which shall be the principal amount of the Outstanding ARS subject to all such Submitted Sell Orders and such Submitted Bids deemed to be Submitted Sell Orders, and the remainder of each such Submitted Sell Order or Submitted Bid shall be deemed to be and shall be accepted as a Hold Order and each such Existing Owner shall be required to continue to hold such excess amount of the ARS; and

(v) the Submitted Bid of each Potential Owner specifying any rate that is higher than the ARS Maximum Rate shall be rejected.

(c) If, as a result of the procedures described in subsection (a) or (b) above, any Existing Owner would be entitled or required to purchase or sell, or any Potential Owner would be entitled or required to purchase, an aggregate principal amount of the ARS that is not equal to an Authorized Denomination, the Auction Agent shall by lot, in such manner as it shall determine in its sole discretion, round up or down the principal amount of the ARS to be purchased or sold by any Existing Owner or Potential Owner on such Auction Date so that the aggregate principal amount of the ARS purchased or sold by each Existing Owner or Potential Owner on such Auction Date shall be equal to an Authorized Denomination, even if such allocation results in one or more of such Existing Owners or Potential Owners not purchasing or selling any ARS on such Auction Date.

(d) If, as a result of the procedures described in subsection (a) above, any Potential Owner would be entitled or required to purchase less than an Authorized Denomination, the Auction Agent shall by lot, in such manner as it shall determine in its sole discretion, allocate the

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ARS for purchase among Potential Owners so that only the principal amount of ARS in Authorized Denominations are purchased on such Auction Date by any Potential Owners, even if such allocation results in one or more of such Potential Owners not purchasing any ARS on such Auction Date.

Section 1.05. Notice of Auction Rate. (a) Not later than 3:00 p.m., New York City time, on each Auction Date, the Auction Agent shall notify by telephone or other telecommunication device or other electronic communication (or by other means acceptable to the parties) each Broker-Dealer that participated in the Auction held on such Auction Date and submitted an Order on behalf of an Existing Owner or Potential Owner of the following with respect to the ARS for which an Auction was held on such Auction Date:

(i) the Auction Rate determined on such Auction Date for the next ARS Interest Period;

(ii) whether Sufficient Clearing Bids existed for the determination of the Winning Bid Rate;

(iii) if such Broker-Dealer (a “Seller’s Broker-Dealer”) submitted a Bid or a Sell Order on behalf of an Existing Owner, whether such Bid or Sell Order was accepted or rejected, in whole or in part, and the principal amount of the ARS, if any, to be sold by such Existing Owner;

(iv) if such Broker-Dealer (a “Buyer’s Broker-Dealer”) submitted a Bid on behalf of a Potential Owner, whether such Bid was accepted or rejected, in whole or in part, and the principal amount of the ARS, if any, to be purchased by such Potential Owner;

(v) if the aggregate principal amount of the ARS to be sold by all Existing Owners on whose behalf such Broker-Dealer submitted Bids or Sell Orders exceeds the aggregate principal amount of the ARS to be purchased by all Potential Owners on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more Buyer’s Broker-Dealers (and the name of the Agent Member, if any, of each such Buyer’s Broker-Dealer) acting for one or more purchasers of such excess principal amount of the ARS and the principal amount of the ARS to be purchased from one or more Existing Owners on whose behalf such Broker-Dealers acted by one or more Potential Owners on whose behalf each of such Buyer’s Broker-Dealers acted;

(vi) if the principal amount of the ARS to be purchased by all Potential Owners on whose behalf such Broker-Dealer submitted a Bid exceeds the aggregate principal amount of the ARS to be sold by all Existing Owners on whose behalf such Broker-Dealer submitted Bids or Sell Orders, the name or names of one or more Seller’s Broker-Dealers (and the name of the Agent Member, if any, of each such Seller’s Broker-Dealer) acting for one or more sellers of such excess principal amount of the ARS and the principal amount of the ARS to be sold to one or more Potential Owners on whose behalf such Broker-Dealer acted by one or more Existing Owners on whose behalf each of such Seller’s Broker-Dealers acted; and

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(vi) the Auction Date for the next succeeding Auction.

(b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Owner or Potential Owner shall:

(i) advise each Existing Owner and Potential Owner on whose behalf such Broker-Dealer submitted a Bid or Sell Order in the Auction on such Auction Date whether such Bid or Sell Order was accepted or rejected, in whole or in part;

(ii) in the case of a Buyer’s Broker-Dealer, advise each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, to instruct such Potential Owner’s Agent Member to pay to such Broker-Dealer (or its Agent Member) through the Securities Depository the amount necessary to purchase the principal amount of the ARS to be purchased pursuant to such Bid against receipt of such ARS;

(iii) in the case of a Seller’s Broker-Dealer, instruct each Existing Owner on whose behalf such Broker-Dealer submitted a Sell Order that was accepted, in whole or in part, or a Bid that was accepted, in whole or in part, to instruct such Existing Owner’s Agent Member to deliver to such Broker-Dealer (or its Agent Member) through the Securities Depository the principal amount of the ARS to be sold pursuant to such Bid or such Sell Order against payment therefor;

(iv) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order and each Potential Owner on whose behalf such Broker-Dealer submitted a Bid of the Auction Rate for the next ARS Interest Period;

(v) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order of the next Auction Date; and

(vi) advise each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the next Auction Date.

Section 1.06. Index. (a) The Index is LIBOR.

(b) If for any reason on any Auction Date the Index shall not be determined as hereinabove provided in this Section, the Index shall be the Index for the Auction Period ending on such Auction Date.

(c) The determination of the Index as provided herein shall be conclusive and binding upon the Issuer, the Borrower, the Trustee, the Paying Agent, the Broker-Dealers, the Auction Agent and the Owners and Beneficial Owners of the ARS.

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Section 1.07. Miscellaneous Provisions Regarding Auctions. (a) In this Exhibit B, each reference to the purchase, sale or holding of “ARS” shall refer to beneficial interests in the ARS, unless the context clearly requires otherwise.

(b) During an Auction Period, the provisions of the Indenture and this Exhibit B and the definitions contained therein, including without limitation the definitions of All-Hold Rate, Index, Auction Rate, Interest Payment Date and ARS Maximum Rate, may be amended pursuant to Section 13.03 of the Indenture by obtaining the consent of the owners of all affected Outstanding ARS bearing interest at the Auction Rate as follows. If on the first Auction Date occurring at least 20 days after the date on which the Trustee mailed notice of such proposed amendment to the Owners of the affected Outstanding ARS as required by Section 13.03, (i) the Auction Rate which is determined on such date is the Winning Bid Rate, and (ii) there is delivered to the Issuer, the Borrower and the Trustee a Favorable Opinion of Bond Counsel with respect to such amendment, the proposed amendment shall be deemed to have been consented to by the Owners of all affected Outstanding ARS bearing interest at an Auction Rate.

(c) If the Securities Depository notifies the Issuer or the Borrower that it is unwilling or unable to continue as owner of the ARS or if at any time the Securities Depository shall no longer be registered or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation and a successor to the Securities Depository is not appointed by the Issuer, at the direction of the Borrower, within 90 days after the Issuer receives notice or becomes aware of such condition, as the case may be, the Issuer shall execute and the Registrar shall authenticate and deliver certificates representing the ARS. Such ARS shall be registered in such names and Authorized Denominations as the Securities Depository, pursuant to instructions from the Agent Members or otherwise, shall instruct the Issuer and the Registrar.

During an Auction Period, so long as the ownership of the ARS is maintained in book-entry form by the Securities Depository, an Existing Owner or a Beneficial Owner may sell, transfer or otherwise dispose of an ARS only pursuant to a Bid or Sell Order in accordance with the Auction Procedures or to or through a Broker-Dealer, provided that (i) in the case of all transfers other than pursuant to Auctions, such Existing Owner or its Broker-Dealer or its Agent Member advises the Auction Agent of such transfer and (ii) a sale, transfer or other disposition of the ARS from a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer as the holder of such ARS to that Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to be a sale, transfer or other disposition for purposes of this Section 1.07 if such Broker-Dealer remains the Existing Owner of the ARS so sold, transferred or disposed of immediately after such sale, transfer or disposition.

Section 1.08. Changes in Auction Period or Auction Date.

(a) Changes in Auction Period.

(i) Subject to the provisions of the Indenture, during any Auction Period, the Borrower, with the consent of the Bond Insurer, may, from time to time and on any ARS Interest Payment Date, change the length of the Auction Period with respect to the ARS among seven-days, 28-days, 35-days and a Special Auction Period in order to

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accommodate economic and financial factors that may affect or be relevant to the length of the Auction Period and the interest rate borne by such ARS; provided, however, in the case of a change from a Special Auction Period, the date of such change shall be the Interest Payment Date immediately following the last day of such Special Auction Period. The Borrower shall initiate the change in the length of the Auction Period by giving written notice to the Issuer, the Trustee, the Bond Insurer, the Auction Agent, the Broker-Dealer, the Bank, if any, and the Securities Depository that the Auction Period shall change if the conditions described in the Indenture are satisfied and the proposed effective date of the change, at least three (3) Business Days prior to the Auction Date for such Auction Period.

(ii) Any such changed Auction Period shall be for a period of seven-days, 28 days, 35 days or a Special Auction Period and shall be for all of the ARS.

(iii) The change in the length of the Auction Period shall not be allowed unless Sufficient Clearing Bids existed at both the Auction before the date on which the notice of the proposed change was given as provided in this subsection (a) and, in the sole discretion of the Broker-Dealer, at the Auction immediately preceding the proposed change. For purposes of the Auction for such first Auction Period only, each Existing Owner shall be deemed to have submitted Sell Orders with respect to all of its ARS except to the extent such Existing Owner submits an Order with respect to such ARS.

(iv) The change in length of the Auction Period shall take effect only if Sufficient Clearing Bids exist at the Auction on the Auction Date for such first Auction Period. If the condition referred to in the first sentence of this paragraph (iv) is not met, the Auction Rate for the next Auction Period shall be the ARS Maximum Rate, and the Auction Period shall be a seven-day Auction Period.

(v) On the change date for the ARS selected for change from one Auction Period to another, any ARS which are not the subject of a specific Hold Order or Bid shall be deemed to be subject to a Sell Order.

(vi) The change in the length of the Auction Period shall not be allowed unless the notice from the Borrower of the proposed change in length of the Auction Period described above in Section 1.08(a)(i) is accompanied by a Favorable Opinion of Bond Counsel if the change is from an Auction Period having a duration in excess of one year to an Auction Period of one year or less in duration and vice versa.

(b) Changes in Auction Date. During any Auction Period, the Auction Agent, with the written consent of the Borrower, may specify an earlier Auction Date (but in no event more than five Business Days earlier) than the Auction Date that would otherwise be determined in accordance with the definition of “Auction Date” in order to conform with then current market practice with respect to similar securities or to accommodate economic and financial factors that may affect or be relevant to the day of the week constituting an Auction Date and the interest rate borne on the ARS. The Auction Agent shall provide notice of its determination to specify an earlier Auction Date for an Auction Period by means of a written notice delivered at least 45

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days prior to the proposed changed Auction Date to the Trustee, the Paying Agent, the Borrower, the Issuer, the Broker-Dealers and the Securities Depository, which will, in turn, notify the holders. In the event the Auction Agent specifies an earlier Auction Date, the days of the week on which an Auction Period begins and ends, the days of the week on which a Special Auction Period begins and ends and the Interest Payment Date relating to a Special Auction Period shall be adjusted accordingly.

Section 1.09. Auction Agent. (a) The Auction Agent shall be Deutsche Bank Trust Company Americas, New York, New York, or any successor appointed by the Borrower to perform the functions specified herein. The Auction Agent shall designate its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument, delivered to the Issuer, the Trustee, the Borrower and each Broker-Dealer which will set forth such procedural and other matters relating to the implementation of the Auction Procedures as shall be satisfactory to the Borrower and the Trustee.

(b) Subject to any applicable governmental restrictions, the Auction Agent may be or become the owner of or trade in the ARS with the same rights as if such entity were not the Auction Agent.

Section 1.10. Qualifications of Auction Agent: Resignation; Removal. The Auction Agent shall be (a) subject to the written approval of each Broker-Dealer, (b) a bank or trust company duly organized under the laws of the United States of America or any state or territory thereof having a combined capital stock, surplus and undivided profits of at least $30,000,000, or (c) a member of NASD having a capitalization of at least $30,000,000 and, in either case, authorized by law to perform all of the duties imposed upon it by this Indenture and the Auction Agent Agreement and a member of or a participant in, the Securities Depository. The Auction Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 45 days’ notice to the Issuer, the Borrower, the Trustee, the Broker-Dealer and the Bond Insurer. The Auction Agent may be removed at any time by the Trustee, upon the written direction of (i) the Borrower, with the consent of the Bond Insurer, (ii) the Bond Insurer, or (iii) the ARS Beneficial Owners of 66 ²/3% of the aggregate principal amount of the ARS then Outstanding, with the consent of the Bond Insurer, by an instrument signed by the Trustee and filed with the Auction Agent, the Bond Insurer, the Issuer and the Borrower upon at least 30 days’ notice. Upon any such resignation or removal, the Borrower shall appoint a successor Auction Agent meeting the requirements of this Section. In the event of the resignation or removal of the Auction Agent, the Auction Agent shall pay over, assign and deliver any moneys and the ARS held by it in such capacity to its successor. The Auction Agent shall continue to perform its duties hereunder until its successor has been appointed by the Borrower. Notwithstanding the foregoing, the Auction Agent may terminate the Auction Agent Agreement if, within 30 days after notifying the Trustee, the Issuer, the Borrower, and the Bond Insurer in writing that it has not received payment of any Auction Agent Fee due it in accordance with the terms of the Auction Agent Agreement, the Auction Agent does not receive such payment.

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EX-4.34

EXHIBIT 4.34

LOAN AGREEMENT

Between

MARICOPA COUNTY, ARIZONA

POLLUTION CONTROL CORPORATION

and

EL PASO ELECTRIC COMPANY

relating to

$63,500,000

Maricopa County, Arizona

Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series B

(El Paso Electric Company, Palo Verde Project)

Dated as of July 1, 2005

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS
Section 1.01	Definitions of Terms.	2
Section 1.02	Interpretation.	7
Section 1.03	Captions and Headings.	7
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.01	Representations and Warranties of the Issuer.	7
Section 2.02	Representations and Warranties of the Borrower.	8
ARTICLE III
[RESERVED]
ARTICLE IV
[RESERVED]
ARTICLE V
LOAN TO BORROWER; REPAYMENT PROVISIONS
Section 5.01	Loan to Borrower.	9
Section 5.02	Amounts and Dates for Payment.	9
Section 5.03	Payments by Borrower to be Assigned to the Trustee; Obligation for Payments Absolute.	10
Section 5.04	Payment of Expenses.	10
Section 5.05	Issuer Access to Facilities.	10
Section 5.06	Maintenance of Facilities.	10
Section 5.07	Insurance.	11
Section 5.08	Indemnification of Issuer; Statements for Services.	13
Section 5.09	Notices of Damage.	13
Section 5.10	No Warranty by the Issuer.	14
Section 5.11	Liens.	14

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Section 5.12	Payments of Taxes and Assessments; No Liens or Charges.	14
Section 5.13	Additional Payments by the Borrower.	14
ARTICLE VI
SPECIAL COVENANTS; CREDIT FACILITY
Section 6.01	[RESERVED].	14
Section 6.02	Maintenance of Existence.	14
Section 6.03	Agreement as to Ownership and Use of the Project.	15
Section 6.04	Cooperation in Applications for Permits and Licenses.	15
Section 6.05	Recordation and Other Instruments.	15
Section 6.06	Issuer’s Access to Facilities.	15
Section 6.07	Tax Covenants.	15
Section 6.08	Credit Facility.	16
Section 6.09	Annual Statement.	17
ARTICLE VII
[RESERVED]
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Section 8.01	Events of Default.	18
Section 8.02	Force Majeure.	19
Section 8.03	Remedies.	19
Section 8.04	No Remedy Exclusive.	19
Section 8.05	Reimbursement of Attorneys’ Fees.	20
Section 8.06	Waiver of Breach.	20
ARTICLE IX
OPTIONS OF BORROWER TO PREPAY.
Section 9.01	Options of Borrower to Prepay Repayment Installments.	20
Section 9.02	Exercise of Option.	20
Section 9.03	Mandatory Prepayment of Repayment Installments.	21
Section 9.04	Amount of Prepayment.	21

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ARTICLE X
PURCHASE AND REMARKETING OF BONDS
Section 10.01	Purchase of Bonds.	21
Section 10.02	Optional Purchase of Bonds.	22
Section 10.03	Determination of Interest Rate Periods.	22
ARTICLE XI
MISCELLANEOUS
Section 11.01	Term of Agreement.	22
Section 11.02	Notices.	22
Section 11.03	Parties in Interest.	23
Section 11.04	Extent of Covenants of the Issuer; No Personal Liability.	24
Section 11.05	Confirmation of Request by the Borrower.	24
Section 11.06	Amendments.	24
Section 11.07	Counterparts.	24
Section 11.08	Severability.	24
Section 11.09	Governing Law; Venue.	24
Section 11.10	Statutory Notice.	24
Section 11.11	Bond Insurer as Third-Party Beneficiary.	25
EXHIBIT A	DESCRIPTION OF THE PROJECT

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LOAN AGREEMENT

THIS LOAN AGREEMENT, dated as of July 1, 2005 (this “Agreement”), is made by and between MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION, a nonprofit corporation designated as a political subdivision of the State of Arizona, incorporated for and with the approval of the County of Maricopa, Arizona, existing under the Constitution and laws of the State of Arizona (the “Issuer”), and EL PASO ELECTRIC COMPANY, a corporation organized and existing under the laws of the State of Texas (the “Borrower”).

W I T N E S S E T H :

WHEREAS, Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), as amended (hereinafter called the “Act”), empowers any pollution control corporation organized pursuant to Article 1 of the Act to issue revenue bonds in accordance with Article 2 of the Act and to make secured or unsecured loans for the purpose of financing or refinancing the acquisition, construction, improvement or equipping of pollution control facilities, to charge and collect interest on such loans and pledge the proceeds of loan agreements as security for the payment of the principal of and interest on bonds, or designated issues of bonds, issued by the corporation and any agreements made in connection therewith, whenever the board of directors finds such loans to be in furtherance of the purposes of the corporation; and

WHEREAS, Chapter 69, Section 1, Laws of Arizona of 1972 declares it to be the purpose of the Act to authorize the incorporation in the several municipalities and counties of the State of Arizona (the “State”) of corporations which shall constitute political subdivisions of the State, to finance the acquisition and installation of, or the construction and leasing of, properties, machinery and equipment intended to prevent or limit air, water and other forms of pollution for the purpose of protecting the health and welfare of the citizens of the State, and to facilitate compliance with existing or future air, water and other quality standards designed to improve the environment, and declares that such corporations shall serve a public purpose and perform an essential governmental function; and

WHEREAS, in response to an application by four qualified electors of the County of Maricopa, Arizona (the “County”), a political subdivision of the State, the Board of Supervisors of said County on December 5, 1983, adopted a resolution by which it determined that it was wise, expedient, advisable and in the public interest that said application be approved, approved said application, and authorized said four electors to proceed with the incorporation of the Issuer as a pollution control corporation for said County, all in accordance with Section 35-802 of the Act to issue bonds and to carry out the other functions and fulfill the purposes of the Issuer; and

WHEREAS, the Issuer was thereupon organized and incorporated in accordance with the provisions of the Act, and, on December 5, 1983, the Articles of Incorporation of the Issuer were filed with the Arizona Corporation Commission, in accordance with Section 35-809 of the Act; and

WHEREAS, the Issuer has heretofore issued and sold its $63,500,000 aggregate principal amount of Pollution Control Refunding Revenue Bonds, 1994 Series A (El Paso Electric Company, Palo Verde Project) (the “Prior Bonds”), the proceeds of which were used to refinance a portion of the costs of acquisition, construction, improvement or equipping of the Project; and

WHEREAS, the Issuer intends to issue its Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company, Palo Verde Project) (the “Bonds”) pursuant to an Indenture of Trust dated as of July 1, 2005, between the Issuer and Union Bank of California, N.A., as Trustee (the “Indenture”), and to lend the proceeds of the Bonds to the Borrower for the purpose of providing a portion of the moneys necessary to refund the outstanding principal amount of the Prior Bonds; and

WHEREAS, the appropriate agencies exercising jurisdiction over the Project have certified that the Project, as described in Exhibit A hereto, as designed, is in furtherance of the purpose of abating or controlling atmospheric or water pollutants or contaminants resulting from the generation of electricity at the Plant;

NOW, THEREFORE, in consideration of the premises and the respective representations and covenants herein contained, the parties hereto agree as follows (provided, that in the performance of the agreements of the Issuer herein contained, any obligation it may thereby incur shall not constitute or give rise to a pecuniary liability or a charge upon its general credit or against its taxing powers but shall be payable solely out of the Receipts and Revenues (as defined in the hereinabove defined Indenture) derived from this Agreement and the Bonds):

ARTICLE I

DEFINITIONS

Section 1.01 Definitions of Terms.

As used herein:

“Act” shall mean Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), and all acts supplemental thereto or amendatory thereof.

“Administration Expenses” shall mean the reasonable expenses incurred by the Issuer with respect to this Agreement, the Indenture and any transaction or event contemplated by this Agreement or the Indenture, including, without limitation, the reasonable fees and disbursements of counsel and out-of-pocket expenses of the Issuer incurred in connection with the authorization, issuance and sale of the Bonds and the compensation and reimbursement of reasonable fees, expenses and advances payable to the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Bank and the Remarketing Agent under the Indenture.

“Agreement” shall mean this Loan Agreement dated as of July 1, 2005 and any and all modifications, alterations, amendments and supplements hereto.

“Alternate Credit Support” shall mean any letter of credit, credit facility, insurance policy, guarantee or other credit support agreement or security mechanism provided by the Borrower in accordance with Section 6.08 hereof and any extension thereof.

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“Authorized Borrower Representative” shall mean each person at the time designated to act on behalf of the Borrower by written certificate furnished to the Issuer and the Trustee containing the specimen signature of such person and signed on behalf of the Borrower.

“Bank” shall mean the issuer of a Letter of Credit, if any, delivered in conjunction with the Bonds, and the issuer of any subsequently issued Credit Facility so long as such other Credit Facility shall be in effect, and in its capacity as such issuer, its successors in such capacity and their assigns.

“Bond” or “Bonds” shall mean the bonds authorized to be issued under the Indenture.

“Bond Counsel” shall mean any firm of nationally recognized bond counsel experienced in the financing of pollution control facilities and acceptable to the Issuer, the Remarketing Agent, the Trustee and the Borrower.

“Bond Fund” shall mean the fund created by Section 5.01 of the Indenture.

“Bond Insurance Policy” shall mean the municipal bond new issue insurance policy issued by the Bond Insurer that guarantees payment of principal of and interest on the Bonds.

“Bond Insurer” shall mean Financial Guaranty Insurance Company, a New York stock insurance company, or any successor thereto.

“Borrower” shall mean El Paso Electric Company, a corporation formed and existing under the laws of the State of Texas, its successors and their assigns and any transferee entity to the extent permitted by Section 6.02 hereof.

“Borrower Indentures” shall mean (i) that certain Indenture of Mortgage, dated as of October 1, 1946, between the Borrower and State Street Bank and Trust Company, as trustee, as supplemented and modified by the indentures supplemental thereto, (ii) that certain Indenture of Mortgage, dated as of June 1, 1981, from the Borrower to IBJ Schroder Bank & Trust Company, as successor trustee, as the same has heretofore been supplemented and may be hereafter supplemented and modified or (iii) any indenture or mortgage made by the Borrower in accordance with the plan of reorganization to secure substantially the same obligations as are currently secured by the Borrower Indentures, and subjecting thereto substantially the same property, and subject to substantially the same prior liens and encumbrances, and having substantially similar provisions for the issuance of additional debt thereunder, as the Borrower Indentures.

“Claim” shall mean liabilities, obligations, losses, damages, taxes (other than taxes on income), penalties, claims (including, without limitation, claims involving liability in tort, whether strict or otherwise), actions, suits, judgments, costs, interest, expenses and disbursements, whether or not any of the foregoing shall be founded or unfounded, contingent or otherwise (including, without limitation, legal fees and expenses and costs of investigation) of any kind and nature whatsoever without any limitation as to amount.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time. Each reference herein to a section of the Code shall be deemed to include the United States Treasury Regulations adopted under the Code, as the same may be in effect from time to time, unless the context clearly requires otherwise.

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“Counsel” shall mean an attorney at law selected by the Borrower (who may be counsel to either or both of the Issuer and the Borrower) and acceptable to the Trustee or, if not selected by the Borrower within a reasonable time following any request therefor, by the Issuer and acceptable to the Trustee.

“County” shall mean the County of Maricopa, Arizona.

“Credit Facility” shall mean, collectively, a Letter of Credit, if any, and any extensions thereof, and, upon the issuance and delivery of any Alternate Credit Support in accordance with Section 6.08 hereof, “Credit Facility” shall mean such Alternate Credit Support.

“Environmental Law” shall mean any federal, state or local law, rule, regulation, order, writ, judgment, injunction, decree, determination or award relating to the environment, health or safety or to the release or threatened release of any materials into the environment, including, without limitation, the Clean Air Act, as amended, the Clean Water Act of 1977, as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, the Toxic Substance Control Act, as amended, and the Resource Conservation and Recovery Act of 1976, as amended.

“Facilities” or “Project” shall mean the pollution control systems and facilities presently existing, under construction and to be constructed at the Plant, which are described in Exhibit A hereto, as from time to time revised, changed, amended or modified and related improvements and any substitutions therefor.

“Fitch” shall mean Fitch Ratings Services, a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Fitch” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“Hazardous Materials” shall mean all materials that are, or become, subject to any Environmental Law, including, without limitation, materials listed in 49 I.E. §172.101, materials defined as hazardous pursuant to Section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, flammable, explosive or radioactive materials, hazardous or toxic wastes or substances, petroleum or petroleum distillates, PCB’s or asbestos or urea formaldehyde-containing materials.

“Insurance Agreement” shall mean the Insurance Agreement dated as of August 1, 2005 between the Bond Insurer and the Borrower, as amended or supplemented from time to time.

“Issuance Expenses” shall mean any and all expenses incurred in connection with the issuance of the Bonds including, but not limited to, any (a) underwriters’ compensation; (b) counsel fees; (c) financing advisor fees; (d) rating agency fees; (e) trustee fees; (f) paying agent and certifying and authenticating agent fees; (g) accounting fees; (h) printing costs; (i) costs

4

incurred in connection with the required public approval process; (j) costs of engineering and feasibility studies necessary to the issuance of the Bonds (as opposed to such studies relating to completion of the Project); and (k) the issuance fee charged by, and expenses and disbursements of, the Issuer. Notwithstanding anything to the contrary herein, “Issuance Expenses” shall not include any bond insurance premiums and certain letter of credit fees that would be treated as interest expenses under the arbitrage restrictions of the Code.

“Issuer” shall mean Maricopa County, Arizona Pollution Control Corporation, an Arizona nonprofit corporation designated as a political subdivision existing under the laws of the State of Arizona, incorporated for and with the approval of the County, pursuant to the provisions of the Constitution of the State of Arizona and the Act, and its successors and assigns.

“Letter of Credit” shall mean an irrevocable, direct-pay letter of credit, if any, issued by the Bank and delivered to the Trustee in accordance with Section 6.08 hereof and any extension thereof.

“Moody’s” shall mean Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally-recognized securities rating-agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank, by notice to the Trustee, the Tender Agent and the Issuer.

“Outstanding”, when used in reference to the Bonds, shall mean, as at any particular date, the aggregate of all Bonds authenticated and delivered under the Indenture except;

(i) those cancelled at or prior to such date or delivered to or held by the Trustee at or prior to such date for cancellation;

(ii) those deemed to have been paid in accordance with Article IX of the Indenture;

(iii) those in lieu of, or in exchange, replacement or substitution for which, other Bonds shall have been authenticated and delivered pursuant to the Indenture unless proof satisfactory to the Trustee and the Borrower is presented that such Bond is held by a bona fide holder in due course; and

(iv) undelivered Bonds.

“Owner” or “Bondholder” or “holders” used with reference to the Bonds shall mean the person or entity in whose name any Bond is registered upon the registration books maintained pursuant to Section 2.04 of the Indenture.

“Permitted Encumbrances” shall mean and include (a) liens for taxes, assessments and other governmental charges not delinquent or which can be paid without penalty; (b) unfiled, inchoate mechanics’ and materialmen’s liens for construction work in progress; (c) workmen’s, repairmen’s, warehousemen’s and carriers’ liens and other similar liens, if any, arising in the ordinary course of business; (d) all the following, if they do not individually or in the aggregate

5

materially impair the use of the Facilities or materially detract from the value thereof to the Borrower, viz. any easements, restrictions, mineral, oil, gas and mining rights and reservations, zoning laws and defects in title or other encumbrances to which the Facilities may be subject because of the installation thereof at the Plant; (e) any lien for the satisfaction and discharge of which a sum of money or surety bond deemed adequate by the Trustee is on deposit with the Trustee; (f) the rights of the Issuer under this Agreement or any other sale agreement or lease agreement between the Issuer and the Borrower relating to the issuance of bonds under the Act; and (g) the lien of the Borrower Indentures and the permitted encumbrances and other prior liens referred to therein.

“Plant” shall mean the Palo Verde Nuclear Generating Station in Maricopa County, Arizona, at which the Project is located.

“Prior Bonds” shall mean the Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 1994 Series A (El Paso Electric Company, Palo Verde Project).

“Reimbursement Agreement” shall mean (i) any Reimbursement Agreement, made by the Borrower in favor of the Bank, relating to payments for moneys drawn under the Letter of Credit, if any, and any amendments, modifications and supplements thereto, and (ii) from and after the issuance of an Alternate Credit Support, any letter of credit reimbursement agreement or other arrangement between the Borrower and the issuer of any Alternate Credit Support, and any amendments, modifications and supplements thereto.

“Remarketing Agent” shall mean any remarketing agent appointed in accordance with Section 14.01(a) of the Indenture.

“Repayment Installment” shall mean any amount that the Borrower is required to pay to the Trustee pursuant to Section 5.02 hereof as a repayment of the loan made by the Issuer under this Agreement.

“Representation and Indemnity Agreement” shall mean the Representation and Indemnity Agreement dated as of July 27, 2005 among the Issuer, the Borrower and the Underwriters.

“S&P” shall mean Standard & Poor’s Ratings Group (a division of The McGraw-Hill Companies, Inc.), a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally-recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“State” shall mean the State of Arizona.

“Tax Exempt” shall mean, with respect to interest on any obligations of a state or local government, including the Bonds, that such interest is excluded from the gross income of the holders thereof (other than any holder who is a “substantial user” of facilities financed with such obligations or a “related person” within the meaning of Section 147(a) of the Code) for federal

6

income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax or environmental tax under the Code.

“Tender Agent” shall mean any tender agent appointed in accordance with Section 14.01(b) of the Indenture.

“Trustee” shall mean Union Bank of California, N.A., as trustee under this Indenture, and its successor or successors hereunder. “Principal Office” of the Trustee shall mean the principal office of the Trustee so designated at which at any particular time its corporate trust business shall be administered in California, which office at the date of the execution of this Loan Agreement, is 120 South San Pedro Street, 4^th Floor, Los Angeles, CA 90012, Attention: Corporate Trust Department; except that with respect to the presentation of Bonds for payment or for registration of transfer, exchange or tender, such term shall mean the office or agency of the Trustee at Union Bank of California, N.A., Corporate Trust Department, 120 South San Pedro Street, 4th Floor, Los Angeles, CA 90012, Attn: Bond Redemption.

“Underwriters” shall have the meaning set forth in the Official Statement for the Bonds.

Section 1.02 Interpretation. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa: the terms “hereof”, “hereby”, “herein”, “hereto”, “hereunder” and similar terms refer to this Agreement: and the term “hereafter” means after, and the term “heretofore” means before, the date of delivery of the Bonds. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise.

Section 1.03 Captions and Headings. The captions and headings in this Agreement are solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs, subparagraphs or clauses hereof.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

Section 2.01 Representations and Warranties of the Issuer. The Issuer makes the following representations and warranties as the basis for its undertakings herein contained:

(a) The Issuer is an Arizona nonprofit corporation designated as a political subdivision under the laws of the State, incorporated pursuant to the Act for and with the approval of the County, created and existing under the Constitution and laws of the State;

(b) The Issuer has the power to enter into the transactions contemplated by this Agreement and the Indenture and to carry out its obligations hereunder and thereunder;

(c) The Issuer has the power to enter into this Agreement and by proper corporate action has duly authorized the execution and delivery hereof; and

7

(d) The execution and delivery of this Agreement and the Indenture and compliance with the provisions hereof and thereof will not conflict with, or constitute on the part of the Issuer a breach of or a default under, any existing law, court or administrative regulation, decree or order to which the Issuer is subject or any agreement, ordinance, indenture, mortgage, lease or other instrument by which the Issuer is or may be bound.

Section 2.02 Representations and Warranties of the Borrower. The Borrower makes the following representations and warranties as the basis for the undertakings on the part of the Issuer herein contained:

(a) (i) The Borrower is a corporation duly incorporated under the laws of the State of Texas and is in good standing under the laws of the State of Texas, has power to enter into this Agreement and to perform and observe the agreements and covenants on its part contained herein, and by proper corporate action has duly authorized the execution and delivery hereof, (ii) the Borrower is duly qualified to hold property and transact business as a foreign corporation and is in good standing under the laws of the State of Arizona, (iii) all of the proceeds of the Bonds will be used to redeem and refund the Prior Bonds, (iv) prior to the issuance of the Bonds, the Federal Energy Regulatory Commission will have approved all matters relating to the Borrower’s participation in the transactions contemplated by this Agreement which require said approval, and no other consent, approval, authorization or other order of any regulatory body or administrative agency or other governmental body is legally required for the Borrower’s participation therein except such as have been or will have been obtained prior to the issuance of the Bonds or such, if any, as may be required under state securities or Blue Sky laws, and (v) the execution and delivery of this Agreement by the Borrower do not, and consummation of the transactions contemplated hereby and fulfillment of the terms hereof will not, result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Borrower is a party, or the Restated Articles of Incorporation or Bylaws of the Borrower, or any order, rule or regulation applicable to the Borrower of any court or of any Federal or state regulatory body or administrative agency or other governmental body having jurisdiction over the Borrower or over any of its properties, or any statute of any jurisdiction applicable to the Borrower other than breaches or defaults that individually or in the aggregate are not expected to have a material adverse effect on the Borrower.

(b) The Facilities meet applicable Federal, state and local requirements for the control of pollution now in effect and are used for the reduction, abatement and prevention of pollution;

(c) The Borrower does not presently expect that the description of the Facilities contained in Exhibit A hereto will be revised;

(d) To the extent necessary to preserve the security for the Bonds, the validity of the Bonds under the Act and the Tax-Exempt status of interest on the Bonds, all material certificates, approvals, permits and authorizations of agencies of applicable local governmental entities, the State and the federal government have been obtained with respect to the construction of the Project and, pursuant to such certificates, approvals, permits and authorizations, the Project has been constructed and is in operation.

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(e) To the best knowledge of the Borrower, no member, officer or other official of the Issuer has any interest whatsoever in the Borrower or in the transactions contemplated by this Agreement.

ARTICLE III

[RESERVED]

ARTICLE IV

[RESERVED]

ARTICLE V

LOAN TO BORROWER; REPAYMENT PROVISIONS

Section 5.01 Loan to Borrower. The Issuer covenants and agrees, upon the terms and conditions in this Agreement, to make a loan to the Borrower for the purpose of refunding the Prior Bonds. Pursuant to said covenant and agreement, the Issuer will issue the Bonds upon the terms and conditions contained in this Agreement and the Indenture. The Issuer and the Borrower agree that the application of the proceeds of sale of the Bonds to refund and redeem the Prior Bonds will be deemed to be and treated for all purposes as a loan to the Borrower of an amount equal to the aggregate principal amount of the Bonds. The Borrower covenants and agrees to pay to the trustee for the Prior Bonds an amount which, when added to the amounts transferred to such trustee pursuant to Section 3.02 of the Indenture, will be sufficient to pay, on or before August 1, 2005, the redemption price of the Prior Bonds and all other amounts due under the indenture pursuant to which such Prior Bonds were issued all in accordance with the terms of such indenture.

Section 5.02 Amounts and Dates for Payment.

(a) With respect to the Bonds, the Borrower covenants and agrees to pay to the Trustee as a Repayment Installment on or before each date provided in the Indenture, an amount equal to the aggregate principal, premium, if any, and interest due on the Bonds, whether at maturity or by reason of redemption, or otherwise. The Borrower shall, and hereby agrees to, pay the Repayment Installment by delivery or causing delivery of such further installments, in immediately available funds, necessary on the dates and in the amounts and in the manner in the Indenture as may be necessary to enable the Issuer to cause payment to be made to the Trustee of principal of and premium, if any, and interest on the Bonds, whether at maturity, upon redemption, or otherwise, provided that any amount credited under the Indenture against any cash payment required to be made by the Issuer thereunder shall be credited against the corresponding cash payment required to be made by the Borrower hereunder.

(b) The Borrower shall, and hereby agrees to, pay in addition to the Repayment Installment an amount equal to the aggregate of all other payments to be made out of the Bond Fund, payment thereof to be made not later than the principal or interest payment date next following any such payment out of the Bond Fund but in any event in time to prevent any failure to pay when due the principal of, premium, if any, and interest on any of the Bonds.

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(c) In the event the Borrower shall fail to make any of the payments required in this Section 5.02, the item or installment so in default shall continue as an obligation of the Borrower until the amount in default shall have been fully paid. Draws by the Trustee under the Credit Facility to pay the principal of, premium, if any, or interest on the Bonds shall be deemed to satisfy the Borrower’s obligation to make purchase price payments to the extent of such draws.

(d) The obligation of the Borrower to make the payments described in subsection (a) of this Section may be accelerated or prepaid in accordance with the provisions of this Agreement, notwithstanding the provisions of this Section.

Section 5.03 Payments by Borrower to be Assigned to the Trustee; Obligation for Payments Absolute.

It is understood and agreed that all payments under Section 5.02 of this Agreement are, by the Indenture, to be pledged by the Issuer to the Trustee, and that all rights and interest of the Issuer under this Agreement, except for the Issuer’s rights under Sections 5.04, 5.08 and 8.05 of this Agreement and any rights of the Issuer to receive notices, certificates, requests, requisitions, directions and other communications hereunder, are to be pledged and assigned to the Trustee. The Borrower assents to such pledge and assignment and agrees that the obligation of the Borrower to make the payments under Section 5.02 hereof shall be absolute, irrevocable and unconditional and shall not be subject to any defense (other than payment) or any right of set-off, counterclaim, abatement, offset, diminution or recoupment arising out of any breach under this Agreement, the Reimbursement Agreement, the Indenture, the Credit Facility or otherwise by the Issuer, the Trustee, the Tender Agent, the Remarketing Agent, the Bank or any other party, or out of any obligation or liability at any time owing to the Borrower by the Issuer, the Trustee, the Tender Agent, the Remarketing Agent, the Bank or any other party. The Issuer directs the Borrower, and the Borrower agrees, to pay to the Trustee at its Corporate Trust Office all payments pursuant to Section 5.02 of this Agreement.

Section 5.04 Payment of Expenses. The Borrower agrees to pay all compensation and reasonable fees and expenses of, and to reimburse for the expenses and advances incurred by each of the Trustee, the Registrar, the Remarketing Agent, the Paying Agent and the Tender Agent under the Indenture. So long as any Bonds are Outstanding, the Borrower will pay to the Issuer semiannually, on a date to be agreed upon, or within 30 days of receipt of a statement therefor submitted to the Borrower pursuant to Section 5.08 hereof, the amount of any other Administration Expenses not theretofore provided for which have accrued and become payable.

Section 5.05 Issuer Access to Facilities. See Section 6.06 herein for a discussion thereof.

Section 5.06 Maintenance of Facilities. So long as any Bonds are Outstanding, the Borrower will maintain, preserve and keep the Facilities or to cause such Facilities to be maintained, preserved and kept in good repair, working order or condition and from time to time

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to make or cause to be made all necessary and proper repairs, replacements and renewals; provided, however, that the Borrower will have no obligation to maintain, preserve, keep, repair, replace or renew any item or portion of such Facilities (a) the maintenance, preservation, keeping, repair, replacement or renewal of which becomes uneconomic to the Borrower because of damage or destruction by a cause not within the control of the Borrower, or obsolescence (including economic obsolescence) or change in governmental standards and regulations, or the termination by the Borrower of the operation of the generating facilities to which the portion of such Facilities is an adjunct, and (b) with respect to which the Borrower has furnished to the Issuer and the Trustee a certificate executed by an Authorized Borrower Representative that the maintenance, preservation, keeping, repair, replacement or renewal of such portion of such Facilities is being discontinued for one of the foregoing reasons, which shall be stated therein.

The Borrower shall have the privilege at its own expense of remodeling such Facilities or making substitutions, modifications and improvements to such Facilities from time to time as it, in its discretion, may deem to be desirable for its uses and purposes, which remodeling, substitutions, modifications and improvements shall be included under the terms of this Agreement as part of such Facilities.

Section 5.07 Insurance. So long as any Bonds are Outstanding and the Borrower, itself or through its agents, operates the Facilities, the Borrower shall maintain or cause to be maintained, through a program of self-insurance or otherwise, such fire, casualty, public liability and other insurance with respect to the Facilities owned or leased by the Borrower as is customarily carried by electric utility companies with respect to similar facilities.

Section 5.08 Indemnification of Issuer; Statements for Services. The Borrower agrees, whether or not any of the transactions contemplated hereby shall be consummated and whether or not this Agreement, the Indenture, the Credit Facility or any other document relating to the Bonds shall have expired or been terminated, to release, to assume liability for, and to indemnify and hold harmless, on an after-tax basis, the Issuer, the Trustee, the Paying Agent and the Registrar and each of the officers, officials, directors, employees, staff members, agents, shareholders and partners of each of the Trustee, the Paying Agent and the Registrar (each an “Indemnified Party” and collectively, the “Indemnified Parties”) from and against, any and all Claims that are imposed on, incurred by or asserted against any Indemnified Party (whether or not because of an act or omission by such Indemnified Party and whether or not such Indemnified Party shall also be indemnified by another person), in whole or in part, as a result of, caused by, arising out of or in any way relating to:

(a) any injury to or death of any person or damage to property in or upon the Facilities or growing out of or connected with the use, non-use, condition or occupancy of the Facilities or any part thereof;

(b) violation of any agreement or condition of this Agreement;

(c) violation by the Borrower of any contract, agreement or restriction relating to the Facilities;

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(d) violation of any law, ordinance or regulation affecting the Facilities or a part thereof or the ownership, occupancy or use thereof;

(e) any statement or information contained in the Indenture, this Agreement, any official statement, any certificate or any other documents relating to the Bonds and the proceedings relating to their issuance and sale, furnished by the Borrower to the Issuer which is misleading, untrue or incorrect in any material respect or use thereof;

(f) any investigation, litigation, proceeding, cleanup, audit, violation or other matter, related to, of, or involving the application or compliance with any Environmental Law, the protection of the environment or the release by the Borrower of any Hazardous Material;

(g) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any property owned or operated by the Borrower of any Hazardous Material, whether caused by, or within the control of, the Borrower; and

(h) the administration of the trust created by the Indenture, the exercise of any rights under the Indenture and the performance of any remedial measures permitted by the Indenture,

except for (i) a Claim against an Indemnified Party (other than the Issuer) that arises by reason of such Indemnified Party’s gross negligence or willful misconduct or, in the case of clause (h) above, negligence or willful misconduct; provided, however, if and to the extent the foregoing agreement to indemnify is unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction of each of the agreed indemnities that is permissible under applicable law.

In addition, the Borrower will indemnify and hold the Issuer, the Trustee, the Paying Agent, the Registrar, the Trustee’s, the Paying Agent’s and the Registrar’s officers, directors, employees and agents free and harmless from any loss, claim, damage, tax, penalty, liability (including but not limited to liability for any patent infringement), disbursement, cause of action, suit, demand, judgment, litigation expenses, attorneys’ fees and expenses or court costs arising out of, or in any way relating to (a) any errors or omissions of any nature whatsoever contained in any legal proceedings or other official representation or inducement made by the Issuer pertaining to the Bonds, (b) any fraud or misrepresentations or omissions contained in the proceedings of the Issuer relating to the issuance of the Bonds or pertaining to the financial condition of the Borrower which, if known to a purchaser or holder of the Bonds, might be considered a material factor in a decision whether or not to buy the Bonds, and (c) the execution or performance of this Agreement, the issuance or sale of the Bonds and actions taken under the Indenture or any other cause whatsoever pertaining to the Facilities and the approval under the Act.

Promptly after receipt by an Indemnified Party under this Section 5.08 of written notice of the existence of a claim in respect of which indemnity hereunder may be sought or of the commencement of any action against the Indemnified Party in respect of which indemnity hereunder may be sought, the Indemnified Party shall notify the Borrower in writing of the existence of such Claim or commencement of such action. In case any such action shall be

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brought against an Indemnified Party under this Section 5.08, the Indemnified Party shall notify the Borrower of the commencement thereof and the Borrower shall be entitled to participate in and, to the extent that it may wish, to assume the defense thereof, with counsel satisfactory to the Indemnified Party; provided, however, that if the Indemnified Party shall have been advised in an opinion of counsel to the Indemnified Party that there may be legal defenses available to it which are adverse to or in conflict with those available to the Borrower or other Indemnified Parties, which in the opinion of counsel to the Indemnified Party, should be handled by separate counsel, the Borrower shall not have the right to assume the defense of such action on behalf of the Indemnified Party, but shall be responsible for the reasonable fees and expenses of the Indemnified Party in conducting its defense; and provided, further, that if the Borrower shall not have assumed the defense of such action, and shall not have employed counsel therefor satisfactory to the Indemnified Party within a reasonable time after notice of commencement of such action, such reasonable fees and expenses incurred by the Indemnified Party in conducting its own defense shall be borne by the Borrower.

The Borrower’s responsibility for the reasonable fees and expenses of any Indemnified Party in conducting its defense as provided in the preceding paragraph shall commence from the time the Claim is known of by the Borrower, and such responsibility shall exist and continue regardless of the merits of the Claim.

In addition, the Borrower agrees that if it initiates any action, suit or other proceeding with respect to any claim, demand or request for relief, whether judicial or administrative, in which the Issuer, the Trustee, the Registrar or the Paying Agent is named or joined as a party, the Borrower will pay and reimburse to such party the full amount of all reasonable fees and expenses incurred by such party with respect to such party’s defense of or participation in such action, suit or other proceeding.

The Issuer may submit to the Borrower periodic statements, not more frequently than monthly, for the reasonable value of services of any Issuer employees utilized, and for the full amount of any Issuer expenses incurred by the Issuer in connection with the performance or attainment by the Issuer of its obligations and rights under the Indenture, the Bonds or this Agreement, and the Borrower shall make payment to the Issuer of the full amount of each such statement within 30 days after the Borrower receives such statement; provided that the Borrower within such 30-day period may in writing and in good faith specifically protest all or any portion of the amounts included in such statement and in such event the Borrower shall not be obligated to make payment to the Issuer of the amount which has been protested in such manner until ten days after such protest shall have been resolved either by agreement between the Issuer and the Borrower or by an appropriate tribunal.

Under this Section 5.08, the Borrower shall also be deemed to release, indemnify and agree to hold harmless each employee, official or officer of the Issuer to the same extent as the Issuer.

Section 5.09 Notices of Damage. After the occurrence of any material damage or loss to the Facilities, if any Bonds are then Outstanding, the Borrower shall notify the Issuer and the Trustee as to the nature and extent of such damage or loss and whether it is practicable and desirable to rebuild, repair, or restore such damage or loss.

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Section 5.10 No Warranty by the Issuer. The Issuer makes no warranty, either express or implied, as to the Project or that it will be suitable for the purposes of the Borrower or needs of the Borrower.

Section 5.11 Liens. The Borrower hereby agrees not to create any lien upon the Bond Fund or upon the Receipts and Revenues (as defined in the Indenture) other than the lien created in the Indenture. The Borrower hereby agrees that it shall not have any interest in the Bond Fund or the moneys or Investment Securities (as defined in the Indenture) therein.

Section 5.12 Payments of Taxes and Assessments; No Liens or Charges.

The Borrower will: (a) pay, or make provision for payment of, (i) all lawful taxes and assessments, including income, profits, property or excise taxes, if any, or (ii) other municipal or governmental charges, levied or assessed by any Federal, state or municipal government or political body, upon the Project, or upon any part of either (i) or (ii) above, or upon any installment payments hereunder when the same shall become due and (b) pay or cause to be discharged or make adequate provision to satisfy and discharge, within sixty (60) days after the same shall accrue, any lien or charge upon any installment payment hereunder and all lawful claims or demands for labor, materials, supplies or other charges which, if unpaid, might be or become a lien upon any installment payment hereunder, except Permitted Encumbrances; provided with respect to both clause (a) and clause (b) of this Section 5.12 that the Borrower may in good faith contest any such tax, assessment, lien, charge, claim or demand in appropriate legal proceedings if the Borrower shall notify the Issuer and the Trustee of its intention so to do at or prior to the time of initiating such contest, and in such event may permit the items so contested to remain unpaid, undischarged and unsatisfied during the period of such contest and any appeal therefrom, unless the Issuer or the Trustee shall notify the Borrower in writing that, in the opinion of Counsel, by nonpayment of any such items the lien of the Indenture as to the payments of the Repayment Installments will be materially endangered, in which event the Borrower shall promptly pay and cause to be satisfied and discharged all such unpaid items. The Issuer will cooperate fully with the Borrower in any such contest.

Section 5.13 Additional Payments by the Borrower. The Borrower will pay, or cause to be paid, in addition to the payments provided for in Section 5.02(a) hereof, all of the expenses of operation of the portions of the Project including, without limitation, the cost of all necessary and proper repairs, replacements and renewals made pursuant to Section 5.06 hereof and premiums for insurance pursuant to Section 5.07 hereof.

ARTICLE VI

SPECIAL COVENANTS; CREDIT FACILITY

Section 6.01 [RESERVED].

Section 6.02 Maintenance of Existence. The Borrower covenants that it will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all its assets and will not consolidate with or merge into another corporation; provided, however, that the Borrower may consolidate with or merge with or into, or sell or otherwise transfer all or

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substantially all of its assets (and may thereafter dissolve), to another corporation, incorporated under the laws of the United States, one of the states thereof or the District of Columbia, provided, in the event the Borrower is not the surviving, resulting or transferee corporation, as the case may be, such corporation prior to such merger, consolidation, sale or transfer assumes, by delivery to the Trustee of an instrument in writing satisfactory in form and substance to the Trustee, all the obligations of the Borrower herein.

If consolidation, merger or sale or other transfer is made as permitted by this Section, the provisions of this Section shall continue in full force and effect and no further consolidation, merger or sale or other transfer shall be made except in compliance with the provisions of this Section. The Borrower shall notify the Trustee of its affiliates from time to time and of the filing of a petition in bankruptcy by or on behalf of any of itself or its affiliates from time to time.

Section 6.03 Agreement as to Ownership and Use of the Project. The Issuer and the Borrower agree that title to the Project shall be in and remain in the Borrower, and that the Project shall be the sole property of the Borrower in which the Issuer shall have no interest. Notwithstanding the provisions of this Section 6.03, the Borrower in its sole discretion and business judgment may choose to cease operation of the Project or transfer the Project to another entity which may cease such operation, and in such circumstances the covenants contained in this Section 6.03 shall no longer apply.

Section 6.04 Cooperation in Applications for Permits and Licenses. In the event it may be necessary for the proper performance of this Agreement on the part of the Issuer or the Borrower that any application or applications for any permit or license to do or to perform certain things be made to any governmental or other agency by or on behalf of the Borrower or the Issuer, the Borrower and the Issuer each agree, upon the request of either, to execute such application or applications.

Section 6.05 Recordation and Other Instruments. The Borrower shall cause such security agreements, financing statements and all supplements thereto and other instruments as may be required from time to time to be kept, to be recorded and to be filed in such manner and in such places as may be required by law in order to fully preserve, protect and perfect the security of the holders of the Bonds and the rights of the Trustee and to perfect the security interest created by the Indenture.

Section 6.06 Issuer’s Access to Facilities. The Borrower agrees that the Issuer and the Trustee shall have the right, upon appropriate prior notice to the Borrower, to have reasonable access to the Facilities owned or leased by the Borrower during normal business hours for the purpose of making examinations and inspections of the same; provided, however, that the Borrower reserves the right to restrict access to any of its generating facilities in accordance with reasonably adopted procedures relating to safety and security.

Section 6.07 Tax Covenants. The Borrower covenants that it will not take any action or fail to take any action reasonably within its control which would, under the Code, cause the interest payable on the Bonds to be includable in gross income of the holders thereof for Federal income tax purposes (other than a “substantial user” of the Facilities or a “related person” as those terms are used in Section 147(a) of the Code).

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The Borrower covenants that it will pay to the United States of America, on behalf of the Issuer, at or before the times required by or under Section 148(f) of the Code, the amounts required to cause to be met with respect to the Bonds the rebate requirement of said Section and such rules and regulations applicable to the Bonds. The Borrower covenants that in directing the investment of the gross proceeds of the Bonds it will comply with the applicable requirements of Section 148 of the Code. The Borrower covenants that it will maintain on behalf of the Issuer such records and file such reports, and file copies thereof with the Issuer and, if requested by the Trustee, with the Trustee, as may be necessary to be maintained to demonstrate compliance with this paragraph.

Section 6.08 Credit Facility.

(a) A Credit Facility shall be required if the Bonds are converted into any Interest Rate Period other than an ARS Interest Rate Period or a Long-Term Interest Rate Period, and the terms of such Credit Facility in such event shall be satisfactory to the Bond Insurer. The Borrower hereby authorizes and directs the Trustee to draw moneys under the Credit Facility, if any, in accordance with the terms thereof and of the Indenture.

(b) Any Credit Facility, at the option of the Borrower, may provide that drawings may be made thereunder to pay to the Trustee, in accordance with the terms thereof, (i) an amount equal to (A) the principal of the Bonds when due upon maturity, redemption or acceleration and (B) the portion of the purchase price of Bonds purchased pursuant to Section 14.03(b) of the Indenture equal to the principal amount thereof; (ii) an amount equal to a specified number of days’ interest, computed at the Maximum Interest Rate (as defined in the Indenture), on the Bonds to pay (A) accrued and unpaid interest on the Bonds and (B) the portion of the purchase price of Bonds purchased pursuant to Section 14.03(b) of the Indenture equal to the accrued interest thereon; (iii) any part of the portion of the purchase price of Bonds purchased pursuant to Section 14.03(b) of the Indenture corresponding to redemption premium on the Bonds; and, (iv) an amount to pay redemption premium, if any, on the Bonds which may be payable upon the redemption thereof. The Credit Facility shall be reduced to the extent of any drawings thereunder and reinstated in accordance with the terms thereof.

The Borrower may, at its election, provide for one or more extensions of any Credit Facility in accordance with the terms of the Reimbursement Agreement in respect thereof.

(c) On or prior to the 35th day preceding the mandatory purchase date occurring pursuant to Section 4.08(c) of the Indenture, the Borrower shall deliver to the Trustee, the Tender Agent, the Remarketing Agent and the Bank:

(i) a notice which (A) states the effective date of expiration or termination of the existing Credit Facility, (B) describes any substitute Credit Facility which may be provided in lieu thereof, and (C) directs the Trustee, after taking such actions thereunder as are required to be taken to provide moneys due under the Indenture in respect of the Bonds or the purchase thereof, to surrender the Credit Facility to expire or to be terminated to the obligor thereon on the effective date of the substitute Credit Facility to be provided in lieu of the Credit Facility to expire or to be terminated or, if no such Credit Facility is to be so provided, on the effective date of such expiration or termination; and

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(ii) written evidence from Moody’s, if the Bonds are then rated by Moody’s, and S&P, if the Bonds are then rated by S&P, and Fitch, if the Bonds are then rated by Fitch, of the action that such rating agency will take with respect to the rating assigned to the Bonds on such expiration or termination and delivery of a new Credit Facility, if any.

(d) On or prior to the 35th day preceding the effective date of expiration or termination of any Credit Facility and the substitution of another Credit Facility that does not result in a downgrading or withdrawal of any rating assigned to the Bonds, the Borrower shall deliver to the Trustee, the Tender Agent, the Remarketing Agent and the Bank:

(i) a notice which (A) states the effective date of expiration or termination of the existing Credit Facility, (B) describes the Credit Facility which is to be provided in lieu thereof, and (C) directs the Trustee to surrender the Credit Facility to expire or to be terminated to the obligor thereon on the effective date of the substitute Credit Facility to be provided in lieu of the Credit Facility to expire or to be terminated; and

(ii) written evidence from Moody’s, if the Bonds are then rated by Moody’s, and S&P, if the Bonds are then rated by S&P, and Fitch, if the Bonds are then rated by Fitch, that such expiration or termination and delivery of a new Credit Facility will not result in a downgrading or withdrawal of the rating assigned to the Bonds by such rating agency.

(e) In connection with any termination of a Credit Facility and/or the provision of a new Credit Facility, if any, the Borrower also shall furnish to the Trustee a Favorable Opinion of Bond Counsel (as defined in the Indenture) and such other opinions of counsel as to such other matters as the Issuer or the Trustee may request.

Section 6.09 Annual Statement. The Borrower agrees during the term of this Agreement to have an annual audit made by its regular independent certified public accountants and to furnish the Trustee (within 30 days after receipt by the Borrower) with a balance sheet and statement of income and surplus showing the financial condition of the Borrower and its consolidated subsidiaries, if any, at the close of each fiscal year and the results of operations of the Borrower and its consolidated subsidiaries, if any, for each fiscal year, accompanied by a report of said accountants that such statements have been prepared in accordance with generally accepted accounting principles. The Borrower’s obligations under this Section 6.09 may be satisfied by delivering a copy of the Borrower’s Annual Report to the Trustee at the same time that it is mailed to stockholders. The Trustee shall have no duty or obligation with respect to such financial statements or reports except to make them available to any requesting Bondholders.

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ARTICLE VII

[RESERVED]

ARTICLE VIII

EVENTS OF DEFAULT AND REMEDIES

Section 8.01 Events of Default. Each of the following events shall be and is referred to in this Agreement as an “Event of Default”:

(a) failure by the Borrower to pay or cause to be paid any amounts required to be paid under Section 5.02 or Section 10.01(a) hereof when due which failure shall have resulted in an “Event of Default” under clause (i), (ii) or (iii) of Section 10.01(a) of the Indenture;

(b) a failure by the Borrower (i) to pay when due any other payment required to be made under this Agreement or (ii) to observe and perform any other covenant, condition or agreement on its part to be observed or performed, other than as referred to in this Section 8.01, which failure continues for a period of 30 days after written notice, specifying such failure and requesting that it be remedied, is given to the Borrower by the Issuer or the Trustee, which may give such notice in its discretion and shall give such notice at the written request of the holders of not less than a majority in principal amount of the Bonds then Outstanding (other than Bonds held by, or on behalf of the Borrower), unless the Issuer and the Trustee or the Issuer, the Trustee and the holders of a principal amount of Bonds not less than the principal amount of Bonds the holders of which requested such notice, as the case may be, shall agree to an extension of such period prior to its expiration; or

(c) the dissolution or liquidation of the Borrower, or the filing by the Borrower of a voluntary petition in bankruptcy, or failure by the Borrower promptly to forestall or lift any execution, garnishment or attachment of such consequence as will impair its ability to continue its business or to make any payments under this Agreement, or the entry of an order for relief by a court of competent jurisdiction in any proceeding for its liquidation or reorganization under the provisions of any bankruptcy act or under any similar act which may be hereafter enacted, or an assignment by the Borrower for the benefit of its creditors, or the entry by the Borrower into an agreement of composition with its creditors (the term “dissolution or liquidation of the Borrower”, as used in this clause, shall not be construed to include the cessation of the existence of the Borrower resulting from a dissolution or liquidation of the Borrower following a transfer of all or substantially all its assets as an entirety, under the conditions permitting such actions contained in Section 6.02 hereof); or

(d) the occurrence and continuance of an Event of Default under the Indenture; or

(e) the occurrence and continuance of an Event of Default under the Insurance Agreement.

The Issuer (or the Borrower, in the case of clause (c)) shall promptly notify the Trustee and the Bank of the occurrence of any Event of Default under this Section 8.01.

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Section 8.02 Force Majeure. The provisions of Section 8.01(b) hereof are subject to the following limitations: If by reason of acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; orders of any kind of the government of the United States or of the State of Arizona or any department, agency, political subdivision, court or official of any of them, or any civil or military authority; insurrections; riots; epidemics; landslides; lightning; earthquakes; volcanoes; fires; hurricanes; tornados; floods; washouts; droughts; arrests; restraint of government and civil disturbances; explosions; breakage or accident to machinery; or entire failure of utilities; or any cause or event not reasonably under the control of the Borrower, the Borrower is unable in whole or in part to carry out any one or more of its agreements or obligations contained herein other than its obligations under Sections 5.02, 5.04, 5.08, 5.12, 6.02, 8.05 and 10.01(a) hereof, the Borrower shall not be deemed in default by reason of not carrying out said agreement or agreements or performing said obligation or obligations during the continuance of such inability. The Borrower shall use reasonable efforts to remedy the cause or causes preventing it from carrying out its agreements; provided, that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Borrower, and the Borrower shall not be required to make settlement of strikes, lockouts and other disturbances by acceding to the demands of the opposing party or parties when such course is, in the judgment of the Borrower, unfavorable to the Borrower.

Section 8.03 Remedies.

(a) Upon the occurrence and continuance of any Event of Default described in Section 8.01 hereof, and further upon the condition that, in accordance with the terms of the Indenture, the Bonds shall have been declared to be immediately due and payable pursuant to any provision of the Indenture, the unpaid balance of the loan payable under Section 5.02 hereof shall, without further action, become and be immediately due and payable.

(b) Any waiver of any “Event of Default” under the Indenture and a rescission and annulment of its consequences shall constitute a waiver of the corresponding Event or Events of Default under this Agreement and a rescission and annulment of the consequences thereof.

(c) Upon the occurrence and continuance of any Event of Default, the Issuer may take, or cause to be taken, any action at law or in equity to collect any payments then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Borrower hereunder.

(d) Any amounts collected from the Borrower pursuant to this Section 8.03 shall be applied in accordance with the Indenture.

Section 8.04 No Remedy Exclusive. No remedy conferred upon or reserved to the Issuer hereby is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer to exercise any remedy reserved to it in this Article VIII, it shall not be necessary to give any notice other than such notice as may be herein expressly required.

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Section 8.05 Reimbursement of Attorneys’ Fees. If the Borrower shall default under any of the provisions hereof (i) and the Issuer or the Trustee shall employ attorneys or incur other reasonable expenses for the collection of payments due hereunder or for the enforcement of performance or observance of any obligation or agreement on the part of the Borrower contained herein, the Borrower will on demand therefor reimburse the Issuer or the Trustee, as may be, for the reasonable fees of such attorneys and such other reasonable expenses so incurred, to the extent permitted by law, and (ii) the Borrower shall pay the Trustee reasonable compensation for extraordinary services, including default administration.

Section 8.06 Waiver of Breach. In the event any obligation created hereby shall be breached by either of the parties and such breach shall thereafter be waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. In view of the assignment of certain of the Issuer’s rights and interests hereunder to the Trustee, the Issuer shall have no power to waive any default hereunder by the Borrower in respect of such rights and interests without the consent of the Trustee, and the Trustee may exercise any of the rights of the Issuer hereunder.

ARTICLE IX

OPTIONS OF BORROWER TO PREPAY.

Section 9.01 Options of Borrower to Prepay Repayment Installments.

(a) The Borrower shall have, and is hereby granted, the option to prepay the loan payable under Section 5.02 hereof in whole or in part by causing the Bonds to be called for redemption pursuant to Section 4.01 of the Indenture in which case all or a portion of the balance of the loan payable under Section 5.02 hereof shall become due and payable on the redemption date specified pursuant to Section 9.02 hereof in an amount sufficient to pay the principal of any premium, if any, and interest on the Bonds so called for redemption.

(b) The Borrower shall also have, and is hereby granted, the option to prepay the amounts payable under Section 5.02 hereof in whole or in part by causing Bonds to be deemed to have been paid pursuant to Section 9.01 of the Indenture by depositing with the Trustee moneys or obligations, or a combination thereof, as required by such Section 9.01 and by giving the irrevocable instructions required by such Section 9.01.

Section 9.02 Exercise of Option.

(a) To exercise an option granted in Section 9.01 hereof, the Borrower shall give written notice to the Trustee which shall designate therein the principal amount of the Bonds to be caused to be redeemed, or to be deemed to be paid in accordance with Section 9.01 of the Indenture and, in the event a redemption of Bonds is to be effected, such notice shall be given to the Trustee not less than five Business Days (as defined in the Indenture) prior to the day on which the Trustee shall be required to give notice of any such redemption and shall specify therein (i) the date or dates of redemption and (ii) the applicable redemption provision of the

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Indenture. The exercise of an option granted in Section 9.01 hereof shall be revocable by the Borrower at any time before the receipt by the Trustee of the Repayment Installments to be prepaid.

(b) Upon receipt of a notice furnished pursuant to this Section 9.02, the Issuer shall cooperate fully with the Trustee to permit the Trustee to take or cause to be taken all actions required of it under the Indenture to cause Bonds to be paid or redeemed in accordance with such notice.

(c) In the event the Borrower exercises its rights to cause the Bonds to be redeemed or deemed to have been paid as provided in Section 9.01 hereof, it shall give the Trustee directions to draw moneys under the applicable Credit Facility in accordance with the terms hereof and of the Indenture in the amounts so specified by the Borrower in such direction or order to effect the redemption of the Bonds entitled to the benefits of the Credit Facility or cause such Bonds to be deemed to have been paid as provided in Section 9.01 of the Indenture.

Section 9.03 Mandatory Prepayment of Repayment Installments.

The Borrower shall prepay the necessary portion of the unpaid balance of the Repayment Installments on such dates on which the Bonds are required to be redeemed pursuant to Section 4.01(b) of the Indenture.

Section 9.04 Amount of Prepayment.

The Borrower agrees to and shall pay (or cause to be paid) directly to the Trustee any amount permitted or required to be paid by it under this Article IX. The Trustee shall use the moneys so paid to it by the Borrower to effect redemption of the Bonds in accordance with Article IV of the Indenture.

ARTICLE X

PURCHASE AND REMARKETING OF BONDS

Section 10.01 Purchase of Bonds.

(a) In consideration of the issuance of the Bonds by the Issuer, but for the benefit of the Owners of the Bonds, the Borrower does hereby covenant and agree to cause the necessary arrangements to be made and to be thereafter continued whereby, from time to time, the Bonds will be purchased from the owners thereof under the circumstances provided in Section 4.08 of the Indenture. In furtherance of the foregoing covenant of the Borrower, the Issuer, at the direction of the Borrower, has set forth in Section 4.08 of the Indenture the terms and conditions relating to such purchases and has set forth in Article XIV of the Indenture the duties and responsibilities of the Tender Agent with respect to the purchase of Bonds and of the Remarketing Agent with respect to the remarketing of Bonds. At the direction of the Borrower, Citigroup Global Markets Inc. has been designated as the initial Remarketing Agent and as the initial Tender Agent and the Borrower hereby authorizes and directs the Tender Agent and the Remarketing Agent to purchase, offer, sell and deliver Bonds in accordance with the provisions of Section 4.08 and Article XIV of the Indenture.

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Without limiting the generality of the foregoing covenant of the Borrower, and in consideration of the Issuer’s having set forth in the Indenture the aforesaid provisions of Section 4.08 and Article XIV thereof, the Borrower covenants, for the benefit of the Owners of the Bonds, to pay, or cause to be paid, to the Tender Agent such amounts as shall be necessary to enable the Tender Agent to pay the purchase price of Bonds, all as more particularly described in Section 4.08 and Article XIV of the Indenture.

(b) The Issuer shall have no obligation or responsibility financial or otherwise, with respect to the purchase or remarketing of Bonds or the making or continuation of arrangements therefor, except that the Issuer shall generally cooperate with the Borrower, the Trustee, the Tender Agent and the Remarketing Agent as contemplated in Article XIV of the Indenture.

Section 10.02 Optional Purchase of Bonds. Subject to the limitations of the Indenture, the Borrower, at any time and from time to time, may furnish moneys to the Tender Agent accompanied by a notice directing that such moneys be applied to the purchase of Bonds to be purchased pursuant to Section 4.08 and Article XIV of the Indenture. Bonds so purchased shall be delivered to the Borrower in accordance with Section 14.05(a) of the Indenture.

Section 10.03 Determination of Interest Rate Periods. The Borrower may determine the duration and type of the Interest Rate Periods and certain other provisions relating to Interest Rate Periods as, and to the extent, set forth in Section 2.01 of the Indenture.

ARTICLE XI

MISCELLANEOUS

Section 11.01 Term of Agreement. This Agreement shall remain in full force and effect from the date hereof until the right, title and interest of the Trustee in and to the Trust Estate shall have ceased, terminated or become void in accordance with Article IX of the Indenture and until all payments required under this Agreement shall have been made.

Section 11.02 Notices. All notices, certificates, requests or other communications hereunder shall be sufficiently given and shall be deemed given when delivered or telecopied or if mailed, when mailed by registered mail, postage prepaid, addressed as follows:

If to the Issuer:

Maricopa County, Arizona

Pollution Control Corporation

c/o Ryley Carlock & Applewhite

One North Central Avenue, Suite 1200

Phoenix, Arizona 85004-4417

Attention: President

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If to the Borrower:

El Paso Electric Company

100 North Stanton

El Paso, Texas 79901

Attention: Treasurer

If to the Trustee:

Union Bank of California, N.A.

120 S San Pedro Street, 4th Floor

Los Angeles, CA 90012

Attention: Corporate Trust Department

If to the Remarketing Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

If to the Tender Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

If to the Bond Insurer:

Financial Guaranty Insurance Company

125 Park Avenue

New York, New York 10017

Attention: Risk Management

Fax: (212) 312-3093

If to the Fiscal Agent (for the Bond Insurer):

U.S. Bank Trust National Association

100 Wall Street, 19^th Floor

New York, New York 10005

Attention: Corporate Trust Department

A copy of each notice, certificate, request or other communication given hereunder to the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer, the Tender Agent or the Remarketing Agent shall also be given to the others. The Issuer, the Borrower, the Trustee, the Bank, the Tender Agent and the Remarketing Agent may, by notice given hereunder, designate further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Such notice shall be given to all others listed above.

Section 11.03 Parties in Interest. This Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Borrower, and their respective successors and assigns, and no other person, firm or corporation, other than the Owners, the Trustee, the Registrar or the Paying Agent under the Indenture, the Tender Agent, the Remarketing Agent, the Bank, and the

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Bond Insurer shall have any right, remedy or claim under or by reason of this Agreement; provided, however, that the obligations of the Borrower under Section 5.08 hereof shall inure to the benefit of the persons specified therein, and such obligations shall be enforceable by such persons as a third-party beneficiary; and subject to the limitation that any obligation of the Issuer created by or arising out of this Agreement shall not be a general debt of the Issuer, but shall be payable solely out of the revenues derived from this Agreement or the sale of the Bonds or income earned on invested funds as provided herein and in the Indenture.

Section 11.04 Extent of Covenants of the Issuer; No Personal Liability. All covenants, obligations and agreements of the Issuer contained in this Agreement or the Indenture shall be effective to the extent authorized and permitted by applicable law. No such covenant, obligation or agreement shall be deemed to be a covenant, obligation or agreement of any official, officer, agent, or employee of the Issuer in other than his official capacity, and neither the members of the Issuer’s Board of Directors nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or by reason of the covenants, obligations or agreements of the Issuer contained in this Agreement or in the Indenture.

Section 11.05 Confirmation of Request by the Borrower. The Borrower hereby confirms that it has requested that the Issuer enter into the Indenture including, without limitation, all of the terms and provisions relating to the Bonds, the Trustee, Paying Agent, Registrar, Remarketing Agent and Tender Agent and designating the parties named therein as Trustee, Paying Agent, Registrar, Remarketing Agent and Tender Agent.

Section 11.06 Amendments. This Agreement may be amended only by written agreement of the parties hereto with the consent of the Bank, the Bond Insurer or the provider of any other Credit Facility, for so long as the Credit Facility is in effect, subject to the limitations set forth herein and in the Indenture.

Section 11.07 Counterparts. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original; but such counterparts shall together constitute but one and the same Agreement.

Section 11.08 Severability. If any clause, provision or section of this Agreement shall, for any reason, be held illegal or invalid, such illegality or invalidity shall not affect any other provision of this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provisions had not been contained herein.

Section 11.09 Governing Law; Venue. This Agreement shall be construed in accordance with and governed by the Constitution and laws of the State of Arizona.

Section 11.10 Statutory Notice. In accordance with the terms thereof, notice is hereby given of Title 38, Chapter 3, Section 38-511, Arizona Revised Statutes, which provides, among other things, that the State, its political subdivisions or any department or agency of either may, within three years after its execution, cancel any contract, without penalty or further obligation, made by said State, its political subdivisions, or any of the departments or agencies of either if any person significantly involved in initiating, negotiating, securing,

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drafting or creating the contract on behalf of said State, its political subdivisions, or any of the departments or agencies of either is, at any time while the contract or any extension of the contract is in effect, an employee or agent of any other party to the contract in any capacity or a consultant to any other party of the contract with respect to the subject matter of the contract.

Section 11.11. Bond Insurer as Third-Party Beneficiary. To the extent that this Agreement confers upon or gives or grants to the Bond Insurer any right, remedy, benefit, or claim under or by reason of this Agreement, the Bond Insurer is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy, benefit or claim conferred, given or granted hereunder.

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IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed in its name by its duly authorized officer, and the Borrower has caused this Agreement to be executed in its name all as of the date first above written.

MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION
By:
	President
EL PASO ELECTRIC COMPANY
By:
	Treasurer

[Seal]
Attest:
By
	Assistant Secretary

EXHIBIT A

DESCRIPTION OF THE PROJECT

The Project consists of the following systems at the Plant and, in each case, include related machinery, equipment and facilities:

Section 1.01 Condensate Demineralizer Resin Regeneration System. The Condensate Demineralizer Resin Regeneration System for each Unit recycles spent resin from the full flow condensate demineralizers, and is located in the Unit’s turbine building. This system recycles spent resin by chemical regeneration using acid and caustic treatment. Spent resin is transferred from the condensate demineralizers to the regeneration vessels where it is chemically regenerated and then transferred to the resin mix and hold vessel prior to transfer back to the demineralizer.

The resin regeneration system includes the following components and equipment:

(a) One resin separation cation regeneration vessel that is a rubber-lined, vertical-cylindrical tank, with internal baffles and distributors.

(b) One anion regeneration vessel that is a rubber-lined vertical-cylindrical tank, with internal baffles and distributors.

(c) One resin mix and hold vessel that is a rubber-lined, vertical-cylindrical tank, with internal baffle and distributor plate.

(d) One acid day-tank that is a vertical-cylindrical tank of 400-gallon capacity, with a hinged cover, desiccant air breather and gauge glass.

(e) Two motor-driven, diaphragm type, acid pumps with adjustable stroke.

(f) One caustic day-tank that is a plastic-lined vertical-cylindrical tank of 2500 gallon capacity, with a gauge glass and electric heaters.

(g) Two motor-driven centrifugal type caustic pumps.

(h) Waste collection tank.

(i) The portions of the central acid and caustic chemical supply systems that are dedicated solely to the Condensate Demineralizer Resin Regeneration System.

(j) Associated piping, valves, instrumentation and mechanical equipment.

Section 1.02 Steam Generator Blowdown Demineralizer Resin Regeneration System. The Steam Generator Blowdown Demineralizer Resin Regeneration System for each Unit recycles spent resin in the steam generator blowdown demineralizer and is located in the Unit’s turbine building. This system recycles spent resin by chemical regeneration using acid and caustic treatment. Spent resin is treated in place by injecting these chemicals directly into the

steam generator blowdown demineralizer vessels that hold the resin. There are two mixed-bed demineralizer vessels operated in series for each Unit. This allows isolation of an individual vessel for chemical regeneration while blowdown flow is maintained in the other vessel.

The Steam Generator Blowdown Demineralizer Resin Regeneration System includes the following equipment and components:

(a) One acid day-tank that is a 30 inch diameter x 36 inch plasite lined tank.

(b) One acid supply package including acid supply pumps with associated piping and instrumentation.

(c) One caustic day-tank with immersion heater.

(d) One caustic supply package including caustic supply pumps, instantaneous heater and associated piping and instrumentation.

(e) Waste collection equipment including sumps and piping.

(f) The portions of the central acid and caustic chemical supply systems that are dedicated solely to the Steam Generator Blowdown Demineralizer Resin Regeneration System.

(g) Associated piping, valves, instrumentation and mechanical equipment.

Section 1.03 Make-up Demineralizer Resin Regeneration System. The Make-up Demineralizer Resin Regeneration System serves all three Units and recycles spent resin from the make-up water demineralizer by chemical regeneration using acid and caustic treatment. Spent resin is treated in place by injecting chemicals directly into the make-up demineralizer vessels that hold the resin. There are three mixed bed demineralizers. The system is operated with two mixed beds in series with the third bed isolated for regeneration.

The Make-up Demineralizer Resin Regeneration System includes the following components and equipment:

(a) One acid regenerant day tank that is a 238 gallon unlined steel tank.

(b) One caustic regenerant day tank that is a fiberglass reinforced tank of 3,396 gallon capacity and contains an electric immersion heater.

(c) Two plasite lined hot water storage tanks each with a 5519 gallon capacity and two electric immersion heaters.

(d) Two rinse water pumps.

(e) Two acid injection pumps.

(f) Two caustic feed pumps.

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(g) The portions of the central acid and caustic chemical supply systems that are dedicated solely to the Make-up Demineralizer Resin Regeneration System.

(h) Associated piping, valves, instrumentation and mechanical equipment.

Section 1.04 Decontamination Facilities. The Decontamination Facilities recycle solid waste consisting of contaminated tools and equipment by removing radioactive contamination from such items.

There are four Decontamination Facilities; one in the Radwaste Building for each Unit and a central facility for handling heavier tools and equipment that cannot be handled by the smaller individual Decontamination Facilities.

The central decontamination facility includes the following equipment:

(a) Ultrasonic cleaning system.

(b) Spray booth with pressure and steam washers.

(c) Filtered turbulator apparatus.

(d) Decontamination tanks and sinks.

(e) Central decontamination building consisting of shielded walls, filtered ventilation systems, air lock, laydown areas and associated building services.

Each of the three Radwaste Building Decontamination Facilities includes the following equipment:

(a) Ultrasonic cleaning system.

(b) Spray booth with turntable, pressure and steam washers.

(c) Tank, workbench and sink.

(d) The portion of each Radwaste Building housing Decontamination Facilities.

Section 1.05 Water Reclamation Facility. The Water Reclamation Facility will receive the sewage effluent from the Effluent Pipeline System and provide a multistage biochemical treatment process, including (a) reduction of ammonia and alkalinity by the use of trickling filters; (b) addition of lime slurry and polymer in first stage solid contact clarifiers to remove phosphate, magnesium, silica and some calcium; (c) addition of soda ash, polymer and carbon dioxide gas in second-stage solid contact clarifiers to remove calcium carbonate; (d) injection of sulfuric acid to reduce pH, polymer to aid in removal of suspended solids and chlorine to control biological growth; and (e) gravity filtration through graded media filters equipped for backwash. Sludge extracted from the backwash and solid contact clarifier and dewatered in the Water Reclamation Facility Water Pollution Control Facilities (which are not a part of the Series B Facilities) will be recalcined in a furnace provided for this purpose. The Water Reclamation Facility also includes related valves, piping, instrumentation, monitoring and other equipment.

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Section 1.06 Sanitary Drainage and Treatment System (ST). The sanitary drainage system collects and transports sanitary waste from Power Block facilities, Water Reclamation Facility ancillary buildings and construction facilities to the on-site sanitary treatment system.

The sanitary treatment system treats, clarifies, and returns the wastewater to the WRF for reuse. Equipment includes: a wet well, a sewage lift station, a surge tank, three package sewage treatment plants, a chlorine contact chamber, a sump with two sump pumps, and piping, valves, controls, and instrumentation.

Also included are related groundwater monitoring wells and equipment.

Section 1.07 Oily Waste and Nonradioactive Waste Systems (OW). The oily waste system for each Unit collects, for processing and disposal, nonradioactive waste from normally nonradioactive areas where oil may be present.

(a) Turbine building - OW drains and collects waste from the equipment and floor drains. The waste is collected in one turbine building sump and two condenser area sumps. The waste is normally discharged from the sumps to the oil/water separator, oil/water separator sump, retention basin, and eventually to the evaporation pond.

(b) Control building and diesel generator building - OW drains and collects waste from the equipment and floor drains. The waste is discharged from two control room sumps and two diesel generator sumps to the oil/water separator, oil water separator sump, retention basin, and eventually to the evaporation pond.

Each oily waste system consists of floor drains, equipment drains, vertical drain risers, pipes, sumps, sump pumps, an oil/water separator, an oil/water separator sump and associated valves, instrumentation and controls. Also included are related groundwater monitoring wells and equipment.

Section 1.08 Chemical Waste Systems (CM). The chemical waste system for each Unit consists of five subsystems:

(a) The radioactive chemical waste subsystem collects by gravity the corrosive radioactive waste from the chemical laboratory and decontamination stations and transfers the waste to the chemical drain tank. The chemical drain tank effluent is handled by the liquid radwaste system. This subsystem consists only of drains and piping.

(b) The cooling water waste subsystem collects by gravity the chemically treated cooling water from the auxiliary and radwaste building for disposal. The waste collects in the cooling water holdup tank and is pumped to the chemical waste neutralizer tank. From the neutralizer tank it is pumped to either the retention basin and evaporation pond or the liquid radwaste holdup tank. This subsystem consists of drains, a cooling water holdup tank, pumps, valves, piping, controls and instrumentation.

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(c) The condensate polishing demineralizer waste subsystem collects and neutralizes the potentially radioactive waste for disposal to the retention basin or the evaporation pond if it is nonradioactive, or discharges to the liquid radwaste system if it is radioactive. This subsystem consists of drains, sumps, sump pumps, chemical waste neutralizer tanks with agitators, transfer pumps, piping, valves, controls and instrumentation.

(d) The spent regenerate waste subsystem collects and neutralizes the rinse wastes from the makeup demineralizers for disposal. This subsystem consists of drains, sumps, sump pumps, valves, controls and instrumentation.

(e) The chemical tank drains located in the yard areas are installed on concrete slabs with retaining curbs. Small sumps are provided to collect equipment leakage. In some locations portable pumps are used to dispose of the waste.

Also included is related groundwater monitoring equipment.

Section 1.09 Retention Basin (Sedimentation Basin - J. Hook). The retention basin collects and disposes (by evaporation) of yard drainage to prevent discharge of sedimentation to the Gila River and the groundwater regional aquifer well water system. The basin consists of earthen dikes and related groundwater monitoring wells and equipment.

Section 1.10 Evaporation Pond. The evaporation pond collects start-up flush water and cooling tower blowdown wastewater for disposal. This allows for disposal of settleable solids and pollutants on a rubberized liner which prevents the start-up and blowdown wastewater from entering the Gila River and the groundwater regional aquifer well water system. The present pond is 250 surface acres. The future ponds will comprise an additional 455 acres. This system includes the earthen dike surrounding the pond, a rubberized liner and related environmental monitoring wells and equipment.

Section 1.11 Water Reclamation Facility Pollution Control Systems. The Water Reclamation Facility (WRF) air and water pollution control facilities collect environmental pollutants to prevent their discharge to the environment and/or treat such pollutants prior to such discharge. This pollution control equipment includes:

(a) Air Pollution Control Facilities - Furnace stack gas pollution control components include the cyclone separator, lime dust return screw and rotary feeder, the precooler and venturi scrubber, the impingement tray separator, the induced draft fan, all associated ducting, piping, valves, controls and instrumentation and all piping to supply process water to this equipment.

Lime and soda ash dust collection equipment includes dust collectors on each of the storage and supply silos and associated instrumentation and piping, and the filter separator at each unloading station and the associated piping and instrumentation.

(b) Water Pollution Control Facilities - Sludge handling and dewatering equipment includes:

(i) Sludge pumps and associated piping, valves, controls, instrumentation and flush water piping at the first and second stage clarifiers;

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(ii) Thickeners and associated structures and sludge pumps, tunnel sump pumps and associated piping, valves, controls, instrumentation, and flush water piping for the first and second stage thickeners, the waste thickeners, and the spent washwater thickeners;

(iii) Centrifuges, piping, valves, controls, instrumentation, flush water piping, screw conveyors, and associated structures for the classification, dewatering, and waste centrifuges;

(iv) Also included is related groundwater monitoring equipment.

Section 1.12 Gaseous Radwaste Systems (GRS). The gaseous radwaste system (GRS) for each Unit collects and processes potentially radioactive gases generated within the Plant so that offsite exposure is kept as low as reasonably achievable (ALARA). High activity waste gas, containing primarily hydrogen and nitrogen, is collected and stored in the oxygen-free system to guard against a rapid hydrogen/oxygen reaction and to permit decay of short-lived isotopes. Subsequent to decay, the decayed gases are sampled to determine their constituency and radioactivity content, filtered, monitored, and released at a controlled rate to the plant vent.

Each system is comprised of a surge tank, two prefilters, two waste gas compressors, three waste gas decay tanks, one discharge filter, discharge flow control valves and instrumentation and related radiation monitoring equipment.

Section 1.13 Solid Radwaste Systems (SRS). The solid radwaste system (SRS) for each Unit handles radioactive waste consisting of trash, spent ion exchange resins, waste evaporator concentrates, chemical drain tank effluents, crud tank effluents, used filter cartridges, contaminated steam generator blowdown demineralizer resins and contaminated condensate polishing demineralizer resins. The wastes are solidified in the waste solidification system and stored in a shielded storage location while awaiting shipment off site.

Spent resin from the fuel pool cooling system, liquid radwaste system ion exchangers, the chemical and volume control system preholdup ion exchanger, deborating ion exchanger and purification ion exchangers are sluiced to the high activity spent resin tank or the low activity spent resin tank. The spent resin tanks hold the resin until it is ready to be sluiced to the waste feed tank.

Radwaste from the crud tank, chemical drain tanks, spent resin tanks, and concentrates from the liquid radwaste system are piped directly into the waste feed tank.

Chemicals are added to the waste feed tank to adjust pH by the chemical addition storage and feed subsystem. The cement handling and storage subsystem delivers cement to the radwaste/cement mixing and filling subsystem.

The dry additive storage and feed subsystem delivers the dry chemical additive to the radwaste/cement mixing and filling subsystem.

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The radwaste/cement mixing and filling subsystem delivers radwaste from the waste feed tank, mixes the radwaste with cement and dry chemical additives and discharges the mixture to either a 55 gallon drum or disposable liner. This subsystem also provides for capping, decontamination, swiping and placement of solidified waste containers in a shielded storage location in the Unit, transportation and temporary storage of the solidified waste containers.

Spent filter cartridges are transported to the solidification system disposable liner or drum via a monorail, and remotely placed in a filter basket inside the container. The filter basket holds the filter cartridge in place while cement is poured around the filter cartridge encapsulating it.

Each system consists of a low activity spent resin tank and associated piping, a high activity spent resin tank and associated piping, a resin transfer/dewatering pump, a waste feed pump, a waste feed tank, a chemical addition pump, a chemical addition tank, a waste/cement processor, a 30-ton capacity overhead bridge crane, a container transfer cart and related switches, valves and instrumentation. The system also includes related radiation monitoring equipment.

Section 1.14 Future Interim on Site Low-level Radioactive Waste Storage Facility (RS). The function of the Future Interim On Site Low-Level Radioactive Waste Storage Facility (RS) is to provide the capabilities for handling and storing for up to a maximum of five (5) years, solidified wastes and dry active wastes, prior to shipment off site. Wastes temporarily held in the RS will be ready for shipment off site without further processing.

This facility consists of a non-seismic concrete building, a metal sided building, a truck bay and docking area, a control room, a container inspection and decontamination station, a truck washdown station, a remotely operated overhead crane, associated lighting, heating and ventilation systems, sumps, drains and related instrumentation and monitoring equipment and related access road and fencing.

Section 1.15 Liquid Radwaste Systems (LRS). The major functions of the liquid radwaste system (LRS) for each Unit are to:

(a) Collect and store for processing radioactive or potentially radioactive waste fluids from the following sources external to the Liquid Radwaste System:

(i) Containment radwaste sumps

(ii) Radwaste building sumps

(iii) Auxiliary building sumps

(iv) Fuel building sumps

(v) Decontamination facility (Unit One only)

(vi) Radiochemistry lab

(vii) Solid radwaste resin transfer/dewatering pump

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(viii) Condensate polishing and blowdown demineralizer regenerant wastes

(ix) Turbine building sumps

(x) Auxiliary steam condensate receiver tank

(xi) Chemical waste neutralizer tank

(xii) Boric acid concentrator (BAC) bottoms

(xiii) BAC distillate.

(b) Process revived wastes by filtration, absorption, ion exchange, and evaporation to obtain a maximum amount of high grade water for reuse in the reactor plant systems. This system also includes related radiation monitoring equipment.

(c) Minimize the quantity of liquid wastes which must be solidified for offsite disposal.

Each system consists of three holdup tanks, two holdup pumps, chemical drain tanks and pumps, ion exchange prefilters, an evaporator package, mixed bed ion exchangers and an adsorption bed, recycle monitor tanks and pump, concentrate monitor tanks and pumps, a caustic tank and batch tank, an acid tank and batch tank, an anti-foam tank and pump, Y-strainers, a desiccant breather and associated instrumentation, switches, valves and piping.

Section 1.16 Radwaste Buildings. The radwaste building for each Unit contains systems used for the processing of liquid, solid, and gaseous radioactive wastes generated in such Unit. The hot machine shop and the decontamination station which have not been financed are also housed in the radwaste building.

Each radwaste building is a three-story rectangular, seismic (category IIe), reinforced concrete structure. A series of interior reinforced concrete walls form compartments for housing waste-related equipment and provide radiation shielding. The solid waste solidification, storage, and disposal areas are serviced by a crane and monorail system. Each radwaste building is designed to be independent of any other structure and is supported on a rigid foundation mat.

Section 1.17 Filtration Equipment. The auxiliary building and the containment building for each Unit each contain normal exhaust air filtration units (AFU). Each AFU contains high efficiency particulate air (HEPA) filter banks and charcoal absorbers that have been included in the financing. The laundry and decontamination facility AFU contains HEPA filters that have been included in the financing. The function of the HEPA filter banks and charcoal absorbers is to maintain offsite exposure ALARA.

The condenser air removal system for each Unit contains HEPA filters, charcoal absorbers and related mechanical equipment necessary to remove radioactive contaminants from condenser vacuum pump discharges in order to maintain offsite exposure ALARA. Also included is related effluent monitoring equipment.

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Section 1.18 Radiation Laundry. The system is housed in the laundry and decontamination facility which is located near the radwaste building of Unit 1, and is a common facility for three units. The system uses four “RADKLEEN” dry cleaning machines, especially designed by Health Physics Systems, Inc., for decontamination of cloth and rubber protective clothing, and utilizes Dupont’s Valclene dry cleaning solvent. The system consists of cleaning chamber, solvent tank, still drying fan, evaporator refrigeration compressor, and several filters. The system contains two separate filtration systems. One set of micron filters, arranged in the parallel banks, filters solvent before it enters the cleaning drum. The other set of filters, arranged in series, comprises a recirculation filtration system which continually removes contamination from solvent in the contaminated sump, then returns the solvent to the clean sump. The system does not require any cooling water, plumbing, or connected cooling towers.

Section 1.19 Spent Fuel Storage and Handling System (SFS). There are three Fuel Buildings at this three unit plant, one for each unit. Each Fuel Building is a five-story reinforced concrete structure located adjacent to the Containment Building. Each Fuel Building is approximately 107 feet tall (above and below grade), 88 feet wide, and 124 feet long. Each Fuel Building contains one spent fuel storage pool, new fuel unloading and storage areas, spent fuel cask loading pit, fuel transfer canal, spent fuel cask washdown area, spent fuel pool equipment rooms, spent fuel equipment laydown area, new fuel container storage area and a railroad loading bay for spent fuel containers. The SFS for each Unit includes the spent fuel storage pool, spent fuel cask loading pit, spent fuel cask washdown area, spent fuel pool equipment rooms, spent fuel equipment laydown area and the railroad loading bay and the portion of the Fuel Building that houses such equipment.

Fuel assemblies are brought into the fuel handling building by truck in shipping containers containing two assemblies each. The assemblies are unloaded by means of the new fuel handling crane and stored on racks in the new fuel storage pit. When needed, the new fuel handling crane lifts the fuel assembly from the new fuel storage pit and carries it to a new fuel elevator, located at the containment building end of the transfer canal, which lowers the assembly to the floor of the transfer canal. The fuel handling machine then picks up the assembly and places it on an upending device (upender) in the transfer canal. The upender lowers the upright fuel assembly to a horizontal position and puts it on the fuel transfer car. The car carries the assembly through the transfer tube to the reactor containment building. Spent fuel is removed from the containment building and transferred back to the fuel handling building in the reverse process. Once inside the fuel handling building, the spent fuel handling machine places the spent fuel into high density storage racks in the spent fuel pool for storage. Spent fuel is stored in the spent fuel pools prior to shipment offsite. When spent fuel is to be shipped offsite a spent fuel cask is brought into the fuel handling building by rail. The cask is then cleaned. The cask handling bridge crane lifts the cask from the railcar into the cask loading pit and the lid of the cask is removed. The cask loading pit is then flooded and the spent fuel handling machine removes the fuel assembly to be shipped from the spent fuel pool storage rack and transfers them into the spent fuel cask in the cask loading pit. The cask is then capped and transferred by the bridge crane to the spent fuel cask washdown area where it is inspected, cleaned and decontaminated. The cask handling bridge crane then lifts the loaded cask to a railcar for shipment offsite.

Each SFS consists of the following components:

(a) Spent Fuel Cask Handling Bridge Crane - - This 150-ton crane is designed to lift and transport the spent fuel casks.

A-9

(b) Spent Fuel Pool (SFP) - The SFP is designed to contain 1329 spent fuel assemblies in high density storage racks after addition of inserts which have not been included in the financing. It is 41 feet 6 inches deep, 28 feet wide, and 39 feet long and contains approximately 352,000 gallons of borated water at operating level. The outer walls of the Fuel Building form two walls of the SFP and the SFP is an integral structural part of the Fuel Building. It is lined with stainless steel plate.

(c) Cask Loading Pit (CLP) - The CLP is designed to allow loading of spent fuel into a cask for shipment offsite. It is approximately 45 feet deep, 16 feet wide and 16 feet long. It is connected to the SFP by a short canal.

(d) Cask Washdown Area - This area is designed to washdown a loaded cask and inspect it prior to shipment.

(e) Spent Fuel Railroad Loading Bay - This area is 76 feet long by 25 feet wide and is used to bring railroad cars into the building in order to load the spent fuel casks on the railroad cars for off-site shipment.

(f) Spent Fuel Equipment Laydown Area - This area is reserved for the spent fuel cask handling tools and crane rigging.

(g) Spent-Fuel Pool Cooling and Cleanup System - This system is designed to remove decay heat from the spent fuel assemblies and maintain clarity and chemistry of the spent fuel pool water. The system is composed of two subsystems, the spent fuel pool cooling system (SFPCS) and the spent fuel pool cleanup system. The SFPCS is a closed loop system consisting of two pumps, two heat exchangers, piping, valves, controls and instrumentation required to form a complete functional system. All equipment is located within the Fuel Building.

The spent fuel pool cleanup system is composed of two flow trains, each consisting of a strainer, pump, filter and a mixed bed ion exchanger. Either one or both trains can be aligned to clean the water in the Spent Fuel Pool. The system also consists of the piping, valves, controls and instrumentation to form a complete functional system. The pumps are located in the Fuel Building with the remaining equipment contained in the Auxiliary Building. Only the equipment and piping related to the spent fuel pool cleanup system that is located in the Auxiliary Building itself is financed. No part of the Auxiliary Building is included as part of the SFS.

(h) Fuel Building Ventilation System - This system filters, purifies, and monitors normal building exhaust.

Section 1.20 Effluent Pipeline System. The Effluent Pipeline system is an underground sewage effluent conveyance pipeline system to convey sewage effluent from the Phoenix 91st Avenue and City of Tolleson water treatment plants to the water reclamation facility at the site of the Plant, and includes (a) approximately 28.5 miles of 114- and 96-inch diameter pipe operating by gravity flow from the 91st Avenue and Tolleson interfaces to the Hassayampa Pumping Station, (b) the Hassayampa Pumping Station, and (c) approximately 8 miles of 66-inch diameter pipe from the Hassayampa Pumping Station to the water reclamation facility.

A-10

Section 1.21 Containment Building. Each Unit has a Containment Building housing the reactor and reactor coolant system for such Unit.

Each Containment Building is a Seismic Category I pre-stressed concrete cylinder with a hemispherical dome. The base mat is a flat circular slab of reinforced concrete. The interior of the structure is lined with a continuous, welded steel plate one quarter inch thick. The Containment Building has an approximate inside diameter of 106 feet and an inside height of 206.5 feet. The base mat has an approximate diameter of 161 feet and a thickness of 10.5 feet. Wall thickness varies from approximately 4 feet in the vertical walls to approximately 3.5 feet at the apex of the dome.

Under the most severe of postulated loading conditions — including the combined effects of permanent loads, design basis Loss of Coolant Accident loads, and either the safe-shutdown earthquake or tornado loads — the Containment Building is designed to maintain its structural and leak-tight integrity. Together with isolation valves, penetration assemblies, and its continuous, welded-steel liner, the structure contains the released fission products and maintains a leak rate below the design leak rate levels.

The Containment Building is designed to provide long-term control of fission products following an accident.

Housed within the Containment Building and supported by the base mat are the reinforced concrete and structural steel internal structures which support the reactor and reactor coolant system. These internal structures, the reactor and reactor coolant system are not included in this financing.

A-11

EX-4.35

EXHIBIT 4.35

INDENTURE OF TRUST

between

MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION

and

UNION BANK OF CALIFORNIA, N.A.,

as Trustee

Dated as of July 1, 2005

Relating to

$37,100,000

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds

2005 Series C

(El Paso Electric Company Palo Verde Project)

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS
Section 1.01	Definitions	3
Section 1.02	Number and Gender	19
Section 1.03	Articles, Sections, Etc	19
Section 1.04	Content of Certificates and Opinions	19
Section 1.05	Findings	20
ARTICLE II THE BONDS
Section 2.01	Authorization and Terms of Bonds	20
Section 2.02	Execution of Bonds	33
Section 2.03	Transfer and Exchange of Bonds	34
Section 2.04	Bond Register	34
Section 2.05	Bonds Mutilated, Lost, Destroyed or Stolen	34
Section 2.06	Disposition of Cancelled Bonds	35
Section 2.07	CUSIP Numbers	35
Section 2.08	Other Obligations	35
Section 2.09	Temporary Bonds	35
ARTICLE III ISSUANCE OF BONDS
Section 3.01	Authentication and Delivery of Bonds	36
Section 3.02	Application of Proceeds of Bonds	36
Section 3.03	Payment of Principal and Interest	36
ARTICLE IIIA ARS PROVISIONS
Section 3A.01	Payments with Respect to ARS	37
Section 3A.02	Calculation of All-Hold Rate	39
Section 3A.03	Notification of Rates, Amounts and Payment Dates	40
Section 3A.04	Adjustments with Respect to ARS Provisions	40
Section 3A.05	Maximum Bond Interest Rate, Non-Payment Rate	40
Section 3A.06	Auction Agent	41
Section 3A.07	Broker-Dealers	42
Section 3A.08	Provisions Relating to Auctions	43
Section 3A.09	Agreement of Holders	43
Section 3A.10	Changes in Auction Period or Auction Date	43
Section 3A.11	Conversion of Bonds to Applicable ARS Rate	44

i

ARTICLE IV REDEMPTION AND PURCHASE OF BONDS
Section 4.01	Redemption of Bonds	45
Section 4.02	Selection of Bonds to be Redeemed	49
Section 4.03	Notice for Redemption	50
Section 4.04	Partial Redemption of Bonds	51
Section 4.05	Effect of Redemption	51
Section 4.06	Payment of Redemption Price	51
Section 4.07	Bank Purchase Option	52
Section 4.08	Purchase of Bonds	54
Section 4.09	Delivery of Tendered Bonds	57
Section 4.10	Bonds Deemed Purchased	57
Section 4.11	Payment Procedure Pursuant to Bond Insurance Policy	57
ARTICLE V THE BOND FUND
Section 5.01	Creation of Bond Fund	59
Section 5.02	Deposits into Bond Fund	59
Section 5.03	Use of Moneys in Bond Fund	59
Section 5.04	Credit Facility	60
Section 5.05	Custody of Bond Fund; Withdrawal of Moneys	62
Section 5.06	Bonds Not Presented for Payment	62
Section 5.07	Moneys Held in Trust	62
Section 5.08	Payment to the Bank and to the Borrower	62
ARTICLE VI [RESERVED]
ARTICLE VII INVESTMENTS
Section 7.01	Investments	63
ARTICLE VIII GENERAL COVENANTS
Section 8.01	Limited Obligation; Payment of Principal and Interest	64
Section 8.02	Performance of Agreements; Authority	64
Section 8.03	Maintenance of Corporate Existence; Compliance with Laws	64
Section 8.04	Enforcement of Borrower’s Obligations under the Agreement	64
Section 8.05	Further Assurances	65
Section 8.06	No Disposition or Encumbrance of Issuer’s Interests	65
Section 8.07	Trustee’s Access to Books Relating to Facilities	65
Section 8.08	Filing of Financing Statements	65

ii

Section 8.09	Tax Covenant	65
Section 8.10	Notices by Trustee	66
Section 8.11	No Transfer of Credit Facility	66
ARTICLE IX DEFEASANCE
Section 9.01	Defeasance	66
Section 9.02	Survival of Certain Provisions	67
ARTICLE X DEFAULTS AND REMEDIES
Section 10.01	Events of Default	68
Section 10.02	Remedies	70
Section 10.03	Restoration to Former Position	71
Section 10.04	Bond Insurer’s Right to Direct Proceedings	71
Section 10.05	Limitation on Owners’ Right to Institute Proceedings	71
Section 10.06	No Impairment of Right to Enforce Payment	72
Section 10.07	Proceeding by Trustee Without Possession of Bonds	72
Section 10.08	No Remedy Exclusive	72
Section 10.09	No Waiver of Remedies	72
Section 10.10	Application of Moneys	72
Section 10.11	Severability of Remedies	74
Section 10.12	Waivers of Events of Default	74
Section 10.13	No Obligation of Issuer to Act	75
ARTICLE XI TRUSTEE, PAYING AGENT, REGISTRAR
Section 11.01	Acceptance of Trusts	75
Section 11.02	Trustee Not Responsible for Recitals, Maintenance, Insurance, etc	75
Section 11.03	Limitations on Liability	75
Section 11.04	Compensation, Expenses and Advances	76
Section 11.05	Notice of Events of Default	77
Section 11.06	Action by Trustee	77
Section 11.07	Good Faith Reliance	77
Section 11.08	Dealings in Bonds and with the Issuer and the Borrower	78
Section 11.09	Several Capacities	78
Section 11.10	Construction of Indenture	78
Section 11.11	Resignation of Trustee	78
Section 11.12	Removal of Trustee	78
Section 11.13	Appointment of Successor Trustee	79
Section 11.14	Qualifications of Successor Trustee	79
Section 11.15	Judicial Appointment of Successor Trustee	79
Section 11.16	Acceptance of Trusts by Successor Trustee	80
Section 11.17	Successor by Merger or Consolidation	80

iii

Section 11.18	Standard of Care	80
Section 11.19	Notice of Event of Default	80
Section 11.20	Intervention in Litigation	80
Section 11.21	Paying Agent	81
Section 11.22	Qualifications of Paying Agent; Resignation; Removal	81
Section 11.23	Registrar	81
Section 11.24	Qualifications of Registrar; Resignation; Removal	82
Section 11.25	Appointment of Co-Trustee	82
Section 11.26	Notices to Rating Agencies	83
ARTICLE XII EXECUTION OF INSTRUMENTS BY OWNERS AND PROOF OF OWNERSHIP OF BONDS
Section 12.01	Execution of Instruments; Proof of Ownership	83
ARTICLE XIII MODIFICATION OF INDENTURE, DOCUMENTS
Section 13.01	Limitations	84
Section 13.02	Modification without Consent of Owners	84
Section 13.03	Modification with Consent of Owners	85
Section 13.04	Effect of Supplemental Indenture	86
Section 13.05	Consent of the Borrower, the Bank and the Bond Insurer	86
Section 13.06	Amendment of Agreement without Consent of Owners	87
Section 13.07	Amendment of Agreement with Consent of Owners	87
Section 13.08	Issuance of Bonds Under Other Indentures; Recognition of Prior Pledges	87
ARTICLE XIV REMARKETING AGENT; TENDER AGENT; PURCHASE AND REMARKETING OF BONDS
Section 14.01	Remarketing Agent and Tender Agent	88
Section 14.02	Qualifications of Remarketing Agent and Tender Agent; Resignation; Removal	89
Section 14.03	Notice of Bonds Delivered for Purchase; Purchase of Bonds	90
Section 14.04	Remarketing of Bonds; Notice of Interest Rates	91
Section 14.05	Delivery of Bonds	92
Section 14.06	Drawings on Credit Facility	93
Section 14.07	Delivery of Proceeds of Sale	93
ARTICLE XV MISCELLANEOUS
Section 15.01	Indenture to Bind and Inure to Benefit of Successors to Issuer	94
Section 15.02	Parties in Interest	94

iv

Section 15.03	Severability	94
Section 15.04	No Personal Liability of Issuer Under Indenture	94
Section 15.05	Bonds Owned by the Issuer or the Borrower	94
Section 15.06	Governing Law	95
Section 15.07	Notices	95
Section 15.08	Non-Business Days	96
Section 15.09	Opinions	96
Section 15.10	Headlines; Table of Contents	97
Section 15.11	Execution in Several Counterparts	97
Section 15.12	Bond Insurer as Third-Party Beneficiary	97
Section 15.13	Additional Covenants of the Issuer to Bond Insurer	97
Section 15.14	Statutory Notice	97

Exhibit A – Form of Bond	A-1
Exhibit B – Auction Procedures	B-1

v

THIS INDENTURE OF TRUST is made and entered into as of July 1, 2005, by and between MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION, an Arizona nonprofit corporation designated as a political subdivision under the laws of the State of Arizona incorporated for and with the approval of the County of Maricopa, Arizona, pursuant to the provisions of the Constitution of the State of Arizona and Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972, renumbered as Title 35, Chapter 6, Arizona Revised Statutes, by Chapter 281, Section 2, Laws of Arizona of 1986, and all acts supplemental thereto or, amendatory thereof (hereinafter, together with any successor to its functions, called the “Issuer”), and Union Bank of California, N.A., a national banking corporation authorized to exercise corporate trust powers, with a principal corporate trust office in Los Angeles, California (hereinafter, together with any successor in such capacity, called the “Trustee”).

W I T N E S S E T H:

WHEREAS, Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), as amended (hereinafter called the “Act”), empowers any pollution control corporation organized pursuant to Article 1 of the Act to issue revenue bonds in accordance with Article 2 of the Act and to make secured or unsecured loans for the purpose of financing or refinancing the acquisition, construction, improvement or equipping of pollution control facilities, to charge and collect interest on such loans and pledge the proceeds of loan agreements as security for the payment of the principal of and interest on bonds, or designated issues of bonds, issued by the corporation and any agreements made in connection therewith, whenever the board of directors finds such loans to be in furtherance of the purposes of the corporation; and

WHEREAS, Chapter 69, Section 1, Laws of Arizona of 1972, declares it to be the purpose of the Act to authorize the incorporation in the several municipalities and counties of the State of Arizona of corporations which shall constitute political subdivisions of the State, to finance the acquisition and installation of, or the construction and leasing of, properties, machinery and equipment intended to prevent or limit air, water and other forms of pollution for the purpose of protecting the health and welfare of the citizens of the State of Arizona, and to facilitate compliance with existing or future air, water and other quality standards designed to improve the environment, and declares that such corporations shall serve a public purpose and perform an essential governmental function; and

WHEREAS, in response to an application by four qualified electors of the County of Maricopa, Arizona (the “County”), a political subdivision of the State of Arizona, the Board of Supervisors of said County on December 5, 1983, adopted a resolution by which it determined that it was wise, expedient, advisable and in the public interest that said application be approved, approved said application, and authorized said four electors to proceed with the incorporation of the Issuer as a pollution control corporation for said County, all in accordance with Section 35-802 of the Act to issue bonds and to carry out the other functions and fulfill the purposes of the Issuer; and

WHEREAS, the Issuer was thereupon organized and incorporated in accordance with the provisions of the Act, and, on December 5, 1983, the Articles of Incorporation of the Issuer were filed with the Arizona Corporation Commission, in accordance with Section 35-809 of the Act; and

WHEREAS, the Issuer has heretofore issued and sold its $37,100,000 aggregate principal amount of Pollution Control Refunding Revenue Bonds, 2002 Series A (El Paso Electric Company Palo Verde Project) (the “Prior Bonds”), the proceeds of which were used to refinance a portion of the costs of acquisition, construction, improvement or equipping of the Project; and

WHEREAS, the Board of Directors of the Issuer on April 19, 2005 determined to sell additional revenue bonds of the Issuer to provide a portion of the moneys necessary to redeem and refund the outstanding principal amount of the Prior Bonds; and

WHEREAS, appropriate certifications have been received stating that the portion of the Generating Station which constitutes the pollution control facilities, as described in Exhibit A to the Agreement (defined below) (the “Generating Station”), as designed, are in furtherance of the purpose of abating or controlling atmospheric or water pollutants or contaminants resulting from the generation of electricity at the Generating Station; and

WHEREAS, the Issuer and the Borrower have executed and delivered that certain Loan Agreement, dated as of July 1, 2005 (hereinafter called the “Agreement”), setting forth the undertaking by the Issuer to issue and sell its revenue bonds under the Act (hereinafter called the “Bonds”), and to lend the proceeds of the Bonds to the Borrower to provide a portion of the moneys necessary to redeem and refund the outstanding principal amount of Prior Bonds; and

WHEREAS, in the Agreement the Borrower releases the Issuer and agrees that the Issuer shall not be liable for, and will indemnify and hold the Issuer and the Trustee harmless from, certain matters; and

WHEREAS, certain findings and determinations relating to the Agreement and the Generating Station and the Project have heretofore been made and are set forth in this Indenture; and

WHEREAS, the execution and delivery of the Agreement and this Indenture and the issuance of the Bonds have been in all respects duly and validly authorized, and duly adopted and approved by resolutions of the Board of Directors of the Issuer, and the Project, the plan of financing for the Project and the issuance of the Bonds have been duly approved by the Board of Supervisors of the County, as required by the Act and otherwise; and

WHEREAS, all other things necessary to make the Bonds, when issued, executed and delivered by the Issuer and authenticated by the Trustee pursuant to this Indenture, the valid, legal and binding limited obligations of the Issuer, and to constitute this Indenture a valid pledge and assignment of all right, title and interest of the Issuer in the Agreement (except as to certain payments to the Issuer under provisions for indemnification of, and reimbursement of expenses of, the Issuer), and of certain income and revenues derived from the Agreement, for the payment of the principal of and interest on the Bonds authenticated and delivered under this Indenture, and the creation, execution and issuance of the Bonds, subject to the terms hereof, have in all respects been duly authorized;

2

NOW, THEREFORE, the Issuer, in consideration of the covenants herein contained and of the purchase and acceptance of the Bonds by the holders thereof, in order to secure the payment of all Bonds at any time Outstanding under this Indenture, according to their tenor and effect, and the performance and observance of all the covenants and conditions in the Bonds and herein contained, and to declare the terms and conditions upon and subject to which the Bonds are issued and secured, does grant a security interest in and pledge to the Trustee (as hereinafter defined), and to its successors and assigns forever, the Trust Estate (as hereinafter defined) for the equal and proportionate benefit, security and protection of all holders and owners of the Bonds issued under and secured by this Indenture without privilege, priority or distinction as to the lien or otherwise of any of the Bonds over any other of the Bonds, all upon the terms stated in this Indenture.

ARTICLE I

DEFINITIONS

Section 1.01 Definitions. The terms defined in this Article I shall, for all purposes of this Indenture and of any indenture supplemental hereto have the meanings herein specified, unless the context clearly requires otherwise. Capitalized terms used herein, defined in the Agreement and not otherwise defined herein, shall have the meaning specified in the Agreement.

“Act” shall mean Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), and all acts supplemental thereto or amendatory thereof.

“Agreement” shall mean the Loan Agreement, of even date herewith, between the Issuer and the Borrower and relating to the loan of the proceeds of the Bonds, as originally executed or as it may from time to time be supplemented or amended.

“All-Hold Rate” shall mean, on any date of determination, the interest rate per annum equal to 65% of the Index on such date; provided, that in no event shall the All-Hold Rate be more than the Maximum Lawful Rate.

“Alternate Credit Support” shall mean any letter of credit, credit facility, insurance policy, guarantee or other credit support agreement or security mechanism provided by the Borrower in accordance with Section 6.08 of the Agreement and any extension thereof.

“Applicable ARS Rate” shall mean, with respect to ARS, the rate per annum at which interest accrues on the Bonds for any Auction Period.

“ARS” or “Auction Rate Securities” shall mean, on any date, the Bonds when bearing interest as auction rate securities as provided in Article IIIA of this Indenture and the Auction Procedures applicable thereto.

3

“ARS Beneficial Owner” shall mean the Person who is the beneficial owner of ARS according to the records of (i) DTC or its participants or a successor Securities Depository while such ARS are in book-entry form or (ii) the Trustee while such ARS are not in book-entry form.

“ARS Defaulted Interest” shall mean interest on any ARS which is payable but is not punctually paid or duly provided for on any ARS Interest Payment Date.

“ARS Interest Payment Date” shall mean, when used with respect to ARS in an Auction Period other than a Special Auction Period, the Business Day immediately following each Auction Period, and, when used with respect to a Special Auction Period of seven days or more but fewer than 183 days, the Business Day immediately following such Special Auction Period, and, when used with respect to a Special Auction Period of 183 days or more, each May 1 and November 1 and on the Business Day immediately following such Special Auction Period.

“ARS Interest Period” shall mean the period commencing on and including an ARS Interest Payment Date and ending on but excluding the next succeeding ARS Interest Payment Date; provided, that the first ARS Interest Period within each ARS Interest Rate Period shall commence on and include the Issue Date or the Conversion Date, as the case may be.

“ARS Interest Rate Period” shall mean each period during which the Bonds are ARS.

“ARS Maximum Rate” shall mean 15% per annum; provided that in no event shall the ARS Maximum Rate be more than the Maximum Lawful Rate.

“ARS Payment Default” shall mean (a) (i) a default by the Issuer in the due and punctual payment of any installment of interest on ARS or (ii) a default by the Issuer in the due and punctual payment of any principal of ARS at stated maturity or pursuant to a mandatory redemption and (b) a payment default by the Bond Insurer under the Bond Insurance Policy.

“ARS Rating Agency” shall mean Moody’s, Fitch or S&P, or if any of Moody’s, Fitch or S&P discontinues its securities rating service, then such other nationally recognized securities rating agency as may be specified by the Broker-Dealer with the consent of the Borrower.

“Auction” shall mean the implementation of the Auction Procedures on an Auction Date.

“Auction Agent” shall mean the Initial Auction Agent unless and until a Substitute Auction Agent Agreement becomes effective, after which “Auction Agent” shall include both the Initial Auction Agent (if it is continuing to act in such capacity under this Indenture) and each such Substitute Auction Agent so acting.

“Auction Agent Agreement” shall mean, on any date, each Initial Auction Agent Agreement and each Substitute Auction Agent Agreement, in each case as from time to time in effect.

“Auction Agent Fee” shall have the meaning provided in each Auction Agent Agreement.

4

“Auction Date” shall mean, with respect to ARS, the Business Day next preceding the first day of each Auction Period, other than

(i) each Auction Period commencing after the ownership of such ARS is no longer maintained in book-entry form by a Securities Depository;

(ii) each Auction Period commencing after the occurrence and during the continuance of an ARS Payment Default; or

(iii) any Auction Period commencing less than two Business Days after the cure or waiver of an ARS Payment Default.

The Auction Date determined as provided in this definition may be adjusted as provided in Section 3A.10(b).

“Auction Period” shall mean (i) with respect to ARS in a seven-day mode, any of (A) a period, generally of seven days, beginning on and including a Monday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Sunday) and ending on and including the Sunday thereafter (unless such Sunday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day), (B) a period, generally of seven days, beginning on and including a Tuesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Monday) and ending on and including the Monday thereafter (unless such Monday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day), (C) a period, generally of seven days, beginning on and including a Wednesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Tuesday) and ending on and including the Tuesday thereafter (unless such Tuesday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day), (D) a period, generally of seven days, beginning on and including a Thursday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Wednesday) and ending on and including the Wednesday thereafter (unless such Wednesday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day) or (E) a period, generally of seven days, beginning on and including a Friday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Thursday) and ending on and including the Thursday thereafter (unless such Thursday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day); (ii) with respect to ARS in a 28-day mode, any of (A) a period, generally of 28 days, beginning on and including a Monday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Sunday) and ending on and including the fourth Sunday thereafter (unless such Sunday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day), (B) a period, generally of 28 days, beginning on and including a Tuesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Monday) and ending on and including the fourth Monday thereafter (unless such Monday is not followed by a Business Day, in which case ending on and including the next succeeding day followed by a Business Day), (C) a period, generally of 28 days, beginning on and including a Wednesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Tuesday) and ending on and including the fourth Tuesday thereafter (unless such Tuesday is not followed by a Business Day, in which case ending on and including

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the next succeeding day followed by a Business Day), (D) a period, generally of 28 days, beginning on and including a Thursday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Wednesday) and ending on and including the fourth Wednesday thereafter (unless such Wednesday is not followed by a Business Day, in which case ending on and including the next succeeding day followed by a Business Day) or (E) a period, generally of 28 days, beginning on and including a Friday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Thursday) and ending on and including the fourth Thursday thereafter (unless such Thursday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day); (iii) with respect to ARS in a 35-day mode, any of (A) a period, generally of 35 days, beginning on and including a Monday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Sunday) and ending on and including the fifth Sunday thereafter (unless such Sunday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day), (B) a period, generally of 35 days, beginning on and including a Tuesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Monday) and ending on and including the fifth Monday thereafter (unless such Monday is not followed by a Business Day, in which case ending on and including the next succeeding day followed by a Business Day), (C) a period, generally of 35 days, beginning on and including a Wednesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Tuesday) and ending on and including the fifth Tuesday thereafter (unless such Tuesday is not followed by a Business Day, in which case ending on and including the next succeeding day followed by a Business Day), (D) a period, generally of 35 days, beginning on and including a Thursday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Wednesday) and ending on and including the fifth Wednesday thereafter (unless such Wednesday is not followed by a Business Day, in which case ending on and including the next succeeding day followed by a Business Day) or (E) a period, generally of 35 days, beginning on and including a Friday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Thursday) and ending on and including the fifth Thursday thereafter (unless such Thursday is not followed by a Business Day, in which case ending on and including the next succeeding day which is followed by a Business Day) and (iv) a Special Auction Period; provided, however, that the initial Auction Period with respect to the Bonds shall begin on and include the Issue Date, and that in the event of a Conversion of the Bonds from another Interest Rate Period to an ARS Interest Rate Period the initial Auction Period following such Conversion shall begin on and include the Conversion Date.

“Auction Procedures” shall mean the provisions set forth in Exhibit B to this Indenture.

“Auction Rate” shall mean, with respect to the interest rate on ARS, the rate of interest per annum that results from implementation of the Auction Procedures, and determined as described in Section 1.03 of the Auction Procedures; provided, however, that the Auction Rate shall not exceed the ARS Maximum Rate. While Auction Procedures are suspended, the Auction Rate will be determined as otherwise described herein.

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“Authorized Borrower Representative” shall mean each person at the time designated to act on behalf of the Borrower by written certificate furnished to the Issuer and the Trustee containing the specimen signature of such person and signed on behalf of the Issuer.

“Authorized Denominations” shall mean (a) with respect to any Long-Term Interest Rate Period, $5,000 and any integral multiple thereof; (b) with respect to any Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period, $100,000 and any integral multiple of $5,000 in excess of $100,000; and (c) with respect to ARS, $25,000 and any integral multiple thereof while the ARS are in any Auction Period.

“Available ARS” shall have the meaning provided in Section 1.03(b) of the Auction Procedures.

“Available Moneys” shall mean (i) with respect to any date occurring during the term of a Credit Facility, (a) proceeds of a drawing under a Credit Facility which have been directly deposited in the Bond Fund or the Purchase Fund, as applicable, (b) moneys deposited in the Bond Fund or the Purchase Fund by or on behalf of the Borrower and which have been on deposit with the Trustee or the Tender Agent, as applicable, for at least one hundred and twenty-four (124) days prior to and during which no petition by or against the Issuer or the Borrower or any affiliate of the Borrower, under any Bankruptcy Act shall have been filed or any bankruptcy or similar proceeding shall have been commenced, unless such petition or proceeding shall have been dismissed and such dismissal shall be final and not subject to appeal, (c) any other money (including the proceeds of the sale of refunding obligations of the Issuer) the application of which would not, in the written opinion of Bond Counsel or other nationally recognized counsel experienced in bankruptcy matters and acceptable to the Issuer, the Rating Agencies, if any, and the Trustee and delivered to the Trustee and the Tender Agent, constitute a voidable preference in the case of a filing for protection under the Bankruptcy Act of the Issuer or the Borrower or any affiliate of the Borrower and (d) the proceeds from the investment of moneys described above, and (ii) with respect to any date not occurring during the term of a Credit Facility, any moneys furnished to the Trustee or the Tender Agent, as applicable, and the proceeds from the investment thereof.

“Bank” shall mean the issuer of a Letter of Credit, if any, with respect to the Bonds, and, any subsequently issued Credit Facility, the issuer of such other Credit Facility so long as such other Credit Facility shall be in effect, in its capacity as such issuer, its successors in such capacity and their assigns.

“Bankruptcy Act” shall mean the United States Bankruptcy Code, any successor act thereto or amendment thereof or any other applicable federal or state bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law, now or hereafter in effect..

“Beneficial Owner” shall mean any Person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond (including any Person holding a Bond through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bond for federal income tax purposes.

“Bid” shall have the meaning provided in Section 1.01(a) of the Auction Procedures.

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“BMA Index” shall mean on any date, a rate determined on the basis of the seven-day high grade market index of tax-exempt variable rate demand obligations, as produced by Municipal Market Data and published or made available by the Bond Market Association (“BMA”) or any person acting in cooperation with or under the sponsorship of BMA and acceptable to the Remarketing Agent and effective from such date.

“Bond” or “Bonds” shall mean the bonds issued in accordance with this Indenture as referenced in Section 2.01(a).

“Bond Counsel” shall mean Pillsbury Winthrop Shaw Pittman LLP, New York, New York or any firm of nationally recognized bond counsel which is experienced in the financing of pollution control facilities and acceptable to the Issuer, the Remarketing Agent, the Trustee and the Borrower.

“Bond Fund” shall mean the fund created by Section 5.01.

“Bond Insurance Policy” shall mean the municipal bond new issue insurance policy issued by the Bond Insurer that guarantees payment of principal of and interest on the Bonds.

“Bond Insurer” shall mean Financial Guaranty Insurance Company, a New York stock insurance company, or any successor thereto.

“Bond Interest Term” or “BIT” shall mean, with respect to each Bond bearing interest at a BIT Rate, the period established in accordance with the terms of Section 2.01(c)(v) hereof.

“Bond Interest Term Rate” or “BIT Rate” shall mean the interest rate on any Bond established in accordance with Section 2.01(c)(v) hereof.

“Book-Entry Bonds” shall mean any Bonds which are then held in book-entry form as provided in Section 2.01(e) hereof.

“Borrower” shall mean (i) El Paso Electric Company, a corporation organized under the laws of the State of Texas and its successors and assigns, and (ii) any surviving, resulting or transferee corporation as provided in Section 6.02 of the Agreement.

“Broker-Dealer” shall mean Citigroup Global Markets Inc. or any other broker or dealer (each as defined in the Securities Exchange Act), commercial bank or other entity permitted by law to perform the functions required of a Broker-Dealer set forth in the Auction Procedures which (i) is a participant in or member of the Securities Depository as determined by the rules or bylaws of the Securities Depository (or an affiliate of such a participant or member), (ii) has been appointed as such by the Borrower pursuant to Section 3A.07 of this Indenture, and (iii) has entered into a Broker-Dealer Agreement that is in effect on the date of reference. When used herein at a time when more than one Broker-Dealer is acting under this Indenture, the term “the Broker-Dealer” shall mean, as the context dictates, either all such Broker-Dealers collectively, or only each Broker-Dealer acting with respect to the ARS.

“Broker-Dealer Agreement” means each agreement among the Auction Agent, Borrower and a Broker-Dealer pursuant to which the Broker-Dealer agrees to participate in Auctions as set

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forth in the Auction Procedures, as from time to time amended or supplemented. Each Broker-Dealer Agreement shall be substantially in the form of the Broker-Dealer Agreement dated as of August 1, 2005 among the Initial Auction Agent, the Borrower and Citigroup Global Markets Inc.

“Business Day” shall mean any day other than a Saturday, Sunday or other day on which the New York Stock Exchange, Inc. or banks are authorized or required to close in New York, New York, or in the cities in which the Principal Offices of the Trustee, the Auction Agent, the Registrar, the Paying Agent, the Tender Agent, if any, and the Remarketing Agent, if any, are located, and in the city or cities in which drawings under a Credit Facility are required to be made.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time. Each reference herein to a section of the Code shall be deemed to include the United States Treasury Regulations adopted under the Code, as the same may be in effect from time to time, unless the context clearly requires otherwise.

“Conversion” shall mean a conversion of the Bonds from one Interest Rate Period to another Interest Rate Period (including the establishment of a new interest period within the Long-Term Interest Rate Period) as provided in Sections 2.01(c)(ii)(B), (iii)(B), (iv)(B), (v)(B) or 3A.11 of this Indenture.

“Conversion Date” shall mean the effective date of a Conversion of the Bonds.

“Credit Facility” shall mean, collectively, the Letter of Credit, if any, and any extensions thereof, and, upon the issuance and delivery of any Alternate Credit Support in accordance with Section 6.08 of the Agreement, “Credit Facility” shall mean such Alternate Credit Support.

“County” shall mean the County of Maricopa, Arizona.

“Daily Interest Rate” shall mean the variable interest rate on any Bond established in accordance with Section 2.01(c)(ii) hereof.

“Daily Interest Rate Period” shall mean each period during which a Daily Interest Rate is in effect.

“Default” shall mean any Event of Default or any event or condition which, with the passage of time or giving of notice or both, would constitute an Event of Default.

“Determination of Taxability” means a determination that, due to the untruth or inaccuracy of any representation or warranty made by the Borrower in the Agreement or the breach of any covenant or warranty of the Borrower contained in the Agreement, interest on the Bonds, or any of them, is determined not to be Tax-Exempt by a final administrative determination of the Internal Revenue Service or a final judicial decision of a court of competent jurisdiction in a proceeding of which the Borrower received notice and in which the Borrower was afforded an opportunity to participate to the full extent permitted by law. A determination or decision will not be considered final for purposes of the preceding sentence unless (A) the Issuer or the holder or Owners of the Bonds involved in the proceeding in which the issue is

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raised (i) shall have given the Borrower and the Trustee prompt written notice of the commencement thereof, and (ii) shall have offered the Borrower the opportunity to control the proceeding; provided the Borrower agrees to pay all expenses in connection therewith and to indemnify such holder or holders against all liability for such expenses (except that any such holder may engage separate counsel, and the Borrower shall not be liable for the fees or expenses of such counsel); and (B) such proceeding shall not be subject to a further right of appeal or shall not have been timely appealed.

“DTC” shall mean The Depository Trust Company, New York, New York.

“Electronic” notice shall mean notice by any form of electronic transmission capable of producing a written record and shall constitute written notice as required herein.

“Event of Default” shall mean any of the events listed in Section 10.01.

“Existing Owner” shall mean, with respect to any Auction, a Person who is the Beneficial Owner of ARS at the close of business on the Business Day immediately preceding such Auction; provided, however, that for purposes of conducting an Auction, the Auction Agent may consider a Broker-Dealer acting on behalf of its customer as an Existing Owner.

“Facilities” or “Project” shall mean the pollution control, solid waste disposal and sewage disposal facilities at the Plant, which are described in Exhibit A to the Agreement, as from time to time revised, changed, amended or modified, and related improvements and any substitutions therefor.

“Favorable Opinion of Bond Counsel” shall mean, with respect to any action relating to the Bonds, the occurrence of which requires such an opinion, a written legal opinion of Bond Counsel addressed to the Issuer, the Bank, the Trustee, the Borrower, the Remarketing Agent or the Broker-Dealers, as applicable, to the effect that the action proposed to be taken (i) is authorized or permitted by the laws of the State of Arizona and federal law and this Indenture, and all conditions precedent, if any, have been satisfied and (ii) will not adversely affect any exclusion from gross income for federal income tax purposes of interest on the Bonds.

“Fitch” shall mean Fitch Ratings, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower by notice to the Issuer and the Trustee.

“Government Obligations” shall mean direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed as to full and timely payment by, the United States of America and which are not subject to prepayment or redemption prior to maturity.

“Hold Order” shall have the meaning provided in Section 1.01(a) of the Auction Procedures.

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“Indenture” shall mean this Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any supplemental indenture entered into pursuant to the provisions hereof.

“Index” shall mean, on any Auction Date with respect to the Bonds in any Auction Period of 35 days or less, the One Month LIBOR Rate on such date and, with respect to ARS in any Auction Period of more than 35 days, the yield on United States Treasury securities on the date the Auction Period began which has a maturity which most closely matches the last day of the Auction Period. If such rate is unavailable, the Index for the Bonds means an index or rate agreed to by all Broker-Dealers. If for any reason on any Auction Date the Index shall not be determined as provided above, the Index shall mean the Index for the Auction Period ending on such Auction Date.

“Initial Auction Agent” shall mean The Bank of New York, its successors and assigns.

“Initial Auction Agent Agreement” shall mean the Auction Agent Agreement dated as of August 1, 2005 among the Trustee, the Borrower and the Initial Auction Agent, relating to the Bonds, including any amendment thereof or supplement thereto.

“Initial Interest Rate Period” shall mean the Interest Rate Period for the Bonds on the date of issuance and delivery of the Bonds as specified in Section 2.01(b) hereof.

“Insurance Agreement” shall mean the Insurance Agreement dated as of August 1, 2005 between the Bond Insurer and the Borrower, as amended or supplemented from time to time.

“Interest Accrual Date” shall mean (i) with respect to any Daily Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Daily Interest Rate Period, (ii) with respect to any Weekly Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Weekly Interest Rate Period, (iii) with respect to any Long-Term Interest Rate Period, the first day thereof and, thereafter, each Interest Payment Date in respect thereof, other than the last such Interest Payment Date, and (iv) with respect to each Bond Interest Term within a Short-Term Interest Rate Period, the first day thereof.

“Interest Payment Date” shall mean (i) with respect to any Daily Interest Rate Period or Weekly Interest Rate Period, the first Business Day of each calendar month, (ii) with respect to any Long-Term Interest Rate Period, each May 1 and November 1 occurring during such Long-Term Interest Rate Period and the Business Day next succeeding the last day thereof, (iii) with respect to any Short-Term Interest Rate Period, the Business Day next succeeding the last day of thereof, (iv) with respect to ARS, each ARS Interest Payment Date, and (v) in all events, the redemption date or the Maturity Date.

“Interest Rate Period” shall mean any Daily Interest Rate Period, Weekly Interest Rate Period, Short-Term Interest Rate Period, Long- Term Interest Rate Period or ARS Interest Rate Period.

“Investment Securities” shall mean any of the following obligations or securities (only to the extent investment therein would not violate the laws of the State of Arizona) on which the

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Borrower (or any affiliate) is not the obligor, maturing at such time or times as to enable disbursements to be made from the Bond Fund in accordance with the terms hereof, or which shall be marketable prior to the maturities thereof:

(i) direct obligations of, or obligations the principal and interest of which are guaranteed as to the full and timely payment by, the United States of America, which obligations, in either case, are not subject to redemption or prepayment at less than par by anyone other than the holder;

(ii) obligations issued or guaranteed by an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America, including obligations of the Federal National Mortgage Association, Federal Intermediate Credit Banks, Banks for Cooperatives, Federal Land Banks or Federal Home Loan Banks;

(iii) commercial paper rated at the time of investment in the highest short-term grade by the Rating Agencies;

(iv) bankers’ acceptances drawn on and accepted by commercial banks (including the Trustee, the Paying Agent, and the Bank) having at least $10,000,000 in capital stock, surplus and undivided profits the unsecured, uninsured obligations of which are rated not less than “Prime - 1” or “Aa2” by Moody’s and “A-1” or “A+” by S&P;

(v) certificates of deposit, deposit accounts and savings accounts fully insured by the Federal Deposit Insurance Corporation;

(vi) repurchase agreements with solvent banking or other financial institutions (including the Trustee, the Paying Agent, and the Bank) rated at the time of investment not less than the then current rating of the Bonds by each of the Rating Agencies;

(vii) obligations of a state, a territory, Puerto Rico, or a possession of the United States of America, or any political subdivision of the foregoing, or of the District of Columbia and which are rated at the time of investment not less than the then current rating of the Bonds by each of the Rating Agencies;

(viii) money market funds registered under the federal Investment Company Act of 1940, whose shares are registered under the federal Securities Act of 1933, and having a rating by S&P of “AAAm-G”, “AAAm” or “Aam”, and by Moody’s of “Aaa” or “Aa”, including funds for which the Trustee (or any affiliate of the Trustee) provides investment advice or other services;

(ix) custodial agreements providing for the investment of moneys through a custodian, reverse purchase agreements, option agreements and agreements to lend securities; and

(x) any other obligations and securities not prohibited by law and which are rated at least “Aaa” or “Aa” by Moody’s and “AAA” or “AA” by S&P.

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“Issue Date” shall mean August 1, 2005, the date of issuance and delivery of the Bonds to the Underwriters against payment therefor.

“Issuer” shall mean Maricopa County, Arizona Pollution Control Corporation, an Arizona nonprofit corporation designated as a political subdivision existing under the laws of the State of Arizona, incorporated for and with the approval of the County, pursuant to the provisions of the Constitution of the State of Arizona and the Act, and its successors and assigns.

“Letter of Credit” shall mean the irrevocable direct pay letter of credit, if any, issued by the Bank and delivered to the Trustee in accordance with Section 6.08 of the Agreement and any extension thereof.

“Long-Term Interest Rate” shall mean with respect to each Bond, a fixed, non-variable interest rate on such Bond established in accordance with Section 2.01(c)(iv) hereof.

“Long-Term Interest Rate Period” shall mean each period during which a Long-Term Interest Rate is in effect.

“Maturity Date” shall mean May 1, 2040.

“Maximum Bond Interest Rate” shall mean (a) with respect to Bonds other than ARS the lesser of 12% per annum and the Maximum Lawful Rate and (b) with respect to ARS, the lesser of 15% per annum and the Maximum Lawful Rate, in each case calculated in the same manner as interest is calculated for the particular interest rate on the Bonds.

“Maximum Lawful Rate” shall mean the maximum rate of interest on the relevant obligation permitted by applicable law.

“Moody’s” shall mean Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent, the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“Nominee” shall have the meaning specified in Section 2.01(e) hereof.

“Non-Payment Rate” shall mean, on any date of determination, 15% per annum; provided, that in no event shall the Non-Payment Rate be more than the Maximum Lawful Rate.

“Notice of ARS Payment Default” shall mean a notice substantially in the form of Exhibit A to the Auction Agent Agreement.

“Notice of Cure of ARS Payment Default” shall mean a notice substantially in the form of Exhibit B to the Auction Agent Agreement.

“Official Statement” shall mean the Official Statement relating to the Bonds, including all appendices thereto.

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“One Month LIBOR Rate” shall mean, as of any date of determination, the offered rate (rounded up to the next highest 0.001%) for deposits in U.S. dollars for a one-month period which appears on the Telerate Page 3750 at approximately 11:00 a.m., London time, on such date, or if such date is not a date on which dealings in U.S. dollars are transacted in the London interbank market, then on the next preceding day on which such dealings were transacted in such market.

“Order” shall have the meaning provided in Section 1.01(a) of the Auction Procedures.

“Outstanding” when used in reference to the Bonds, shall mean, as at any particular date, the aggregate of all Bonds authenticated and delivered in accordance with this Indenture except:

(i) those cancelled at or prior to such date or delivered to or held by the Trustee at or prior to such date for cancellation;

(ii) those deemed to be paid in accordance with Article IX hereof;

(iii) those in lieu of or in exchange, replacement or substitution for which other Bonds shall have been authenticated and delivered in accordance with this Indenture, unless proof satisfactory to the Trustee and the Borrower is presented that such Bond is held by a bona fide holder in due course; and

(iv) Bonds deemed purchased pursuant to Section 4.10 hereof.

“Owner” shall mean the person or entity in whose name any Bond is registered upon the registration books maintained pursuant to Section 2.04 hereof.

“Participant” shall mean, with respect to DTC or another Securities Depository, a member of or participant in DTC or such other Securities Depository, respectively.

“Paying Agent” shall mean the initial and any successor paying agent or agents appointed in or in accordance with Section 11.21 hereof. “Principal Office” of the Paying Agent shall mean the Principal Office of the Trustee (if the Trustee is the Paying Agent) or such other office of the Paying Agent designated in writing to the Issuer, the Trustee, the Auction Agent, the Broker-Dealers, the Bank, the Tender Agent and the Remarketing Agent, as applicable.

“Payment Date” shall mean each Interest Payment Date or any other date on which any principal of, premium, if any, or interest on any Bond is due and payable for any reason, including without limitation upon any redemption of Bonds pursuant to Section 4.01.

“Person” shall mean a corporation, association, partnership, limited liability company, joint venture, trust, organization, business, individual or government or any governmental agency or political subdivision thereof.

“Plant” shall mean Units 1, 2 and 3 of the Palo Verde Nuclear Generating Station, a nuclear power generating plant located in Maricopa County, Arizona, at which the Project is located.

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“Potential Owner” shall mean, with respect to any Auction, any Person, including any Existing Owner, who may be interested in acquiring a beneficial interest in ARS subject to such Auction in addition to the ARS, if any, currently owned by such Person.

“Prior Bonds” shall have the meaning set forth in the 5th Whereas clause of this Indenture.

“Purchase Fund” shall mean the fund created by Section 14.01 hereof.

“Rating Agencies” shall mean S&P, Moody’s or Fitch.

“Receipts and Revenues” shall mean (a) the Repayment Installments including all moneys drawn by the Trustee under a Credit Facility in satisfaction of the Borrower’s obligations to make Repayment Installments (b) all other moneys received by the Trustee (for the account of the Issuer) pursuant to the Agreement, (c) all moneys and investments in the Bond Fund and (d) all income and profit from the investment of the foregoing moneys. The term “Receipts and Revenues” does not include any moneys or investments in the Purchase Fund or amounts required to be paid to the Issuer pursuant to Sections 5.04, 5.08, 8.03 and 8.05 of the Agreement.

“Record Date” shall mean (a) with respect to any Interest Payment Date in respect of any Daily Interest Rate Period, the last Business Day of each calendar month or, in the case of the last Interest Payment Date in respect of a Daily Interest Rate Period, the Business Day immediately preceding such Interest Payment Date, (b) with respect to any Interest Payment Date in respect of any Weekly Interest Rate Period or any Bond Interest Term within a Short-Term Interest Rate Period, the Business Day immediately preceding such Interest Payment Date, (c) with respect to any Interest Payment Date in respect of any Long-Term Interest Rate Period, the fifteenth day of the month immediately preceding such Interest Payment Date or, in the event that an Interest Payment Date shall occur within 16 days after the first day of a Long-Term Interest Rate Period, such first day, and (d) with respect to ARS, the second Business Day next preceding each ARS Interest Payment Date.

“Registrar” shall mean the registrar or registrars appointed in or in accordance with Section 11.23 hereof. “Principal Office” of the Registrar shall mean the Principal Office of the Trustee (if the Trustee is the Registrar) or such other office of the Registrar designated in writing to the Issuer, the Trustee, the Tender Agent and the Remarketing Agent.

“Reimbursement Agreement” shall mean the Reimbursement Agreement, between the Borrower and the Bank issued in connection with the Letter of Credit and delivered to the Trustee in connection with Section 6.08 of the Agreement and any extension thereof.

“Remarketing Agent” shall mean Citigroup Global Markets Inc. and any successor remarketing agent appointed in accordance with Section 14.01 hereof. “Principal Office” of the Remarketing Agent shall mean Citigroup Global Markets Inc., 390 Greenwich Street, 5^th Floor, New York, New York 10013, Attention: Kevin Stowe, or such other office thereof designated in writing to the Issuer, the Trustee, the Bank and the Tender Agent.

“Remarketing Agreement” shall mean the Remarketing Agreement, executed and delivered at or prior to the initial issuance of the Bonds, between the Borrower and the Remarketing Agent, relating to the Bonds other than ARS, as supplemented or amended in accordance with the provisions thereof.

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“Repayment Installment” shall mean any amount that the Borrower is required to pay to the Trustee pursuant to Section 5.02(a) of the Agreement as a repayment of the loan made by the Issuer under the Agreement.

“Representation Letter” shall have the meaning set forth in Section 2.01(e) hereof.

“S&P” shall mean Standard & Poor’s Ratings Group (a division of The McGraw-Hill Companies, Inc.), a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“Securities Act” shall mean the Securities Act of 1933, as amended, and any successor thereto.

“Securities Depository” shall mean DTC or, if applicable, any successor securities depository appointed pursuant to this Indenture.

“Securities Exchange Act” shall mean the Securities and Exchange Act of 1934, as amended, and any successor thereto.

“Sell Order” shall have the meaning provided in Section 1.01(a) of the Auction Procedures.

“Short-Term Interest Rate Period” shall mean, with respect to each Bond bearing interest at a BIT Rate, the period established in accordance with Section 2.01(c)(v) hereof.

“Special Auction Period” shall mean, with respect to ARS, (a) any period of less than 183 days which is not another Auction Period and which is divisible by seven and which begins on an Interest Payment Date and ends (i) in the case of ARS with Auctions generally conducted on Fridays, on a Sunday unless such Sunday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day, (ii) in the case of ARS with Auctions generally conducted on Mondays, on a Monday unless such Monday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day, (iii) in the case of ARS with Auctions generally conducted on Tuesdays, on a Tuesday unless such Tuesday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day, (iv) in the case of ARS with Auctions generally conducted on Wednesdays, on a Wednesday unless such Wednesday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day, and (v) in the case of ARS with Auctions generally conducted on Thursdays, on a Thursday unless such Thursday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day or (b) any period which is 183 days or longer which begins on an Interest Payment Date and ends not later than the day prior to the final scheduled maturity date of ARS.

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“Special Record Date” shall mean, (a) with respect to any Bond other than ARS, the date established by the Trustee in connection with the payment of overdue interest on that Bond pursuant to Section 2.01(b) hereof and (b) with respect to ARS, a special date fixed to determine the names and addresses of holders of ARS for purposes of paying interest on a special interest payment date for the payment of defaulted interest, all as further provided in Section 3A.01(f)(ii) hereof.

“State” shall mean the State of Arizona.

“Submission Processing Deadline” shall mean the earlier of (i) 40 minutes after the Submission Deadline and (ii) the time when the Auction Agent begins to disseminate the results of the Auction to the Broker-Dealers.

“Submission Processing Representation” shall mean the written representation in the form attached to the Broker-Dealer Agreement as Exhibit D to be used in the event that Broker-Dealers submit an Order after the Submission Deadline and prior to the Submission Processing Deadline and the Order was (i) received by the Broker-Dealer from Existing Owners or Potential Owners prior to the Submission Deadline or (ii) initiated internally by the Broker-Dealer for its own account prior to the Submission Deadline. Each Order submitted to the Auction Agent after the Submission Deadline and prior to the Submission Processing Deadline shall constitute a representation by the Broker-Dealer that such Order was (i) received from an Existing Owner or Potential Owner prior to the Submission Deadline or (ii) initiated internally by the Broker-Dealer for its own account prior to the Submission Deadline (the “Submission Processing Representation”).

“Submitted Hold Order” shall have the meaning provided in Section 1.03(b) of the Auction Procedures.

“Substitute Auction Agent” shall mean the Person with whom the Trustee at the direction of the Borrower enters into a Substitute Auction Agent Agreement.

“Substitute Auction Agent Agreement” shall mean an auction agent agreement containing terms substantially similar to the terms of the Initial Auction Agent Agreement whereby a Person having the qualifications required by Section 3A.06 of this Indenture agrees with the Trustee at the direction of the Borrower to perform the duties of the Auction Agent herein with respect to the Bonds.

“Sufficient Clearing Bids” shall have the meaning provided in Section 1.03(b) of the Auction Procedures.

“Supplemental Indenture” shall mean any supplemental indenture hereafter duly authorized and entered into between the Issuer and the Trustee in accordance with the provisions of this Indenture.

“Tax Certificate” shall mean the “Tax Certificate”, executed by the Issuer in connection with the issuance of the Bonds.

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“Tax-Exempt” shall mean, with respect to interest on any obligations of a state or local government, including the Bonds, that such interest is excluded from the gross income of the holders thereof (other than any holder who is a “substantial user” of facilities financed with such obligations or a “related person” within the meaning of Section 147(a) of the Code) for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax or environmental tax under the Code.

“Tender Agent” shall mean Citigroup Global Markets Inc. and any successor tender agent appointed in accordance with Section 14.01 hereof. “Principal Office” of the Tender Agent shall mean the Principal Office of the Remarketing Agent (if the Remarketing Agent is the Tender Agent), or such other office thereof designated in writing to the Issuer, the Trustee and the Remarketing Agent.

“Tender Agreement” shall mean the Tender Agreement, if any, executed and delivered at or prior to the initial issuance of the Bonds, between the Borrower and the Tender Agent, relating to the Bonds other than ARS, as supplemented or amended in accordance with the provisions thereof.

“Trustee” shall mean Union Bank of California, N.A., as trustee under this Indenture, and its successor or successors hereunder. “Principal Office” of the Trustee shall mean a principal office of the Trustee at which at any particular time its corporate trust business shall be administered in California, which office at the date of the execution of this Indenture, is 120 South San Pedro Street, 4th Floor, Los Angeles, CA 90012, Corporate Trust Department; except that with respect to the presentation of Bonds for payment or for registration of transfer, exchange or tender, such term shall mean the office or agency of the Trustee at Union Bank of California, N.A., Corporate Trust Department, 120 South San Pedro Street, 4th Floor, Los Angeles, CA 90012, Attn: Bond Redemption.

“Trust Estate” shall mean at any particular time all right, title and interest of the Issuer in and to the Agreement (except its rights under Sections 5.04, 5.08 and 8.05 thereof and any rights of the Issuer to receive notices, certificates, requests, requisitions, directions and other communications thereunder), including without limitation the Receipts and Revenues, all moneys and obligations which at such time are deposited or are required to be deposited with, or are held or are required to be held by or on behalf of, the Trustee or any Paying Agent in trust under any of the provisions of this Indenture and all other rights, titles and interests which at such time are subject to the lien of this Indenture, except for moneys or obligations deposited with or paid to the Trustee or any Paying Agent for the redemption or payment of Bonds which are deemed to have been paid in accordance with Article IX hereof and funds held pursuant to Section 5.06 hereof.

“Trust Indenture Act” shall mean the Trust Indenture Act of 1939, as amended, and any successor thereto.

“Underwriters” means Citigroup Global Markets Inc., BNY Capital Markets, Inc. and J.P. Morgan Securities Inc.

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“Weekly Interest Rate” shall mean a variable interest rate on the Bonds established in accordance with Section 2.01(c)(iii) hereof.

“Weekly Interest Rate Period” shall mean each period during which a Weekly Interest Rate is in effect.

“Winning Bid Rate” shall have the meaning provided in Section 1.03(b) of the Auction Procedures.

Section 1.02 Number and Gender. The singular form of any word used herein, including the terms defined in Section 1.01, shall include the plural, and vice versa. The use herein of a word of any gender shall include all genders.

Section 1.03 Articles, Sections, Etc. All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture as originally executed; and the words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. The headings or titles of the several Articles and Sections hereof, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of this Indenture.

Section 1.04 Content of Certificates and Opinions. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture or the Agreement (except for the certificate of cancelled Bonds provided for in Sections 2.05, 2.06 and 4.05 hereof) shall include (a) a statement that the person or persons making or giving such certificate or opinion have read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of the signers, they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of the signers, such condition or covenant has been complied with.

Any such certificate or opinion made or given by an officer of the Issuer or the Borrower may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his or her certificate or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should have known that the same were erroneous. Any such certificate or opinion made or given by counsel may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the Issuer or the Borrower), upon the certificate or opinion of or representations by an officer of the Issuer or the Borrower, as applicable, unless such counsel knows that the certificate or opinion or representations with respect to the matters upon which his or her opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should have known that the same were erroneous.

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Section 1.05 Findings. It is hereby found and determined by the Issuer that:

(a) The Borrower is a corporation which is conducting operations in the County and is qualified under the Act to borrow the proceeds of the sale of the Bonds from the Issuer to redeem and repay the outstanding principal amount of the Prior Bonds for purposes of the Act;

(b) The Project promotes the purposes of the Act by preventing or limiting air, water and other forms of pollution for the purpose of protecting the health and welfare of the citizens of the State of Arizona, and facilitates compliance by the Borrower with existing and possible future air, water and other quality standards designed to improve the environment in the State of Arizona;

(c) The loan pursuant to the Agreement is in furtherance of the purposes of the Issuer;

(d) It is advisable that the Bonds be subject to redemption as provided in this Indenture;

(e) The manner in which the Bonds are sold is most advantageous and it is necessary and advantageous that the expenses, premiums and commissions, if any, in connection with the issuance of the Bonds be paid by the Borrower; and

(f) It is advisable that this Indenture contain the provisions set forth herein.

ARTICLE II

THE BONDS

Section 2.01 Authorization and Terms of Bonds.

(a) Authorization. Bonds designated as “Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company Palo Verde Project)” may be issued under this Indenture. The aggregate principal amount of Bonds which may be issued and Outstanding under this Indenture shall not exceed Thirty-seven Million One Hundred Thousand Dollars ($37,100,000). No Bonds may be issued hereunder except in accordance with this Article.

(b) General Terms. The Bonds shall be issued as fully registered Bonds, without coupons, in Authorized Denominations and shall be dated as of the Issue Date. The Bonds shall mature, subject to prior redemption as provided in Article IV, upon the terms and conditions hereinafter set forth, on the Maturity Date. The initial interest rate on the Bonds will be the rate the Underwriters determine is necessary to sell the Bonds at par. The Bonds shall initially be issued as ARS. While the Bonds are ARS and except as otherwise specifically provided herein, the provisions of Article IIIA shall govern the interest rates per annum and the payment terms of the Bonds. The provisions of this Section 2.01 shall govern the interest rates per annum and payment terms of Bonds other than ARS.

The Bonds shall be numbered from R-1 consecutively upwards in order of authentication. Each Bond shall bear interest from the last date to which interest has been paid in full or, if no interest has been paid in full or duly provided on such Bond, from the Issue Date. All Bonds

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shall mature on the date set forth above and shall bear interest at the rates determined from time to time in accordance with the provisions of this Indenture. Payment of the interest on any Bond shall be made to the person appearing on the bond registration books of the Registrar as the registered holder thereof as of the close of business on the Record Date, such interest to be paid by the Paying Agent to such registered holder (i) in the event such Bond is a Book-Entry Bond, in immediately available funds on the Interest Payment Date in accordance with the Representation Letter, and (ii) in the event such Bond is not a Book-Entry Bond (A) in immediately available funds (by wire transfer or by deposit to the account of the holder of at least $1,000,000 of Bonds if such account is maintained with the Paying Agent), according to the written instructions given by such holder to the Registrar prior to the Record Date or (B) in all other cases, by check mailed by first class mail to the holder at such holder’s address as it appears as of the Record Date on the registration books of the Registrar; except, in each case, that, if and to the extent that there shall be a default in the payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid to the holders in whose name any such Bonds are registered as of a Special Record Date to be fixed by the Trustee, notice of which shall be given to such holders not less than ten (10) days prior thereto. Both the principal of and premium, if any, on the Bonds shall be payable upon surrender thereof in lawful money of the United States of America at the Principal Office of the Paying Agent. Notwithstanding the foregoing, interest on any Bond bearing a Bond Interest Term Rate (except any such Bond which is a Book-Entry Bond) shall be paid only upon presentation to the Tender Agent of the Bond on which such payment is due. The Bonds shall be dated as of the Issue Date. The Bonds shall be substantially in the form attached hereto as Exhibit A.

If and to the extent, however, that the Issuer fails to make payment or provision for payment of interest on any Bond on any Interest Payment Date, that interest shall cease to be payable to the Owner of that Bond on the applicable Record Date. When moneys become available for payment of the interest, (a) the Trustee shall, pursuant to Section 10.10 hereof, establish a Special Record Date for the payment of that interest which shall be not more than 15 nor fewer than 10 days prior to the date of the proposed payment, and (b) the Trustee shall give notice by first-class mail of the proposed payment and of the Special Record Date to each owner not fewer than 10 days prior to the Special Record Date and, thereafter, the interest shall be payable to the owners of the Bonds as of the Special Record Date at the close of business on the Special Record Date.

(c) Interest Rates and Rate Periods. The Bonds shall bear interest until final payment of the principal or redemption price thereof shall have been made in accordance with the provisions hereof, whether at the Maturity Date, upon redemption or otherwise. During Daily Interest Rate Periods, interest on the Bonds shall be computed on the basis of a 365- or 366-day year for the number of days actually elapsed during Daily Interest Rate Periods. During Short-Term Interest Rate Periods or Weekly Interest Rate Periods, interest on the Bonds shall be computed on the basis of a 365- or 366-day year for the number of days actually elapsed based on the calendar year in which the Short-Term Interest Rate Period or Weekly Interest Rate Period commences. During any Long-Term Interest Rate Period, interest on the Bonds shall be computed upon the basis of a 360-day year, consisting of twelve 30-day months.

(i) Rate Periods. The Bonds shall initially bear interest as set forth in Section 2.01(b), and shall remain in such Interest Rate Period until adjusted to a different

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Interest Rate Period as provided herein. After any such adjustment, the term of the Bonds shall be divided into consecutive Interest Rate Periods during which the Bonds may bear interest at the Daily Interest Rate, Weekly Interest Rate, Bond Interest Term Rate or Long-Term Interest Rate. Any Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period established with respect to the Bonds shall continue in effect unless and until adjusted to a different Interest Rate Period as provided herein.

(ii) Daily Interest Rate.

(A) Determination of Daily Interest Rate. During each Daily Interest Rate Period, the Bonds shall bear interest at the Daily Interest Rate, determined by the Remarketing Agent on or before each Business Day for such Business Day. The Daily Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of the Daily Interest Rate determined by 10:30 a.m. (New York City time) on the date of determination. If the Remarketing Agent shall not have determined a Daily Interest Rate for any day by 10:30 a.m. (New York City time) on such day, the Daily Interest Rate shall be the same as the Daily Interest Rate for the immediately preceding day. In no event shall the Daily Interest Rate be greater than the Maximum Bond Interest Rate.

(B) Adjustment to a Daily Interest Rate Period. At any time, the Borrower, by written notice to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear interest at a Daily Interest Rate. Such notice (1) shall specify the effective date of such adjustment to a Daily Interest Rate, which shall be (a) a Business Day not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee); (b) in the case of an adjustment from a Long-Term Interest Rate Period, a day on which the Bonds would be permitted to be redeemed at the option of the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Weekly Interest Rate Period or a Short-Term Interest Rate Period, an Interest Payment Date on which interest is payable for the Weekly Interest Rate Period or Bond Interest Term from which the adjustment is to be made; provided, however, that if prior to the Borrower’s making such election, any Bonds shall have been called for redemption and such redemption shall not have theretofore been effected, the effective date of such Daily Interest Rate Period shall not precede such redemption date; and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of the interest on the Bonds.

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(C) Notice of Adjustment to a Daily Interest Rate Period. The Trustee shall give notice by first class mail of an adjustment to a Daily Interest Rate Period to the Owners of the Bonds not less than 15 days (30 days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Daily Interest Rate Period. Such notice shall state (1) that the interest rate on the Bonds will be adjusted to a Daily Interest Rate (subject to the Borrower’s ability to rescind its election as described in Section 2.01(c)(viii) hereof), (2) the effective date of the Daily Interest Rate Period, (3) that the Bonds are subject to mandatory tender for purchase on such effective date (except in the case of adjustment between Daily Interest Rate Periods and Weekly Interest Rate Periods), (4) the procedures for such mandatory tender, and (5) the purchase price of the Bonds on such effective date (expressed as a percentage of the principal amount thereof).

(iii) Weekly Interest Rate.

(A) Determination of Weekly Interest Rate. During each Weekly Interest Rate Period, the Bonds shall bear interest at the Weekly Interest Rate, which shall be determined by the Remarketing Agent no later than the first day of such Weekly Interest Rate Period and thereafter no later than 10:00 a.m. (New York City time) on Wednesday of each week during such Weekly Interest Rate Period, unless any such Wednesday shall not be a Business Day, in which event the Weekly Interest Rate shall be determined by the Remarketing Agent no later than the Business Day immediately preceding such Wednesday. The Weekly Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. If for any reason, a Weekly Interest Rate is not so established for any period by the time specified above by the Remarketing Agent, the Weekly Interest Rate shall be the same as the Weekly Interest Rate in effect for the immediately preceding week. In no event shall any Weekly Interest Rate exceed the Maximum Bond Interest Rate. The first Weekly Interest Rate determined for each Weekly Interest Rate Period shall apply to the period commencing on the first day of such Weekly Interest Rate Period and ending on the next succeeding Tuesday. Thereafter, each Weekly Interest Rate shall apply to the period commencing on each Wednesday and ending on the next succeeding Tuesday, unless such Weekly Interest Rate Period shall end on a day other than Tuesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period shall apply to the period commencing on the Wednesday preceding the last day of such Weekly Interest Rate Period and ending on such last day. The Remarketing Agent shall provide the Trustee and the Borrower with written, telephonic or Electronic notice of each Weekly Interest Rate, as determined, by 12:00 noon (New York City time) on the effective date of such Weekly Interest Rate.

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(B) Adjustment to Weekly Interest Rate. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear interest at a Weekly Interest Rate. Such direction (1) shall specify the effective date of such adjustment to a Weekly Interest Rate, which shall be (a) a Business Day not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee); (b) in the case of an adjustment from a Long-Term Interest Rate Period, a day on which the Bonds would otherwise be permitted to be redeemed at the option of the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Daily Interest Rate Period or Short-Term Interest Rate Period, an Interest Payment Date on which interest is payable for the Daily Interest Rate Period or Bond Interest Term from which the adjustment is to be made; provided, however, that if prior to the Borrower’s making such election, any Bonds shall have been called for redemption and such redemption shall not have theretofore been effected, the effective date of such Weekly Interest Rate Period shall not precede such redemption date; and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(C) Notice of Adjustment to a Weekly Interest Rate Period. The Trustee shall give notice by first class mail of an adjustment to a Weekly Interest Rate Period to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Weekly Interest Rate Period. Such notice shall state (1) that the Interest Rate on the Bonds will be adjusted to a Weekly Interest Rate (subject to the Borrower’s ability to rescind its election as provided in Section 2.01(c)(viii) hereof), (2) the effective date of the Weekly Interest Rate Period, (3) that the Bonds are subject to mandatory tender for purchase on such effective date (except in the case of adjustments between Daily Interest Rate Periods and Weekly Interest Rate Periods), (4) the procedures for such mandatory tender, and (5) the purchase price of such Bonds on such effective date (expressed as a percentage of the principal amount thereof).

(iv) Long-Term Interest Rate.

(A) Determination of Long-Term Interest Rate. During each Long-Term Interest Rate Period, the Bonds shall bear interest at the Long-Term Interest Rate, which shall be determined by the Remarketing Agent on a Business Day selected by the Remarketing Agent, but not more than forty (40) days prior to and not later than the effective date of such Long-Term Interest Rate Period. The Long-Term Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent on such date, and communicated by the close of business on such date to the Trustee, the Paying Agent and the Borrower, by written, telephonic or Electronic notice, as being the lowest interest rate which would

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enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such Long-Term Interest Rate Period at a price (without regard to accrued interest) equal to 100% of the principal amount thereof; provided, however, that if, for any reason, a Long-Term Interest Rate for any Long-Term Interest Rate Period shall not be determined or effective or if an adjustment from a Long-Term Interest Rate Period to another Interest Rate Period shall not be effective, the Interest Rate Period for the Bonds shall automatically convert to a Daily Interest Rate Period; provided, further, however, that if the Favorable Opinion of Bond Counsel required by Section 2.01(c)(ii)(B) in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) hereof, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Index. In no event shall any Long-Term Interest Rate be greater than the Maximum Bond Interest Rate.

(B) Adjustment to or Continuation of a Long-Term Interest Rate Period. At any time, the Borrower, by written notice to the Issuer, the Bank, the Trustee, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear, or continue to bear, interest at a Long-Term Interest Rate, and if it shall so elect, shall determine the duration of the Long-Term Interest Rate Period during which the Bonds shall bear interest at such Long-Term Interest Rate. Each Long-Term Interest Rate Period shall have a duration such that the last day of such Long-Term Interest Rate Period is (1) a day which both immediately precedes a Business Day and is at least one year after the effective date of such Long-Term Interest Rate Period or (2) if earlier, the day immediately preceding the Maturity Date. At the time the Borrower so elects an adjustment to or continuation of a Long-Term Interest Rate Period, the Borrower may specify two or more consecutive Long-Term Interest Rate Periods and, if the Borrower so specifies, shall specify the duration of each such Long-Term Interest Rate Period as provided in this paragraph. Such notice shall specify the effective date of each Long-Term Interest Rate Period, which shall be (a) a Business Day not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee); (b) in the case of an adjustment from or continuation of a Long-Term Interest Rate Period, a day on which the Bonds would be permitted to be redeemed by the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Daily, Weekly or Short-Term Interest Rate Period, an Interest Payment Date on which interest is payable for the Daily or Weekly Interest Rate Period or Bond Interest Term from which the adjustment is to be made; provided, however, that if prior to the Borrower’s making such election, any Bonds shall have been called for redemption and such redemption shall not have theretofore been effected, the effective date of such Long-Term Interest Rate Period shall not precede such redemption date. In addition, such notice (i) shall specify the last day of such Long-Term Interest Rate Period, and (ii) if the adjustment is from a Daily,

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Weekly or Short-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

If, by the thirty-fifth day prior to the last day of any Long-Term Interest Rate Period, the Trustee shall not have received notice of the Borrower’s election that, during the next succeeding Interest Rate Period, the Bonds shall bear interest at a Daily Interest Rate, a Weekly Interest Rate, a Long-Term Interest Rate or a Bond Interest Term Rate accompanied by appropriate opinions of Bond Counsel, if required by Section 2.01(c)(ii)(B), (iii)(B), (iv)(B) or (v)(B) hereof, the next succeeding Interest Rate Period for the Bonds shall be a Daily Interest Rate Period; provided, however, that if the opinion of Bond Counsel required by Section 2.01(c)(ii)(B) in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) hereof, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Index.

At the same time that the Borrower elects to have the Bonds bear interest at a Long-Term Interest Rate or continue to bear interest at a Long-Term Interest Rate, the Borrower may also specify to the Trustee optional redemption prices and periods different from (including that there be no such optional redemption) those set out in Section 4.01(a)(ii)(C) during the Long-Term Interest Rate Period(s) with respect to which such election is made; provided, however, that such notice shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such changes (i) are authorized or permitted by the Act and this Indenture, and (ii) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(C) Notice of Adjustment to or Continuation of a Long-Term Interest Rate Period. The Trustee shall give notice by first class mail of an adjustment to or continuation of a Long-Term Interest Rate Period to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Long-Term Interest Rate Period. Such notice shall state (1) that the interest rate on the Bonds will be adjusted to, or continue to be, a Long-Term Interest Rate (subject to the Borrower’s ability to rescind its election as provided in Section 2.01(c)(viii) hereof), (2) the effective date of such Long-Term Interest Rate Period, (3) that the Bonds shall be subject to mandatory tender for purchase on such effective date, (4) the procedures for such mandatory tender, and (5) the purchase price of the Bonds on such effective date (expressed as a percentage of the principal amount thereof).

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(v) Bond Interest Term Rate.

(A) Determination of Bond Interest Terms and Bond Interest Term Rates. During each Short-Term Interest Rate Period, each Bond shall bear interest during each Bond Interest Term for such Bond at the Bond Interest Term Rate for such Bond. Each Bond Interest Term for any Bond shall be a period of at least one day but not more than the lesser of (x) 270 days or (y) the number of days of interest coverage on the Bonds provided for in any Credit Facility then in effect minus five (5) days. When a Credit Facility, if any, other than any initial Letter of Credit is in effect with respect to the Bonds or no Credit Facility is in effect with respect to the Bonds, each Bond Interest Term for any Bond shall be a period of at least one day but not more than 270 days. Each Bond Interest Term for any Bond shall be a period determined by the Remarketing Agent to be, in its judgment, the period which, taking into account prevailing market conditions and all other Bond Interest Terms and Bond Interest Term Rates for all Bonds then Outstanding, is likely to result in the lowest overall net interest expense on all such Bonds; provided, however, that any such Bond purchased on behalf of the Borrower and remaining unsold in the hands of the Remarketing Agent as of 1:00 p.m. (New York City time) on the effective date of the Bond Interest Term for such Bond shall have a Bond Interest Term of one day or, if such Bond Interest Term would not end on a day immediately preceding a Business Day, a Bond Interest Term of more than one day ending on the day immediately preceding the next Business Day; provided, further, however, that (1) each Bond Interest Term shall end on a day which immediately precedes a Business Day and no Bond Interest Term shall extend beyond the day immediately preceding the Maturity Date or, if a Credit Facility, if any, is then in effect with respect to the Bonds, the scheduled expiration date of such Credit Facility, and (2) if for any reason the Remarketing Agent fails or is unable to determine a Bond Interest Term on any Bond, the Bond Interest Term for such Bond shall be one day, unless such Bond Interest Term would end on a day which does not precede a Business Day, in which case such Bond Interest Term shall end on the day immediately preceding the next succeeding Business Day.

The Bond Interest Term Rate for each Bond Interest Term for each Bond shall be the rate of interest per annum determined by the Remarketing Agent no later than 1:00 p.m. (New York City time) on the first day of such Bond Interest Term to be the lowest interest rate which would enable the Remarketing Agent to sell such Bonds on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of each Bond Interest Term Rate and Bond Interest Term by 1:00 p.m. (New York City time) on the date of determination. If a Bond Interest Term Rate for a Bond Interest Term of one day is not determined or effective by 1:00 p.m. (New York City time) on such day, the Bond Interest Term Rate for such Bond Interest Term of one day shall be equal to the BMA Index. In no event shall any Bond Interest Term Rate exceed the Maximum Bond Interest Rate.

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Notwithstanding the foregoing, in the event that notice of redemption with respect to any Bond in a Short-Term Interest Rate Period shall have been given to the holder of such Bond by the Trustee pursuant to Section 4.03 hereof, no subsequent Bond Interest Terms or Bond Interest Term Rates shall be determined with respect to such Bond.

(B) Adjustment to or Continuation of Bond Interest Term Rates. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, if any, the Tender Agent and the Remarketing Agent may elect that the Bonds shall bear interest at Bond Interest Term Rates. Such direction (1) shall specify the effective date of the Short-Term Interest Rate Period during which the Bonds shall bear interest at Bond Interest Term Rates, which shall be (a) a Business Day not earlier than thirty-five (35) days after delivery of such notice (or such shorter period as shall be acceptable to the Trustee), (b) in the case of an adjustment from a Long-Term Interest Rate Period, a day on which the Bonds would be permitted to be redeemed at the option of the Borrower pursuant to Section 4.01(a)(ii)(C) hereof; and (c) in the case of an adjustment from a Daily or Weekly Interest Rate Period, an Interest Payment Date on which interest is payable for the Daily or Weekly Interest Rate Period from which the adjustment is to be made; provided, however, that if prior to the Borrower’s making such election any Bonds shall have been called for redemption and such redemption shall not have theretofore been effected, the effective date of such Short-Term Interest Rate Period shall not precede such redemption date; and (2) shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(C) Notice of Adjustment to a Bond Interest Term. The Trustee shall give notice by first class mail of an adjustment to a Short-Term Interest Rate Period to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Short-Term Interest Rate Period. Such notice shall state (1) that the interest rate on the Bonds will be adjusted to Bond Interest Term Rates (subject to the Borrower’s ability to rescind its election as provided in Section 2.01(c)(viii) hereof), (2) the effective date of the Short-Term Interest Rate Period, (3) that the Bonds are subject to mandatory tender for purchase on the effective date of such Short-Term Interest Rate Period, (4) the procedures for such mandatory tender, and (5) the purchase price of the Bonds on such effective date (expressed as a percentage of the principal amount thereof).

(D) Adjustment from a Short-Term Interest Rate Period. At any time during a Short-Term Interest Rate Period, the Borrower may elect that the Bonds shall no longer bear interest at Bond Interest Term Rates and shall instead bear interest as otherwise permitted under this Indenture. The Borrower shall give written notice to the Issuer, the Trustee, the Paying Agent and the Remarketing Agent, if any, of such election and shall specify the Interest Rate Period to follow with respect to such Bonds upon cessation of the Short-Term Interest Rate

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Period and instruct the Remarketing Agent to (1) determine Bond Interest Terms of such duration that, as soon as possible, all Bond Interest Terms shall end on the same date, not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice, and upon the establishment of such Bond Interest Term the day next succeeding the last day of all such Bond Interest Terms shall be the effective date of the Interest Rate Period elected by the Borrower; or (2) determine Bond Interest Terms that will best promote an orderly transition to the next succeeding Interest Rate Period to apply to the Bonds, beginning not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice. If the alternative in clause (2) above is selected (and if the Trustee requests, a Favorable Opinion of Bond Counsel is received), the day next succeeding the last day of the Bond Interest Term for each Bond shall be with respect to such Bond the effective date of the Interest Rate Period elected by the Borrower. The Remarketing Agent, promptly upon the determination thereof, shall give written notice of such last day and such effective dates to the Borrower, the Trustee and the Tender Agent. During any transitional period from a Short-Term Interest Rate Period to the next succeeding Interest Rate Period in accordance with clause (2) above, the provisions of this Indenture shall be deemed to apply to the Bonds as follows: the Bonds continuing to bear interest at Bond Interest Term Rates shall have applicable to them the provisions hereunder theretofore applicable to such Bonds as if all Bonds were continuing to bear interest at Bond Interest Term Rates and the Bonds bearing interest in the Interest Rate Period to which the transition is being made will have applicable to them the provisions hereunder as if all Bonds were bearing interest in such Interest Rate Period.

(vi) Terms of Credit Facility, If Any. If a Credit Facility in the form of a letter of credit is to be held by the Trustee after the effective date of any adjustment from one Interest Rate Period to another Interest Rate Period, such Credit Facility, if any, shall be in an amount sufficient to provide payment of (x) the principal amount of the Outstanding Bonds plus (y) the amount of interest (computed on the basis of a 365-day year in the case of an adjustment to a Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period, and on the basis of a 360-day year consisting of twelve 30-day months in the case of an adjustment to a Long-Term Interest Rate Period) which will accrue on the Outstanding Bonds for a period equal to the maximum number of days between Interest Payment Dates during the new Interest Rate Period plus five (5) days. In the case of an adjustment to a Long-Term Interest Rate Period, a Credit Facility, if any, to be in effect after the effective date of such adjustment shall (i) extend for a period ending on a date no earlier than five (5) days after the first date on which the Bonds may be called for redemption pursuant to Section 4.01(a)(ii)(C) and (ii) cover the premium, if any, which would be included in the purchase price upon mandatory purchase of the Bonds pursuant to Section 4.08(b) hereof if the term of such Credit Facility was not extended beyond the expiration date set forth therein.

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(vii) Determination Conclusive. The determination of any Bond Interest Term Rate, Daily Interest Rate, Weekly Interest Rate and Long-Term Interest Rate and each Bond Interest Term and the calculation of interest payable on the Bonds by the Remarketing Agent shall be conclusive and binding upon such Remarketing Agent, the Trustee, the Tender Agent, the Issuer, the Borrower, the Bank and the Owners of the Bonds.

(viii) Rescission of Election. Notwithstanding anything herein to the contrary, the Borrower may rescind any election by it to adjust to or continue an Interest Rate Period pursuant to Sections 2.01(c)(ii)(B), (iii)(B), (iv)(B), (v)(B) or 3A.11 hereof prior to the effective date of such adjustment or continuation by giving written notice thereof to the Issuer, the Trustee, the Tender Agent, the Auction Agent, the Broker-Dealers and the Remarketing Agent, if any, prior to such effective date. If the Trustee receives notice of such rescission prior to the time the Trustee has given notice to the Owners of the Bonds pursuant to Section 2.01(c)(ii)(C), (iii)(C), (iv)(C) or (v)(C), as applicable, then the notice of adjustment or continuation previously delivered by the Borrower shall be of no force and effect. If the Trustee receives notice from the Borrower of rescission of an adjustment to or continuation of an Interest Rate Period after the Trustee has given notice to the Owners of the Bonds pursuant to Section 2.01(c)(ii)(C), (iii)(C), (iv)(C) or (v)(C), as applicable, then the Interest Rate Period for the Bonds shall automatically adjust to a Daily Interest Rate Period on the date originally scheduled for such adjustment or continuation; provided, however, that if the Bonds are then in a Long-Term Interest Rate Period and the Favorable Opinion of Bond Counsel required by Section 2.01(c)(ii)(B) in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) hereof, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Index.

(d) Form of Bonds. The Bonds may be engraved, printed, lithographed or typewritten, shall be in Authorized Denominations and may contain such references to any of the provisions of this Indenture as may be appropriate. The form of the Bonds, the certificate of authentication to be executed on all the Bonds by the Trustee and the forms for registration of transfer shall be in substantially the forms thereof set forth in Exhibit A hereto, with necessary or appropriate variations, omissions and insertions as permitted or required by this Indenture. The Bonds and the certificate of authentication to be executed thereon shall be in substantially the form attached hereto as Exhibit A, with such appropriate variations, omissions and insertions as are permitted or required by this Indenture. Pursuant to recommendations promulgated by the Committee on Uniform Security Identification Procedures, “CUSIP” numbers may be printed on the Bonds. The Bonds may bear such endorsement or legend relating thereto as may be required to conform to usage or law with respect thereto. If appropriate, the Bonds may be printed with a portion of the text printed on the reverse side thereof and with a legend printed on the front referring to such text to the following effect: “Reference is hereby made to the further provisions of this Bond set forth on the back hereof and such further provisions are hereby incorporated by reference as if set forth here in full.” Upon adjustment to a Long-Term Interest Rate Period, the

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form of Bond may include a summary of the mandatory and optional redemption provisions to apply to the Bonds during such Long-Term Interest Rate Period, or a statement to the effect that the Bonds will not be optionally redeemed during such Long-Term Interest Rate Period, provided that the Registrar shall not authenticate such a revised Bond form prior to receiving a Favorable Opinion of Bond Counsel that such Bond form conforms to the terms of the Act and of this Indenture and that authentication thereof will not adversely affect the Tax-Exempt status of the Bonds.

(e) Book-Entry System. Bonds shall be issued in the form of a single certificated fully registered Bond, registered in the name of Cede & Co., as nominee of the Depository Trust Company (such entity and its successors and assigns are referred to herein as “DTC”), or such other name as may be requested by an authorized representative of DTC, or any successor nominee (the “Nominee”). Except as provided in paragraph (C) below, all of the Outstanding Bonds shall be so registered in the registration books kept by the Registrar, and the provisions of this Section 2.01(e) shall apply thereto.

(i) The Issuer, the Borrower, the Remarketing Agent, the Tender Agent, the Trustee, the Registrar, the Paying Agent and any Co-Registrar and Co-Paying Agent shall have no responsibility or obligation to any DTC participant or to any person on behalf of which a DTC participant holds an interest in the Bonds, except as otherwise expressly provided herein. Without limiting the immediately preceding sentence, the Issuer, the Borrower, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent and any Co-Registrar and Co-Paying Agent shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, the Nominee, any DTC participant or indirect participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC participant or any other person, other than an Owner as shown in the registration books kept by the Registrar, of any notice with respect to the Bonds, including any notice of redemption (except that the Trustee and Tender Agent, if any, shall have the obligation to deliver notices of optional and mandatory tender to the Remarketing Agent, if any, as provided herein) or (iii) the payment to any DTC participant or any other person, other than an Owner, as shown in the registration books kept by the Registrar, of any amount with respect to principal or purchase price of, premium, if any, or interest on the Bonds. The Paying Agent shall pay all principal, premium, if any, and interest on the Bonds only to or upon the order of the respective Owners, as shown in the registration books kept by the Registrar, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Issuer’s obligations with respect to payment of principal of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. The Issuer, the Borrower, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent and any Co-Registrar and Co-Paying Agent may treat and consider the person in whose name each Bond is registered in the registration books kept by the Registrar as the holder and absolute owner of such Bond for the purpose of payment of principal, purchase price, premium and interest with respect to such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever; provided, however, notwithstanding the foregoing provisions, the Tender Agent, if any, shall accept any notice of optional tender pursuant

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to Section 4.08(a) from any Owner of any Book-Entry Bond, but shall make payment of the purchase price thereof only to the registered owner of such Bond in the manner provided in the Representation Letter (as defined below); and provided further, that no person other than an Owner, as shown in the registration books kept by the Registrar, shall receive a certificated Bond evidencing the obligation of the Issuer to make payments of principal, premium, if any, and interest pursuant to this Indenture.

(ii) The Issuer, the Paying Agent, the Registrar, the Tender Agent and/or the Trustee shall, if not previously on file, execute and deliver to DTC a letter of representation in customary form with respect to the Bonds (the “Representation Letter”), but such Representation Letter shall not in any way limit the provisions of the foregoing paragraph (i) or in any other way impose upon the Issuer any obligation whatsoever with respect to persons having interests in the Bonds other than the Owners, as shown on the registration books kept by the Registrar. The Trustee, the Tender Agent and the Paying Agent shall take all actions necessary for representations of the Issuer in the Representation Letter with respect to the Trustee, the Tender Agent and the Paying Agent to be complied with at all times.

(iii) The Issuer, with the consent of the Borrower, may, and upon request of the Borrower shall, terminate the services of DTC with respect to the Bonds. DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving written notice and all relevant information on the Beneficial Owners of the Bonds to the Issuer, the Borrower, the Tender Agent, if any, and the Trustee and discharging its responsibilities with respect thereto under applicable law. Upon the discontinuance or termination of the services of DTC with respect to the Bonds, unless a substitute securities depository is appointed by the Issuer (with the consent, or at the request, of the Borrower) to undertake the functions of DTC hereunder, the Issuer, at the expense of the Borrower, is obligated to deliver Bond certificates to the Owners of such Bonds, as described in this Indenture, and such Bonds shall no longer be restricted to being registered in the registration books kept by the Registrar in the name of the Nominee, but may be registered in whatever name or names Owners transferring or exchanging such Bonds shall designate, in accordance with the provisions of this Indenture.

(iv) In connection with any notice or other communication to be provided to Owners pursuant to this Indenture by the Issuer, the Borrower the Remarketing Agent, the Tender Agent, the Trustee, the Registrar, the Paying Agent, and any Co-Registrar and Co-Paying Agent with respect to any consent or other action to be taken by the Owners of the Bonds, the Issuer, the Borrower the Remarketing Agent, the Tender Agent, the Trustee, the Registrar, the Paying Agent, any Co-Registrar and Co-Paying Agent, as the case may be, the Trustee shall establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible.

(v) So long as any Bond is registered in the name of the Nominee, all payments with respect to principal, purchase price, premium, if any, and interest on such Bond and all notices with respect to such Bond shall be made and given, respectively, in

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the manner provided in the Representation Letter. Owners shall have no lien or security interest in any rebate or refund paid by DTC to the Tender Agent, if any, or the Paying Agent which arises from the payment by the Tender Agent, if any, or Paying Agent of principal of or purchase price, premium, if any, or interest on the Bonds in immediately available funds to DTC.

Section 2.02 Execution of Bonds. The Bonds shall be executed on behalf of the Issuer by its President, a Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer and such execution shall be attested by its President, a Vice-President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer; provided that the officer so attesting such execution shall not be the same officer that executed such Bond. The signatures of the President, a Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer of the Issuer may be facsimile signatures.

The Bonds and the interest thereon shall not be general obligations or an indebtedness of the Issuer but shall be limited obligations of the Issuer, which is obliged to pay the principal and premium, if any, and interest on the Bonds only out of the Receipts and Revenues of the Issuer from the Agreement and other moneys pledged therefor under this Indenture. The Bonds shall never constitute an indebtedness of the State of Arizona, or the County, or the Issuer within the meaning of any Arizona Constitutional provision or statutory limitation and shall never constitute or give rise to a pecuniary liability of the State of Arizona, or the County, or the Issuer or a charge against the general credit or taxing powers of the State of Arizona, or the County, or the general credit of the Issuer and such fact shall be plainly stated on each Bond. The Issuer has no taxing power.

The Bonds shall then be delivered to the Trustee for authentication by the Trustee. In case any officer who shall have signed any of the Bonds shall cease to be such officer before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee or issued by the Issuer, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issuance, shall be as binding upon the Issuer as though those who signed and attested the same had continued to be such officers of the Issuer. Also, any Bond may be signed on behalf of the Issuer by such persons as on the actual date of the execution of such Bond shall be the proper officers although on the nominal date of such Bond any such person shall not have been such officer.

Only such of the Bonds as shall bear thereon a certificate of authentication in the form recited in Exhibit A hereto, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. The Trustee’s certificate of authentication on any Bond shall be deemed to have been executed by it if manually signed by an authorized signatory on behalf of the Trustee but it shall not be necessary that the same person sign the certificate of authentication on all of the Bonds issued hereunder.

Upon authentication of any Bond, the Trustee, Registrar or the Tender Agent, if any, as the case may be, shall set forth on such Bond (1) the date of such authentication and (2) in the case of a Bond bearing interest at a Bond Interest Term Rate which is not a Book-Entry Bond,

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such Bond Interest Term Rate, the day next succeeding the last day of the applicable Short-Term Interest Rate Period, the number of days comprising such Short-Term Interest Rate Period and the amount of interest to accrue during such Short-Term Interest Rate Period.

So long as Union Bank of California, N.A. is serving as Trustee hereunder, it shall also serve as Registrar hereunder.

Section 2.03 Transfer and Exchange of Bonds. Registration of any Bond may, in accordance with the terms of this Indenture, be transferred, upon the books of the Registrar required to be kept pursuant to the provisions of Section 2.04, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by a written instrument of transfer in a form approved by the Registrar, duly executed. Whenever any Bond shall be surrendered for registration of transfer, the Issuer shall execute and the Trustee shall authenticate and deliver a new Bond or Bonds of the same tenor in Authorized Denominations. No registration of transfer of Bonds upon the books of the Registrar required to be kept pursuant to the provisions of Section 2.04 hereof shall be required to be made during the period after any Record Date and prior to the related Interest Payment Date or during the period of fifteen (15) days immediately preceding the date on which the Trustee mails any notice of redemption, nor shall any registration of transfer of Bonds called for redemption be required.

Bonds may be exchanged at the Principal Office of the Trustee for a like aggregate principal amount of Bonds of the same tenor of Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange, and there shall be no other charge to any Owners for any such exchange. Except with respect to Bonds remarketed after being purchased pursuant to Sections 4.07 and 4.08 hereof, no exchange of Bonds shall be required to be made during the period after any Record Date and prior to the related Interest Payment Date or during the period of fifteen (15) days immediately preceding the date on which the Trustee gives notice of redemption, nor shall any exchange of Bonds called for redemption be required. If a Bond is presented for transfer or exchange after notice of redemption of such Bond has been given as provided in Section 4.03 hereof, the Registrar shall deliver a copy of such notice of redemption to the new owner of such Bond.

Section 2.04 Bond Register. The Registrar will keep or cause to be kept at its Principal Office sufficient books for the registration and the registration of transfer of the Bonds, which shall at all times, during regular business hours, be open to inspection by the Issuer, the Trustee, the Bond Insurer and the Borrower; and, upon presentation for such purpose, the Registrar shall, under such reasonable regulations as it may prescribe, register the transfer or cause to be registered the transfer, on said books, of Bonds as hereinbefore provided.

Section 2.05 Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Issuer, upon the request and at the expense of the holder of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Registrar of the Bond so mutilated. Every mutilated Bond so surrendered to the Registrar shall be treated by the Trustee in accordance with its document retention policies (provided that the Trustee shall

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not be required to destroy such Bonds) and, upon the written request of the Issuer, a certificate evidencing such disposition shall be delivered to the Issuer, with a copy to the Borrower. If any Bond issued hereunder shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Issuer, the Borrower and the Registrar, and if such evidence be satisfactory to them and indemnity satisfactory to them shall be given by or on behalf of the holder of such lost, destroyed or stolen Bond, the Issuer, at the expense of the holder, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall be about to mature, instead of issuing a substitute Bond the Trustee shall, at the direction of the Issuer, pay the same without surrender thereof). The Issuer may require payment of a reasonable fee for each new Bond issued under this Section and payment of the expenses which may be incurred by the Issuer and the Trustee. Any Bond issued under the provisions of this Section in lieu of any Bond mutilated or alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Issuer whether or not the Bond mutilated or so alleged to be lost, destroyed or stolen shall be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Indenture with all other Bonds secured by this Indenture.

All Bonds shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing provisions are exclusive with respect to the replacement or payment of lost, destroyed or improperly cancelled Bonds, notwithstanding any law or statute now existing or hereafter enacted.

Section 2.06 Disposition of Cancelled Bonds. When paid in full, all Bonds shall be delivered to the Trustee, who shall forthwith cancel such Bonds and deliver upon request a certificate evidencing such cancellation to the Issuer and the Borrower. The Trustee shall treat such cancelled Bonds in accordance with its document retention policies and shall not be required to destroy such Bonds.

Section 2.07 CUSIP Numbers. As provided in Section 2.01(d) of this Indenture, the Issuer in issuing the Bonds may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to holders of Bonds; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Bonds or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Bonds, and any such redemption shall not be affected by any defect in or omission of such CUSIP numbers. The Issuer shall promptly notify the Trustee of any changes in the CUSIP numbers.

Section 2.08 Other Obligations. The Issuer expressly reserves the right to issue, to the extent permitted by law, obligations under another ordinance(s) and/or indenture(s) to provide additional funds or, at the request of the Borrower, to refund all or any principal amount of the Bonds.

Section 2.09 Temporary Bonds. Pending the preparation of definitive Bonds, the Issuer may execute and the Trustee shall authenticate and deliver temporary Bonds. Temporary Bonds shall be issuable as fully registered Bonds, of any Authorized Denomination, and substantially in

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the form of the definitive Bonds but with such omissions, insertions and variations as may be appropriate for temporary Bonds, all as may be determined by the Issuer. Temporary Bonds may contain such reference to any provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Issuer and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Bonds. As promptly as practicable, the Issuer shall execute and shall furnish definitive Bonds and thereupon temporary Bonds may be surrendered in exchange therefor without charge at the Principal Office of the Trustee, and the Trustee shall authenticate and deliver in exchange for such temporary Bonds a like aggregate principal amount of the definitive Bonds of Authorized Denominations. Until so exchanged the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds.

ARTICLE III

ISSUANCE OF BONDS

Section 3.01 Authentication and Delivery of Bonds. Forthwith upon the execution and delivery of this Indenture, the Issuer shall execute and deliver to the Trustee and the Trustee shall authenticate the Bonds and deliver the Bonds to the initial purchasers thereof as directed hereinafter in this Section 3.01. Without any further action on the part of the Issuer, the Trustee shall authenticate the Bonds in an aggregate principal amount of Thirty-Seven Million One Hundred Thousand Dollars ($37,100,000). Prior to the delivery on original issuance by the Trustee of any authenticated Bonds there shall be or have been delivered to the Trustee:

(i) An original duly executed counterpart of this Indenture.

(ii) An original duly executed counterpart of the Agreement.

(iii) A written order of the Issuer to the Trustee to authenticate and deliver the Bonds to the purchaser or purchasers therein identified upon payment to the Trustee, but for the account of the Issuer, of a sum specified in such request and authorization plus any accrued interest on such Bonds to the date of delivery.

(iv) A written statement on behalf of the Borrower, executed by an Authorized Borrower Representative, (i) approving the issuance and delivery of the Bonds and (ii) consenting to each and every provision of this Indenture.

(v) The Bond Insurance Policy.

Section 3.02 Application of Proceeds of Bonds. The proceeds received by the Issuer from the sale of the Bonds in the amount of $37,100,000 shall be deposited with the Trustee, and the Trustee shall transfer such proceeds to JPMorgan Chase Bank, National Association, as trustee for the Prior Bonds, to be applied to the redemption of the Prior Bonds.

Section 3.03 Payment of Principal and Interest. For the payment of interest on the Bonds, the Issuer shall cause to be deposited in the Bond Fund established under Section 5.01 hereof, on or prior to each Interest Payment Date, solely out of the Receipts and Revenues, an amount sufficient to pay the interest to become due on such Interest Payment Date. The

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obligation of the Issuer to cause any such deposit to be made hereunder shall be reduced by the amount of moneys in the Bond Fund available on such Interest Payment Date for the payment of interest on the Bonds.

For the payment of the principal of the Bonds on the Maturity Date or upon earlier redemption, the Issuer shall cause to be deposited in the Bond Fund, on or prior to the Maturity Date or redemption date of the Bonds, solely out of the Receipts and Revenues, an amount sufficient to pay the principal of the Bonds then due. The obligation of the Issuer to cause any such deposit to be made hereunder shall be reduced by the amount of moneys in the Bond Fund available on the Maturity Date or redemption date for the payment of the principal of the Bonds.

ARTICLE IIIA

ARS PROVISIONS

Section 3A.01 Payments with Respect to ARS.

(a) Interest with respect to ARS shall accrue from and including, as applicable, the Issue Date, the Conversion Date or the most recent ARS Interest Payment Date to which interest has been paid or duly provided for.

(b) The Trustee shall determine the aggregate amount of interest payable in accordance with subsection (e) below with respect to ARS on each ARS Interest Payment Date. Interest due on any ARS Interest Payment Date with respect to each $25,000 in principal amount of ARS shall equal (i) the Applicable ARS Rate multiplied by (ii) the principal amount of $25,000 multiplied by (iii) if the number of days in the Auction Period is less than 183, the number of days in the applicable ARS Interest Period, and, if the number of days in the Auction Period is 183 or greater, the number of days in the applicable ARS Interest Period assuming twelve 30-day months, divided by (iv) 360, and rounding the resultant figure to the nearest cent (a half cent being rounded upward). The Trustee shall notify the Securities Depository of its calculations, as provided in Section 3A.03(b) of this Indenture.

(c) Interest on the ARS shall be computed on the basis of a 360-day year for the actual number of days elapsed, except in the case of a Special Auction Period of 183 days or more in which case it will be computed on the basis of twelve 30-day months. The Applicable ARS Rate for each ARS Interest Period after the first ARS Interest Period shall be the Auction Rate; provided that

(i) Reserved.

(ii) in the event the Auction Agent fails to calculate or, for any reason, fails to timely provide the Auction Rate for any Auction Period (except as contemplated otherwise herein pursuant to (x), (y) and (z) below), the new Auction Period shall be the same as the preceding Auction Period if the preceding Auction Period was a period of 35 days or less and the new Auction Period shall be a seven-day Auction Period if the preceding Auction Period was a period of greater than 35 days and the Auction Rate for the new Auction Period shall be the same as the Auction Rate for the preceding Auction Period. The ARS shall continue in such Auction Period until changed pursuant to Section 3A.10(a) hereof.

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Notwithstanding the foregoing:

(x) if the ownership of the ARS is no longer maintained in book-entry form by a Securities Depository, the Applicable ARS Rate for any Auction Period commencing after the delivery of certificates representing the ARS shall equal the ARS Maximum Rate;

(y) if an ARS Payment Default shall have occurred with respect to the ARS, the Applicable ARS Rate for the Auction Period commencing on or immediately after such ARS Payment Default and for each Auction Period thereafter, to and including the Auction Period, if any, during which, or commencing less than two Business Days after, such ARS Payment Default is cured in accordance with this Indenture, shall equal the Non-Payment Rate on the first day of each such Auction Period, provided that if an Auction occurred on the Business Day immediately preceding any such Auction Period, the Applicable ARS Rate for such Auction Period shall be the Non-Payment Rate; or

(z) for any Auction Period during which there is no duly appointed Auction Agent, or during which there is no duly appointed Broker-Dealer, no Auction will be held and, if the preceding Auction Period was 35 days or less, the new Auction Period shall be the same as the preceding Auction Period and, if the preceding Auction Period was more than 35 days, the new Auction Period shall be a seven-day Auction Period and the Auction Rate in each case shall be the ARS Maximum Rate. The ARS shall continue in such Auction Period until changed pursuant to Section 3A.10(a) hereof.

(d) Medium of Payment.

(i) The principal of and interest on the ARS shall be payable in any currency of the United States of America which on the respective dates for payment thereof is legal tender for the payment of public and private debts. The principal of and interest on the ARS (other than at maturity) shall be payable by check mailed on the date due to the registered owner thereof on the Record Date at the address of such registered owner as it appears on the registration books maintained by the Trustee.

(ii) Interest payable on any ARS Interest Payment Date to a registered owner of ARS in the aggregate principal amount of $1,000,000 or more may, upon written request by such registered owner received by the Trustee prior to the Record Date preceding such ARS Interest Payment Date, be paid by wire transfer on the date due to a designated account in the United States. Such written request shall remain in effect until rescinded in writing by such registered owner. The principal of each ARS at maturity will be paid upon presentation and surrender thereof at the Principal Office of the Trustee.

(iii) Unless otherwise requested by the Securities Depository, payments of the principal of ARS, at maturity or upon redemption, and payments of interest on ARS made by wire transfer, shall be made by the Trustee in immediately available funds, provided, however, that such method of payment may be modified by written agreement among the Trustee, the Securities Depository and the Auction Agent.

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(e) Computation of Interest Distributable on ARS. The amount of interest distributable to ARS Beneficial Owners, in respect of each $25,000 in principal amount thereof for any ARS Interest Period or part thereof, shall be calculated by the Trustee by applying the Applicable ARS Rate with respect to the ARS, for such ARS Interest Period or part thereof, to the principal amount of $25,000, multiplying such product by the actual number of days in such ARS Interest Period or part thereof if the number of days in the Auction Period is less than 183 and multiplying the product by the number of days in such ARS Interest Period assuming twelve 30-day months if the number of days in the Auction Period is 183 days or more in each case divided by 360 and rounding the resultant figure to the nearest cent (half a cent being rounded upward).

(f) ARS Defaulted Interest.

(i) The Trustee shall determine not later than 2:00 p.m., New York City time, on each ARS Interest Payment Date, whether an ARS Payment Default has occurred. If an ARS Payment Default has occurred, the Trustee shall, not later than 2:30 p.m. New York City time on such Business Day, send a Notice of ARS Payment Default to the Auction Agent and each Broker-Dealer by telecopy or similar means and, if such ARS Payment Default is cured, the Trustee shall immediately send a Notice of Cure of ARS Payment Default to the Auction Agent and each Broker-Dealer by telecopy or similar means.

(ii) ARS Defaulted Interest shall forthwith cease to be payable to the ARS Beneficial Owner on the relevant Record Date by virtue of having been such ARS Beneficial Owner and such ARS Defaulted Interest shall be payable to the Person in whose name the ARS are registered at the close of business on a Special Record Date fixed therefor by the Trustee, which shall not be more than 15 days and not less than ten days prior to the date of the proposed payment of ARS Defaulted Interest. The Trustee shall promptly notify the Issuer and the Borrower of the Special Record Date and, at the Borrower’s expense, mail to each ARS Beneficial Owner of which it has knowledge pursuant to Section 11.01, not less than ten days before the Special Record Date, notice of the Special Record Date and the date of the proposed payment of such ARS Defaulted Interest.

Section 3A.02 Calculation of All-Hold Rate. The Auction Agent shall calculate the All-Hold Rate on each Auction Date. If the ownership of the ARS is no longer maintained in book-entry form by the Securities Depository, the Auction Agent shall announce the ARS Maximum Rate on the Business Day immediately preceding each ARS Interest Payment Date after the delivery of certificates representing the ARS. If an ARS Payment Default shall have occurred, the Trustee shall announce the Non-Payment Rate on the first day of (i) each Auction Period commencing on or after the date of the occurrence and during the continuance of such ARS Payment Default and (ii) any Auction Period commencing less than two Business Days after the cure of any ARS Payment Default. The determination by the Auction Agent of the All-Hold Rate shall (in the absence of manifest error) be final and binding upon all ARS Beneficial Owners and all other parties. The Auction Agent shall promptly advise the Trustee of the All-Hold Rate.

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Section 3A.03 Notification of Rates, Amounts and Payment Dates.

(a) So long as the ownership of the ARS is maintained in book-entry form by the Securities Depository, the Trustee shall advise the Securities Depository (i) of each Record Date for the ARS at least two Business Days prior thereto and (ii) of each succeeding Interest Payment Date on each Interest Payment Date.

(b) On the Issue Date, or as soon as practicable thereafter, and on the Business Day preceding each ARS Interest Payment Date with respect to the ARS, the Trustee shall advise the Securities Depository, so long as the ownership of the ARS is maintained in book-entry form by the Securities Depository, of the amount of interest distributable in respect of each $25,000 in principal amount of ARS for any ARS Interest Period or part thereof, calculated in accordance with Section 3A.01(e) of this Indenture.

If any day scheduled to be an ARS Interest Payment Date shall be changed after the Trustee shall have given notice, the Trustee shall, not later than 9:15 a.m., New York City time, on the Business Day next preceding the earlier of the new ARS Interest Payment Date or the old ARS Interest Payment Date, by such means as the Trustee deems practicable, give notice of such change to the Auction Agent, so long as no ARS Payment Default has occurred and is continuing and the ownership of the ARS is maintained in book-entry form by the Securities Depository.

Section 3A.04 Adjustments with Respect to ARS Provisions. Notwithstanding any other provision of this Indenture relating to ARS, including without limitation the mandatory tender provisions and the definitions of terms used in this Article IIIA (including without limitation the definitions of Applicable ARS Rate, All-Hold Rate, ARS Maximum Rate and Non-Payment Rate), the ARS provisions may be amended by the Issuer at the written request of the Borrower, (i) upon obtaining an opinion of Counsel that the same does not materially adversely affect the rights of the ARS Beneficial Owners or (ii) by obtaining the consent of a majority of the ARS Beneficial Owners and, in each case, delivering a Favorable Opinion of Bond Counsel. In the case of clause (ii) above, the Trustee shall mail notice of such amendment to the ARS Beneficial Owners of which it has knowledge pursuant to Section 11.01, and if, on the first Auction Date occurring at least 20 days after the date on which the Trustee mailed such notice, Sufficient Clearing Bids have been received or all of the ARS are subject to Submitted Hold Orders, the proposed amendment shall be deemed to have been consented to by the ARS Beneficial Owners. Written notice of each such amendment shall be delivered by the Issuer to the Trustee, the Borrower, the Auction Agent, and each Broker-Dealer.

Section 3A.05 Maximum Bond Interest Rate, Non-Payment Rate. If the Auction Rate on the Bonds shall be the Maximum Bond Interest Rate, the ARS Maximum Rate, or Non-Payment Rate for a period (A) in excess of thirty (30) days, the Borrower agrees to take all steps necessary to ensure that the Auction Rate does not exceed the interest rate payable on similar securities (taking into account the interest period and enhanced/insured rating of the Bonds) or (B) in excess of sixty (60) days, the Borrower agrees to convert, or cause to be converted, all Bonds to a Long-Term Interest Rate Period extending through the maturity of the Bonds or, with the

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approval of the Bond Insurer, to a variable interest rate mode, in each case at the lowest interest rate that will permit the Remarketing Agent to sell all the Bonds on the conversion date at a price equal to 100% of the principal amount thereof plus accrued interest thereon. If an Event of Default shall have occurred and be continuing under the Indenture or the Borrower fails to cause a conversion of the Bonds to another interest rate mode as required by the foregoing sentence, the Bond Insurer may, in its discretion, direct the conversion of the Bonds to a fixed rate or any other interest rate mode.

Section 3A.06 Auction Agent.

(a) The Trustee is hereby directed to enter into the Initial Auction Agent Agreement with the Initial Auction Agent and to appoint The Bank of New York as the Initial Auction Agent. Any Substitute Auction Agent shall be (i) subject to the written approval of each Broker-Dealer, (ii) a bank or trust company duly organized under the laws of the United States of America or any state or territory thereof and having a combined capital stock, surplus and undivided profits of at least $15,000,000, or (iii) a member of the National Association of Securities Dealers, Inc., having a capitalization of at least $15,000,000, and, in either case, authorized by law to perform all the duties imposed upon it hereunder and under the Auction Agent Agreement and a member of or a participant in, the Securities Depository. The Auction Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 45 days’ notice to the Trustee, the Broker-Dealer, the Issuer, the Borrower, and the Bond Insurer. The Auction Agent may be removed at any time by the Trustee, upon the written direction of (i) the Borrower, with the consent of the Bond Insurer, (ii) the Bond Insurer, or (iii) the ARS Beneficial Owners of 66-2/3% of the aggregate principal amount of the ARS then Outstanding, with the consent of the Bond Insurer, by an instrument signed by the Trustee and filed with the Auction Agent, the Bond Insurer, the Issuer and the Borrower upon at least 30 days’ notice. Neither the resignation nor the removal of the Auction Agent pursuant to the preceding two sentences shall be effective until and unless a Substitute Auction Agent has been appointed and has accepted such appointment; provided, however, that if a Substitute Auction Agent has not been so appointed within 45 days of the notice of resignation of the Auction Agent, the Auction Agent may petition a court of competent jurisdiction to appoint a Substitute Auction Agent. Notwithstanding the foregoing, the Auction Agent may terminate the Auction Agent Agreement if, within 30 days after notifying the Trustee, the Issuer, the Borrower, and the Bond Insurer in writing that it has not received payment of any Auction Agent Fee due it in accordance with the terms of the Auction Agent Agreement, the Auction Agent does not receive such payment.

(b) If the Auction Agent shall resign or be removed or be dissolved, or if the property or affairs of the Auction Agent shall be taken under the control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, the Trustee, at the direction of the Borrower, shall use its best efforts to appoint a Substitute Auction Agent.

(c) In the absence of willful misconduct, grossly negligent failure to act or gross negligence on its part, the Auction Agent shall not be liable for any action taken, suffered or omitted or any error of judgment made by it in the performance of its duties under the Auction Agent Agreement and shall not be liable for any error of judgment made in good faith unless the

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Auction Agent shall have been grossly negligent in ascertaining (or failing to ascertain) the pertinent facts necessary to make such judgment. The Trustee shall not be liable for any action, omission or error in judgment by the Auction Agent. In no event shall the Auction Agent be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit), even if the Auction Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.

(d) The Auction Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Indenture arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; acts of terrorism; epidemics; riots; interruptions, loss or malfunctions of utilities; computer (software or hardware) or communications services; accidents; labor disputes; acts of civil or military authority or governmental actions; it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

Section 3A.07 Broker-Dealers.

(a) The Auction Agent shall enter into a Broker-Dealer Agreement with Citigroup Global Markets Inc., as the initial Broker-Dealer. The Borrower may, from time to time, approve one or more additional Persons to serve as Broker-Dealers under Broker-Dealer Agreements and shall be responsible for providing such Broker-Dealer Agreements to the Trustee and the Auction Agent. No such party shall constitute a Broker-Dealer until a fully executed Broker-Dealer Agreement is delivered to the Trustee and the Auction Agent.

(b) Any Broker-Dealer may be removed at any time, at the written request of the Borrower, with the written consent of the Issuer.

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Section 3A.08 Provisions Relating to Auctions. None of the Borrower, the Issuer, the Trustee or the Auction Agent shall be responsible for any failure of a Broker-Dealer to submit an Order to the Auction Agent on behalf of any Existing Owner or Potential Owner, nor shall any of the Borrower, the Issuer, the Trustee or the Auction Agent be responsible for failure by any Securities Depository to effect any transfer or to provide the Auction Agent with current information regarding registration of transfers. None of the Borrower, the Issuer, the Trustee, the Broker-Dealers or the Auction Agent shall have any liability in the event that there are not Sufficient Clearing Bids from time to time pursuant to the Auction Procedures.

Section 3A.09 Agreement of Holders. By purchasing ARS, whether in an Auction or otherwise, each prospective purchaser of ARS and its Broker-Dealer will be deemed to have agreed to the provisions for the replacement of the Auction Agent and each Broker-Dealer as provided in this Indenture, and relevant agreements among the Issuer, the Borrower, the Trustee, the Auction Agent, and the Broker-Dealer, as appropriate.

Section 3A.10 Changes in Auction Period or Auction Date.

(a) Changes in Auction Period.

(i) The Auction Period for the ARS Interest Rate Period commencing on the Issue Date initially shall be a seven-day period commencing generally on a Tuesday. The Auction Period for the Bonds with respect to each subsequent ARS Interest Rate Period, if any, initially shall be either a seven-day period, a 28-day period, a 35-day period or a Special Auction Period, commencing generally on a Monday, generally on a Tuesday, generally on a Wednesday, generally on a Thursday or generally on a Friday, in each case as announced by the Borrower in its notice of the proposed Conversion to such subsequent ARS Interest Rate Period as provided in Section 3A.11.

(ii) During any Auction Period, the Borrower may from time to time and on any ARS Interest Payment Date immediately following an Auction Period, change the length of the Auction Period between seven-days, 28-days, 35-days and a Special Auction Period in order to accommodate economic and financial factors that may affect or be relevant to the length of the Auction Period and the interest rate borne by the Bonds. The Borrower shall initiate the change in the length of the Auction Period by giving written notice to the Trustee, the Issuer, the Auction Agent, the Broker-Dealer and the Securities Depository that the Auction Period shall change if the conditions described herein are satisfied and the proposed effective date of the change, at least three Business Days prior to the Auction Date for such Auction Period.

(iii) Any such changed Auction Period shall be for a period of seven days, 28 days, 35 days or for a Special Auction Period and shall apply for all of the Bonds.

(iv) The change in length of the Auction Period for the Bonds shall take effect only if Sufficient Clearing Bids exist at the Auction on the Auction Date for the first such Auction Period. For purposes of the Auction for such first Auction Period only, each Existing Owner shall be deemed to have submitted Sell Orders with respect to all of its ARS except to the extent such Existing Owner submits an Order with respect to such

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ARS. If the condition referred to in the first sentence of this clause (iv) is not met, the Auction Rate for the next Auction Period shall be the ARS Maximum Rate, and the Auction Period shall be a seven-day Auction Period.

(b) Changes in Auction Date. During any Auction Period, the Auction Agent, with the written consent of the Borrower may specify an earlier Auction Date (but in no event more than five Business Days earlier) than the Auction Date that would otherwise be determined in accordance with the definition of “Auction Date” in order to conform with then current market practice with respect to similar securities or to accommodate economic and financial factors that may affect or be relevant to the day of the week constituting an Auction Date and the interest rate borne on the ARS. The Auction Agent shall provide notice of its determination to specify an earlier Auction Date for an Auction Period by means of a written notice delivered at least 45 days prior to the proposed changed Auction Date to the Trustee, the Paying Agent, the Borrower, the Issuer, the Broker-Dealers and the Securities Depository, which will, in turn, notify the holders. In the event the Auction Agent specifies an earlier Auction Date, the days of the week on which a Special Auction Period begins and ends and the Interest Payment Date relating to a Special Auction Period shall be adjusted accordingly.

(c) Conditions Precedent. No change in the length or the day of commencement of the Auction Period for the Bonds (as provided in subsection (a) or (b), as applicable) shall be allowed unless Sufficient Clearing Bids exist at the Auction immediately preceding the proposed change and, in the sole discretion of the Broker-Dealer, at the Auction before the date on which the notice of the proposed change was given.

Section 3A.11 Conversion of Bonds to Applicable ARS Rate.

(a) Conversion to Applicable ARS Rate. Subject to Section 2.01 hereof, the Borrower on behalf of the Issuer may, from time to time, by written direction to the Issuer, the Trustee, the Tender Agent (if any), the Bank (if any), the Remarketing Agent (if any), the Auction Agent (if any) and each Broker-Dealer (if any), elect that the Bonds shall bear interest at the Applicable ARS Rate. The direction of the Borrower shall specify (A) the proposed effective date of the Conversion to the Applicable ARS Rate, which shall be (1) in each case, a Business Day not earlier than the 30^th day following the second Business Day after receipt by the Trustee of such direction, (2) in the case of a Conversion from a Long-Term Interest Rate Period, the day immediately following the last day of the then-current Long-Term Interest Rate Period or a day on which the Bonds would otherwise be subject to optional redemption pursuant to Section 4.01(a) hereof if such Conversion did not occur, and (3) in the case of a Conversion from a Short-Term Interest Rate Period, the day immediately following the last day of the Short-Term Interest Rate Period, (B) the Tender Date for the Bonds to be purchased, which shall be the proposed effective date of the adjustment to the Applicable ARS Rate and (C) the initial Auction Period. In addition, the direction of the Borrower shall be accompanied by a form of notice to be mailed to the holders of the Bonds by the Trustee as provided in Section 3A.11(b). During each ARS Interest Rate Period for the Bonds commencing on the Conversion Date and ending on the day immediately preceding the Conversion Date to the next succeeding Interest Rate Period, the interest rate borne by the Bonds shall be the Applicable ARS Rate.

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(b) Notice of Conversion to Applicable ARS Rate. The Trustee shall give notice by first-class mail of an adjustment to an ARS Interest Rate Period to the holders of the Bonds not less than 30 days prior to the proposed effective date of such ARS Interest Rate Period. Such notice shall state (A) that the interest rate shall be adjusted to the Applicable ARS Rate unless the Borrower rescinds its election to adjust the interest rate to the Applicable ARS Rate as provided in Section 2.01(c)(viii); (B) the proposed effective date of the ARS Interest Rate Period; (C) that the Bonds are subject to mandatory tender for purchase on the proposed effective date and setting forth the Tender Price and the place of delivery for purchase of the Bonds; and (D) the information set forth in Section 4.08(b).

ARTICLE IV

REDEMPTION AND PURCHASE OF BONDS

Section 4.01 Redemption of Bonds. The Bonds shall be subject to redemption if and to the extent the Borrower is entitled or required to make and makes a prepayment pursuant to Article IX of the Agreement. The Trustee shall not give notice of any optional redemption under Section 4.01(a) hereof unless the Borrower has so directed in accordance with Section 9.02 of the Agreement. In the event of a failure by the Borrower to give a notice of mandatory prepayment under Section 9.03 of the Agreement, such notice may be given by the Issuer, the Trustee or any holder or holders of ten percent (10%) or more in aggregate principal amount of the Outstanding Bonds.

The Bonds shall be redeemed upon the following terms:

(a) Redemption Upon Optional Prepayment.

(i) Extraordinary Events. During any Long-Term Interest Rate Period, the Bonds shall be redeemed prior to the Maturity Date in whole or in part, and if in part by lot, at any time at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, upon receipt by the Trustee of a written notice of the Borrower and signed by an Authorized Borrower Representative stating that any of the following events has occurred (which determination shall be in the sole discretion of the Borrower) and that the Borrower therefore intends to exercise its option to prepay all payments due under the Agreement, including Repayment Installments, in whole or in part pursuant to Section 9.01 of the Agreement and thereby effect the redemption of Bonds in whole or in part to the extent of such prepayments:

(A) All or part of the Project or the Plant shall have been damaged or destroyed to such an extent that, in the opinion of the Borrower, (i) the Project or the Plant or such affected portion could not reasonably be restored within a period of four (4) months to the condition thereof immediately preceding such damage or destruction, and the Borrower or the operator of the Project or the Plant will be prevented, or is likely to be prevented for a period of four (4) consecutive months or more, from carrying on all or substantially all of its normal operation of the Project or the Plant, or (ii) the cost of restoration of the Project or the Plant or such affected portion will be substantially in excess of the net proceeds of insurance thereon.

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(B) Title to, or the temporary use of, all or a part of the Project or the Plant shall have been taken under the exercise of the power of eminent domain.

(C) Changes in economic availability of raw materials, operating supplies or facilities necessary to operate all or a part of the Project or the Plant, or technological or other changes which make the continued operation of the Project or the Plant or such affected portion uneconomical, in the opinion of the Borrower, shall have occurred and shall have resulted in a cessation of all or substantially all of the Borrower’s normal operations of either the Project or the Plant.

(D) Unreasonable burdens or excessive liabilities shall have been imposed upon the Issuer or the Borrower in respect of all or a part of the Project or the Plant including, without limitation, federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Agreement, as well as any statute or regulation enacted or promulgated after the date of the Agreement that prevents the Borrower from deducting interest in respect of the Agreement for federal income tax purposes.

(E) All or substantially all of the property of the Borrower shall be transferred or sold to any entity other than an affiliate of the Borrower or the Borrower shall be consolidated with or merged into an entity other than an affiliate of the Borrower in such manner that the Borrower is not the surviving entity and the surviving, resulting or transferee entity does not agree to perform the obligations of the Borrower.

(ii) Borrower Option. The Bonds shall be subject to redemption prior to the Maturity Date by the exercise by the Borrower of any of its options to prepay all or part of the unpaid balance of the Repayment Installments and cause the Bonds to be redeemed, in whole, or in part by lot, prior to the Maturity Date, as follows:

(A) During any Short-Term Interest Rate Period, each Bond shall be subject to such redemption on the day next succeeding the last day of each Bond Interest Term for such Bond at a redemption price equal to 100% of the principal amount thereof.

(B) During any Daily Interest Rate Period or Weekly Interest Rate Period, the Bonds shall be subject to such redemption on any Interest Payment Date at a redemption price equal to 100% of the principal amount thereof.

(C) On the day next succeeding the last scheduled day of any Long-Term Interest Rate Period, the Bonds shall be subject to such redemption at a redemption price of 100% of the principal amount thereof. During any Long-Term

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Interest Rate Period, the Bonds shall be subject to redemption during the periods specified below, in whole or in part, at the redemption prices (expressed as percentages of principal amount) hereinafter indicated (unless different redemption terms shall be specified by the Borrower pursuant to Section 2.01(c)(iv)(B)):

Length of Long-Term Interest Rate Period (expressed in years)	Redemption Prices
Greater than 17	After 10 years at 102% declining by 1% every 12 months to 100%
Less than or equal to 17 and greater than 10	After 8 years at 102%, declining by 1% every 12 months to 100%
Less than or equal to 10 and greater than 7	After 6 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 7 and greater than 4	After 3 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 4 and greater than 3	After 2 years at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%
Less than or equal to 3 and greater than 2	After 1 year at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%
Less than or equal to 2 and greater than 1	After 1 year at 100%
1 year or less	Not redeemable.

(iii) Change of Use. During any Long-Term Interest Rate Period, the Bonds shall be subject to redemption prior to the Maturity Date upon prepayment of the Repayment Installments attributable to the Bonds at the option of the Borrower in whole or in part by lot on any Interest Payment Date, at a redemption price equal to 100% of the principal amount thereof, if the Borrower delivers to the Trustee a written or Electronic notice to the effect that either:

(A) the Borrower has determined that some or all of the interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period is not or will not be deductible, in whole or in part, for federal income tax purposes by reason of Section 150(b) of the Code (or would not be deductible unless some or all of the Bonds are redeemed) due to a change in use of the Project or any portion thereof, and the Borrower will not claim deductions for such interest on its federal income tax returns; or

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(B) the Borrower after reasonable effort has been unable to obtain an opinion of Bond Counsel that it is more likely than not that Section 150 of the Code will not prevent interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period from being deductible, in whole or in part, for federal income tax purposes.

(iv) ARS Interest Rate Period. The ARS shall be subject to redemption prior to the Maturity Date by the Issuer, at the written direction of the Borrower, on the ARS Interest Payment Date immediately following an Auction Period, in whole or in part in an Authorized Denomination, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued but unpaid interest to the redemption date, without premium.

In either such case, the Borrower shall only cause the Trustee to redeem Bonds pursuant to this Section 4.01(a) (iii) on or after the Interest Payment Date immediately preceding the date on which, due to a change in use in the Project or any portion thereof, the period of potential interest expense disallowance described above commences, and the Borrower may only cause the Trustee to redeem such principal amount of Bonds as the Borrower determines is necessary to assure that the Borrower retains its right to all such deductions otherwise allowable or, if a partial redemption will not enable the Borrower to retain the right to deduct such interest, the Borrower may cause the Trustee to redeem all the Outstanding Bonds.

Notwithstanding any term or provision of Section 4.01(a) of this Indenture to the contrary, the Bonds shall not be subject to optional redemption unless (i) the Bank, if any, shall consent thereto in writing and deliver such consent to the Borrower and the Trustee, (ii) in connection with such redemption, the proceeds of a refunding shall be sufficient to pay, and shall be used to pay, the redemption price of the Bonds so redeemed or (iii) sufficient Available Moneys (other than proceeds of any drawing under the Letter of Credit) shall have been deposited by the Borrower with the Trustee for the payment of all amounts due in respect of all Bonds called for redemption pursuant to Section 4.01(a) of this Indenture. This paragraph shall be inapplicable if at the time of such optional redemption there is no Letter of Credit or other Credit Facility with respect to the Bonds.

(b) Redemption Upon Mandatory Prepayment. The Bonds shall be subject to redemption prior to the Maturity Date from amounts which are required to be prepaid by the Borrower under Section 9.03 of the Agreement, as set forth below.

(i) The Bonds shall be redeemed in whole on any date at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date upon the occurrence of a Determination of Taxability; provided, however, that if, in the opinion of Bond Counsel delivered to the Trustee, the redemption of a specified portion of such Bonds Outstanding would have the result that interest payable on such Bonds remaining Outstanding after such redemption would remain Tax-Exempt, then such

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Bonds shall be redeemed in part by lot (in Authorized Denominations), in such amount as Bond Counsel in such opinion shall have determined is necessary to accomplish that result.

(ii) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that as a result of any changes in the Constitution of the United States of America or the Constitution of the State of Arizona or as a result of any legislative, judicial or administrative action, the Agreement shall have become void or unenforceable or impossible to perform in accordance with the intention and purposes of the parties thereto, or shall have been declared unlawful.

(iii) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that at least thirty-five (35) days prior to the expiration of any Credit Facility, if any, then in effect with respect to the Bonds the Trustee shall not have received (a) a renewal or extension of the existing Credit Facility, for a period of at least one (1) year (or, if shorter, the period to the Maturity Date) or (b) a substitute Credit Facility meeting the requirements of Section 6.08 of the Agreement. Such redemption shall occur on the last Business Day which is not less than five (5) calendar days preceding the expiration date of a Credit Facility, if any, then in effect.

(iv) The Bonds shall be redeemed in whole on any date at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date prior to any merger, consolidation, reorganization or conversion of the Borrower, or any sale or other disposition of any of the Borrower’s assets; provided, however, that if the successor to such merger, consolidation or disposition is a public utility regulated by the applicable state regulatory body or the Federal Energy Regulatory Commission, then this Section 4.01(b)(iv) shall not apply.

(c) Extraordinary Mandatory Redemption. The Bonds shall be subject to mandatory redemption prior to the Maturity Date on any date, in whole but not in part, at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date prior to any merger, consolidation, reorganization or conversion of the Borrower, or any sale or other disposition of all or substantially all of the Borrower’s assets if the successor to such merger, consolidation or disposition is not a public utility (including a holding company) regulated by the applicable state regulatory body or the Federal Energy Regulatory Commission.

Section 4.02 Selection of Bonds to be Redeemed. If less than all the Bonds shall be called for redemption, the Trustee shall select the Bonds or any given portion thereof to be redeemed, from Outstanding Bonds or any given portion thereof not previously called for redemption, by lot. For the purpose of any such selection the Trustee shall assign a separate number for each minimum Authorized Denomination of each Bond of a denomination of more than such minimum; provided that following any such selection, both the portion of such Bond to be redeemed and the portion remaining shall be in Authorized Denominations. The Trustee shall promptly notify the Issuer and the Borrower in writing of the numbers of the Bonds or portions thereof so selected for redemption. Notwithstanding the foregoing, if less than all of the Bonds

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are to be redeemed at any time while the Bonds are Book-Entry Bonds, selection of the Bonds to be redeemed shall be made in accordance with customary practices of DTC or the applicable successor depository, as the case may be.

Section 4.03 Notice for Redemption. The Trustee shall give notice, Electronically or by first class mail, in the name of the Issuer, of the redemption of the Bonds, not less than thirty (30) nor more than sixty (60) days prior to the redemption date for Bonds bearing interest fixed to the Maturity Date or at Daily, Weekly or Long-Term Interest Rates, and at any time not more than sixty (60) days prior to the redemption date for Bonds bearing interest at Bond Interest Term Rates. Each notice of redemption shall (i) specify the Bonds to be redeemed, the redemption date, the redemption price, the place where amounts due upon such redemption will be payable (which shall be the Principal Office of the Paying Agent) and the source of the funds to be used for such redemption, the principal amount, the CUSIP numbers (if any) of the Bonds to be redeemed and, if less than all, the distinctive certificate numbers of the Bonds to be redeemed and, in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that the interest on the Bonds designated for redemption shall cease to accrue from and after such redemption date and that on said date there will become due and payable on each of said Bonds the principal amount thereof to be redeemed, interest accrued thereon, if any, to the redemption date and the premium, if any, thereon (such premium to be specified) and shall require that such Bonds be then surrendered at the address or addresses of the Paying Agent specified in the redemption notice; provided, however, the failure to duly give such notice, or any defect therein, shall not affect the validity of any proceedings for the redemption of Bonds with respect to which no such failure or defect occurred. In the event that any Bond selected for redemption shall be tendered for purchase pursuant to Section 4.08 hereof, the Tender Agent shall note on each Bond delivered to an Owner pursuant to Section 14.05 hereof upon the purchase of such tendered Bond that such Bond has been called for redemption and the date of such redemption. Upon presentation and surrender of Bonds so called for redemption at the place or places of payment, such Bonds shall be redeemed and cancelled. Notice of any redemption hereunder shall also be given to the Tender Agent and the Bank. The cost of the mailing of any such notice of redemption shall be paid by the Borrower.

With respect to any notice of optional redemption of Bonds pursuant to Section 4.01(a), unless upon the giving of such notice such Bonds shall be deemed to have been paid within the meaning of Article IX hereof, such notice shall state that such redemption shall be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of Available Moneys sufficient to pay the principal of, premium, if any, and interest on, such Bonds to be redeemed, and that if such Available Moneys shall not have been so received said notice shall be of no force and effect and the Issuer shall not be required to redeem such Bonds. In the event that such notice of redemption contains such a condition and such Available Moneys are not so received, the redemption shall not be made and the Trustee shall within a reasonable time thereafter give notice, to the persons and in the manner in which the notice of redemption was given, that such Available Moneys were not so received.

Any notice for the redemption of any Bond mailed as provided herein shall be conclusively deemed to have been duly given whether or not such notice is received. Failure to mail the notices required by this paragraph to any holder of a Bond, or any defect in any notice so mailed, shall not affect the validity of the proceedings for redemption of any Bonds nor impose any liability on the Trustee.

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Section 4.04 Partial Redemption of Bonds. Upon surrender of any Bond redeemed in part only, the Registrar shall exchange the Bond redeemed for a new Bond of like tenor and in an Authorized Denomination without charge to the holder in the principal amount of the portion of the Bond not redeemed. In the event of any partial redemption of a Bond which is registered in the name of the Nominee, DTC may elect to make a notation on the Bond certificate which reflects the date and amount of the reduction in principal amount of said Bond in lieu of surrendering the Bond certificate to the Registrar for exchange. The Issuer, the Trustee and the Registrar shall be fully released and discharged from all liability upon, and to the extent of, payment of the redemption price for any partial redemption and upon the taking of all other actions required hereunder in connection with such redemption.

If any Auction Bonds are to be redeemed and those Bonds are held by a Securities Depository, the Borrower shall include in the notice of the call for redemption delivered to the Securities Depository (i) a date placed under an item entitled “Publication Date for Securities Depository Purposes” and such date shall be three Business Days after the Auction Date immediately preceding such redemption date and (ii) an instruction to Securities Depository to (x) determine on such Publication Date after the Auction held on the immediately preceding Auction Date has settled, the Participants whose Securities Depository positions will be redeemed and the principal amount of such Auction Bonds to be redeemed from each such position (the “Securities Depository Redemption Information”), and (y) notify the Auction Agent immediately after such determination of the positions of the Participants in such Auction Bonds immediately prior to such Auction settlement, the position of the Participants in such Auction Bonds immediately following such auction settlement, and the Securities Depository Redemption Information.

Section 4.05 Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the redemption price being held by the Trustee, the Bonds so called for redemption shall, on the redemption date designated in such notice, become due and payable at the redemption price specified in such notice, interest on the Bonds so called for redemption shall cease to accrue, said Bonds shall cease to be entitled to any lien, benefit or security under this Indenture, and the holders of said Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof (including interest, if any, accrued to the redemption date), without interest accrued on any funds held after the redemption date to pay such redemption price.

All Bonds fully redeemed pursuant to the provisions of this Article IV shall upon surrender thereof be cancelled by the Trustee, who shall deliver a certificate evidencing such cancellation to the Issuer and the Borrower. The Trustee shall treat such cancelled Bonds in accordance with its document retention policies and shall not be required to destroy such Bonds.

Section 4.06 Payment of Redemption Price.

(i) For the redemption of any of the Bonds, the Issuer shall cause to be deposited in the Bond Fund, on or prior to the date fixed for redemption, solely out of the

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Receipts and Revenues, an amount sufficient to pay the principal of and interest and any premium to become due on the date fixed for such redemption on the Bonds; provided that so long as a Credit Facility is in effect with respect to the Bonds and such Credit Facility does not cover some or all of the optional or mandatory redemption price, any amount payable as the optional or mandatory redemption price upon redemption of Bonds and not covered by such Credit Facility shall be on deposit in the Bond Fund and constitute Available Moneys prior to the Trustee giving any notice of redemption hereunder. The Bond Insurance Policy shall not cover payments for the redemption of any of the Bonds, other than payments of the redemption price and accrued interest due on the redemption date upon the mandatory redemption resulting from the occurrence of the Determination of Taxability pursuant to Section 4.01(b) hereof and payments of the redemption price and accrued interest due on the redemption date upon the extraordinary mandatory redemption pursuant to Section 4.01(c) hereof.

(ii) Moneys for payment of the principal of and interest and any premium to the date fixed for redemption on Bonds called for redemption and not presented for payment on the date fixed for redemption shall be set aside by the Trustee in trust for the Owners of such Bonds and shall be held uninvested. Interest on such Bonds shall cease to accrue on the date fixed for redemption.

Section 4.07 Bank Purchase Option.

(i) Notwithstanding any term or provision of this Indenture to the contrary, if a Credit Facility is in effect, (i) if an Event of Default shall occur and the Bonds are accelerated or (ii) if any Bonds shall be subject to redemption pursuant to Section 4.01 of this Indenture, or (iii) if the Remarketing Agent shall be unable to remarket Bonds as provided in Article XIV of this Indenture, then in any of such cases the Bank may from time to time in its discretion (in the manner provided in this Section 4.07) purchase all of the Bonds or the portion thereof that is subject to redemption, acceleration or which the Remarketing Agent has been unable to remarket, on the terms provided herein.

(ii) The Bank shall notify the Trustee in writing of its exercise of its purchase option pursuant hereto at or before the time by which payment of any drawing of a Credit Facility is required in respect of the relevant acceleration, redemption or failure to remarket Bonds which gives rise to such purchase option. Such notice may be given after presentation by the Trustee of any document or draft under such Credit Facility with respect to such acceleration, redemption or failure to remarket, in which case purchase of the relevant Bonds by the Bank shall take precedence over such drawing; provided, that if the Bank has not exercised its purchase option and paid the purchase price of the Bonds being purchased by the time by which payment is due under such Credit Facility in respect of such drawing, the Bank shall pay such drawing pursuant to such Credit Facility. If the Trustee shall have presented drafts or documents under such Credit Facility, the Bank’s notice of exercise of its purchase option may accompany payment of the purchase price of Bonds being acquired. The purchase price of Bonds purchased by the Bank pursuant hereto shall be paid to the Trustee at such account as it shall specify and shall be distributed by the Trustee to the former owners from which

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such Bonds shall have been purchased; provided, that in the case of any Bonds purchased upon a failed remarketing pursuant to paragraph (vi) of this Section 4.07, the purchase price shall be paid to the Remarketing Agent for distribution to the former Owners of such Bonds which tendered them to the Tender Agent.

(iii) No purchase of any Bonds by the Bank in accordance herewith shall cause such Bonds to be extinguished or deemed paid, and upon payment of the purchase price of Bonds by the Bank, the Trustee shall authenticate and deliver to the Bank (or its nominee) as Owner a Bond or Bonds in an aggregate principal amount equal to the aggregate principal amount of Bonds so purchased (which shall be deemed to be in an “Authorized Denomination” for all purposes of this Indenture), and such Bonds so delivered shall be Outstanding Bonds that are entitled to the benefits of this Indenture equally and proportionately with all other Bonds; provided that the Trustee shall not make any drawing on a Credit Facility in respect of Bonds known by the Trustee to be held by the Bank (or its nominee) except as provided in paragraph (viii) of this Section 4.07. Bonds purchased by the Bank which are not delivered to the Trustee by the date upon which such Bonds were to have been purchased nonetheless will be deemed to have been purchased by the Bank, and the former Owner or Owners of such Bonds shall have no claim thereon, under this Indenture or otherwise, for any amount other than the purchase price thereof. Interest accruing after the purchase date of such Bonds shall no longer be payable to the former Owners thereof.

(iv) Bonds called for and subject to redemption pursuant to Section 4.01 of this Indenture may, at the option of the Bank, be purchased by the Bank pursuant to this Section 4.07 in lieu of such redemption on the date upon which such Bonds were to have been redeemed at a purchase price equal to the amount that would have been payable on such Bonds if such Bonds had been so redeemed, except as provided in paragraph (vii) of this Section 4.07; provided, that no Bond called for redemption shall be subject to purchase by the Bank pursuant to this Section 4.07 if (i) in connection with such redemption, the proceeds of a refunding shall be sufficient to pay, and shall be used to pay, the redemption price of the Bonds so redeemed or (ii) sufficient Available Moneys (other than proceeds of any drawing under a Credit Facility) shall have been deposited by the Borrower with the Trustee for the payment of all amounts due in respect of all Bonds called for redemption pursuant to Section 4.01 of this Indenture. The Bank shall pay the purchase price for Bonds purchased by the Bank on such redemption date.

(v) If an Event of Default occurs and the Bonds are accelerated, the Bank may purchase all Bonds, pursuant to this Section 4.07, for a purchase price equal to the principal amount of such Bonds plus interest accrued thereon to the date of purchase, except as otherwise provided in paragraph (vii) of this Section 4.07.

(vi) In the event that the Remarketing Agent shall be unable to remarket any Bonds as provided in Article XIV hereof, the Bank may, at its option, purchase all such unremarketed Bonds pursuant to this Section 4.07, at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, on the date on which such Bonds would otherwise be purchased by the Remarketing Agent pursuant to Section 14.03(b), except as otherwise provided in paragraph (vii) of this Section 4.07.

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(vii) Upon a purchase of Bonds by the Bank pursuant to this Section 4.07, the Bank may, in its discretion, purchase all Bonds, if any, then held by the Trustee which have been purchased by or on behalf of the Borrower with moneys drawn under a Credit Facility as to which drawing the Borrower has not reimbursed the Bank in accordance with the Reimbursement Agreement without the payment of any cash purchase price therefor, but the Borrower’s reimbursement obligations under the Reimbursement Agreement shall be reduced by an amount equal to the principal amount of such Bonds so deemed purchased. The Bank may exercise its option pursuant to the preceding sentence by a notice to the Trustee given with or included in the relevant notice to the Trustee under paragraph (ii) of this Section 4.07, together with a notice which shall confirm that a Credit Facility has been reinstated in an equal amount.

(viii) Notwithstanding any term or provision of this Indenture to the contrary, the Trustee shall not without the prior written consent of the Bank make any drawing under a Credit Facility with respect to the principal amount of any Bonds known by the Trustee to be held by the Bank or its nominee; provided, that the Trustee shall make drawings of interest under a Credit Facility with respect to the Bonds held by the Bank or its nominee, as provided in this Indenture.

(ix) The purchase price of any Bonds to be purchased by the Bank in accordance with this Section 4.07 shall be paid by the Bank with its general funds and not directly or indirectly from funds or collateral on deposit with or pledged to the Bank for the account of the Issuer or the Borrower or any affiliate thereof, and such payment by the Bank shall not be deemed to be a draw under a Credit Facility.

(x) Notwithstanding any term or provision of this Indenture or the Bonds to the contrary, if at any time all of the Outstanding Bonds are in aggregate held by the Bank or its nominee (whether pursuant to the provisions hereof or otherwise), the Bank shall not be entitled to exercise its rights under Section 4.08 of this Indenture or under the Bonds to require that the Bonds be purchased unless either (i) the Bank shall have given the Borrower, the Trustee and the Remarketing Agent at least 30 days prior written notice of its intention to exercise such rights or (ii) the Remarketing Agent shall have received from the Borrower offering materials relating to the Bonds which are, in the opinion of the counsel to the Borrower and the counsel to the Issuer, correct and complete in all material respects.

Section 4.08 Purchase of Bonds.

(a) Holder’s Option to Tender for Purchase.

(i) During any Daily Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased on any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest from the Interest Accrual Date immediately prior to the date of purchase to the date of purchase (unless the date of purchase shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office, by no later than 11:00 a.m. (New

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York City time) on such Business Day, of an irrevocable written, telephonic or Electronic notice which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 hereof. The Tender Agent shall keep a written record of the notice described in Clause (A).

(ii) During any Weekly Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased on any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, from the Interest Accrual Date immediately prior to the date of purchase to the date of purchase (unless the date of purchase shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office by no later than 5:00 p.m. (New York City time), on such Business Day at least seven (7) days prior to the date of purchase of an irrevocable written, telephonic or Electronic notice, which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 hereof. The Tender Agent shall keep a written record of the notice described in Clause (A).

(iii) If any Bond is to be purchased in part pursuant to (i) or (ii) above, the amount so purchased and the amount not so purchased must each be an Authorized Denomination.

(iv) Any instrument delivered to the Tender Agent in accordance with this Section 4.08 shall be irrevocable with respect to the purchase for which such instrument was delivered and shall be binding upon any subsequent Owner of the Bond to which it relates, including any Bond issued in exchange therefor or upon the registration of transfer thereof, and as of the date of such instrument, the Owner of the Bonds specified therein shall not have any right to optionally tender for purchase such Bonds prior to the date of purchase specified in such notice. The Tender Agent and the Trustee may conclusively assume that any person (other than a holder) providing notice of optional tender pursuant to (i) or (ii) above is the Owner of the Bond to which such notice relates, and neither the Tender Agent nor the Trustee shall assume any liability in accepting such notice from any person whom it reasonably believes to be an Owner of Bonds.

(b) Mandatory Tender for Purchase.

(i) The Bonds shall be subject to mandatory tender for purchase at a purchase price, except as provided in paragraph (ii) below, equal to 100% of the principal amount thereof, plus accrued interest to the date of purchase described below, upon the occurrence of any of the events stated below:

(A) as to any Bond, on the effective date of any change in an Interest Rate Period for such Bond, other than the effective date of any change from a Daily Interest Rate Period to a Weekly Interest Rate Period or from a Weekly Interest Rate Period to a Daily Interest Rate Period; or

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(B) as to each Bond in a Short-Term Interest Rate Period, on the day next succeeding the last day of each Bond Interest Term with respect to such Bond; or

(C) as to all Bonds, on the effective date of any Credit Facility which may be provided with respect to the Bonds pursuant to Section 6.08 of the Agreement or of any substitute Credit Facility provided with respect to the Bonds pursuant to Section 6.08 of the Agreement.

(ii) In the event that on a date the Bonds are subject to optional redemption pursuant to Section 4.01(a)(ii), the Borrower elects to change the Interest Rate Period with respect to the Bonds during a Long-Term Interest Rate Period to a different Interest Rate Period or to provide, substitute or terminate a Credit Facility, if any, during a Long-Term Interest Rate Period and thereby causes a mandatory tender of such Bonds as provided in Section 4.08(b)(i)(A) or (C), as the case may be, the Bonds shall be purchased on the applicable mandatory tender date at a purchase price equal to the principal amount thereof plus an amount equal to any premium which would have been payable on such day had the Borrower directed redemption of the Bonds pursuant to Section 4.01(a)(ii) hereof.

(iii) The Trustee shall give notice Electronically or by first class mail of the provision of any Credit Facility with respect to the Bonds or the provision of any substitute Credit Facility with respect to the Bonds to the holders of the Bonds at their addresses shown on the registration books kept by the Registrar, not later than the fifteenth day (thirtieth day if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the date on which the Bonds are subject to mandatory tender pursuant to Section 4.08(b)(i)(C), which notice shall (i) state the date of such provision or substitution; and (ii) state that such Bonds shall be subject to mandatory tender for purchase on the effective date of such provision or substitution in accordance with Section 4.08(b)(i)(C) hereof.

(c) Mandatory Tender for Purchase on Termination or Expiration of Credit Facility. In the event that any Credit Facility either is to terminate or is to expire in accordance with its terms (other than because a final drawing thereunder shall have been made in accordance with its terms), unless the term of the Credit Facility shall be extended or unless the Borrower shall provide the Trustee, no later than the 35^th day preceding the mandatory purchase date set forth herein with a substitute Credit Facility and with written evidence from Moody’s, if the Bonds shall be rated at the time by Moody’s, and from S&P, if the Bonds shall be rated at the time by S&P, and from Fitch, if the Bonds shall be rated at the time by Fitch to the effect that such substitute Credit Facility will not, by itself, result in a reduction or withdrawal of the rating on the Bonds by Moody’s, S&P or Fitch, as the case may be (and the Trustee shall have received written notice of such extension or such substitution and evidence thereof prior to giving the notice required in paragraph (b) above), the Bonds shall be subject to mandatory tender for purchase at a purchase price, payable in immediately available funds, of 100% of their principal amount, plus accrued interest, if any, to the mandatory purchase date, on the second Business Day prior to the date of such termination or expiration.

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Section 4.09 Delivery of Tendered Bonds. With respect to any Book-Entry Bond, delivery of such Bond to the Tender Agent in connection with any optional or mandatory tender pursuant to Section 4.08 hereof shall be effected by the making of, or the irrevocable authorization to make, appropriate entries on the books of DTC or any DTC Participant to reflect the transfer of the beneficial ownership interest in such Bond to the account of the Tender Agent, or to the account of a DTC Participant acting on behalf of the Tender Agent. With respect to any Bond which is not a Book-Entry Bond, delivery of such Bond to the Tender Agent in connection with any optional or mandatory tender pursuant to Section 4.08 hereof shall be effected by physical delivery of such Bond to the Tender Agent at its Principal Office, by 1:00 p.m. (New York City time) on the purchase date, accompanied by a proper instrument of transfer thereof, in a form satisfactory to the Tender Agent, executed in blank by the holder thereof with the signature of such holder guaranteed in accordance with the guidelines set forth by one of the nationally recognized medallion signature programs.

Section 4.10 Bonds Deemed Purchased.

(a) If moneys sufficient to pay the purchase price of Bonds to be purchased pursuant to Section 4.08 shall be held by the Tender Agent on the date such Bonds are to be purchased, such Bonds shall be deemed to have been purchased for all purposes of this Indenture, irrespective of whether or not such Bonds shall have been delivered to the Tender Agent, and neither the former holder of such Bonds nor any other person shall have any claim thereon, under this Indenture or otherwise, for any amount other than the purchase price thereof.

(b) In the event of non-delivery of any Bond to be purchased pursuant to Section 4.08 hereof, the Tender Agent shall segregate and hold uninvested the moneys for the purchase price of such Bonds in trust, without liability for interest thereon, for the benefit of the former holders of such Bonds, who shall, except as provided in the following sentence, thereafter be restricted exclusively to such moneys for the satisfaction of any claim for the purchase price of such Bonds. Any moneys which the Tender Agent shall segregate and hold in trust for the payment of the purchase price of any Bond and remaining unclaimed for two (2) years after the date of purchase shall be paid, upon the Borrower’s written request, to the Borrower. After the payment of such unclaimed moneys to the Borrower, the former holder of such Bond shall look only to the Borrower for the payment thereof.

Section 4.11 Payment Procedure Pursuant to Bond Insurance Policy. As long as the Bond Insurance Policy shall be in full force and effect, the Issuer and the Trustee shall comply with the following provisions:

(a) If, on the third day next preceding any Interest Payment Date for the Bonds there is not on deposit with the Trustee sufficient moneys available to pay all principal of and interest on the Bonds due on such date, the Trustee shall immediately notify the Bond Insurer and U.S. Bank Trust National Association, New York, New York, or its successor as its Fiscal Agent (the “Fiscal Agent”) of the amount of such deficiency. If, by said Interest Payment Date, the Issuer has not provided the amount of such deficiency, the Trustee shall simultaneously make

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available to the Bond Insurer and to the Fiscal Agent the Bond Register for the Bonds maintained by the Trustee. In addition:

(i) The Trustee shall provide the Bond Insurer with a list of the Owners entitled to receive principal or interest payments from the Bond Insurer under the terms of the Bond Insurance Policy and shall make arrangements for the Bond Insurer and its Fiscal Agent (1) to mail checks or drafts to Owners entitled to receive full or partial interest payments from the Bond Insurer and (2) to pay principal of the Bonds surrendered to the Fiscal Agent by the Owners entitled to receive full or partial principal payments from the Bond Insurer; and

(ii) The Trustee shall, at the time it makes the Bond Register available to the Bond Insurer pursuant to subsection (a) above, notify Owners entitled to receive the payment of principal of or interest on the Bonds from the Bond Insurer (1) as to the fact of such entitlement, (2) that the Bond Insurer will remit to them all or part of the interest payments coming due subject to the terms of the Bond Insurance Policy, (3) that, except as provided in subsection (b) below, in the event that any Owner is entitled to receive full payment of principal from the Bond Insurer, such Owner must tender its Bond with the instrument of transfer in the form provided on the Bond executed in the name of the Bond Insurer, and (4) that, except as provided in subsection (b) below, in the event that such Owner is entitled to receive partial payment of principal from the Bond Insurer, such Owner must tender its Bond for payment first to the Trustee, which shall note on such Bond the portion of principal paid by the Trustee, and then, with an acceptable form of assignment executed in the name of the Bond Insurer, to the Fiscal Agent, which will then pay the unpaid portion of principal to the Owner subject to the terms of the Bond Insurance Policy.

(b) In the event that the Trustee has notice that any payment of principal of or interest on a Bond has been recovered from an Owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee shall, at the time it provides notice to the Bond Insurer, notify all Owners that in the event that any Owner’s payment is so recovered, such Owner shall be entitled to payment from the Bond Insurer to the extent of such recovery, and the Trustee shall furnish to the Bond Insurer its records evidencing the payments of principal of and interest on the Bonds which have been made by the Trustee and subsequently recovered from Owners, and the dates on which such payments were made.

(c) The Bond Insurer shall, to the extent it makes payment of principal of or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Bond Insurance Policy and, to evidence such subrogation, (1) in the case of subrogation as to claims for past due interest, the Trustee shall note the Bond Insurer’s rights as subrogee on the Bond Register upon receipt from the Bond Insurer of proof of the payment of interest thereon to the Owners of such Bonds and (2) in the case of subrogation as to claims for past due principal, the Trustee shall note the Bond Insurer’s rights as subrogee on the Bond Register for the Bonds upon receipt of proof of the payment of principal thereof to the Owners of such Bonds. Notwithstanding anything in this Indenture or the Bonds to the contrary, the Trustee shall make payment of such past due interest and past due principal upon receipt thereof directly to the Bond Insurer to the extent that the Bond Insurer is a subrogee with respect thereto.

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ARTICLE V

THE BOND FUND

Section 5.01 Creation of Bond Fund. There is hereby created by the Issuer and ordered established with the Trustee a trust fund in the name of the Issuer to be designated “Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company Palo Verde Project) Bond Fund,” (the “Bond Fund”). The Trustee shall establish one or more accounts within the Bond Fund for the purpose of segregating moneys drawn under a Credit Facility, if any, and Available Moneys therein, and may establish one or more accounts within the Bond Fund for other purposes.

Section 5.02 Deposits into Bond Fund.

There shall be deposited in the Bond Fund:

(i) The accrued interest and purchase premium, if any, paid by the initial purchasers of the Bonds;

(ii) All Repayment Installments and moneys drawn by the Trustee under a Credit Facility for the payment of principal of and interest and any premium on the Bonds, other than moneys paid by the Bank pursuant to Section 4.07 hereof or drawn under a Credit Facility pursuant to subsection (b) of Section 14.03 hereof or Section 4.07 hereof;

(iii) All other moneys received by the Trustee under and pursuant to any provision of the Agreement, other than Sections 5.04, 5.08 and 8.05 thereof, or from any other source when accompanied by directions by the Borrower that such moneys are to be paid into the Bond Fund; and

(iv) All moneys required to be deposited therein under any other provision of this Indenture.

Section 5.03 Use of Moneys in Bond Fund. Except as otherwise provided in Sections 5.05, 5.06, 5.08, 9.01, 10.10 and 11.04 hereof, moneys in the Bond Fund shall be used solely for the payment of the principal of and interest and any premium on the Bonds as the same shall become due and payable on an Interest Payment Date or at the Maturity Date, upon redemption or acceleration or otherwise. Funds for such payments of the principal of and interest and any premium on the Bonds shall be derived from the following sources in the order of priority indicated:

(i) moneys paid into the Bond Fund pursuant to Section 5.02(i) hereof, which shall be applied to the payment of interest on the Bonds;

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(ii) proceeds of the sale of refunding obligations and proceeds from the investment thereof, deposited into the Bond Fund which constitute Available Moneys;

(iii) moneys furnished by the Borrower to the Trustee pursuant to the Agreement which have been deposited into the Bond Fund and constitute Available Moneys (other than funds under a Credit Facility) and proceeds from the investment thereof;

(iv) moneys drawn by the Trustee under a Credit Facility for the payment of the principal of or interest or any premium on the Bonds and deposited into the Bond Fund;

(v) moneys furnished by the Borrower to the Trustee pursuant to the Agreement and any other moneys available therefor and proceeds from the investment thereof;

(vi) In addition to amounts required to be paid into the Bond Fund, the Trustee shall (i) in the case of Bonds to be purchased by the Tender Agent on behalf of the Borrower pursuant to Article IV hereof, draw moneys under a Credit Facility in accordance with the terms thereof to the extent necessary to make timely payments of the purchase price of the Bonds pursuant to such Article IV, but only to the extent moneys are not available from the sources set forth in clauses (i) and (ii) of Section 14.03(b) hereof, and furnish said moneys to the Tender Agent and (ii) in connection with the purchase of Bonds by the Trustee on behalf of or for the account of the Bank pursuant to Section 4.07, draw moneys under such Credit Facility in accordance with the terms hereof and of such Credit Facility in amounts sufficient to pay the purchase price of the Bonds so purchased to the extent sufficient funds are not otherwise timely furnished by the Bank to the Trustee; provided, however, that the principal of, premium, if any, and interest on Bonds held by the Borrower, the Tender Agent or the Trustee on behalf of the Borrower (or any affiliate thereof), shall not be paid from moneys drawn under such Credit Facility.

Section 5.04 Credit Facility.

(a) No Credit Facility relating to the Bonds will be delivered as of the date of issuance and delivery of the Bonds. A Credit Facility shall be required if the Bonds are converted to any Interest Rate Period other than a Long-Term Interest Rate Period and in such event, the Borrower shall be required to obtain prior written approval from the Bond Insurer for such Credit Facility and for a Bank providing such Credit Facility stating that the terms of such Credit Facility shall be satisfactory to the Bond Insurer, which approval shall not be unreasonably withheld.

(b) A Credit Facility shall be the obligation of a Bank to pay to the Trustee, in accordance with the terms thereof, such amounts as shall be specified therein and available to be drawn thereunder for the timely payment of the principal of and interest and, if permitted by a Credit Facility, any premium on the Bonds (whether at the Maturity Date, or upon acceleration or redemption or otherwise), and portions of the purchase price of Bonds corresponding to

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principal and interest thereon, and, if permitted by a Credit Facility, portions of the purchase price corresponding to premium on the Bonds, required to be made pursuant to, and in accordance with the provisions of this Indenture. Such Credit Facility shall be reduced to the extent of any drawings thereunder and reinstated in accordance with the terms thereof.

(c) The Trustee shall draw moneys under a Credit Facility in accordance with the terms thereof and the terms of the Tender Agreement to the extent necessary to make timely payments of principal of and interest and any premium, if drawings thereunder shall be available to pay premium, on the Bonds required to be made from the Bond Fund or to enable the Tender Agent to pay the purchase price of Bonds purchased pursuant to Section 14.03(b) hereof; provided, however, that, anything herein to the contrary notwithstanding, in no event shall the Trustee draw moneys under such Credit Facility in order to make payments of principal of or interest or any premium on, or to enable the Tender Agent to pay the purchase price of, Bonds held of record by the Borrower (or any affiliate thereof) or held by the Tender Agent or the Trustee for the account of the Borrower or delivered to and held of record by, or held for the account of, the Bank pursuant to Section 14.05(c) hereof if such Credit Facility prohibits by its terms a drawing thereunder for such purpose; provided, further, however, that the Trustee may draw moneys under such Credit Facility in order to make payment of interest on Bonds held of record by the Borrower (or any affiliate thereof), the Bank or by the Tender Agent or the Trustee for the account of the Borrower or the Bank pursuant to Section 14.05(c) hereof if such Bond was not so held by or for the account of the Borrower or the Bank on the immediately preceding Record Date. Upon any reduction in the aggregate principal amount of Bonds Outstanding, the Trustee shall request the Bank to permanently reduce the amounts that may be drawn under the applicable Credit Facility to those amounts which are then required pursuant to Section 6.08 of the Agreement. For extensions of the term of a Credit Facility, the Trustee shall surrender the applicable Credit Facility to the Bank (if so directed by the Bank) in exchange for a Credit Facility of the Bank conforming in all material respects to the applicable Credit Facility except that the expiration date shall be extended. If at any time there shall cease to be any Bonds Outstanding hereunder, the Trustee shall promptly surrender the applicable Credit Facility to the Bank, in accordance with the terms of the applicable Credit Facility, for cancellation.

(d) If at any time there shall have been delivered to the Trustee, all as described in and in accordance with Section 6.08 the Agreement, (i) a notice of the Borrower, (ii) the required opinion of Bond Counsel and (iii) a Credit Facility, if any, described in such notice, then the Trustee shall accept such Credit Facility, if any, and comply with the direction of the Borrower, if any, contained in such notice. If the delivery of such Credit Facility does not result in a mandatory tender for purchase of all Bonds pursuant to Section 4.08(b) hereof, the Trustee shall give notice by first-class mail of the delivery of such Credit Facility to the Owners of the Bonds not less than 20 days prior to the date of the expiration or termination of a Credit Facility then in effect. Such notice shall state that the Borrower has caused to be provided the new Credit Facility, shall describe the new Credit Facility (including. its effective date and scheduled expiration date) and shall state that the Borrower has delivered written evidence from Moody’s, if the Bonds are then rated by Moody’s and from S&P, if the Bonds are then rated by S&P, and from Fitch, if the Bonds are then rated by Fitch, that none of Moody’s nor S&P nor Fitch will reduce or withdraw its rating then in effect with respect to the Bonds as a result of the proposed delivery of the new Credit Facility.

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Section 5.05 Custody of Bond Fund; Withdrawal of Moneys. The Bond Fund shall be in the custody of the Trustee but in the name of the Issuer and the Issuer hereby irrevocably authorizes and directs the Trustee to withdraw from the Bond Fund and furnish to the Paying Agent funds sufficient to pay the principal of and interest and any premium on the Bonds as the same shall become due and payable, and to withdraw from the Bond Fund funds sufficient to pay any other amounts payable therefrom as the same shall become due and payable. If and to the extent that moneys remain in the Bond Fund after payment of such principal, interest and premium, if any, and are not required to be held therein pursuant to Section 5.06, such moneys shall be paid to the Bank, to the extent that there shall then be amounts due and payable to the Bank pursuant to the Reimbursement Agreement and the Bank has notified the Trustee thereof and the Bond Insurer, to the extent that there shall then be amounts due and payable to the Bond Insurer pursuant to the Insurance Agreement and the Bond Insurer has notified the Trustee thereof.

Section 5.06 Bonds Not Presented for Payment. In the event any Bond shall not be presented for payment when the principal thereof (or any portion of such principal) becomes due, either at the Maturity Date or at the date fixed for redemption thereof or otherwise or in the event that any interest payment remains unclaimed, if moneys sufficient to pay such Bonds or portions thereof or such interest are held by the Paying Agent for the benefit of the Owners thereof, the Paying Agent shall segregate and hold such moneys uninvested without liability for interest thereon, for the benefit of Owners of such Bonds, who shall, except as provided in the following paragraph, thereafter be restricted exclusively to such fund or funds for the satisfaction of any claim of whatever nature on their part under this Indenture or relating to said Bonds.

Any moneys which the Paying Agent shall segregate and hold for the payment of the principal of or interest or any premium on any Bond and remaining unclaimed for two years after such principal, interest or any premium shall have become due and payable shall be paid to the extent legally permissible (i) if, at the time, there shall be amounts due and payable to the Bond Insurer or the Bank pursuant to the Reimbursement Agreement, or (ii) if no such amounts shall be due and payable, to the Borrower, with notice to the Trustee of such action. For purposes of this Indenture, the Paying Agent may conclusively assume that no such indebtedness, liability or obligation is owing to the Bond Insurer or the Bank unless the Bond Insurer or the Bank shall otherwise give written notice to the Paying Agent. After the payment of such unclaimed moneys to the Bond Insurer, the Bank or the Borrower, the Owner of such Bond shall look only to the Borrower for the payment thereof.

Section 5.07 Moneys Held in Trust. All moneys required to be deposited with or paid to the Trustee for deposit into the Bond Fund under any provision hereof and all moneys withdrawn from the Bond Fund and held by the Trustee or the Paying Agent shall be held by the Trustee or the Paying Agent, as the case may be, in trust, and such moneys (other than moneys held pursuant to Section 5.06 hereof) shall, while so held, constitute part of the Trust Estate and be subject to the lien hereof for the benefit of the Owners.

Section 5.08 Payment to the Bank and to the Borrower. Any moneys remaining in the Bond Fund after the right, title and interest of the Trustee in and to the Trust Estate and all covenants, agreements and other obligations of the Issuer under this Indenture shall have ceased, terminated and become void and shall have been satisfied and discharged in accordance with

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Article IX hereof, shall be paid (a) if, at that time, there shall be amounts due and payable to the Bank pursuant to the Reimbursement Agreement, if any, and the Bank has notified the Trustee thereof, to the Bank, or (b) if, at that time, there shall be amounts due and payable to the Bond Insurer pursuant to the Insurance Agreement, to the Bond Insurer, or (c) no such amounts shall be so due and payable, to the Borrower.

ARTICLE VI

[RESERVED]

ARTICLE VII

INVESTMENTS

Section 7.01 Investments. The moneys in the Bond Fund (other than the moneys described in Sections 4.06(ii), 5.04(c) and 5.06 hereof, which may not be invested) shall, but only at the direction of the Borrower, be invested and reinvested in Investment Securities to the extent not prohibited by applicable law as determined by the Borrower. The income from, and any gain or loss from, any investment shall be credited or charged to the Bond Fund from which such investment was made. Investment Securities will be registered in the name of the Trustee or its nominee and held by or under the control of the Trustee. Subject to the further provisions of this Section 7.01, such investment shall be made, and such agreements entered into, by the Trustee as directed and designated by the Borrower in a certificate of, or telephonic advice promptly confirmed by a certificate of, an Authorized Borrower Representative. In the absence of any such direction, the Trustee shall invest all funds in the Investment Securities defined by clause (viii) of the definition thereof. As and when any amounts thus invested (including investments of Available Moneys) may be needed for disbursements from the Bond Fund; the Trustee shall cause a sufficient amount of such investments to be sold or otherwise converted into cash to the credit of such Bond Fund. As long as no Event of Default (as defined in Section 10.01 hereof) shall have occurred and be continuing, the Borrower shall have the right to designate the investments to be sold and to otherwise direct the Trustee in the sale or conversion to cash of the investments made with the moneys in the Bond Fund; provided that, the Trustee shall be entitled to conclusively assume the absence of any such Event of Default unless it has notice thereof within the meaning of Section 11.05 hereof. The Trustee shall have no responsibility under this Indenture with respect to the compliance by the Borrower or the Issuer with any covenant herein or in the Agreement regarding the yield on, or tax-exempt nature of investments made in accordance with this Section 7.01, other than to use its best efforts to comply with instructions from the Borrower or the Issuer regarding such investments and the Trustee shall bear no responsibility for losses incurred from such investments or the sale thereof. Moneys held by the Tender Agent in the Purchase Fund shall not be invested. The Trustee may acquire or sell any Investment Security through itself or an affiliate, as principal or agent.

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ARTICLE VIII

GENERAL COVENANTS

Section 8.01 Limited Obligation; Payment of Principal and Interest. Each and every covenant herein made, including all covenants made in the various Sections of this Article VIII, is predicated upon the condition that any obligation for the payment of money incurred by the Issuer shall not be the general obligation of the Issuer within the meaning of the Constitution of Arizona, and shall never constitute an indebtedness of the Issuer within the meaning of any State of Arizona constitutional provision or statutory limitation, and shall never constitute or give rise to any pecuniary liability of the Issuer or a charge against its general credit or taxing powers, but shall be payable by the Issuer solely from the Receipts and Revenues from the Agreement, which are required to be set apart and transferred to the Bond Fund, and which, along with the balance of the Trust Estate, are hereby specifically pledged to the payment thereof in the manner and to the extent specified in this Indenture, and nothing in the Bonds or in this Indenture shall be considered as pledging or obligating any other funds or assets of the Issuer.

The Issuer will in the manner provided herein and in the Bonds, according to the true intent and meaning thereof, promptly cause to be paid, solely from the sources stated herein, at the place and on the dates provided herein, the principal of and premium, if any, and interest on every Bond issued under this Indenture.

Section 8.02 Performance of Agreements; Authority. The Issuer will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in any and every Bond executed, authenticated and delivered hereunder, and in all proceedings pertaining thereto. The Issuer represents that it has the authority under the Constitution and laws of the State of Arizona to issue the Bonds authorized hereby, to enter into the Agreement, and to pledge to the Trustee the Receipts and Revenues from the Agreement and to pledge and assign to the Trustee all or any part of the Issuer’s right, title and interest under the Agreement pledged and assigned hereunder, and that the Bonds in the hands of the Owners thereof are and will be valid and enforceable obligations of the Issuer according to the import thereof.

Section 8.03 Maintenance of Corporate Existence; Compliance with Laws. The Issuer will at all times maintain its corporate existence or assure the assumption of its obligations under this Indenture by any public body succeeding to its powers under the Act, and it will use its best efforts to maintain, preserve and renew all the rights and powers provided to it by the Act; and it will comply with all valid acts, rules, regulations, orders and directions of any legislative, executive, administrative or judicial body applicable to the Agreement.

Section 8.04 Enforcement of Borrower’s Obligations under the Agreement. So long as any of the Bonds are Outstanding, upon receipt of written notification from the Trustee, the Issuer will, in the manner provided herein and giving due recognition to the role of the Trustee hereunder, enforce the obligation of the Borrower to pay, or cause to be paid, all the payments and other costs and charges payable by the Borrower under the Agreement, provided, however, that the Issuer shall not be required to spend any of its own funds in any such enforcement. The Issuer will not enter into any agreement with the Borrower amending the Agreement without the prior written consent of the Trustee and compliance with Sections 13.06 and 13.07 hereof.

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Section 8.05 Further Assurances. The Issuer will, upon the reasonable request of the Trustee, from time to time execute and deliver such further instruments and take such further action as may be reasonable and as may be required to carry out the purpose of this Indenture; provided, however, that no such instruments or actions shall give rise to any pecuniary liability of the Issuer or pledge the credit or taxing power of the State of Arizona, the Issuer or any other political subdivision of said State.

Section 8.06 No Disposition or Encumbrance of Issuer’s Interests. Except as permitted by this Indenture, the Issuer will not sell, lease, pledge, assign or otherwise dispose of or encumber its interest in the Receipts and Revenues from the Agreement or its rights and interest under the Agreement pledged and assigned hereunder and will promptly pay or cause to be discharged or make adequate provision to satisfy and discharge any lien or charge on any part thereof not permitted by this Indenture.

Section 8.07 Trustee’s Access to Books Relating to Facilities. All books and documents in the possession of the Issuer relating to the Facilities and the moneys, revenues and receipts derived from the Facilities shall at all reasonable times be open to inspection by such accountants or other agencies as the Trustee may from time to time designate. The Trustee shall permit the Borrower or its designee reasonable access to records relating to the investment of the proceeds of the Bonds or any other records relating to the Bonds necessary to assure compliance with Section 148 of the Code.

Section 8.08 Filing of Financing Statements. Appropriate financing statements, naming the Trustee as secured party with respect to the Receipts and Revenues from the Agreement and the other moneys pledged by the Issuer under this Indenture for the payment of the principal of and premium, if any, and interest on the Bonds, and as pledgee and assignee of certain of the Issuer’s rights and interest under the Agreement, shall be duly filed and recorded in the appropriate state and county offices as required by the provisions of the Uniform Commercial Code or other similar law as adopted in the State of Arizona, the state in which lies the Principal Office of the Trustee and any other applicable jurisdiction, as from time to time amended. The Trustee will file and record, with such assistance as necessary from the Issuer and the Borrower, such necessary continuation statements from time to time as may be required pursuant to the provisions of said Uniform Commercial Code or other similar law to protect the interest of the Trustee.

Section 8.09 Tax Covenant. The Issuer covenants for the benefit of the purchasers of the Bonds that it will not take any action or fail to take any action reasonably within its control which would, under the Code, Regulations of the Department of the Treasury of the United States of America (including Temporary Regulations and Proposed Regulations) under the Code applicable to the Bonds, rulings and court decisions, cause the interest payable on the Bonds to be includable in the gross income of the holders thereof for Federal income tax purposes (other than a “substantial user” of the Facilities or a “related person” as those terms are used in Section 147(a) of the Code). Pursuant to such covenant, the Issuer obligates itself to comply throughout the term of the issue of the Bonds with the requirements of Section 148 of the Code and any regulations promulgated thereunder.

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The Borrower by its execution of the Agreement has covenanted to restrict the investment of money in the funds created under this Indenture in such manner and to such extent, if any, as may be necessary, so that the Bonds will not constitute “arbitrage bonds” under Section 148 of the Code.

Section 8.10 Notices by Trustee. The Trustee shall give the same notices to the Issuer that it is required to give to the Borrower, and to the Borrower that it is required to give to the Issuer, pursuant to the terms of this Indenture and, additionally, shall give written or Electronic notice to the Issuer, the Borrower and the Remarketing Agent of any prior redemption pursuant to Section 4.01 hereof.

Section 8.11 No Transfer of Credit Facility. Except as provided in Section 5.04 hereof, the Trustee shall not sell, assign or transfer a Credit Facility except to a successor trustee under this Indenture and as contemplated by Section 11.16 hereof.

ARTICLE IX

DEFEASANCE

Section 9.01 Defeasance. If the Issuer shall pay or cause to be paid with Available Moneys to the Owner of any Outstanding Bond secured hereby the principal of and interest and any premium due and payable, and thereafter to become due and payable, on such Bond, or any portion of such Bond in an Authorized Denomination, such Bond or portion thereof shall cease to be entitled to any lien, benefit or security under this Indenture (except as set forth in Section 9.02 hereof). If the Issuer shall pay or cause to be paid with Available Moneys to the owners of all the Bonds the principal thereof and interest and any premium due and payable and thereafter to become due and payable thereon, and shall pay or cause to be paid all other sums payable hereunder by the Issuer, or payable under the Agreement by the Borrower, then the right, title and interest of the Trustee in and to the Trust Estate shall thereupon cease, terminate and become void. In such event, the Trustee shall assign, transfer and turn over the Trust Estate, including, without limitation, any surplus in the Bond Fund and any balance remaining in any other fund created under this Indenture, (i) if, at that time, there shall be amounts due and payable to the Bank pursuant to the Reimbursement Agreement and the Bank has notified the Trustee thereof, to the Bank, or (ii) if no such amounts shall be so due and payable, to the Borrower.

All Outstanding Bonds shall, prior to the Maturity Date or redemption date thereof, be deemed to have been paid within the meaning and with the effect expressed in this Article IX (except as set forth in Section 9.02 hereof) when

(a) in the event the Bonds are to be redeemed, the Trustee shall have given, or the Borrower shall have given to the Trustee in form satisfactory to the Trustee irrevocable instruction to give, on a date in accordance with the provisions of Article IV hereof, notice of redemption of the Bonds,

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(b) all Outstanding Bonds then bear interest at a Long-Term Interest Rate during a Long-Term Interest Rate Period ending on or after the redemption date or on the day immediately preceding the Maturity Date, as the case may be, or at Bond Interest Term Rates for Bond Interest Terms which end on the redemption date or the day immediately preceding the Maturity Date, as the case may be, and there shall have been deposited with the Trustee either moneys in an amount which shall be sufficient, or fixed rate Government Obligations (i) which shall not contain provisions permitting the redemption or prepayment thereof at the option of the issuer thereof, (ii) which mature no later than the earlier of (A) the date fixed for the redemption of the Bonds and (B) the Maturity Date, and (iii) the principal of and the interest on which, when due, and without any regard to reinvestment thereof, will provide moneys which, together with the moneys, if any, deposited with or held by the Trustee, shall be sufficient, based on the written opinion of a firm of certified public accountants acceptable to the Trustee, delivered to the Trustee, to pay when due the principal of and interest and any premium due and to become due on the Bonds on and prior to the redemption date or Maturity Date, as the case may be; provided, however, that such moneys shall constitute Available Moneys and that such Government Obligations shall have been purchased with Available Moneys, and provided further, that if a forward supply contract is employed in connection with the redemption, such certified public accountant’s opinion shall expressly state that the adequacy of the Available Moneys and Government Obligations to accomplish the redemption relies solely on the initial deposited investments and the maturing principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract, and

(c) in the event the Bonds do not mature and are not to be redeemed within the next succeeding 60 days, the Borrower shall have given the Trustee, in form satisfactory to it, irrevocable instructions to give, as soon as practicable in the same manner as a notice of redemption is given pursuant to Section 4.03 hereof, a notice to the Owners that the deposit required by clause (b) above has been made with the Trustee and that the Bonds are deemed to have been paid in accordance with this Article IX and stating the Maturity Date or redemption date upon which moneys are to be available for the payment of the principal of and interest and any premium on the Bonds.

Neither the Government Obligations nor moneys deposited with the Trustee pursuant to this Article IX nor principal or interest payments on any such Government Obligations shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of and interest and any premium on the Bonds; provided that any cash received from such principal or interest payments on such Government Obligations deposited with the Trustee, if not then needed for such purpose, shall be invested, to the extent practicable, at the direction of the Borrower, in Government Obligations of the type and tenor described in clause (b) of the immediately preceding paragraph, and interest earned from such reinvestment shall be paid as received by the Trustee (i) if, at that time, there shall be amounts due and payable to the Bank pursuant to the Reimbursement Agreement and the Bank has notified the Trustee thereof, to the Bank, (ii) if, at that time, there shall be amounts due and payable to the Bond Insurer pursuant to the Insurance Agreement, to the Bond Insurer, or (iii) if no such amounts shall be so due and payable, to the Borrower.

Section 9.02 Survival of Certain Provisions. Notwithstanding the foregoing, any provisions of this Indenture which relate to the payment of the principal of or any premium on

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Bonds at the Maturity Date or pursuant to redemption, as the case may be, interest payments and dates thereof, exchange, transfer and registration of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, the holding of moneys in trust and repayments to the Bank, the Bond Insurer or the Borrower from the Bond Fund or the Purchase Fund and the duties of the Trustee, the Registrar, the Remarketing Agent and the Paying Agent in connection with all of the foregoing, shall remain in effect and be binding upon the Issuer, the Trustee, the Remarketing Agent, the Tender Agent, the Registrar, the Paying Agent and Owners notwithstanding the release and discharge of this Indenture. The provisions of this Section shall survive the release, discharge and satisfaction of this Indenture provided, however, that the provisions of Section 2.01 hereof, permitting adjustments in the Interest Rate Period with respect to the Bonds, shall not be in effect after the release and discharge of this Indenture.

ARTICLE X

DEFAULTS AND REMEDIES

Section 10.01 Events of Default.

(a) Each of the following events shall constitute and is referred to in this Indenture as an “Event of Default” ( except that in making such determination no effect shall be given to payments made under the Bond Insurance Policy):

(i) a failure to pay the principal of or any premium on any of the Bonds when the same shall become due and payable at the Maturity Date or upon redemption;

(ii) a failure to pay an installment of interest on any of the Bonds after such interest has become due and payable;

(iii) a failure to pay an amount due pursuant to Section 4.08 hereof after such payment has become due and payable;

(iv) an “Event of Default” as such term is defined in Section 8.01 of the Agreement;

(v) prior to termination or expiration of a Credit Facility, receipt by the Trustee, prior to the date set forth in a Credit Facility for automatic reinstatement of interest following a drawing under a Credit Facility to pay accrued interest on the Bonds, of notice from the Bank in accordance with a Credit Facility that a Credit Facility will not be reinstated in respect of such interest;

(vi) prior to termination or expiration of a Credit Facility and payment in full of all amounts due under the Reimbursement Agreement, receipt by the Trustee of written notice from the Bank that an “Event of Default” under the Reimbursement Agreement has occurred and is continuing; or

(vii) a failure by the Issuer to observe and perform any covenant, condition, agreement or provision (other than as specified in clauses (i), (ii) and (iii) of

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paragraph (a) of this Section 10.01) contained in the Bonds or in this Indenture on the part of the Issuer to be observed or performed, which failure shall continue for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, shall have been given to the Issuer and the Borrower by the Trustee, which may give such notice in its discretion and shall give such notice at the written request of the Owners of a majority in principal amount of the Bonds then Outstanding, unless the Trustee or the Owners of Bonds then Outstanding in principal amount not less than the principal amount of Bonds the Owners of which requested such notice, as the case may be, shall agree in writing to an extension of such period prior to its expiration; provided, however, that the Trustee, or the Trustee and the Owners of such principal amount of Bonds, as the case may be, shall be deemed to have agreed to an extension of such period if corrective action is initiated by the Issuer, or the Borrower on behalf of the Issuer, within such period and is being diligently pursued.

(b) If:

(i) (A) a Credit Facility is then in effect and (B) an Event of Default described in clause (i), (ii) or (iii) of paragraph (a) of this Section 10.01 shall occur and be continuing, the Trustee may, and at the written request of the owners of a majority in principal amount of Bonds then Outstanding, the Trustee shall, or

(ii) (A) a Credit Facility is then in effect and (B) an Event of Default described in clause (iv) of paragraph (a) of this Section 10.01 shall occur and be continuing, at the written request of the Bank, the Trustee shall, or

(iii) (A) a Credit Facility is then in effect and (B) an Event of Default described in clause (v) or (vi) of paragraph (a) of this Section 10.01 shall occur and be continuing, the Trustee shall, or

(iv) (A) a Credit Facility is not then in effect or if the Bank shall have wrongfully failed to honor a drawing under such Credit Facility then in effect and (B) an Event of Default described in clause (i), (ii), (iii), (iv), (v), or (vi) of paragraph (a) of this Section 10.01 shall occur and be continuing, the Trustee may, and at the written request of the Owners of a majority in principal amount of Bonds then Outstanding, the Trustee shall, subject to the Bank’s right to purchase the Bonds pursuant to Section 4.07 in the circumstances set forth therein, by written notice to the Issuer, the Bank, and the Borrower, declare the Bonds to be immediately due and payable, whereupon they shall, without further action, become and be immediately due and payable, anything in this Indenture or in the Bonds to the contrary notwithstanding, and the Trustee shall give notice thereof to the Tender Agent, the Remarketing Agent, the Bond Insurer and the Owners and shall immediately (and in no event later than five (5) days thereafter) draw under a Credit Facility to the extent provided in Section 5.04 hereof. If the principal of all of the Bonds shall have been declared due and payable while a Credit Facility shall be in effect, interest on such Bonds shall cease to accrue on the date of the drawing on a Credit Facility with respect to such declaration unless such drawing is pursuant to the Bank’s purchase of the Bonds in accordance with Section 4.07 hereof. The Trustee shall not be entitled to accelerate the principal of the Bonds upon the occurrence of an Event of Default described in clause (vii) of paragraph (a) of this Section 10.01.

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(c) The provisions of paragraph (b)(iv), however, are subject, when no Credit Facility shall be in effect, to the condition that if, after the principal of the Bonds shall have been so declared to be due and payable, and before any judgment or decree-for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Issuer shall cause to be deposited with the Trustee a sum sufficient to pay all matured installments of interest upon all Bonds, premium, if any, and the principal of any and all Bonds which shall have become due otherwise than by reason of such declaration (with interest upon such principal and, to the extent permissible by law, on overdue installments of interest, at the rate per annum borne by the Bonds on the date of such declaration) and such amounts as shall be sufficient to cover reasonable compensation and reimbursement of expenses payable to the Trustee, and all Events of Default hereunder other than nonpayment of the principal of Bonds which shall have become due by said declaration shall have been remedied or waived, then, in every such case, such Event of Default shall be deemed waived and such declaration and its consequences rescinded and annulled, and the Trustee shall promptly give written or Electronic notice of such waiver, rescission and annulment to the Issuer, the Borrower, the Remarketing Agent, and, if notice of the acceleration of the Bonds shall have been given to the Owners, shall give notice thereof to the Owners; but no such waiver, rescission and annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon.

(d) The provisions of paragraph (b) are, further, subject to the condition that (i) if an Event of Default described in clauses (v) or (vi) of paragraph (a) shall have occurred and the Trustee shall thereafter have received written notice from the Bank that the notice of the Bank which caused the occurrence of such Event of Default shall have been withdrawn and (ii) if any drawing under a Credit Facility shall have been made and a Credit Facility shall have been reinstated as to principal to an amount equal to the outstanding principal amount of the Bonds and as to interest to an amount which at least equals, depending on the type of Interest Rate Period then in effect, the coverage required by Section 2.01(c)(vi) hereof to permit such Interest Rate Period to go into effect, and the Trustee shall have received written notice from the Bank of such reinstatement, then such Event of Default shall be waived, and the consequences of such Event of Default rescinded and annulled and the Trustee shall promptly give written notice of such waiver, rescission and annulment to the Issuer, the Borrower, the Bank, the Tender Agent, the Bond Insurer, the Remarketing Agent, and, if notice of the acceleration of the Bonds shall have been given to the Owners, shall give notice thereof to the Owners; but no such waiver, rescission and annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon. Notwithstanding anything to the contrary set forth herein, any acceleration of the Bonds or annulment thereof shall be subject to the prior written consent of the Bond Insurer (so long as it has not failed to comply with its payment obligations under the Bond Insurance Policy).

Section 10.02 Remedies. In addition to the rights conferred, or obligation imposed, upon the Trustee under Section 10.01 hereof to accelerate the principal of the Bonds upon the occurrence and continuance of any Event of Default, then and in every such case the Trustee in its discretion may, and upon the written request of the Bank, the Bond Insurer or the Owners of a

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majority in principal amount of the Bonds then Outstanding and receipt of indemnity to its satisfaction shall, in its own name and as the Trustee of an express trust:

(i) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Owners of the Bonds, and require the Issuer, the Bank, the Bond Insurer and the Borrower to carry out any agreements with or for the benefit of the Owners and to perform their duties under the Act, the Agreement, a Credit Facility, the Bond Insurance Policy and this Indenture;

(ii) bring suit upon the Bonds or a Credit Facility or the Bond Insurance Policy; or

(iii) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Owners of the Bonds.

Section 10.03 Restoration to Former Position. In the event that any proceeding taken by the Trustee to enforce any right under this Indenture shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every case the Issuer, the Trustee and the Owners of the Bonds shall be restored to their former positions and rights hereunder, respectively, and all rights, remedies and powers of the Trustee shall continue as though no such proceeding had been taken.

Section 10.04 Bond Insurer’s Right to Direct Proceedings. Subject to the provisions of Section 4.07 hereof relating to the rights of the Bank and subject in the circumstances set forth as described therein, anything in this Indenture to the contrary notwithstanding, so long as it is not in default on its payment obligations under the Bond Insurance Policy, the Bond Insurer shall be treated as the “Owner” of the Bonds and shall have the right, by an instrument in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all remedial proceedings available to the Trustee under this Indenture or exercising any trust or power conferred on the Trustee by this Indenture.

Section 10.05 Limitation on Owners’ Right to Institute Proceedings. No owner shall have any right to institute any suit, action or proceedings in equity or at law for the execution of any trust or power hereunder, or any other remedy hereunder or on said Bonds, unless (i) such Owner previously shall have given to the Trustee. written notice of an Event of Default as hereinabove provided, (ii) the owners of a majority in principal amount of the Bonds then Outstanding shall have made written request of the Trustee so to do, after the right to institute said suit, action or proceeding shall have accrued, and shall have afforded the Trustee a reasonable opportunity to proceed to institute the same in either its or their name, (iii) there also shall have been offered to the Trustee security and indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby, and (iv) the Trustee shall not have complied with such request within a reasonable time after such notice, request and offer of indemnity; and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the institution of said suit, action or proceeding; it being understood and intended that no one or more of the Owners shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Indenture, or to enforce any right hereunder or under the Bonds, except in the

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manner herein provided, and that all suits, actions and proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all Owners.

Section 10.06 No Impairment of Right to Enforce Payment. Notwithstanding any other provision in this Indenture, the right of any Owner to receive payment of the principal of and interest and any premium on such Bond, on or after the respective due dates expressed therein or applicable redemption dates, or to institute suit for the enforcement of any such payment on or after such respective date, shall not be impaired or affected without the consent of such Owner.

Section 10.07 Proceeding by Trustee Without Possession of Bonds. All rights of action under this Indenture or under any of the Bonds secured hereby which are enforceable by the Trustee may be enforced by it without the possession of any of the Bonds or the production thereof at the trial or other proceedings relative thereto. Any such suit, action or proceeding instituted by the Trustee shall be brought in its name for the equal and ratable benefit of the Owners subject to the provisions of this Indenture.

Section 10.08 No Remedy Exclusive. No remedy herein conferred upon or reserved to the Trustee, the Bank, the Bond Insurer or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative, and shall be in addition to every other remedy given hereunder or under the Agreement, or now or hereafter existing at law or in equity or by statute.

Section 10.09 No Waiver of Remedies. No delay or omission of the Trustee, the Bank, the Bond Insurer or of any Owner of a Bond to exercise any right or power accruing upon any default shall impair any such right or power accruing upon any default or shall be construed to be a waiver of any such default, or an acquiescence therein. Every power and remedy given by this Article X to the Trustee, the Bank, the Bond Insurer and to the Owners of the Bonds, respectively, may be exercised from time to time as often as may be deemed expedient.

Section 10.10 Application of Moneys. Any moneys received by the Trustee, by any receiver or by any Owner of a Bond pursuant to any right given or action taken under the provisions of this Article X (other than moneys received by the Trustee in consequence of the exercise by the Bank of its right to purchase the Bonds pursuant to Section 4.07) or under the provisions of the Agreement after payment of the costs and expenses of the proceedings resulting in the collection of such moneys, including any amounts due to the Trustee pursuant to Section 11.04 hereof and under the Agreement (except that proceeds of a drawing under a Credit Facility and any moneys held pursuant to Section 5.06 hereof may not be so used), shall be deposited in the Bond Fund and all moneys so deposited in the Bond Fund during the continuance of an Event of Default (other than moneys for the payment of Bonds which had matured or otherwise become payable prior to such Event of Default or for the payment of interest due prior to such Event of Default) shall be applied as follows:

(a) Unless the principal of all the Bonds shall have been declared due and payable, all such moneys shall be applied (i) first, to the payment to the persons entitled thereto of all installments of interest then due on the Bonds, with interest on overdue installments, if lawful, at the rate per annum borne by the Bonds on the date of occurrence of such Event of

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Default, in the order of maturity of the installments of such interest and, if the amount available shall not be sufficient to pay in full any particular installment of interest, then to the payment ratably, according to the amounts due on such installment, and (ii) second, to the payment to the persons entitled thereto of the unpaid principal of and any premium on any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which money is held pursuant to the provisions of this Indenture) with interest on such Bonds at their rate on the date of occurrence of such Event of Default from the respective dates upon which they became due and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal and interest and any premium due on such date, in each case to the persons entitled thereto, without any discrimination or privilege; provided, however, that moneys derived from the exercise of rights by the Trustee under a Credit Facility shall not be applied to the payment of the principal of or premium or interest on Bonds held of record by the Borrower or any affiliate thereof or by the Tender Agent for the account of the Borrower.

(b) If the principal of all the Bonds shall have been declared due and payable and the Bank has not exercised its option to direct the Trustee to purchase all Bonds on behalf of the Bank pursuant to Section 4.07 hereof, all such moneys shall be applied to the payment of the principal and interest then due and unpaid upon the Bonds, with interest on overdue interest and principal, as aforesaid, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or privilege; provided, however, that moneys derived from the exercise of rights by the Trustee under a Credit Facility shall not be applied to the payment of the principal of or premium or interest on Bonds held of record by the Borrower or any affiliate thereof or by the Tender Agent for the account of the Borrower.

(c) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article X, subject to the provisions of clause (b) of this Section 10.10 which shall be applicable in the event that the principal of all the Bonds shall later become due and payable, the moneys shall be applied in accordance with the provisions of clause (a) of this Section 10.10.

Whenever moneys are to be applied pursuant to the provisions of this Section 10.10, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which, while a Credit Facility shall be in effect, shall be within five days of any declaration of acceleration and, if possible, an Interest Payment Date unless it shall deem another date more suitable) upon which such application is to be made and, upon such application, interest on the amounts of principal, premium and interest to be paid on such dates shall cease to accrue, except that if the principal of all of the Bonds shall have been declared due and payable when a Credit Facility shall be in effect, interest on such amounts shall cease to accrue on the date of the drawing on a Credit Facility with respect to such declaration unless such drawing is pursuant to the Bank’s purchase of the Bonds in accordance with Section 4.07 hereof. The Trustee shall give notice of the deposit with it of any such moneys and of the

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fixing of any such date to all Owners of Outstanding Bonds, consistent with the requirements of Section 2.01 hereof for the establishment of, and giving of notice with respect to, a Special Record Date for the payment of overdue interest. The Trustee shall not be required to make payment to any Owner of a Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid.

Notwithstanding anything in this Section 10.10 to the contrary, moneys received by the Trustee pursuant to draws on a Credit Facility, and moneys held by the Trustee pursuant to Section 4.10 for the payment of Bonds not presented for payment, shall be applied only to the payment of principal, redemption premium (if any) and interest due on the Bonds.

Section 10.11 Severability of Remedies. It is the purpose and intention of this Article X to provide rights and remedies to the Trustee, the Bank, the Bond Insurer and the Owners which may be lawfully granted under the provisions of the Act, but should any right or remedy granted herein be held to be unlawful, the Trustee, the Bank, the Bond Insurer and the Owners shall be entitled, as above set forth, to every other right and remedy provided in this Indenture and by law.

Section 10.12 Waivers of Events of Default. The Trustee in its discretion may waive any Event of Default hereunder (other than an Event of Default described in clauses (v) and (vi) of paragraph (a) of Section 10.01 and not waived in accordance with paragraph (d) of Section 10.01) and its consequences and shall in any event do so upon the written request of the Owners of a majority in principal amount of all Bonds then outstanding; provided, however, that there shall not be waived

(i) any Event of Default pertaining to the payment of the principal of any Bond at the Maturity Date or redemption date prior to the Maturity Date, or

(ii) any Event of Default pertaining to the payment when due of the interest on any Bond,

unless, prior to such waiver (A) all arrears of principal (due otherwise than by declaration) and interest, with interest (to the extent permitted by law) at the rate per annum borne by the Bonds in respect of which such Event of Default shall have occurred on overdue installments of principal (due otherwise than by declaration) and interest, shall have been paid or provided for, (B) all expenses of the Trustee in connection with such Event of Default shall have been paid or provided for to the satisfaction of the Trustee, and (C) if a Credit Facility is in effect with respect to the Bonds, the coverage under a Credit Facility shall have been reinstated as to principal to an amount equal to the outstanding principal amount of the Bonds and as to interest to an amount which at least equals, depending on the type of Interest Rate Period then in effect, the coverage required by Section 2.01(c)(vi) hereof to permit such Interest Rate Period to go into effect, and provided further that, in case of any such waiver, or in case any proceeding taken by the Trustee on account of any such Event of Default shall be discontinued or abandoned or determined adversely, then and in every such case the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer and the Owners of the Bonds shall be restored to their former positions and rights hereunder, respectively, but no such waiver shall extend to any subsequent or other Event of Default, or impair any right consequent thereon. The Trustee shall not have any discretion to waive any Event of Default hereunder and its consequences except in the manner and subject to the terms expressed above.

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Section 10.13 No Obligation of Issuer to Act. Subject to Sections 8.04 and 8.05, the Issuer shall have no obligation to take any action or pursue any right or remedy of the Trustee or any Owner under this Indenture or otherwise, including, but not limited to, taking any action in a bankruptcy proceeding.

ARTICLE XI

TRUSTEE, PAYING AGENT, REGISTRAR

Section 11.01 Acceptance of Trusts. By executing the certificate of authentication endorsed upon the Bonds, the Trustee shall signify its acceptance and agree to execute the trusts hereby created but only upon the additional terms set forth in this Article XI, to all of which the Issuer agrees and the respective owners agree by their acceptance of delivery of any of the Bonds.

To the extent that it is necessary for the Trustee to determine whether any Person is a Beneficial Owner or an ARS Beneficial Owner, the Trustee shall make such determination based on a certification of such Person (on which the Trustee may conclusively rely) setting forth in satisfactory detail the principal balance and bond certificate owned and any intermediaries through which such bond certificate is held. The Trustee shall be entitled to rely conclusively on information it receives from DTC or other applicable Securities Depository, its direct participants and the indirect participating brokerage firms for such participants with respect to the identity of a Beneficial Owner or ARS Beneficial Owner. The Trustee shall not be deemed to have actual or constructive knowledge of the books and records of DTC or its participants.

Section 11.02 Trustee Not Responsible for Recitals, Maintenance, Insurance, etc. The recitals, findings and representations in this Indenture or in the Bonds contained, save only the Trustee’s authentication upon the Bonds, shall be taken and construed as made by and on the part of the Issuer, and not by the Trustee, and the Trustee does not assume, and shall not have, any responsibility or obligation for the correctness of any thereof. In addition, the Trustee shall not have any responsibility for monitoring the Borrower’s obligations under Sections 5.06 and 5.07 of the Agreement to maintain the Facilities or to maintain or cause to be maintained the insurance required thereunder.

Section 11.03 Limitations on Liability.

(a) The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys, agents, receivers or employees, and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder and shall not be liable for any action taken or omitted to be taken in good faith on the basis of such advice, and the Trustee shall not be answerable for the default or misconduct of any such attorney, agent or employee selected by it with reasonable care. The Trustee shall not be answerable for the exercise of any discretion or power under this Indenture or for anything whatsoever in connection with the trust created hereby, except only for its own gross negligence or willful misconduct.

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(b) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be liable for any action reasonably taken or omitted to be taken by it in good faith and reasonably believed by it to be within its discretion or power conferred upon it hereby.

(c) Whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder or under the Agreement, the Trustee may, in the absence of bad faith on its part, rely upon a Certificate of the Borrower.

(d) Prior to taking any action under the Agreement or this Indenture, the Trustee shall be entitled to a certificate of an Authorized Borrower Representative and/or an opinion of counsel with respect to the proposed action, which certificate and/or opinion shall confirm that all conditions precedent, if any, have been satisfied.

(e) The Trustee shall not be required to give any bond or surety with respect to the performance of its duties or the exercise of its powers under this Indenture. No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers.

(f) The Trustee shall not be bound to ascertain or inquire as to performance or observance of any covenants, conditions or other agreements on the part of the Borrower or the Issuer under the Agreement or this Indenture, as the case may be, except as specifically provided for herein. The Trustee shall have no obligation to perform any of the duties of the Issuer or the Borrower under the Agreement or this Indenture.

Section 11.04 Compensation, Expenses and Advances. The Trustee, the Paying Agent, the Registrar and the Tender Agent under this Indenture shall be entitled to reasonable compensation for their services rendered hereunder including extraordinary services such as default administration (not limited by any provision of law in regard to the compensation of the trustee of an express trust) and to reimbursement for their actual out-of-pocket expenses (including counsel fees and expenses) reasonably incurred in connection therewith except as a result of their gross negligence or willful misconduct. If the Issuer shall fail to perform any of the covenants or agreements contained in this Indenture, other than the covenants or agreements in respect of the payment of the principal of, premium, if any, and interest on the Bonds, the Trustee may, in its uncontrolled discretion and without notice to the Owners of the Bonds, at any time and from time to time, make advances to effect performance of the same on behalf of the Issuer, but the Trustee shall be under no obligation to do so; but no such advance shall operate to relieve the Issuer from any default hereunder. In Section 5.04 of the Agreement, the Borrower has agreed that it will pay to the Trustee, the Paying Agent, the Registrar, the Remarketing Agent and the Tender Agent such compensation and reimbursement of expenses and advances, but the Borrower may, without creating a default hereunder, contest in good faith the reasonableness of any such services, expenses and advances. In Section 5.08 of the Agreement, the Borrower has

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agreed to indemnify the Trustee and the Registrar to the extent stated therein. If the Borrower shall have failed to make any payment to the Trustee under Sections 5.04 or 5.08 of the Agreement and such failure shall have resulted in an Event of Default under the Agreement, the Trustee shall have, in addition to any other rights hereunder, a claim, prior to the claim of the Owners of the Bonds, for the payment of its compensation and the reimbursement of its expenses and any advances made by it, as provided in this Section 11.04, upon the moneys and obligations in the Bond Fund, except for proceeds of drawings under a Credit Facility and except for moneys or obligations deposited with or paid to the Trustee for the purchase of Bonds by the Bank in accordance with Section 4.07 hereof or which are deemed to have been paid in accordance with Article IX hereof and funds held pursuant to Section 5.06 hereof.

Section 11.05 Notice of Events of Default. The Trustee shall not be required to take notice, or be deemed to have notice, of any default or Event of Default under this Indenture or the Agreement other than an Event of Default under clauses (i), (ii), (iii) (but only if the Trustee and the Tender Agent are the same entity), (v) or (vi) of paragraph (a) of Section 10.01 hereof, unless specifically notified in writing of such default or Event of Default by Owners of at least a majority in principal amount of the Bonds then Outstanding or by the Bank or the Bond Insurer. The Trustee may, however, at any time, in its discretion, require of the Issuer full information and advice as to the performance of any of the covenants, conditions and agreements contained herein.

Section 11.06 Action by Trustee. The Trustee shall be under no obligation to take any action in respect of any default or Event of Default hereunder other than pursuant to Section 10.01(b) hereof, or toward the execution or enforcement of any of the trusts hereby created, or to institute, appear in or defend any suit or other proceeding in connection therewith, unless requested in writing to do so by Owners of at least a majority in principal amount of the Bonds then Outstanding or the Bank, and, if in its opinion such action may tend to involve it in expense or liability, unless furnished, from time to time as often as it may require, with security and indemnity satisfactory to it. The foregoing provisions are intended only for the protection of the Trustee, and shall not affect any discretion or power given by any provisions of this Indenture to the Trustee to take action in respect of any default or Event of Default without such notice or request from Owners or the Bank, or without such security or indemnity. Notwithstanding the foregoing, the Trustee shall submit draw requests under a Credit Facility as provided therein, make payments on the Bonds in accordance with this Indenture and give notice of acceleration in accordance with Section 10.01(b) hereof, without as a precondition to such action, demanding security and indemnity as hereinbefore provided.

Section 11.07 Good Faith Reliance. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any resolution, notice, telegram, request, consent, waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document, or upon telephonic instructions to the extent the giving of telephonic instructions is specifically authorized by this Indenture or the Agreement, in any case which the Trustee shall in good faith believe to be genuine and to have been passed, signed or given by the proper board, body or person or to have been prepared and furnished pursuant to any of the provisions of this Indenture or the Agreement, or upon the written opinion of any attorney, engineer, accountant or other expert believed by the Trustee to be qualified in relation to the subject matter, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements

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contained or matters referred to in any such instrument, but may accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. Neither the Trustee, the Paying Agent, the Registrar nor the Tender Agent shall be bound to recognize any person as an Owner or to take any action at his request unless his Bond shall be deposited with such entity or satisfactory evidence of the ownership of such Bond shall be furnished to such entity.

Section 11.08 Dealings in Bonds and with the Issuer and the Borrower. The Trustee, the Paying Agent, the Registrar, the Bank, the Bond Insurer, the Tender Agent or the Remarketing Agent and each of their officers and directors, may in good faith buy, sell, own, hold and deal in any of the Bonds, and may join in any action which any Owner may be entitled to take with like effect as if it did not act in any capacity hereunder. The Trustee, the Paying Agent, the Registrar, the Bank, the Bond Insurer, the Tender Agent or the Remarketing Agent, in its individual capacity, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Issuer or the Borrower, and may act as depositary, trustee or agent for any committee or body of Owners or other obligations of the Issuer as freely as if it did not act in any capacity hereunder.

Section 11.09 Several Capacities. Anything in this Indenture to the contrary notwithstanding, the same entity may serve hereunder as the Trustee, the Paying Agent, the Registrar, the Tender Agent and the Remarketing Agent and in any other combination of such capacities, to the extent permitted by law.

Section 11.10 Construction of Indenture. The Trustee may construe any of the provisions of this Indenture or the Agreement insofar as the same may appear to be ambiguous or inconsistent with any other provision hereof or thereof, and any construction of any such provisions hereof by the Trustee in good faith shall be binding upon the Owners, the Issuer and the Borrower.

Section 11.11 Resignation of Trustee. The Trustee may resign and be discharged of the trusts created by this Indenture by executing an instrument in writing resigning such trust and specifying the date when such resignation shall take effect, and the Trustee shall provide such notice to the Issuer, the Borrower, the Bank, if any, and the Bond Insurer and the Trustee shall give such notice of such resignation to all Owners. Such notice shall specify the date when such resignation shall take effect. Such resignation shall only take effect on the day a successor Trustee shall have been appointed as hereinafter provided and shall have accepted such appointment and agreed to assume all of the obligations as Trustee hereunder.

Section 11.12 Removal of Trustee. The Trustee may be removed by the Issuer at any time, at the written request of the Borrower (other than during the continuation of an Event of Default) or the Owners of not less than a majority in principal amount of the Bonds then Outstanding, by filing with the Trustee so removed, the Issuer, the Borrower, the Tender Agent, the Remarketing Agent, the Bank and the Bond Insurer an instrument or instruments in writing appointing a successor in accordance with Section 11.13 hereof. Promptly upon delivery of such instrument or instruments to the Trustee, the successor Trustee upon its acceptance of the trusts created hereby shall give notice thereof to all Owners.

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Section 11.13 Appointment of Successor Trustee. If at any time the Trustee shall be removed, be dissolved or its property or affairs shall be taken under the control of any state or federal court or administrative body because of insolvency, bankruptcy or any other reason, a vacancy shall ipso facto be deemed to exist in the office of Trustee and a successor may be appointed, and in case at any time the Trustee shall resign, then a successor may be appointed, by giving written notice to the Issuer, the Borrower, the Tender Agent, the Remarketing Agent, the Bank and the Bond Insurer an instrument of appointment in writing, executed by Owners of not less than a majority in principal amount of Bonds then Outstanding with the consent of the Bank unless the Bank has wrongfully dishonored a draw on a Credit Facility and with the consent of the Bond Insurer so long as the Bond Insurer is not in default in its payment obligations under the Bond Insurance Policy. Copies of such instrument shall be promptly delivered by the Issuer to the predecessor Trustee and to the Trustee so appointed.

Until a successor Trustee shall be appointed by the Owners of the Bonds as herein authorized with the consent of the Bank unless the Bank has wrongfully dishonored a draw on a Credit Facility and with the consent of the Bond Insurer so long as the Bond Insurer is not in default in its payment obligations under the Bond Insurance Policy, the Issuer, by an instrument authorized by resolution of the Issuer, may, but shall have no obligation to, appoint a successor Trustee acceptable to the Borrower, the Bank and the Bond Insurer. After any appointment by the Issuer, it shall cause notice of such appointment to be given to the Remarketing Agent and to all Owners of the Bonds. Any new Trustee so appointed by the Issuer shall immediately and without further act be superseded by a Trustee appointed by the Owners of the Bonds in the manner above provided. Notwithstanding anything herein to the contrary, no resignation or removal of the Trustee shall be effective until (i) a successor Trustee shall be appointed in accordance with the terms hereof and has accepted such appointment and (ii) each then existing Letter of Credit or other Credit Facility shall have been transferred to such successor in accordance with the terms thereof.

Section 11.14 Qualifications of Successor Trustee. Every successor Trustee (a) shall be a bank or trust company (other than the Bank) duly organized under the laws of the United States or any state or territory thereof and authorized by law to perform all the duties imposed upon it by this Indenture, (b) shall have a combined capital stock, surplus and undivided profits of at least $50,000,000 if there can be located, with reasonable effort, such an institution willing and able to accept the trust on reasonable and customary terms and (c) shall have its obligations rated or be a wholly-owned subsidiary of an entity whose obligations are rated, so long as the Bonds shall be rated by Moody’s, at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s.

Section 11.15 Judicial Appointment of Successor Trustee. If at any time the Trustee shall resign and no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Article XI prior to the date specified in the notice of resignation as the date when such resignation is to take effect, the retiring Trustee may forthwith apply to a court of competent jurisdiction for the appointment of a successor Trustee. If no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Article XI within six months after a vacancy shall have occurred in the office of Trustee, any Owner of a Bond or the Bank or the Bond Insurer may apply to any court of competent jurisdiction to appoint a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor Trustee.

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Section 11.16 Acceptance of Trusts by Successor Trustee. Any successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Issuer, the Borrower, the Bank, if any, the Bond Insurer and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become duly vested with all the estates, property, rights, powers, trusts, duties and obligations of its predecessor in the trust hereunder, with like effect as if originally named Trustee herein. Upon request of such successor Trustee, such predecessor Trustee and the Issuer shall execute and deliver an instrument transferring to such successor Trustee all the estates, property, rights, powers and trusts hereunder of such predecessor Trustee and, subject to the provisions of Section 11.04 hereof and upon payment of its charges, such predecessor Trustee shall (i) pay over to the successor Trustee all moneys and other assets at the time held by it hereunder and (ii) transfer over to the successor Trustee its interest in any Credit Facility.

Section 11.17 Successor by Merger or Consolidation. Any corporation into which any Trustee hereunder may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which any Trustee hereunder shall be a party or any corporation to which all or substantially all of the corporate trust business of the Trustee shall be sold or transferred, shall be the successor Trustee under this Indenture, without the execution or filing of any paper or any further act on the part of the parties hereto, anything in this Indenture to the contrary notwithstanding.

Section 11.18 Standard of Care. Notwithstanding any other provisions of this Article XI, the Trustee shall, during the existence of an Event of Default of which the Trustee is required to take notice or is deemed to have notice under Section 11.05 hereof, exercise such of the rights and powers vested in it by this Indenture and use the same degree of skill and care in their exercise as a prudent indenture trustee would use and exercise under the circumstances. Prior to the existence and after the curing or waiving of any such Event of Default, the duties of the Trustee hereunder shall be only such duties as are specifically set forth herein and no implied covenants shall be read into this Indenture or the Agreement against the Trustee.

Section 11.19 Notice of Event of Default. If an Event of Default occurs of which the Trustee is required by Section 11.05 hereof to take notice or has notice, or any other Event of Default occurs of which the Trustee has been specifically notified in accordance with Section 11.05 hereof, then (a) immediately upon the Trustee taking or having notice of any Event of Default under Section 10.1(a)(i),(ii) or (iii) or Section 10.01(b) upon any other Event of Default continuing for at least five Business Days after the Trustee is required to take, or has received, notice thereof, the Trustee shall give notice thereof to the Issuer, the Remarketing Agent, the Tender Agent, the Bank, the Bond Insurer and the Owners of the Bonds.

Section 11.20 Intervention in Litigation. In any judicial proceeding to which the Issuer is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of the Owners of the Bonds, the Trustee may intervene on behalf of the Owners of the Bonds and shall, upon receipt of indemnity satisfactory to it, do so if requested in writing by Owners of at least a majority in principal amount of the Bonds then Outstanding if permitted by the court having jurisdiction in the premises.

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Section 11.21 Paying Agent. The Issuer may at any time or from time to time by resolution, with the approval of the Trustee and the Borrower, appoint the Paying Agent for the Bonds, subject to the conditions set forth in Section 11.22 hereof. The Trustee is hereby appointed as the initial Paying Agent. Each Paying Agent (if not also the Trustee) shall designate to the Trustee, the Bank and the Bond Insurer its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Borrower and the Trustee under which such Paying Agent will agree, particularly:

(i) to hold all sums held by it for the payment of the principal of and interest and any premium on Bonds in trust for the benefit of the Owners until such sums shall be paid to the Owners or otherwise disposed of as herein provided; and

(ii) to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee and the Borrower at all reasonable times.

The Issuer shall cooperate with the Trustee and the Borrower to cause the necessary arrangements to be made and to be thereafter continued whereby funds will be made available for the payment when due of the Bonds as presented at the Principal Office of the Paying Agent.

Section 11.22 Qualifications of Paying Agent; Resignation; Removal. The Paying Agent shall (i) be a bank, a trust company, national banking association or another corporation duly organized under the laws of the United States of America or any state or territory thereof, (ii) have its obligations rated or be a wholly-owned subsidiary of an entity whose obligations are rated, so long as the Bonds are rated by Moody’s, at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s, and (iii) be authorized by law to perform all the duties imposed upon it by this Indenture. The Paying Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 60 days’ notice to the Issuer, the Borrower and the Trustee (if no longer the Paying Agent). The Paying Agent shall be removed at any time, other than during the continuance of an Event of Default, at the direction of the Borrower, by an instrument, signed by the Issuer, filed with the Paying Agent and with the Trustee.

In the event of the resignation or removal of the Paying Agent, the Paying Agent shall pay over, assign and deliver any moneys held by it in such capacity to its successor or, if there be no successor, to the Trustee.

In the event that the Paying Agent shall resign, be removed or be dissolved, or if the property or affairs of the Paying Agent shall be taken under the control of any state or federal court or administrative body because of bankruptcy, insolvency or any other reason, and the Issuer shall not have appointed its successor as Paying Agent, the Trustee shall de facto be deemed to be the Paying Agent for all purposes of this Indenture until the appointment by the Issuer of the Paying Agent or successor Paying Agent, as the case may be.

Section 11.23 Registrar. The Trustee hereby is appointed as the initial Registrar. In the event of the resignation or removal of the Registrar, the Issuer shall, at the direction of the

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Borrower, appoint the Registrar for the Bonds, subject to the conditions set forth in Section 11.24 hereof. Each Registrar (if not also the Trustee) shall designate to the Trustee its Principal Office and signify its acceptance of the duties imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Borrower and the Trustee under which such Registrar will agree, particularly, to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee and the Borrower at all reasonable times.

The Issuer shall cooperate with the efforts of the Trustee and the Borrower intended to cause the necessary arrangements to be made and to be thereafter continued whereby Bonds, executed by the Issuer and authenticated by the Trustee, shall be made available for exchange and registration of transfer at the Principal Office of the Registrar. The Issuer shall cooperate with the efforts of the Trustee, the Registrar and the Borrower to cause the necessary arrangements to be made and thereafter continued whereby the Paying Agent and the Remarketing Agent shall be furnished such records and other information, at such times, as shall be required to enable the Paying Agent and the Remarketing Agent to perform the duties and obligations imposed upon them hereunder.

Section 11.24 Qualifications of Registrar; Resignation; Removal. The Registrar shall be a corporation duly organized under the laws of the United States of America or any state or territory thereof, authorized by law to perform all the duties imposed upon it by this Indenture. The Registrar may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 60 days’ notice to the Issuer, the Trustee and the Borrower. The Registrar may be removed at any time, at the direction of the Borrower (other than during the continuance of an Event of Default), by an instrument, signed by the Issuer, filed with the Registrar and the Trustee.

In the event of the resignation or removal of the Registrar, the Registrar shall deliver any Bonds held by it in such capacity to its successor or, if there be no successor, to the Trustee.

In the event that the Registrar shall resign, be removed or be dissolved, or if the property or affairs of the Registrar shall be taken under the control of any state or federal court or administrative body because of bankruptcy, insolvency or any other reason, and the Issuer shall not have appointed its successor as Registrar, the Trustee shall de facto be deemed to be the Registrar for all purposes of this Indenture until the appointment by the Issuer of the Registrar or successor Registrar, as the case may be.

Section 11.25 Appointment of Co-Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State of Arizona) denying or restricting the right of banking corporations or associations to transact business as trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture or the Agreement, and in particular in the case of the enforcement thereof on default, or in the case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the properties, in trust, as herein granted, or take any action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate or co-trustee.

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In the event that the Trustee shall appoint an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co-trustee, but only to the extent necessary to enable such separate or co-trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable by either of them.

Should any reasonable instrument in writing from the Issuer be required by the separate or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such estates, property, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate or co-trustee or a successor to either shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a successor to such separate or co-trustee or a new separate or co-trustee. No trustee hereunder shall be liable by reason of any act or omission of any other trustee hereunder.

Section 11.26 Notices to Rating Agencies. The Trustee shall provide Moody’s, if the Bonds are then rated by Moody’s, or S&P, if the Bonds are then rated by S&P, or Fitch, if the Bonds are then rated by Fitch, as appropriate, with prompt written notice at least 15 days prior to its execution and adoption of (i) the appointment of any successor Trustee, Paying Agent, Remarketing Agent or Tender Agent (ii) any amendments to this Indenture or the Agreement, (iii) the payment (or provision for payment) in whole of the Bonds, (iv) the adjustment of any Bonds to a Short-Term or Long-Term Interest Rate Period, (v) the acquisition, extension, expiration or termination of a Credit Facility or (vi) any amendment to the Reimbursement Agreement or a Credit Facility of which the Trustee has actual knowledge.

ARTICLE XII

EXECUTION OF INSTRUMENTS BY

OWNERS AND PROOF OF OWNERSHIP OF BONDS

Section 12.01 Execution of Instruments; Proof of Ownership. Any request, direction, consent or other instrument in writing, whether or not required or permitted by this Indenture to be signed or executed by Owners of the Bonds, may be in any number of concurrent instruments of similar tenor and may be signed or executed by Owners of the Bonds in person or by agent appointed by an instrument in writing. Proof of the execution of any such instrument and of the ownership or former ownership of Bonds shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee with regard to any action taken by it under such instrument if made in the following manner:

(i) The fact and date of the execution by any person of any such instrument may be proved by the certificate of any officer in any jurisdiction who, by the laws thereof, has power to take acknowledgments within such jurisdiction, to the effect that the person signing such instrument acknowledged before him the execution thereof, or by an affidavit of a witness to such execution, or in any other manner reasonably acceptable to the Trustee.

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(ii) The ownership or former ownership of Bonds shall be proved by the registration books kept under the provisions of Section 2.04 hereof and the records kept by the Trustee pursuant to Section 14.03(c) hereof.

(iii) While the Bonds are in book-entry only form, the beneficial ownership or former ownership of Bonds shall be proved by an instrument in writing signed by such Beneficial Owner and acceptable to the Trustee.

Nothing contained in this Article XII shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of matters herein stated which it may deem to be sufficient. Any request or consent of any Owner of a Bond shall bind every future Owner of any Bond or Bonds issued in lieu thereof or upon registration of transfer or in exchange thereof in respect of anything done by the Trustee or the Issuer in pursuance of such request or consent.

ARTICLE XIII

MODIFICATION OF INDENTURE, DOCUMENTS

Section 13.01 Limitations. This Indenture and the Agreement shall not be modified or amended in any respect subsequent to the initial issuance of the Bonds, except as provided in and in accordance with and subject to the provisions of this Article XIII.

Section 13.02 Modification without Consent of Owners. The Issuer and the Trustee may, from time to time and at any time without the consent of or notice to the Owners of the Bonds but with the consent of the Bond Insurer subject to Section 13.05 hereof, enter into Supplemental Indentures as follows:

(i) to cure any formal defect, omission, inconsistency or ambiguity in this Indenture;

(ii) to grant to or confer upon the Trustee for the benefit of the Owners of the Bonds any additional rights, remedies, powers, authority or security which may lawfully be granted or conferred and which are not contrary to or inconsistent with this Indenture as theretofore in effect;

(iii) to add to the covenants and agreements of, and limitations and restrictions upon, the Issuer in this Indenture other covenants, agreements, limitations and restrictions to be observed by the Issuer which are not contrary to or inconsistent with this Indenture as theretofore in effect;

(iv) to confirm, as further assurance, any pledge or assignment under, and the subjection to any claim, lien, pledge or assignment created or to be created by this Indenture, of the Receipts and Revenues or of any other moneys, securities or funds;

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(v) to authorize different Authorized Denominations of the Bonds and to make correlative amendments and modifications to this Indenture regarding exchangeability of Bonds of different Authorized Denominations, redemptions of portions of Bonds of particular Authorized Denominations and similar amendments and modifications of a technical nature;

(vi) to modify, alter, supplement or amend this Indenture in such manner as shall permit the qualification hereof under the Trust Indenture Act of 1939, as from time to time amended;

(vii) to increase or decrease the number of days specified in Section 2.01(c) hereof and to make corresponding changes to Section 4.03 hereof; provided that no decreases in any such number of days shall become effective except during a Daily Interest Rate Period or a Weekly Interest Rate Period and until 30 days after the Trustee shall have given notice to the Owners;

(viii) to provide for the procedures required to permit or implement an uncertificated system of registration of the Bonds;

(ix) to modify, alter, amend or supplement this Indenture in any other respect which is not materially adverse to the Owners and which does not involve a change described in the provisions of Section 13.03(i) hereof; and

(x) to modify, alter, supplement or amend this Indenture to comply with changes in the Code affecting the status of interest on the Bonds as excluded from gross income for federal income tax purposes or the obligations of the Issuer or the Borrower in respect of Section 148 of the Code.

Before the Issuer shall adopt any Supplemental Indenture pursuant to this Section 13.02, there shall have been provided to the Issuer and the Trustee a Favorable Opinion of Bond Counsel.

Section 13.03 Modification with Consent of Owners.

(i) Except for any Supplemental Indenture entered into pursuant to Section 13.02 hereof, subject to the terms and provisions contained in this Section 13.03, the Owners of not less than a majority in aggregate principal amount of the Bonds shall have the right from time to time to consent to and approve with the consent of the Bond Insurer the adoption by the Issuer of any Supplemental Indenture deemed necessary or desirable by the Issuer for the purposes of modifying, altering, amending, supplementing or rescinding, in any particular, any of the terms or provisions contained in this Indenture; provided, however, that, unless approved in writing by the Owners of all the Bonds, nothing herein contained shall permit, or be construed as permitting, (i) a change in the times, amounts or currency of payment of the principal of or interest or any premium on any Bond, a change in the terms of the purchase of Bonds pursuant to Section 4.08 hereof (other than as permitted by Section 13.02(vii) hereof), or a reduction in the principal amount or redemption price of any Bond or a change in the method of determining the rate of interest thereon, or (ii) the creation of a claim or lien upon, or a pledge or

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assignment of, the Receipts and Revenues ranking prior to or on a parity with the claim, lien, pledge or assignment created by this Indenture, or (iii) a preference or priority of any Bond or Bonds over any other Bond or Bonds, or (iv) a reduction in the aggregate principal amount of Bonds the consent of the Owners of which is required for any such Supplemental Indenture or under Section 13.07 hereof, for any modification, alteration, amendment or supplement to the Agreement.

(ii) If at any time the Issuer shall determine to adopt any Supplemental Indenture for any of the purposes of this Section 13.03, the Trustee shall cause notice of the proposed Supplemental Indenture to be given to all Owners of the Bonds. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that a copy thereof is on file at the Principal Office of the Trustee for inspection by all Owners of the Bonds.

(iii) Within two years after the date of the giving of such notice, the Issuer may adopt (the date of adoption shall be the date of passage and not the effective date) such Supplemental Indenture in substantially the form described in such notice, but only if there shall have first been filed with the Trustee (i) the required consents, in writing, of the Owners of the Bonds and (ii) a Favorable Opinion of Bond Counsel stating that such Supplemental Indenture is authorized or permitted by this Indenture and the Act, complies with their respective terms, and, upon the adoption thereof, will be valid and binding upon the Issuer in accordance with its terms and will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds.

(iv) If Owners of not less than the percentage of Bonds required by this Section 13.03 shall have consented to and approved the adoption thereof as herein provided, no Owner shall have any right to object to the adoption of such Supplemental Indenture, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the propriety of the execution and delivery thereof, or to enjoin or restrain the Issuer from enacting the same or from taking any action pursuant to the provisions thereof.

Section 13.04 Effect of Supplemental Indenture. Upon the adoption of any Supplemental Indenture pursuant to the provisions of this Article XIII, this Indenture shall be, and be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Issuer, the Trustee and all Owners of Bonds then Outstanding shall thereafter be determined, exercised and enforced under this Indenture subject in all respects to such modifications and amendments.

Section 13.05 Consent of the Borrower, the Bank and the Bond Insurer. Anything herein to the contrary notwithstanding, the Trustee (i) shall not execute any Supplemental Indenture under this Article XIII which affects any rights, powers and authority of the Borrower under the Agreement, the Tender Agreement or the applicable Credit Facility or the Bond Insurance Policy or requires a revision of the Agreement, the Tender Agreement or the applicable Credit Facility or the Bond Insurance Policy unless and until the Borrower, the Bank and the Bond Insurer shall have consented to such Supplemental Indenture and (ii) need not accept any Supplemental Indenture which affects its rights, duties and responsibilities hereunder or under the Agreement.

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Section 13.06 Amendment of Agreement without Consent of Owners. Without the consent of or notice to the Owners of the Bonds but with the consent of the Borrower, the Bank and the Bond Insurer, the Issuer may modify, alter, amend or supplement the Agreement, and the Trustee may consent thereto, (a) as may be required by the provisions of the Agreement and this Indenture, (b) for the purpose of curing any formal defect, omission, inconsistency or ambiguity therein, or (c) in connection with any other change therein which is not materially adverse to the Owners. No extension, termination or provision of any substitute Credit Facility in accordance with the provisions of the Agreement shall be deemed a modification, alteration, amendment or supplement to the Agreement, or to this Indenture, for any purpose of this Indenture.

Before the Issuer shall enter into, and the Trustee shall consent to, any modification, alteration, amendment or supplement to the Agreement, pursuant to this Section 13.06, there shall have been delivered to the Issuer and the Trustee, a Favorable Opinion of Bond Counsel.

Section 13.07 Amendment of Agreement with Consent of Owners. Except in the cases of modifications, alterations, amendments or supplements referred to in Sections 13.02 and 13.06 hereof, the Issuer shall not enter into, and the Trustee shall not consent to, any modification, alteration, amendment or supplement of the Agreement, without the written approval or consent of the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding but with the consent of the Borrower, the Bank and the Bond Insurer, given and procured as provided in Sections 13.03 and 13.05 hereof; provided, however, that, unless approved in writing by the Owners of all Bonds then Outstanding, nothing in this Section 13.07 shall permit, or be construed as permitting, a change in the obligations of the Borrower under Section 5.02 or 10.01 of the Agreement. If at any time the Issuer or the Borrower shall request the consent of the Trustee to any such proposed modification, alteration, amendment or supplement, the Trustee shall cause notice thereof to be given in the same manner as provided by Section 13.03 hereof with respect to Supplemental Indentures. Such notice shall briefly set forth the nature of such proposed modification, alteration, amendment or supplement and shall state that copies of the instrument embodying the same are on file at the Corporate Trust office of the Trustee for inspection by all Owners of Bonds Outstanding. The Issuer may enter into, and the Trustee may consent to, any such proposed modification, alteration, amendment or supplement of the Agreement, subject to the same conditions and with the same effect as provided in Section 13.03 hereof with respect to Supplemental Indentures.

Section 13.08 Issuance of Bonds Under Other Indentures; Recognition of Prior Pledges. The Issuer hereby expressly reserves the right to issue, to the extent permitted by law, bonds in accordance with other ordinances and indentures for one or more purposes permitted by the Act. The Issuer hereby recognizes and protects any prior pledge or mortgage made to secure any prior issue of bonds.

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ARTICLE XIV

REMARKETING AGENT; TENDER AGENT;

PURCHASE AND REMARKETING OF BONDS

Section 14.01 Remarketing Agent and Tender Agent.

(a) The Borrower shall appoint a Remarketing Agent for the Bonds, subject to the conditions set forth in Section 14.02(a) hereof. The Remarketing Agent shall designate its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Trustee, the Tender Agent and the Borrower under which the Remarketing Agent will agree, particularly, to keep such books and records with respect to the Bonds as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee, the Tender Agent and the Borrower at all reasonable times.

(b) The Borrower shall appoint a Tender Agent for the Bonds; subject to the conditions set forth in Section 14.02(b) hereof. The Tender Agent shall designate its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Trustee, the Borrower, the Bank, the Bond Insurer and the Remarketing Agent. By acceptance of its appointment hereunder, the Tender Agent agrees:

(A) to hold all Bonds delivered to it pursuant to Section 4.09 hereof, as agent and bailee of, and in escrow for the benefit of, the respective Owners which shall have so delivered such Bonds until moneys representing the purchase price of such Bonds shall have been delivered to or for the account of or to the order of such Owners;

(B) to establish and maintain, and there is hereby established with the Tender Agent, a separate segregated trust fund designated as the “Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company Palo Verde Project) Purchase Fund” (the “Purchase Fund”) until such time as it has been discharged from its duties as Tender Agent hereunder;

(C) to hold all moneys (without investment thereof) delivered to it hereunder in the Purchase Fund for the purchase of Bonds pursuant to Section 4.08 hereof, other than moneys delivered to it by the Borrower during the term of a Credit Facility, as agent and bailee of, and in escrow for the benefit of, the person or entity which shall have so delivered such moneys until the Bonds purchased with such moneys shall have been delivered to or for the account of such person or entity;

(D) to hold all moneys delivered to it by the Borrower for the purchase of Bonds pursuant to Section 4.08 hereof, as agent and bailee of, and in escrow for the benefit of, the Owners or former Owners who shall deliver Bonds

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to it for purchase until the Bonds purchased with such moneys shall have been delivered to or for the account of the Borrower; provided, however, that if the Bonds shall at any time become due and payable, the Tender Agent shall cause such moneys (other than moneys held pursuant to Section 14.03(d) hereof) to be deposited into the Bond Fund;

(E) to hold all Bonds registered in the name of the new Owners thereof which have been delivered to it by the Trustee for delivery to the Remarketing Agent in accordance with the Tender Agreement;

(F) to hold Bonds for the account of the Borrower as contemplated by Section 14.05(c) hereof, such Bonds to be released to or upon the order of the Borrower upon receipt by the Tender Agent from the Bank of a notice to the effect that the Trustee is entitled to draw under a Credit Facility to pay principal of the Bonds and to pay the purchase price of Bonds tendered under Section 4.08 hereof and not remarketed in an amount equal to the amount that could be drawn under a Credit Facility if the drawing made to purchase such Bonds were disregarded;

(G) to hold Bonds for the account of the Bank (or its nominee), or to deliver Bonds to the Bank, as contemplated by Section 14.05(c) hereof; and

(H) to keep such books and records with respect to the Bonds as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee, the Borrower and the Remarketing Agent at all reasonable times.

The Issuer shall cooperate with the Borrower and the Trustee to cause the necessary arrangements to be made and to be thereafter continued to enable the Tender Agent to perform its duties and obligations described above.

Section 14.02 Qualifications of Remarketing Agent and Tender Agent; Resignation; Removal.

(a) The Remarketing Agent shall be a member of the National Association of Securities Dealers, Inc., having a combined capital stock, surplus and undivided profits of at least $15,000,000 and authorized by law to perform all the duties imposed upon it by this Indenture and the Remarketing Agreement. Any successor Remarketing Agent shall have its obligations rated or be a wholly-owned subsidiary of an entity whose obligations are rated, so long as the Bonds shall be rated by Moody’s, at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s. The Remarketing Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving notice to the Issuer, the Trustee, the Bank, if any, the Tender Agent and the Borrower. Such resignation shall take effect on the earlier of: (i) the day a successor Remarketing Agent shall have been appointed by the Borrower and shall have accepted such appointment or (ii) the 45th day after the receipt by the Issuer and the Borrower of the notice of resignation. The Remarketing Agent may be removed at any time, pursuant to the Remarketing Agreement.

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(b) The Tender Agent shall be a corporation duly organized under the laws of the United States of America or any state or territory thereof, and, if not a bank or trust company, for so long as the Bonds shall be rated by Moody’s, shall have its obligations rated at least Baa3/P-3 by Moody’s or otherwise qualified by Moody’s, and in any case having a combined capital stock, surplus and undivided profits of at least $25,000,000 and authorized by law to perform all the duties imposed upon it by this Indenture and the Tender Agreement. The Tender Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 30 days’ notice to the Issuer, the Trustee, the Borrower, the Remarketing Agent, the Bank and the Bond Insurer. Such resignation shall take effect on the day a successor Tender Agent shall have been appointed by the Borrower and shall have accepted such appointment. The Tender Agent may be removed at any time by an instrument signed by the Borrower, filed with the Tender Agent, the Issuer, the Trustee, the Remarketing Agent, the Bank and the Bond Insurer.

In the event of the resignation or removal of the Tender Agent, the Tender Agent shall deliver any Bonds and moneys held by it in such capacity to its successor, or if there is no successor, to the Trustee.

Section 14.03 Notice of Bonds Delivered for Purchase; Purchase of Bonds.

(a) The Tender Agent shall determine timely and proper delivery of Bonds pursuant to this Indenture and the proper endorsement of such Bonds. Such determination shall be binding on the Owners of such Bonds, the Issuer, the Borrower, the Remarketing Agent, the Trustee and the Bank absent manifest error. As promptly as practicable, the Tender Agent shall give telephonic or Electronic notice, promptly confirmed by a written notice, to the Bank, if any, the Bond Insurer, the Trustee, the Remarketing Agent, the Registrar and the Borrower specifying the principal amount of Bonds, if any, for which it has received notice of tender for purchase in accordance with Section 4.08(a)(i) or 4.08(a)(ii) hereof.

(b) Bonds required to be purchased in accordance with Section 4.08 hereof shall be purchased from the Owners thereof by the Tender Agent, on the date and at the purchase price at which such Bonds are required to be purchased if the Bank shall not have exercised its option to purchase such Bonds pursuant to Section 4.07 hereof. Funds for the payment of such purchase price by the Tender Agent from the Owners of Bonds shall be derived from the following sources in the order of priority indicated:

(i) moneys furnished to the Tender Agent for deposit into the Purchase Fund representing moneys provided by the Borrower pursuant to Section 10.02 of the Agreement, which constitute Available Moneys;

(ii) proceeds of the sale of such Bonds remarketed to any person, other than the Issuer, the Borrower or an affiliate thereof, pursuant to Section 14.04 hereof and furnished to the Tender Agent by the Remarketing Agent for deposit into the Purchase Fund;

(iii) moneys furnished to the Tender Agent by the Trustee for deposit into the Purchase Fund representing the proceeds of a drawing under a Credit Facility; and

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(iv) moneys furnished to the Tender Agent representing moneys provided by the Borrower (or any affiliate thereof) pursuant to Section 10.01 or 10.02 of the Agreement or otherwise available for such purpose.

Moneys described in clause (iii) may not be used to purchase Bonds held of record by the Borrower (or any affiliate thereof) or by the Tender Agent for the account of the Borrower.

The Tender Agent shall establish separate accounts or subaccounts within the Purchase Fund for each deposit made into the Purchase Fund so that (1) the Tender Agent may at all times ascertain the date of deposit of the funds in each account or subaccount, and (2) the amounts derived from the source described in clause (iii) may be segregated from other sources and such amounts shall not be commingled with any funds from the sources described in clause (D).

(c) The Trustee shall authenticate a new Bond or Bonds in an aggregate principal amount equal to the principal amount of Bonds purchased in accordance with Section 14.03(b), whether or not the Bonds so purchased are presented by the Owners thereof, bearing a number or numbers not contemporaneously outstanding. Every Bond authenticated and delivered as provided in this Section 14.03(c) shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Bonds duly issued hereunder, except as provided in Section 5.04(c) hereof. The Tender Agent shall maintain a record of the Bonds purchased as provided in this Section 14.03, together with the names and addresses of the former Owners thereof.

(d) In the event any Bonds purchased as provided in this Section 14.03 shall not be presented to the Tender Agent, the Tender Agent shall segregate and hold the moneys for the purchase price of such Bonds in trust for the benefit of the former Owners of such Bonds, who shall, except as provided in the following sentence, thereafter be restricted exclusively to such moneys for the satisfaction of any claim for the purchase price of such Bonds. Any moneys which the Tender Agent shall segregate and hold in trust for the payment of the purchase price of any Bond and remaining unclaimed for two years after the date of purchase shall, to the extent legally permissible, upon the Borrower’s written request to the Tender Agent, be paid to the Bank, if the Borrower then owes funds under the Reimbursement Agreement, to the Bond Insurer, if the Borrower owes funds under the Insurance Agreement or otherwise to the Borrower. After the payment of such unclaimed moneys to the Borrower, the former Owner of such Bond shall look only to the Borrower for the payment thereof.

Section 14.04 Remarketing of Bonds; Notice of Interest Rates.

(a) Upon notice of the tender for purchase of Bonds in accordance with Section 4.08 hereof, the Remarketing Agent shall offer for sale and use its best efforts to sell such Bonds (other than Bonds purchased with moneys derived from the source described in clause (i) of Section 14.03(b) hereof, if so directed by the Borrower), any such sale to be made on the date of such purchase in accordance with Section 4.08 at the best price available in the marketplace; provided, however, that, if a Credit Facility shall be in effect, the Remarketing Agent shall not sell any of such Bonds at a price below the principal amount thereof plus accrued interest thereon, if any. Any Bond which is tendered for purchase, pursuant to Section 4.08 hereof, and any Bond that has become subject to mandatory tender for purchase pursuant to Section 4.08 hereof, shall be sold only to a purchaser who agrees to refrain from selling that Bond other than under the terms of this Indenture and hold that Bond only to the date of mandatory purchase.

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(b) The Remarketing Agent shall determine the rate of interest to be borne by the Bonds during each Interest Rate Period and by each Bond during each Bond Interest Term for such Bond and the Bond Interest Terms for each Bond during each Short-Term Interest Rate Period as provided in Section 2.01 hereof and shall furnish to the Trustee, the Tender Agent, the Borrower and the Bank on the Business Day of determination each rate of interest and Bond Interest Term so determined.

(c) The Remarketing Agent shall give telephonic or telegraphic notice, promptly confirmed by a written notice, to the Trustee and the Tender Agent on each date on which Bonds shall have been purchased pursuant to Section 14.03(b) hereof, specifying the principal amount of Bonds, if any, sold by it pursuant to Section 14.04(a) hereof.

Section 14.05 Delivery of Bonds.

(a) Bonds purchased with moneys described in clause (i) of Section 14.03(b) hereof shall be delivered to the Borrower and shall be registered in accordance with instructions from the Borrower.

(b) Bonds purchased with moneys described in clause (ii) of Section 14.03(b) hereof shall be delivered by the Trustee to the Tender Agent or the Remarketing Agent for delivery to the purchasers thereof against payment therefor in accordance with the Tender Agreement.

(c) Bonds purchased with moneys described in clause (iii) of Section 14.03(b) hereof shall be:

(i) except as otherwise provided in Section 14.05(c)(ii) or (iii) hereof, held by the Tender Agent for the account of the Borrower, if a Credit Facility provides for reinstatement in respect of the drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed by reimbursement to the Bank of the amount of such drawing together with interest thereon;

(ii) delivered to the Bank, as applicable, if a Credit Facility provides for immediate reinstatement in respect of drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed by the delivery to the Bank of such Bonds or otherwise requires that Bonds be delivered to the Bank;

(iii) held by the Tender Agent. for the account of the Bank, if a Credit Facility provides for immediate reinstatement in respect of drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed by the holding for the account of the Bank of such Bonds or otherwise requires that Bonds be held for the account of the Bank; or

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(iv) delivered to the Trustee for cancellation, if a Credit Facility does not provide for reinstatement in respect of drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof and not remarketed.

Upon delivery to the Bank, or to the Tender Agent for the account of the Bank, of the Bonds in accordance with clause (ii) or (iii) above, the Trustee shall deliver any certificate evidencing such reimbursement or delivery of Bonds to or for the account of the Bank, as applicable, required for reinstatement, in whole or in part, of any Credit Facility. Bonds held pursuant to clauses (i), (ii) and (iii) above shall be released for the purpose of remarketing or released to or upon the order of the Borrower only upon receipt by the Tender Agent from the Bank of a written notice to the effect that the Trustee is entitled to draw under a Credit Facility to pay principal of and interest on the Bonds and to pay the purchase price of Bonds purchased pursuant to Section 4.08 hereof and not remarketed in an amount equal to the amount that could be drawn under a Credit Facility if the drawing made to purchase such Bonds were disregarded.

(d) Bonds purchased with moneys described in clause (iv) of Section 14.03(b) hereof shall, at the direction of the Borrower, be (i) held by the Tender Agent for the account of the Borrower, (ii) delivered to the Trustee for cancellation or (iii) delivered to the Borrower; provided, however, that any Bonds so purchased after the selection thereof by the Trustee for redemption shall be delivered to the Trustee for cancellation.

(e) Bonds delivered as provided in this Section 14.05 shall be registered in the manner directed by the recipient thereof.

(f) Bonds purchased by the Trustee on behalf of or for the account of the Bank (or its nominee) pursuant to Section 4.07 shall be delivered promptly to the Bank (or its nominee, as the case may be), or as the Bank shall otherwise direct and thereafter, if requested by the Bank, remarketed in accordance with the provisions of Section 14.04 hereof and the Remarketing Agreement.

Section 14.06 Drawings on Credit Facility. In accordance with the provisions of the Tender Agreement, on each day on which Bonds are to be purchased pursuant to Section 4.08 hereof, except to the extent that (i) moneys described in Section 14.03(b)(i) hereof shall be available for the purchase of such Bonds, or (ii) the Trustee shall have received telephonic or Electronic notification from the Remarketing Agent or the Tender Agent that such Bonds shall have been remarketed pursuant to Section 14.04 hereof and that the moneys described in Section 14.03(b)(ii) hereof will be sufficient to pay the purchase price of such Bonds or (iii) the Bank shall have purchased the Bonds pursuant to Section 4.07 hereof, the Trustee promptly shall draw under a Credit Facility, in accordance with its terms, an amount sufficient to make timely payment of the purchase price of such Bonds and furnish the proceeds of such drawing to the Tender Agent. Following payment of all amounts payable in respect of the purchase of Bonds pursuant to Section 4.08 hereof, the Trustee shall remit to the Bank any amount drawn under a Credit Facility in excess of the amount sufficient to make timely payment of the purchase price of such Bonds.

Section 14.07 Delivery of Proceeds of Sale. The proceeds of the sale by the Remarketing Agent of any Bonds delivered to it by, or held by it for the account of, the Borrower

93

or the Bank, or delivered to it by the Bank or any other Owner, shall be turned over to the Borrower, the Bank or such other Owner, as the case may be. If the applicable Credit Facility provides for reinstatement in respect of the drawings for the purchase of Bonds tendered pursuant to Section 4.08 hereof by reimbursement to the Bank of the amount of such drawing, the Remarketing Agent shall deliver the proceeds of such remarketing to the Bank to the extent the Bank has not been reimbursed, and in connection therewith, the Trustee shall deliver any certificate required for reinstatement, in whole or in part, of any Credit Facility.

ARTICLE XV

MISCELLANEOUS

Section 15.01 Indenture to Bind and Inure to Benefit of Successors to Issuer. In the event of the dissolution of the Issuer, all the covenants, stipulations, promises and agreements in this Indenture contained, by or on behalf of, or for the benefit of, the Issuer, shall bind or inure to the benefit of the successors of the Issuer from time to time and any entity, officer, board, commission, agency or instrumentality to whom or to which any power or duty of the Issuer shall be transferred.

Section 15.02 Parties in Interest. Except as herein otherwise specifically provided, nothing in this Indenture expressed or implied is intended or shall be construed to confer upon any person, firm or corporation, other than the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer and the Owners, any right, remedy or claim under or by reason of this Indenture, this Indenture being intended to be for the sole and exclusive benefit of the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer and the Owners of the Bonds. Nothing in this Indenture is intended to create in the Borrower any interest in the Bond Fund or the moneys or Investment Securities therein.

Section 15.03 Severability. In case any one or more of the provisions of this Indenture or of the Bonds issued hereunder shall, for any reason, be held to be illegal or invalid, such illegality or invalidity shall not affect any other provisions of this Indenture, the Agreement, the Remarketing Agreement, the Tender Agreement or said Bonds, and this Indenture, the Agreement, the Remarketing Agreement, the Tender Agreement and the Bonds shall be construed and enforced as if such illegal or invalid provisions had not been contained herein or therein.

Section 15.04 No Personal Liability of Issuer Under Indenture. No covenant or agreement contained in the Bonds or in this Indenture shall be deemed to be the covenant or agreement of any official, officer, agent, or employee of the Issuer in his individual capacity, and neither the members of the Issuer’s Board of Directors nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof.

Section 15.05 Bonds Owned by the Issuer or the Borrower. In determining whether Owners of the requisite aggregate principal amount of the Bonds have concurred in any direction, consent or waiver under this Indenture, Bonds which are owned by the Issuer or the Borrower or by any affiliate of the Borrower (unless the Issuer, the Borrower and such persons

94

own all Bonds which are then Outstanding, determined without regard to this Section 15.05) shall be disregarded and deemed not to be Outstanding for purpose of any such determination, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Bonds which the Trustee knows are so owned shall be so disregarded. Bonds so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Bonds and that the pledgee is not the Issuer or the Borrower or any affiliate of the Borrower. Bonds delivered to the Bank, the Bond Insurer or held by the Tender Agent for the account of the Bank pursuant to Section 14.05(c) hereof shall be regarded as Outstanding for purposes of this Section 15.05 and shall be owned by the Bank or the Bond Insurer for purposes of this Section 15.05.

Section 15.06 Governing Law. This Indenture and the Bonds shall be construed in accordance with and governed by the Constitution and laws of the State of Arizona; provided however, that the rights, protections and immunities of the Trustee shall be governed by the laws of the State of California.

Section 15.07 Notices. Except as otherwise provided in this Indenture, all notices, certificates, requests, requisitions or other communications by the Issuer, the Borrower, the Trustee, the Bond Insurer, the Tender Agent, the Paying Agent, the Registrar, the Remarketing Agent, Moody’s, S&P, Fitch, the Bond Insurer and the Bank pursuant to this Indenture shall be in writing and shall be sufficiently given and shall be deemed given when mailed by first-class mail, postage prepaid, addressed as follows:

If to the Trustee:

Union Bank of California, N.A.

120 S. San Pedro Street, 4^th Floor

Los Angeles, CA 90012

Attention: Corporate Trust Department

If to the Remarketing Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

If to the Tender Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

95

If to the Bond Insurer:

Financial Guaranty Insurance Company

125 Park Avenue

New York, New York 10017

Attention: Risk Management

Fax: (212) 312-3093

If to the Fiscal Agent (for the Bond Insurer):

U.S. Bank Trust National Association

100 Wall Street, 19^th Floor

New York, New York 10005

Attention: Corporate Trust Department

If to Moody’s:

Moody’s Investors Service

99 Church St.

New York, New York 10007-2796

Attention: Structured Finance Group

If to S&P:

Standard & Poor’s Rating Services

55 Water Street, 38^th Floor

New York, New York 10041

Attention: Public Finance Department

                    Structured Finance Group

If to Fitch:

Fitch Ratings

One State Street Plaza

New York, New York 10004

Attention: Municipal Structured Finance

If to the Registrar, the Paying Agent and the Bank, at the address designated herein or designated to the Issuer, the Borrower and the Trustee. Any of the foregoing may, by notice given hereunder to each of the others, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent hereunder.

Section 15.08 Non-Business Days. If the last day of any period of grace, or the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Indenture, is not a Business Day, the last day of such period of grace shall be deemed to be, any such payment may be made or act performed or right exercised, with the same force and effect as if done on the nominal date provided in this Indenture, on the next succeeding Business Day, and no interest shall accrue for the period after such nominal date.

Section 15.09 Opinions. Each opinion with respect to the validity of documents or Bonds may be qualified to the extent of the application of bankruptcy, insolvency, moratorium or reorganization laws or laws affecting the remedies for the enforcement of the rights and security provided therein and need not pass on the availability of the remedy of specific enforcement, injunctive relief or any other equitable remedy.

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Section 15.10 Headlines; Table of Contents. The division of this Indenture into sections, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof.

Section 15.11 Execution in Several Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Issuer and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument.

Section 15.12 Bond Insurer as Third-Party Beneficiary. To the extent that this Indenture confers upon or gives or grants to the Bond Insurer any right, remedy, benefit, or claim under or by reason of this Indenture, the Bond Insurer is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy, benefit, or claim conferred, given, or granted hereunder.

Section 15.13 Additional Covenants of the Issuer to Bond Insurer. The Issuer covenants to provide the Bond Insurer with the following information:

(a) Notice of the redemption, other than mandatory sinking fund redemption, of any of the Bonds, or of any advance refunding of Bonds, including the principal amount, maturities, and CUSIP numbers thereof;

(b) Notice of any material events pursuant to Rule 15c2-12 under the Securities Exchange Act of 1934, as amended;

(c) Notice of any rate covenant violation with respect to the Bonds;

(d) Full transcripts of all proceedings related to the execution of any Supplemental Indenture or any modification, alteration, amendment or supplement of the Agreement pursuant to Article XIII hereof; and

(e) Such additional information as the Bond Insurer may reasonably request from time to time.

Section 15.14 Statutory Notice. In accordance with the terms thereof, notice is hereby given of Title 38, Chapter 3, Section 38-511, Arizona Revised Statutes, which provides, among other things, that the State of Arizona, its political subdivisions or any department or agency of either may, within three years after its execution, cancel any contract, without penalty or further obligation, made by said State, its political subdivisions, or any of the departments or agencies of either if any person significantly involved in initiating, negotiating, securing, drafting or creating the contract on behalf of said State, its political subdivisions or any of the departments or agencies of either is, at any time while the contract or any extension of the contract is in effect, an employee or agent of any other party to the contract in any capacity or a consultant to any other party of the contract with respect to the subject matter of the contract.

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IN WITNESS WHEREOF, the Issuer has caused this Indenture to be signed in its name by its duly authorized officer, and the Trustee, in token of its acceptance of the trust created hereunder, has caused this Indenture to be signed in its name by its duly authorized signatory, all as of the day and year first above written.

MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION
By:
	President
UNION BANK OF CALIFORNIA, N.A.,
as Trustee
By:
	Authorized Officer

EXHIBIT A

[FORM OF BOND]

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE, BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

AS PROVIDED IN THE INDENTURE REFERRED TO HEREIN, UNTIL THE TERMINATION OF THE SYSTEM OF BOOK-ENTRY ONLY TRANSFERS THROUGH DTC, AND NOTWITHSTANDING ANY OTHER PROVISION OF THE INDENTURE TO THE CONTRARY, A PORTION OF THE PRINCIPAL AMOUNT OF THIS BOND MAY BE PAID OR REDEEMED WITHOUT SURRENDER HEREOF TO THE PAYING AGENT. DTC OR A NOMINEE, TRANSFEREE OR ASSIGNEE OF DTC AS OWNER OF THIS BOND MAY NOT RELY UPON THE PRINCIPAL AMOUNT INDICATED HEREON AS THE PRINCIPAL AMOUNT HEREOF OUTSTANDING AND UNPAID. THE PRINCIPAL AMOUNT HEREOF OUTSTANDING AND UNPAID SHALL FOR ALL PURPOSES BE THE AMOUNT DETERMINED IN THE MANNER PROVIDED IN THE INDENTURE AND INDICATED ON THE BOOKS OF THE TRUSTEE.

No. R-1 $37,100,000

MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION

Pollution Control Refunding

Revenue Bond, 2005 Series C

(El Paso Electric Company Palo Verde Project)

Maturity Date	Original Issue Date	CUSIP
May 1, 2040	August 1, 2005	566854DF9
Registered Owner: Cede & Co.
Principal Sum: $37,100,000

A-1

Maricopa County, Arizona Pollution Control Corporation, a political subdivision of the State of Arizona (the “Issuer”), for value received, hereby promises to pay (but only from the source and in the manner provided herein) to the registered owner named above, or registered assigns, on the Maturity Date specified above upon the presentation and surrender hereof, the Principal Sum specified above and to pay (but only out of the Receipts and Revenues from the Agreement and other moneys pledged therefor) interest on said Principal Sum, from and including the date of authentication hereof until payment of said Principal Sum has been made or duly provided for, at the rates and on the dates determined as described herein and in the Indenture (as hereinafter defined). The principal of and any premium on this Bond are payable at a principal corporate trust office of Union Bank of California, N.A., as Trustee and Paying Agent. Interest on this Bond is payable to the person appearing on the bond registration books of the Registrar as the registered holder thereof as of the close of business on the Record Date, such interest to be paid by the Paying Agent to such registered holder (i) in the event such Bond is a Book-Entry Bond, in immediately available funds on the Interest Payment Date in accordance with the Representation Letter, and (ii) in the event such Bond is not a Book-Entry Bond (A) in immediately available funds (by wire transfer or by deposit to the account of the holder of at least $1,000,000 of Bonds if such account is maintained with the Paying Agent), according to the written instructions given by such holder to the Registrar prior to the Record Date or (B) in all other cases, by check mailed by first class mail to the holder at such holder’s address as it appears as of the Record Date on the registration books of the Registrar; except, in each case, that, if and to the extent that there shall be a default in the payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid to the holder in whose name any such Bond is registered as of a Special Record Date to be fixed by the Trustee, notice of which shall be given to such holder not less than ten (10) days prior thereto. Notwithstanding the foregoing, interest on any Bond bearing a Bond Interest Term Rate (except any such Bond which is a Book-Entry Bond) shall be paid only upon presentation to the Tender Agent of the Bond on which such payment is due. Payment of the principal of and interest and any premium on this Bond shall be in such coin or currency of the United States of America as, at the respective times of payment, shall be legal tender for the payment of public and private debts.

Unless otherwise defined herein, all terms herein shall have the same meanings, respectively, as such terms are given in the Indenture.

THE BOND AND INTEREST THEREON ARE LIMITED OBLIGATIONS OF THE ISSUER ISSUED UNDER AND SECURED AND ENTITLED EQUALLY AND RATABLY TO THE PROTECTION GIVEN BY THE INDENTURE. NEITHER THE GENERAL CREDIT OF MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION NOR THE GENERAL CREDIT OR THE TAXING POWER OF THE STATE OF ARIZONA OR OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED FOR THE PAYMENT OF THE BOND, THE BOND SHALL NEVER CONSTITUTE AN INDEBTEDNESS OF THE MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION WITHIN THE MEANING OF ANY STATE CONSTITUTIONAL PROVISION OR STATUTORY LIMITATION AND SHALL NEVER GIVE RISE TO A PECUNIARY LIABILITY OF THE MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION OR A CHARGE AGAINST ITS GENERAL CREDIT OR TAXING POWER; NOR SHALL THE BOND AND INTEREST THEREON BE DEEMED A GENERAL OBLIGATION OF MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION OR OF THE STATE OF ARIZONA OR OF ANY POLITICAL SUBDIVISION THEREOF.

A-2

This Bond is one of the duly authorized issue of bonds designated as Maricopa County, Arizona Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company Palo Verde Project), of the Issuer, aggregating thirty-seven million one hundred thousand Dollars ($37,100,000) in principal amount (the “Bonds”), as provided in, and issued under and secured by, an Indenture of Trust, dated as of July 1, 2005 (the “Indenture”), between the Issuer and Union Bank of California, N.A, or its successors and assigns, as trustee (the “Trustee”). The Bond are authorized to be issued pursuant to a resolution duly adopted by the Issuer on April 19, 2005 and the provisions of the Constitution of the State of Arizona and Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), and all acts supplemental thereto or amendatory thereof (the “Act”).

The Bonds are equally and ratably secured, to the extent provided in the Indenture by a pledge of and lien on, the “Receipts and Revenues,” consisting primarily of loan repayments made be El Paso Electric Company (the “Borrower”) under the terms of a Loan Agreement dated as of July 1, 2005 (the “Agreement”), between the Issuer and the Borrower. The Bonds are all issued under and equally and ratably secured by and entitled to the benefits of the Indenture, including the security of a pledge and assignment of certain revenues and receipts derived by the Issuer pursuant to the Agreement and any Credit Facility provided by the Borrower with respect to the Bonds (as described herein) and all receipts of the Trustee credited under the provisions of the Indenture against such payments and from any other moneys held by the Trustee under the Indenture for such purpose, and there shall be no other recourse against the Issuer or any property now or hereafter owned by it. This Bond and all other Bonds of the series of which it forms a part are issued pursuant to and in full compliance with the Constitution and laws of the State of Arizona, particularly the Act, and pursuant to further proceedings adopted by the governing body of the Issuer, which proceedings authorized the execution and delivery of the Indenture and the Agreement. This Bond and the series of which it forms a part are limited obligations of the Issuer payable solely from the amounts derived under the Agreement and pledged under the Indenture, including all amounts payable from time to time by the Borrower in respect of the indebtedness under the Agreement and all receipts of the Trustee credited under the provisions of the Indenture against said amounts payable. No owner of any Bond issued under the Act has the right to compel any exercise of the taxing power of the Issuer to pay the Bonds, or the interest or premium, if any, thereon. The Project (as defined in the Agreement) is not security for the Bonds.

In the manner hereinafter provided, the term of this Bond will be divided into consecutive Interest Rate Periods during each of which this Bond shall bear interest at a Daily Interest Rate (a “Daily Interest Rate Period”), a Weekly Interest Rate (a “Weekly Interest Rate Period”), a Long-Term Interest Rate or Rates (a “Long-Term Interest Rate Period”), or each Bond may bear interest at a Bond Interest Term Rate during one or more consecutive Bond Interest Terms (a “Short-Term Interest Rate Period”). The first Interest Rate Period shall be the Interest Rate Period as specified in the Indenture.

A-3

This Bond is initially issued as an ARS bearing interest as an auction rate security in a 7-day mode as provided in Article IIIA of the Indenture and the Auction Procedures described in and attached to the Indenture as Exhibit B. As provided in and subject to the terms of the Indenture, the Bonds from time to time may be converted to pay interest at the Daily Interest Rate, Weekly Interest Rate, Long-Term Interest Rate or Bond Interest Term Rates or to be ARS paying interest in the same or a different mode. Determinations of interest rates, adjustments between interest rates, and conversion of Interest Rate Periods and ARS modes shall be as provided in the Indenture.

When this Bond is an ARS, interest shall be computed on the basis of a 360-day year for the actual number of days elapsed. For each ARS Interest Period after the first ARS Interest Period, the interest rate shall be the Auction Rate determined according to the Auction Procedures. When this Bond bears interest at a Daily Interest Rate, a Weekly Interest Rate or Bond Interest Term Rates, interest shall accrue on the basis of the actual number of days elapsed during the Interest Rate Period and a year of 365 days (366 days in a leap year). When this Bond bears interest at a Long-Term Interest Rate, interest shall accrue on the basis of a 360-day year composed of twelve 30-day months. While in an ARS Interest Period this Bond shall be issued in denominations of $25,000 or integral multiples thereof.

This Bond shall bear interest from and including the Interest Accrual Date (as hereinafter defined) to which interest has been paid in full or duly provided for immediately preceding the date of authentication hereof, or, if such date of authentication shall be an Interest Accrual Date to which interest on this Bond has been paid in full or duly provided for, or the date of initial authentication hereof, from its date of authentication; provided, however, that if, as shown by the records of the Trustee, interest on this Bond shall be in default, any Bond issued in exchange for this Bond if it is surrendered for registration of transfer or exchange shall bear interest from the date to which interest has been paid in full on this Bond or duly provided for or, if no interest has been paid on this Bond or duly provided for, the date of the first authentication of this Bond under the provisions of the Indenture. For any Daily Interest Rate Period and any Weekly Interest Rate Period, interest on this Bond shall be payable on each Interest Payment Date for the period commencing on the preceding Interest Accrual Date (unless such Interest Payment Date does not fall on an Interest Accrual Date, in which case on the second preceding Interest Accrual Date) and ending on the day immediately preceding the Interest Accrual Date on which such Interest Payment Date falls (unless such Interest Payment Date does not fall on an Interest Accrual Date, in which case on the day immediately preceding the immediately preceding Interest Accrual Date). For any Short-Term Interest Rate Period or Long-Term Interest Rate Period, interest on this Bond shall be payable on each Interest Payment Date for the period commencing on the immediately preceding Interest Accrual Date and ending on the day immediately preceding such Interest Payment Date. In any event, interest on this Bond shall be payable for the final Interest Rate Period to the date on which this Bond shall have been paid in full. Interest shall be computed, in the case of a Long-Term Interest Rate Period, on the basis of a 360-day year consisting of twelve 30-day months, and in the case of any other Interest Rate Period, on the basis of a 365- or 366-day year, as appropriate, and the actual number of days elapsed. The Bonds shall be issuable in the form of registered Bonds without coupons in the denomination of (i) $25,000 and any integral multiple thereof, during any Long-Term Interest Rate Period and (ii) $100,000 and any integral multiple of $5,000 in excess of $100,000 during any Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period (such denominations referred to herein as “Authorized Denominations”).

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The term “Interest Accrual Date” shall mean (i) with respect to any Daily Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Daily Interest Rate Period, (ii) with respect to any Weekly Interest Rate Period, the first day thereof and, thereafter, the first day of each calendar month during that Weekly Interest Rate Period, (iii) with respect to any Long-Term Interest Rate Period, the first day thereof and, thereafter, each Interest Payment Date in respect thereof, other than the last such Interest Payment Date, and (iv) with respect to each Bond Interest Term within a Short Term Interest Rate Period, the first day thereof. The Term “Interest Payment Date” shall mean (i) with respect to any Daily or Weekly Interest Rate Period, the first Business Day of each calendar month, (ii) with respect to any Long-Term Interest Rate Period, each May 1 and November 1 occurring during such Long-Term Interest Rate Period, and the Business Day next succeeding the last day thereof, (iii) with respect to any Short-Term Interest Rate Period, the Business Day next succeeding the last day thereof, and (iv) in all events, the redemption date or the Maturity Date. The term “Business Day” shall mean a day on which banks located in the cities in which the Principal Offices of the Trustee and the Tender Agent are located, and in the city or cities in which drawings under a Credit Facility are required to be made, are not required or authorized by law or executive order to remain closed and on which the New York Stock Exchange, Inc. is not closed.

(1) Daily Interest Rate

(i) Determination of Daily Interest Rate. During each Daily Interest Rate Period, the Bonds shall bear interest at the Daily Interest Rate determined by the Remarketing Agent on or before each Business Day for such Business Day. The Daily Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of the Daily Interest Rate determined by 10:30 a.m. (New York City time) on the date of determination. If the Remarketing Agent shall not have determined a Daily Interest Rate for any day by 10:30 a.m. (New York City time) on such day, the Daily Interest Rate shall be the same as the Daily Interest Rate for the immediately preceding day. In no event shall the Daily Interest Rate be greater than the Maximum Bond Interest Rate.

(ii) Adjustment to Daily Interest Rate Period. At any time, the Borrower, by written notice to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear interest at a Daily Interest Rate. Such notice (1) shall specify the effective date of such adjustment to a Daily Interest Rate and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of the interest on the Bonds.

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(2) Weekly Interest Rate.

(i) Determination of Weekly Interest Rate. During each Weekly Interest Rate Period, the Bonds shall bear interest at the Weekly Interest Rate, which shall be determined by the Remarketing Agent no later than the first day of such Weekly Interest Rate Period and thereafter no later than 10:00 a.m. (New York City time) on Wednesday of each week during such Weekly Interest Rate Period, unless any such Wednesday shall not be a Business Day, in which event the Weekly Interest Rate shall be determined by the Remarketing Agent no later than the Business Day immediately preceding such Wednesday. The Weekly Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. If for any reason, a Weekly Interest Rate is not so established for any period by the time specified above by the Remarketing Agent, the Weekly Interest Rate shall be the same as the Weekly Interest Rate in effect for the immediately preceding week. In no event shall any Weekly Interest Rate exceed the Maximum Bond Interest Rate. The first Weekly Interest Rate determined for each Weekly Interest Rate Period shall apply to the period commencing on the first day of such Weekly Interest Rate Period and ending on the next succeeding Tuesday, unless such Weekly Interest Rate Period shall end on a day other than Tuesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period shall apply to the period commencing on the Wednesday preceding the last day of such Weekly Interest Rate Period and ending on such last day. The Remarketing Agent shall provide the Trustee and the Borrower with written, telephonic or Electronic notice of each Weekly Rate, as determined, by 12:00 noon (New York City time) on the effective date of such Weekly Rate.

(ii) Adjustment to Weekly Interest Rate. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear interest at a Weekly Interest Rate. Such direction (1) shall specify the effective date of such adjustment to a Weekly Interest Rate; and (2) if the adjustment is from a Long-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(3) Long-Term Interest Rate.

(i) Determination of Long-Term Interest Rate. During each Long-Term Interest Rate Period, the Bonds shall bear interest at the Long-Term Interest Rate, which shall be determined by the Remarketing Agent on a Business Day selected by the Remarketing Agent but not more than forty (40) days prior to and not later than the effective date of such Long-Term Interest Rate Period. The Long Term Interest Rate shall be the rate of interest per annum determined by the

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Remarketing Agent on such date, and communicated by the close of business on such date to the Trustee, the Paying Agent and the Borrower, by written, telephonic or Electronic notice as being the lowest interest rate which would enable the Remarketing Agent to sell the Bonds for delivery on the effective date of such Long-Term Interest Rate Period at a price (without regard to accrued interest) equal to 100% of the principal amount thereof; provided, however, that if, for any reason, a Long-Term Interest Rate for any Long-Term Interest Rate Period shall not be determined or effective or if an adjustment from a Long-Term Interest Rate Period to another Interest Rate Period shall not be effective, the Interest Rate Period for the Bonds shall automatically convert to a Daily Interest Rate Period; provided, further, however, that if the Favorable Opinion of Bond Counsel required by Section 2.01(c)(ii)(B) of the Indenture in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii)(A) of the Indenture, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Index. In no event shall any Long-Term Interest Rate be greater than the Maximum Bond Interest Rate.

(ii) Adjustment to or Continuation of Long-Term Interest Rate. At any time, the Borrower, by written notice to the Issuer, the Bank, the Trustee, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear or continue to bear interest at a Long-Term Interest Rate and if it shall so elect, shall determine the duration of the Long-Term Interest Rate Period during which the Bonds shall bear interest at such Long-Term Interest Rate. Each Long-Term Interest Rate Period shall have a duration such that the last day of such Long-Term Interest Rate Period is (1) a day which both immediately precedes a Business Day and is at least one year after the effective date of such Long-Term Interest Rate Period or (2) if earlier, the day immediately preceding the Maturity Date. At the time the Borrower so elects an adjustment to or continuation of a Long-Term Interest Rate Period, the Borrower may specify two or more consecutive Long-Term Interest Rate Periods and, if the Borrower so specifies, shall specify the duration of each such Long-Term Interest Rate Period as provided in this paragraph. Such notice shall specify the effective date of each such Long-Term Interest Rate Period. In addition, such notice (i) shall specify the last day of such Long-Term Interest Rate Period, and (ii) if the adjustment is from a Daily, Weekly or Short-Term Interest Rate Period, shall be accompanied by a Favorable Opinion of Bond Counsel to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act, and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

If, by the thirty-fifth day prior to the last day of any Long-Term Interest Rate Period, the Trustee shall not have received notice of the Borrower’s election that, during the next succeeding Interest Rate Period, the Bonds shall bear interest at a Daily Interest Rate, a Weekly Interest Rate, a Long-Term Interest Rate, or a Bond

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Interest Term Rate accompanied by appropriate opinions of Bond Counsel, if required by Section 2.01(c)(ii)(B), (iii)(B), (iv)(B) or (v)(B) of the Indenture, the next succeeding Interest Rate Period for the Bonds shall be a Daily Interest Rate Period; provided, however, that if the opinion of Bond Counsel required by Section 2.01(c)(ii)(B) of the Indenture in connection with an adjustment to a Daily Interest Rate Period from a Long-Term Interest Rate Period cannot be obtained, then the Interest Rate Period for the Bonds shall automatically convert to a Long-Term Interest Rate Period of one year and one day. If a Daily Interest Rate for the first day of such Daily Interest Rate Period is not determined as provided in Section 2.01(c)(ii) of the Indenture, the Daily Interest Rate for the first day of such Daily Interest Rate Period shall be equal to the BMA Index.

At the same time that the Borrower elects to have the Bonds bear interest at a Long-Term Interest Rate or continue to bear interest at a Long-Term Interest Rate, the Borrower may also specify to the Trustee optional redemption prices and periods different from (including that there be no such optional redemption) those set out in Section 4.01(a)(ii)(C) of the Indenture during the Long-Term Interest Rate Period(s) with respect to which such election is made; provided, however, that such notice shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such changes (i) are authorized or permitted by the Act and the Indenture, and (ii) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(4) Bond Interest Term Rate.

(i) Determination of Bond Interest Terms and Bond Interest Term Rates.

During each Short-Term Interest Rate Period, each Bond shall bear interest during each Bond Interest Term for such Bond at the Bond Interest Term Rate for such Bond. Each Bond Interest Term and Bond Interest Term Rate for any Bond shall be a period of at least one day but not more than the lesser of (x) 270 days or (y) the number of days of interest coverage on the Bonds provided for in any Credit Facility then in effect minus five (5) days. When a Credit Facility, if any, other than a Letter of Credit is in effect with respect to the Bonds or no Credit Facility is in effect with respect to the Bonds, each Bond Interest Term for any Bond shall be a period of at least one day but not more than 270 days. Each Bond Interest Term for any Bond shall be a period determined by the Remarketing Agent to be, in its judgment, the period which, taking into account prevailing market conditions and all other Bond Interest Terms and Bond Interest Term Rates for all Bonds then Outstanding, is likely to result in the lowest overall net interest expense on all such Bonds; provided, however, that any such Bond purchased on behalf of the Borrower and remaining unsold in the hands of the Remarketing Agent as of 1:00 p.m. (New York City time) on the effective date of the Bond Interest Term for such Bond shall have a Bond Interest Term of one day or, if such Bond Interest Term would not end on a day immediately preceding a Business Day, a Bond Interest Term of more than one day ending on the day immediately preceding the next Business Day; provided, further, however, that

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(1) each Bond Interest Term shall end on a day which immediately precedes a Business Day and no Bond Interest Term shall extend beyond the day immediately preceding the Maturity Date or, if a Credit Facility, if any, is then in effect with respect to the Bonds, the scheduled expiration date of such Credit Facility, and (2) if for any reason the Remarketing Agent fails or is unable to determine a Bond Interest Term on any Bond, the Bond Interest Term for such Bond shall be one day, unless such Bond Interest Term would end on a day which does not precede a Business Day, in which case such Bond Interest Term shall end on the day immediately preceding the next succeeding Business Day.

The Bond Interest Term Rate for each Bond Interest Term for each Bond shall be the rate of interest per annum determined by the Remarketing Agent no later than 1:00 p.m. (New York City time) on the first day of such Bond Interest Term to be the lowest interest rate which would enable the Remarketing Agent to sell such Bonds on the effective date of such interest rate at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. The Remarketing Agent shall provide the Trustee and the Borrower with telephonic or Electronic notice of each Bond Interest Term Rate and Bond Interest Term by 1:00 p.m. (New York City time) on the date of determination. If a Bond Interest Term Rate for a Bond Interest Term of one day is not determined or effective by 1:00 p.m. (New York City time) on such day, the Bond Interest Term Rate for such Bond Interest Term of one day shall be equal to the BMA Index. In no event shall any Bond Interest Term Rate exceed the Maximum Bond Interest Rate.

Notwithstanding the foregoing, in the event that notice of redemption with respect to any Bond in a Short-Term Interest Rate Period shall have been given to the holder of such Bond by the Trustee pursuant to Section 4.03 of the Indenture, no subsequent Bond Interest Terms or Bond Interest Term Rates shall be determined with respect to such Bond.

(ii) Adjustment to or Continuation of Bond Interest Term Rates. At any time, the Borrower, by written direction to the Issuer, the Trustee, the Bank, if any, the Tender Agent and the Remarketing Agent, may elect that the Bonds shall bear interest at Bond Interest Term Rates. Such direction (1) shall specify the effective date of the Short-Term Interest Rate Period during which the Bonds shall bear interest at Bond Interest Term Rates; and (2) shall be accompanied by a Favorable Opinion of Bond Counsel addressed to the Trustee to the effect that such adjustment (a) is authorized or permitted by the Indenture and the Act and (b) will not adversely affect the Tax-Exempt status of interest on the Bonds.

(iii) Adjustment from Short-Term Interest Rate Period. At any time during a Short-Term Interest Rate Period, the Borrower may elect that the Bonds shall no longer bear interest at Bond Interest Term Rates and shall instead bear interest as otherwise permitted under the Indenture. The Borrower shall give written notice to the Issuer, the Trustee, the Paying Agent and the Remarketing Agent, if any, of such election and shall specify the Interest Rate Period to follow with respect to such Bonds upon cessation of the Short-Term Interest Rate Period and instruct the

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Remarketing Agent to (1) determine Bond Interest Terms of such duration that, as soon as possible, all Bond Interest Terms shall end on the same date, not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice, and upon the establishment of such Bond Interest Term the day next succeeding the last day of all such Bond Interest Terms shall be the effective date of the Interest Rate Period elected by the Borrower; or (2) determine Bond Interest Terms that will best promote an orderly transition to the next succeeding Interest Rate Period to apply to the Bonds, beginning not earlier than twenty-four (24) days (or such shorter period acceptable to the Trustee) following the delivery by the Borrower of such written notice. If the alternative in clause (2) above is selected, the day next succeeding the last day of the Bond Interest Term for each Bond shall be with respect to such Bond the effective date of the Interest Rate Period elected by the Borrower. The Remarketing Agent, promptly upon the determination thereof, shall give written notice of such last day and such effective dates to the Issuer, the Borrower, the Trustee and the Tender Agent. During any transitional period from a Short-Term Interest Rate Period to the next succeeding Interest Rate Period in accordance with clause (2) above, the provisions of the Indenture shall be deemed to apply to the Bonds as follows: the Bonds continuing to bear interest at Bond Interest Term Rates shall have applicable to them the provisions thereunder theretofore applicable to such Bonds as if all Bonds were continuing to bear interest at Bond Interest Term Rates and the Bonds bearing interest in the Interest Rate Period to which the transition is being made will have applicable to them the provisions thereunder as if all Bonds were bearing interest in such Interest Rate Period.

(5) Terms of Credit Facility, If Any. The Bonds shall be insured by a Bond Insurance Policy provided by the Bond Insurer. No Credit Facility is currently in effect for the Bonds. A Credit Facility shall be required if the Bonds are converted to any Interest Rate Period other than a Long-Term Interest Rate Period and in such event, the Borrower shall be required to obtain prior written approval from the Bond Insurer for such Credit Facility and for a Bank providing such Credit Facility stating that the terms of such Credit Facility shall be satisfactory to the Bond Insurer, which approval shall not be unreasonably withheld. If a Credit Facility in the form of a letter of credit is to be held by the Trustee after the effective date of any adjustment from one Interest Rate Period to another Interest Rate Period, such Credit Facility, if any, shall be in an amount sufficient to provide payment of (x) the principal amount of the Outstanding Bonds plus (y) the amount of interest (computed on the basis of a 365-day year in the case of an adjustment to a Daily Interest Rate Period, Weekly Interest Rate Period or Short-Term Interest Rate Period, and on the basis of a 360-day year consisting of twelve 30-day months in the case of an adjustment to a Long-Term Interest Rate Period) which will accrue on the Outstanding Bonds for a period equal to the maximum number of days between Interest Payment Dates during the new Interest Rate Period plus five (5) days. In the case of an adjustment to a Long-Term Interest Rate Period, a Credit Facility, if any, to be in effect after the effective date of such adjustment shall (i) extend for a period ending on a date no earlier than five (5)

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days after the first date on which the Bonds may be called for redemption pursuant to Section 4.01(a)(ii) of the Indenture and (ii) cover the premium, if any, which would be included in the purchase price upon mandatory purchase of the Bonds pursuant to Section 4.08(b) of the Indenture if the term of such Credit Facility was not extended beyond the expiration date set forth therein.

(6) Notice of Adjustment to Daily, Weekly or Long-Term Interest Rate or Bond Interest Terms Rates; Bonds Counsel Opinions; Remarketing Agent; Tender Agent.

(i) Except as otherwise provided in the Indenture, the Trustee shall give notice by first-class mail of an adjustment to a Daily, Weekly, Short-Term or Long-Term Interest Rate Period, as the case may be, to the Owners of the Bonds not less than fifteen (15) days (thirty (30) days if the then current Interest Rate Period is a Long-Term Interest Rate Period) prior to the effective date of such Daily, Weekly, Short-Term or Long-Term Interest Rate Period.

(ii) Adjustment to a Daily, Weekly, Short-Term or Long-Term Interest Rate Period, except for successive Long-Term Interest Rate Periods, requires a contemporaneous Favorable Opinion of Bond Counsel. “Favorable Opinion of Bond Counsel” means an opinion of Bond Counsel to the effect that the action proposed to be taken is authorized by the laws of the State of Arizona and the Indenture and will not adversely affect any exclusion from gross income for federal income tax purposes of interest on the Bonds.

(iii) The initial Remarketing Agent appointed under the Indenture shall be Citigroup Global Markets Inc.

(iv) The initial Tender Agent appointed under the Indenture shall be Citigroup Global Markets Inc.

(7) (i) Purchase of Bonds During Daily Interest Rate Period. During any Daily Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest from the Interest Accrual Date immediately prior to the date of purchase to the date of purchase (unless the date of purchase shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office, by no later than 11:00 a.m. (New York City time), on such Business Day, of an irrevocable written, telephonic or Electronic notice which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 of the Indenture. The Tender Agent shall keep a written record of the notice described in Clause (A).

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(ii) Purchase of Bonds During Weekly Interest Rate Period. During any Weekly Interest Rate Period, any Bond or portion thereof in an Authorized Denomination shall be purchased on any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, from the Interest Accrual Date immediately prior to the date of purchase to the date of purchase (unless the date of purchase shall be an Interest Accrual Date, in which case at a purchase price equal to the principal amount thereof), payable in immediately available funds, upon (A) delivery to the Tender Agent at its Principal Office, by no later than 5:00 p.m. (New York City time), on such Business Day at least seven (7) days prior to the date of purchase of an irrevocable written, telephonic or Electronic notice which states the principal amount of such Bond to be tendered for purchase and the date of purchase, and (B) delivery of such Bond tendered for purchase to the Tender Agent at its Principal Office on the date of purchase in accordance with Section 4.09 of the Indenture. The Tender Agent shall keep a written record of the notice described in Clause (A).

(iii) Mandatory Tender for Purchase On Day Next Succeeding the Last Day of Each Bond Interest Term. Each Bond in a Short-Term Interest Rate Period shall be subject to mandatory tender for purchase on the day next succeeding the last day of each Bond Interest Term with respect to such Bond, at a purchase price equal to 100% of the principal amount thereof, plus accrued interest to the date of purchase, except as provided in Section 4.08(b)(ii) of the Indenture; or

(iv) Mandatory Tender for Purchase on First Day of Each Interest Rate Period. The Bonds shall be subject to mandatory tender for purchase on the effective date of any change in an Interest Rate Period for such Bond, other than the effective date of any change from a Daily Interest Rate Period to a Weekly Interest Rate Period or from a Weekly Interest Rate Period to a Daily Interest Rate Period, at a purchase price equal to 100% of the principal amount thereof, plus accrued interest to the date of purchase, except as provided in Section 4.08(b)(ii) of the Indenture; or

(v) Mandatory Tender for Purchase on First Day of Long-Term Interest Rate Period Following Prior Long-Term Interest Rate Period. This Bond shall be subject to mandatory tender for purchase, at the purchase price, payable in immediately available funds, specified in the Indenture, on the first day of each Long-Term Interest Rate Period which was preceded by a Long-Term Interest Rate Period.

(vi) Mandatory Tender for Purchase on Effective Date of any Credit Facility. This Bond shall be subject to mandatory tender for purchase, at the purchase price, payable in immediately available funds, specified in the Indenture, on the effective date of any Credit Facility which may be provided with respect to the Bonds pursuant to Section 6.08 of the Agreement or of any substitute Credit Facility provided with respect to the Bonds pursuant to Section 6.08 of the Agreement.

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(vii) Mandatory Tender for Purchase on Termination or Expiration of Credit Facility. In the event that any Credit Facility either is to terminate or is to expire in accordance with its terms (other than because a final drawing thereunder shall have been made in accordance with its terms), unless the term of the Credit Facility shall be extended or unless the Borrower shall provide the Trustee, no later than the 35^th day preceding the mandatory purchase date set forth herein with a substitute Credit Facility and with written evidence from Moody’s, if the Bonds shall be rated at the time by Moody’s, and from S&P, if the Bonds shall be rated at the time by S&P, to the effect that such substitute Credit Facility will not, by itself, result in a reduction or withdrawal of the rating on the Bonds by Moody’s or S&P, as the case may be (and the Trustee shall have received written notice of such extension or such substitution and evidence thereof prior to giving the notice required in paragraph (viii) below), the Bonds shall be subject to mandatory tender for purchase at a purchase price, payable in immediately available funds, of 100% of their principal amount, plus accrued interest, if any, to the mandatory purchase date, on the second Business Day prior to the date of such termination or expiration.

(viii) Notice of Mandatory Tender for Purchase. In connection with any mandatory tender for purchase of this Bond in accordance with paragraph 7(iii), (iv), (v), (vi) or (vii) above, the Trustee shall give notice by first-class mail to the Owner of this Bond at the time and in the form specified in the Indenture.

(ix) Bonds Deemed Purchased. If moneys sufficient to pay the purchase price of Bonds to be purchased pursuant to Section 4.08 of the Indenture shall be held by the Tender Agent on the date such Bonds are to be purchased, such Bonds shall be deemed to have been purchased for all purposes of the Indenture, irrespective of whether or not such Bonds shall have been delivered to the Tender Agent, and neither the former holder of such Bonds nor any other person shall have any claim thereon, under the Indenture or otherwise, for any amount other than the purchase price thereof, provided, however, that in the case of a failed Conversion of ARS, no mandatory purchase described above shall apply.

In the event of non-delivery of any Bond to be purchased pursuant to Section 4.08 of the Indenture, the Tender Agent shall segregate and hold uninvested the moneys for the purchase price of such Bonds in trust, without liability for interest thereon, for the benefit of the former holders of such Bonds, who shall, except as provided in the following sentence, thereafter be restricted exclusively to such moneys for the satisfaction of any claim for the purchase price of such Bonds. Any moneys which the Tender Agent shall segregate and hold in trust for the payment of the purchase price of any Bond and remaining unclaimed for two (2) years after the date of purchase shall be paid, upon the Borrower’s written request, to the Borrower. After the payment of such unclaimed moneys to the Borrower, the former holder of such Bond shall look only to the Borrower for the payment thereof.

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(8) Redemption Provisions. The Bonds shall be subject to redemption prior to the Maturity Date by the exercise by the Borrower of any of its options to prepay all or a part of the unpaid balance of the Repayment Installments and cause the Bonds to be redeemed, in whole, or in part by lot, prior to the Maturity Date, as follows:

(i) During any Short-Term Interest Rate Period, each Bond shall be subject to such redemption on the day next succeeding the last day of each Bond Interest Term for such Bond at a redemption price equal to 100% of the principal amount thereof.

(ii) During any Daily Interest Rate Period or Weekly Interest Rate Period, the Bonds shall be subject to such redemption on any Interest Payment Date at a redemption price equal to 100% of the principal amount thereof.

(iii) On the day next succeeding the last scheduled day of any Long-Term Interest Rate Period, the Bonds shall be subject to such redemption at a redemption price of 100% of the principal amount thereof. During any Long-Term Interest Rate Period, the Bonds shall be subject to redemption during the periods specified below, in whole or in part, at the redemption prices (expressed as percentages of principal amount) hereinafter indicated (unless different redemption terms shall be specified by the Borrower pursuant to Section 2.01(c)(iv)(B) of the Indenture):

Length of Long-Term Interest Rate Period (expressed in years)	Redemption Prices
Greater than 17	After 10 years at 102% declining by 1% every 12 months to 100%
Less than or equal to 17 and greater than 10	After 8 years at 102%, declining by 1% every 12 months to 100%
Less than or equal to 10 and greater than 7	After 6 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 7 and greater than 4	After 3 years at 101%, declining by 1/2 of 1% every 6 months to 100%
Less than or equal to 4 and greater than 3	After 2 years at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%

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Length of Long-Term Interest Rate Period (expressed in years)	Redemption Prices
Less than or equal to 3 and greater than 2	After 1 year at 100 1/2%, declining by 1/2 of 1% after 6 months to 100%
Less than or equal to 2 and greater than 1	After 1 year at 100%
1 year or less	Not redeemable

(iv) During any Long-Term Interest Rate Period, the Bonds shall be subject to redemption prior to the Maturity Date at the option of the Borrower in whole or in part by lot on any Interest Payment Date, at a redemption price equal to 100% of the principal amount thereof, if the Borrower delivers to the Trustee a written or Electronic notice to the effect that either:

(a) the Borrower has determined that some or all of the interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period is not or will not be deductible, in whole or in part, for federal income tax purposes by reason of Section 150(b) of the Code (or would not be deductible unless some or all of the Bonds are redeemed) due to a change in use of the Project or any portion thereof, and the Borrower will not claim deductions for such interest on its federal income tax returns; or

(b) the Borrower after reasonable effort has been unable to obtain an opinion of Bond Counsel that it is more likely than not that Section 150 of the Code will not prevent interest payable under the Agreement for any sixty (60) days (which need not be consecutive) within any consecutive twenty-four (24) month period from being deductible, in whole or in part, for federal income tax purposes.

In either such case, the Borrower shall only cause the Trustee to redeem Bonds as provided in this paragraph 8(iv) on or after the Interest Payment Date immediately preceding the date on which, due to a change in use in the Project or any portion thereof, the period of potential interest expense disallowance described above commences, and the Borrower may only cause the Trustee to redeem such principal amount of Bonds as the Borrower determines is necessary to assure that the Borrower retains its right to all such deductions otherwise allowable or, if a partial redemption will not enable the Borrower to retain the right to deduct such interest, the Borrower may cause the Trustee to redeem all the Outstanding Bonds.

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(v) During any Long-Term Interest Rate Period, the Bonds shall be redeemed prior to the Maturity Date in whole or in part, and if in part by lot, at any time at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, upon receipt by the Trustee of a written notice of the Borrower and signed by an Authorized Borrower Representative stating that any of the following events has occurred (which determination shall be in the sole discretion of the Borrower) and that the Borrower therefore intends to exercise its option to prepay all payments due under the Agreement in whole or in part pursuant to Section 9.01 of the Agreement and thereby effect the redemption of Bonds in whole or in part to the extent of such prepayments:

(a) All or part of the Project or the Plant shall have been damaged or destroyed to such an extent that, in the opinion of the Borrower, (i) the Project or the Plant or such affected portion could not reasonably be restored within a period of four (4) months to the condition thereof immediately preceding such damage or destruction, and the Borrower or the operator of the Project or the Plant will be prevented, or is likely to be prevented for a period of four (4) consecutive months or more, from carrying on all or substantially all of its normal operation of the Project or the Plant, or (ii) the cost of restoration of the Project or the Plant or such affected portion will be substantially in excess of the net proceeds of insurance thereon.

(b) Title to, or the temporary use of, all or a part of the Project or the Plant shall have been taken under the exercise of the power of eminent domain.

(c) Changes in economic availability of raw materials, operating supplies or facilities necessary to operate all or a part of the Project or the Plant, or technological or other changes which make the continued operation of the Project or the Plant or such affected portion uneconomical, in the opinion of the Borrower, shall have occurred and shall have resulted in a cessation of all or substantially all of the Borrower’s normal operations of either the Project or the Plant.

(d) Unreasonable burdens or excessive liabilities shall have been imposed upon the Issuer or the Borrower in respect of all or a part of the Project or the Plant including, without limitation, federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Agreement, as well as any statute or regulation enacted or promulgated after the date of the Agreement that prevents the Borrower from deducting interest in respect of the Agreement for federal income tax purposes.

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(e) All or substantially all of the property of the Borrower shall be transferred or sold to any entity other than an affiliate of the Borrower or the Borrower shall be consolidated with or merged into an entity other than an affiliate of the Borrower in such manner that the Borrower is not the surviving entity and the surviving, resulting or transferee entity does not agree to perform the obligations of the Borrower.

Notwithstanding any term or provision of this paragraph 8(v) to the contrary, the Bonds shall not be subject to optional redemption unless (i) the Bank, if any, shall consent thereto in writing and deliver such consent to the Borrower and the Trustee, (ii) in connection with such redemption, the proceeds of such refunding shall be sufficient to pay, and shall be used to pay, the redemption price of the Bonds so redeemed or (iii) sufficient Available Moneys (other than proceeds of any drawing under a Letter of Credit, if any) shall have been deposited by the Borrower with the Trustee for the payment of all amounts due in respect of all Bonds called for redemption pursuant to this paragraph 8(v). This paragraph shall be inapplicable if at the time of such optional redemption there is no Letter of Credit or other Credit Facility with respect to the Bonds.

(vi) The Bonds shall be subject to redemption prior to the Maturity Date from amounts which are required to be prepaid by the Borrower under Section 9.03 of the Agreement, as set forth below:

(a) The Bonds shall be redeemed in whole on any date at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date upon the occurrence of a Determination of Taxability; provided, however, that if, in the opinion of Bond Counsel delivered to the Trustee, the redemption of a specified portion of such Bonds Outstanding would have the result that interest payable on such Bonds remaining Outstanding after such redemption would remain Tax-Exempt, then such Bonds shall be redeemed in part by lot (in Authorized Denominations), in such amount as Bond Counsel in such opinion shall have determined is necessary to accomplish that result.

(b) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that as a result of any changes in the Constitution of the United States of America or the Constitution of the State or as a result of any legislative, judicial or administrative action, the Agreement shall have become void or unenforceable or impossible to perform in accordance with the intention and purposes of the parties thereto, or shall have been declared unlawful.

(c) The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that at least thirty-five (35) days prior to the expiration of any Credit Facility, if any, then in effect with respect to the Bonds the

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Trustee shall not have received (a) a renewal or extension of the existing Credit Facility for a period of at least one (1) year (or, if shorter, the period to the Maturity Date) or (b) a substitute Credit Facility meeting the requirements of Section 6.08 of the Agreement. Such redemption shall occur on the last Business Day which is not less than five (5) calendar days preceding the expiration date of a Credit Facility, if any, then in effect.

(vii) ARS Interest Rate Period. The ARS are subject to redemption by the Issuer, at the written direction of the Borrower, on any ARS Interest Payment Date, in whole or in part in an Authorized Denomination, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued but unpaid interest to the redemption date, without premium.

(viii) The Bonds shall be subject to mandatory redemption prior to the Maturity Date on any date, in whole but not in part, at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date prior to any merger, consolidation, reorganization or conversion of the Borrower, or any sale or other disposition of all or substantially all of the Borrower’s assets if the successor to such merger, consolidation or disposition is not a public utility (including a holding company) regulated by the applicable state regulatory body or the Federal Energy Regulatory Commission.

(9) Selection of Bonds to be Redeemed. If less than all the Bonds shall be called for redemption the Trustee shall select the Bonds or any given portion thereof to be redeemed, from Outstanding Bonds or any given portion thereof not previously called for redemption, by lot. For the purpose of any such selection the Trustee shall assign a separate number for each minimum Authorized Denomination of each Bond of a denomination of more than such minimum; provided that following any such selection, both the portion of such Bond to be redeemed and the portion remaining shall be in Authorized Denominations. The Trustee shall promptly notify the Issuer and the Borrower in writing of the numbers of the Bonds or portions thereof so selected for redemption.

(10) Miscellaneous.

(i) The transfer of this Bond shall be registered upon the registration books kept at the corporate trust office of the Trustee, as Registrar, at the written request of the Owner hereof or his attorney duly authorized in writing, upon surrender of this Bond at said office, together with the attached instrument of transfer duly executed by the Owner or his duly authorized attorney.

(ii) The Owner of this Bond shall have no right to enforce the provisions of the Indenture, or to institute action to enforce the covenants therein, or to take any action with respect to any default under the Indenture, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture.

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(iii) With certain exceptions as provided therein, the Indenture and the Agreement may be modified or amended only with the consent of the owners of not less than a majority in aggregate principal amount of all Bonds Outstanding under the Indenture.

(iv) Reference is hereby made to the Indenture and the Agreement, copies of which are on file with the Trustee, for the provisions, among others, with respect to the nature and extent of the rights, duties and obligations of the Issuer, the Borrower, the Trustee, the Tender Agent and the Remarketing Agent appointed pursuant to the Indenture and the Owners of the Bonds. The owner of this Bond, by the acceptance hereof, is deemed to have agreed and consented to the terms and provisions of the Indenture and the Agreement.

(v) The Issuer, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent and the Bank may deem and treat the person in whose name this Bond is registered on the registration books of the Issuer maintained by the Registrar as the absolute owner hereof for all purposes, whether or not this Bond is overdue, and neither the Issuer, the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Remarketing Agent nor the Bank shall be affected by any notice to the contrary.

(vi) No covenant or agreement contained in this Bond or the Indenture shall be deemed to be the covenant or agreement of any elected or appointed commissioner, official, officer, agent, servant or employee of the Issuer in his individual capacity, and neither the members of the Board of Directors of the Issuer, nor any official executing this Bond, shall be liable personally on this Bond or be subject to any personal liability or accountability by reason of the issuance of this Bond.

IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required by the Constitution and the statutes of the State of Arizona, the governing rules and procedures of the Issuer and the Indenture to exist, to have happened and to have been performed precedent to and in the issuance of this Bond, do exist, have happened and have been performed.

No officer or official of the Issuer shall be individually or personally liable for payment of the Bonds or the interest thereon or be subject to any personal liability or accountability by reason of the issuance thereof.

This Bond shall not be entitled to any right or benefit under the Indenture, or be valid or become obligatory for any purpose, until this Bond shall have been authenticated by the manual execution by the Trustee, or its successor as Trustee, of the certificate of authentication inscribed hereon.

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IN WITNESS WHEREOF, Maricopa County, Arizona Pollution Control Corporation has caused this Bond to be executed by its President, Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer by his or her manual or facsimile signature and has caused such execution to be attested by its President, Vice President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer with his or her manual or facsimile signature; provided, however, that the officer so attesting this Bond shall not be the same officer who executed this Bond.

Dated as of the Original

Issue Date set forth above.

MARICOPA COUNTY, ARIZONA
POLLUTION CONTROL CORPORATION
By:
	Authorized Officer

ATTEST:
By:
	Authorized Officer

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STATEMENT OF INSURANCE

Financial Guaranty Insurance Company (“Financial Guaranty”) has issued a policy containing the following provisions with respect to the Bonds, such policy being on file at the principal office of Union Bank of California, N.A., as paying agent (the “Paying Agent”):

Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal or accreted value (if applicable) of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the “Issuer”) shall have failed to provide. Due for payment means, with respect to principal or accreted value (if applicable), the stated maturity date thereof, or the date on which the same shall have been duly called for mandatory sinking fund redemption and the date on which the Bonds shall have been duly called for mandatory redemption as a result of the interest on the Bonds having been determined to have become subject to federal income taxation, and does not refer to any earlier date on which the payment of principal or accreted value (if applicable) of the Bonds is due by reason of call for redemption (other than mandatory sinking fund redemption), acceleration or other advancement of maturity, and with respect to interest, the stated date for payment of such interest.

Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that the required payment of principal, accreted value or interest (as applicable) has not been made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, or its successor as its agent (the “Fiscal Agent”), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder’s right to receive such payment and any appropriate instruments of assignment required to vest all of such Bondholder’s right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder.

As used herein the term “Bondholder” means the person other than the Issuer or the borrower(s) of bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof.

The policy is non-cancellable for any reason.

FINANCIAL GUARANTY INSURANCE COMPANY

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(Form of Trustee’s Certificate of Authentication).

CERTIFICATE OF AUTHENTICATION

This is to certify that this Bond is one of the Bonds described in the within-mentioned Indenture.

UNION BANK OF CALIFORNIA, N.A., as Trustee
By:
	Authorized Signature
Date of Authentication:

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(Form for Transfer)

COMPLETE AND SIGN THIS FORM FOR

REGISTRATION OF TRANSFER OR TRANSFER

For value received                      hereby sells, assigns and transfers unto                      this Bond and hereby irrevocably constitutes and appoints                                 , Attorney, to register such transfer on the books of registration in the office of the Registrar with full power of substitution in the premises.

Dated:

NOTE: The signatures on this assignment must correspond with the names as written on the face of this Bond in every particular, without alteration, enlargement or any change whatsoever.

Signatures must be guaranteed in accordance with the terms of one of the nationally recognized medallion signature guarantee programs.

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EXHIBIT B

AUCTION PROCEDURES

Section 1.01. Orders by Existing Owners and Potential Owners. (a) Prior to the Submission Deadline on each Auction Date:

(i) each Existing Owner of ARS may submit to a Broker-Dealer by telephone or otherwise an Order, consisting of information as to:

(A) the principal amount of Outstanding ARS, if any, held by such Existing Owner which such Existing Owner desires to continue to hold without regard to the Auction Rate for the next succeeding ARS Interest Period (a “Hold Order”);

(B) the principal amount of Outstanding ARS, if any, held by such Existing Owner which such Existing Owner offers to sell if the Auction Rate for the next succeeding ARS Interest Period shall be less than the rate per annum specified by such Existing Owner (a “Bid”); and/or

(C) the principal amount of Outstanding ARS, if any, held by such Existing Owner which such Existing Owner irrevocably offers to sell without regard to the Auction Rate for the next succeeding ARS Interest Period (a “Sell Order”); and

(ii) for the purpose of implementing the Auctions and thereby to achieve the lowest possible Auction Rate, one or more Broker-Dealers may contact Potential Owners, including Persons that are Existing Owners, to determine the principal amount of the ARS, if any, which each such Potential Owner irrevocably offers to purchase if the Auction Rate for the next succeeding ARS Interest Period is not less than the rate per annum then specified by such Potential Owner (also a “Bid”).

For the purposes hereof, each Hold Order, Bid and Sell Order is herein referred to as an “Order” and each Existing Owner and each Potential Owner placing an Order is herein referred to as “Bidder”.

(b) (i) Subject to provisions of Section 1.02 hereof, a Bid by an Existing Owner shall constitute an irrevocable offer to sell, in each case for settlement in same day funds on the next ARS Interest Payment Date therefor at a price equal to 100% of the principal amount thereof:

(A) the principal amount of Outstanding ARS specified in such Sell Order if Sufficient Clearing Bids exist; or

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(B) such principal amount or a lesser principal amount of Outstanding ARS to be determined as described in subsection (a)(v) of Section 1.04 hereof, if the Auction Rate shall be equal to the rate specified in such Bid; or

(C) such principal amount or a lesser principal amount of Outstanding ARS to be determined as described in subsection (b)(iv) of Section 1.04 hereof, if such specified rate shall be higher than the ARS Maximum Rate and Sufficient Clearing Bids have not been made.

(ii) Subject to provisions of Section 1.02 hereof, a Sell Order by an Existing Owner shall constitute an irrevocable offer to sell, in each case for settlement in same day funds on the next ARS Interest Payment Date therefor at a price equal to 100% of the principal amount thereof:

(A) the principal amount of Outstanding ARS specified in such Sell Order if Sufficient Clearing Bids exist; or

(B) such principal amount or a lesser principal amount of Outstanding ARS as described in subsection (b)(iv) of Section 1.04 hereof, if Sufficient Clearing Bids have not been made.

(iii) Subject to provisions of Section 1.02 hereof, a Bid by a Potential Owner shall constitute an irrevocable offer to purchase, in each case for settlement in same day funds on the next ARS Interest Payment Date therefor at a price equal to 100% of the principal amount thereof:

(A) the principal amount of Outstanding ARS specified in such Bid if the Auction Rate shall be higher than the rate specified in such Bid; or

(B) such principal amount or a lesser principal amount of Outstanding ARS as described in subsection (a)(vi) of Section 1.04 hereof, if the Auction Rate shall be equal to the rate specified in such Bid.

(c) Anything herein to the contrary notwithstanding:

(i) for purposes of any Auction, any Order which specifies the ARS to be held, purchased or sold in a principal amount which is not $25,000 or an integral multiple of $5,000 in excess thereof shall be rounded down to the nearest $25,000 or an integral multiple of $5,000 in excess thereof, and the Auction Agent shall conduct the Auction Procedures as if such Order had been submitted in such lower amount;

(ii) for purposes of any Auction, any portion of an Order of an Existing Owner which relates to an ARS which has been called for redemption on or prior to the Interest Payment Date next succeeding such Auction shall be invalid with respect to such portion and the Auction Agent shall conduct the Auction Procedures as if such portion of such Order had not been submitted;

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(iii) for purposes of any Auction, no portion of an ARS which has been called for redemption on or prior to the Interest Payment Date next succeeding such Auction shall be included in the calculation of Available ARS for such Auction.

Section 1.02. Submission of Orders by Broker-Dealers to Auction Agent. (a) Each Broker-Dealer shall submit to the Auction Agent in writing or by such other method as shall be reasonably acceptable to the Auction Agent, including such electronic communication acceptable to the parties, prior to the Submission Deadline on each Auction Date, all Orders obtained by such Broker-Dealer and, if requested, specifying with respect to each Order:

(i) the name of the Bidder placing such Order;

(ii) the aggregate principal amount of the ARS, if any, that are the subject to such Order;

(iii) to the extent that such Bidder is an Existing Owner, each Broker-Dealer shall specify:

(A) the principal amount of the ARS, if any, subject to any Hold Order placed by such Existing Owner;

(B) the principal amount of the ARS, if any, subject to any Bid placed by such Existing Owner and the rate specified in such Bid; and

(C) the principal amount of the ARS, if any, subject to any Sell Order placed by such Existing Owner.

(iv) to the extent such Bidder is a Potential Owner, each Broker-Dealer shall specify the rate specified in such Potential Owner’s Bid.

(b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next higher one-thousandth of one percent (0.001%).

(c) If an Order or Orders covering all Outstanding ARS held by an Existing Owner is not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to have been submitted on behalf of such Existing Owner covering the principal amount of Outstanding ARS held by such Existing Owner and not subject to Orders submitted to the Auction Agent; provided, however, that if there is a change from one Auction Period to another Auction Period and Orders have not been submitted to the Auction Agent prior to the Submission Deadline covering the aggregate principal amount of Outstanding ARS held by such Existing Owner, the Auction Agent shall deem a Sell Order to have been submitted on behalf of such Existing Owner covering the principal amount of Outstanding ARS held by such Existing Owner not subject to Orders submitted to the Auction Agent.

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(d) If any Existing Owner submits through a Broker-Dealer to the Auction Agent one or more Orders covering in the aggregate more than the principal amount of Outstanding ARS held by such Existing Owner a, such Orders shall be considered valid as follows and in the order of priority described below:

(i) all Hold Orders shall be considered valid Hold Orders, but only up to and including in the aggregate the principal amount of Outstanding ARS held by such Existing Owner, and if the aggregate principal amount of ARS subject to such Hold Orders exceeds the aggregate principal amount of ARS held by such Existing Owner, the aggregate principal amount of ARS subject to each such Hold Order shall be reduced so that the aggregate principal amount of ARS subject to such Hold Orders equals the aggregate principal amount of Outstanding ARS held by such Existing Owner;

(ii) (A) any Bid of an Existing Owner shall be considered valid Bid of an Existing Owner up to and including the excess of the principal amount of Outstanding ARS held by such Existing Owner over the aggregate principal amount of the ARS subject to any Hold Orders referred to in paragraph (i) above;

(B) subject to clause (A) above, if more than one Bid with the same rate is submitted on behalf of such Existing Owner and the aggregate principal amount of Outstanding ARS subject to such Bids is greater than such excess, such Bids shall be considered valid up to and including the amount of such excess;

(C) subject to clauses (A) and (B) above, if more than one Bid with different rates is submitted on behalf of such Existing Owner, such Bids shall be considered valid Bids of an Existing Owner first in the ascending order of their respective rates until the highest rate is reached at which such excess exists and then at such rate up to and including the amount of such excess; and

(D) in any such event, the principal amount, if any, of such Outstanding ARS subject to Bids not considered to be valid Bids of an Existing Owner under the provisions described in this paragraph (ii) shall be treated as the subject of a Bid by a Potential Owner at the rate therein specified.

(iii) all Sell Orders shall be considered valid Sell Orders, but only up to and including the excess of the principal amount of Outstanding ARS subject to Hold Orders and valid Bids referred to in paragraphs (i) and (ii) above.

(e) If more than one Bid for ARS is submitted on behalf of any Potential Owner, each Bid submitted shall be a separate Bid with the rate and principal amount therein specified. Any Bid or Sell Order submitted by an Existing Owner covering an aggregate principal amount of ARS not equal to an Authorized Denomination shall be rejected and shall be deemed a Hold Order. Any Bid submitted by a Potential Owner covering an aggregate principal amount of ARS not equal to an Authorized Denomination shall be rejected. Any Bid specifying a rate higher than ARS Maximum Rate shall be treated as a Sell Order if submitted by an Existing Owner and will not be accepted if submitted by a Potential Owner. Any Bids submitted by Existing Owners

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or on behalf of Potential Owners specifying a rate lower than the All-Hold Rate shall be considered as valid Bids and shall be selected in the ascending order of their respective rates contained in the Submitted Bids.

A Hold Order, a Bid or a Sell Order that has been determined valid pursuant to the procedures described in paragraphs (a) through (e) above is referred to as a “Submitted Hold Order”, a “Submitted Bid” and a “Submitted Sell Order”, respectively (collectively, the “Submitted Orders”).

(f) Any Order submitted in an Auction by a Broker-Dealer to the Auction Agent prior to the Submission Deadline on any Auction Date shall be irrevocable.

(g) Neither the Borrower, the Issuer, the Trustee nor the Auction Agent shall be responsible for any failure of any Broker-Dealer to submit an Order to the Auction Agent on behalf of any Existing Owner or Potential Owner, nor shall any of the Borrower, the Issuer, the Trustee or the Auction Agent be responsible for failure by any Securities Depository to effect any transfer or to provide the Auction Agent with current information regarding registration or transfers..

Section 1.03. Determination of Auction Rate. (a) Not later than 9:30 a.m., New York, New York time, on each Auction Date, the Auction Agent shall advise the Broker-Dealers and the Paying Agent by telephone or other electronic communication acceptable to the parties of the All-Hold Rate and the Index. Prior to the Submission Deadline, the Broker-Dealers will assemble information received from each Bidder and any internally initiated Broker-Dealers’ Bids.

(b) Not later than the Submission Processing Deadline on each Auction Date, the Auction Agent shall accept any Submitted Orders subject to a Submission Processing Representation and shall assemble all Submitted Orders and shall determine:

(i) the excess, if any, of the total principal amount of Outstanding ARS over the sum of the aggregate principal amount of Outstanding ARS subject to Submitted Hold Orders (such excess being hereinafter referred to as the “Available ARS”); and

(ii) from the Submitted Orders whether or not the aggregate principal amount of Outstanding ARS subject to Submitted Bids by Potential Owners specifying one or more rates equal to or lower than the ARS Maximum Rate exceeds or is equal to the sum of:

(A) the aggregate principal amount of Outstanding ARS subject to Submitted Bids by Existing Owners specifying one or more rates higher than the ARS Maximum Rate; and

(B) the aggregate principal amount of Outstanding ARS subject to Submitted Sell Orders;

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(it being understood that, in the event of such excess or such equality (other than because the sum of the principal amounts of Outstanding ARS in clauses (A) and (B) above is zero because all of the ARS are subject to Submitted Hold Orders), there shall be deemed to exist, and such Submitted Bids by Potential Owners shall be hereinafter called, collectively, “Sufficient Clearing Bids”); and

(iii) if Sufficient Clearing Bids exist, the lowest rate specified in the Submitted Bids (the “Winning Bid Rate”) such that if:

(A) (I) each such Submitted Bid from Existing Owners specifying such lowest rate and (II) all other Submitted Bids from Existing Owners specifying lower rates were accepted, thus entitling such Existing Owners to continue to hold the ARS that are the subject of such Submitted Bids; and

(B) (I) each such Submitted Bid from Potential Owners specifying such lowest rate and (II) all other Submitted Bids from Potential Owners specifying such lower rates were accepted, thus entitling and requiring such Potential Owners to purchase the ARS that are the subject of such Submitted Bids;

the result would be that such Existing Owners described in clause (A) above would continuing to hold an aggregate principal amount of Outstanding ARS, which, when added to the aggregate principal amount of Outstanding ARS to be purchased by such Potential Owners described in clause (B) above, would equal not less than the Available ARS.

(c) Promptly after the Auction Agent has made the determinations pursuant to subsection (b) above, the Auction Agent shall advise the Broker-Dealer and the Trustee by telephone (promptly confirmed in writing), telex or facsimile transmission or other electronic communication acceptable to the parties of the All-Hold Rate and the components thereof on the Auction Date and, based on such determinations, the Auction Rate for the next succeeding ARS Interest Period as follows:

(i) if Sufficient Clearing Bids exist, that the Auction Rate for the next succeeding ARS Interest Period shall equal the Winning Bid Rate;

(ii) if Sufficient Clearing Bids do not exist (other than because all of the Outstanding ARS are subject to Submitted Hold Orders), that the Auction Rate for the next succeeding ARS Interest Period shall equal the ARS Maximum Rate; or

(iii) if all Outstanding ARS are subject to Submitted Hold Orders, that the Auction Rate for the next succeeding ARS Interest Period shall equal the All-Hold Rate.

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(d) In the event the Auction Agent shall fail to calculate, or for any reason, shall fail to timely provide the Auction Rate for any Auction Period (i) if the preceding Auction Period was a period of 35 days or less, the new Auction Period shall be the same as the preceding Auction Period and the Auction Rate for the new Auction Period shall be the same as the Auction Rate for the preceding Auction Period, and (ii) if the preceding Auction Period was a period of greater than 35 days, the preceding Auction Period shall be extended to the seventh day following the day that would have been the last day of such Auction Period had it not been extended (or if such seventh day is not followed by a Business Day then to the next succeeding day which is followed by a Business Day) and the Auction Rate in effect for the preceding Auction Period shall continue in effect for the Auction Period as so extended. In the event an Auction Period is extended as set forth in clause (ii) of the preceding sentence, an Auction shall be held on the last Business Day of the Auction Period as so extended to take effect for an Auction Period beginning on the Business Day immediately following the last day of the Auction Period as extended which Auction Period will end on the date it would otherwise have ended on had the prior Auction Period not been extended. Notwithstanding the foregoing, no Auction Rate shall be extended for more than 35 days. If at the end of 35 days, the Auction Agent fails to calculate or provide the Auction Rate, the Auction Rate shall be the ARS Maximum Rate.

(e) In the event of a failed conversion to a Daily Interest Rate Period, a Weekly Interest Rate Period, a Short-Term Interest Rate Period or a Long-Term Interest Rate Period or in the event of a failure to change the length of the current Auction Period due to the lack of Sufficient Clearing Bids at the Auction on the Auction Date for the first new Auction Period, the Auction Rate for the next Auction Period shall be the ARS Maximum Rate and the Auction Period shall be a seven-day Auction Period.

(f) If the ARS are no longer maintained in book-entry-only form by the Securities Depository, then the Applicable ARS Rate for any Auction Period commencing after the delivery of certificates representing the ARS shall be the ARS Maximum Rate.

Section 1.04. Allocation of the ARS. Existing Owners shall continue to hold the principal amount of ARS that are subject to Submitted Hold Orders. Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall take such other action as set forth below:

(a) If the Sufficient Clearing Bids have been made, subject to the further provisions of subsections (c) and (d) below, all Submitted Sell Orders shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids shall be rejected:

(i) the Submitted Hold Order of each Existing Owner shall be accepted, thus requiring each such Existing Owner to continue to hold the aggregate principal amount of ARS that are the subject of such Submitted Hold Order;

(ii) the Submitted Sell Order of each Existing Owner shall be accepted and the Submitted Bid of each Existing Owner specifying any rate that is higher than the Winning Bid Rate shall be rejected, thus requiring each such Existing Owner to sell the aggregate principal amount of ARS that are the subject of such Submitted Sell Order or such Submitted Bid;

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(iii) the Submitted Bid of each Existing Owner specifying any rate that is lower than the Winning Bid Rate shall be accepted, thus requiring each such Existing Owner to continue to hold the aggregate principal amount of ARS that are the subject of such Submitted Bid;

(iv) the Submitted Bid of each Potential Owner specifying any rate that is lower than the Winning Bid Rate shall be accepted, thus requiring each such Potential Owner to purchase the principal amount of ARS that are the subject of such Submitted Bid;

(v) the Submitted Bid of each Existing Owner specifying a rate that is equal to the Winning Bid Rate shall be accepted, thus requiring each such Existing Owner to continue to hold the aggregate principal amount of the ARS that are the subject of such Submitted Bid, but only up to and including the principal amount of the ARS obtained by multiplying (A) the aggregate principal amount of the Outstanding ARS which are not the subject of Submitted Hold Orders described in paragraph (i) above or of Submitted Bids described in paragraphs (iii) or (iv) above by (B) a fraction the numerator of which shall be the principal amount of the Outstanding ARS held by such Existing Owner subject to such Submitted Bid and the denominator of which shall be the aggregate principal amount of the Outstanding ARS subject to such Submitted Bids made by all such Existing Owners that specified a rate equal to the Winning Bid Rate, and the remainder, if any, of such Submitted Bid shall be rejected, thus requiring each such Existing Owner to sell any excess amount of the ARS;

(vi) the Submitted Bid of each Potential Owner specifying a rate that is equal to the Winning Bid Rate shall be accepted, thus requiring each such Potential Owner to purchase the ARS that are the subject of such Submitted Bid, but only in an amount equal to the principal amount of the ARS obtained by multiplying (A) the aggregate principal amount of the Outstanding ARS which are not the subject of Submitted Hold Orders described in paragraph (i) above or of Submitted Bids described in paragraphs (iii), (iv) or (v) above by (B) a fraction the numerator of which shall be the principal amount of the Outstanding ARS subject to such Submitted Bid and the denominator of which shall be the sum of the aggregate principal amount of the Outstanding ARS subject to such Submitted Bids made by all such Potential Owners that specified a rate equal to the Winning Bid Rate, and the remainder of such Submitted Bid shall be rejected; and

(vii) the Submitted Bid of each Potential Owner specifying any rate that is higher than the Winning Bid Rate shall be rejected.

(b) If Sufficient Clearing Bids have not been made (other than because all of the Outstanding ARS are subject to Submitted Hold Orders), subject to the further provisions of subsections (c) and (d) below, Submitted Orders shall be accepted or rejected as follows in the following order of priority:

(i) the Submitted Hold Order of each Existing Owner shall be accepted, thus requiring each such Existing Owner to continue to hold the aggregate principal amount of the ARS that are the subject of such Submitted Hold Order;

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(ii) the Submitted Bid of each Existing Owner specifying any rate that is not higher than the ARS Maximum Rate shall be accepted, thus requiring each such Existing Owner to continue to hold the aggregate principal amount of the ARS that are the subject of such Submitted Bid;

(iii) the Submitted Bid of each Potential Owner specifying any rate that is not higher than the ARS Maximum Rate shall be accepted, thus requiring each such Potential Owner to purchase the aggregate principal amount of the ARS that are the subject of such Submitted Bid;

(iv) the Submitted Sell Orders of each Existing Owner shall be accepted as Submitted Sell Orders and the Submitted Bids of each Existing Owner specifying any rate that is higher than the ARS Maximum Rate shall be deemed to be and shall be accepted as Submitted Sell Orders, in both cases only up to and including the principal amount of the ARS obtained by multiplying (A) the aggregate principal amount of the ARS subject to Submitted Bids described in paragraph (iii) of this subsection (b) by (B) a fraction the numerator of which shall be the principal amount of the Outstanding ARS held by such Existing Owner subject to such Submitted Sell Order or such Submitted Bid deemed to be a Submitted Sell Order and the denominator of which shall be the principal amount of the Outstanding ARS subject to all such Submitted Sell Orders and such Submitted Bids deemed to be Submitted Sell Orders, and the remainder of each such Submitted Sell Order or Submitted Bid shall be deemed to be and shall be accepted as a Hold Order and each such Existing Owner shall be required to continue to hold such excess amount of the ARS; and

(v) the Submitted Bid of each Potential Owner specifying any rate that is higher than the ARS Maximum Rate shall be rejected.

(c) If, as a result of the procedures described in subsection (a) or (b) above, any Existing Owner would be entitled or required to purchase or sell, or any Potential Owner would be entitled or required to purchase, an aggregate principal amount of the ARS that is not equal to an Authorized Denomination, the Auction Agent shall by lot, in such manner as it shall determine in its sole discretion, round up or down the principal amount of the ARS to be purchased or sold by any Existing Owner or Potential Owner on such Auction Date so that the aggregate principal amount of the ARS purchased or sold by each Existing Owner or Potential Owner on such Auction Date shall be equal to an Authorized Denomination, even if such allocation results in one or more of such Existing Owners or Potential Owners not purchasing or selling any ARS on such Auction Date.

(d) If, as a result of the procedures described in subsection (a) above, any Potential Owner would be entitled or required to purchase less than an Authorized Denomination, the Auction Agent shall by lot, in such manner as it shall determine in its sole discretion, allocate the

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ARS for purchase among Potential Owners so that only the principal amount of ARS in Authorized Denominations are purchased on such Auction Date by any Potential Owners, even if such allocation results in one or more of such Potential Owners not purchasing any ARS on such Auction Date.

Section 1.05. Notice of Auction Rate. (a) Not later than 3:00 p.m., New York City time, on each Auction Date, the Auction Agent shall notify by telephone or other telecommunication device or other electronic communication (or by other means acceptable to the parties) each Broker-Dealer that participated in the Auction held on such Auction Date and submitted an Order on behalf of an Existing Owner or Potential Owner of the following with respect to the ARS for which an Auction was held on such Auction Date:

(i) the Auction Rate determined on such Auction Date for the next ARS Interest Period;

(ii) whether Sufficient Clearing Bids existed for the determination of the Winning Bid Rate;

(iii) if such Broker-Dealer (a “Seller’s Broker-Dealer”) submitted a Bid or a Sell Order on behalf of an Existing Owner, whether such Bid or Sell Order was accepted or rejected, in whole or in part, and the principal amount of the ARS, if any, to be sold by such Existing Owner;

(iv) if such Broker-Dealer (a “Buyer’s Broker-Dealer”) submitted a Bid on behalf of a Potential Owner, whether such Bid was accepted or rejected, in whole or in part, and the principal amount of the ARS, if any, to be purchased by such Potential Owner;

(v) if the aggregate principal amount of the ARS to be sold by all Existing Owners on whose behalf such Broker-Dealer submitted Bids or Sell Orders exceeds the aggregate principal amount of the ARS to be purchased by all Potential Owners on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more Buyer’s Broker-Dealers (and the name of the Agent Member, if any, of each such Buyer’s Broker-Dealer) acting for one or more purchasers of such excess principal amount of the ARS and the principal amount of the ARS to be purchased from one or more Existing Owners on whose behalf such Broker-Dealers acted by one or more Potential Owners on whose behalf each of such Buyer’s Broker-Dealers acted;

(vi) if the principal amount of the ARS to be purchased by all Potential Owners on whose behalf such Broker-Dealer submitted a Bid exceeds the aggregate principal amount of the ARS to be sold by all Existing Owners on whose behalf such Broker-Dealer submitted Bids or Sell Orders, the name or names of one or more Seller’s Broker-Dealers (and the name of the Agent Member, if any, of each such Seller’s Broker-Dealer) acting for one or more sellers of such excess principal amount of the ARS and the principal amount of the ARS to be sold to one or more Potential Owners on whose behalf such Broker-Dealer acted by one or more Existing Owners on whose behalf each of such Seller’s Broker-Dealers acted; and

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(vi) the Auction Date for the next succeeding Auction.

(b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Owner or Potential Owner shall:

(i) advise each Existing Owner and Potential Owner on whose behalf such Broker-Dealer submitted a Bid or Sell Order in the Auction on such Auction Date whether such Bid or Sell Order was accepted or rejected, in whole or in part;

(ii) in the case of a Buyer’s Broker-Dealer, advise each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, to instruct such Potential Owner’s Agent Member to pay to such Broker-Dealer (or its Agent Member) through the Securities Depository the amount necessary to purchase the principal amount of the ARS to be purchased pursuant to such Bid against receipt of such ARS;

(iii) in the case of a Seller’s Broker-Dealer, instruct each Existing Owner on whose behalf such Broker-Dealer submitted a Sell Order that was accepted, in whole or in part, or a Bid that was accepted, in whole or in part, to instruct such Existing Owner’s Agent Member to deliver to such Broker-Dealer (or its Agent Member) through the Securities Depository the principal amount of the ARS to be sold pursuant to such Bid or such Sell Order against payment therefor;

(iv) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order and each Potential Owner on whose behalf such Broker-Dealer submitted a Bid of the Auction Rate for the next ARS Interest Period;

(v) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order of the next Auction Date; and

(vi) advise each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the next Auction Date.

Section 1.06. Index. (a) The Index is LIBOR.

(b) If for any reason on any Auction Date the Index shall not be determined as hereinabove provided in this Section, the Index shall be the Index for the Auction Period ending on such Auction Date.

(c) The determination of the Index as provided herein shall be conclusive and binding upon the Issuer, the Borrower, the Trustee, the Paying Agent, the Broker-Dealers, the Auction Agent and the Owners and Beneficial Owners of the ARS.

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Section 1.07. Miscellaneous Provisions Regarding Auctions. (a) In this Exhibit B, each reference to the purchase, sale or holding of “ARS” shall refer to beneficial interests in the ARS, unless the context clearly requires otherwise.

(b) During an Auction Period, the provisions of the Indenture and this Exhibit B and the definitions contained therein, including without limitation the definitions of All-Hold Rate, Index, Auction Rate, Interest Payment Date and ARS Maximum Rate, may be amended pursuant to Section 13.03 of the Indenture by obtaining the consent of the owners of all affected Outstanding ARS bearing interest at the Auction Rate as follows. If on the first Auction Date occurring at least 20 days after the date on which the Trustee mailed notice of such proposed amendment to the Owners of the affected Outstanding ARS as required by Section 13.03, (i) the Auction Rate which is determined on such date is the Winning Bid Rate, and (ii) there is delivered to the Issuer, the Borrower and the Trustee a Favorable Opinion of Bond Counsel with respect to such amendment, the proposed amendment shall be deemed to have been consented to by the Owners of all affected Outstanding ARS bearing interest at an Auction Rate.

(c) If the Securities Depository notifies the Issuer or the Borrower that it is unwilling or unable to continue as owner of the ARS or if at any time the Securities Depository shall no longer be registered or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation and a successor to the Securities Depository is not appointed by the Issuer, at the direction of the Borrower, within 90 days after the Issuer receives notice or becomes aware of such condition, as the case may be, the Issuer shall execute and the Registrar shall authenticate and deliver certificates representing the ARS. Such ARS shall be registered in such names and Authorized Denominations as the Securities Depository, pursuant to instructions from the Agent Members or otherwise, shall instruct the Issuer and the Registrar.

During an Auction Period, so long as the ownership of the ARS is maintained in book-entry form by the Securities Depository, an Existing Owner or a Beneficial Owner may sell, transfer or otherwise dispose of an ARS only pursuant to a Bid or Sell Order in accordance with the Auction Procedures or to or through a Broker-Dealer, provided that (i) in the case of all transfers other than pursuant to Auctions, such Existing Owner or its Broker-Dealer or its Agent Member advises the Auction Agent of such transfer and (ii) a sale, transfer or other disposition of the ARS from a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer as the holder of such ARS to that Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to be a sale, transfer or other disposition for purposes of this Section 1.07 if such Broker-Dealer remains the Existing Owner of the ARS so sold, transferred or disposed of immediately after such sale, transfer or disposition.

Section 1.08. Changes in Auction Period or Auction Date.

(a) Changes in Auction Period.

(i) Subject to the provisions of the Indenture, during any Auction Period, the Borrower, with the consent of the Bond Insurer, may, from time to time and on any ARS Interest Payment Date, change the length of the Auction Period with respect to the ARS among seven-days, 28-days, 35-days and a Special Auction Period in order to

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accommodate economic and financial factors that may affect or be relevant to the length of the Auction Period and the interest rate borne by such ARS; provided, however, in the case of a change from a Special Auction Period, the date of such change shall be the Interest Payment Date immediately following the last day of such Special Auction Period. The Borrower shall initiate the change in the length of the Auction Period by giving written notice to the Issuer, the Trustee, the Bond Insurer, the Auction Agent, the Broker-Dealer, the Bank, if any, and the Securities Depository that the Auction Period shall change if the conditions described in the Indenture are satisfied and the proposed effective date of the change, at least three (3) Business Days prior to the Auction Date for such Auction Period.

(ii) Any such changed Auction Period shall be for a period of seven-days, 28 days, 35 days or a Special Auction Period and shall be for all of the ARS.

(iii) The change in the length of the Auction Period shall not be allowed unless Sufficient Clearing Bids existed at both the Auction before the date on which the notice of the proposed change was given as provided in this subsection (a) and, in the sole discretion of the Broker-Dealer, at the Auction immediately preceding the proposed change. For purposes of the Auction for such first Auction Period only, each Existing Owner shall be deemed to have submitted Sell Orders with respect to all of its ARS except to the extent such Existing Owner submits an Order with respect to such ARS.

(iv) The change in length of the Auction Period shall take effect only if Sufficient Clearing Bids exist at the Auction on the Auction Date for such first Auction Period. If the condition referred to in the first sentence of this paragraph (iv) is not met, the Auction Rate for the next Auction Period shall be the ARS Maximum Rate, and the Auction Period shall be a seven-day Auction Period.

(v) On the change date for the ARS selected for change from one Auction Period to another, any ARS which are not the subject of a specific Hold Order or Bid shall be deemed to be subject to a Sell Order.

(vi) The change in the length of the Auction Period shall not be allowed unless the notice from the Borrower of the proposed change in length of the Auction Period described above in Section 1.08(a)(i) is accompanied by a Favorable Opinion of Bond Counsel if the change is from an Auction Period having a duration in excess of one year to an Auction Period of one year or less in duration and vice versa.

(b) Changes in Auction Date. During any Auction Period, the Auction Agent, with the written consent of the Borrower, may specify an earlier Auction Date (but in no event more than five Business Days earlier) than the Auction Date that would otherwise be determined in accordance with the definition of “Auction Date” in order to conform with then current market practice with respect to similar securities or to accommodate economic and financial factors that may affect or be relevant to the day of the week constituting an Auction Date and the interest rate borne on the ARS. The Auction Agent shall provide notice of its determination to specify an earlier Auction Date for an Auction Period by means of a written notice delivered at least 45

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days prior to the proposed changed Auction Date to the Trustee, the Paying Agent, the Borrower, the Issuer, the Broker-Dealers and the Securities Depository, which will, in turn, notify the holders. In the event the Auction Agent specifies an earlier Auction Date, the days of the week on which an Auction Period begins and ends, the days of the week on which a Special Auction Period begins and ends and the Interest Payment Date relating to a Special Auction Period shall be adjusted accordingly.

Section 1.09. Auction Agent. (a) The Auction Agent shall be Deutsche Bank Trust Company Americas, New York, New York, or any successor appointed by the Borrower to perform the functions specified herein. The Auction Agent shall designate its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument, delivered to the Issuer, the Trustee, the Borrower and each Broker-Dealer which will set forth such procedural and other matters relating to the implementation of the Auction Procedures as shall be satisfactory to the Borrower and the Trustee.

(b) Subject to any applicable governmental restrictions, the Auction Agent may be or become the owner of or trade in the ARS with the same rights as if such entity were not the Auction Agent.

Section 1.10. Qualifications of Auction Agent: Resignation; Removal. The Auction Agent shall be (a) subject to the written approval of each Broker-Dealer, (b) a bank or trust company duly organized under the laws of the United States of America or any state or territory thereof having a combined capital stock, surplus and undivided profits of at least $30,000,000, or (c) a member of NASD having a capitalization of at least $30,000,000 and, in either case, authorized by law to perform all of the duties imposed upon it by this Indenture and the Auction Agent Agreement and a member of or a participant in, the Securities Depository. The Auction Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 45 days’ notice to the Issuer, the Borrower, the Trustee, the Broker-Dealer and the Bond Insurer. The Auction Agent may be removed at any time by the Trustee, upon the written direction of (i) the Borrower, with the consent of the Bond Insurer, (ii) the Bond Insurer, or (iii) the ARS Beneficial Owners of 66 ²/3% of the aggregate principal amount of the ARS then Outstanding with the consent of the Bond Insurer, by an instrument signed by the Trustee and filed with the Auction Agent, the Bond Insurer, the Issuer and the Borrower upon at least 30 days’ notice. Upon any such resignation or removal, the Borrower shall appoint a successor Auction Agent meeting the requirements of this Section. In the event of the resignation or removal of the Auction Agent, the Auction Agent shall pay over, assign and deliver any moneys and the ARS held by it in such capacity to its successor. The Auction Agent shall continue to perform its duties hereunder until its successor has been appointed by the Borrower. Notwithstanding the foregoing, the Auction Agent may terminate the Auction Agent Agreement if, within 30 days after notifying the Trustee, the Issuer, the Borrower, and the Bond Insurer in writing that it has not received payment of any Auction Agent Fee due it in accordance with the terms of the Auction Agent Agreement, the Auction Agent does not receive such payment.

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EX-4.36

EXHIBIT 4.36

LOAN AGREEMENT

Between

MARICOPA COUNTY, ARIZONA

POLLUTION CONTROL CORPORATION

and

EL PASO ELECTRIC COMPANY

relating to

$37,100,000

Maricopa County, Arizona

Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series C

(El Paso Electric Company, Palo Verde Project)

Dated as of July 1, 2005

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS
Section 1.01	Definitions of Terms.	2
Section 1.02	Interpretation.	7
Section 1.03	Captions and Headings.	7
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.01	Representations and Warranties of the Issuer.	7
Section 2.02	Representations and Warranties of the Borrower.	8
ARTICLE III
[RESERVED]
ARTICLE IV
[RESERVED]
ARTICLE V
LOAN TO BORROWER; REPAYMENT PROVISIONS
Section 5.01	Loan to Borrower.	9
Section 5.02	Amounts and Dates for Payment.	9
Section 5.03	Payments by Borrower to be Assigned to the Trustee; Obligation for Payments Absolute.	10
Section 5.04	Payment of Expenses.	10
Section 5.05	Issuer Access to Facilities.	10
Section 5.06	Maintenance of Facilities.	10
Section 5.07	Insurance.	11
Section 5.08	Indemnification of Issuer; Statements for Services.	11
Section 5.09	Notices of Damage.	13
Section 5.10	No Warranty by the Issuer.	14
Section 5.11	Liens.	14

i

Section 5.12	Payments of Taxes and Assessments; No Liens or Charges.	14
Section 5.13	Additional Payments by the Borrower.	14
ARTICLE VI
SPECIAL COVENANTS; CREDIT FACILITY
Section 6.01	[RESERVED].	14
Section 6.02	Maintenance of Existence.	14
Section 6.03	Agreement as to Ownership and Use of the Project.	15
Section 6.04	Cooperation in Applications for Permits and Licenses.	15
Section 6.05	Recordation and Other Instruments.	15
Section 6.06	Issuer’s Access to Facilities.	15
Section 6.07	Tax Covenants.	15
Section 6.08	Credit Facility.	16
Section 6.09	Annual Statement.	17
ARTICLE VII
[RESERVED]
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Section 8.01	Events of Default.	18
Section 8.02	Force Majeure.	19
Section 8.03	Remedies.	19
Section 8.04	No Remedy Exclusive.	19
Section 8.05	Reimbursement of Attorneys’ Fees.	20
Section 8.06	Waiver of Breach.	20
ARTICLE IX
OPTIONS OF BORROWER TO PREPAY.
Section 9.01	Options of Borrower to Prepay Repayment Installments.	20
Section 9.02	Exercise of Option.	20
Section 9.03	Mandatory Prepayment of Repayment Installments.	21
Section 9.04	Amount of Prepayment.	21

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ARTICLE X
PURCHASE AND REMARKETING OF BONDS
Section 10.01	Purchase of Bonds.	21
Section 10.02	Optional Purchase of Bonds.	22
Section 10.03	Determination of Interest Rate Periods.	22
ARTICLE XI
MISCELLANEOUS
Section 11.01	Term of Agreement.	22
Section 11.02	Notices.	22
Section 11.03	Parties in Interest.	23
Section 11.04	Extent of Covenants of the Issuer; No Personal Liability.	24
Section 11.05	Confirmation of Request by the Borrower.	24
Section 11.06	Amendments.	24
Section 11.07	Counterparts.	24
Section 11.08	Severability.	24
Section 11.09	Governing Law; Venue.	24
Section 11.10	Statutory Notice.	24
Section 11.11	Bond Insurer as Third-Party Beneficiary.	25
EXHIBIT A	DESCRIPTION OF THE PROJECT

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LOAN AGREEMENT

THIS LOAN AGREEMENT, dated as of July 1, 2005 (this “Agreement”), is made by and between MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION, a nonprofit corporation designated as a political subdivision of the State of Arizona, incorporated for and with the approval of the County of Maricopa, Arizona, existing under the Constitution and laws of the State of Arizona (the “Issuer”), and EL PASO ELECTRIC COMPANY, a corporation organized and existing under the laws of the State of Texas (the “Borrower”).

W I T N E S S E T H :

WHEREAS, Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), as amended (hereinafter called the “Act”), empowers any pollution control corporation organized pursuant to Article 1 of the Act to issue revenue bonds in accordance with Article 2 of the Act and to make secured or unsecured loans for the purpose of financing or refinancing the acquisition, construction, improvement or equipping of pollution control facilities, to charge and collect interest on such loans and pledge the proceeds of loan agreements as security for the payment of the principal of and interest on bonds, or designated issues of bonds, issued by the corporation and any agreements made in connection therewith, whenever the board of directors finds such loans to be in furtherance of the purposes of the corporation; and

WHEREAS, Chapter 69, Section 1, Laws of Arizona of 1972 declares it to be the purpose of the Act to authorize the incorporation in the several municipalities and counties of the State of Arizona (the “State”) of corporations which shall constitute political subdivisions of the State, to finance the acquisition and installation of, or the construction and leasing of, properties, machinery and equipment intended to prevent or limit air, water and other forms of pollution for the purpose of protecting the health and welfare of the citizens of the State, and to facilitate compliance with existing or future air, water and other quality standards designed to improve the environment, and declares that such corporations shall serve a public purpose and perform an essential governmental function; and

WHEREAS, in response to an application by four qualified electors of the County of Maricopa, Arizona (the “County”), a political subdivision of the State, the Board of Supervisors of said County on December 5, 1983, adopted a resolution by which it determined that it was wise, expedient, advisable and in the public interest that said application be approved, approved said application, and authorized said four electors to proceed with the incorporation of the Issuer as a pollution control corporation for said County, all in accordance with Section 35-802 of the Act to issue bonds and to carry out the other functions and fulfill the purposes of the Issuer; and

WHEREAS, the Issuer was thereupon organized and incorporated in accordance with the provisions of the Act, and, on December 5, 1983, the Articles of Incorporation of the Issuer were filed with the Arizona Corporation Commission, in accordance with Section 35-809 of the Act; and

WHEREAS, the Issuer has heretofore issued and sold its $37,100,000 aggregate principal amount of Pollution Control Refunding Revenue Bonds, 2002 Series A (El Paso Electric Company, Palo Verde Project) (the “Prior Bonds”), the proceeds of which were used to refinance a portion of the costs of acquisition, construction, improvement or equipping of the Project; and

WHEREAS, the Issuer intends to issue its Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company, Palo Verde Project) (the “Bonds”) pursuant to an Indenture of Trust dated as of July 1, 2005, between the Issuer and Union Bank of California, N.A., as Trustee (the “Indenture”), and to lend the proceeds of the Bonds to the Borrower for the purpose of providing a portion of the moneys necessary to refund the outstanding principal amount of the Prior Bonds; and

WHEREAS, the appropriate agencies exercising jurisdiction over the Project have certified that the Project, as described in Exhibit A hereto, as designed, is in furtherance of the purpose of abating or controlling atmospheric or water pollutants or contaminants resulting from the generation of electricity at the Plant;

NOW, THEREFORE, in consideration of the premises and the respective representations and covenants herein contained, the parties hereto agree as follows (provided, that in the performance of the agreements of the Issuer herein contained, any obligation it may thereby incur shall not constitute or give rise to a pecuniary liability or a charge upon its general credit or against its taxing powers but shall be payable solely out of the Receipts and Revenues (as defined in the hereinabove defined Indenture) derived from this Agreement and the Bonds):

ARTICLE I

DEFINITIONS

Section 1.01 Definitions of Terms.

As used herein:

“Act” shall mean Title 35, Chapter 6, Arizona Revised Statutes (formerly Title 9, Chapter 12, Arizona Revised Statutes, enacted by Chapter 69, Section 2, Laws of Arizona of 1972), and all acts supplemental thereto or amendatory thereof.

“Administration Expenses” shall mean the reasonable expenses incurred by the Issuer with respect to this Agreement, the Indenture and any transaction or event contemplated by this Agreement or the Indenture, including, without limitation, the reasonable fees and disbursements of counsel and out-of-pocket expenses of the Issuer incurred in connection with the authorization, issuance and sale of the Bonds and the compensation and reimbursement of reasonable fees, expenses and advances payable to the Trustee, the Registrar, the Paying Agent, the Tender Agent, the Bank and the Remarketing Agent under the Indenture.

“Agreement” shall mean this Loan Agreement dated as of July 1, 2005 and any and all modifications, alterations, amendments and supplements hereto.

“Alternate Credit Support” shall mean any letter of credit, credit facility, insurance policy, guarantee or other credit support agreement or security mechanism provided by the Borrower in accordance with Section 6.08 hereof and any extension thereof.

2

“Authorized Borrower Representative” shall mean each person at the time designated to act on behalf of the Borrower by written certificate furnished to the Issuer and the Trustee containing the specimen signature of such person and signed on behalf of the Borrower.

“Bank” shall mean the issuer of a Letter of Credit, if any, delivered in conjunction with the Bonds, and the issuer of any subsequently issued Credit Facility so long as such other Credit Facility shall be in effect, and in its capacity as such issuer, its successors in such capacity and their assigns.

“Bond” or “Bonds” shall mean the bonds authorized to be issued under the Indenture.

“Bond Counsel” shall mean any firm of nationally recognized bond counsel experienced in the financing of pollution control facilities and acceptable to the Issuer, the Remarketing Agent, the Trustee and the Borrower.

“Bond Fund” shall mean the fund created by Section 5.01 of the Indenture.

“Bond Insurance Policy” shall mean the municipal bond new issue insurance policy issued by the Bond Insurer that guarantees payment of principal of and interest on the Bonds.

“Bond Insurer” shall mean Financial Guaranty Insurance Company, a New York stock insurance company, or any successor thereto.

“Borrower” shall mean El Paso Electric Company, a corporation formed and existing under the laws of the State of Texas, its successors and their assigns and any transferee entity to the extent permitted by Section 6.02 hereof.

“Borrower Indentures” shall mean (i) that certain Indenture of Mortgage, dated as of October 1, 1946, between the Borrower and State Street Bank and Trust Company, as trustee, as supplemented and modified by the indentures supplemental thereto, (ii) that certain Indenture of Mortgage, dated as of June 1, 1981, from the Borrower to IBJ Schroder Bank & Trust Company, as successor trustee, as the same has heretofore been supplemented and may be hereafter supplemented and modified or (iii) any indenture or mortgage made by the Borrower in accordance with the plan of reorganization to secure substantially the same obligations as are currently secured by the Borrower Indentures, and subjecting thereto substantially the same property, and subject to substantially the same prior liens and encumbrances, and having substantially similar provisions for the issuance of additional debt thereunder, as the Borrower Indentures.

“Claim” shall mean liabilities, obligations, losses, damages, taxes (other than taxes on income), penalties, claims (including, without limitation, claims involving liability in tort, whether strict or otherwise), actions, suits, judgments, costs, interest, expenses and disbursements, whether or not any of the foregoing shall be founded or unfounded, contingent or otherwise (including, without limitation, legal fees and expenses and costs of investigation) of any kind and nature whatsoever without any limitation as to amount.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time. Each reference herein to a section of the Code shall be deemed to include the United States Treasury Regulations adopted under the Code, as the same may be in effect from time to time, unless the context clearly requires otherwise.

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“Counsel” shall mean an attorney at law selected by the Borrower (who may be counsel to either or both of the Issuer and the Borrower) and acceptable to the Trustee or, if not selected by the Borrower within a reasonable time following any request therefor, by the Issuer and acceptable to the Trustee.

“County” shall mean the County of Maricopa, Arizona.

“Credit Facility” shall mean, collectively, a Letter of Credit, if any, and any extensions thereof, and, upon the issuance and delivery of any Alternate Credit Support in accordance with Section 6.08 hereof, “Credit Facility” shall mean such Alternate Credit Support.

“Environmental Law” shall mean any federal, state or local law, rule, regulation, order, writ, judgment, injunction, decree, determination or award relating to the environment, health or safety or to the release or threatened release of any materials into the environment, including, without limitation, the Clean Air Act, as amended, the Clean Water Act of 1977, as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, the Toxic Substance Control Act, as amended, and the Resource Conservation and Recovery Act of 1976, as amended.

“Facilities” or “Project” shall mean the pollution control systems and facilities presently existing, under construction and to be constructed at the Plant, which are described in Exhibit A hereto, as from time to time revised, changed, amended or modified and related improvements and any substitutions therefor.

“Fitch” shall mean Fitch Ratings Services, a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Fitch” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“Hazardous Materials” shall mean all materials that are, or become, subject to any Environmental Law, including, without limitation, materials listed in 49 I.E. §172.101, materials defined as hazardous pursuant to Section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, flammable, explosive or radioactive materials, hazardous or toxic wastes or substances, petroleum or petroleum distillates, PCB’s or asbestos or urea formaldehyde-containing materials.

“Insurance Agreement” shall mean the Insurance Agreement dated as of August 1, 2005 between the Bond Insurer and the Borrower, as amended or supplemented from time to time.

“Issuance Expenses” shall mean any and all expenses incurred in connection with the issuance of the Bonds including, but not limited to, any (a) underwriters’ compensation; (b) counsel fees; (c) financing advisor fees; (d) rating agency fees; (e) trustee fees; (f) paying agent and certifying and authenticating agent fees; (g) accounting fees; (h) printing costs; (i) costs

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incurred in connection with the required public approval process; (j) costs of engineering and feasibility studies necessary to the issuance of the Bonds (as opposed to such studies relating to completion of the Project); and (k) the issuance fee charged by, and expenses and disbursements of, the Issuer. Notwithstanding anything to the contrary herein, “Issuance Expenses” shall not include any bond insurance premiums and certain letter of credit fees that would be treated as interest expenses under the arbitrage restrictions of the Code.

“Issuer” shall mean Maricopa County, Arizona Pollution Control Corporation, an Arizona nonprofit corporation designated as a political subdivision existing under the laws of the State of Arizona, incorporated for and with the approval of the County, pursuant to the provisions of the Constitution of the State of Arizona and the Act, and its successors and assigns.

“Letter of Credit” shall mean an irrevocable, direct-pay letter of credit, if any, issued by the Bank and delivered to the Trustee in accordance with Section 6.08 hereof and any extension thereof.

“Moody’s” shall mean Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally-recognized securities rating-agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank, by notice to the Trustee, the Tender Agent and the Issuer.

“Outstanding”, when used in reference to the Bonds, shall mean, as at any particular date, the aggregate of all Bonds authenticated and delivered under the Indenture except;

(i) those cancelled at or prior to such date or delivered to or held by the Trustee at or prior to such date for cancellation;

(ii) those deemed to have been paid in accordance with Article IX of the Indenture;

(iii) those in lieu of, or in exchange, replacement or substitution for which, other Bonds shall have been authenticated and delivered pursuant to the Indenture unless proof satisfactory to the Trustee and the Borrower is presented that such Bond is held by a bona fide holder in due course; and

(iv) undelivered Bonds.

“Owner” or “Bondholder” or “holders” used with reference to the Bonds shall mean the person or entity in whose name any Bond is registered upon the registration books maintained pursuant to Section 2.04 of the Indenture.

“Permitted Encumbrances” shall mean and include (a) liens for taxes, assessments and other governmental charges not delinquent or which can be paid without penalty; (b) unfiled, inchoate mechanics’ and materialmen’s liens for construction work in progress; (c) workmen’s, repairmen’s, warehousemen’s and carriers’ liens and other similar liens, if any, arising in the ordinary course of business; (d) all the following, if they do not individually or in the aggregate

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materially impair the use of the Facilities or materially detract from the value thereof to the Borrower, viz. any easements, restrictions, mineral, oil, gas and mining rights and reservations, zoning laws and defects in title or other encumbrances to which the Facilities may be subject because of the installation thereof at the Plant; (e) any lien for the satisfaction and discharge of which a sum of money or surety bond deemed adequate by the Trustee is on deposit with the Trustee; (f) the rights of the Issuer under this Agreement or any other sale agreement or lease agreement between the Issuer and the Borrower relating to the issuance of bonds under the Act; and (g) the lien of the Borrower Indentures and the permitted encumbrances and other prior liens referred to therein.

“Plant” shall mean the Palo Verde Nuclear Generating Station in Maricopa County, Arizona, at which the Project is located.

“Prior Bonds” shall mean the Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2002 Series A (El Paso Electric Company, Palo Verde Project).

“Reimbursement Agreement” shall mean (i) any Reimbursement Agreement, made by the Borrower in favor of the Bank, relating to payments for moneys drawn under the Letter of Credit, if any, and any amendments, modifications and supplements thereto, and (ii) from and after the issuance of an Alternate Credit Support, any letter of credit reimbursement agreement or other arrangement between the Borrower and the issuer of any Alternate Credit Support, and any amendments, modifications and supplements thereto.

“Remarketing Agent” shall mean any remarketing agent appointed in accordance with Section 14.01(a) of the Indenture.

“Repayment Installment” shall mean any amount that the Borrower is required to pay to the Trustee pursuant to Section 5.02 hereof as a repayment of the loan made by the Issuer under this Agreement.

“Representation and Indemnity Agreement” shall mean the Representation and Indemnity Agreement dated as of July 27, 2005 among the Issuer, the Borrower and the Underwriters.

“S&P” shall mean Standard & Poor’s Ratings Group (a division of The McGraw-Hill Companies, Inc.), a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally-recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent and the Bank and the Bond Insurer, by notice to the Trustee, the Tender Agent and the Issuer.

“State” shall mean the State of Arizona.

“Tax Exempt” shall mean, with respect to interest on any obligations of a state or local government, including the Bonds, that such interest is excluded from the gross income of the holders thereof (other than any holder who is a “substantial user” of facilities financed with such obligations or a “related person” within the meaning of Section 147(a) of the Code) for federal

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income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax or environmental tax under the Code.

“Tender Agent” shall mean any tender agent appointed in accordance with Section 14.01(b) of the Indenture.

“Trustee” shall mean Union Bank of California, N.A., as trustee under this Indenture, and its successor or successors hereunder. “Principal Office” of the Trustee shall mean the principal office of the Trustee so designated at which at any particular time its corporate trust business shall be administered in California, which office at the date of the execution of this Loan Agreement, is 120 South San Pedro Street, 4^th Floor, Los Angeles, CA 90012, Attention: Corporate Trust Department; except that with respect to the presentation of Bonds for payment or for registration of transfer, exchange or tender, such term shall mean the office or agency of the Trustee at Union Bank of California, N.A., Corporate Trust Department, 120 South San Pedro Street, 4th Floor, Los Angeles, CA 90012, Attn: Bond Redemption.

“Underwriters” shall have the meaning set forth in the Official Statement for the Bonds.

Section 1.02 Interpretation. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa: the terms “hereof”, “hereby”, “herein”, “hereto”, “hereunder” and similar terms refer to this Agreement: and the term “hereafter” means after, and the term “heretofore” means before, the date of delivery of the Bonds. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise.

Section 1.03 Captions and Headings. The captions and headings in this Agreement are solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs, subparagraphs or clauses hereof.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

Section 2.01 Representations and Warranties of the Issuer. The Issuer makes the following representations and warranties as the basis for its undertakings herein contained:

(a) The Issuer is an Arizona nonprofit corporation designated as a political subdivision under the laws of the State, incorporated pursuant to the Act for and with the approval of the County, created and existing under the Constitution and laws of the State;

(b) The Issuer has the power to enter into the transactions contemplated by this Agreement and the Indenture and to carry out its obligations hereunder and thereunder;

(c) The Issuer has the power to enter into this Agreement and by proper corporate action has duly authorized the execution and delivery hereof; and

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(d) The execution and delivery of this Agreement and the Indenture and compliance with the provisions hereof and thereof will not conflict with, or constitute on the part of the Issuer a breach of or a default under, any existing law, court or administrative regulation, decree or order to which the Issuer is subject or any agreement, ordinance, indenture, mortgage, lease or other instrument by which the Issuer is or may be bound.

Section 2.02 Representations and Warranties of the Borrower. The Borrower makes the following representations and warranties as the basis for the undertakings on the part of the Issuer herein contained:

(a) (i) The Borrower is a corporation duly incorporated under the laws of the State of Texas and is in good standing under the laws of the State of Texas, has power to enter into this Agreement and to perform and observe the agreements and covenants on its part contained herein, and by proper corporate action has duly authorized the execution and delivery hereof, (ii) the Borrower is duly qualified to hold property and transact business as a foreign corporation and is in good standing under the laws of the State of Arizona, (iii) all of the proceeds of the Bonds will be used to redeem and refund the Prior Bonds, (iv) prior to the issuance of the Bonds, the Federal Energy Regulatory Commission will have approved all matters relating to the Borrower’s participation in the transactions contemplated by this Agreement which require said approval, and no other consent, approval, authorization or other order of any regulatory body or administrative agency or other governmental body is legally required for the Borrower’s participation therein except such as have been or will have been obtained prior to the issuance of the Bonds or such, if any, as may be required under state securities or Blue Sky laws, and (v) the execution and delivery of this Agreement by the Borrower do not, and consummation of the transactions contemplated hereby and fulfillment of the terms hereof will not, result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Borrower is a party, or the Restated Articles of Incorporation or Bylaws of the Borrower, or any order, rule or regulation applicable to the Borrower of any court or of any Federal or state regulatory body or administrative agency or other governmental body having jurisdiction over the Borrower or over any of its properties, or any statute of any jurisdiction applicable to the Borrower other than breaches or defaults that individually or in the aggregate are not expected to have a material adverse effect on the Borrower.

(b) The Facilities meet applicable Federal, state and local requirements for the control of pollution now in effect and are used for the reduction, abatement and prevention of pollution;

(c) The Borrower does not presently expect that the description of the Facilities contained in Exhibit A hereto will be revised;

(d) To the extent necessary to preserve the security for the Bonds, the validity of the Bonds under the Act and the Tax-Exempt status of interest on the Bonds, all material certificates, approvals, permits and authorizations of agencies of applicable local governmental entities, the State and the federal government have been obtained with respect to the construction of the Project and, pursuant to such certificates, approvals, permits and authorizations, the Project has been constructed and is in operation.

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(e) To the best knowledge of the Borrower, no member, officer or other official of the Issuer has any interest whatsoever in the Borrower or in the transactions contemplated by this Agreement.

ARTICLE III

[RESERVED]

ARTICLE IV

[RESERVED]

ARTICLE V

LOAN TO BORROWER; REPAYMENT PROVISIONS

Section 5.01 Loan to Borrower. The Issuer covenants and agrees, upon the terms and conditions in this Agreement, to make a loan to the Borrower for the purpose of refunding the Prior Bonds. Pursuant to said covenant and agreement, the Issuer will issue the Bonds upon the terms and conditions contained in this Agreement and the Indenture. The Issuer and the Borrower agree that the application of the proceeds of sale of the Bonds to refund and redeem the Prior Bonds will be deemed to be and treated for all purposes as a loan to the Borrower of an amount equal to the aggregate principal amount of the Bonds. The Borrower covenants and agrees to pay to the trustee for the Prior Bonds an amount which, when added to the amounts transferred to such trustee pursuant to Section 3.02 of the Indenture, will be sufficient to pay, on or before August 1, 2005, the redemption price of the Prior Bonds and all other amounts due under the indenture pursuant to which such Prior Bonds were issued all in accordance with the terms of such indenture.

Section 5.02 Amounts and Dates for Payment.

(a) With respect to the Bonds, the Borrower covenants and agrees to pay to the Trustee as a Repayment Installment on or before each date provided in the Indenture, an amount equal to the aggregate principal, premium, if any, and interest due on the Bonds, whether at maturity or by reason of redemption, or otherwise. The Borrower shall, and hereby agrees to, pay the Repayment Installment by delivery or causing delivery of such further installments, in immediately available funds, necessary on the dates and in the amounts and in the manner in the Indenture as may be necessary to enable the Issuer to cause payment to be made to the Trustee of principal of and premium, if any, and interest on the Bonds, whether at maturity, upon redemption, or otherwise, provided that any amount credited under the Indenture against any cash payment required to be made by the Issuer thereunder shall be credited against the corresponding cash payment required to be made by the Borrower hereunder.

(b) The Borrower shall, and hereby agrees to, pay in addition to the Repayment Installment an amount equal to the aggregate of all other payments to be made out of the Bond Fund, payment thereof to be made not later than the principal or interest payment date next following any such payment out of the Bond Fund but in any event in time to prevent any failure to pay when due the principal of, premium, if any, and interest on any of the Bonds.

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(c) In the event the Borrower shall fail to make any of the payments required in this Section 5.02, the item or installment so in default shall continue as an obligation of the Borrower until the amount in default shall have been fully paid. Draws by the Trustee under the Credit Facility to pay the principal of, premium, if any, or interest on the Bonds shall be deemed to satisfy the Borrower’s obligation to make purchase price payments to the extent of such draws.

(d) The obligation of the Borrower to make the payments described in subsection (a) of this Section may be accelerated or prepaid in accordance with the provisions of this Agreement, notwithstanding the provisions of this Section.

Section 5.03 Payments by Borrower to be Assigned to the Trustee; Obligation for Payments Absolute.

It is understood and agreed that all payments under Section 5.02 of this Agreement are, by the Indenture, to be pledged by the Issuer to the Trustee, and that all rights and interest of the Issuer under this Agreement, except for the Issuer’s rights under Sections 5.04, 5.08 and 8.05 of this Agreement and any rights of the Issuer to receive notices, certificates, requests, requisitions, directions and other communications hereunder, are to be pledged and assigned to the Trustee. The Borrower assents to such pledge and assignment and agrees that the obligation of the Borrower to make the payments under Section 5.02 hereof shall be absolute, irrevocable and unconditional and shall not be subject to any defense (other than payment) or any right of set-off, counterclaim, abatement, offset, diminution or recoupment arising out of any breach under this Agreement, the Reimbursement Agreement, the Indenture, the Credit Facility or otherwise by the Issuer, the Trustee, the Tender Agent, the Remarketing Agent, the Bank or any other party, or out of any obligation or liability at any time owing to the Borrower by the Issuer, the Trustee, the Tender Agent, the Remarketing Agent, the Bank or any other party. The Issuer directs the Borrower, and the Borrower agrees, to pay to the Trustee at its Corporate Trust Office all payments pursuant to Section 5.02 of this Agreement.

Section 5.04 Payment of Expenses. The Borrower agrees to pay all compensation and reasonable fees and expenses of, and to reimburse for the expenses and advances incurred by each of the Trustee, the Registrar, the Remarketing Agent, the Paying Agent and the Tender Agent under the Indenture. So long as any Bonds are Outstanding, the Borrower will pay to the Issuer semiannually, on a date to be agreed upon, or within 30 days of receipt of a statement therefor submitted to the Borrower pursuant to Section 5.08 hereof, the amount of any other Administration Expenses not theretofore provided for which have accrued and become payable.

Section 5.05 Issuer Access to Facilities. See Section 6.06 herein for a discussion thereof.

Section 5.06 Maintenance of Facilities. So long as any Bonds are Outstanding, the Borrower will maintain, preserve and keep the Facilities or to cause such Facilities to be maintained, preserved and kept in good repair, working order or condition and from time to time

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to make or cause to be made all necessary and proper repairs, replacements and renewals; provided, however, that the Borrower will have no obligation to maintain, preserve, keep, repair, replace or renew any item or portion of such Facilities (a) the maintenance, preservation, keeping, repair, replacement or renewal of which becomes uneconomic to the Borrower because of damage or destruction by a cause not within the control of the Borrower, or obsolescence (including economic obsolescence) or change in governmental standards and regulations, or the termination by the Borrower of the operation of the generating facilities to which the portion of such Facilities is an adjunct, and (b) with respect to which the Borrower has furnished to the Issuer and the Trustee a certificate executed by an Authorized Borrower Representative that the maintenance, preservation, keeping, repair, replacement or renewal of such portion of such Facilities is being discontinued for one of the foregoing reasons, which shall be stated therein.

The Borrower shall have the privilege at its own expense of remodeling such Facilities or making substitutions, modifications and improvements to such Facilities from time to time as it, in its discretion, may deem to be desirable for its uses and purposes, which remodeling, substitutions, modifications and improvements shall be included under the terms of this Agreement as part of such Facilities.

Section 5.07 Insurance. So long as any Bonds are Outstanding and the Borrower, itself or through its agents, operates the Facilities, the Borrower shall maintain or cause to be maintained, through a program of self-insurance or otherwise, such fire, casualty, public liability and other insurance with respect to the Facilities owned or leased by the Borrower as is customarily carried by electric utility companies with respect to similar facilities.

Section 5.08 Indemnification of Issuer; Statements for Services. The Borrower agrees, whether or not any of the transactions contemplated hereby shall be consummated and whether or not this Agreement, the Indenture, the Credit Facility or any other document relating to the Bonds shall have expired or been terminated, to release, to assume liability for, and to indemnify and hold harmless, on an after-tax basis, the Issuer, the Trustee, the Paying Agent and the Registrar and each of the officers, officials, directors, employees, staff members, agents, shareholders and partners of each of the Trustee, the Paying Agent and the Registrar (each an “Indemnified Party” and collectively, the “Indemnified Parties”) from and against, any and all Claims that are imposed on, incurred by or asserted against any Indemnified Party (whether or not because of an act or omission by such Indemnified Party and whether or not such Indemnified Party shall also be indemnified by another person), in whole or in part, as a result of, caused by, arising out of or in any way relating to:

(a) any injury to or death of any person or damage to property in or upon the Facilities or growing out of or connected with the use, non-use, condition or occupancy of the Facilities or any part thereof;

(b) violation of any agreement or condition of this Agreement;

(c) violation by the Borrower of any contract, agreement or restriction relating to the Facilities;

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(d) violation of any law, ordinance or regulation affecting the Facilities or a part thereof or the ownership, occupancy or use thereof;

(e) any statement or information contained in the Indenture, this Agreement, any official statement, any certificate or any other documents relating to the Bonds and the proceedings relating to their issuance and sale, furnished by the Borrower to the Issuer which is misleading, untrue or incorrect in any material respect or use thereof;

(f) any investigation, litigation, proceeding, cleanup, audit, violation or other matter, related to, of, or involving the application or compliance with any Environmental Law, the protection of the environment or the release by the Borrower of any Hazardous Material;

(g) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any property owned or operated by the Borrower of any Hazardous Material, whether caused by, or within the control of, the Borrower; and

(h) the administration of the trust created by the Indenture, the exercise of any rights under the Indenture and the performance of any remedial measures permitted by the Indenture,

except for (i) a Claim against an Indemnified Party (other than the Issuer) that arises by reason of such Indemnified Party’s gross negligence or willful misconduct or, in the case of clause (h) above, negligence or willful misconduct; provided, however, if and to the extent the foregoing agreement to indemnify is unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction of each of the agreed indemnities that is permissible under applicable law.

In addition, the Borrower will indemnify and hold the Issuer, the Trustee, the Paying Agent, the Registrar, the Trustee’s, the Paying Agent’s and the Registrar’s officers, directors, employees and agents free and harmless from any loss, claim, damage, tax, penalty, liability (including but not limited to liability for any patent infringement), disbursement, cause of action, suit, demand, judgment, litigation expenses, attorneys’ fees and expenses or court costs arising out of, or in any way relating to (a) any errors or omissions of any nature whatsoever contained in any legal proceedings or other official representation or inducement made by the Issuer pertaining to the Bonds, (b) any fraud or misrepresentations or omissions contained in the proceedings of the Issuer relating to the issuance of the Bonds or pertaining to the financial condition of the Borrower which, if known to a purchaser or holder of the Bonds, might be considered a material factor in a decision whether or not to buy the Bonds, and (c) the execution or performance of this Agreement, the issuance or sale of the Bonds and actions taken under the Indenture or any other cause whatsoever pertaining to the Facilities and the approval under the Act.

Promptly after receipt by an Indemnified Party under this Section 5.08 of written notice of the existence of a claim in respect of which indemnity hereunder may be sought or of the commencement of any action against the Indemnified Party in respect of which indemnity hereunder may be sought, the Indemnified Party shall notify the Borrower in writing of the existence of such Claim or commencement of such action. In case any such action shall be

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brought against an Indemnified Party under this Section 5.08, the Indemnified Party shall notify the Borrower of the commencement thereof and the Borrower shall be entitled to participate in and, to the extent that it may wish, to assume the defense thereof, with counsel satisfactory to the Indemnified Party; provided, however, that if the Indemnified Party shall have been advised in an opinion of counsel to the Indemnified Party that there may be legal defenses available to it which are adverse to or in conflict with those available to the Borrower or other Indemnified Parties, which in the opinion of counsel to the Indemnified Party, should be handled by separate counsel, the Borrower shall not have the right to assume the defense of such action on behalf of the Indemnified Party, but shall be responsible for the reasonable fees and expenses of the Indemnified Party in conducting its defense; and provided, further, that if the Borrower shall not have assumed the defense of such action, and shall not have employed counsel therefor satisfactory to the Indemnified Party within a reasonable time after notice of commencement of such action, such reasonable fees and expenses incurred by the Indemnified Party in conducting its own defense shall be borne by the Borrower.

The Borrower’s responsibility for the reasonable fees and expenses of any Indemnified Party in conducting its defense as provided in the preceding paragraph shall commence from the time the Claim is known of by the Borrower, and such responsibility shall exist and continue regardless of the merits of the Claim.

In addition, the Borrower agrees that if it initiates any action, suit or other proceeding with respect to any claim, demand or request for relief, whether judicial or administrative, in which the Issuer, the Trustee, the Registrar or the Paying Agent is named or joined as a party, the Borrower will pay and reimburse to such party the full amount of all reasonable fees and expenses incurred by such party with respect to such party’s defense of or participation in such action, suit or other proceeding.

The Issuer may submit to the Borrower periodic statements, not more frequently than monthly, for the reasonable value of services of any Issuer employees utilized, and for the full amount of any Issuer expenses incurred by the Issuer in connection with the performance or attainment by the Issuer of its obligations and rights under the Indenture, the Bonds or this Agreement, and the Borrower shall make payment to the Issuer of the full amount of each such statement within 30 days after the Borrower receives such statement; provided that the Borrower within such 30-day period may in writing and in good faith specifically protest all or any portion of the amounts included in such statement and in such event the Borrower shall not be obligated to make payment to the Issuer of the amount which has been protested in such manner until ten days after such protest shall have been resolved either by agreement between the Issuer and the Borrower or by an appropriate tribunal.

Under this Section 5.08, the Borrower shall also be deemed to release, indemnify and agree to hold harmless each employee, official or officer of the Issuer to the same extent as the Issuer.

Section 5.09 Notices of Damage. After the occurrence of any material damage or loss to the Facilities, if any Bonds are then Outstanding, the Borrower shall notify the Issuer and the Trustee as to the nature and extent of such damage or loss and whether it is practicable and desirable to rebuild, repair, or restore such damage or loss.

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Section 5.10 No Warranty by the Issuer. The Issuer makes no warranty, either express or implied, as to the Project or that it will be suitable for the purposes of the Borrower or needs of the Borrower.

Section 5.11 Liens. The Borrower hereby agrees not to create any lien upon the Bond Fund or upon the Receipts and Revenues (as defined in the Indenture) other than the lien created in the Indenture. The Borrower hereby agrees that it shall not have any interest in the Bond Fund or the moneys or Investment Securities (as defined in the Indenture) therein.

Section 5.12 Payments of Taxes and Assessments; No Liens or Charges.

The Borrower will: (a) pay, or make provision for payment of, (i) all lawful taxes and assessments, including income, profits, property or excise taxes, if any, or (ii) other municipal or governmental charges, levied or assessed by any Federal, state or municipal government or political body, upon the Project, or upon any part of either (i) or (ii) above, or upon any installment payments hereunder when the same shall become due and (b) pay or cause to be discharged or make adequate provision to satisfy and discharge, within sixty (60) days after the same shall accrue, any lien or charge upon any installment payment hereunder and all lawful claims or demands for labor, materials, supplies or other charges which, if unpaid, might be or become a lien upon any installment payment hereunder, except Permitted Encumbrances; provided with respect to both clause (a) and clause (b) of this Section 5.12 that the Borrower may in good faith contest any such tax, assessment, lien, charge, claim or demand in appropriate legal proceedings if the Borrower shall notify the Issuer and the Trustee of its intention so to do at or prior to the time of initiating such contest, and in such event may permit the items so contested to remain unpaid, undischarged and unsatisfied during the period of such contest and any appeal therefrom, unless the Issuer or the Trustee shall notify the Borrower in writing that, in the opinion of Counsel, by nonpayment of any such items the lien of the Indenture as to the payments of the Repayment Installments will be materially endangered, in which event the Borrower shall promptly pay and cause to be satisfied and discharged all such unpaid items. The Issuer will cooperate fully with the Borrower in any such contest.

Section 5.13 Additional Payments by the Borrower. The Borrower will pay, or cause to be paid, in addition to the payments provided for in Section 5.02(a) hereof, all of the expenses of operation of the portions of the Project including, without limitation, the cost of all necessary and proper repairs, replacements and renewals made pursuant to Section 5.06 hereof and premiums for insurance pursuant to Section 5.07 hereof.

ARTICLE VI

SPECIAL COVENANTS; CREDIT FACILITY

Section 6.01 [RESERVED].

Section 6.02 Maintenance of Existence. The Borrower covenants that it will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all its assets and will not consolidate with or merge into another corporation; provided, however, that the Borrower may consolidate with or merge with or into, or sell or otherwise transfer all or

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substantially all of its assets (and may thereafter dissolve), to another corporation, incorporated under the laws of the United States, one of the states thereof or the District of Columbia, provided, in the event the Borrower is not the surviving, resulting or transferee corporation, as the case may be, such corporation prior to such merger, consolidation, sale or transfer assumes, by delivery to the Trustee of an instrument in writing satisfactory in form and substance to the Trustee, all the obligations of the Borrower herein.

If consolidation, merger or sale or other transfer is made as permitted by this Section, the provisions of this Section shall continue in full force and effect and no further consolidation, merger or sale or other transfer shall be made except in compliance with the provisions of this Section. The Borrower shall notify the Trustee of its affiliates from time to time and of the filing of a petition in bankruptcy by or on behalf of any of itself or its affiliates from time to time.

Section 6.03 Agreement as to Ownership and Use of the Project. The Issuer and the Borrower agree that title to the Project shall be in and remain in the Borrower, and that the Project shall be the sole property of the Borrower in which the Issuer shall have no interest. Notwithstanding the provisions of this Section 6.03, the Borrower in its sole discretion and business judgment may choose to cease operation of the Project or transfer the Project to another entity which may cease such operation, and in such circumstances the covenants contained in this Section 6.03 shall no longer apply.

Section 6.04 Cooperation in Applications for Permits and Licenses. In the event it may be necessary for the proper performance of this Agreement on the part of the Issuer or the Borrower that any application or applications for any permit or license to do or to perform certain things be made to any governmental or other agency by or on behalf of the Borrower or the Issuer, the Borrower and the Issuer each agree, upon the request of either, to execute such application or applications.

Section 6.05 Recordation and Other Instruments. The Borrower shall cause such security agreements, financing statements and all supplements thereto and other instruments as may be required from time to time to be kept, to be recorded and to be filed in such manner and in such places as may be required by law in order to fully preserve, protect and perfect the security of the holders of the Bonds and the rights of the Trustee and to perfect the security interest created by the Indenture.

Section 6.06 Issuer’s Access to Facilities. The Borrower agrees that the Issuer and the Trustee shall have the right, upon appropriate prior notice to the Borrower, to have reasonable access to the Facilities owned or leased by the Borrower during normal business hours for the purpose of making examinations and inspections of the same; provided, however, that the Borrower reserves the right to restrict access to any of its generating facilities in accordance with reasonably adopted procedures relating to safety and security.

Section 6.07 Tax Covenants. The Borrower covenants that it will not take any action or fail to take any action reasonably within its control which would, under the Code, cause the interest payable on the Bonds to be includable in gross income of the holders thereof for Federal income tax purposes (other than a “substantial user” of the Facilities or a “related person” as those terms are used in Section 147(a) of the Code).

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The Borrower covenants that it will pay to the United States of America, on behalf of the Issuer, at or before the times required by or under Section 148(f) of the Code, the amounts required to cause to be met with respect to the Bonds the rebate requirement of said Section and such rules and regulations applicable to the Bonds. The Borrower covenants that in directing the investment of the gross proceeds of the Bonds it will comply with the applicable requirements of Section 148 of the Code. The Borrower covenants that it will maintain on behalf of the Issuer such records and file such reports, and file copies thereof with the Issuer and, if requested by the Trustee, with the Trustee, as may be necessary to be maintained to demonstrate compliance with this paragraph.

Section 6.08 Credit Facility.

(a) A Credit Facility shall be required if the Bonds are converted into any Interest Rate Period other than an ARS Interest Rate or a Long-Term Interest Rate Period, and the terms of such Credit Facility in such event shall be satisfactory to the Bond Insurer. The Borrower hereby authorizes and directs the Trustee to draw moneys under the Credit Facility, if any, in accordance with the terms thereof and of the Indenture.

(b) Any Credit Facility, at the option of the Borrower, may provide that drawings may be made thereunder to pay to the Trustee, in accordance with the terms thereof, (i) an amount equal to (A) the principal of the Bonds when due upon maturity, redemption or acceleration and (B) the portion of the purchase price of Bonds purchased pursuant to Section 14.03(b) of the Indenture equal to the principal amount thereof; (ii) an amount equal to a specified number of days’ interest, computed at the Maximum Interest Rate (as defined in the Indenture), on the Bonds to pay (A) accrued and unpaid interest on the Bonds and (B) the portion of the purchase price of Bonds purchased pursuant to Section 14.03(b) of the Indenture equal to the accrued interest thereon; (iii) any part of the portion of the purchase price of Bonds purchased pursuant to Section 14.03(b) of the Indenture corresponding to redemption premium on the Bonds; and, (iv) an amount to pay redemption premium, if any, on the Bonds which may be payable upon the redemption thereof. The Credit Facility shall be reduced to the extent of any drawings thereunder and reinstated in accordance with the terms thereof.

The Borrower may, at its election, provide for one or more extensions of any Credit Facility in accordance with the terms of the Reimbursement Agreement in respect thereof.

(c) On or prior to the 35th day preceding the mandatory purchase date occurring pursuant to Section 4.08(c) of the Indenture, the Borrower shall deliver to the Trustee, the Tender Agent, the Remarketing Agent and the Bank:

(i) a notice which (A) states the effective date of expiration or termination of the existing Credit Facility, (B) describes any substitute Credit Facility which may be provided in lieu thereof, and (C) directs the Trustee, after taking such actions thereunder as are required to be taken to provide moneys due under the Indenture in respect of the Bonds or the purchase thereof, to surrender the Credit Facility to expire or to be terminated to the obligor thereon on the effective date of the substitute Credit Facility to be provided in lieu of the Credit Facility to expire or to be terminated or, if no such Credit Facility is to be so provided, on the effective date of such expiration or termination; and

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(ii) written evidence from Moody’s, if the Bonds are then rated by Moody’s, and S&P, if the Bonds are then rated by S&P, and Fitch, if the Bonds are then rated by Fitch, of the action that such rating agency will take with respect to the rating assigned to the Bonds on such expiration or termination and delivery of a new Credit Facility, if any.

(d) On or prior to the 35th day preceding the effective date of expiration or termination of any Credit Facility and the substitution of another Credit Facility that does not result in a downgrading or withdrawal of any rating assigned to the Bonds, the Borrower shall deliver to the Trustee, the Tender Agent, the Remarketing Agent and the Bank:

(i) a notice which (A) states the effective date of expiration or termination of the existing Credit Facility, (B) describes the Credit Facility which is to be provided in lieu thereof, and (C) directs the Trustee to surrender the Credit Facility to expire or to be terminated to the obligor thereon on the effective date of the substitute Credit Facility to be provided in lieu of the Credit Facility to expire or to be terminated; and

(ii) written evidence from Moody’s, if the Bonds are then rated by Moody’s, and S&P, if the Bonds are then rated by S&P, and Fitch, if the Bonds are then rated by Fitch, that such expiration or termination and delivery of a new Credit Facility will not result in a downgrading or withdrawal of the rating assigned to the Bonds by such rating agency.

(e) In connection with any termination of a Credit Facility and/or the provision of a new Credit Facility, if any, the Borrower also shall furnish to the Trustee a Favorable Opinion of Bond Counsel (as defined in the Indenture) and such other opinions of counsel as to such other matters as the Issuer or the Trustee may request.

Section 6.09 Annual Statement. The Borrower agrees during the term of this Agreement to have an annual audit made by its regular independent certified public accountants and to furnish the Trustee (within 30 days after receipt by the Borrower) with a balance sheet and statement of income and surplus showing the financial condition of the Borrower and its consolidated subsidiaries, if any, at the close of each fiscal year and the results of operations of the Borrower and its consolidated subsidiaries, if any, for each fiscal year, accompanied by a report of said accountants that such statements have been prepared in accordance with generally accepted accounting principles. The Borrower’s obligations under this Section 6.09 may be satisfied by delivering a copy of the Borrower’s Annual Report to the Trustee at the same time that it is mailed to stockholders. The Trustee shall have no duty or obligation with respect to such financial statements or reports except to make them available to any requesting Bondholders.

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ARTICLE VII

[RESERVED]

ARTICLE VIII

EVENTS OF DEFAULT AND REMEDIES

Section 8.01 Events of Default. Each of the following events shall be and is referred to in this Agreement as an “Event of Default”:

(a) failure by the Borrower to pay or cause to be paid any amounts required to be paid under Section 5.02 or Section 10.01(a) hereof when due which failure shall have resulted in an “Event of Default” under clause (i), (ii) or (iii) of Section 10.01(a) of the Indenture;

(b) a failure by the Borrower (i) to pay when due any other payment required to be made under this Agreement or (ii) to observe and perform any other covenant, condition or agreement on its part to be observed or performed, other than as referred to in this Section 8.01, which failure continues for a period of 30 days after written notice, specifying such failure and requesting that it be remedied, is given to the Borrower by the Issuer or the Trustee, which may give such notice in its discretion and shall give such notice at the written request of the holders of not less than a majority in principal amount of the Bonds then Outstanding (other than Bonds held by, or on behalf of the Borrower), unless the Issuer and the Trustee or the Issuer, the Trustee and the holders of a principal amount of Bonds not less than the principal amount of Bonds the holders of which requested such notice, as the case may be, shall agree to an extension of such period prior to its expiration; or

(c) the dissolution or liquidation of the Borrower, or the filing by the Borrower of a voluntary petition in bankruptcy, or failure by the Borrower promptly to forestall or lift any execution, garnishment or attachment of such consequence as will impair its ability to continue its business or to make any payments under this Agreement, or the entry of an order for relief by a court of competent jurisdiction in any proceeding for its liquidation or reorganization under the provisions of any bankruptcy act or under any similar act which may be hereafter enacted, or an assignment by the Borrower for the benefit of its creditors, or the entry by the Borrower into an agreement of composition with its creditors (the term “dissolution or liquidation of the Borrower”, as used in this clause, shall not be construed to include the cessation of the existence of the Borrower resulting from a dissolution or liquidation of the Borrower following a transfer of all or substantially all its assets as an entirety, under the conditions permitting such actions contained in Section 6.02 hereof); or

(d) the occurrence and continuance of an Event of Default under the Indenture; or

(e) the occurrence and continuance of an Event of Default under the Insurance Agreement.

The Issuer (or the Borrower, in the case of clause (c)) shall promptly notify the Trustee and the Bank of the occurrence of any Event of Default under this Section 8.01.

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Section 8.02 Force Majeure. The provisions of Section 8.01(b) hereof are subject to the following limitations: If by reason of acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; orders of any kind of the government of the United States or of the State of Arizona or any department, agency, political subdivision, court or official of any of them, or any civil or military authority; insurrections; riots; epidemics; landslides; lightning; earthquakes; volcanoes; fires; hurricanes; tornados; floods; washouts; droughts; arrests; restraint of government and civil disturbances; explosions; breakage or accident to machinery; or entire failure of utilities; or any cause or event not reasonably under the control of the Borrower, the Borrower is unable in whole or in part to carry out any one or more of its agreements or obligations contained herein other than its obligations under Sections 5.02, 5.04, 5.08, 5.12, 6.02, 8.05 and 10.01(a) hereof, the Borrower shall not be deemed in default by reason of not carrying out said agreement or agreements or performing said obligation or obligations during the continuance of such inability. The Borrower shall use reasonable efforts to remedy the cause or causes preventing it from carrying out its agreements; provided, that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Borrower, and the Borrower shall not be required to make settlement of strikes, lockouts and other disturbances by acceding to the demands of the opposing party or parties when such course is, in the judgment of the Borrower, unfavorable to the Borrower.

Section 8.03 Remedies.

(a) Upon the occurrence and continuance of any Event of Default described in Section 8.01 hereof, and further upon the condition that, in accordance with the terms of the Indenture, the Bonds shall have been declared to be immediately due and payable pursuant to any provision of the Indenture, the unpaid balance of the loan payable under Section 5.02 hereof shall, without further action, become and be immediately due and payable.

(b) Any waiver of any “Event of Default” under the Indenture and a rescission and annulment of its consequences shall constitute a waiver of the corresponding Event or Events of Default under this Agreement and a rescission and annulment of the consequences thereof.

(c) Upon the occurrence and continuance of any Event of Default, the Issuer may take, or cause to be taken, any action at law or in equity to collect any payments then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Borrower hereunder.

(d) Any amounts collected from the Borrower pursuant to this Section 8.03 shall be applied in accordance with the Indenture.

Section 8.04 No Remedy Exclusive. No remedy conferred upon or reserved to the Issuer hereby is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer to exercise any remedy reserved to it in this Article VIII, it shall not be necessary to give any notice other than such notice as may be herein expressly required.

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Section 8.05 Reimbursement of Attorneys’ Fees. If the Borrower shall default under any of the provisions hereof (i) and the Issuer or the Trustee shall employ attorneys or incur other reasonable expenses for the collection of payments due hereunder or for the enforcement of performance or observance of any obligation or agreement on the part of the Borrower contained herein, the Borrower will on demand therefor reimburse the Issuer or the Trustee, as may be, for the reasonable fees of such attorneys and such other reasonable expenses so incurred, to the extent permitted by law, and (ii) the Borrower shall pay the Trustee reasonable compensation for extraordinary services, including default administration.

Section 8.06 Waiver of Breach. In the event any obligation created hereby shall be breached by either of the parties and such breach shall thereafter be waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. In view of the assignment of certain of the Issuer’s rights and interests hereunder to the Trustee, the Issuer shall have no power to waive any default hereunder by the Borrower in respect of such rights and interests without the consent of the Trustee, and the Trustee may exercise any of the rights of the Issuer hereunder.

ARTICLE IX

OPTIONS OF BORROWER TO PREPAY.

Section 9.01 Options of Borrower to Prepay Repayment Installments.

(a) The Borrower shall have, and is hereby granted, the option to prepay the loan payable under Section 5.02 hereof in whole or in part by causing the Bonds to be called for redemption pursuant to Section 4.01 of the Indenture in which case all or a portion of the balance of the loan payable under Section 5.02 hereof shall become due and payable on the redemption date specified pursuant to Section 9.02 hereof in an amount sufficient to pay the principal of any premium, if any, and interest on the Bonds so called for redemption.

(b) The Borrower shall also have, and is hereby granted, the option to prepay the amounts payable under Section 5.02 hereof in whole or in part by causing Bonds to be deemed to have been paid pursuant to Section 9.01 of the Indenture by depositing with the Trustee moneys or obligations, or a combination thereof, as required by such Section 9.01 and by giving the irrevocable instructions required by such Section 9.01.

Section 9.02 Exercise of Option.

(a) To exercise an option granted in Section 9.01 hereof, the Borrower shall give written notice to the Trustee which shall designate therein the principal amount of the Bonds to be caused to be redeemed, or to be deemed to be paid in accordance with Section 9.01 of the Indenture and, in the event a redemption of Bonds is to be effected, such notice shall be given to the Trustee not less than five Business Days (as defined in the Indenture) prior to the day on which the Trustee shall be required to give notice of any such redemption and shall specify therein (i) the date or dates of redemption and (ii) the applicable redemption provision of the

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Indenture. The exercise of an option granted in Section 9.01 hereof shall be revocable by the Borrower at any time before the receipt by the Trustee of the Repayment Installments to be prepaid.

(b) Upon receipt of a notice furnished pursuant to this Section 9.02, the Issuer shall cooperate fully with the Trustee to permit the Trustee to take or cause to be taken all actions required of it under the Indenture to cause Bonds to be paid or redeemed in accordance with such notice.

(c) In the event the Borrower exercises its rights to cause the Bonds to be redeemed or deemed to have been paid as provided in Section 9.01 hereof, it shall give the Trustee directions to draw moneys under the applicable Credit Facility in accordance with the terms hereof and of the Indenture in the amounts so specified by the Borrower in such direction or order to effect the redemption of the Bonds entitled to the benefits of the Credit Facility or cause such Bonds to be deemed to have been paid as provided in Section 9.01 of the Indenture.

Section 9.03 Mandatory Prepayment of Repayment Installments.

The Borrower shall prepay the necessary portion of the unpaid balance of the Repayment Installments on such dates on which the Bonds are required to be redeemed pursuant to Section 4.01(b) of the Indenture.

Section 9.04 Amount of Prepayment.

The Borrower agrees to and shall pay (or cause to be paid) directly to the Trustee any amount permitted or required to be paid by it under this Article IX. The Trustee shall use the moneys so paid to it by the Borrower to effect redemption of the Bonds in accordance with Article IV of the Indenture.

ARTICLE X

PURCHASE AND REMARKETING OF BONDS

Section 10.01 Purchase of Bonds.

(a) In consideration of the issuance of the Bonds by the Issuer, but for the benefit of the Owners of the Bonds, the Borrower does hereby covenant and agree to cause the necessary arrangements to be made and to be thereafter continued whereby, from time to time, the Bonds will be purchased from the owners thereof under the circumstances provided in Section 4.08 of the Indenture. In furtherance of the foregoing covenant of the Borrower, the Issuer, at the direction of the Borrower, has set forth in Section 4.08 of the Indenture the terms and conditions relating to such purchases and has set forth in Article XIV of the Indenture the duties and responsibilities of the Tender Agent with respect to the purchase of Bonds and of the Remarketing Agent with respect to the remarketing of Bonds. At the direction of the Borrower, Citigroup Global Markets Inc. has been designated as the initial Remarketing Agent and as the initial Tender Agent and the Borrower hereby authorizes and directs the Tender Agent and the Remarketing Agent to purchase, offer, sell and deliver Bonds in accordance with the provisions of Section 4.08 and Article XIV of the Indenture.

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Without limiting the generality of the foregoing covenant of the Borrower, and in consideration of the Issuer’s having set forth in the Indenture the aforesaid provisions of Section 4.08 and Article XIV thereof, the Borrower covenants, for the benefit of the Owners of the Bonds, to pay, or cause to be paid, to the Tender Agent such amounts as shall be necessary to enable the Tender Agent to pay the purchase price of Bonds, all as more particularly described in Section 4.08 and Article XIV of the Indenture.

(b) The Issuer shall have no obligation or responsibility financial or otherwise, with respect to the purchase or remarketing of Bonds or the making or continuation of arrangements therefor, except that the Issuer shall generally cooperate with the Borrower, the Trustee, the Tender Agent and the Remarketing Agent as contemplated in Article XIV of the Indenture.

Section 10.02 Optional Purchase of Bonds. Subject to the limitations of the Indenture, the Borrower, at any time and from time to time, may furnish moneys to the Tender Agent accompanied by a notice directing that such moneys be applied to the purchase of Bonds to be purchased pursuant to Section 4.08 and Article XIV of the Indenture. Bonds so purchased shall be delivered to the Borrower in accordance with Section 14.05(a) of the Indenture.

Section 10.03 Determination of Interest Rate Periods. The Borrower may determine the duration and type of the Interest Rate Periods and certain other provisions relating to Interest Rate Periods as, and to the extent, set forth in Section 2.01 of the Indenture.

ARTICLE XI

MISCELLANEOUS

Section 11.01 Term of Agreement. This Agreement shall remain in full force and effect from the date hereof until the right, title and interest of the Trustee in and to the Trust Estate shall have ceased, terminated or become void in accordance with Article IX of the Indenture and until all payments required under this Agreement shall have been made.

Section 11.02 Notices. All notices, certificates, requests or other communications hereunder shall be sufficiently given and shall be deemed given when delivered or telecopied or if mailed, when mailed by registered mail, postage prepaid, addressed as follows:

If to the Issuer:

Maricopa County, Arizona

Pollution Control Corporation

c/o Ryley Carlock & Applewhite

One North Central Avenue, Suite 1200

Phoenix, Arizona 85004-4417

Attention: President

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If to the Borrower:

El Paso Electric Company

100 North Stanton

El Paso, Texas 79901

Attention: Treasurer

If to the Trustee:

Union Bank of California, N.A.

120 S San Pedro Street, 4th Floor

Los Angeles, CA 90012

Attention: Corporate Trust Department

If to the Remarketing Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

If to the Tender Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

If to the Bond Insurer:

Financial Guaranty Insurance Company

125 Park Avenue

New York, New York 10017

Attention: Risk Management Fax: (212) 312-3093

If to the Fiscal Agent (for the Bond Insurer):

U.S. Bank Trust National Association

100 Wall Street, 19^th Floor

New York, New York 10005

Attention: Corporate Trust Department

A copy of each notice, certificate, request or other communication given hereunder to the Issuer, the Borrower, the Trustee, the Bank, the Bond Insurer, the Tender Agent or the Remarketing Agent shall also be given to the others. The Issuer, the Borrower, the Trustee, the Bank, the Tender Agent and the Remarketing Agent may, by notice given hereunder, designate further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Such notice shall be given to all others listed above.

Section 11.03 Parties in Interest. This Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Borrower, and their respective successors and assigns, and no other person, firm or corporation, other than the Owners, the Trustee, the Registrar or the Paying Agent under the Indenture, the Tender Agent, the Remarketing Agent, the Bank, and the

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Bond Insurer shall have any right, remedy or claim under or by reason of this Agreement; provided, however, that the obligations of the Borrower under Section 5.08 hereof shall inure to the benefit of the persons specified therein, and such obligations shall be enforceable by such persons as a third-party beneficiary; and subject to the limitation that any obligation of the Issuer created by or arising out of this Agreement shall not be a general debt of the Issuer, but shall be payable solely out of the revenues derived from this Agreement or the sale of the Bonds or income earned on invested funds as provided herein and in the Indenture.

Section 11.04 Extent of Covenants of the Issuer; No Personal Liability. All covenants, obligations and agreements of the Issuer contained in this Agreement or the Indenture shall be effective to the extent authorized and permitted by applicable law. No such covenant, obligation or agreement shall be deemed to be a covenant, obligation or agreement of any official, officer, agent, or employee of the Issuer in other than his official capacity, and neither the members of the Issuer’s Board of Directors nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or by reason of the covenants, obligations or agreements of the Issuer contained in this Agreement or in the Indenture.

Section 11.05 Confirmation of Request by the Borrower. The Borrower hereby confirms that it has requested that the Issuer enter into the Indenture including, without limitation, all of the terms and provisions relating to the Bonds, the Trustee, Paying Agent, Registrar, Remarketing Agent and Tender Agent and designating the parties named therein as Trustee, Paying Agent, Registrar, Remarketing Agent and Tender Agent.

Section 11.06 Amendments. This Agreement may be amended only by written agreement of the parties hereto with the consent of the Bank, the Bond Insurer or the provider of any other Credit Facility, for so long as the Credit Facility is in effect, subject to the limitations set forth herein and in the Indenture.

Section 11.07 Counterparts. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original; but such counterparts shall together constitute but one and the same Agreement.

Section 11.08 Severability. If any clause, provision or section of this Agreement shall, for any reason, be held illegal or invalid, such illegality or invalidity shall not affect any other provision of this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provisions had not been contained herein.

Section 11.09 Governing Law; Venue. This Agreement shall be construed in accordance with and governed by the Constitution and laws of the State of Arizona.

Section 11.10 Statutory Notice. In accordance with the terms thereof, notice is hereby given of Title 38, Chapter 3, Section 38-511, Arizona Revised Statutes, which provides, among other things, that the State, its political subdivisions or any department or agency of either may, within three years after its execution, cancel any contract, without penalty or further obligation, made by said State, its political subdivisions, or any of the departments or agencies of either if any person significantly involved in initiating, negotiating, securing,

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drafting or creating the contract on behalf of said State, its political subdivisions, or any of the departments or agencies of either is, at any time while the contract or any extension of the contract is in effect, an employee or agent of any other party to the contract in any capacity or a consultant to any other party of the contract with respect to the subject matter of the contract.

Section 11.11. Bond Insurer as Third-Party Beneficiary. To the extent that this Agreement confers upon or gives or grants to the Bond Insurer any right, remedy, benefit, or claim under or by reason of this Agreement, the Bond Insurer is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy, benefit or claim conferred, given or granted hereunder.

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IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed in its name by its duly authorized officer, and the Borrower has caused this Agreement to be executed in its name all as of the date first above written.

MARICOPA COUNTY, ARIZONA POLLUTION CONTROL CORPORATION
By:
	President
EL PASO ELECTRIC COMPANY
By:
	Treasurer

[Seal]
Attest:
By
	Assistant Secretary

EXHIBIT A

DESCRIPTION OF THE PROJECT

The Project consists of the following systems at the Plant and, in each case, include related machinery, equipment and facilities:

Section 1.01 Condensate Demineralizer Resin Regeneration System. The Condensate Demineralizer Resin Regeneration System for each Unit recycles spent resin from the full flow condensate demineralizers, and is located in the Unit’s turbine building. This system recycles spent resin by chemical regeneration using acid and caustic treatment. Spent resin is transferred from the condensate demineralizers to the regeneration vessels where it is chemically regenerated and then transferred to the resin mix and hold vessel prior to transfer back to the demineralizer.

The resin regeneration system includes the following components and equipment:

(a) One resin separation cation regeneration vessel that is a rubber-lined, vertical-cylindrical tank, with internal baffles and distributors.

(b) One anion regeneration vessel that is a rubber-lined vertical-cylindrical tank, with internal baffles and distributors.

(c) One resin mix and hold vessel that is a rubber-lined, vertical-cylindrical tank, with internal baffle and distributor plate.

(d) One acid day-tank that is a vertical-cylindrical tank of 400-gallon capacity, with a hinged cover, desiccant air breather and gauge glass.

(e) Two motor-driven, diaphragm type, acid pumps with adjustable stroke.

(f) One caustic day-tank that is a plastic-lined vertical-cylindrical tank of 2500 gallon capacity, with a gauge glass and electric heaters.

(g) Two motor-driven centrifugal type caustic pumps.

(h) Waste collection tank.

(i) The portions of the central acid and caustic chemical supply systems that are dedicated solely to the Condensate Demineralizer Resin Regeneration System.

(j) Associated piping, valves, instrumentation and mechanical equipment.

Section 1.02 Steam Generator Blowdown Demineralizer Resin Regeneration System. The Steam Generator Blowdown Demineralizer Resin Regeneration System for each Unit recycles spent resin in the steam generator blowdown demineralizer and is located in the Unit’s turbine building. This system recycles spent resin by chemical regeneration using acid and caustic treatment. Spent resin is treated in place by injecting these chemicals directly into the

steam generator blowdown demineralizer vessels that hold the resin. There are two mixed-bed demineralizer vessels operated in series for each Unit. This allows isolation of an individual vessel for chemical regeneration while blowdown flow is maintained in the other vessel.

The Steam Generator Blowdown Demineralizer Resin Regeneration System includes the following equipment and components:

(a) One acid day-tank that is a 30 inch diameter x 36 inch plasite lined tank.

(b) One acid supply package including acid supply pumps with associated piping and instrumentation.

(c) One caustic day-tank with immersion heater.

(d) One caustic supply package including caustic supply pumps, instantaneous heater and associated piping and instrumentation.

(e) Waste collection equipment including sumps and piping.

(f) The portions of the central acid and caustic chemical supply systems that are dedicated solely to the Steam Generator Blowdown Demineralizer Resin Regeneration System.

(g) Associated piping, valves, instrumentation and mechanical equipment.

Section 1.03 Make-up Demineralizer Resin Regeneration System. The Make-up Demineralizer Resin Regeneration System serves all three Units and recycles spent resin from the make-up water demineralizer by chemical regeneration using acid and caustic treatment. Spent resin is treated in place by injecting chemicals directly into the make-up demineralizer vessels that hold the resin. There are three mixed bed demineralizers. The system is operated with two mixed beds in series with the third bed isolated for regeneration.

The Make-up Demineralizer Resin Regeneration System includes the following components and equipment:

(a) One acid regenerant day tank that is a 238 gallon unlined steel tank.

(b) One caustic regenerant day tank that is a fiberglass reinforced tank of 3,396 gallon capacity and contains an electric immersion heater.

(c) Two plasite lined hot water storage tanks each with a 5519 gallon capacity and two electric immersion heaters.

(d) Two rinse water pumps.

(e) Two acid injection pumps.

(f) Two caustic feed pumps.

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(g) The portions of the central acid and caustic chemical supply systems that are dedicated solely to the Make-up Demineralizer Resin Regeneration System.

(h) Associated piping, valves, instrumentation and mechanical equipment.

Section 1.04 Decontamination Facilities. The Decontamination Facilities recycle solid waste consisting of contaminated tools and equipment by removing radioactive contamination from such items.

There are four Decontamination Facilities; one in the Radwaste Building for each Unit and a central facility for handling heavier tools and equipment that cannot be handled by the smaller individual Decontamination Facilities.

The central decontamination facility includes the following equipment:

(a) Ultrasonic cleaning system.

(b) Spray booth with pressure and steam washers.

(c) Filtered turbulator apparatus.

(d) Decontamination tanks and sinks.

(e) Central decontamination building consisting of shielded walls, filtered ventilation systems, air lock, laydown areas and associated building services.

Each of the three Radwaste Building Decontamination Facilities includes the following equipment:

(a) Ultrasonic cleaning system.

(b) Spray booth with turntable, pressure and steam washers.

(c) Tank, workbench and sink.

(d) The portion of each Radwaste Building housing Decontamination Facilities.

Section 1.05 Water Reclamation Facility. The Water Reclamation Facility will receive the sewage effluent from the Effluent Pipeline System and provide a multistage biochemical treatment process, including (a) reduction of ammonia and alkalinity by the use of trickling filters; (b) addition of lime slurry and polymer in first stage solid contact clarifiers to remove phosphate, magnesium, silica and some calcium; (c) addition of soda ash, polymer and carbon dioxide gas in second-stage solid contact clarifiers to remove calcium carbonate; (d) injection of sulfuric acid to reduce pH, polymer to aid in removal of suspended solids and chlorine to control biological growth; and (e) gravity filtration through graded media filters equipped for backwash. Sludge extracted from the backwash and solid contact clarifier and dewatered in the Water Reclamation Facility Water Pollution Control Facilities (which are not a part of the Series C Facilities) will be recalcined in a furnace provided for this purpose. The Water Reclamation Facility also includes related valves, piping, instrumentation, monitoring and other equipment.

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Section 1.06 Sanitary Drainage and Treatment System (ST). The sanitary drainage system collects and transports sanitary waste from Power Block facilities, Water Reclamation Facility ancillary buildings and construction facilities to the on-site sanitary treatment system.

The sanitary treatment system treats, clarifies, and returns the wastewater to the WRF for reuse. Equipment includes: a wet well, a sewage lift station, a surge tank, three package sewage treatment plants, a chlorine contact chamber, a sump with two sump pumps, and piping, valves, controls, and instrumentation.

Also included are related groundwater monitoring wells and equipment.

Section 1.07 Oily Waste and Nonradioactive Waste Systems (OW). The oily waste system for each Unit collects, for processing and disposal, nonradioactive waste from normally nonradioactive areas where oil may be present.

(a) Turbine building - OW drains and collects waste from the equipment and floor drains. The waste is collected in one turbine building sump and two condenser area sumps. The waste is normally discharged from the sumps to the oil/water separator, oil/water separator sump, retention basin, and eventually to the evaporation pond.

(b) Control building and diesel generator building - OW drains and collects waste from the equipment and floor drains. The waste is discharged from two control room sumps and two diesel generator sumps to the oil/water separator, oil water separator sump, retention basin, and eventually to the evaporation pond.

Each oily waste system consists of floor drains, equipment drains, vertical drain risers, pipes, sumps, sump pumps, an oil/water separator, an oil/water separator sump and associated valves, instrumentation and controls. Also included are related groundwater monitoring wells and equipment.

Section 1.08 Chemical Waste Systems (CM). The chemical waste system for each Unit consists of five subsystems:

(a) The radioactive chemical waste subsystem collects by gravity the corrosive radioactive waste from the chemical laboratory and decontamination stations and transfers the waste to the chemical drain tank. The chemical drain tank effluent is handled by the liquid radwaste system. This subsystem consists only of drains and piping.

(b) The cooling water waste subsystem collects by gravity the chemically treated cooling water from the auxiliary and radwaste building for disposal. The waste collects in the cooling water holdup tank and is pumped to the chemical waste neutralizer tank. From the neutralizer tank it is pumped to either the retention basin and evaporation pond or the liquid radwaste holdup tank. This subsystem consists of drains, a cooling water holdup tank, pumps, valves, piping, controls and instrumentation.

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(c) The condensate polishing demineralizer waste subsystem collects and neutralizes the potentially radioactive waste for disposal to the retention basin or the evaporation pond if it is nonradioactive, or discharges to the liquid radwaste system if it is radioactive. This subsystem consists of drains, sumps, sump pumps, chemical waste neutralizer tanks with agitators, transfer pumps, piping, valves, controls and instrumentation.

(d) The spent regenerate waste subsystem collects and neutralizes the rinse wastes from the makeup demineralizers for disposal. This subsystem consists of drains, sumps, sump pumps, valves, controls and instrumentation.

(e) The chemical tank drains located in the yard areas are installed on concrete slabs with retaining curbs. Small sumps are provided to collect equipment leakage. In some locations portable pumps are used to dispose of the waste.

Also included is related groundwater monitoring equipment.

Section 1.09 Retention Basin (Sedimentation Basin - J. Hook). The retention basin collects and disposes (by evaporation) of yard drainage to prevent discharge of sedimentation to the Gila River and the groundwater regional aquifer well water system. The basin consists of earthen dikes and related groundwater monitoring wells and equipment.

Section 1.10 Evaporation Pond. The evaporation pond collects start-up flush water and cooling tower blowdown wastewater for disposal. This allows for disposal of settleable solids and pollutants on a rubberized liner which prevents the start-up and blowdown wastewater from entering the Gila River and the groundwater regional aquifer well water system. The present pond is 250 surface acres. The future ponds will comprise an additional 455 acres. This system includes the earthen dike surrounding the pond, a rubberized liner and related environmental monitoring wells and equipment.

Section 1.11 Water Reclamation Facility Pollution Control Systems. The Water Reclamation Facility (WRF) air and water pollution control facilities collect environmental pollutants to prevent their discharge to the environment and/or treat such pollutants prior to such discharge. This pollution control equipment includes:

(a) Air Pollution Control Facilities - Furnace stack gas pollution control components include the cyclone separator, lime dust return screw and rotary feeder, the precooler and venturi scrubber, the impingement tray separator, the induced draft fan, all associated ducting, piping, valves, controls and instrumentation and all piping to supply process water to this equipment.

Lime and soda ash dust collection equipment includes dust collectors on each of the storage and supply silos and associated instrumentation and piping, and the filter separator at each unloading station and the associated piping and instrumentation.

(b) Water Pollution Control Facilities - Sludge handling and dewatering equipment includes:

(i) Sludge pumps and associated piping, valves, controls, instrumentation and flush water piping at the first and second stage clarifiers;

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(ii) Thickeners and associated structures and sludge pumps, tunnel sump pumps and associated piping, valves, controls, instrumentation, and flush water piping for the first and second stage thickeners, the waste thickeners, and the spent washwater thickeners;

(iii) Centrifuges, piping, valves, controls, instrumentation, flush water piping, screw conveyors, and associated structures for the classification, dewatering, and waste centrifuges;

(iv) Also included is related groundwater monitoring equipment.

Section 1.12 Gaseous Radwaste Systems (GRS). The gaseous radwaste system (GRS) for each Unit collects and processes potentially radioactive gases generated within the Plant so that offsite exposure is kept as low as reasonably achievable (ALARA). High activity waste gas, containing primarily hydrogen and nitrogen, is collected and stored in the oxygen-free system to guard against a rapid hydrogen/oxygen reaction and to permit decay of short-lived isotopes. Subsequent to decay, the decayed gases are sampled to determine their constituency and radioactivity content, filtered, monitored, and released at a controlled rate to the plant vent.

Each system is comprised of a surge tank, two prefilters, two waste gas compressors, three waste gas decay tanks, one discharge filter, discharge flow control valves and instrumentation and related radiation monitoring equipment.

Section 1.13 Solid Radwaste Systems (SRS). The solid radwaste system (SRS) for each Unit handles radioactive waste consisting of trash, spent ion exchange resins, waste evaporator concentrates, chemical drain tank effluents, crud tank effluents, used filter cartridges, contaminated steam generator blowdown demineralizer resins and contaminated condensate polishing demineralizer resins. The wastes are solidified in the waste solidification system and stored in a shielded storage location while awaiting shipment off site.

Spent resin from the fuel pool cooling system, liquid radwaste system ion exchangers, the chemical and volume control system preholdup ion exchanger, deborating ion exchanger and purification ion exchangers are sluiced to the high activity spent resin tank or the low activity spent resin tank. The spent resin tanks hold the resin until it is ready to be sluiced to the waste feed tank.

Radwaste from the crud tank, chemical drain tanks, spent resin tanks, and concentrates from the liquid radwaste system are piped directly into the waste feed tank.

Chemicals are added to the waste feed tank to adjust pH by the chemical addition storage and feed subsystem. The cement handling and storage subsystem delivers cement to the radwaste/cement mixing and filling subsystem.

The dry additive storage and feed subsystem delivers the dry chemical additive to the radwaste/cement mixing and filling subsystem.

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The radwaste/cement mixing and filling subsystem delivers radwaste from the waste feed tank, mixes the radwaste with cement and dry chemical additives and discharges the mixture to either a 55 gallon drum or disposable liner. This subsystem also provides for capping, decontamination, swiping and placement of solidified waste containers in a shielded storage location in the Unit, transportation and temporary storage of the solidified waste containers.

Spent filter cartridges are transported to the solidification system disposable liner or drum via a monorail, and remotely placed in a filter basket inside the container. The filter basket holds the filter cartridge in place while cement is poured around the filter cartridge encapsulating it.

Each system consists of a low activity spent resin tank and associated piping, a high activity spent resin tank and associated piping, a resin transfer/dewatering pump, a waste feed pump, a waste feed tank, a chemical addition pump, a chemical addition tank, a waste/cement processor, a 30-ton capacity overhead bridge crane, a container transfer cart and related switches, valves and instrumentation. The system also includes related radiation monitoring equipment.

Section 1.14 Future Interim on Site Low-level Radioactive Waste Storage Facility (RS). The function of the Future Interim On Site Low-Level Radioactive Waste Storage Facility (RS) is to provide the capabilities for handling and storing for up to a maximum of five (5) years, solidified wastes and dry active wastes, prior to shipment off site. Wastes temporarily held in the RS will be ready for shipment off site without further processing.

This facility consists of a non-seismic concrete building, a metal sided building, a truck bay and docking area, a control room, a container inspection and decontamination station, a truck washdown station, a remotely operated overhead crane, associated lighting, heating and ventilation systems, sumps, drains and related instrumentation and monitoring equipment and related access road and fencing.

Section 1.15 Liquid Radwaste Systems (LRS). The major functions of the liquid radwaste system (LRS) for each Unit are to:

(a) Collect and store for processing radioactive or potentially radioactive waste fluids from the following sources external to the Liquid Radwaste System:

(i) Containment radwaste sumps

(ii) Radwaste building sumps

(iii) Auxiliary building sumps

(iv) Fuel building sumps

(v) Decontamination facility (Unit One only)

(vi) Radiochemistry lab

(vii) Solid radwaste resin transfer/dewatering pump

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(viii) Condensate polishing and blowdown demineralizer regenerant wastes

(ix) Turbine building sumps

(x) Auxiliary steam condensate receiver tank

(xi) Chemical waste neutralizer tank

(xii) Boric acid concentrator (BAC) bottoms

(xiii) BAC distillate.

(b) Process revived wastes by filtration, absorption, ion exchange, and evaporation to obtain a maximum amount of high grade water for reuse in the reactor plant systems. This system also includes related radiation monitoring equipment.

(c) Minimize the quantity of liquid wastes which must be solidified for offsite disposal.

Each system consists of three holdup tanks, two holdup pumps, chemical drain tanks and pumps, ion exchange prefilters, an evaporator package, mixed bed ion exchangers and an adsorption bed, recycle monitor tanks and pump, concentrate monitor tanks and pumps, a caustic tank and batch tank, an acid tank and batch tank, an anti-foam tank and pump, Y-strainers, a desiccant breather and associated instrumentation, switches, valves and piping.

Section 1.16 Radwaste Buildings. The radwaste building for each Unit contains systems used for the processing of liquid, solid, and gaseous radioactive wastes generated in such Unit. The hot machine shop and the decontamination station which have not been financed are also housed in the radwaste building.

Each radwaste building is a three-story rectangular, seismic (category IIe), reinforced concrete structure. A series of interior reinforced concrete walls form compartments for housing waste-related equipment and provide radiation shielding. The solid waste solidification, storage, and disposal areas are serviced by a crane and monorail system. Each radwaste building is designed to be independent of any other structure and is supported on a rigid foundation mat.

Section 1.17 Filtration Equipment. The auxiliary building and the containment building for each Unit each contain normal exhaust air filtration units (AFU). Each AFU contains high efficiency particulate air (HEPA) filter banks and charcoal absorbers that have been included in the financing. The laundry and decontamination facility AFU contains HEPA filters that have been included in the financing. The function of the HEPA filter banks and charcoal absorbers is to maintain offsite exposure ALARA.

The condenser air removal system for each Unit contains HEPA filters, charcoal absorbers and related mechanical equipment necessary to remove radioactive contaminants from condenser vacuum pump discharges in order to maintain offsite exposure ALARA. Also included is related effluent monitoring equipment.

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Section 1.18 Radiation Laundry. The system is housed in the laundry and decontamination facility which is located near the radwaste building of Unit 1, and is a common facility for three units. The system uses four “RADKLEEN” dry cleaning machines, especially designed by Health Physics Systems, Inc., for decontamination of cloth and rubber protective clothing, and utilizes Dupont’s Valclene dry cleaning solvent. The system consists of cleaning chamber, solvent tank, still drying fan, evaporator refrigeration compressor, and several filters. The system contains two separate filtration systems. One set of micron filters, arranged in the parallel banks, filters solvent before it enters the cleaning drum. The other set of filters, arranged in series, comprises a recirculation filtration system which continually removes contamination from solvent in the contaminated sump, then returns the solvent to the clean sump. The system does not require any cooling water, plumbing, or connected cooling towers.

Section 1.19 Spent Fuel Storage and Handling System (SFS). There are three Fuel Buildings at this three unit plant, one for each unit. Each Fuel Building is a five-story reinforced concrete structure located adjacent to the Containment Building. Each Fuel Building is approximately 107 feet tall (above and below grade), 88 feet wide, and 124 feet long. Each Fuel Building contains one spent fuel storage pool, new fuel unloading and storage areas, spent fuel cask loading pit, fuel transfer canal, spent fuel cask washdown area, spent fuel pool equipment rooms, spent fuel equipment laydown area, new fuel container storage area and a railroad loading bay for spent fuel containers. The SFS for each Unit includes the spent fuel storage pool, spent fuel cask loading pit, spent fuel cask washdown area, spent fuel pool equipment rooms, spent fuel equipment laydown area and the railroad loading bay and the portion of the Fuel Building that houses such equipment.

Fuel assemblies are brought into the fuel handling building by truck in shipping containers containing two assemblies each. The assemblies are unloaded by means of the new fuel handling crane and stored on racks in the new fuel storage pit. When needed, the new fuel handling crane lifts the fuel assembly from the new fuel storage pit and carries it to a new fuel elevator, located at the containment building end of the transfer canal, which lowers the assembly to the floor of the transfer canal. The fuel handling machine then picks up the assembly and places it on an upending device (upender) in the transfer canal. The upender lowers the upright fuel assembly to a horizontal position and puts it on the fuel transfer car. The car carries the assembly through the transfer tube to the reactor containment building. Spent fuel is removed from the containment building and transferred back to the fuel handling building in the reverse process. Once inside the fuel handling building, the spent fuel handling machine places the spent fuel into high density storage racks in the spent fuel pool for storage. Spent fuel is stored in the spent fuel pools prior to shipment offsite. When spent fuel is to be shipped offsite a spent fuel cask is brought into the fuel handling building by rail. The cask is then cleaned. The cask handling bridge crane lifts the cask from the railcar into the cask loading pit and the lid of the cask is removed. The cask loading pit is then flooded and the spent fuel handling machine removes the fuel assembly to be shipped from the spent fuel pool storage rack and transfers them into the spent fuel cask in the cask loading pit. The cask is then capped and transferred by the bridge crane to the spent fuel cask washdown area where it is inspected, cleaned and decontaminated. The cask handling bridge crane then lifts the loaded cask to a railcar for shipment offsite.

Each SFS consists of the following components:

(a) Spent Fuel Cask Handling Bridge Crane - - This 150-ton crane is designed to lift and transport the spent fuel casks.

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(b) Spent Fuel Pool (SFP) - The SFP is designed to contain 1329 spent fuel assemblies in high density storage racks after addition of inserts which have not been included in the financing. It is 41 feet 6 inches deep, 28 feet wide, and 39 feet long and contains approximately 352,000 gallons of borated water at operating level. The outer walls of the Fuel Building form two walls of the SFP and the SFP is an integral structural part of the Fuel Building. It is lined with stainless steel plate.

(c) Cask Loading Pit (CLP) - The CLP is designed to allow loading of spent fuel into a cask for shipment offsite. It is approximately 45 feet deep, 16 feet wide and 16 feet long. It is connected to the SFP by a short canal.

(d) Cask Washdown Area - This area is designed to washdown a loaded cask and inspect it prior to shipment.

(e) Spent Fuel Railroad Loading Bay - This area is 76 feet long by 25 feet wide and is used to bring railroad cars into the building in order to load the spent fuel casks on the railroad cars for off-site shipment.

(f) Spent Fuel Equipment Laydown Area - This area is reserved for the spent fuel cask handling tools and crane rigging.

(g) Spent-Fuel Pool Cooling and Cleanup System - This system is designed to remove decay heat from the spent fuel assemblies and maintain clarity and chemistry of the spent fuel pool water. The system is composed of two subsystems, the spent fuel pool cooling system (SFPCS) and the spent fuel pool cleanup system. The SFPCS is a closed loop system consisting of two pumps, two heat exchangers, piping, valves, controls and instrumentation required to form a complete functional system. All equipment is located within the Fuel Building.

The spent fuel pool cleanup system is composed of two flow trains, each consisting of a strainer, pump, filter and a mixed bed ion exchanger. Either one or both trains can be aligned to clean the water in the Spent Fuel Pool. The system also consists of the piping, valves, controls and instrumentation to form a complete functional system. The pumps are located in the Fuel Building with the remaining equipment contained in the Auxiliary Building. Only the equipment and piping related to the spent fuel pool cleanup system that is located in the Auxiliary Building itself is financed. No part of the Auxiliary Building is included as part of the SFS.

(h) Fuel Building Ventilation System - This system filters, purifies, and monitors normal building exhaust.

Section 1.20 Effluent Pipeline System. The Effluent Pipeline system is an underground sewage effluent conveyance pipeline system to convey sewage effluent from the Phoenix 91st Avenue and City of Tolleson water treatment plants to the water reclamation facility at the site of the Plant, and includes (a) approximately 28.5 miles of 114- and 96-inch diameter pipe operating by gravity flow from the 91st Avenue and Tolleson interfaces to the Hassayampa Pumping Station, (b) the Hassayampa Pumping Station, and (c) approximately 8 miles of 66-inch diameter pipe from the Hassayampa Pumping Station to the water reclamation facility.

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Section 1.21 Containment Building. Each Unit has a Containment Building housing the reactor and reactor coolant system for such Unit.

Each Containment Building is a Seismic Category I pre-stressed concrete cylinder with a hemispherical dome. The base mat is a flat circular slab of reinforced concrete. The interior of the structure is lined with a continuous, welded steel plate one quarter inch thick. The Containment Building has an approximate inside diameter of 106 feet and an inside height of 206.5 feet. The base mat has an approximate diameter of 161 feet and a thickness of 10.5 feet. Wall thickness varies from approximately 4 feet in the vertical walls to approximately 3.5 feet at the apex of the dome.

Under the most severe of postulated loading conditions — including the combined effects of permanent loads, design basis Loss of Coolant Accident loads, and either the safe-shutdown earthquake or tornado loads — the Containment Building is designed to maintain its structural and leak-tight integrity. Together with isolation valves, penetration assemblies, and its continuous, welded-steel liner, the structure contains the released fission products and maintains a leak rate below the design leak rate levels.

The Containment Building is designed to provide long-term control of fission products following an accident.

Housed within the Containment Building and supported by the base mat are the reinforced concrete and structural steel internal structures which support the reactor and reactor coolant system. These internal structures, the reactor and reactor coolant system are not included in this financing.

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EX-4.37

EXHIBIT 4.37

REMARKETING AGREEMENT

Between

EL PASO ELECTRIC COMPANY

And

CITIGROUP GLOBAL MARKETS INC.

$59,235,000

MARICOPA COUNTY, ARIZONA

POLLUTION CONTROL CORPORATION

Pollution Control Refunding Revenue Bonds,

2005 Series A (El Paso Electric Company, Palo Verde Project)

$63,500,000

MARICOPA COUNTY, ARIZONA

POLLUTION CONTROL CORPORATION

Pollution Control Refunding Revenue Bonds,

2005 Series B (El Paso Electric Company, Palo Verde Project)

$37,100,000

MARICOPA COUNTY, ARIZONA

POLLUTION CONTROL CORPORATION

Pollution Control Refunding Revenue Bonds,

2005 Series C (El Paso Electric Company, Palo Verde Project)

Dated as of August 1, 2005

REMARKETING AGREEMENT

THIS REMARKETING AGREEMENT is dated as of August 1, 2005 (the “Agreement”), between EL PASO ELECTRIC COMPANY, a Texas corporation (the “Company”) and CITIGROUP GLOBAL MARKETS INC. (the “Agent”).

W I T N E S S E T H :

WHEREAS, the Agent, the Company and the Maricopa County, Arizona Pollution Control Corporation (the “Issuer”), have agreed for the Agent to act as exclusive remarketing agent on behalf of the Company in connection with the offering and sale from time to time in the secondary market of $59,235,000 principal amount of the Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series A (El Paso Electric Company Palo Verde Project) due August 1, 2040 (the “Series A Bonds”), $63,500,000 principal amount of the Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company Palo Verde Project) due July 1, 2040 (the “Series B Bonds”) and $37,100,000 principal amount of the Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company Palo Verde Project) due May 1, 2040 (the “Series C Bonds”, together with the Series A Bonds and the Series B Bonds, the “Bonds”) and to determine the interest rate necessary to remarket the Bonds in accordance with and pursuant to separate Indentures of Trust between the Issuer and Union Bank of California, N.A., as Trustee (the “Trustee”), each dated as of July 1, 2005 (collectively, the “Indenture”). (All capitalized terms used herein and not defined herein shall have the meanings specified in the Indenture);

WHEREAS, concurrently with the execution and delivery of this Agreement, the Company is entering into a Tender Agreement, dated as of the date hereof (the “Tender Agreement”), with Citigroup Global Markets Inc., as tender agent;

NOW, THEREFORE, in consideration of the premises the parties hereto do hereby covenant and agree as follows:

Section 1. Appointment of Agent; Responsibilities of Agent.

(a) Subject to the terms and conditions herein contained, the Company, effective as of the date hereof, hereby appoints the Agent, and the Agent hereby accepts such appointment, as exclusive remarketing agent in connection with the offering and sale of the Bonds from time to time in the secondary market.

(b) The Agent hereby represents that it is a member of the National Association of Securities Dealers, Inc., and has a combined capital stock, surplus and undivided profits of at least $15,000,000 and is authorized by law to perform the duties imposed upon it by the Indenture.

(c) The Agent accepts and assumes all the obligations, duties and rights of the remarketing agent under the Indenture.

(d) The Agent’s responsibilities hereunder will include (i) the soliciting of purchases of Bonds from investors able to purchase municipal obligations, (ii) effecting and processing such purchases, (iii) billing and receiving payment for Bonds purchased, (iv) causing the proceeds from the secondary sale of the Bonds to be transferred to the Tender Agent or the Trustee, as the case may be, (v) keeping such books and records as shall be consistent with prudent industry practice and making such books and records available for inspection by the Issuer, the Trustee, the Tender Agent and the Company at all reasonable times and (vi) performing such other related functions as may be requested by the Company and agreed to by the Agent.

(e) In connection with the performance of the foregoing responsibilities, the Agent further agrees to hold all moneys delivered to it hereunder for the purchase of Bonds as agent and bailee of, and in escrow for the benefit of, the person or entity which shall have so delivered such moneys.

Section 2. Furnishing of Offering Materials. (a) The Company agrees to furnish the Agent with as many copies as the Agent may reasonably request of (i) the Official Statements, dated July 27, 2005 with respect to the Series A Bonds and July 25, 2005 with respect to the Series B Bonds and the Series C Bonds (including all appendices thereto) describing the Bonds (as amended and supplemented, the “2005 Official Statements”), (ii) each document or report relating to the Company which has been filed with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), subsequent to the dates of the 2005 Official Statements (an “SEC Report”), (iii) an annual remarketing supplement to the 2005 Official Statements if requested by the Agent or such other disclosure document that may be used in connection with the remarketing of the Bonds by the Agent, and (iv) such other information with respect to the Company and the Bonds as the Agent shall reasonably request from time to time.

(b) If, at any time during the term of this Agreement, any event known to the Company relating to or affecting the Company, the Indenture, each separate Loan Agreement dated as of July, 1, 2005, between the Issuer and the Company (collectively, the “Agreement”), the Tender Agreement or the Bonds shall occur which might affect the correctness or completeness of any statement of a material fact contained in the 2005 Official Statements, any supplement thereto or any SEC Report, the Company will promptly notify the Agent in writing of the circumstances and details of such event.

Section 3. Representations, Warranties, Covenants and Agreements of the Company. The Company represents, warrants, covenants, and agrees with the Agent as follows:

(a) The Company has been duly incorporated and is in good standing under the laws of the State of Texas, has corporate power and authority to own its properties and to conduct its business and possesses all material licenses and approvals necessary for the conduct of its business and the Company is duly qualified to do business and is in good standing as a foreign corporation in the States of New Mexico and Arizona;

(b) The Company has full power and authority to take all actions required or permitted to be taken by it by or under, and to perform and observe the covenants and

agreements on its part contained in, this Agreement, the Tender Agreement, the Loan Agreement, the Continuing Disclosure Agreement relating to the Series A Bonds dated August 1, 2005 and the Continuing Disclosure Agreement relating to the Series B Bonds and the Series C Bonds dated August 1, 2005 (collectively, the “Continuing Disclosure Agreements”) and any other instrument or agreement relating thereto to which it is a party;

(c) The Company has, on or before the date hereof, duly taken all action necessary to be taken by it prior to such date for: (i) the execution, delivery and performance of this Agreement, the Tender Agreement, the Loan Agreement, the Continuing Disclosure Agreements and any other instrument or agreement to which it is a party and which has been or will be executed in connection with the transactions contemplated by the foregoing documents, and (ii) the carrying out, giving effect to, consummation and performance of the transactions and obligations contemplated hereby and by the 2005 Official Statements; provided, that no representation is made with respect to compliance with the securities or “Blue Sky” laws of the various states of the United States;

(d) This Agreement, the Loan Agreement, the Tender Agreement, the Continuing Disclosure Agreements and any other instrument or agreement to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents, when duly and validly executed and delivered by the parties hereto and thereto, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws, judicial decisions or principles of equity relating to or affecting the enforcement of creditors’ rights or contractual obligations generally;

(e) The execution and delivery of this Agreement, the Loan Agreement, the Tender Agreement, the Continuing Disclosure Agreements and any other instrument or agreement to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents, the compliance with the terms, conditions or provisions hereof and thereof, and the consummation of the transactions herein and therein contemplated did not upon the date of execution and delivery thereof and will not violate any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality applicable to the Company, or result in a breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company pursuant to the terms of its Articles of Incorporation or By-laws, or any mortgage, indenture, agreement or instrument to which the Company is a party or by which it or any of its properties is bound;

(f) All authorizations, consents and approvals of, notices to, registrations or filings with, or actions in respect of any governmental body, agency or other instrumentality or court required in connection with the execution, delivery and performance by the Company of this Agreement, the Tender Agreement, the Continuing Disclosure Agreements, the Loan Agreement and any other agreement or instrument to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents have been obtained, given or taken and are in full force and effect, provided that no representation is made with respect to compliance with the securities or “Blue Sky” laws of the various states of the United States;

(g) Except as described in the 2005 Official Statements or any SEC Report, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company wherein an unfavorable decision, ruling or finding would have a material adverse effect on the properties, business, condition (financial or other) or results of operations of the Company or the transactions contemplated by this Agreement or by the 2005 Official Statements or which would materially adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement, the Loan Agreement, the Tender Agreement, the Continuing Disclosure Agreements or any other agreement or instrument to which the Company is a party and which is used or contemplated for use in consummation of the transactions contemplated by this Agreement or the 2005 Official Statements.

(h) The Company is not in violation of any provision of its Articles of Incorporation or By-laws;

(i) The Company will not take or omit to take any action which action or omission would in any way cause the interest on the Bonds to be subject to Federal income tax under the Code;

(j) The Company will cooperate with the Agent in the qualification of the Bonds for offering and sale and the determination of the eligibility of the Bonds for investment under the laws of such jurisdictions as the Agent shall designate and will use its best efforts to continue any such qualification in effect so long as required for the distribution of the Bonds by the Agent, provided that the Company shall not be required to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. It is understood that the Company shall not be responsible for compliance with or the consequences of failure to comply with applicable state securities or “Blue Sky” laws;

(k) The information contained in the 2005 Official Statements and each SEC Report as of the date on which each of the 2005 Official Statements or SEC Report was or is furnished to the Agent, did not and will not contain any untrue statement of a material fact and will not omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No representation is made in this subsection (k), however, with respect to any information furnished in writing to the Company by or on behalf of the Agent specifically for inclusion in the 2005 Official Statements;

(l) The documents incorporated by reference in the 2005 Official Statements have been prepared by the Company in conformity with the requirements of the Exchange Act and the rules and regulations thereunder and such documents have been timely filed as required thereby; and

(m) Any certificate signed by any authorized officer or officers of the Company and delivered to the Agent shall be deemed a representation by the Company to the Agent as to the statements made therein.

Section 4. Conditions to Agent’s Obligations. The obligations of the Agent under this Agreement have been undertaken in reliance on, and shall be subject to, the due performance by the Company of its obligations and agreements to be performed hereunder and to the accuracy of and compliance with the representations, warranties, covenants and agreements of the Company contained herein, in each case on and as of the date of delivery of this Agreement and on and as of each date on which Bonds are to be offered and sold pursuant to this Agreement. The obligations of the Agent hereunder with respect to each date on which Bonds are to be offered and sold pursuant to this Agreement are also subject, in the discretion of the Agent, to the following further conditions:

(a) The Indenture, the Loan Agreement, the Tender Agreement and the Continuing Disclosure Agreements shall be in full force and effect and shall not have been amended, modified or supplemented in any way which would materially and adversely affect the Bonds, except as may have been agreed to in writing by the Agent, and there shall be in full force and effect such additional resolutions, agreements, certificates (including such certificates as may be required by regulations of the Internal Revenue Service in order to establish the tax-exempt character of interest on the Bonds) and opinions as shall be necessary to effect a secondary remarketing of the Bonds in the manner contemplated by this Agreement, which resolutions, agreements, certificates and opinions, at the request of the Agent, shall be satisfactory in form and substance to Pillsbury Winthrop Shaw Pittman LLP., bond counsel to the Issuer, or Pillsbury Winthrop Shaw Pittman LLP, counsel to the Agent; and

(b) There shall have been no material adverse change in the properties, business, condition (financial or other) or results of operations of the Company since the date of the 2005 Official Statements or any supplement thereto relating to the Bonds being offered on such date, and no Event of Default under Section 10.01 (a)(i), (ii), (iii), (iv), (v), (vi) or (vii) of the Indenture, shall have occurred and be continuing and no event shall have occurred and be continuing which, with the passage of time or giving of notice or both, would constitute such an Event of Default and the Agent shall receive such certificates, accountants’ letters and opinions of counsel as it shall reasonably request in connection with the remarketing of the Bonds.

Section 5. Term and Termination of Remarketing Agreement. This Agreement shall become effective upon execution by the Agent and the Company and shall continue in full force and effect until all of the Bonds have either matured or have been retired, subject to the right of the Agent to resign and the right of the Company to remove the Agent, as provided in Section 14.02(a) of the Indenture.

In the event of the resignation or removal of the Agent, the Agent shall pay over, assign and deliver any moneys and Bonds held by it in such capacity to its successor or, if there be no successor, to the Trustee.

Section 6. Payment of Fees and Expenses. In consideration of the services to be performed by the Agent under this Agreement, the Company agrees to pay to the Agent such fees as the Company and the Agent agree to in writing from time to time.

Section 7. Indemnification. (a) The Company agrees to indemnify and hold harmless Citigroup Global Markets Inc., as the Agent hereunder and as the Tender Agent under the Tender Agreement (“Citigroup”) and each of its officers, directors and employees and each person who controls Citigroup within the meaning of Section 15 of the Securities Act of 1933, as amended (the “Act”) (collectively, the “Indemnified Persons” and individually, an “Indemnified Person”) from and against any losses, claims, damages or liabilities to which any Indemnified Person may become subject under any statute or at law or in equity or otherwise, and shall reimburse any such Indemnified Person for any legal or other expenses incurred by it in connection with investigating any claim against it and defending any action, but only to the extent that such losses, claims, damages or liabilities (or actions in respect thereof) arise out of, or are based upon, (i) an allegation or determination that the Bonds, the obligations of the Company under the Loan Agreement, this Agreement or the Tender Agreement should have been registered under the Act or the Indenture should have been qualified under the Trust Indenture Act of 1939, as amended, (ii) an allegation or determination of negligence or wrongdoing in connection with Citigroup’s performance of its duties under this Agreement, the Tender Agreement or the Indenture, or (iii) any untrue statement or alleged untrue statement of a material fact contained in any document referred to in Section 2 hereof (a “Disclosure Statement”) or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, provided, however, the indemnity of the Company provided by this Section 7 shall not extend to or cover, and the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by Citigroup specifically for inclusion therein. The Company shall not be liable under clause (ii) of the preceding sentence for Citigroup’s gross negligence or willful misconduct.

(b) An Indemnified Person shall, promptly after the receipt of notice of the commencement of any action against such Indemnified Person in respect of which indemnification may be sought against Citigroup or the Company, as the case may be (in either case the “Indemnifying Person”), notify the Indemnifying Person in writing of the commencement thereof. In case any such action shall be brought against any Indemnified Person, and such Indemnified Person shall notify the Indemnifying Person, the Indemnifying Person may, or if so requested by such Indemnified Person shall, participate in or assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Person, and after notice from the Indemnifying Person to such Indemnified Person of its election so to assume the defense thereof, such Indemnified Person shall reasonably cooperate in the defense thereof, including without limitation, the settlement of outstanding claims, and the Indemnifying Person shall not be liable to such Indemnified Person under this Section 7 for any legal or other expenses subsequently incurred by such Indemnified Person in connection with the defense thereof other than reasonable costs of any investigation; provided, however, that if the named parties to any such action (including any impleaded parties) include both an Indemnified Person and the Company, and the Indemnified Person shall have reasonably concluded that there may be

one or more legal defenses available to it which are different from or additional to and conflict with those available to the Company, the Indemnified Person shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of the Indemnified Person; provided further, however, that (i) the Indemnifying Person shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to local counsel) at any one time for an Indemnified Person and its officers, directors and employees and all other persons so controlling such Indemnified Person and (ii) the Indemnifying Person shall not be liable for any settlement of any such claim or action effected without its written consent. Any obligation under this Section of an Indemnifying Person to reimburse an Indemnified Person for expenses include the obligation to make advances to the Indemnified Person to cover such expenses in reasonable amounts and at reasonable periodic intervals not more often than monthly as requested by the Indemnified Person.

(c) Citigroup agrees to indemnify and hold harmless the Company, its directors and officers to the same extent as the indemnity from the Company to the Indemnified Persons described in subsection (a) of this Section but only with respect to any untrue statement or alleged untrue statement, omission or alleged omission which has been included in the 2005 Official Statements and any supplement thereto, or omitted therefrom, in reliance upon and in conformity with information furnished in writing to the Company by Citigroup expressly for use therein. The Company and Citigroup agree that any statement set forth in the 2005 Official Statements and any supplement thereto furnished in writing by Citigroup for inclusion therein shall be contained in a section entitled “Underwriting” and that Citigroup’s indemnification pursuant to this paragraph (c) shall be limited to such section. In case any action shall be brought against the Company in respect of which indemnity may be sought against Citigroup, Citigroup shall have the rights and duties given to the Company, and the Company shall have the rights and duties given to the Indemnified Persons, by subsections (a) and (b) of this Section. The indemnity agreement in this subsection (c) shall be in addition to any liability which Citigroup may otherwise have to the Company and shall extend upon the same terms and conditions to each person, if any, who controls the Company within the meaning of the Act.

(d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in paragraph (a) of this Section 7 is due in accordance with its terms but is for any reason held by a court to be unavailable from the Company on grounds of policy or otherwise, the Company and Citigroup shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) to which the Company and Citigroup may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and Citigroup on the other from the remarketing of the Bonds. The relative benefits received by the Company on the one hand and Citigroup on the other shall be deemed to be in the same proportion as the aggregate principal amount of the Bonds remarketed pursuant to this Agreement bear to the total remarketing fees received by Citigroup; provided, however, that (i) in no case shall Citigroup be responsible for any amount in excess of such fee applicable to the Bonds remarketed by Citigroup and (ii) no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Act shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this

Section 7, each person who controls Citigroup within the meaning of Section 15 of the Act shall have the same rights as Citigroup. Any party entitled to contribution shall, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this paragraph (d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this paragraph (d) unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the party or parties from whom contribution may be sought.

(e) The indemnity and contribution agreements contained in this Section 7 shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of Citigroup or the Company, or the delivery of and any payment for any Bonds hereunder, and shall survive the termination or cancellation of this Agreement.

Section 8. Miscellaneous. (a) Except as otherwise specifically provided in this Agreement, all notices, demands and formal actions under this Agreement shall be in writing and mailed, telegraphed or delivered to:

The Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5^th Floor

New York, New York 10013

Attention: Kevin Stowe

The Company:

El Paso Electric Company

100 North Stanton

El Paso, Texas 79901

Attention: Secretary

The Tender Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

The Issuer:

Maricopa County, Arizona

Pollution Control Corporation

c/o Ryley Carlock & Applewhite

One North Central Avenue, Suite 1200

Phoenix, Arizona 85004-4417

Attention: President

The Trustee:

Union Bank of California, N.A.

120 S. San Pedro Street, 4^th Floor

Los Angeles, CA 90012

Attention: Corporate Trust Department

The Agent, the Company, the Trustee, the Tender Agent, the Issuer and the Bank may, by notice given under this Agreement, designate other addresses to which subsequent notices, requests, reports or other communications shall be directed.

(b) This Agreement will inure to the benefit of and be binding upon the Company and the Agent and their respective successors and assigns, and will not confer any rights upon any other person, partnership, association or corporation other than persons, if any, controlling the Company and the Agent to the extent provided in Section 7 hereof. The terms “successors” and “assigns” shall not include any purchaser of any of the Bonds merely because of such purchase.

(c) All of the representations, warranties and covenants of the Company and the Agent in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of the Agent or the Company, (ii) delivery of and any payment for any Bonds hereunder or (iii) termination or cancellation of this Agreement.

(d) Section headings have been inserted in this Agreement as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Agreement and will not be used in the interpretation of any provisions of this Agreement.

(e) If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatever.

(f) This Agreement may be executed in several counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same document.

(g) The principal office of the Agent is hereby designated to be that office set forth in subsection (a) above.

(h) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

(i) The Agent will not be liable to the Company on account of the failure of any person to whom the Agent has sold a Bond to pay for such Bond or to deliver any document in respect of the sale.

IN WITNESS WHEREOF, the parties hereto have caused this Remarketing Agreement to be duly executed as of the date first above written.

EL PASO ELECTRIC COMPANY

By:

Name:

Title:

CITIGROUP GLOBAL MARKETS INC.

By:

Name:

Title:

EX-4.38

EXHIBIT 4.38

TENDER AGREEMENT

Between

EL PASO ELECTRIC COMPANY

and

CITIGROUP GLOBAL MARKETS INC.

$59,235,000

MARICOPA COUNTY, ARIZONA

POLLUTION CONTROL CORPORATION

Pollution Control Refunding Revenue Bonds,

2005 Series A (El Paso Electric Company, Palo Verde Project)

$63,500,000

MARICOPA COUNTY, ARIZONA

POLLUTION CONTROL CORPORATION

Pollution Control Refunding Revenue Bonds,

2005 Series B (El Paso Electric Company, Palo Verde Project)

$37,100,000

MARICOPA COUNTY, ARIZONA

POLLUTION CONTROL CORPORATION

Pollution Control Refunding Revenue Bonds,

2005 Series C (El Paso Electric Company, Palo Verde Project)

Dated as of August 1, 2005

TENDER AGREEMENT

THIS TENDER AGREEMENT is dated as of August 1, 2005 (the “Agreement”), between EL PASO ELECTRIC COMPANY, a corporation organized and existing under the laws of the State of Texas (the “Company”), and CITIGROUP GLOBAL MARKETS INC. (the “Tender Agent”). Capitalized terms used herein and not otherwise defined shall have the meaning given to such terms in the Indenture (defined below).

W I T N E S S E T H :

WHEREAS, at the request of the Company, Maricopa County, Arizona Pollution Control Corporation (the “Issuer”) and Union Bank of California, N.A., as Trustee (the “Trustee”) have entered into separate Indentures of Trust dated as of July 1, 2005 (collectively, the “Indenture”), and the Indenture provides that owners of the $59,235,000 principal amount of the Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series A (El Paso Electric Company Palo Verde Project) due August 1, 2040 (the “Series A Bonds”), $63,500,000 principal amount of the Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company Palo Verde Project) due July 1, 2040 (the “Series B Bonds”) and $37,100,000 principal amount of the Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company Palo Verde Project) due May 1, 2040 (the “Series C Bonds”, together with the Series A Bonds and the Series B Bonds, the “Bonds”) may deliver their Bonds (or portions thereof) to the Tender Agent for purchase in accordance with the Indenture;

WHEREAS, concurrently with the execution and delivery of this Agreement, the Company is entering into a Remarketing Agreement, dated as of the date hereof (the “Remarketing Agreement”), with Citigroup Global Markets Inc., as remarketing agent.

NOW, THEREFORE, in consideration of the premises the parties hereto do hereby covenant and agree as follows:

Section 1. The Tender Agent hereby accepts and assumes all the obligations, duties and rights of the tender agent under the Indenture.

Section 2. Compensation paid by the Company to the Tender Agent for services rendered hereunder as Tender Agent shall be at such rate as the parties hereto may from time to time agree.

Section 3. The Tender Agent represents that it is a corporation duly organized under the laws of the United States of America or any state or territory thereof, having a combined capital stock, surplus and undivided profits of at least $25,000,000 and authorized by law to perform all the duties imposed upon it hereunder and under the Indenture.

Section 4.

(a) The Tender Agent may at any time resign and be discharged of its duties and obligations hereunder and under the Indenture by giving at least thirty (30) days’ notice to the Issuer, the Company, the Trustee and the Remarketing Agent. Such resignation shall take effect on the day a successor Tender Agent shall have been appointed by the Company and shall have accepted such appointment.

(b) The Tender Agent may be removed at any time by an instrument signed by the Company, filed with the Tender Agent, the Issuer, the Trustee and the Remarketing Agent.

(c) In the event of the resignation or removal of the Tender Agent, the Tender Agent shall deliver any Bonds and moneys held by it in such capacity to its successor or, if there is no successor, to the Trustee.

Section 5. At any time the Tender Agent may consult counsel for the Company or its own counsel in respect of any matter arising in connection with the agency hereunder, and it shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with the opinion of such counsel.

Section 6. The Tender Agent shall be protected:

(a) in acting upon any paper or document reasonably believed by it to be genuine and to have been signed by the proper person or persons; and

(b) in recognizing Bonds which it reasonably believes to bear the proper manual or facsimile signatures of the officers of the Issuer.

The Tender Agent shall not be held to have notice of any change of authority of any officer, employee or agent of the Company until receipt of written notification thereof from the Company.

Section 7. The following sections of the Remarketing Agreement are hereby incorporated into this Agreement and all references to the “Agent” in those sections shall be deemed to refer to the Tender Agent:

(a) Section 3, Representations, Warranties, Covenants and Agreements of the Company; and

(b) Section 4, Conditions to Agent’s Obligations.

Section 8. The indemnification provisions, Section 7, of the Remarketing Agreement are hereby incorporated in full into this Agreement.

Section 9. The principal office of the Tender Agent is hereby designated to be:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

2

Section 10. This Agreement may be amended in any respect but only by written agreement of the parties hereto, subject to the limitations upon such amendments set forth in the Indenture.

Section 11. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original; but such counterparts shall together constitute but one and the same Agreement.

Section 12. If any clause, provision or section of this Agreement be held illegal or invalid by any court, the invalidity of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof, and this Agreement shall be construed and enforced as if such illegal or invalid clause, provision or section had not been contained herein. In case any agreement or obligation contained in this Agreement shall be held to be in violation of law, then such agreement or obligation shall be deemed to be the agreement or obligation of the Issuer or the Company, as the case may be, to the full extent permitted by law.

Section 13. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

3

IN WITNESS WHEREOF, the parties hereto have caused this Tender Agreement to be duly executed as of the date first above written.

EL PASO ELECTRIC COMPANY

By

Name:

Title:

CITIGROUP GLOBAL MARKETS INC.

By

Name:

Title:

EX-4.39

EXHIBIT 4.39

BROKER-DEALER AGREEMENT

among

THE BANK OF NEW YORK,

as Auction Agent,

CITIGROUP GLOBAL MARKETS INC.,

as Broker-Dealer

and

EL PASO ELECTRIC COMPANY,

as Borrower

Dated as of August 1, 2005

relating to

$63,500,000

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series B

(El Paso Electric Company Palo Verde Project)

and

$37,100,000

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series C

(El Paso Electric Company Palo Verde Project)

TABLE OF CONTENTS

Section 1.	Definitions and Rules of Construction	1
1.1	Terms Defined by Reference	1
1.2	Terms Defined Herein	1
1.3	Rules of Construction	2
Section 2.	The Auction	3
2.1	Auction Procedures and Settlement Procedures	3
2.2	Preparation for Each Auction	3
2.3	Auction Schedule	4
2.4	Notices	5
2.5	Broker-Dealer Fee to Be Paid to Citigroup	5
2.6	Settlement	6
2.7	Submission Processing Representation	6
Section 3.	The Auction Agent	6
3.1	Duties and Responsibilities	6
3.2	Rights of the Auction Agent	7
Section 4.	Miscellaneous	8
4.1	Termination	8
4.2	Indemnification and Contribution	8
4.3	Participant	10
4.4	Communications	10
4.5	Benefits	12
4.6	Amendment; Waiver	12
4.7	Successors and Assigns	12
4.8	Severability	12
4.9	Execution in Counterparts	12
4.10	Disclosure	12
4.11	Entire Agreement	13
Section 5.	Governing Law	13
Exhibit A	Settlement Procedures	A-1
Exhibit B	Notice of Transfer	B-1
Exhibit C	Notice of Failure to Deliver	C-1
Exhibit D	Form of Submission Processing Representation	D-1

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BROKER-DEALER AGREEMENT

This BROKER-DEALER AGREEMENT dated as of August 1, 2005 (the “Agreement”) among THE BANK OF NEW YORK, as auction agent (together with its successors and assigns, the “Auction Agent”), CITIGROUP GLOBAL MARKETS INC. (together with its successor and assigns, hereinafter referred to as “Citigroup”) and El Paso Electric Company (the “Borrower”).

WHEREAS, Maricopa County, Arizona Pollution Control Corporation (the “Issuer”) proposes to cause or has caused Union Bank of California, N.A., as trustee (the “Trustee”) to authenticate and deliver $63,500,000 aggregate principal amount of its Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company Palo Verde Project) and $37,100,000 aggregate principal amount of its Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company Palo Verde Project) (collectively, the “Series ARS”) pursuant to separate Indentures of Trust, each dated as of July 1, 2005 (as from time to time in effect, each, a “Trust Indenture” and collectively, the “Trust Indentures”), each between the Issuer and the Trustee.

WHEREAS, each Trust Indenture provides that the interest rate with respect to the Series ARS for each Auction Period after the initial ARS Interest Period shall, except under certain conditions, equal the rate per annum that the Auction Agent advises results from implementation of the Auction Procedures (the “Auction Rate”).

WHEREAS, Citigroup is an Authorized Broker-Dealer listed in the Auction Agent Agreement, and the Auction Agent is entering into this Agreement pursuant to Section 2.06 of the Auction Agent Agreement.

WHEREAS, the Auction Procedures require the participation of one or more Broker-Dealers.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Auction Agent, as agent of the Trustee, and Citigroup agree as follows:

Section 1. Definitions and Rules of Construction.

1.1 Terms Defined by Reference. Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in each Trust Indenture, including applicable Exhibit B thereto, or the Auction Agent Agreement.

1.2 Terms Defined Herein. As used herein and in each Appendix hereto, the following terms shall have the following meanings, unless the context otherwise requires:

“ARS Beneficial Owner” shall mean the Person who is the beneficial owner of Series ARS according to the records of (i) a Securities Depository while the Series ARS are in book-entry form or (ii) the Trustee while the Series ARS are not in book-entry form.

“Auction” shall have the meaning specified in Section 2.1 hereof.

“Auction Agent Agreement” shall mean the Auction Agent Agreement, dated as of August 1, 2005, by and among the Borrower, the Trustee and the Auction Agent relating to the Series ARS.

“Auction Procedures” shall mean the provisions that are set forth in Exhibit B of each Trust Indenture.

“Authorized Officer” shall mean each Vice President, Assistant Vice President and Assistant Treasurer of the Auction Agent assigned to the Dealing and Trading Group of its Corporate Trust Department and every other officer or employee of the Auction Agent designated as an “Authorized Officer” for purposes of this Agreement in a written communication to Citigroup.

“Citigroup Officer” shall mean each officer or employee of Citigroup designated as a “Citigroup Officer” for purposes of this Agreement in a written communication to the Auction Agent.

“Notice of Failure to Deliver” shall mean a notice substantially in the form of Exhibit C hereto.

“Notice of Transfer” shall mean a notice substantially in the form of Exhibit B hereto.

“Order Form” shall mean the form to be submitted by any Broker-Dealer on any Auction Date.

“Participant” shall mean, with respect to DTC or another Securities Depository, a member of, or participant in, DTC or such other Securities Depository, respectively.

“Settlement Procedures” shall mean the Settlement Procedures attached hereto as Exhibit A.

“Submission Processing Deadline” shall mean the earlier of (i) 40 minutes after the Submission Deadline and (ii) the time when the Auction Agent begins to disseminate the results of the Auction to the Broker-Dealers.

“Submission Processing Representation” is defined in Series B and Series C Indentures and shall be submitted to the Auction Agent whenever Broker-Dealer implements a Submission Processing Deadline in the form attached hereto as Exhibit D.

1.3 Rules of Construction. Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of this Agreement:

(a) Words importing the singular number shall include the plural number and vice versa.

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The captions and headings herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect.

The words “hereof,” “herein,” “hereto,” and other words of similar import refer to this Agreement as a whole.

All references herein to a particular time of day shall be to New York City time.

Section 2. The Auction.

2.1 Auction Procedures and Settlement Procedures.

(a) On each Auction Date, the provisions of the Auction Procedures will be followed by the Auction Agent for the purpose of determining the Applicable ARS Rate for the next Auction Period. Each periodic implementation of such procedures is hereinafter referred to as an “Auction.”

(b) All of the provisions contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions were fully set forth herein.

(c) Citigroup agrees to act as, and assumes the obligations of and limitations and restrictions placed upon, a Broker-Dealer under each Trust Indenture and as otherwise set forth in this Agreement.

(d) Citigroup and other Broker-Dealers may participate in Auctions for their own accounts. The Auction Agent shall have no duty or liability with respect to monitoring compliance with the provisions of this subsection (d).

2.2 Preparation for Each Auction.

(a) Not later than 9:30 a.m., New York City time, on each Auction Date for the Series ARS, the Auction Agent shall advise Citigroup by telephone or other electronic communication acceptable to the parties of the All-Hold Rate and the Index used in determining such rate.

(b) In the event the Auction Date for any Auction shall be changed after the Auction Agent has given notice of such Auction Date pursuant to clause (vii) of paragraph (a) of the Settlement Procedures, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of such change to Citigroup not later than the earlier of 9:15 a.m., New York City time, on the new Auction Date and 9:15 a.m., New York City time, on the old Auction Date. Thereafter, Citigroup shall use its best efforts to promptly notify its customers who are Existing Owners of such change in the Auction Date.

(c) The Auction Agent may, but shall have no duty to, request, from time to time, Citigroup to provide it with the number of its customers Citigroup believes are Existing Owners and the aggregate amount held by Citigroup. Citigroup shall comply with any such

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request, and the Auction Agent shall keep confidential any such information, including information received as to the identity of Bidders in any Auction, and shall not disclose any such information so provided to any person other than the Trustee, the Issuer, the Borrower and Citigroup, provided that the Auction Agent reserves the right to disclose any such information if (i) it is ordered to do so by a court or regulatory judicial or quasi-judicial agency or authority, or (ii) it is advised by its counsel that its failure to do so would be unlawful or would impose upon it any actual or potential loss, claim, damage, liability, or expense for which it has not received indemnity satisfactory to it.

2.3 Auction Schedule. (a) The Auction Agent shall conduct Auctions in accordance with the schedule set forth below. Such schedule may be changed by the Auction Agent with the consent of the Trustee and the Broker-Dealers, which consent shall not be unreasonably withheld or delayed. The Auction Agent shall give notice pursuant to Section 4.3 hereof of any such change to each Broker-Dealer. Such notice shall be given prior to the first Auction Date on which any such change shall be effective. Notwithstanding the foregoing, the Auction Agent will follow the Bond Market Association’s Market Practice Recommendation for shortened trading days for the bond markets (the “BMA Recommendation”) unless the Auction Agent is instructed otherwise. In the event of a BMA Recommendation on an Auction Date, the Submission Deadline shall be 11:30 a.m. instead of 1:00 p.m., and as a result the notices set forth in Section 2.4 hereof will occur earlier.

By 9:00 a.m.	The Auction Agent determines the All-Hold Rate and the Index.
By 9:30 a.m.	The Auction Agent advises the Trustee and the Broker-Dealers of the All-Hold Rate and the Index, as set forth in Section 2.2(a) hereof.
9:30 a.m.-l:00 p.m.	The Auction Agent assembles information (the “Bid Information”) communicated to it by Broker-Dealers as provided in Section 1.02(a) of the Auction Procedures. The submission deadline (the “Submission Deadline”) is 1:00 p.m., New York City time; provided, however, that the Auction Agent shall be entitled to accept an Order from any Broker-Dealer following the Submission Deadline (but in any event prior to the communication of Auction results as provided below), so long as the Order from such Broker-Dealer is accompanied by a Submission Processing Representation as defined in Section 2.07.
Not earlier than         1:00 p.m.	The Auction Agent makes the determination pursuant to Section 1.03(b) of the Auction Procedures.
By approximately         3:00 p.m.	The Auction Agent advises the Trustee and the Broker-Dealers of the Auction Rate for the next Auction Period and the results of the Auction as provided in Section 1.05(a) of the Auction Procedures. Submitted Bids and Submitted Sell Orders are accepted and rejected in whole or in part and principal amount of Series ARS is allocated as provided in Section 1.04 of the Auction Procedures. The Auction Agent gives notice of Auction results as set forth in paragraph (a) of the Settlement Procedures.

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(b) In each Auction in which Citigroup submits one or more Orders, Citigroup may aggregate the Orders of different Potential Owners or Existing Owners on whose behalf Citigroup is submitting Orders; provided, however, Bids may only be aggregated if the interest rates on the Bids are the same when rounded pursuant to the provisions of the Auction Procedures. Notwithstanding the foregoing, the Auction Agent may at any time request that such Orders be separate for each different Potential Owner or Existing Owner. Each Order shall be in writing.

(c) Citigroup shall deliver to the Auction Agent (i) a Notice of Transfer in writing of any transfer of Series ARS made through Citigroup by an Existing Owner to another person other than pursuant to an Auction, and (ii) a Notice of a Failure to Deliver in writing of the failure of any Series ARS to be transferred to or by any person that purchased or sold Series ARS through Citigroup pursuant to an Auction. The Auction Agent is not required to accept any notice delivered pursuant to the terms of the foregoing sentence with respect to an Auction unless it is received by the Auction Agent by 3:00 p.m., New York City time, on the Business Day next preceding the applicable Auction Date.

(d) Citigroup and other Broker-Dealers may submit Orders in Auctions for their own accounts; provided, however, that any Broker-Dealer that is an affiliate of the Issuer or of the Borrower must submit at the next Auction therefor a Sell Order covering all Series ARS held for its own account. The Auction Agent shall have no duty or liability with respect to monitoring or enforcing compliance with the requirements of this subsection (d).

(e) Citigroup agrees to handle its customers’ Orders in accordance with its duties under applicable securities laws and rules.

2.4 Notices.

(a) On each Auction Date, the Auction Agent shall notify Citigroup by telephone or other electronic communication acceptable to the parties of the results of the Auction as set forth in paragraph (a) of the Settlement Procedures. The Auction Agent shall notify Citigroup in writing of the disposition of all Orders submitted by Citigroup in the Auction held on such Auction Date by 10:30 a.m., New York City time, on the Business Day next succeeding such Auction Date if previously requested by Citigroup.

(b) Citigroup shall notify each Existing Owner or Potential Owner on whose behalf Citigroup has submitted an Order as set forth in paragraph (b) of the Settlement Procedures and take such other action as is required by Citigroup pursuant to the Settlement Procedures.

(c) The Auction Agent shall deliver to Citigroup all notices and certificates which the Auction Agent is required to deliver to Citigroup pursuant to Article II of the Auction Agent Agreement after receipt of such notices and certificates at the times and in the manner set forth in the Auction Agent Agreement.

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(d) If any Auction Bonds are to be redeemed and those Bonds are held by a Securities Depository, the Borrower shall include in the notice of the call for redemption delivered to the Securities Depository (i) a date placed under an item entitled “Publication Date for Securities Depository Purposes” and such date shall be three Business Days after the Auction Date immediately preceding such redemption date and (ii) an instruction to Securities Depository to (x) determine on such Publication Date after the Auction held on the immediately preceding Auction Date has settled, the Participants whose Securities Depository positions will be redeemed and the principal amount of such Auction Bonds to be redeemed from each such position (the “Securities Depository Redemption Information”), and (y) notify the Auction Agent immediately after such determination of the positions of the Participants in such Auction Bonds immediately prior to such Auction settlement, the position of the Participants in such Auction Bonds immediately following such auction settlement, and the Securities Depository Redemption Information.

2.5 Broker-Dealer Fee to Be Paid to Citigroup. On the first ARS Interest Payment Date and each ARS Interest Payment Date immediately following an Auction Date, the Auction Agent shall pay to Citigroup from moneys received from the Borrower pursuant to Section 3.05 of the Auction Agent Agreement an amount equal to the product of (i) 0.25 of 1% per annum, multiplied by (ii) (A) in the case of the first ARS Interest Payment Date, the aggregate principal amount of Series ARS placed by Citigroup on the Closing Date or (B) in the case of each ARS Interest Payment Date immediately following an Auction Date, for the period just elapsed, the sum of (x) the aggregate principal amount of the Series ARS placed by Citigroup in such Auction that were (1) the subject of Submitted Bids of Existing Owners submitted by Citigroup and continued to be held as a result of such submission and (2) the subject of Submitted Bids of Potential Owners submitted by Citigroup and purchased as a result of such submission and (y) the aggregate principal amount of the Series ARS subject to valid Hold Orders (determined in accordance with each Trust Indenture) that were acquired by such Existing Owners through Citigroup, or (C) if an Auction was not held on such Auction Date, the aggregate principal amount of the Series ARS that were acquired by Existing Owners through Citigroup, multiplied by (iii) the number of days in such ARS Interest Period divided by (iv) 360. For purposes of subclauses (ii)(B)(x)(1) and (ii)(B)(y) of the foregoing sentence, if any Existing Owner who acquired Series ARS through Citigroup transfers those Series ARS to another person other than pursuant to an Auction, then the Broker-Dealer for the Series ARS so transferred shall continue to be Citigroup; provided, however, that if the transfer was effected by, or if the transferee is a Broker-Dealer other than Citigroup, then such Broker-Dealer shall be the Broker-Dealer for such Series ARS.

2.6 Settlement.

(a) If any Existing Owner on whose behalf Citigroup has submitted a Bid or Sell Order for Series ARS that was accepted in whole or in part fails to instruct its Participant to deliver the Series ARS subject to such Bid or Sell Order against payment therefor, Citigroup shall instruct such Participant to deliver such Series ARS against payment therefor and Citigroup may deliver to the Potential Owner on whose behalf Citigroup submitted a Bid that was accepted

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in whole or in part, a principal amount of the Series ARS that is less than the principal amount of the Series ARS specified in such Bid to be purchased by such Potential Owner. Notwithstanding the foregoing terms of this Section, any delivery or nondelivery of Series ARS which represents any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or non-delivery in accordance with the terms of Section 2.3(b) hereof. The Auction Agent shall have no duty or liability with respect to enforcement of this subsection (a).

(b) None of the Auction Agent, the Trustee, the Broker-Dealers, Borrower or the Issuer shall have any responsibility or liability with respect to the failure of an Existing Owner, a Potential Owner or its respective Participant to deliver Series ARS or to pay for Series ARS sold or purchased pursuant to the Auction Procedures or otherwise.

2.7 Submission Processing Representation. Broker-Dealers may submit an Order after the Submission Deadline and prior to the Submission Processing Deadline if the Order was (i) received by the Broker-Dealer from Existing Owners or Potential Owners prior to the Submission Deadline or (ii) initiated internally by the Broker-Dealer for its own account prior to the Submission Deadline. Each Order submitted to the Auction Agent after the Submission Deadline and prior to the Submission Processing Deadline shall constitute a representation by the Broker-Dealer that such Order was (i) received from an Existing Owner or Potential Owner prior to the Submission Deadline or (ii) initiated internally by the Broker-Dealer for its own account prior to the Submission Deadline (the “Submission Processing Representation”), and shall be accompanied by a written statement in the form of Exhibit D annexed hereto.

Section 3. The Auction Agent.

3.1 Duties and Responsibilities.

(a) The Auction Agent is acting solely as a non-fiduciary agent for the Trustee hereunder and owes no duties to any other person by reason of this Agreement.

(b) The Auction Agent undertakes hereunder to perform such duties and only such duties as are specifically set forth in the Auction Agent Agreement or herein or expressly incorporated in the Auction Agent Agreement or herein by reference against the Auction Agent and no implied covenants or obligations shall be read into this Agreement by means of the provisions of each Trust Indenture or otherwise against the Auction Agent.

(c) In the absence of willful misconduct or gross negligence on its part, the Auction Agent shall not be liable for any action taken, suffered or omitted or for any error of judgment made by it in the performance of its duties under this Agreement. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining (or failing to ascertain) the pertinent facts.

3.2 Rights of the Auction Agent.

(a) The Auction Agent may conclusively rely and shall be fully protected in acting or refraining from acting upon any communication authorized by this Agreement and upon any written instruction, notice, request, direction, consent, report, certificate or other

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instrument, paper, document or communication reasonably believed by it to be genuine. The Auction Agent shall not be liable for acting or refraining from acting upon any telephone communication authorized by this Agreement which the Auction Agent believes in good faith to have been given by the Trustee or by a Broker-Dealer. The Auction Agent may record telephone communications with the Broker-Dealers, and Citigroup may record telephone communications with the Auction Agent.

(b) The Auction Agent may consult with counsel of its own choice, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.

(c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder.

(d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder.

(e) The Auction Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; acts of terrorism; epidemics; riots; interruptions, loss or malfunctions or utilities; communications or computer (hardware or software) services; accidents; labor disputes; acts of civil or military authority or governmental actions; it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

(f) The Auction Agent makes no representations as to and shall have no liability with respect to the correctness of the recitals in, or the validity, accuracy or adequacy of this Agreement, any offering material used in connection with the offer and sale of the Series ARS or any other agreement or instrument executed in connection with the transactions contemplated herein.

Section 4. Miscellaneous.

4.1 Termination. Citigroup may resign at any time, upon at least (30) Business Days notice to the other parties hereto; provided, however, that Citigroup may resign immediately if (a) it determines, in its reasonable judgment, that for any reason, including, without limitation, (i) a pending or proposed change in applicable tax laws, (ii) a material adverse change in the financial condition of the Borrower, (iii) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis, (iv) a down-grading of the Series ARS or (v) an imposition of material restrictions on the Series ARS or similar obligations, it is not advisable to attempt to auction the Series ARS, or (b) a Disclosure Statement, as hereinafter defined, is necessary or desirable pursuant to Section 4.10(b) hereof

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and the Borrower fails to provide Citigroup with a Disclosure Statement reasonably satisfactory to Citigroup and its counsel. The Auction Agent at the written direction of the Borrower shall terminate this Broker-Dealer Agreement at any time on at least five (5) Business Days notice to the other parties hereto. This Broker-Dealer Agreement shall terminate on termination of the Auction Agent Agreement.

4.2 Indemnification and Contribution.

(a) The Borrower agrees to indemnify and hold harmless Citigroup, the directors, officers, employees and agents of Citigroup and each person who controls Citigroup within the meaning of either the Securities Act of 1933 (the “Securities Act”) or the Exchange Act of 1934 (the “Exchange Act”) against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Official Statement relating to the Series ARS dated July 25, 2005 (the “Official Statement”) or a Disclosure Statement (or in any supplement or amendment thereto), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Borrower will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in the Official Statement or Disclosure Statement, or in any amendment thereof or supplement thereto, in reliance upon and in conformity with written information furnished to the Borrower by or on behalf of Citigroup specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Borrower may otherwise have.

(b) Citigroup agrees to indemnify and hold harmless the Borrower, each of its official, directors, officers and employees, and each person who controls the Borrower within the meaning of either the Securities Act or the Exchange Act, to the same extent as the foregoing indemnity from the Borrower to Citigroup, but only with reference to written information relating to Citigroup furnished to the Borrower by Citigroup specifically for inclusion in the Official Statement or Disclosure Statement (or in any amendment or supplement thereto). This indemnity agreement will be in addition to any liability which Citigroup may otherwise have. The Borrower acknowledges that (i) the statements set forth in the last sentence of the last paragraph of the cover page regarding the delivery of the Series ARS and (ii) the legend in block capital letters concerning overallotment and stabilization in the Official Statement and the Disclosure Statement constitute the only information furnished in writing by or on behalf of Citigroup for inclusion in the Official Statement or Disclosure Statement (or in any amendment or supplement thereto).

(c) Promptly after receipt by an indemnified party under this Section 4.2 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is

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to be made against the indemnifying party under this Section 4.2, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses; and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party’s choice at the indemnifying party’s expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be satisfactory to the indemnified party. Notwithstanding the indemnifying party’s election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest; (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party; (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding.

(d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 4.2 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Borrower and Citigroup agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively “Losses”) to which the Borrower and Citigroup may be subject in such proportion as is appropriate to reflect the relative benefits received by the Borrower on the one hand and by Citigroup on the other from the offering of the Series ARS. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Borrower and Citigroup shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Borrower on the one hand and of Citigroup on the other in connection with the statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. In no case shall Citigroup be responsible for any amount in excess of the commission applicable to the Series ARS for which Citigroup has acted as Broker-Dealer. Benefits received by the Borrower shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by it, and benefits received by Citigroup shall be deemed to be equal to the commissions applicable to Series ARS for which

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Citigroup has acted as Broker-Dealer. Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Borrower on the one hand or Citigroup on the other, the intent of the parties and their relative knowledge, information and opportunity to correct or prevent such untrue statement or omission. The Borrower and Citigroup agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 4.2, each person who controls Citigroup within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee and agent of Citigroup shall have the same rights to contribution as Citigroup, and each person who controls the Borrower within the meaning of either the Securities Act or the Exchange Act and each official, director, officer and employee of the Borrower shall have the same rights to contribution as the Borrower, subject in each case to the applicable terms and conditions of this paragraph (d).

4.3 Participant. Citigroup is, and shall remain for the term of this Agreement, a member of, or Participant in, the Securities Depository (or an affiliate of such a member or Participant).

4.4 Communications. Except for (i) communications authorized to be made by telephone pursuant to this Agreement or the Auction Procedures and (ii) communications in connection with the Auctions (other than those expressly required to be in writing or other electronic communication acceptable to the parties shall be deemed to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including facsimile or similar writing) and shall be given to such party, addressed to it, at its address or facsimile number set forth below:

If to Citigroup, addressed:	CITIGROUP GLOBAL MARKETS INC.
	390 Greenwich Street, 5th Floor
	New York, NY 10013
	Attention: Auction Rate Trading
	Telephone: (212) 723-7082
	Facsimile: (212) 723-8809
If to the Auction Agent, addressed:	THE BANK OF NEW YORK
	101 Barclay Street, 7W
	New York, New York 10286
	Attention: Corporate Trust Department – Dealing and Trading Group
	Telephone (212) 815-3450
	Facsimile: (212) 815-3440
If to the Trustee, addressed:	UNION BANK OF CALIFORNIA, N.A.
	120 S. San Pedro, 4th Floor
	Los Angeles, California
	Attention: Corporate Trust Department
	Telephone: (213) 972-5675
	Facsimile: (213) 972-5694

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If to the Issuer, addressed:	MARICOPA COUNTY, ARIZONA
	POLLUTION CONTROL CORPORATION
	c/o Ryley Carlock & Applewhite
	One North Central Avenue, Suite 1200
	Phoenix, Arizona 85004-4417
	Attention: President
	Telephone: (602) 440-4802
	Facsimile: (602) 257-9582
If to the Borrower, addressed:	EL PASO ELECTRIC COMPANY
	100 North Stanton
	El Paso, Texas 79901
	Attention: Treasurer
	Telephone: (915) 543-5983
	Facsimile: (915) 521-4779

or such other address or facsimile number as such party may hereafter specify for such purpose by notice to the other party. Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of Citigroup by a Citigroup Officer and on behalf of the Auction Agent by an Authorized Officer. Citigroup may record telephone communications with the Auction Agent.

4.5 Benefits. Nothing in this Agreement, express or implied, shall give to any person, other than the Auction Agent, Citigroup and their respective successors and assigns, any benefit of any legal or equitable right, remedy or claim under this Agreement.

4.6 Amendment; Waiver.

(a) This Agreement shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of each of the parties hereto.

(b) Failure of either party to this Agreement to exercise any right or remedy hereunder in the event of a breach of this Agreement by the other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach.

4.7 Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and permitted assigns of each of Citigroup and the Auction Agent.

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4.8 Severability. If any clause, provision or section of this Agreement shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any remaining clause, provision or sections hereof.

4.9 Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

4.10 Disclosure.

(a) The Borrower agrees to supply to Citigroup, at the Borrower’s expense, such number of copies of the Official Statement as Citigroup shall reasonably request from time to time and, upon request of Citigroup, to amend the Official Statement so that the Official Statement will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.

(b) The Borrower shall promptly notify Citigroup of any material adverse change in the affairs of the Borrower, financial or otherwise. If Citigroup determines (upon consultation and mutual agreement with the Borrower) that it is necessary or desirable to use a disclosure statement (other than the Official Statement), relating specifically to the Series ARS (a “Disclosure Statement”) in connection with the solicitation of orders for the Series ARS, Citigroup will notify the Borrower, and the Borrower will provide Citigroup with a Disclosure Statement reasonably satisfactory to Citigroup and its counsel. The Borrower will supply Citigroup, at the Borrower’s expense, with such number of copies of such Disclosure Statement as Citigroup requests from time to time and will, upon request of Citigroup, amend such Disclosure Statement (as well as the documents incorporated by reference therein) so that such Disclosure Statement will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. In connection with the use of any Disclosure Statement by Citigroup in its solicitation of orders for the Series ARS (other than the Official Statement), the Borrower will furnish to Citigroup such certificates, accountants’ letters and opinions of counsel as would be customary in a public offering of tax-exempt securities underwritten by Citigroup. In addition, the Borrower will, at its own expense, take all steps reasonably requested by Citigroup that Citigroup or its counsel may consider necessary or desirable to effect compliance with applicable federal or state securities laws.

4.11 Entire Agreement. This Broker-Dealer Agreement, and the other agreements and instruments executed and delivered in connection with the issuance of the Series ARS, contain the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or implied, between the parties relating to the subject matter hereof.

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Section 5. Governing Law.

This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State, without giving effect to principles of conflicts of law thereof. The parties agree that all actions and proceedings arising out of this Agreement or any of the transactions contemplated hereby shall be brought in the United States District Court in the County of New York and, in connection with any such action or proceeding submit to the jurisdiction of, and venue in, such court. To the extent permitted by law, each of the parties hereto also irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of this Agreement or the transactions contemplated hereby.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered under seal by their proper and duly authorized officer as of the date first above written.

THE BANK OF NEW YORK, as Auction Agent

By:

Title:

CITIGROUP GLOBAL MARKETS INC.,

as Broker-Dealer

By:

Title:

EL PASO ELECTRIC COMPANY, as Borrower

By:

Title:

Exhibit A

Broker-Dealer

Agreement

SETTLEMENT PROCEDURES

Capitalized terms used herein shall have the meanings given such terms in each Trust Indenture.

(a) Not later than 3:00 p.m., New York City time, on each Auction Date, the Auction Agent shall notify by telephone (or by other means acceptable to the parties) each Broker-Dealer that participated in the Auction held on such Auction Date and submitted an Order on behalf of an Existing Owner or Potential Owner of:

(i) the Auction Rate fixed for the next ARS Interest Period;

(ii) whether there were Sufficient Clearing Bids in such Auction;

(iii) if such Broker-Dealer (a “Seller’s Broker-Dealer”) submitted a Bid or a Sell Order on behalf of an Existing Owner, whether such Bid or Sell Order was accepted or rejected, in whole or in part, and the principal amount of Series ARS, if any, to be sold by such Existing Owner;

(iv) if such Broker-Dealer (a “Buyer’s Broker-Dealer”) submitted a Bid on behalf of a Potential Owner, whether such Bid was accepted or rejected, in whole or in part, and the principal amount of Series ARS, if any, to be purchased by such Potential Owner;

(v) if the aggregate principal amount of Series ARS to be sold by all Existing Owners on whose behalf such Broker-Dealer submitted a Bid or a Sell Order exceeds the aggregate principal amount of Series ARS to be purchased by all Potential Owners on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more Buyer’s Broker-Dealers (and the name of the Participant, if any, of each such Buyer’s Broker-Dealer) acting for one or more purchasers of such excess principal amount of Series ARS and the principal amount of Series ARS to be purchased from one or more Existing Owners on whose behalf such Broker-Dealer acted by one or more Potential Owners on whose behalf each of such Buyer’s Broker-Dealers acted;

(vi) if the principal amount of Series ARS to be purchased by all Potential Owners on whose behalf such Broker-Dealer submitted a Bid exceeds the aggregate principal amount of Series ARS to be sold by all Existing Owners on whose behalf such Broker-Dealer submitted a Bid or a Sell Order, the name or names of one or more Seller’s Broker-Dealers (and the name of the Participant, if any, of each such Seller’s Broker-Dealer) acting for one or more sellers of such excess principal amount of

A-1

Series ARS and the principal amount of Series ARS to be sold to one or more Potential Owners on whose behalf such Broker-Dealer acted by one or more Existing Owners on whose behalf each of such Seller’s Broker-Dealers acted; and

(vii) the Auction Date for the next succeeding Auction.

(b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Owner or Potential Owner shall:

(i) advise each Existing Owner and Potential Owner on whose behalf such Broker-Dealer submitted a Bid or Sell Order in the Auction on such Auction Date whether such Bid or Sell Order was accepted or rejected, in whole or in part;

(ii) in the case of a Broker-Dealer that is a Buyer’s Broker-Dealer, advise each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, to instruct such Potential Owner’s Participant to pay to such Broker-Dealer (or its Participant) through the Securities Depository the amount necessary to purchase the principal amount of Series ARS to be purchased pursuant to such Bid against receipt of such Series ARS;

(iii) in the case of a Broker-Dealer that is a Seller’s Broker-Dealer, instruct each Existing Owner on whose behalf such Broker-Dealer submitted a Sell Order that was accepted, in whole or in part, or a Bid that was accepted, in whole or in part, to instruct such Existing Owner’s Participant to deliver to such Broker-Dealer (or its Participant) through the Securities Depository the principal amount of Series ARS to be sold pursuant to such Order against payment therefor;

(iv) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order and each Potential Owner on whose behalf such Broker-Dealer submitted a Bid of the Auction Rate for the next ARS Interest Period;

(v) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order of the next Auction Date; and

(vi) advise each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the next Auction Date.

(c) On the basis of the information provided to it pursuant to paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order in an Auction is required to allocate any funds received by it in connection with such Auction pursuant to paragraph (b)(ii) above, and any Series ARS received by it in connection with such Auction pursuant to paragraph (b)(iii) above among the Potential Owners, if any, on whose behalf such Broker-Dealer submitted Bids, the Existing Owners, if any on whose behalf such Broker-Dealer submitted Bids or Sell Orders in such Auction, and any Broker-Dealers identified to it by the Auction Agent following such Auction pursuant to paragraph (a)(v) or (a)(vi) above.

A-2

(d) On each Auction Date:

(i) each Potential Owner and Existing Owner with an Order in the Auction on such Auction Date shall instruct its Participant as provided in (b)(ii) or (b)(iii) above, as the case may be;

(ii) each Seller’s Broker-Dealer that is not a Participant of the Securities Depository shall instruct its Participant to (A) pay through the Securities Depository to the Participant of the Existing Owner delivering Series ARS to such Broker-Dealer following such Auction pursuant to (b)(iii) above the amount necessary to purchase such Series ARS against receipt of such Series ARS, and (B) deliver such Series ARS through the Securities Depository to a Buyer’s Broker-Dealer (or its Participant) identified to such Seller’s Broker-Dealer pursuant to (a)(v) above against payment therefor; and

(iii) each Buyer’s Broker-Dealer that is not an Participant in the Securities Depository shall instruct its Participant to (A) pay through the Securities Depository to Seller’s Broker-Dealer (or its Participant) identified following such Auction pursuant to (a)(vi) above the amount necessary to purchase the Series ARS to be purchased pursuant to (b)(ii) above against receipt of such Series ARS, and (B) deliver such Series ARS through the Securities Depository to the Participant of the purchaser thereof against payment therefor.

(e) On the Business Day following each Auction Date:

(i) each Participant for a Bidder in the Auction on such Auction Date referred to in subparagraph (d)(i) above shall instruct the Securities Depository to execute the transactions described under (b)(ii) or (b)(iii) above for such Auction, and the Securities Depository shall execute such transactions;

(ii) each Seller’s Broker-Dealer or its Participant shall instruct the Securities Depository to execute the transactions described in subparagraph (d)(ii) above for such Auction, and the Securities Depository shall execute such transactions; and

(iii) each Buyer’s Broker-Dealer or its Participant shall instruct the Securities Depository to execute the transactions described in subparagraph (d)(iii) above for such Auction, and the Securities Depository shall execute such transactions.

(f) If an Existing Owner selling Series ARS in an Auction fails to deliver such Series ARS (by authorized book-entry), a Broker-Dealer may deliver to the Potential Owner on behalf of which it submitted a Bid that was accepted a principal amount of Series ARS that is less than the principal amount of Series ARS that otherwise was to be purchased by such Potential Owner. In such event, the principal amount of Series ARS to be so delivered shall be

A-3

determined solely by such Broker-Dealer. Delivery of such lesser principal amount of Series ARS shall constitute good delivery. Notwithstanding the foregoing terms of this paragraph (f), any delivery or nondelivery of Series ARS which shall represent any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or nondelivery in accordance with the provisions of the Auction Agent Agreement and the Broker-Dealer Agreement.

A-4

Exhibit B

Broker-Dealer

Agreement

NOTICE OF TRANSFER

(To be used only for transfers made other than pursuant to an Auction)

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series B

(El Paso Electric Company Palo Verde Project)

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series C

(El Paso Electric Company Palo Verde Project)

We are (check one)

¨ the Existing Owner named below; or

¨ the Broker-Dealer for such Existing Owner; or

¨ the Participant for such Existing Owner.

We hereby notify you that such Existing Owner has transferred $             (must be in units

of $25,000) of Series ARS to ____________________________.

(Name of Existing Owner)

(Name of Broker-Dealer)

(Name of Participant)

By:

Name:

Title:

B-1

Exhibit C

Broker-Dealer

Agreement

NOTICE OF FAILURE TO DELIVER

(To be used only for failure to deliver Series ARS sold pursuant to an Auction)

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series B

(El Paso Electric Company Palo Verde Project)

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series C

(El Paso Electric Company Palo Verde Project)

We are (check one)

¨	a Broker-Dealer for                                                           (the “Purchaser”), which purchased $             (must be in units of $25,000) of the Series ARS in the Auction held on                          from the sale of such Series ARS.
¨	a Broker-Dealer for                                                           (the “Seller”), which sold $             (must be in units of $25,000) of the Series ARS in the Auction held on                         .
We hereby notify you that (check one)
¨	the Seller failed to deliver such Series ARS to the Purchaser.
¨	the Purchaser failed to make payment to the Seller upon delivery of such Series ARS.

(Name of Broker-Dealer)

By:

Name:

Title:

C-1

Exhibit D

Broker-Dealer

Agreement

FORM OF SUBMISSION PROCESSING REPRESENTATION

(To accompany Orders submitted after the Submission Deadline

and prior to the Submission Processing Deadline)

$63,500,000

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series B

(El Paso Electric Company Palo Verde Project)

Auction Rate Securities

and

$37,100,000

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series C

(El Paso Electric Company Palo Verde Project)

Auction Rate Securities

SUBMISSION PROCESSING REPRESENTATION

Attention:                            

The undersigned Broker-Dealer hereby represents that the Order submitted herewith was (i) received from an Existing Owner or Potential Owner prior to the Submission Deadline or (ii) initiated internally by the Broker-Dealer for its own account prior to the Submission Deadline.

(Name of Broker-Dealer submitting this representation)

By:

Printed Name:

Title:

D-1

EX-4.40

EXHIBIT 4.40

AUCTION AGENT AGREEMENT

Dated as of August 1, 2005

among

EL PASO ELECTRIC COMPANY

and

UNION BANK OF CALIFORNIA, N.A.,

as Trustee

and

THE BANK OF NEW YORK,

as Auction Agent

Relating to

$63,500,000

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series B

(El Paso Electric Company Palo Verde Project)

and

$37,100,000

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series C

(El Paso Electric Company Palo Verde Project)

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01.	Terms Defined by Reference to Each Indenture	1
Section 1.02.	Terms Defined Herein	1
Section 1.03.	Rules of Construction	2
ARTICLE II
AUCTION
Section 2.01.	Purpose; Appointment; Incorporation by Reference of Auction Procedures and Settlement Procedures.	3
Section 2.02.	Preparation for Each Auction; Maintenance of Registry of Beneficial Owners.	3
Section 2.03.	Auction Schedule	5
Section 2.04.	Notice of Auction Results	6
Section 2.05.	Notices to Existing Owners	7
Section 2.06.	Broker-Dealer	7
Section 2.07.	Ownership of the Bonds	7
Section 2.08.	Access to and Maintenance of Auction Records	7
Section 2.09.	Notice of Cure	8
Section 2.10.	Sumission Processing Representation	8
ARTICLE III
THE AUCTION AGENT
Section 3.01.	Duties and Responsibilities of the Auction Agent.	8
Section 3.02.	Rights of the Auction Agent.	9
Section 3.03.	Auction Agent’s Disclaimer	10
Section 3.04.	Compensation, Expenses and Indemnification of the Auction Agent	10
Section 3.05.	Broker-Dealer Fee	11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01.	Representations and Warranties of the Trustee	11
Section 4.02.	Representations and Warranties of the Auction Agent	12
ARTICLE V
MISCELLANEOUS
Section 5.01.	Term of Agreement.	12
Section 5.02.	Communications	13

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Section 5.03.	Entire Agreement	14
Section 5.04.	Benefits; Successors and Assigns	14
Section 5.05.	Amendment, Waiver	14
Section 5.06.	Severability	14
Section 5.07.	Execution in Counterparts	15
Section 5.08.	Governing Law; Waiver of Jury Trial; Jurisdiction	15
Exhibit A.	Form of Notice of ARS Payment Default	A-1
Exhibit B.	Form of Notice of Cure of ARS Payment Default	B-1

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AUCTION AGENT AGREEMENT

THIS AUCTION AGENT AGREEMENT, dated as of August 1, 2005 (the “Auction Agent Agreement”), among EL PASO ELECTRIC COMPANY (the “Borrower”), THE BANK OF NEW YORK, as Auction Agent (the “Auction Agent”), and UNION BANK OF CALIFORNIA, N.A., as Trustee (the “Trustee”).

WITNESSETH

WHEREAS, concurrently with the execution and delivery of this Auction Agent Agreement, Maricopa County, Arizona Pollution Control Corporation (the “Issuer”) is offering $63,500,000 in aggregate principal amount of its Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company Palo Verde Project) and $37,100,000 in aggregate principal amount of its Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company Palo Verde Project) (collectively, the “Bonds”) pursuant to separate Indentures of Trust, each dated as of July 1, 2005 (as may be supplemented, each, an “Indenture” and collectively, the “Indentures”) by and between the Issuer and the Trustee;

WHEREAS, the Trustee is entering into this Auction Agent Agreement as agent for the holders of the Bonds pursuant to each Indenture; and

WHEREAS, the Borrower hereby directs that the Auction Agent shall perform certain duties set forth herein;

NOW, THEREFORE, the Borrower, the Trustee and the Auction Agent hereby agree as follows:

ARTICLE I

DEFINITIONS AND RULES OF CONSTRUCTION

Section 1.01. Terms Defined by Reference to Each Indenture. Capitalized terms not defined herein shall have the respective meanings specified in each Indenture.

Section 1.02. Terms Defined Herein. As used herein, the following terms shall have the following meanings, unless the context otherwise requires:

“Auction Agent Fee” means the annual administration fee set forth in a written agreement between the Auction Agent and the Borrower.

“Authorized Representative” shall mean (i) in the case of the Auction Agent, each Vice President, Assistant Vice President and Assistant Treasurer in the Dealing and Trading Group of the Corporate Trust Department of the Auction Agent and every other officer or employee of the Auction Agent designated an “Authorized Representative” for purposes hereof in a written communication delivered to the Trustee, (ii) in the case of the Borrower, its Chief Financial Officer, its Treasurer and its Assistant Treasurer or any officer holding a substantially equivalent position and every other officer or employee of the Borrower designated an “Authorized

Representative” for purposes hereof in a written communication delivered to the Trustee, and (iii) in the case of the Trustee, every officer or employee of the Trustee designated as an “Authorized Representative” for purposes hereof in a written communication delivered to the Auction Agent.

“BMA Recommendation” is defined in Section 2.03 hereof.

“Bond Register” is defined in Section 2.02(c) hereof.

“Broker-Dealer Agreement” shall mean each agreement among the Auction Agent, the Borrower and a Broker-Dealer pursuant to which the Broker-Dealer agrees to participate in Auctions as set forth in the Auction Procedures, as from time to time amended or supplemented. Each Broker-Dealer Agreement shall be substantially in the form of the Broker-Dealer Agreement, dated as of August 1, 2005, by and among the Auction Agent, the Borrower and Citigroup Global Markets Inc., as Broker-Dealer relating to the Bonds.

“Existing Owner” means (a) with respect to and for the purpose of dealing with the Auction Agent in connection with an Auction, a Person who is a Broker-Dealer listed in the records of the Auction Agent at the close of business on the Business Day immediately preceding the Auction Date for such Auction and (b) with respect to and for the purpose of dealing with a Broker-Dealer in connection with an Auction, a Person who is a beneficial owner of the Bonds in the records of the Auction Agent.

“Person” means an individual, a corporation, a partnership, a trust, an unincorporated organization or a government or any agency or political subdivision thereof.

“Settlement Procedures” shall mean the Settlement Procedures set forth in Exhibit B to the Broker-Dealer Agreement.

“Submission Processing Deadline” shall mean the earlier of (i) 40 minutes after the Submission Deadline and (ii) the time when the Auction Agent begins to disseminate the results of the Auction to the Broker-Dealers.

“Submission Processing Representation” shall have the meaning specified in Section 2.10 hereof and shall be substantially in the form attached to the Broker-Dealer Agreement as Exhibit D.

Section 1.03. Rules of Contruction. Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of this Auction Agent Agreement.

Words importing the singular number shall include the plural number and vice versa.

The captions and headings herein are solely for the convenience of reference and shall not constitute a part of this Auction Agent Agreement nor shall they affect its meaning, construction or effect.

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The words “hereof,” “herein” and other words of similar import refer to this Auction Agent Agreement as a whole.

All references herein to a particular time of day shall be to New York City time.

Each reference to the purchase, sale or holding of Bonds shall refer to beneficial ownership interests in the Bonds unless the context clearly requires otherwise.

ARTICLE II

AUCTION

Section 2.01. Purpose; Appointment; Incorporation by Reference of Auction Procedures and Settlement Procedures.

Each Indenture provides that the interest rate on the Bonds for each Auction Period shall be the Auction Rate which shall be, except as otherwise provided therein, the interest rate on the Bonds that the Auction Agent determines to have resulted from the implementation of the Auction Procedures.

Pursuant to Section 3A.06 of each Indenture, the Trustee hereby appoints The Bank of New York to act as Auction Agent. The Bank of New York hereby accepts such appointment to perform the Auction Procedures, the Settlement Procedures and other duties herein, in the Broker-Dealer Agreement and in each Indenture specified to be performed by the Auction Agent.

The Settlement Procedures contained in Exhibit B to the Broker-Dealer Agreement, the Auction Procedures contained in Exhibit B to each Indenture and other provisions relating to the Auction Procedures contained in each Indenture are hereby incorporated herein by reference in their entirety, and shall be deemed to be a part hereof to the same extent as if such provisions were expressly set forth herein. In the event of a conflict between any of the provisions hereof and the provisions of the Settlement Procedures, the Auction Procedures and other procedures of the Indentures, the provisions hereof shall control. No amendment of any provision of the Settlement Procedures, the Auction Procedures or any other provision of each Indenture that adversely affects any right, duty or obligation of the Auction Agent shall be binding upon the Auction Agent without its consent.

Section 2.02. Preparation for Each Auction; Maintenance of Registry of Beneficial Owners.

(a) Prior to any Auction Date for which any change in Broker-Dealer is to be effective, the Trustee shall notify or cause to be notified the Auction Agent and the Borrower in writing of such change and, if such change is the addition of a Broker-Dealer, the Borrower shall cause to be delivered to the Auction Agent, for execution by the Auction Agent pursuant to Section 2.06 hereof, a Broker-Dealer Agreement manually signed by such Broker-Dealer. The Auction Agent shall have entered into a Broker-Dealer Agreement with each Broker-Dealer prior to the participation of any such Broker-Dealer in any Auction. The Auction Agent shall be entitled to assume that there has been no change in the Broker-Dealer unless and until it has actual receipt of such notification from an Authorized Representative of the Trustee.

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(b) On each Auction Date, the Auction Agent shall determine the All-Hold Rate and the Auction Rate. Not later than 9:30 A.M. (New York City time) on each Auction Date, the Auction Agent shall advise the Trustee, the Borrower and the Broker-Dealer by facsimile or electronic transmission or by telephone (promptly confirmed by facsimile or electronic transmission) of the All-Hold Rate and the Index used in determining such rate.

(c) The Auction Agent shall maintain a registry of the Existing Owners (the “Bond Register”) based on information provided to it from the Broker-Dealer and shall indicate thereon the identity of the respective Broker-Dealer of each beneficial owner, if any, on whose behalf such Broker-Dealer submitted the most recent Order in any Auction which resulted in such Existing Owner continuing to hold or purchase such Bonds. The Auction Agent shall keep such Bond Register current and accurate based solely on information provided to the Auction Agent by the Broker-Dealer and DTC or another Securities Depository. Each Broker-Dealer may under the Broker-Dealer Agreement to which it is a party to deliver to the Auction Agent on the date of such Broker-Dealer Agreement, and from time to time thereafter as the Auction Agent may request, a list of the initial Existing Owners that purchased such Bonds through such Broker-Dealer. The Auction Agent may conclusively rely upon, as evidence of the identities of the Existing Owners, the following: such lists; the results of Auctions; notices from DTC or another Securities Depository regarding the results of redemptions or mandatory tenders; notices from any Existing Owner, the Participant of any Existing Owner or the Broker-Dealer of any Existing Owner with respect to such Existing Owner’s transfer of the Bonds to another Person.

(d) The Trustee shall provide to the Auction Agent any notice of redemption, mandatory purchase or adjustment in the mode of determining the interest rate of the Bonds at or before the time any such notice is first given by the Trustee to any Existing Owner thereof. In the event of any partial redemption or mandatory purchase of the Bonds, the Trustee shall promptly request DTC or another Securities Depository to notify the Auction Agent of the Participants whose Bonds have been called for redemption or mandatory purchase and the person or department at such Participant to contact regarding such redemption or mandatory purchase and, within two Business Days, request each such Participant to disclose to the Auction Agent (upon selection by such Participant of the Existing Owners whose Bonds are to be redeemed) the principal amount of Bonds of each such Existing Owner, if any, which are subject to such redemption or mandatory purchase, provided the Auction Agent shall have been furnished with the name and telephone number of a person or department at such Participant from which it is to request such information. In the absence of receiving any such information with respect to an Existing Owner from such Existing Owner’s Participant (or otherwise), the Auction Agent may continue to treat such Existing Owner as the beneficial owner of the principal amount of Bonds shown in the Auction Agent’s registry.

(e) The Auction Agent may refuse to register a transfer of beneficial ownership of Bonds from an Existing Owner to another Person unless (a) such transfer is pursuant to an Auction or (b) the Auction Agent has been notified in writing (I) in a notice in the form of Exhibit B to the Broker-Dealer Agreement by such Existing Owner, the Broker-Dealer or a Participant for such Existing Owner of such transfer, (II) in a notice in the form of Exhibit C to the Broker-Dealer Agreement by the Broker-Dealer of any Person that purchased or sold such Bonds in an Auction of the failure of such Bonds to be transferred as a result of such Auction, or (III) in a notice from DTC or another Securities Depository regarding the results of mandatory

4

tenders. In the event a notice referred to in the preceding clause (II) is received, the Auction Agent shall register the beneficial ownership of the Bonds covered thereby in the name of the Existing Owner thereof prior to the Auction referred to in such notice. The Auction Agent shall not be required to accept any notice delivered pursuant to the terms of the foregoing sentence if received by the Auction Agent after 3:00 P.M. (New York City time) on the Business Day next preceding an Auction Date.

(f) The Auction Agent may, but shall have no obligation to, request a Broker-Dealer, as set forth in the applicable Broker-Dealer Agreement, to provide the Auction Agent with a list of their respective customers that such Broker-Dealer believes are Existing Owners of Bonds. The Auction Agent shall not disclose such information so provided to any Person other than the Trustee, the Issuer, the Borrower and the Broker-Dealer that provided the same; provided, however, that the Auction Agent reserves the right and is authorized to disclose any such information if (A) it is ordered to do so by a court of competent jurisdiction or a regulatory, judicial or quasi judicial agency or authority having the authority to compel such disclosure, (B) it is advised by its counsel that its failure to do so would be unlawful or (C) failure to do so would expose the Auction Agent to loss, liability, claim, damage or expense for which it has not received indemnity satisfactory to it.

(g) In the event that the notice referred to in clause (vii) of paragraph (a) of the Settlement Procedures states an Auction Date that is subsequently changed, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of the new Auction Date not later than 9:15 A.M. (New York City time) on the earlier of the new Auction Date or the old Auction Date.

(h) The Auction Agent shall forward a copy of any notice of redemption, mandatory purchase or adjustment in the mode of determining the interest rate of the Bonds received by it from the Trustee pursuant to the foregoing paragraph (d) to the Broker-Dealers on the Business Day following its receipt thereof by facsimile or other electronic communication acceptable to the parties.

(i) If any Auction Bonds are to be redeemed and those Bonds are held by a Securities Depository, the Borrower shall include in the notice of the call for redemption delivered to the Securities Depository (i) a date placed under an item entitled “Publication Date for Securities Depository Purposes” and such date shall be three Business Days after the Auction Date immediately preceding such redemption date and (ii) an instruction to Securities Depository to (x) determine on such Publication Date after the Auction held on the immediately preceding Auction Date has settled, the Participants whose Securities Depository positions will be redeemed and the principal amount of such Auction Bonds to be redeemed from each such position (the “Securities Depository Redemption Information”), and (y) notify the Auction Agent immediately after such determination of the positions of the Participants in such Auction Bonds immediately prior to such Auction settlement, the position of the Participants in such Auction Bonds immediately following such auction settlement, and the Securities Depository Redemption Information.

Section 2.03. Auction Schedule. The Auction Agent shall conduct Auctions for the Bonds in accordance with the schedule set forth below. Such schedule may be changed at any

5

time by the Auction Agent at the written direction of the Borrower to reflect then currently accepted market practices for similar auctions. The Auction Agent shall give written notice of any such change to each Broker-Dealer, the Borrower, the Issuer and the Trustee, which notice shall be given prior to the close of business on the Business Day next preceding the first Auction Date on which any such change shall be effective. Notwithstanding the foregoing, the Auction Agent will follow the Bond Market Association’s Market Practice U.S. Holiday Recommendations for shortened trading days for the bonds markets (the “BMA Recommendation”) unless the Auction Agent is instructed otherwise. In the event of a BMA Recommendation on an Auction Date the Submission Deadline will be 11:30 a.m., instead of 1:00 p.m., and as a result the notice set forth in Section 2.04 will occur earlier.

Time	Event
By 9:00 a.m.	Auction Agent determines the All-Hold Rate and the Index.
By 9:30 A.M. (New York City time)	Auction Agent advises the Broker-Dealer of the All-Hold Rate and the Index, as set forth in Section 2.02(b) hereof.
9:30 A.M. (New York City time) – 1:00 P.M. (New York City time) (11:00 A.M. (New York City time) in the case of a daily Auction Period).	Auction Agent assembles information communicated to it by the Broker-Dealer as provided in Section 1.02(a) of the Auction Procedures. Submission Deadline is 1:00 P.M. (New York City time) (11:00 A.M. (New York City time) in the case of a daily Auction Period).
As soon as practical after 1:00 P.M. (New York City time) and by no later than 3:00 P.M. (New York City time) (by 11:30 A.M. (New York City time) in the case of a daily Auction Period).	Auction Agent accepts any Orders submitted prior to the Submission Deadline subject to extension pursuant to the Submission Processing Deadline if such Order is accompanied by a Submission Processing Representation and makes determinations pursuant to Section 1.03(b) of the Auction Procedures.
By approximately 3:00 P.M. (New York City time) but not later than the close of business (by 12:00 noon (New York City time) in the case of a daily Auction Period).	Submitted Bids and Submitted Sell Orders are accepted and rejected and the Bonds allocated as provided in Section 1.05 of the Auction Procedures. Auction Agent gives notice of the Auction results as set forth in Section 2.04 hereof.

Section 2.04. Notice of Auction Results. Following such Auction, the Auction Agent shall follow the notification procedures set forth in paragraph (a) of the Settlement Procedures and shall take such other action as is required of the Auction Agent pursuant to the Settlement

6

Procedures. In addition, promptly after making the determinations required by Section 1.03(b) of the Auction Procedures on each Auction Date, the Auction Agent shall give notice of the Auction Rate to the Trustee, the Borrower and the Broker-Dealer by facsimile or electronic transmission or by telephone (promptly confirmed by facsimile or electronic transmission) and the Trustee shall promptly give written notice to DTC or another Securities Depository of such Auction Rate. The Auction Agent is authorized to release the Winning Bid Rate for public dissemination upon the written consent of the Borrower.

Section 2.05. Notices to Existing Owners. The Auction Agent shall be entitled to conclusively rely upon the address of each Existing Owner delivered by such Existing Owner in connection with any notice to Existing Owners required to be given by the Auction Agent pursuant to this Article II.

Section 2.06. Broker-Dealer. On the date hereof, the Auction Agent shall enter into a Broker-Dealer Agreement with Citigroup Global Markets Inc. The Auction Agent shall from time to time enter into such other Broker-Dealer Agreements as the Borrower shall request with written notice to the Trustee, the Auction Agent and the existing Broker-Dealer. The Borrower shall cause to be delivered to the Auction Agent, for execution by the Auction Agent, a Broker-Dealer Agreement manually signed by such Broker-Dealer.

The Auction Agent shall terminate any Broker-Dealer Agreement as set forth therein if so directed by the Borrower in writing with prior written notice to the Trustee.

Section 2.07. Ownership of the Bonds. Neither the Issuer nor the Borrower nor any Person controlled by any thereof may submit any Order or Bid, directly or indirectly, in any Auction. The Auction Agent shall have no duty to monitor compliance with this Section 2.07.

Section 2.08. Access to and Maintenance of Auction Records. The Auction Agent shall afford to the Issuer, the Borrower and the Trustee and their respective agents, independent public accountants and counsel, access at reasonable times during normal business hours to all books, records, documents and other information concerning the conduct and results of Auctions; provided that any such agent, accountant or counsel of the Issuer, the Borrower or the Trustee shall furnish the Auction Agent with a letter from an Authorized Issuer Representative or an Authorized Representative of the Borrower or the Trustee, as applicable, requesting that the Auction Agent afford such person access. Except as provided in Sections 3.01(d) and 5.01(b) hereof, the Auction Agent shall maintain records relating to any Auction for a period of two years after such Auction and such records shall, in reasonable detail, accurately and fairly reflect the actions taken by the Auction Agent hereunder. At the end of such two-year period the Auction Agent shall deliver such records upon written request to the Borrower and the Borrower shall maintain such records until six years after payment in full or defeasance of the Bonds. The Auction Agent shall provide the Issuer, the Borrower and the Trustee with copies of any report the Auction Agent provides DTC or another Securities Depository concerning discrepancies between the records of the Auction Agent and DTC or another Securities Depository of the aggregate portions registered in each CUSIP number. The Auction Agent shall not be responsible for any actions of the Issuer, the Borrower or the Trustee or their respective agents, accountants or counsel for passing on confidential information as a result of access to the records of the Auction Agent.

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Section 2.09. Notice of Cure. The Auction Agent shall forward a copy of any notice of cure or waiver of an Event of Default under each Indenture it receives from the Trustee to the Broker-Dealer on the Business Day following the receipt thereof by facsimile or other means of electronic communication acceptable to the parties.

Section 2.10. Submission Processing Representation. Broker-Dealers may submit an Order after the Submission Deadline and prior to the Submission Processing Deadline if the Order was (i) received by the Broker-Dealer from Existing Owners or Potential Owners prior to the Submission Deadline or (ii) initiated internally by the Broker-Dealer for its own account prior to the Submission Deadline. Each Order submitted to the Auction Agent after the Submission Deadline and prior to the Submission Processing Deadline shall constitute a representation by the Broker-Dealer that such Order was (i) received from an Existing Owner or Potential Owner prior to the Submission Deadline or (ii) initiated internally by the Broker-Dealer for its own account prior to the Submission Deadline (the “Submission Processing Representation”), and shall be accompanied by a written statement in the form of Exhibit D annexed to the Broker-Dealer Agreement.

ARTICLE III

THE AUCTION AGENT

Section 3.01. Duties and Responsibilities of the Auction Agent.

(a) The Auction Agent is acting solely as a non-fiduciary agent of the Trustee and owes no duties, fiduciary or otherwise, to any other Person by reason of this Auction Agent Agreement, except as otherwise stated herein, and no implied duties, fiduciary or otherwise, shall be read into this Auction Agent Agreement.

(b) The Auction Agent undertakes to perform such duties and only such duties as are expressly set forth herein, or expressly incorporated herein by reference pursuant to Section 2.01 hereof, to be performed by it, and no implied covenants or obligations shall be read into this Auction Agent Agreement against the Auction Agent.

(c) The Trustee shall not be liable for any action, omission or error in judgment by the Auction Agent. In the absence of gross negligence, grossly negligent failure to act or willful misconduct on its part, the Auction Agent, whether acting directly or through agents or attorneys as provided in Section 3.02(d) hereof, shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties hereunder. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining (or failing to ascertain) the pertinent facts necessary to make such judgment. In no event shall the Auction Agent be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit), even if the Auction Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.

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(d) Upon termination of this Auction Agent Agreement, the Auction Agent shall promptly deliver to the Borrower, the Auction records and accompanying documentation and any other documents referred to in Section 2.08 hereof to the extent not previously delivered to the Borrower.

(e) The Auction Agent shall not be: (i) required to and shall make no representations and have no responsibilities as to the validity, accuracy, value or genuineness of any signatures or endorsements, other than its own, or any document delivered pursuant to or as contemplated by this Auction Agent Agreement; (ii) obligated to take any legal action hereunder that might, in its judgment, involve any expense or liability, unless it has been furnished with reasonable indemnity; and (iii) responsible for or liable in any respect on account of the identity, authority or rights of any Person executing or delivering or purporting to execute or deliver any document under this Auction Agent Agreement.

(f) The Auction Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Auction Agent Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; acts of terrorism; sabotage; epidemics; riots; interruptions, loss or malfunction of utilities; computer (hardware or software) or communications services; accidents; labor disputes; acts of civil or military authority or governmental actions; it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

(g) To the extent there is a change in the Maximum Lawful Rate, the Borrower shall notify, in writing, the Auction Agent, or instruct the Trustee to do the same, of such reduced Maximum Lawful Rate.

Section 3.02. Rights of the Auction Agent.

(a) The Auction Agent may rely conclusively upon, and shall be fully protected in acting or refraining from acting upon, any communication authorized hereby and upon any such written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or other document believed by it to be genuine. The Auction Agent shall not be liable for acting in good faith upon any such communication made by telephone, facsimile or other electronic communication acceptable to the parties which the Auction Agent reasonably believes to have been given by the particular party or parties. To the extent permitted by law, the Auction Agent may record telephone communications with the Borrower, the Issuer, the Trustee and the Broker-Dealer, and each of such parties may record telephone communications with the Auction Agent.

(b) The Auction Agent may consult with counsel of its choice (provided such selection is made with reasonable care) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.

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(c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability for any failure or delay in the performance of its duties hereunder.

(d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care.

(e) The Auction Agent shall have no obligation or liability in respect of the registration or exemption therefrom of the Bonds under federal or state securities laws in respect of the sufficiency or the conformity of any transfer of the Bonds pursuant to the terms of this Auction Agent Agreement, any Broker-Dealer Agreement, each Indenture or any other document contemplated by any thereof.

Section 3.03. Auction Agent’s Disclaimer. (a) The Auction Agent makes no representation as to the validity, accuracy or adequacy of any Indenture or any offering material used in connection with the offer and sale of the Bonds.

(b) Trustee’s Disclaimer. The Trustee is entering into this Auction Agent Agreement in its capacity as Trustee under each Indenture at the direction of the Borrower and the Trustee makes no representation or warranty as to the validity or adequacy of this Auction Agent Agreement, any Broker-Dealer Agreement or the Bonds or any offering material used in connection with the Bonds. The Trustee shall have no responsibility for the Auction Agent or the Auction Agent’s performance under this Auction Agent Agreement.

Section 3.04. Compensation, Expenses and Indemnification of the Auction Agent. The Borrower shall pay (i) the Auction Agent Fee for the Bonds on the first Interest Payment Date following the date hereof and annually thereafter, and (ii) upon request of the Auction Agent, reasonable expenses, disbursements and advances reasonably incurred or made by the Auction Agent in accordance with this Auction Agent Agreement and any Broker-Dealer Agreement (including the reasonable compensation, expenses and disbursements of its agents and counsel), except any reasonable expense, disbursement or advance attributable to the gross negligence or willful misconduct of the Auction Agent. The Auction Agent Fee represents compensation for the services of the Auction Agent in conducting Auctions for the benefit of the beneficial owners of the Bonds. The Auction Agent Fee may be adjusted from time to time with the approval of the Borrower upon a written request of the Auction Agent delivered to the Borrower. The Borrower shall indemnify the Auction Agent, its directors, officers, agents and employees for, and hold them harmless against any loss, liability or expense incurred without gross negligence or willful misconduct on their part arising out of or in connection with its agency under the Auction Agent Agreement and any Broker-Dealer Agreement, including the costs and expenses of defending itself, its directors, officers, agents and employees against any claim of liability in connection with their exercise or performance of any of their duties thereunder (including the enforcement of this provision), except such as may result from their gross negligence or willful misconduct. The Trustee shall have no responsibility for payment of the fees and expenses of the Auction Agent.

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Section 3.05. Broker-Dealer Fee. While the Bonds are in an Auction Period on each Interest Payment Date following each Auction Date, each Broker-Dealer shall be entitled to receive an amount equal to the fee specified for such Broker-Dealer in the Broker-Dealer Agreement. The Broker-Dealer Fee shall be calculated by the Auction Agent, which shall be conclusive absent manifest error. Such amounts shall be communicated by the Auction Agent to the Borrower and the Trustee by 4:00 P.M. (New York City time), on the Business Day immediately preceding each Interest Payment Date. On or before 11:00 A.M. (New York City time) on each Interest Payment Date, the Borrower shall pay to the Trustee the amount due to the Broker-Dealer. By 1:00 P.M. (New York City time) on each Interest Payment Date, the Trustee shall deliver to the Auction Agent the amount constituting the Broker-Dealer Fee, by wire transfer of immediately available funds to such account as the Auction Agent may designate. The amount constituting the Broker-Dealer Fee shall be held by the Auction Agent on behalf of the Broker-Dealer, and as promptly as practicable after receipt of such fee, the Auction Agent shall deliver such fee to the Broker-Dealer, pursuant to the written instructions of the Broker-Dealer. If any Existing Owner who acquired Bonds through a Broker-Dealer transfers any such Bonds to another Person other than through an Auction, the Broker-Dealer for the Bonds so transferred shall continue to be the Broker-Dealer with respect to such Bonds; provided, however, that if the transfer was effected by, or if the transferee is, another Person who has met the requirements specified in the definition of “Broker-Dealer” contained in each Indenture and executed a Broker-Dealer Agreement, such Person shall be the Broker-Dealer for such Bonds.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.01. Representations and Warranties of the Trustee. The Trustee hereby represents and warrants that:

(a) this Auction Agent Agreement has been duly and validly authorized, executed and delivered by the Trustee and constitutes the legal, valid and binding limited obligation of the Trustee;

(b) neither the execution and delivery of this Auction Agent Agreement, the consummation of the transactions contemplated hereby nor the fulfillment of or compliance with the terms and conditions of this Auction Agent Agreement will conflict with, or violate or result in a breach of the terms, conditions or provisions of, or constitute a default under the organizational documents of the Trustee, any law or regulation, any order or decree of any court or public corporation having jurisdiction over such party, or any mortgage, resolution, contract, agreement or undertaking to which the Trustee is a party or by which it is bound; and

(c) any approvals, consents and orders of any governmental corporation, legislative body, board, agency or commission having jurisdiction over the Trustee which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by the Trustee of its obligations under this Auction Agent Agreement have been obtained.

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Section 4.02. Representations and Warranties of the Auction Agent. The Auction Agent hereby represents and warrants that:

(a) this Auction Agreement has been duly and validly authorized, executed and delivered by the Auction Agent and constitutes the legal, valid and binding limited obligation of the Auction Agent;

(b) neither the execution and delivery of this Auction Agreement, the consummation of the transactions contemplated hereby nor the fulfillment of or compliance with the terms and conditions of this Auction Agreement will conflict with, or violate or result in a material breach of, the terms, conditions or provisions of, or constitute a default under, the organizational documents of the Auction Agent, any law or regulation, any order or decree of any court or public corporation having jurisdiction over such party, or, to the best of the Auction Agent’s knowledge, any mortgage, resolution, contract, agreement or undertaking to which the Auction Agent is a party or by which it is bound; and

(c) any approvals, consents and orders of any governmental corporation, legislative body, board, agency or commission having jurisdiction over the Auction Agent which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by the Auction Agent of its obligations under this Auction Agreement have been obtained.

ARTICLE V

MISCELLANEOUS

Section 5.01. Term of Agreement.

(a) This Auction Agent Agreement shall remain in effect until (i) all Bonds are converted to a Rate Period other than the Auction Rate Period or are redeemed, paid or purchased and cancelled, (ii) the Bonds are no longer held by DTC or another Securities Depository in book-entry form, (iii) this Auction Agent Agreement shall be terminated as provided in this Section 5.01, (iv) the Auction Agent resigns or is discharged of the duties and obligations created by the Indenture, or (v) the Auction Agent is removed as provided in this Section 5.01. The Auction Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 45 days’ notice to the Trustee, the Broker-Dealer, the Issuer, the Borrower, and the Bond Insurer. The Auction Agent may be removed at any time by the Trustee, upon the written direction of (i) the Borrower, with the consent of the Bond Insurer, (ii) the Bond Insurer, or (iii) the ARS Beneficial Owners of 66-2/3% of the aggregate principal amount of the ARS then Outstanding, with the consent of the Bond Insurer, by an instrument signed by the Trustee and filed with the Auction Agent, the Bond Insurer, the Issuer and the Borrower upon at least 30 days’ notice. Neither the resignation nor the removal of the Auction Agent pursuant to the preceding two sentences shall be effective until and unless a Substitute Auction Agent has been appointed and has accepted such appointment; provided, however, that if a Substitute Auction Agent has not been so appointed within 45 days of the notice of resignation of the Auction Agent, the Auction Agent may petition a court of competent jurisdiction to appoint a Substitute Auction Agent. Notwithstanding the foregoing, the Auction

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Agent may terminate the Auction Agent Agreement if, within 30 days after notifying the Trustee, the Issuer, the Borrower, and the Bond Insurer in writing that it has not received payment of any Auction Agent Fee due it in accordance with the terms of the Auction Agent Agreement, the Auction Agent does not receive such payment.

(b) Except as otherwise provided in this paragraph (b), the respective rights and duties of the Trustee and the Auction Agent under this Auction Agent Agreement shall cease upon termination of this Auction Agent Agreement. The representations and warranties of the Trustee contained herein, and the rights of the Auction Agent under Sections 3.02 and 3.04 hereof, shall survive the termination hereof and the resignation or removal of the Auction Agent. Upon termination of this Auction Agent Agreement, the Auction Agent shall be deemed to have resigned as Auction Agent under the Broker-Dealer Agreement and shall promptly deliver to the Borrower copies of all books and records maintained by it in connection with its duties hereunder.

Section 5.02. Communications. Except for (a) communications authorized to be by telephone pursuant to this Auction Agent Agreement or the Auction Procedures and (b) communications in connection with Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including facsimile or other electronic communication acceptable to the parties) and shall be given to such party, addressed to it, at its address, facsimile number or e-mail address set forth below:

If to the Trustee,	Union Bank of California, N.A.
	120 S. San Pedro, 4th Floor
	Los Angeles, California 90012
	Attention: Corporate Trust Department
	Facsimile No.: (213) 972-5694
	Telephone No.: (213) 972-5675
If to the Auction Agent,	The Bank of New York
	101 Barclay Street – 7W
	Attention: Corporate Trust Department – Dealing and Trading Group
	Facsimile No.: (212) 815-3440
	Telephone No.:(212) 815-3450
If to the Issuer,	Maricopa County, Arizona
	Pollution Control Corporation
	c/o Ryley Carlock & Applewhite
	One North Central Avenue, Suite 1200
	Phoenix, Arizona 85004-4417
	Attention: President
	Facsimile No.: (602) 257-9582
	Telephone No.: (602 440-4802

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If to the Borrower:	El Paso Electric Company
	100 North Stanton
	El Paso, Texas 79901
	Attention: Treasurer
	Telephone: (915) 543-5983
	Facsimile: (915) 521-4779

or such other address, facsimile number or e-mail address as such party may hereafter specify for such purpose by notice to the other parties. Each such notice, request or communication shall be effective (a) if given by facsimile, when such facsimile is transmitted to the facsimile number specified herein or (b) if given by any other means, when delivered at the address specified herein. Communications shall be given on behalf of the parties hereto by one of their respective Authorized Representatives.

Section 5.03. Entire Agreement. This Auction Agent Agreement contains the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or implied, between the parties relating to the subject matter hereof.

Section 5.04. Benefits; Successors and Assigns. This Auction Agent Agreement shall be binding upon, inure to the benefit of and be enforceable by the Trustee and the Auction Agent and their respective successors and assigns. Nothing herein, express or implied, shall give to any Person, other than the Trustee and the Auction Agent and their respective successors or assigns, any benefit of any legal or equitable right, remedy or claim hereunder, except as otherwise expressly stated, other than the rights expressly granted to the Borrower and the Issuer herein.

Any corporation or association into which the Auction Agent may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, provided such corporation or association is otherwise eligible hereunder, shall be and become the successor Auction Agent hereunder, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding.

Section 5.05. Amendment, Waiver. This Auction Agent Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by written instrument signed by a duly authorized representative of all the parties hereto.

The failure of any party hereto to exercise any right or remedy hereunder in the event of a breach hereof by any party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach.

Section 5.06. Severability. If any clause, provision or section hereof shall be ruled invalid or unenforceable by any court or competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof.

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Section 5.07. Execution in Counterparts. This Auction Agent Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Section 5.08. Governing Law; Waiver of Jury Trial; Jurisdiction. This Auction Agent Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflict of laws principles. The parties agree that all actions and proceedings arising out of this Auction Agent Agreement or any of the transactions contemplated hereby shall be brought in the County of New York and, in connection with any such action or proceeding, submit to the jurisdiction of, and venue in, the County of New York. Each of the parties hereto also irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of this Auction Agent Agreement or the transactions contemplated hereby.

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IN WITNESS WHEREOF, the parties hereto have caused this Auction Agent Agreement to be duly executed and delivered by their proper and duly Authorized Representatives as of the date first above written.

UNION BANK OF CALIFORNIA, N.A., as Trustee

By:

Name:

Title:

EL PASO ELECTRIC COMPANY

By:

Name:

Title:

THE BANK OF NEW YORK, as Auction Agent

By:

Name:

Title:

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EXHIBIT A

FORM OF NOTICE OF ARS PAYMENT DEFAULT

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series B

(El Paso Electric Company Palo Verde Project)

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series C

(El Paso Electric Company Palo Verde Project)

NOTICE IS HEREBY GIVEN that the ARS Payment Default with respect to the Bonds identified above has occurred.

Dated:

By:

A-1

EXHIBIT B

FORM OF NOTICE OF CURE OF ARS PAYMENT DEFAULT

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series B

(El Paso Electric Company Palo Verde Project)

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds, 2005 Series C

(El Paso Electric Company Palo Verde Project)

NOTICE IS HEREBY GIVEN that the ARS Payment Default with respect to the Bonds identified above has been waived or cured. The next ARS Interest Payment Date is              and the next scheduled Auction Date is             .

Dated:

By:

B-1

EX-4.41

EXHIBIT 4.41

EL PASO ELECTRIC COMPANY

100 North Stanton

El Paso, TX 79901

July 27, 2005

Citigroup Global Markets Inc.

BNY Capital Markets, Inc.

J.P. Morgan Securities Inc.

Maricopa County, Arizona Pollution Control Corporation

c/o Ryley Carlock & Applewhite

One North Central Avenue

Suite 1200

Phoenix, Arizona 85004

Attention: President

Maricopa County, Arizona Pollution Control Corporation

Pollution Control Refunding Revenue Bonds,

2005 Series B, 2005 Series C

(El Paso Electric Company Palo Verde Project)

Representation and Indemnity Agreement

Ladies and Gentlemen:

In order to induce the Maricopa County, Arizona Pollution Control Corporation (the “Issuer”) and Citigroup Global Markets Inc., BNY Capital Markets, Inc. and J.P. Morgan Securities Inc. as Underwriters (the “Underwriters”), to enter into the Bond Purchase Agreement to be dated the date hereof (the “Bond Purchase Agreement”) relating to the purchase by the Underwriters, and the issuance and sale by the Issuer, of $63,500,000 aggregate principal amount of its Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company Palo Verde Project) (the “Series B Bonds”) and $37,100,000 aggregate principal amount of its Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company Palo Verde Project) (the “Series C Bonds,” together with the Series B Bonds, the “Bonds”) bearing interest and maturing as stated in the Official Statement (as defined in the

Bond Purchase Agreement) for the price stated in the Bond Purchase Agreement, the proceeds of which sale will be used to provide for refinancing of certain pollution control facilities of the Company (the “Project”), pursuant to separate Loan Agreements each dated as of July 1, 2005 (collectively, the “Loan Agreement”), between the Issuer and El Paso Electric Company (the “Company”), and in accordance with the provisions of a Tax Certificate dated the date of issuance of the Bonds (the “Tax Certificate”) from the Issuer and agreed to by the Underwriters and the Company (with the Tax Certificate of the Company attached as Exhibit A to the Tax Certificate from the Issuer) and in consideration of the foregoing and the execution and delivery of the Bond Purchase Agreement by the parties thereto, the Company hereby represents and warrants to and covenants with each of the Issuer and the Underwriters as follows:

1. Bond Purchase Agreement. The Company has received the form of, and will receive an executed counterpart of, the Bond Purchase Agreement and acknowledges its acceptance of, and concurrence in, the terms and conditions thereof.

2. Representations and Warranties. The Company represents and warrants to the Issuer and the Underwriters that the representations and warranties of the Company set forth in Schedule I to the Bond Purchase Agreement are true and will be true on and as of the date of Closing (such term and the other capitalized terms used herein without definition having the respective meanings specified in the Bond Purchase Agreement).

3. Indemnification and Contribution Between the Company and the Underwriters. (a) The Company agrees to indemnify and hold harmless the Underwriters and each person, if any, who controls any Underwriters within the meaning of Section 20 of the Securities Exchange Act of 1934 (the “Exchange Act”), or Section 15 of the Securities Act of 1933 (the “Securities Act”), from and against any and all losses, claims, damages, and liabilities (including, without limitation, any legal or other expenses reasonably incurred by any Underwriters or any such controlling person in connection with investigating or defending any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Official Statement (as amended or supplemented if the Company shall have furnished any amendments or supplements in accordance with paragraph 5(c) hereof) used during the period set forth in paragraph 5(e) hereof, or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein not misleading; except insofar as such losses, claims, damages, or liabilities are caused by any untrue statement or omission or alleged untrue statement or alleged omission based on information furnished in writing to the Company by the Underwriters expressly for use therein or in connection with the offering of the Bonds.

(b) The Underwriters agree to indemnify and hold harmless the Company and any person controlling the Company within the meaning of Section 20 of the Exchange Act or Section 15 of the Securities Act to the same extent as the foregoing indemnity from the Company to the Underwriters, but only with reference to information relating to the Underwriters furnished in writing by the Underwriters expressly for use in the Official Statement.

(c) In case any proceeding (including any governmental or regulatory investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either paragraph (a) or (b) of this paragraph 3, such person (the “indemnified party”) shall

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promptly notify the person against whom such indemnity may be sought (the “indemnifying party”) in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties. Such firm shall be designated in writing by the Company in the case of parties indemnified pursuant to the paragraph (b) above and by the Underwriters in the case of parties indemnified pursuant to the paragraph (a) above. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding.

(d) If the indemnification provided in paragraph (a) or (b) of this paragraph 3 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein in connection with the offering of the Bonds, then the indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Issuer on the one hand and the Underwriters on the other from the offering of the Bonds or (ii) if the allocation provided in clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Issuer on the one hand and the Underwriters on the other in connection with the matters which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Issuer on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Bonds (before deducting expenses) received by the Issuer bears to the total fees received by the Underwriters from the offering of the Bonds. In the case of an untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact, the relative fault of the Company and the Issuer, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the

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Issuer or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. In no case shall the Underwriters be responsible for any amount in excess of the purchase discount or commission applicable to the Bonds purchased by the Underwriters hereunder.

(e) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this paragraph 3 were determined by pro rata allocation or other method of allocation which does not take into account the equitable considerations referred to in paragraph (d) above. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of paragraph (d) above shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim. The remedies provided in this paragraph 3 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.

4. Indemnification and Contribution Between the Company and the Issuer. In further consideration of the premises and of the execution and delivery of the Bond Purchase Agreement by the parties thereto, the Company covenants and agrees with the Issuer as follows:

(a) Subject to the conditions set forth below, the Company will indemnify and hold harmless the Issuer, and each member, officer, official and employee of the Issuer against the following:

(i) any and all loss, liability, claim, damage and expense whatsoever, joint or several, to which it or they may become subject, under the Securities Act, the Exchange Act, the Trust Indenture Act of 1939 (the “Trust Indenture Act”), any state securities laws or otherwise, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Official Statement (as from time to time amended and supplemented), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

(ii) any and all loss, liability, claim, damage and expense whatsoever, joint or several, to which it or they may become subject, under the Securities Act, the Exchange Act, the Trust Indenture Act, any state securities laws or otherwise, to the extent of the aggregate amount paid in settlement of any litigation, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and

(iii) any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission or any such alleged untrue statement or omission to the extent that any such expense is not paid under (i) or (ii) above.

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In no case shall the Company be liable under this paragraph (a) with respect to any claim made against the Issuer or any such member, officer, official or employee unless the Company shall be notified in writing of the nature of the claim within a reasonable time after the assertion thereof, but failure so to notify the Company shall not relieve it from any liability which it may have otherwise than on account of this Representation and Indemnity Agreement (this “Agreement”). The Company shall be entitled to participate at its own expense in the defense, or if it so elects within a reasonable time after receipt of such notice, to assume the defense, of a suit brought to enforce any such claim, but if the Company elects to assume the defense, it shall be conducted by counsel chosen by the Company and satisfactory to the Issuer and each member, officer, official or employee of the Issuer, defendant or defendants in any suit so brought. In the event that the Company elects to assume the defense of any such suit and retains such counsel, the Issuer and each member, officer, official or employee of the Issuer, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel thereafter retained by them. The Company agrees to notify the Issuer within a reasonable time of the assertion of any claim against it or them, any of the officers or directors or any person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection with the sale of the Bonds.

(b) If the indemnification provided for in paragraph (a) is for any reason, other than as specified therein, held by a court to be unavailable and the Issuer has been required to pay damages as a result of a determination by a court that the Official Statement (as from time to time amended or supplemented) contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, then the Company shall contribute to the damages paid by the Issuer, but only to the extent that such damages arise out of or are based upon such untrue statement or omission, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by the Issuer on the other from the offering of the Bonds or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Issuer on the other in connection with the statements or omissions which resulted in such damages as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and by the Issuer on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) applied to the financing bear to any fees paid to the Issuer in connection with the issuance and sale of the Bonds. The relative fault shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company or by the Issuer and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. For purposes of this paragraph, the term “damages” shall include any legal or other expenses reasonably incurred by the Issuer in connection with investigating or defending any action or claim which is the subject of the contribution provisions of this paragraph (b). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation pursuant to this paragraph (b). If the Issuer shall have reasonably concluded that there may be defenses available to it which are different from or additional to and which conflict with those available to the Company,

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the Company shall not have the right to assume the defense of any such action on behalf of the Issuer and all legal and other expenses incurred by the Issuer pursuant to this paragraph (b) shall be borne by the Company. Anything in this paragraph (b) to the contrary notwithstanding, the Company shall not be liable for (i) the fees and expenses for more than one firm of attorneys for the Issuer in connection with any one action or separate but related actions within the same jurisdiction arising out of the same allegation or causes of action or (ii) any settlement of any such claim or action effected without its written consent.

5. Covenants and Agreements. The Company covenants and agrees:

(a) Within one (1) business day hereof (but not later than the date that any confirmation requesting payment from any customer for any of the Bonds is mailed or delivered thereto), the Company shall deliver to the Underwriters copies of the Official Statement, dated the date hereof, relating to the Bonds, in sufficient quantity as may be reasonably be requested by the Underwriters in order to comply with Rule 15c2-12 (“Rule 15c2-12”) under the Exchange Act, in substantially the form attached to the Bond Purchase Agreement as Exhibit A, with such changes as shall have been accepted by the Underwriters;

(b) Not to take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner other than as provided in the Indenture and the Loan Agreement;

(c) Before amending or supplementing the Official Statement to furnish the Underwriters with a copy of each such proposed amendment or supplement and not to use any such proposed amendment or supplement to which the Underwriters reasonably object;

(d) Prior to the date hereof, the Company shall have delivered to the Underwriters a document or documents together with a certificate of the Company which states that such document or documents are deemed final as of their date for purposes of Rule 15c2-12 except for the information not required to be included therein under Rule 15c2-12;

(e) If, after the date of the Bond Purchase Agreement until twenty-five (25) days after the end of the underwriting period (as defined in the Bond Purchase Agreement), any event shall occur as a result of which it is necessary to amend or supplement the Official Statement in order to make the statements therein, in light of the circumstances when the Official Statement is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Official Statement to comply with applicable law, to notify the Underwriters (and for the purpose of this clause (e) to provide the Underwriters with such information as they may from time to time request), and to prepare and furnish, at the Company’s sole expense (in a form and manner approved by the Underwriters) a reasonable number of copies of either amendments of or supplements to the Official Statement so that (x) the statements in the Official Statement as so amended or supplemented will not, in light of the circumstances when the Official Statement is delivered to a purchaser, be misleading or (y) the Official Statement, as so amended or supplemented, will comply with applicable law;

(f) Between the date of this Agreement and the Closing, the Company will not, without the prior written consent of the Underwriters, offer, sell, contract to sell or otherwise dispose of any securities of the Issuer or the Company (other than the sale to the Underwriters of the Other Bonds), respectively, which are substantially similar to the Bonds;

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(g) The Company will not take or fail to take any action which would, under the Internal Revenue Code of 1986, as amended and in effect on the date of issuance of the Bonds (the “Code”), Regulations of the Department of the Treasury of the United States of America (including Temporary Regulations and Proposed Regulations) under the Code applicable to the Bonds, rulings and court decisions, cause the interest payable on the Bonds to be includable in gross income for Federal income tax purposes of the holders thereof (other than a “substantial user” of the Facilities or a “related person” as those terms are used in Section 147(a) of the Code);

(h) To endeavor in good faith to cooperate with the Underwriters and the Issuer in qualifying the Bonds for sale under the securities laws of such jurisdictions as the Underwriters may designate and in continuing such qualification in effect so long as required for the distribution of the Bonds;

(i) To pay the expenses set forth in Section 10 of the Bond Purchase Agreement as expenses to be borne by the Company in accordance with the terms thereof and, if the Bond Purchase Agreement shall be terminated by the Underwriters because the Issuer is unable or otherwise fails to perform its obligations under the Bond Purchase Agreement or refuses or otherwise fails to comply with the terms of or to fulfill any of the conditions of the Bond Purchase Agreement or if for any reason the Company shall be unable, refuse or otherwise fails to perform the agreements and actions or comply with the terms and conditions contemplated to be performed, complied with, or fulfilled on the Company’s part under the Bond Purchase Agreement or this Agreement or if the Issuer shall decline to enter into the Bond Purchase Agreement by 11:59 p.m. Maricopa County, Arizona time on the date hereof, to reimburse the Underwriters for all out-of-pocket expenses (including fees and expenses of its counsel) reasonably incurred by them in connection with the Bond Purchase Agreement, this Agreement and the offering of the Bonds contemplated under the Bond Purchase Agreement;

(j) For a period of five years from the date of this Agreement, to furnish, upon request, to each of the Underwriters, the following:

a) as soon as practicable after the end of each fiscal year a consolidated balance sheet and consolidated statements of earnings (loss) and retained earnings (deficit) of the Company as at the end of and for such years, all in reasonable detail and certified by independent public accountants, and also copies of the annual and interim reports of the Company to its stockholders as soon as the same have been sent to such stockholders; and

b) as soon as practicable after the end of each quarter of its fiscal year one copy of a consolidated balance sheet as at the end of such period and consolidated statements of earnings (loss) and retained earnings (deficit) for said period in reasonable detail, none of which statements need be audited but shall be certified as correct by a Vice President, the Treasurer or Assistant Treasurer of the Company;

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(k) To file timely all reports required to be filed by the Company with the Commission pursuant to Section 13 or 15(d) of the Exchange Act subsequent to the date of the Official Statement and for so long as the delivery of a copy of such Official Statement is required to be delivered in connection with sales by the Underwriters or any securities dealer;

(l) That all representations and warranties and covenants and agreements of the Company contained herein, including the indemnity agreements of the Company contained herein, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriters or controlling person of any Underwriters, or by or on behalf of the Issuer, or any member, officer, official or employee of the Issuer or by or on behalf of the Company, or any officer, director or controlling person of the Company, or of any termination of this Agreement or the Bond Purchase Agreement, and shall survive delivery of and payment for the Bonds; and

(m) That any certificate signed by any officer of the Company and delivered to the Issuer, the Underwriters or to Underwriters’ counsel shall be deemed a representation and warranty by the Company to the Issuer and to the Underwriters as to the statements made therein.

6. Parties in Interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person or corporation, other than the parties hereto and their respective successors and assigns and the members, officers, officials, employees and controlling persons and the officers and directors referred to herein, any legal or equitable right, remedy or claim under or in respect to this Agreement or any provision herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and their respective successors and assigns and said members, officers, officials, employees and controlling persons and said officers and directors and for the benefit of no other person or corporation. No purchaser of any of the Bonds from either Underwriters shall be construed a successor or assign merely by reason of such purchase.

7. Choice of Law. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

8. Notices. All communications hereunder shall be in writing and if sent to the Issuer or the Underwriters shall be in accordance with Section 12 of the Bond Purchase Agreement and if sent to the Company shall be mailed, delivered or sent electronically or by facsimile and confirmed to it at 100 North Stanton, El Paso, TX 79901, Attention: Treasurer.

9. Counterparts. This Agreement may be executed in several counterparts each of which shall be an original and all of which shall constitute but one and the same instrument.

10. Statutory Notice. In accordance with the terms thereof, notice is hereby given of Title 38, Chapter 3, Section 38-511, Arizona Revised Statutes, which provides, among

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other things, that the State of Arizona, its political subdivisions or any department or agency of either may, within three years after its execution, cancel any contract, without penalty or further obligation, made by said State, its political subdivisions, or any of the departments or agencies of either if any person significantly involved in initiating, negotiating, securing, drafting or creating the contract on behalf of said State, its political subdivisions or any of the departments or agencies of either is, at any time while the contract or any extension of the contract is in effect, an employee or agent of any other party to the contract in any capacity or a consultant to any other party of the contract with respect to the subject matter of the contract.

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If the foregoing is in accordance with your understanding of the agreement between you and the Company, kindly sign and return to the Company the enclosed duplicate of this letter agreement whereupon it will constitute a binding agreement between you and the Company in accordance with its terms.

Very truly yours,

EL PASO ELECTRIC COMPANY

By:

Name:

Title:

Accepted and agreed to this

     day of             , 2005

MARICOPA COUNTY, ARIZONA

POLLUTION CONTROL CORPORATION

By:

Name:

Title:

CITIGROUP GLOBAL MARKETS INC.

By:

Name:

Title:

BNY CAPITAL MARKETS, INC.

By:

Name:

Title:

J.P. MORGAN SECURITIES INC.

By:

Name:

Title:

EX-4.42

EXHIBIT 4.42

REMARKETING AND PURCHASE AGREEMENT

among

EL PASO ELECTRIC COMPANY

and

CITIGROUP GLOBAL MARKETS INC.

as Remarketing Agent

and

CITIGROUP GLOBAL MARKETS INC.

BNY CAPITAL MARKETS, INC.

J.P. MORGAN SECURITIES INC.

$33,300,000

CITY OF FARMINGTON, NEW MEXICO

Pollution Control Revenue Refunding Bonds

2002 Series A

(El Paso Electric Company Four Corners Project)

Dated July 27, 2005

REMARKETING AND PURCHASE AGREEMENT

THIS REMARKETING AND PURCHASE AGREEMENT is dated July 27, 2005 (the “Remarketing and Purchase Agreement”), between EL PASO ELECTRIC COMPANY, a Texas corporation (the “Company”), CITIGROUP GLOBAL MARKETS INC. (the “Remarketing Agent”), and CITIGROUP GLOBAL MARKETS INC., BNY CAPITAL MARKETS, INC. and J. P. MORGAN SECURITIES INC. (collectively, the “Underwriters”), with respect to the remarketing and purchase of the $33,300,000 principal amount of the City of Farmington, New Mexico Pollution Control Revenue Refunding Bonds, 2002 Series A (El Paso Electric Company Four Corners Project) due June 1, 2032 (the “Bonds”).

1) The Bonds were originally issued on August 1, 2002, pursuant to the City of Farmington, New Mexico (the “City” or the “Issuer”) Ordinance No. 2002-1134 adopted on July 9, 2002 (“Ordinance No. 2002-1134”), between the City and Union Bank of California, N.A., as successor trustee (the “Trustee”) as supplemented by Resolution No. 2002-1046 adopted by the City on July 23, 2002 (the “Resolution,” and together with Ordinance No. 2002-1134, (the “Ordinance”) and pursuant to an Amended and Restated Installment Sale Agreement between the City and the Company dated as of August 1, 2002 (the “Financing Agreement”). (All capitalized terms used herein and not defined herein shall have the meanings specified in the Ordinance or in the Remarketing Supplement for the Bonds, as defined below).

At the time of the initial issuance of the Bonds, the Company elected that the Bonds bear interest at an initial Long-Term Interest Rate of 6.375% per annum through July 31, 2005. The Bonds will be subject to mandatory tender for purchase on August 1, 2005 (the “Purchase Date”). The Bonds shall bear interest at the Long-Term Interest Rate of 4.00% per annum for the Long-Term Interest Rate Period (as defined in the Ordinance) beginning August 1, 2005 through July 31, 2012. The Bonds will be subject to mandatory tender for purchase on August 1, 2012 at a price equal to 100% of the principal amount thereof. The Company desires that (a) on the Purchase Date, the Underwriters shall purchase the Bonds from the Company and (b) on the Purchase Date, the Remarketing Agent and the Underwriters shall remarket the Bonds.

The Bonds are to be as described in the remarketing supplement dated the date hereof and attached hereto as Exhibit A (the “Remarketing Supplement”). Such Remarketing Supplement, including the Appendices thereto and all material incorporated by reference, is hereinafter called the “Remarketing Supplement”. The Company hereby represents and warrants to the Remarketing Agent and the Underwriters that the Remarketing Supplement is complete as of its date, within the meaning of 15c2-12(e)(3) under the Exchange Act (hereinafter defined). The Company hereby further represents and warrants to the Remarketing Agent and the Underwriters that it deems the Preliminary Remarketing Supplement dated July 25, 2005 to have been final as of its date (except for the omission of the offering price, interest rate, redemption prices and dates and selling compensation, as applicable) within the meaning of 15c2-12(b)(1). Not later than two business days after its acceptance hereof, the Company will make available to the Remarketing Agent and the Underwriters such number of copies of the Remarketing Supplement as the Remarketing Agent and the Underwriters shall reasonably request, but in any case a sufficient number of such copies to permit delivery of copies of the Remarketing Supplement to any person on request and to purchasers of the Bonds.

2) On the basis of the representations and agreements herein contained, but subject to the terms and conditions herein set forth, the Underwriters agree to purchase the Bonds at a purchase price of 100% of the principal amount thereof plus accrued and unpaid interest to the Purchase Date. The Company shall pay the Remarketing Agent and Underwriters directly, as compensation for the Remarketing and Purchase of the Bonds hereunder, a fee equal to $166,500 plus expenses. The Issuer shall have no responsibility, obligation or liability with respect to any payments hereunder.

3) The date of delivery and payment for the Bonds (the “Purchase Date”) will be the Purchase Date or such other time as the Remarketing Agent, Citigroup Global Markets Inc., as representative of the Underwriters, and the Company determine, in which event the Purchase Date will be the date so determined. Settlement will be through the facilities of The Depository Trust Company, New York, New York.

The Remarketing Agent will instruct the Citigroup Global Markets Inc., as tender agent (the “Tender Agent”) to cause the Trustee or Registrar to deliver the Bonds to the Underwriters in the manner contemplated in the Ordinance on the Purchase Date against payment therefor in immediately available funds to the order of the Tender Agent for disposition in accordance with the terms of the Ordinance. The delivery of the documents referred to in Section 11 hereof will be made simultaneously at the offices of Pillsbury Winthrop Shaw Pittman LLP, or such other place as may be mutually agreed to by the Company, the Remarketing Agent and Citigroup Global Markets Inc., as representative of the Underwriters. The Bonds will be delivered in the form and shall be otherwise as described in the Ordinance.

4) The Company represents and warrants to the Remarketing Agent and the Underwriters that the representations and warranties of the Company set forth in Schedule I hereto are true and will remain true on and as of the Purchase Date.

5) The Company agrees to indemnify and hold harmless the Remarketing Agent, its directors, officers, and employees (each a “Remarketing Agent indemnified party”), and each Underwriter and each person, if any who controls the related Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each a “Underwriter indemnified party”) from and against any and all losses, claims, damages and liabilities (a) caused by any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Remarketing Supplement or the Remarketing Supplement (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except with respect to indemnification of a Remarketing Agent indemnified party or Underwriter indemnified party, insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to the Remarketing Agent or Underwriters furnished to the Company in writing by the Remarketing Agent or Underwriters expressly for use therein or (b) caused by the failure to comply with the informational reporting requirements of the Exchange Act, the failure to file a registration statement under the Securities Act or the failure to qualify an indenture under the Trust and Indenture Act of 1939, as amended (the “Trust Indenture Act”) in connection with the remarketing and sale of the Bonds.

The Remarketing Agent and the Underwriters agree to indemnify and hold harmless the Company, its directors, officers and employees, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a “Company indemnified party”) to the same extent as set forth in paragraph (a) of the foregoing indemnity from the Company to the Remarketing Agent and the Underwriters, but only with reference to information relating to, and provided in writing by, the Remarketing Agent or the Underwriters expressly for use in the Preliminary Remarketing Supplement or the Remarketing Supplement or any amendment or supplement thereto.

In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (hereinafter called the “indemnified party”) shall promptly notify the person against whom such indemnity may be sought (hereinafter called the “indemnifying party”) in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties, and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by the Remarketing Agent in the case of Remarketing Agent indemnified parties, by the related Underwriter in the case of Underwriter indemnified parties or by the Company in the case of Company indemnified parties. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there is a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the third sentence of this paragraph, the indemnifying party agrees that it shall be liable for any one settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by each indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding.

If the indemnification provided for in the first or second paragraph of this Section 5 is unavailable to an indemnified party under such paragraph in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Remarketing Agent, the Company, and the Underwriters, as appropriate, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the Remarketing Agent, and the Underwriters in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations.

It is hereby understood and agreed that (i) the benefits received by the Company from the reoffering of the Bonds are the proceeds of the purchase price paid to the Remarketing Agent and Underwriters pursuant to Section 2 hereof; and (ii) the benefit received by the Remarketing Agent and the Underwriters from the Remarketing and Purchase of the Bonds is the fee set forth in Section 2 of this Remarketing and Purchase Agreement. The relative benefits received by the Remarketing Agent, the Company, and the Underwriters shall be in proportion to the benefits described above. The relative fault of the Company, the Remarketing Agent, and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Remarketing Agent, or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, it being understood and agreed by the parties that, for purposes of determining the contribution under this paragraph, information relating to the Issuer shall be attributed to the Company.

The Company, the Remarketing Agent and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 5, the Remarketing Agent and the Underwriters shall not be required to contribute any amount in excess of the amount by which the total price at which the Bonds were underwritten and distributed to the public exceeds the amount of any damages that the Remarketing Agent and Underwriters have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

The scope of the indemnification and contribution provided for herein by the Company to the Remarketing Agent and the Underwriters shall not be limited by the exclusion from paragraph (j) of Section 4 hereof with respect to information relating to or provided by the Issuer.

The indemnity and contribution agreements contained in this Section 5 and the representations and warrantees of the Company, the Remarketing Agent and the Underwriters contained herein shall remain operative and in full force and effect regardless of (i) any termination of this Remarketing and Purchase Agreement, (ii) any investigation made by or on behalf of the Company, the Underwriters, the Remarketing Agent or any of their respective officers or directors or any other person controlling the Company or the Remarketing Agent and (iii) acceptance of and payment for any of the Bonds.

6) The Company will endeavor in good faith to cooperate with the Underwriters in qualifying the Bonds for sale under the securities laws of such jurisdictions as Citigroup Global Markets Inc. designates, and in continuing such qualification in effect so long as required for the distribution of the Bonds. The Company will also execute the Continuing Disclosure Agreement attached to the Remarketing Supplement.

7) Before amending or supplementing the Remarketing Supplement, the Company will furnish the Underwriters with a copy of each such proposed amendment or supplement and will not use any such proposed amendment or supplement to which the Underwriters reasonably object. The Company will advise Citigroup Global Markets Inc., as representative of the Underwriters, promptly if, to its knowledge, any proceedings affecting the use of the Remarketing Supplement in connection with the remarketing and sale of the Bonds have been instituted.

8) If, after the date of this Remarketing and Purchase Agreement until twenty-five (25) days after the end of the underwriting period (as described below), any event shall occur as a result of which it is necessary to amend or supplement the Remarketing Supplement in order to make the statements therein, in light of the circumstances when the Remarketing Supplement is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Remarketing Supplement to comply with applicable law, the Company shall notify the Underwriters (and for the purpose of this Section 8 to provide the Underwriters with such information as they may from time to time request), and to prepare and furnish, at the Company’s sole expense (in a form and manner approved by the Underwriters) a reasonable number of copies of either amendments of or supplements to the Remarketing Supplement so that (x) the statements in the Remarketing Supplement as so amended or supplemented will not, in light of the circumstances when the Remarketing Supplement is delivered to a purchaser, be misleading or (y) the Remarketing Supplement, as so amended or supplemented, will comply with applicable law. Unless otherwise notified in writing by the Underwriters, the Company may assume that the “end of the underwriting period” for purposes of Rule 15c2-12 shall be the Purchase Date. In the event such notice is so given in writing by the Underwriters, the Underwriters agree to notify the Company in writing following the occurrence of the “end of the underwriting period” for the Bonds as defined in Rule 15c2-12. The “end of the underwriting period” as used in this Remarketing and Purchase Agreement shall mean the Purchase Date or such later date as to which notice is given by the Underwriters in accordance with the preceding sentence.

9) (a) For a period of five years from the date of this Remarketing and Purchase Agreement, the Company will furnish, upon request, to each of the Underwriters, the following:

(i) as soon as practicable after the end of each fiscal year a consolidated balance sheet and consolidated statements of earnings (loss) and retained earnings (deficit) of the Company as at the end of and for such years, all in reasonable detail and certified by independent public accountants, and also copies of the annual and interim reports of the Company to its stockholders as soon as the same have been sent to such stockholders; and

(ii) as soon as practicable after the end of each quarter of its fiscal year one copy of a consolidated balance sheet as at the end of such period and consolidated statements of earnings (loss) and retained earnings (deficit) for said period in reasonable detail, none of which statements need be audited but shall be certified as correct by a Vice President, the Treasurer or Assistant Treasurer of the Company.

(b) The Company will file timely all reports required to be filed by the Company with the Commission pursuant to Section 13 or 15(d) of the Exchange Act subsequent to the date of the Remarketing Supplement and for so long as the delivery of a copy of such Remarketing Supplement is required to be delivered in connection with sales by the Underwriters or any securities dealer.

10) The Remarketing Agent’s and Underwriters’ obligation to purchase and remarket the Bonds and to accept payment therefor will be subject to (i) the performance by the Remarketing Agent and the Underwriters of their obligations to be performed hereunder at or prior to the Purchase Date, (ii) the performance by the Company of its obligations hereunder at or prior to the Purchase Date, (iii) the accuracy in all material respects of the representations and warranties of the Company contained herein as of the date hereof and as of the Purchase Date, and (iv) the following additional conditions:

(a) Termination. The Underwriters shall have the right to terminate in their absolute discretion the Underwriters’ obligations under this Remarketing and Purchase Agreement to purchase, to accept delivery of and to pay for the Bonds by notifying the Company of their election to do so if, after the execution hereof and prior to the Purchase Date:

(i) legislation (including any amendment thereto) shall have been introduced in or adopted by either House of the Congress of the United States or recommended to the Congress or otherwise endorsed for passage by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or legislation is proposed for consideration by either such committee by any member thereof or presented as an option for consideration by either such committee by the staff of such committee, or by the staff of the Joint Committee on Taxation of the Congress of the United

States, or a bill to amend the Internal Revenue Code (which, if enacted, would be effective as of a date prior to the Closing) shall be filed in either house, or (ii) a decision shall have been rendered by a court established under Article II of the Constitution of the United States, by the United States Tax Court, or by a New Mexico state or local court, or (iii) an order, filing, ruling or regulation shall have been issued or proposed by or on behalf of the Treasury Department of the United States or the Internal Revenue Service or any other agency of the United States, or (iv) a release or official statement shall have been issued by the President of the United States or by the Treasury Department of the United States or by the Internal Revenue Service, the effect of which, in any such case described in clause (i), (ii), (iii), or (iv), would be to impose, directly or indirectly, federal income taxation upon interest received on obligations of the general character of the Bonds or upon income of the general character to be derived by the Issuer, other than as imposed on the Bonds under the federal tax laws in effect on the date hereof, in such a manner as in the judgment of the Underwriters would make it impracticable to market the Bonds on the terms and in the manner contemplated in the Remarketing Supplement;

(ii) any action shall have been taken by the Commission or by a court which would require registration of any security under the Securities Act, or qualification of any indenture under the Trust Indenture Act, in connection with the public offering of the Bonds, or any action shall have been taken by any court or by any governmental authority suspending the use of the Remarketing Supplement or any amendment or supplement thereto, or any proceeding for that purpose shall have been initiated or threatened in any such court or by any such authority;

(iii) (i) the Constitution of the State of New Mexico shall be amended or an amendment shall be proposed, or (ii) legislation shall be enacted, or (iii) a decision shall have been rendered as to matters of New Mexico law, or (iv) any order, ruling or regulation shall have been issued or proposed by or on behalf of the State of New Mexico by an official, agency or department thereof, affecting, in each case, the tax status of the Issuer, its property or income, its notes or bonds (including the Bonds) or the interest thereon, which in the judgment of the Underwriters would make it impracticable to sell the Bonds on the terms and in the manner contemplated in the Remarketing Supplement;

(iv) any fact or event shall exist or have existed that, in the judgment of the Underwriters, requires or has required an amendment of or supplement to the Remarketing Supplement;

(v) (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, Inc., the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Issuer or the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general

moratorium on commercial banking activities in New York shall have been declared by either federal or New York state authorities, or (iv) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Underwriters, impractical or inadvisable to proceed with the offering or delivery of the Bonds as contemplated by the Remarketing Supplement;

(vi) there shall have occurred any downgrading, or any notice shall have been given of any intended or potential downgrading or negative change in the rating accorded any of the Company’s obligations (including the rating to be accorded the Bonds) by any “nationally recognized statistical rating organization”, as such term is defined for purposes of Rule 436(g)(2) under the Securities Act;

(vii) legislation shall have been enacted by the federal government or the State of New Mexico, a decision of any federal or New Mexico state or local court shall have been made, or a ruling or regulation (proposed, temporary or final) of the Commission or other governmental agency shall have been made or issued that, in the reasonable opinion of counsel for the Underwriters, has the effect of requiring the contemplated distribution of the Bonds or any agreement offered in connection therewith to be registered under the Securities Act or the Ordinance to be qualified under the Trust Indenture Act; or

(viii) legislation shall have been enacted by the federal government or the State of New Mexico, a decision of any federal or New Mexico state or local court shall have been made, or a ruling or regulation (proposed, temporary or final) of any governmental authority, board, agency or commission shall have been made or issued that, in the reasonable opinion of counsel for the Underwriters, prohibits the purchase of and payment for the Bonds by the Underwriters, or the sale of the Bonds by the Underwriters, on the terms and conditions herein provided.

(b) At or prior to the Purchase Date, Citigroup Global Markets Inc., as representative of the Underwriters, and the Remarketing Agent shall have received the following documents:

(1) the legal opinions and/or reliance letters of the following, dated the Purchase Date:

(a) Opinions of (1) Pillsbury Winthrop Shaw Pittman LLP, bond counsel, (2) Davis Polk & Wardwell, counsel to the Company, (3) Clark, Thomas & Winters, a Professional Corporation, Texas counsel to the Company, (4) Dewey Ballantine LLP, FERC regulatory counsel to the Company, (5) Randall W. Childress, P.C., New Mexico counsel to the Company and (6) Pillsbury Winthrop Shaw Pittman LLP, counsel to the Underwriters, in each case in such form as shall have been approved by the Underwriters;

(b) Such opinion or opinions of Pillsbury Winthrop Shaw Pittman LLP, counsel for Citigroup Global Markets Inc. as the Remarketing Agent, with respect to such matters as Citigroup Global Markets Inc., as representative of the Underwriters, and the Remarketing Agent may require.

(2) A certificate of the Company, dated the Purchase Date, signed by an Authorized Company Representative, as defined in the Ordinance, of the Company to the effect that (1) each of the representations and warranties set forth in Schedule I is true, accurate and complete, in all material respects, on and as of the Purchase Date; and (2) each of the agreements of the Company to be complied with and each of the obligations to be performed by the Company pursuant to the Financing Agreement, the Remarketing Agreement, the Tender Agreement and the Continuing Disclosure Agreement on or before the Purchase Date have been complied with and performed;

(3) Evidence that the Bonds shall have received a long-term rating from Standard & Poor’s Corporation and Moody’s Investors Services Inc. of “AAA” and “Aaa,” respectively, or better;

(4) A municipal bond insurance policy for the Bonds (the “Bond Insurance Policy”) effective the date of remarketing of the Bonds to be issued by Financial Guaranty Insurance Company, a specimen form of which is attached as Appendix E to the Remarketing Supplement;

(5) An “agreed upon procedures” letter dated the Purchase Date, in form and substance satisfactory to the Underwriters from KPMG, LLP, independent public accountants, containing the information and statements of the type ordinarily included in such “agreed upon procedure” letters dated the Purchase Date;

(6) Such additional certificates, instruments or other documents as the Remarketing Agent or Citigroup Global Markets Inc., as representative of the Underwriters, may reasonably require to evidence the accuracy, as of the Purchase Date, of the representations and warranties herein contained, and the due performance and satisfaction by the Company at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by any it in connection with this Remarketing and Purchase Agreement or the Financing Agreement.

(c) No event of default or event which, with the giving of notice or passage of time or both, shall become an event of default, shall have occurred and be continuing under the Ordinance.

If the Company shall fail or be unable to satisfy the conditions of its obligations contained in this Remarketing and Purchase Agreement, or if the Underwriters’ or the Remarketing Agent’s obligations hereunder shall be terminated for any reason permitted by this Remarketing and Purchase Agreement, this Remarketing and Purchase Agreement shall terminate and neither the Remarketing Agent nor the Underwriters nor the Company, except as provided in Section 13 below, shall be under any further obligation hereunder.

11) The Company agrees that all representations, warranties and covenants made by it herein, and in certificates or other instruments delivered pursuant hereto or in connection herewith, shall be deemed to have been relied upon by the Remarketing Agent and the Underwriters notwithstanding any investigation heretofore or hereafter made by the Underwriters or the Remarketing Agent, and that all representations, warranties and covenants made by the Company herein and thereunder shall survive the delivery of the Bonds.

12) Expenses.

(a) The Underwriters shall be under no obligation to pay, and the Company shall pay any expenses incident to the performance of the Underwriters’ obligations hereunder and to the remarketing, sale and delivery of the Bonds to the Underwriters, including, but not limited to (i) the cost of preparation, printing and delivery of the Preliminary Remarketing Supplement and the Remarketing Supplement, (ii) the cost of preparation, printing and delivery of the Remarketing Agreement, the Tender Agreement, the Continuing Disclosure Agreement (all as defined in the Remarketing Supplement) and all related documents and preparation and delivery of the Bonds, (iii) the reasonable fees and expenses of Pillsbury Winthrop Shaw Pittman LLP, Bond Counsel, (iv) the reasonable fees and expenses of Pillsbury Winthrop Shaw Pittman LLP, counsel to the Underwriters, (v) the reasonable fees and expenses of Davis Polk & Wardwell, counsel to the Company; (vi) the reasonable fees and expenses of Clark, Thomas & Winters, a Professional Corporation, for their services as Texas counsel to the Company; (vii) the reasonable fees and expenses of Dewey Ballantine LLP, FERC regulatory counsel to the Company, (viii) the reasonable fees and expenses of Randall W. Childress, P.C., New Mexico counsel to the Company (ix) KPMG, LLP for its services as the independent accountants of the Company, (x) the fees, if any, for bond ratings, (xi) compensation to the Underwriters in connection with the remarketing and sale of the Bonds in the amount of $166,500, (xii) the fee, if any, of The Depository Trust Company, (xiii) the fees and expenses incurred in any qualification of the Bonds for sale under the securities laws of such jurisdictions as the Underwriters may designate and in continuing such qualification in effect and (xiv) the fees and expenses of the Trustee and the Company.

(b) The Underwriters shall be reimbursed for all reasonable out-of-pocket expenses incurred by them in connection with the public offering of the Bonds (excluding the fees and expenses of Pillsbury Winthrop Shaw Pittman LLP, which the Company has agreed to pay pursuant to clause (iv) of Section 12(a) hereof.

13) All communications hereunder shall be in writing and, unless otherwise directed in writing, shall be addressed as follows: if to the Company, at El Paso Electric Company, 100 North Station, El Paso, Texas 79901, Attention: Treasurer; if to Citigroup Global Markets Inc., as representative of the Underwriters, or as the Remarketing Agent, at Citigroup Global Markets Inc., 390 Greenwich Street, 5th Floor, New York, New York 10013, Attention: Kevin Stowe.

14) This Remarketing and Purchase Agreement shall be construed in accordance with the laws of the State of New York.

15) This Remarketing and Purchase Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Underwriters, the Remarketing Agent and the Company.

16) Each party hereto agrees that this Remarketing and Purchase Agreement, the Ordinance, the Financing Agreement and all documents relating thereto other than the Bonds (including, without limitation, all closing documents, certificates, financial statements and related materials and any consents, waivers, modifications, amendments or supplements which may hereafter be executed) may be reproduced by the Remarketing Agent, the Trustee, the Company, the Underwriters and any Bondholder by any xerographic, photographic, microfilm, micro-card or similar process and that each may destroy any original document so reproduced. Each party hereto agrees and stipulates that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by the introducing party in the regular course, of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

17) The Remarketing Agent’s and the Underwriters’ obligations hereunder are subject to the performance of the obligations of the Company, and the further condition that at the Purchase Date the Remarketing Agent and Citigroup Global Markets Inc., as representative of the Underwriters, shall receive the opinions of counsel required to be delivered hereby.

18) This Remarketing and Purchase Agreement may be executed in any number of counterparts, each of which, when so executed and delivered shall be an original; but such counterparts shall together constitute but one and the same Remarketing and Purchase Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Remarketing and Purchase Agreement to be duly executed as of the date first above written.

EL PASO ELECTRIC COMPANY

By:

Name:

Title:

CITIGROUP GLOBAL MARKETS INC.

By:

Name:

Title:

BNY CAPITAL MARKETS, INC.

By:

Name:

Title:

J. P. MORGAN SECURITIES INC.

By:

Name:

Title:

Schedule I to

Remarketing and Purchase Agreement

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

(a) The Bonds, the Ordinance and the Financing Agreement are fairly described in all material respects in the Remarketing Supplement. Neither the Remarketing Supplement nor any amendment or supplement thereto will include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading; provided, however, that this representation and warranty shall not apply (i) to the information supplied under the caption “The Issuer” or “Financial Guaranty Insurance” in the Remarketing Supplement, (ii) to Appendix B, C, D and E to the Remarketing Supplement, (iii) any information related to DTC or the Trustee (appointed under the Ordinance) in the Remarketing Supplement, or (iv) to any statements or omissions made in reliance upon and in conformity with information furnished to the Company by the Underwriters in writing expressly for use therein. The Company hereby confirms its prior authorization of the use of the Preliminary Remarketing Supplement and authorizes the use of the Remarketing Supplement in connection with the offer, sale and distribution of the Bonds.

(b) The Preliminary Remarketing Supplement incorporated, and the Remarketing Supplement incorporates or will incorporate, by reference certain documents (the “Incorporated Documents”) filed or to be filed by the Company with the Securities and Exchange Commission (the “Commission”), which documents have been, and will be, prepared by the Company in conformity with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder, and copies of such documents have been and will be delivered to the Underwriters. All references in the Remarketing and Purchase Agreement to information or statements contained in, set forth in or included in the Preliminary Remarketing Supplement or the Remarketing Supplement shall be deemed to relate equally to the material actually set forth therein as well as to the material incorporated therein from the Incorporated Documents.

(c) The Incorporated Documents, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further Incorporated Documents, when they are filed with the Commission, will conform in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished to the Company by the Underwriters in writing expressly for use therein.

(d) The financial statements of the Company incorporated by reference in the Remarketing Supplement present fairly the financial condition of the Company as of the dates

indicated and the results of its operations for the periods therein specified and said financial statements have been prepared in accordance with generally accepted principles of accounting which have been consistently applied in all material respects throughout the periods involved except as noted therein.

(e) There has been no material adverse change in the condition of the Company, financial or otherwise, from that as of the latest dates as of which such condition is set forth or incorporated by reference in the Remarketing Supplement except as referred to therein; there has been no material transaction entered into by the Company since the dates as of which the financial condition of the Company is set forth or incorporated by reference in the Remarketing Supplement other than transactions referred to in the Remarketing Supplement.

(f) The execution and delivery of the Remarketing and Purchase Agreement, the Remarketing Agreement, the Tender Agreement and the Continuing Disclosure Agreement, and the consummation of the transactions contemplated by each and fulfillment of the terms of each, does not, result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, ordinance, operating or capital lease or other agreement or instrument to which the Company is a party, or the Articles of Incorporation or Bylaws of the Company, or any order, rule or regulation applicable to the Company of any court or of any Federal or state regulatory body or administrative agency or other governmental body having jurisdiction over the Company or over any of its properties, or any statute of any jurisdiction applicable to the Company; and, to the extent required by law, the New Mexico Public Utilities Commission has approved the execution and delivery by the Company of the Financing Agreement and all matters relating to the Company’s participation in the transactions contemplated thereby and by the Remarketing and Purchase Agreement which require said approval. No other consent, approval, authorization or other order of any regulatory body or administrative agency or other governmental body is legally required for the Company’s participation in connection therewith, except as have been obtained.

(g) No action, suit or proceeding, at law or in equity, is pending or threatened against the Company, and no proceedings are pending or threatened against the Company before or by any Federal or state commission, board or other administrative agency, wherein an unfavorable decision, ruling or finding would affect in any way the validity or enforceability of the Financing Agreement, the Remarketing Agreement, the Tender Agreement or the Continuing Disclosure Agreement (collectively, the “Company Documents”) or, except as may be set forth in the Remarketing Supplement, would materially adversely affect the business, operations or financial condition or income of the Company in any way.

(h) Each of the representations and warranties made by the Company set forth in Section 2.02 of the Financing Agreement is made herein as though set forth herein in full.

(i) The Company is a corporation duly incorporated under the laws of the State of Texas and is in good standing under the laws of the State of Texas, has power to enter into each Company Document and to perform and observe the agreements and covenants on its part contained in each Company Document and by proper corporate action has duly authorized the execution and delivery of each Company Document.

(j) The Company is not in breach of any of its covenants, agreements, representations or warranties contained in any Company Document.

(k) Each Company Document constitutes or will constitute, as of the date of Closing, a valid and binding agreement of the Company enforceable in accordance with its terms.

(l) No “Event of Default”, or other similar event or circumstance has occurred and is continuing under the Ordinance and no “Event of Default” which, in any such case, would materially adversely affect the business, operations or financial condition or income of the Company in any way.

(m) The Company is not a “holding company”, or a “subsidiary company” of a “holding company”, or an “affiliate” of a “holding company” within the meaning of the Public Utility Holding Company Act of 1935.

EX-4.43

EXHIBIT 4.43

TENDER AGREEMENT

Between

EL PASO ELECTRIC COMPANY

and

CITIGROUP GLOBAL MARKETS INC.

$33,300,000

CITY OF FARMINGTON, NEW MEXICO

Pollution Control Revenue Refunding Bonds,

2002 Series A

(El Paso Electric Company, Four Corners Project)

Dated as of August 1, 2005

TENDER AGREEMENT

THIS TENDER AGREEMENT is dated as of August 1, 2005 (the “Agreement”), between EL PASO ELECTRIC COMPANY, a corporation organized and existing under the laws of the State of Texas (the “Company”), and CITIGROUP GLOBAL MARKETS INC. (the “Tender Agent”). Capitalized terms used herein and not otherwise defined shall have the meaning given to such terms in the Ordinance (defined below).

W I T N E S S E T H :

WHEREAS, at the request of the Company, the City of Farmington (the “City”) adopted on July 9, 2002 the City’s Ordinance No. 2002-1134 (“Ordinance No. 94-1018”), as supplemented by Resolution No. 2002-1034 adopted July 23, 2002 (the “Resolution”, and together with Ordinance No. 2002-1046, as amended and supplemented, the “Ordinance”), Union Bank of California, N.A. has accepted its appointment as trustee under the Ordinance (the “Trustee”), and the Ordinance provides that owners of the $33,300,000 principal amount of the City’s Pollution Control Revenue Refunding Bonds, 2002 Series A (El Paso Electric Company Four Corners Project) due June 1, 2032 (the “Bonds”) may deliver their Bonds (or portions thereof) to the Tender Agent for purchase in accordance with the Ordinance;

WHEREAS, concurrently with the execution and delivery of this Agreement, the Company is entering into a Remarketing Agreement, dated as of the date hereof (the “Remarketing Agreement”), with Citigroup Global Markets Inc., as remarketing agent, which Remarketing Agreement is attached Appendix 1 hereto..

NOW, THEREFORE, in consideration of the premises the parties hereto do hereby covenant and agree as follows:

Section 1. The Tender Agent hereby accepts and assumes all the obligations, duties and rights of the tender agent under the Ordinance.

Section 2. Compensation paid by the Company to the Tender Agent for services rendered hereunder as Tender Agent shall be at such rate as the parties hereto may from time to time agree.

Section 3. The Tender Agent represents that it is a corporation duly organized under the laws of the United States of America or any state or territory thereof, having a combined capital stock, surplus and undivided profits of at least $25,000,000 and authorized by law to perform all the duties imposed upon it hereunder and under the Ordinance.

Section 4. (a) The Tender Agent may at any time resign and be discharged of its duties and obligations hereunder and under the Ordinance by giving at least thirty (30) days’ notice to the City, the Company, the Trustee and the Remarketing Agent. Such resignation shall take effect on the day a successor Tender Agent shall have been appointed by the Company and shall have accepted such appointment.

(b) The Tender Agent may be removed at any time by an instrument signed by the Company, filed with the Tender Agent, the City, the Trustee and the Remarketing Agent.

(c) In the event of the resignation or removal of the Tender Agent, the Tender Agent shall deliver any Bonds and moneys held by it in such capacity to its successor or, if there is no successor, to the Trustee.

Section 5. At any time the Tender Agent may consult counsel for the Company or its own counsel in respect of any matter arising in connection with the agency hereunder, and it shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with the opinion of such counsel.

Section 6. The Tender Agent shall be protected:

(a) in acting upon any paper or document reasonably believed by it to be genuine and to have been signed by the proper person or persons; and

(b) in recognizing Bonds which it reasonably believes to bear the proper manual or facsimile signatures of the officers of the City.

The Tender Agent shall not be held to have notice of any change of authority of any officer, employee or agent of the Company until receipt of written notification thereof from the Company.

Section 7. The following sections of the Remarketing Agreement are hereby incorporated into this Agreement and all references to the “Agent” in those sections shall be deemed to refer to the Tender Agent:

(a) Section 3, Representations, Warranties, Covenants and Agreements of the Company; and

(b) Section 4, Conditions to Agent’s Obligations.

Section 8. The indemnification provisions, Section 7, of the Remarketing Agreement are hereby incorporated in full into this Agreement.

Section 9. The principal office of the Tender Agent is hereby designated to be:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

Section 10. This Agreement may be amended in any respect but only by written agreement of the parties hereto, subject to the limitations upon such amendments set forth in the Ordinance.

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Section 11. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original; but such counterparts shall together constitute but one and the same Agreement.

Section 12. If any clause, provision or section of this Agreement be held illegal or invalid by any court, the invalidity of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof, and this Agreement shall be construed and enforced as if such illegal or invalid clause, provision or section had not been contained herein. In case any agreement or obligation contained in this Agreement shall be held to be in violation of law, then such agreement or obligation shall be deemed to be the agreement or obligation of the City or the Company, as the case may be, to the full extent permitted by law.

Section 13. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

Section 14. The Company and Citigroup Global Markets Inc. hereby agree to the terms and conditions of the Remarketing Agreement attached hereto as Appendix 1.

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IN WITNESS WHEREOF, the parties hereto have caused this Tender Agreement to be duly executed as of the date first above written.

EL PASO ELECTRIC COMPANY

By

Name:

Title:

CITIGROUP GLOBAL MARKETS INC.

By

Name:

Title:

4

Appendix 1 to the Tender Agreement

REMARKETING AGREEMENT

THIS REMARKETING AGREEMENT is dated as of August 1, 2005 (the “Agreement”), between EL PASO ELECTRIC COMPANY, a Texas corporation (the “Company”) and CITIGROUP GLOBAL MARKETS INC. (the “Agent”).

W I T N E S S E T H :

WHEREAS, the Agent, the Company and the City of Farmington, New Mexico (the “City”), have agreed for the Agent to act as exclusive remarketing agent on behalf of the Company in connection with the offering and sale from time to time in the secondary market of $33,300,000 principal amount of the City of Farmington, New Mexico, Pollution Control Revenue Refunding Bonds, 2002 Series A (El Paso Electric Company Four Corners Project) due June 1, 2032 (the “Bonds”) and to determine the interest rate necessary to remarket the Bonds in accordance with and pursuant to the City’s Ordinance No. 2002-1134 adopted by the City on July 9, 2002 (“Ordinance No. 2002-1134”), as supplemented by Resolution No. 2002-1046 adopted by the City on July 23, 2002 (the “Resolution”, and together with Ordinance No. 2002-1134, (the “Ordinance”) and Union Bank of California, N.A. has accepted its appointment as trustee under the Ordinance (the “Trustee”) (All capitalized terms used herein and not defined herein shall have the meanings specified in the Ordinance);

WHEREAS, concurrently with the execution and delivery of this Agreement the Bonds will be remarketed by the Agent pursuant to the 2005 Remarketing Supplement (as hereinafter defined);

WHEREAS, concurrently with the execution and delivery of this Agreement, the Company is entering into a Tender Agreement, dated as of the date hereof (the “Tender Agreement”), with Citigroup Global Markets Inc., as tender agent;

NOW, THEREFORE, in consideration of the premises the parties hereto do hereby covenant and agree as follows:

Section 15. Appointment of Agent; Responsibilities of Agent.

(a) Subject to the terms and conditions herein contained, the Company, effective as of the date hereof, hereby appoints the Agent, and the Agent hereby accepts such appointment, as exclusive remarketing agent in connection with the offering and sale of the Bonds from time to time in the secondary market.

(b) The Agent hereby represents that it is a member of the National Association of Securities Dealers, Inc., and has a combined capital stock, surplus and undivided profits of at least $15,000,000 and is authorized by law to perform the duties imposed upon it by the Ordinance.

6

(c) The Agent accepts and assumes all the obligations, duties and rights of the remarketing agent under the Ordinance.

(d) The Agent’s responsibilities hereunder will include (i) the soliciting of purchases of Bonds from investors able to purchase municipal obligations, (ii) effecting and processing such purchases, (iii) billing and receiving payment for Bonds purchased, (iv) causing the proceeds from the secondary sale of the Bonds to be transferred to the Tender Agent or the Trustee, as the case may be, (v) keeping such books and records as shall be consistent with prudent industry practice and making such books and records available for inspection by the Issuer, the Trustee, the Tender Agent and the Company at all reasonable times and (vi) performing such other related functions as may be requested by the Company and agreed to by the Agent.

(e) In connection with the performance of the foregoing responsibilities, the Agent further agrees to hold all moneys delivered to it hereunder for the purchase of Bonds as agent and bailee of, and in escrow for the benefit of, the person or entity which shall have so delivered such moneys.

Section 16. Furnishing of Offering Materials. (a) The Company agrees to furnish the Agent with as many copies as the Agent may reasonably request of (i) the Remarketing Supplement, dated July 27, 2005, (including all appendices thereto) describing the Bonds (as amended and supplemented, the “2005 Remarketing Supplement”), (ii) each document or report relating to the Company which has been filed with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), subsequent to the date of the 2005 Remarketing Supplement (an “SEC Report”), (iii) an annual remarketing supplement to the 2005 Remarketing Supplement if requested by the Agent or such other disclosure document that may be used in connection with the remarketing of the Bonds by the Agent, and (iv) such other information with respect to the Company and the Bonds as the Agent shall reasonably request from time to time.

(b) If, at any time during the term of this Agreement, any event known to the Company relating to or affecting the Company, the Ordinance, the Amended and Restated Installment Sale Agreement dated as of August 1, 2002, between the Issuer and the Company (the “Loan Agreement”), the Tender Agreement or the Bonds shall occur which might affect the correctness or completeness of any statement of a material fact contained in the 2005 Remarketing Supplement, any supplement thereto or any SEC Report, the Company will promptly notify the Agent in writing of the circumstances and details of such event.

Section 17. Representations, Warranties, Covenants and Agreements of the Company. The Company represents, warrants, covenants, and agrees with the Agent as follows:

(a) The Company has been duly incorporated and is in good standing under the laws of the State of Texas, has corporate power and authority to own its properties and to conduct its business and possesses all material licenses and approvals necessary for the conduct of its business and the Company is duly qualified to do business and is in good standing as a foreign corporation in the States of New Mexico and Arizona;

7

(b) The Company has full power and authority to take all actions required or permitted to be taken by it by or under, and to perform and observe the covenants and agreements on its part contained in, this Agreement, the Tender Agreement, the Loan Agreement, the Continuing Disclosure Agreement with respect to the Bonds dated as of August 1, 2005 (the “Continuing Disclosure Agreement”) and any other instrument or agreement relating thereto to which it is a party;

(c) The Company has, on or before the date hereof, duly taken all action necessary to be taken by it prior to such date for: (i) the execution, delivery and performance of this Agreement, the Tender Agreement, the Loan Agreement, the Continuing Disclosure Agreement and any other instrument or agreement to which it is a party and which has been or will be executed in connection with the transactions contemplated by the foregoing documents, and (ii) the carrying out, giving effect to, consummation and performance of the transactions and obligations contemplated hereby and by the 2005 Remarketing Supplement; provided, that no representation is made with respect to compliance with the securities or “Blue Sky” laws of the various states of the United States;

(d) This Agreement, the Loan Agreement, the Tender Agreement, the Continuing Disclosure Agreement and any other instrument or agreement to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents, when duly and validly executed and delivered by the parties hereto and thereto, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws, judicial decisions or principles of equity relating to or affecting the enforcement of creditors’ rights or contractual obligations generally;

(e) The execution and delivery of this Agreement, the Loan Agreement, the Tender Agreement, the Continuing Disclosure Agreement and any other instrument or agreement to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents, the compliance with the terms, conditions or provisions hereof and thereof, and the consummation of the transactions herein and therein contemplated did not upon the date of execution and delivery thereof and will not violate any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality applicable to the Company, or result in a breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company pursuant to the terms of its Articles of Incorporation or By-laws, or any mortgage, Ordinance, agreement or instrument to which the Company is a party or by which it or any of its properties is bound;

(f) All authorizations, consents and approvals of, notices to, registrations or filings with, or actions in respect of any governmental body, agency or other instrumentality or court required in connection with the execution, delivery and performance by the Company of

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this Agreement, the Tender Agreement, the Continuing Disclosure Agreement, the Loan Agreement and any other agreement or instrument to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents have been obtained, given or taken and are in full force and effect, provided that no representation is made with respect to compliance with the securities or “Blue Sky” laws of the various states of the United States;

(g) Except as described in the 2005 Remarketing Supplement or any SEC Report, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company wherein an unfavorable decision, ruling or finding would have a material adverse effect on the properties, business, condition (financial or other) or results of operations of the Company or the transactions contemplated by this Agreement or by the 2005 Remarketing Supplement or which would materially adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement, the Loan Agreement, the Tender Agreement, the Continuing Disclosure Agreement or any other agreement or instrument to which the Company is a party and which is used or contemplated for use in consummation of the transactions contemplated by this Agreement or the 2005 Remarketing Supplement.

(h) The Company is not in violation of any provision of its Articles of Incorporation or By-laws;

(i) The Company will not take or omit to take any action which action or omission would in any way cause the interest on the Bonds to be subject to Federal income tax under the Code;

(j) The Company will cooperate with the Agent in the qualification of the Bonds for offering and sale and the determination of the eligibility of the Bonds for investment under the laws of such jurisdictions as the Agent shall designate and will use its best efforts to continue any such qualification in effect so long as required for the distribution of the Bonds by the Agent, provided that the Company shall not be required to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. It is understood that the Company shall not be responsible for compliance with or the consequences of failure to comply with applicable state securities or “Blue Sky” laws;

(k) The information contained in the 2005 Remarketing Supplement and each SEC Report as of the date on which the 2005 Remarketing Supplement or SEC Report was or will be furnished to the Agent, did not and will not contain any untrue statement of a material fact and will not omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No representation is made in this subsection (k), however, with respect to any information furnished in writing to the Company by or on behalf of the Agent specifically for inclusion in the 2005 Remarketing Supplement;

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(l) The documents incorporated by reference in the 2005 Remarketing Supplement have been prepared by the Company in conformity with the requirements of the Exchange Act and the rules and regulations thereunder and such documents have been timely filed as required thereby; and

(m) Any certificate signed by any authorized officer or officers of the Company and delivered to the Agent shall be deemed a representation by the Company to the Agent as to the statements made therein.

Section 18. Conditions to Agent’s Obligations. The obligations of the Agent under this Agreement have been undertaken in reliance on, and shall be subject to, the due performance by the Company of its obligations and agreements to be performed hereunder and to the accuracy of and compliance with the representations, warranties, covenants and agreements of the Company contained herein, in each case on and as of the date of delivery of this Agreement and on and as of each date on which Bonds are to be offered and sold pursuant to this Agreement. The obligations of the Agent hereunder with respect to each date on which Bonds are to be offered and sold pursuant to this Agreement are also subject, in the discretion of the Agent, to the following further conditions:

(a) The Ordinance, the Loan Agreement, the Tender Agreement and the Continuing Disclosure Agreement shall be in full force and effect and shall not have been amended, modified or supplemented in any way which would materially and adversely affect the Bonds, except as may have been agreed to in writing by the Agent, and there shall be in full force and effect such additional resolutions, agreements, certificates (including such certificates as may be required by regulations of the Internal Revenue Service in order to establish the tax-exempt character of interest on the Bonds) and opinions as shall be necessary to effect a secondary remarketing of the Bonds in the manner contemplated by this Agreement, which resolutions, agreements, certificates and opinions, at the request of the Agent, shall be satisfactory in form and substance to Pillsbury Winthrop Shaw Pittman LLP., bond counsel to the Issuer, or Pillsbury Winthrop Shaw Pittman LLP, counsel to the Agent; and

(b) There shall have been no material adverse change in the properties, business, condition (financial or other) or results of operations of the Company since the date of the 2005 Remarketing Supplement or any supplement thereto relating to the Bonds being offered on such date, and no Event of Default under Section 10.01 (a)(i), (ii), (iii), (iv), (v), (vi) or (vii) of the Ordinance, shall have occurred and be continuing and no event shall have occurred and be continuing which, with the passage of time or giving of notice or both, would constitute such an Event of Default and the Agent shall receive such certificates, accountants’ letters and opinions of counsel as it shall reasonably request in connection with the remarketing of the Bonds.

Section 19. Term and Termination of Remarketing Agreement. This Agreement shall become effective upon execution by the Agent and the Company and shall continue in full force and effect until all of the Bonds have either matured or have been retired, subject to the right of the Agent to resign and the right of the Company to remove the Agent, as provided in Section 14.02(a) of the Ordinance.

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In the event of the resignation or removal of the Agent, the Agent shall pay over, assign and deliver any moneys and Bonds held by it in such capacity to its successor or, if there be no successor, to the Trustee.

Section 20. Payment of Fees and Expenses. In consideration of the services to be performed by the Agent under this Agreement, the Company agrees to pay to the Agent such fees as the Company and the Agent agree to in writing from time to time.

Section 21. Indemnification. (a) The Company agrees to indemnify and hold harmless Citigroup Global Markets Inc., as the Agent hereunder and as the Tender Agent under the Tender Agreement (“Citigroup”) and each of its officers, directors and employees and each person who controls Citigroup within the meaning of Section 15 of the Securities Act of 1933, as amended (the “Act”) (collectively, the “Indemnified Persons” and individually, an “Indemnified Person”) from and against any losses, claims, damages or liabilities to which any Indemnified Person may become subject under any statute or at law or in equity or otherwise, and shall reimburse any such Indemnified Person for any legal or other expenses incurred by it in connection with investigating any claim against it and defending any action, but only to the extent that such losses, claims, damages or liabilities (or actions in respect thereof) arise out of, or are based upon, (i) an allegation or determination that the Bonds, the obligations of the Company under the Loan Agreement, this Agreement or the Tender Agreement should have been registered under the Act or the Ordinance should have been qualified under the Trust Indenture Act of 1939, as amended, (ii) an allegation or determination of negligence or wrongdoing in connection with Citigroup’s performance of its duties under this Agreement, the Tender Agreement or the Ordinance, or (iii) any untrue statement or alleged untrue statement of a material fact contained in any document referred to in Section 2 hereof (a “Disclosure Statement”) or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, provided, however, the indemnity of the Company provided by this Section 7 shall not extend to or cover, and the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by Citigroup specifically for inclusion therein. The Company shall not be liable under clause (ii) of the preceding sentence for Citigroup’s gross negligence or willful misconduct.

(b) An Indemnified Person shall, promptly after the receipt of notice of the commencement of any action against such Indemnified Person in respect of which indemnification may be sought against Citigroup or the Company, as the case may be (in either case the “Indemnifying Person”), notify the Indemnifying Person in writing of the commencement thereof. In case any such action shall be brought against any Indemnified Person, and such Indemnified Person shall notify the Indemnifying Person, the Indemnifying Person may, or if so requested by such Indemnified Person shall, participate in or assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Person, and after

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notice from the Indemnifying Person to such Indemnified Person of its election so to assume the defense thereof, such Indemnified Person shall reasonably cooperate in the defense thereof, including without limitation, the settlement of outstanding claims, and the Indemnifying Person shall not be liable to such Indemnified Person under this Section 7 for any legal or other expenses subsequently incurred by such Indemnified Person in connection with the defense thereof other than reasonable costs of any investigation; provided, however, that if the named parties to any such action (including any impleaded parties) include both an Indemnified Person and the Company, and the Indemnified Person shall have reasonably concluded that there may be one or more legal defenses available to it which are different from or additional to and conflict with those available to the Company, the Indemnified Person shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of the Indemnified Person; provided further, however, that (i) the Indemnifying Person shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to local counsel) at any one time for an Indemnified Person and its officers, directors and employees and all other persons so controlling such Indemnified Person and (ii) the Indemnifying Person shall not be liable for any settlement of any such claim or action effected without its written consent. Any obligation under this Section of an Indemnifying Person to reimburse an Indemnified Person for expenses include the obligation to make advances to the Indemnified Person to cover such expenses in reasonable amounts and at reasonable periodic intervals not more often than monthly as requested by the Indemnified Person.

(c) Citigroup agrees to indemnify and hold harmless the Company, its directors and officers to the same extent as the indemnity from the Company to the Indemnified Persons described in subsection (a) of this Section but only with respect to any untrue statement or alleged untrue statement, omission or alleged omission which has been included in the 2005 Remarketing Supplement and any supplement thereto, or omitted therefrom, in reliance upon and in conformity with information furnished in writing to the Company by Citigroup expressly for use therein. The Company and Citigroup agree that any statement set forth in the 2005 Remarketing Supplement and any supplement thereto furnished in writing by Citigroup for inclusion therein shall be contained in a section entitled “Underwriting” and that Citigroup’s indemnification pursuant to this paragraph (c) shall be limited to such section. In case any action shall be brought against the Company in respect of which indemnity may be sought against Citigroup, Citigroup shall have the rights and duties given to the Company, and the Company shall have the rights and duties given to the Indemnified Persons, by subsections (a) and (b) of this Section. The indemnity agreement in this subsection (c) shall be in addition to any liability which Citigroup may otherwise have to the Company and shall extend upon the same terms and conditions to each person, if any, who controls the Company within the meaning of the Act.

(d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in paragraph (a) of this Section 7 is due in accordance with its terms but is for any reason held by a court to be unavailable from the Company on grounds of policy or otherwise, the Company and Citigroup shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) to which the Company and Citigroup may be subject in such proportion as is appropriate to reflect the relative benefits received by the

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Company on the one hand and Citigroup on the other from the remarketing of the Bonds. The relative benefits received by the Company on the one hand and Citigroup on the other shall be deemed to be in the same proportion as the aggregate principal amount of the Bonds remarketed pursuant to this Agreement bear to the total remarketing fees received by Citigroup; provided, however, that (i) in no case shall Citigroup be responsible for any amount in excess of such fee applicable to the Bonds remarketed by Citigroup and (ii) no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Act shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person who controls Citigroup within the meaning of Section 15 of the Act shall have the same rights as Citigroup. Any party entitled to contribution shall, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this paragraph (d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this paragraph (d) unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the party or parties from whom contribution may be sought.

(e) The indemnity and contribution agreements contained in this Section 7 shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of Citigroup or the Company, or the delivery of and any payment for any Bonds hereunder, and shall survive the termination or cancellation of this Agreement.

Section 22. Miscellaneous. (a) Except as otherwise specifically provided in this Agreement, all notices, demands and formal actions under this Agreement shall be in writing and mailed, telegraphed or delivered to:

The Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5^th Floor

New York, New York 10013

Attention: Kevin Stowe

The Company:

El Paso Electric Company

100 North Stanton

El Paso, Texas 79901

Attention: Secretary

The Tender Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

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The Issuer:

City of Farmington

City Hall

800 Municipal Drive

Farmington, New Mexico 87401

Attention: City Treasurer

Attention: President

The Trustee:

Union Bank of California, N.A.

120 S. San Pedro Street, 4^th Floor

Los Angeles, CA 90012

Attention: Corporate Trust Department

The Agent, the Company, the Trustee, the Tender Agent, the Issuer and the Bank may, by notice given under this Agreement, designate other addresses to which subsequent notices, requests, reports or other communications shall be directed.

(b) This Agreement will inure to the benefit of and be binding upon the Company and the Agent and their respective successors and assigns, and will not confer any rights upon any other person, partnership, association or corporation other than persons, if any, controlling the Company and the Agent to the extent provided in Section 7 hereof. The terms “successors” and “assigns” shall not include any purchaser of any of the Bonds merely because of such purchase.

(c) All of the representations, warranties and covenants of the Company and the Agent in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of the Agent or the Company, (ii) delivery of and any payment for any Bonds hereunder or (iii) termination or cancellation of this Agreement.

(d) Section headings have been inserted in this Agreement as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Agreement and will not be used in the interpretation of any provisions of this Agreement.

(e) If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatever.

(f) This Agreement may be executed in several counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same document.

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(g) The principal office of the Agent is hereby designated to be that office set forth in subsection (a) above.

(h) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

(i) The Agent will not be liable to the Company on account of the failure of any person to whom the Agent has sold a Bond to pay for such Bond or to deliver any document in respect of the sale.

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EX-4.44

EXHIBIT 4.44

Appendix 1 to the Tender Agreement

REMARKETING AGREEMENT

THIS REMARKETING AGREEMENT is dated as of August 1, 2005 (the “Agreement”), between EL PASO ELECTRIC COMPANY, a Texas corporation (the “Company”) and CITIGROUP GLOBAL MARKETS INC. (the “Agent”).

W I T N E S S E T H :

WHEREAS, the Agent, the Company and the City of Farmington, New Mexico (the “City”), have agreed for the Agent to act as exclusive remarketing agent on behalf of the Company in connection with the offering and sale from time to time in the secondary market of $33,300,000 principal amount of the City of Farmington, New Mexico, Pollution Control Revenue Refunding Bonds, 2002 Series A (El Paso Electric Company Four Corners Project) due June 1, 2032 (the “Bonds”) and to determine the interest rate necessary to remarket the Bonds in accordance with and pursuant to the City’s Ordinance No. 2002-1134 adopted by the City on July 9, 2002 (“Ordinance No. 2002-1134”), as supplemented by Resolution No. 2002-1046 adopted by the City on July 23, 2002 (the “Resolution”, and together with Ordinance No. 2002-1134, (the “Ordinance”) and Union Bank of California, N.A. has accepted its appointment as trustee under the Ordinance (the “Trustee”) (All capitalized terms used herein and not defined herein shall have the meanings specified in the Ordinance);

WHEREAS, concurrently with the execution and delivery of this Agreement the Bonds will be remarketed by the Agent pursuant to the 2005 Remarketing Supplement (as hereinafter defined);

WHEREAS, concurrently with the execution and delivery of this Agreement, the Company is entering into a Tender Agreement, dated as of the date hereof (the “Tender Agreement”), with Citigroup Global Markets Inc., as tender agent;

NOW, THEREFORE, in consideration of the premises the parties hereto do hereby covenant and agree as follows:

Section 1. Appointment of Agent; Responsibilities of Agent.

(a) Subject to the terms and conditions herein contained, the Company, effective as of the date hereof, hereby appoints the Agent, and the Agent hereby accepts such appointment, as exclusive remarketing agent in connection with the offering and sale of the Bonds from time to time in the secondary market.

(b) The Agent hereby represents that it is a member of the National Association of Securities Dealers, Inc., and has a combined capital stock, surplus and undivided profits of at least $15,000,000 and is authorized by law to perform the duties imposed upon it by the Ordinance.

(c) The Agent accepts and assumes all the obligations, duties and rights of the remarketing agent under the Ordinance.

(d) The Agent’s responsibilities hereunder will include (i) the soliciting of purchases of Bonds from investors able to purchase municipal obligations, (ii) effecting and processing such purchases, (iii) billing and receiving payment for Bonds purchased, (iv) causing the proceeds from the secondary sale of the Bonds to be transferred to the Tender Agent or the Trustee, as the case may be, (v) keeping such books and records as shall be consistent with prudent industry practice and making such books and records available for inspection by the Issuer, the Trustee, the Tender Agent and the Company at all reasonable times and (vi) performing such other related functions as may be requested by the Company and agreed to by the Agent.

(e) In connection with the performance of the foregoing responsibilities, the Agent further agrees to hold all moneys delivered to it hereunder for the purchase of Bonds as agent and bailee of, and in escrow for the benefit of, the person or entity which shall have so delivered such moneys.

Section 2. Furnishing of Offering Materials . (a) The Company agrees to furnish the Agent with as many copies as the Agent may reasonably request of (i) the Remarketing Supplement, dated July 27, 2005, (including all appendices thereto) describing the Bonds (as amended and supplemented, the “2005 Remarketing Supplement”), (ii) each document or report relating to the Company which has been filed with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), subsequent to the date of the 2005 Remarketing Supplement (an “SEC Report”), (iii) an annual remarketing supplement to the 2005 Remarketing Supplement if requested by the Agent or such other disclosure document that may be used in connection with the remarketing of the Bonds by the Agent, and (iv) such other information with respect to the Company and the Bonds as the Agent shall reasonably request from time to time.

(b) If, at any time during the term of this Agreement, any event known to the Company relating to or affecting the Company, the Ordinance, the Amended and Restated Installment Sale Agreement dated as of August 1, 2002, between the Issuer and the Company (the “Loan Agreement”), the Tender Agreement or the Bonds shall occur which might affect the correctness or completeness of any statement of a material fact contained in the 2005 Remarketing Supplement, any supplement thereto or any SEC Report, the Company will promptly notify the Agent in writing of the circumstances and details of such event.

Section 3. Representations, Warranties, Covenants and Agreements of the Company. The Company represents, warrants, covenants, and agrees with the Agent as follows:

(a) The Company has been duly incorporated and is in good standing under the laws of the State of Texas, has corporate power and authority to own its properties and to conduct its business and possesses all material licenses and approvals necessary for the conduct of its business and the Company is duly qualified to do business and is in good standing as a foreign corporation in the States of New Mexico and Arizona;

(b) The Company has full power and authority to take all actions required or permitted to be taken by it by or under, and to perform and observe the covenants and agreements on its part contained in, this Agreement, the Tender Agreement, the Loan Agreement, the Continuing Disclosure Agreement with respect to the Bonds dated as of August 1, 2005 (the “Continuing Disclosure Agreement”) and any other instrument or agreement relating thereto to which it is a party;

(c) The Company has, on or before the date hereof, duly taken all action necessary to be taken by it prior to such date for: (i) the execution, delivery and performance of this Agreement, the Tender Agreement, the Loan Agreement, the Continuing Disclosure Agreement and any other instrument or agreement to which it is a party and which has been or will be executed in connection with the transactions contemplated by the foregoing documents, and (ii) the carrying out, giving effect to, consummation and performance of the transactions and obligations contemplated hereby and by the 2005 Remarketing Supplement; provided, that no representation is made with respect to compliance with the securities or “Blue Sky” laws of the various states of the United States;

(d) This Agreement, the Loan Agreement, the Tender Agreement, the Continuing Disclosure Agreement and any other instrument or agreement to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents, when duly and validly executed and delivered by the parties hereto and thereto, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws, judicial decisions or principles of equity relating to or affecting the enforcement of creditors’ rights or contractual obligations generally;

(e) The execution and delivery of this Agreement, the Loan Agreement, the Tender Agreement, the Continuing Disclosure Agreement and any other instrument or agreement to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents, the compliance with the terms, conditions or provisions hereof and thereof, and the consummation of the transactions herein and therein contemplated did not upon the date of execution and delivery thereof and will not violate any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality applicable to the Company, or result in a breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company pursuant to the terms of its Articles of Incorporation or By-laws, or any mortgage, Ordinance, agreement or instrument to which the Company is a party or by which it or any of its properties is bound;

(f) All authorizations, consents and approvals of, notices to, registrations or filings with, or actions in respect of any governmental body, agency or other instrumentality or court required in connection with the execution, delivery and performance by the Company of

this Agreement, the Tender Agreement, the Continuing Disclosure Agreement, the Loan Agreement and any other agreement or instrument to which the Company is a party and which has been or will be executed in connection with the consummation of the transactions contemplated by the foregoing documents have been obtained, given or taken and are in full force and effect, provided that no representation is made with respect to compliance with the securities or “Blue Sky” laws of the various states of the United States;

(g) Except as described in the 2005 Remarketing Supplement or any SEC Report, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company wherein an unfavorable decision, ruling or finding would have a material adverse effect on the properties, business, condition (financial or other) or results of operations of the Company or the transactions contemplated by this Agreement or by the 2005 Remarketing Supplement or which would materially adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement, the Loan Agreement, the Tender Agreement, the Continuing Disclosure Agreement or any other agreement or instrument to which the Company is a party and which is used or contemplated for use in consummation of the transactions contemplated by this Agreement or the 2005 Remarketing Supplement.

(h) The Company is not in violation of any provision of its Articles of Incorporation or By-laws;

(i) The Company will not take or omit to take any action which action or omission would in any way cause the interest on the Bonds to be subject to Federal income tax under the Code;

(j) The Company will cooperate with the Agent in the qualification of the Bonds for offering and sale and the determination of the eligibility of the Bonds for investment under the laws of such jurisdictions as the Agent shall designate and will use its best efforts to continue any such qualification in effect so long as required for the distribution of the Bonds by the Agent, provided that the Company shall not be required to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. It is understood that the Company shall not be responsible for compliance with or the consequences of failure to comply with applicable state securities or “Blue Sky” laws;

(k) The information contained in the 2005 Remarketing Supplement and each SEC Report as of the date on which the 2005 Remarketing Supplement or SEC Report was or will be furnished to the Agent, did not and will not contain any untrue statement of a material fact and will not omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No representation is made in this subsection (k), however, with respect to any information furnished in writing to the Company by or on behalf of the Agent specifically for inclusion in the 2005 Remarketing Supplement;

(l) The documents incorporated by reference in the 2005 Remarketing Supplement have been prepared by the Company in conformity with the requirements of the Exchange Act and the rules and regulations thereunder and such documents have been timely filed as required thereby; and

(m) Any certificate signed by any authorized officer or officers of the Company and delivered to the Agent shall be deemed a representation by the Company to the Agent as to the statements made therein.

Section 4. Conditions to Agent’s Obligations. The obligations of the Agent under this Agreement have been undertaken in reliance on, and shall be subject to, the due performance by the Company of its obligations and agreements to be performed hereunder and to the accuracy of and compliance with the representations, warranties, covenants and agreements of the Company contained herein, in each case on and as of the date of delivery of this Agreement and on and as of each date on which Bonds are to be offered and sold pursuant to this Agreement. The obligations of the Agent hereunder with respect to each date on which Bonds are to be offered and sold pursuant to this Agreement are also subject, in the discretion of the Agent, to the following further conditions:

(a) The Ordinance, the Loan Agreement, the Tender Agreement and the Continuing Disclosure Agreement shall be in full force and effect and shall not have been amended, modified or supplemented in any way which would materially and adversely affect the Bonds, except as may have been agreed to in writing by the Agent, and there shall be in full force and effect such additional resolutions, agreements, certificates (including such certificates as may be required by regulations of the Internal Revenue Service in order to establish the tax-exempt character of interest on the Bonds) and opinions as shall be necessary to effect a secondary remarketing of the Bonds in the manner contemplated by this Agreement, which resolutions, agreements, certificates and opinions, at the request of the Agent, shall be satisfactory in form and substance to Pillsbury Winthrop Shaw Pittman LLP., bond counsel to the Issuer, or Pillsbury Winthrop Shaw Pittman LLP, counsel to the Agent; and

(b) There shall have been no material adverse change in the properties, business, condition (financial or other) or results of operations of the Company since the date of the 2005 Remarketing Supplement or any supplement thereto relating to the Bonds being offered on such date, and no Event of Default under Section 10.01 (a)(i), (ii), (iii), (iv), (v), (vi) or (vii) of the Ordinance, shall have occurred and be continuing and no event shall have occurred and be continuing which, with the passage of time or giving of notice or both, would constitute such an Event of Default and the Agent shall receive such certificates, accountants’ letters and opinions of counsel as it shall reasonably request in connection with the remarketing of the Bonds.

Section 5. Term and Termination of Remarketing Agreement. This Agreement shall become effective upon execution by the Agent and the Company and shall continue in full force and effect until all of the Bonds have either matured or have been retired, subject to the right of the Agent to resign and the right of the Company to remove the Agent, as provided in Section 14.02(a) of the Ordinance.

In the event of the resignation or removal of the Agent, the Agent shall pay over, assign and deliver any moneys and Bonds held by it in such capacity to its successor or, if there be no successor, to the Trustee.

Section 6. Payment of Fees and Expenses. In consideration of the services to be performed by the Agent under this Agreement, the Company agrees to pay to the Agent such fees as the Company and the Agent agree to in writing from time to time.

Section 7. Indemnification. (a) The Company agrees to indemnify and hold harmless Citigroup Global Markets Inc., as the Agent hereunder and as the Tender Agent under the Tender Agreement (“Citigroup”) and each of its officers, directors and employees and each person who controls Citigroup within the meaning of Section 15 of the Securities Act of 1933, as amended (the “Act”) (collectively, the “Indemnified Persons” and individually, an “Indemnified Person”) from and against any losses, claims, damages or liabilities to which any Indemnified Person may become subject under any statute or at law or in equity or otherwise, and shall reimburse any such Indemnified Person for any legal or other expenses incurred by it in connection with investigating any claim against it and defending any action, but only to the extent that such losses, claims, damages or liabilities (or actions in respect thereof) arise out of, or are based upon, (i) an allegation or determination that the Bonds, the obligations of the Company under the Loan Agreement, this Agreement or the Tender Agreement should have been registered under the Act or the Ordinance should have been qualified under the Trust Indenture Act of 1939, as amended, (ii) an allegation or determination of negligence or wrongdoing in connection with Citigroup’s performance of its duties under this Agreement, the Tender Agreement or the Ordinance, or (iii) any untrue statement or alleged untrue statement of a material fact contained in any document referred to in Section 2 hereof (a “Disclosure Statement”) or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, provided, however, the indemnity of the Company provided by this Section 7 shall not extend to or cover, and the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by Citigroup specifically for inclusion therein. The Company shall not be liable under clause (ii) of the preceding sentence for Citigroup’s gross negligence or willful misconduct.

(b) An Indemnified Person shall, promptly after the receipt of notice of the commencement of any action against such Indemnified Person in respect of which indemnification may be sought against Citigroup or the Company, as the case may be (in either case the “Indemnifying Person”), notify the Indemnifying Person in writing of the commencement thereof. In case any such action shall be brought against any Indemnified Person, and such Indemnified Person shall notify the Indemnifying Person, the Indemnifying Person may, or if so requested by such Indemnified Person shall, participate in or assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Person, and after

notice from the Indemnifying Person to such Indemnified Person of its election so to assume the defense thereof, such Indemnified Person shall reasonably cooperate in the defense thereof, including without limitation, the settlement of outstanding claims, and the Indemnifying Person shall not be liable to such Indemnified Person under this Section 7 for any legal or other expenses subsequently incurred by such Indemnified Person in connection with the defense thereof other than reasonable costs of any investigation; provided, however, that if the named parties to any such action (including any impleaded parties) include both an Indemnified Person and the Company, and the Indemnified Person shall have reasonably concluded that there may be one or more legal defenses available to it which are different from or additional to and conflict with those available to the Company, the Indemnified Person shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of the Indemnified Person; provided further, however, that (i) the Indemnifying Person shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to local counsel) at any one time for an Indemnified Person and its officers, directors and employees and all other persons so controlling such Indemnified Person and (ii) the Indemnifying Person shall not be liable for any settlement of any such claim or action effected without its written consent. Any obligation under this Section of an Indemnifying Person to reimburse an Indemnified Person for expenses include the obligation to make advances to the Indemnified Person to cover such expenses in reasonable amounts and at reasonable periodic intervals not more often than monthly as requested by the Indemnified Person.

(c) Citigroup agrees to indemnify and hold harmless the Company, its directors and officers to the same extent as the indemnity from the Company to the Indemnified Persons described in subsection (a) of this Section but only with respect to any untrue statement or alleged untrue statement, omission or alleged omission which has been included in the 2005 Remarketing Supplement and any supplement thereto, or omitted therefrom, in reliance upon and in conformity with information furnished in writing to the Company by Citigroup expressly for use therein. The Company and Citigroup agree that any statement set forth in the 2005 Remarketing Supplement and any supplement thereto furnished in writing by Citigroup for inclusion therein shall be contained in a section entitled “Underwriting” and that Citigroup’s indemnification pursuant to this paragraph (c) shall be limited to such section. In case any action shall be brought against the Company in respect of which indemnity may be sought against Citigroup, Citigroup shall have the rights and duties given to the Company, and the Company shall have the rights and duties given to the Indemnified Persons, by subsections (a) and (b) of this Section. The indemnity agreement in this subsection (c) shall be in addition to any liability which Citigroup may otherwise have to the Company and shall extend upon the same terms and conditions to each person, if any, who controls the Company within the meaning of the Act.

(d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in paragraph (a) of this Section 7 is due in accordance with its terms but is for any reason held by a court to be unavailable from the Company on grounds of policy or otherwise, the Company and Citigroup shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) to which the Company and Citigroup may be subject in such proportion as is appropriate to reflect the relative benefits received by the

Company on the one hand and Citigroup on the other from the remarketing of the Bonds. The relative benefits received by the Company on the one hand and Citigroup on the other shall be deemed to be in the same proportion as the aggregate principal amount of the Bonds remarketed pursuant to this Agreement bear to the total remarketing fees received by Citigroup; provided, however, that (i) in no case shall Citigroup be responsible for any amount in excess of such fee applicable to the Bonds remarketed by Citigroup and (ii) no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Act shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person who controls Citigroup within the meaning of Section 15 of the Act shall have the same rights as Citigroup. Any party entitled to contribution shall, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this paragraph (d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this paragraph (d) unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the party or parties from whom contribution may be sought.

(e) The indemnity and contribution agreements contained in this Section 7 shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of Citigroup or the Company, or the delivery of and any payment for any Bonds hereunder, and shall survive the termination or cancellation of this Agreement.

Section 8. Miscellaneous. (a) Except as otherwise specifically provided in this Agreement, all notices, demands and formal actions under this Agreement shall be in writing and mailed, telegraphed or delivered to:

The Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5^th Floor

New York, New York 10013

Attention: Kevin Stowe

The Company:

El Paso Electric Company

100 North Stanton

El Paso, Texas 79901

Attention: Secretary

The Tender Agent:

Citigroup Global Markets Inc.

390 Greenwich Street, 5th Floor

New York, New York 10013

Attention: Kevin Stowe

The Issuer:

City of Farmington

City Hall

800 Municipal Drive

Farmington, New Mexico 87401

Attention: City Treasurer

Attention: President

The Trustee:

Union Bank of California, N.A.

120 S. San Pedro Street, 4^th Floor

Los Angeles, CA 90012

Attention: Corporate Trust Department

The Agent, the Company, the Trustee, the Tender Agent, the Issuer and the Bank may, by notice given under this Agreement, designate other addresses to which subsequent notices, requests, reports or other communications shall be directed.

(b) This Agreement will inure to the benefit of and be binding upon the Company and the Agent and their respective successors and assigns, and will not confer any rights upon any other person, partnership, association or corporation other than persons, if any, controlling the Company and the Agent to the extent provided in Section 7 hereof. The terms “successors” and “assigns” shall not include any purchaser of any of the Bonds merely because of such purchase.

(c) All of the representations, warranties and covenants of the Company and the Agent in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of the Agent or the Company, (ii) delivery of and any payment for any Bonds hereunder or (iii) termination or cancellation of this Agreement.

(d) Section headings have been inserted in this Agreement as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Agreement and will not be used in the interpretation of any provisions of this Agreement.

(e) If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatever.

(f) This Agreement may be executed in several counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same document.

(g) The principal office of the Agent is hereby designated to be that office set forth in subsection (a) above.

(h) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

(i) The Agent will not be liable to the Company on account of the failure of any person to whom the Agent has sold a Bond to pay for such Bond or to deliver any document in respect of the sale.

EX-10.05

Exhibit 10.05

RATE AGREEMENT

THIS RATE AGREEMENT (this “Agreement”) is entered into by and between the City of El Paso (the “City”) and El Paso Electric Company, a Texas corporation (the “Company”) effective for all purposes as of July 1, 2005 (the “Effective Date”).

RECITALS:

WHEREAS, on July 27, 1995, the Company, the City and others entered into a Stipulation and Settlement Agreement (the “1995 Stipulation”) in Docket No. 12700, Application of El Paso Electric Company for Authority to Change Rates and for Approval of Reacquisition of Palo Verde Leased Assets;

WHEREAS, on August 30, 1995, the Public Utility Commission of Texas (“the Commission”) issued an Agreed Order approving the terms of the 1995 Stipulation;

WHEREAS, the 1995 Rate Freeze:

• gave the Company and its customers ten (10) years of rate stability and predictability;

• allowed the Company to reduce the cost of fuel to its customers by over Eighty Eight Million Dollars ($88,000,000) due to the sharing of profits from off-system sales;

• led to the voluntary reduction of the Company’s base rates by about Fifteen Million Four Hundred Thousand Dollars ($15,400,000) per year, for a total reduction of approximately One Hundred Million Dollars ($100,000,000) in rates paid by its customers since 1999;

• restored the financial health of the Company, as evidenced by its investment-grade credit rating;

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• enhanced the Company’s ability to support local civic and charitable programs;

• allowed the Company to invest over Four Hundred Sixty Million Dollars ($460,000,000) in infrastructure, resulting in a high level of reliability and customer service; and

• substantially reduced the need for long and costly regulatory proceedings;

WHEREAS, on March 22, 1999, the Company, the City and others entered into a “Stipulation Resolving All Issues Related to Fuel Reconciliation and Certain Voluntary Base Rate Reductions and Refunds” (“1999 Stipulation”) in Docket No. 20450, Application of El Paso Electric Company to Reconcile Fuel and Fuel-related Revenues and Implement Certain Voluntary Base Rate Reductions and Refunds, which led to the previously noted Fifteen Million Four Hundred Thousand Dollars ($15,400,000) base rate reduction;

WHEREAS, the Commission approved the 1999 Stipulation on June 8, 1999;

WHEREAS, on June 22, 2004, the El Paso City Council approved a resolution supporting a delay of retail competition for the Company;

WHEREAS, on July 27, 2004, the El Paso City Council decided not to exercise the option to purchase contained in Section 13 of the Company’s Franchise Ordinance No. 012539;

WHEREAS, by order dated October 18, 2004 in Project No. 28971, PUC Evaluation of the Readiness of the El Paso Area for Retail Competition in Electricity, the Commission determined that the power region in which the Company is located is unable at this time to offer fair competition and reliable service to all its Texas retail customer classes;

WHEREAS, the Signatories recognize the desirability of continuing the mutual benefits of the 1995 and 1999 Stipulations, including:

• future rate stability;

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• fair cost-based rates;

• reduced fuel costs with the sharing of profits from off-system sales;

• continued improvement in the Company’s financial health;

• expanded participation by the Company in local civic and charitable activities;

• additional investment by the Company in its delivery systems so that it can maintain a high quality of service;

• replacement of old local generation with new, more efficient facilities;

• the opportunity to work together for the betterment of the community;

• recognition of the inevitable interdependence that exists between the economic health of the community and one of its largest companies; and

• coordination with El Paso Water Utilities to improve water conservation efforts in the City;

WHEREAS, it is in the public interest to provide for cost-based rates which permit the Company a reasonable opportunity to earn a reasonable return on the Company’s invested capital used and useful in providing service to the public in excess of the Company’s reasonable and necessary operating expenses; and

WHEREAS, resolution on a stipulated basis of the matters set forth herein would conserve resources, avoid the uncertainties inherent in future litigation, and reduce rate case expenses now and in the future.

AGREEMENT:

NOW, THEREFORE, in consideration of the mutual agreements and covenants herein contained, the parties (the “Signatories”) to this Agreement, through their undersigned authorized representatives, stipulate and agree as follows:

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1.	(a)	Subject to the terms of this Agreement, and notwithstanding any language to the contrary in the present or any future franchise agreement between the Company and the City, the Company’s existing Texas base rates will remain in effect for five (5) years (the “New Rate Freeze”) starting July 1, 2005 and ending June 30, 2010 (the “New Freeze Period”) except for customers taking service under the following tariffs: rate classes 15, 26, 27, 29, 30, 31 and 38 (the “Exempt Classes”) as to which this New Rate Freeze does not apply and for whom rates may be decreased or increased in accordance with applicable contracts and law during the New Freeze Period. Ninety (90) days prior to June 30, 2010 or ninety (90) days prior to the expiration of a subsequently agreed upon freeze period, the Company, if it desires to extend this Agreement, shall give notice of its intent to extend for an additional five (5)-year period. Unless approved in writing by the City on or before the expiration date, this Agreement shall expire automatically without further action by the Company or City. Except for the Exempt Classes, the Company agrees during the New Freeze Period not to increase base rates for any reason save and except for an event of Force Majeure (as defined in Paragraph 1(c) hereof) or as provided in Paragraphs 1(d)(i),(ii) and (iii). If it has not otherwise expired, the New Freeze Period will end upon the commencement of retail competition in the Company’s Texas service area for all rate classes subject to the New Rate Freeze.
	(b)	During the New Freeze Period, and to the extent consistent with the freeze level, the Company may make filings that: (i) modify tariffs, riders and terms and conditions while not increasing Texas retail base rate revenues for any customer class subject to the rate freeze; provided, however, for any customer class subject to the rate freeze

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	such modifications may neither exclude customers currently on the rate schedule nor force a customer to be moved to another rate class, (ii) add or modify tariffs, riders, and terms and conditions to address competitive conditions or secure additional load or (iii) change fixed fuel factors or otherwise provide for the recovery of fuel costs and the disposition of fuel over-recoveries and under-recoveries. Miscellaneous tariff filings, such as for incentive and load retention rates or special services, are not subject to the rate freeze, so long as there is no increase to the Texas retail tariffs charged any rate class subject to the rate freeze. Nothing in this Paragraph shall be construed as a predetermination of the appropriate ratemaking treatment of any such changes.
(c)	Except as otherwise provided in Paragraphs 1(d)(i), (ii) and (iii), neither the Company nor any successor in interest or assignee may request from its Texas regulatory authorities an increase in base rates above the freeze level with an effective date prior to the expiration of the New Freeze Period, except to address an event of Force Majeure. The term “Force Majeure” as used in this Agreement shall be limited to the effect of a natural disaster, act of war or act of God. The Company agrees to bind its successors or assignees to the terms of this Agreement.
(d)	(i) Subject to the provisions of Paragraph 1(f), the Signatories agree that if, during the New Freeze Period, the fuel factor or fuel reconciliation process should be changed or eliminated in Texas, they will implement the fuel cost recovery mechanism as authorized by law or rule. In the absence of such a law or rule, the Signatories will devise a mechanism to allow the Company to recover reasonable

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and necessary fuel costs that it would otherwise have been allowed to recover through the fuel factor or fuel reconciliation process.

(ii) The Signatories recognize that the Federal Energy Regulatory Commission (“FERC”), or other regulatory authority with jurisdiction may require the unbundling of utility services by utilities subject to its jurisdiction, including the Company. The components of the rates to the Company’s customers covered by this Agreement will be set at levels which will collect neither more nor less than the base rates established pursuant to this Agreement notwithstanding the unbundling.

(iii) If, for any year during the New Freeze Period, the Company’s return on equity (defined as the Company’s net income before discontinued operations, extraordinary items, and cumulative effects of a change in accounting principle, divided by average common stock equity adjusted in that year for discontinued operations, extraordinary items and cumulative effects of a change in accounting principle, as reported in the Company’s Form 10-K Annual Report filed with the Securities and Exchange Commission (“SEC”)) shall fall within the agreed Deadband defined herein, then no Signatory to this Agreement may request a change in base rates. Average common stock equity shall mean the beginning and ending balance divided by two. Adjustments for discontinued operations, extraordinary items and cumulative effects of a change in accounting principles shall not be carried over into the following year’s common equity balance, but rather the beginning balance will reflect the Generally Accepted Accounting Principles value as reflected on the balance sheet. If, during the New Freeze Period, the Company’s return on equity falls outside the agreed Deadband, the Signatories’ sole remedies

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are those set out in the remainder of this subsection. If during the New Freeze Period, the Company’s return on equity shall fall below the floor of the Deadband, and is calculated to remain below the floor, the Company may file for a rate increase. If, during the New Freeze Period, the Company’s annual return on equity shall exceed the ceiling of the Deadband, the Company shall return to the City or ratepayers as directed by the City Council fifty percent (50%) of the City-jurisdictional (calculated by taking the ratio of the Company’s gross revenues within the City of El Paso to the Company’s total gross revenues) pre-tax return above the ceiling in the form of an additional franchise fee payment for that year (the “Supplemental Franchise Fee”). The Supplemental Franchise Fee payment shall be made no later than forty-five (45) days after the filing of the Company’s SEC Form 10-K Annual Report with the SEC. The Company shall continue to calculate and pay a Supplemental Franchise Fee for each year of the New Freeze Period that the Company’s return on equity exceeds the Deadband ceiling. Payments that accrue from New Freeze Period years of less than twelve (12) months shall be prorated. Any change to the Supplemental Franchise Fee resulting from amendments to the SEC Form 10-K will be passed through or collected from the City, as appropriate.

(iv) The “Deadband” referred to above shall be calculated annually at the time of filing of the Company’s SEC Form 10-K. The midpoint of the Deadband shall be defined as four hundred (400) basis points above the 12-month Moody’s Public Utility Bond Yield average for utilities of comparable credit quality during the Supplemental Franchise Fee payment period. The ceiling of the Deadband will then

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	be calculated as two hundred (200) basis points above the midpoint and the floor as two hundred (200) basis points below the midpoint.
(e)	(i) Subject to Paragraphs 1(e)(iii) and 1(f), the Signatories agree not to seek to institute or institute on their own motion during the New Freeze Period an inquiry into the reasonableness of the Company’s rates. If a complaint is filed with the Commission or any other Texas regulatory authority requesting an inquiry into the reasonableness of the Company’s rates, and the Commission or any other regulatory authority institutes such an inquiry, the Signatories commit to support the provisions of this Agreement. In the course of any such proceeding, the Company shall be entitled to defend against a rate reduction in any manner it deems appropriate and recovery of its rate case expenses shall not be a violation of this Agreement. Without limiting the right of any Signatory to enforce this Agreement, including the right to seek extraordinary relief, the City agrees to forego the recovery of its rate case expenses if it initiates a proceeding to reduce the Company’s base rates. If the Company’s response to a request to reduce rates is to maintain the frozen rates under this Agreement, the City agrees to support the Company in maintaining the existing rate level. In such case, the Company shall reimburse the City its reasonable expenses. If in such a proceeding the Company seeks to raise the rate level, then the City may support a rate reduction and the Company shall reimburse the City for its reasonable expenses.
	(ii) All Signatories understand and agree that the current level of base rates reflected in the Company’s approved tariffs and adopted in this Agreement is designed to fully recover the Company’s cost of service during the New Freeze

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	Period, and that during the New Freeze Period the Company’s base rates for rate classes subject to the freeze will not be changed except as provided by the terms of this Agreement. The Company has given valuable consideration, and assumed substantial business risks, in exchange for the expectation hereunder that its base rates for rate classes subject to the freeze will not be reduced during the New Freeze Period.
	(iii) During the first twelve (12) months of this Agreement, the City may select one of the “Big Four” Accounting Firms not being used by the Company to determine whether the Company’s operating expenses are within a reasonable range as compared to the utility industry. If said operating expenses are deemed reasonable, then this Agreement shall continue in full force and effect. If said operating expenses are deemed unreasonable, then the Company and the City will agree on a remedy, or this Agreement will expire at the end of the twelve (12) month period. The Company agrees to reimburse all expenses incurred by the City in connection with this evaluation. If this Agreement terminates pursuant to this paragraph, either party is free to exercise its rights under the Public Utility Regulatory Act. During any proceeding, the parties agree that the rates and fuel treatment will remain in effect until changed pursuant to a PUCT order.
(f)	During the New Freeze Period the Company and its customers in Texas will be protected from the effects of transactions that shift costs between base rates and fuel or to other rates not subject to the freeze. During the New Freeze Period, the only costs that may be recovered from Texas ratepayers other than through base rates are those costs recovered as reconcilable fuel costs according to the Commission’s

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substantive rules in effect on July 1, 1995 (as applied to the Company) and in this Agreement. The recovery of any other costs through the fuel factor, any other special factor, or surcharge shall be considered a shift in costs between base rates and fuel. If any Signatory believes that the Company has engaged in a transaction that is inconsistent with the foregoing intent, such Signatory shall provide notice to the Company of the alleged violation of this Paragraph. If the Company does not cure the alleged violation within thirty (30) days of the receipt of such notice, a Signatory may initiate a complaint with the appropriate regulatory authority to recover any and all additional costs charged or to be charged to customers on account of the violation. The Signatories agree that the Company’s regulatory authorities have primary jurisdiction over such matters and that the appropriate forum for such a determination is a proceeding at the appropriate regulatory authority, subject to appeal, including as allowed by law de novo appeal to the Commission, for the limited purpose of adjusting the fuel factor, fuel balance and/or reducing base rates by the amount so shifted. If the regulatory authority does not have jurisdiction, the parties agree that venue lies in the state district court in El Paso County, Texas.

(g)

In the event the Company sells, transfers, leases or assigns any Texas jurisdictional operating asset for a value of Thirty Million Dollars ($30,000,000) or more during the New Freeze Period, unless the City and Company otherwise agree, the Texas jurisdictional share of the net after-tax gain on such sale shall be paid to ratepayers as a credit to the base rates over what would have been the remaining life of the asset. Ratepayers will be credited with a “return” on the unamortized portion of

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such gain based on the Company’s last calculated midpoint of the Deadband. This provision does not apply to a sale, transfer, lease or assignment to a wholly-owned subsidiary of the Company or any of its subsidiaries or to a governmental entity, so long as the asset remains dedicated to public service in the El Paso service area. It also does not apply to any sale, transfer, lease or assignment required by statute or regulatory authority order, so long as the asset remains dedicated to public service.

2. The Signatories hereby establish a refrigerated air conditioning rate rider to be effective upon satisfaction of Paragraph 6 below for the purpose of water conservation (Attachment A).

3. The Company agrees to review rate schedules 2 (small commercial service) and 24 (general service) as they apply to small commercial customers and develop, by October 31, 2005, a rate rider that, through rate design, more effectively transitions small commercial customers from the two rate classes.

4. The Company agrees, subject to any and all required governmental approvals, to build or have built its next generation facility within the city limits of El Paso. The Signatories agree to file a letter or brief supporting the requests for such approvals and agree that such new generation will be used and useful in serving the Company’s customers and will be included in the Company’s rate base at its original cost. The City’s reasonable expenses in filing such letter or brief will be reimbursed by the Company. Any additional support or participation by any Signatory will be the result of mutual agreement. No post-commercial operation date costs will be deferred during Rate Freeze Period.

5. The performance standards currently in effect for the Company with respect to Palo Verde will be used as the mechanism for any future assessments of Palo Verde Unit 1, 2 and 3

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operations and performance. Any penalties or rewards accruing under the performance standards will be incorporated in the Company’s fuel reconciliation proceedings during the New Freeze Period. Further, during the New Freeze Period, the Company’s base rates will not be reduced below the freeze level on account of Palo Verde performance or operations, unless the capacity factor, as measured on a station basis for any consecutive twenty-four (24) month period, shall fall below thirty-five percent (35%). In the event that the foregoing should occur, the Signatories shall be free to urge whatever rate base adjustment they believe is appropriate.

6. The revenues from the Company’s providing wheeling service and from margins on off-system sales (other than those off-system sales allocated a full slice of system costs) made by the Company, its affiliates or subsidiaries, will be divided as follows during the New Freeze Period: The Company shall retain seventy-five percent (75%) of the margins and wheeling revenues and the ratepayers shall be credited with the remaining twenty-five percent (25%) of the margins and wheeling revenues. Margins shall mean revenues from any capacity, demand or non-fuel energy charge included in an off-system sale of electricity net of any charges such as wheeling charges or capacity purchases incurred by the Company in connection with making the off-system sale.

The mechanism for sharing margins and wheeling revenues will be in the fuel factor and fuel reconciliation process. If, during the course of the New Freeze Period or any time prior to a reconciliation of margins through the end of the New Freeze Period, the fuel factor or fuel reconciliation process should be eliminated, the Company agrees to devise a mechanism to reduce rates by the appropriate customer share of such margins.

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The Signatories agree to use their best efforts to obtain Commission approval of the margin sharing mechanism. If the Commission fails to approve the margin sharing percentage or mechanism, the Signatories agree to negotiate in good faith to achieve a resolution similar in economic impact on all Signatories.

7. The Signatories agree that the amounts of decommissioning expense in the Company’s cost of service are described in a schedule attached hereto as Attachment B. Such amounts shall be adjusted in any future rate proceeding or earnings monitoring report as necessary to reflect the cost estimate of the most recent official decommissioning study prepared for the Palo Verde participants and to enable the Company to secure an exemption pursuant to § 468A of the Internal Revenue Code of 1986, as amended, from federal income tax liability in connection with its nuclear decommissioning trust. The Company agrees to fund such amounts pursuant to its contractual obligations under the Arizona Nuclear Power Project Participation Agreement. Such decommissioning expense shall be recognized as a reasonable and necessary expense in any rate proceeding or earnings monitoring report initiated during the New Freeze Period and, during such period, no Signatory shall contest the inclusion of such amounts in the Company’s cost of service. During the New Freeze Period, the Signatories’ intent is to fully support the Company’s decommissioning expense and decommissioning funds such that the required contributions are tax deductible to the full extent allowed by law and the decommissioning funds are as adequately funded as they would have been had rates not been frozen. However, the Company agrees that as a result of this New Rate Freeze, the ratepayers shall be in no worse position than they would have been had rates not been frozen. At the conclusion of the New Freeze Period, any remaining costs associated with nuclear decommissioning obligations continue to be subject to cost of

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service rate regulation and shall be included either as an allowable expense in cost of service, or, in the event of retail competition, as a nonbypassable charge to retail customers.

8. During the New Freeze Period, the Company commits to spend an annual amount equal to at least three tenths percent (0.3%) of the Company’s City-jurisdictional gross revenues for charitable, civic or economic development purposes within the City.

9. The Company will make filings during and after the New Freeze Period to reconcile its fuel and purchased power costs incurred during the New Freeze Period in accordance with the Public Utility Regulatory Act (“PURA”) and Commission rules and procedures, subject to Paragraph 6 above.

10. In consideration of the rate freeze and other conditions of this Agreement, the Company agrees that it is not entitled to recover, and further agrees that it will not request recovery of, any expenditures for transmission infrastructure improvements or changes in wholesale transmission charges incurred during the term of this Agreement or any extension thereof to which Texas Utilities Code Sec. 36.209 (HB 989 signed June 18, 2005) would apply. Any costs to which Section 36.209 would apply are deemed recovered by other portions of this Agreement.

11. If the City Council does not grant the Company a franchise in substantially the same form as the draft Franchise Ordinance attached hereto as Attachment C within forty-five (45) days of the Effective Date, or if the Company shall not accept the franchise then the Company and the City may declare this Agreement null and void. If a new franchise is granted, it will become effective upon the expiration of the current franchise.

12. This Agreement is the result of an extended and highly complex course of negotiations among the Signatories. The entire Agreement should be viewed as a unitary, whole

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agreement, and not separate agreements on discrete issues. The resolution of each issue is interrelated to the resolution of all other issues. The Signatories understand and agree that each term of this Agreement is in consideration and support of every other term. As a result, the Agreement is indivisible because of the comprehensive nature of the compromises made.

13. This Agreement represents a fair, just and reasonable solution to the issues being resolved. Moreover, this Agreement will serve the purpose of moderating the rates of the Company in the Texas jurisdiction during the New Freeze Period and ensuring that the rates are designed to recover the Company’s Texas jurisdictional revenue requirements over the entirety of the New Freeze Period. By entering into this Agreement, none of the Signatories shall be deemed to have approved or acquiesced in any ratemaking principle, valuation methodology, method of cost-of-service determination, method of revenue calculation, or cost allocation or rate design principle underlying any of the provisions and agreements contained herein. It is the result of a unique fact situation, and its resolution is specific to the circumstances presented. This Agreement shall not prejudice, bind, or affect any Signatory, or be viewed as an admission, except to the extent necessary to give effect to or enforce the terms of this Agreement or unless otherwise specifically stated herein.

14. The Signatories agree that they will use their best efforts to obtain expeditious implementation of this Agreement. This Agreement assumes the legality of the treatments and methodologies set out herein. Should any such treatment or methodology be rejected or declared illegal by either the Commission or a court, any Signatory shall have the right to withdraw from this Agreement; however, the Signatories agree to negotiate in good faith to

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substitute a treatment or methodology with the same economic effect as that rejected or declared illegal.

15. The Signatories recognize that the Company will be free to engage in a merger or other business combination with a third party. In the event of a merger, the Signatories retain all the rights provided in this Agreement, as well as their rights as a party in a proceeding pursuant to PURA § 14.101, and their right to pursue a reduction in rates below the freeze level; provided however, that the right to pursue a reduction in rates shall be limited to urging rate reductions based on post-merger synergy savings. Nothing in this Paragraph shall be construed as a pre-determination of the appropriate ratemaking treatment of any such synergy-based reductions in cost.

16. Where this Stipulation requires a Signatory to “participate,” “support” or “urge” regulatory or judicial action, and where the Signatory is not a governmental body or agency, then such obligation shall be limited to no more than reasonable efforts involving minimal expense.

17. Unless the context otherwise indicates, references to ratemaking items including, but not limited to, rate base, expense, margin and gain, shall mean the Texas jurisdictional share of such items.

18. Each person executing this Agreement represents that (s)he is authorized to sign this Agreement on behalf of the party represented. Facsimile copies of signatures are valid for purposes of evidencing this Agreement. This Agreement may be executed in multiple counterparts.

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EXECUTED this 12th day of July, 2005.

CITY OF EL PASO		EL PASO ELECTRIC COMPANY
By:	/s/ John F. Cook	By:	/s/ Gary R. Hedrick
Name:	John F. Cook	Name:	Gary R. Hedrick
Title:	Mayor	Title:	President and Chief Executive Officer
APPROVED AS TO CONTENT:
By:	/s/ William F. Studer, Jr.
Name:	William F. Studer, Jr.
Title:	Deputy City Manager Financial Services
APPROVED AS TO FORM:
By:	/s/ Jorge Villegas
Name:	Jorge Villegas
Title:	Assistant City Attorney

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ATTACHMENT “A” TO THE

RATE AGREEMENT

(Air Cooling Rider)

EL PASO ELECTRIC COMPANY

SCHEDULE NO. 01

RESIDENTIAL SERVICE RATE

APPLICABILITY

This rate is applicable for all domestic purposes in single family residences or individually metered apartments. Service will be 120/240 volt, single phase, except that three-phase service may be provided for motors over 5 horsepower (HP) if economically feasible. Single or three-phase motors shall not exceed 10 HP individual capacity without the written approval of the Company.

TERRITORY

Texas Service Area

MONTHLY RATE

$4.50 Customer Charge plus

SUMMER BASE ENERGY RATE

$0.08027 per kilowatt-hour for all kilowatt-hours during the billing months of June through September.

NON-SUMMER BASE ENERGY RATE

$0.07527 per kilowatt-hour for all kilowatt-hours during the billing months of October through May.

ALTERNATE TIME-OF-USE RATE

This voluntary billing alternative will only be made available to residential customers. The residential customer must contract for this provision for a minimum of eighteen (18) months. The on-peak hours are 10:00 a.m. through 8:00 p.m., Mountain Standard Time, for weekdays of Monday through Friday. Off-peak hours are all other hours of the week not covered in the on-peak period plus weekends. This alternative is available only to the first 250 customers who sign up to take service under this alternative.

MONTHLY RATE

$6.00 Customer Charge plus

ON-PEAK BASE ENERGY RATE

$0.12517 for all on-peak KWH.

OFF-PEAK BASE ENERGY RATE

$0.04746 for all off-peak KWH.

Section Number             1	Revision Number 16
Sheet Number             4	Effective with energy consumed on or
Page                         1 of 5	after

EL PASO ELECTRIC COMPANY

SCHEDULE NO. 01

RESIDENTIAL SERVICE RATE

MONTHLY MINIMUM

Customer Charge

OFF-PEAK WATER HEATING RIDER

For domestic electric water heating service (swimming pool water heating and water heating utilized for space heating excluded). The service shall be metered on a circuit which shall include only water heating elements and excluded all other service.

Periods of electric supply service may be scheduled to conform to off-peak conditions of the Company’s system, the Company reserving the right to change the off-peak periods of supply to meet the changing off-peak conditions of its system. The Company, at it options, will furnish and connect to the customer’s wiring and retain ownership of a time switch or suitable device to regulate the hours of use.

Service under this schedule shall be limited to water heaters of thirty (30) gallons or more capacity. All water heaters will be controlled by a thermostat and if two or more heating elements are used, the water heater will be wired so that only one element will operate at one time. The minimum wattage of all heating elements shall total not less than 3,000 watts. Service may be limited where customer has an abnormally large connected load, and is only available as a secondary service in conjunction with a main service.

MONTHLY RATE FOR OFF-PEAK WATER HEATING

$1.00 Customer Charge plus

$0.04401 per kilowatt-hour for all kilowatt-hours.

MONTHLY MINIMUM FOR OFF-PEAK WATER HEATING

Customer Charge

Section Number             1	Revision Number 16
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Page                         2 of 5	after

EL PASO ELECTRIC COMPANY

SCHEDULE NO. 01

RESIDENTIAL SERVICE RATE

LOW INCOME RIDER

Upon qualification under the below defined criteria, the Customer Charge will not be applicable. All other charges (credits) and/or provisions of Schedule No. 01 will remain unchanged.

The Low Income Rider (“LIR”) is available to qualified residential customers who are identified by the Texas Department of Human Services (“TDHS”) client database as eligible to receive food stamps under the Federal Food Stamp Program. On a monthly basis, EPE will compare the names in its Texas customer database with those in TDHS’s client database. All matching customers will automatically be certified to receive the LIR. Once enrolled, customers will continue to receive the LIR until the date on which TDHS annually purges its client database. At that time, all customers who remain eligible to receive food stamps under the Federal Food Stamp Program will automatically be re-enrolled to receive the LIR for another year.

QUALIFIED WATER CONSERVATION AIR COOLING RIDER

Service under this Rider shall be available only to residential customers taking electric service within the City limits of El Paso. Residential customers qualify for service under this Rider by meeting either of the following requirements: 1) the customer has previously installed a refrigerative air cooling system meeting the requirements of the El Paso Water Utilities and El Paso Electric Company Joint Water Conservation Initiative Refrigerated Air Conditioning Program or 2), the customer has installed a refrigerative air cooling system after January 1, 2001 meeting or exceeding a Department of Energy (DOE) Seasonal Energy Efficiency Rating (SEER) factor of 12.

This Rate Rider is applicable only during the Company’s summer billing months of June through September.

WATER CONSERVATION AIR COOLING RIDER RATE

Kilowatt-hour consumption up to 1,000 kilowatt-hours will be billed at the SUMMER BASE ENERGY RATE OF $0.08027 per kilowatt-hour. All kilowatt-hours above 1,000 kilowatt-hours will be billed at $0.07527 per kilowatt-hour during the billing months of June through September.

FIXED FUEL FACTOR

The above rates are subject to the provisions of Company’s Tariff Schedule No. 98 entitled Fixed Fuel Factor.

Section Number             1	Revision Number 16
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Page                         3 of 5	after

EL PASO ELECTRIC COMPANY

SCHEDULE NO. 01

RESIDENTIAL SERVICE RATE

TERMS OF PAYMENT

The due date of the bill for utility service shall not be less than sixteen (16) days after issuance. A bill becomes delinquent if not received at the Company by the due date.

TERMS AND CONDITIONS

The Company’s Rules and Regulations apply to service under this schedule.

APPLICATION OF RESIDENTIAL SERVICE RATE

This rate is available only under the following conditions:

1. For a single household or single family for domestic purposes in individual private residences or individually metered apartments.

2. For separately metered living quarters recognized as single-family living quarters for domestic home use.

3. Service under this rate shall include home lighting and residential power for operation of household appliances.

4. Single-phase motors for domestic use may not exceed 10 HP without the written approval of the Company. The use of all single-phase motors over 5 HP must be approved by the Company concerning the motor’s lock rotor amperes.

5. If the three-phase service is supplied, sizes of motors and other loads will be subject to Company approval. Three-phase service is only available if it is existing at the location or economically feasible to bring to the location.

6. Wiring may be extended from the residence circuit to private garages, barns and similar structures and/or wells which are located on the same property as the residence and used exclusively for domestic purposes in connection with the residence.

7 For residences where rooms are rented or meals served to boarders if this is incidental to the maintenance of a private residence.

Section Number             1	Revision Number 16
Sheet Number             4	Effective with energy consumed on or
Page                         4 of 5	after

EL PASO ELECTRIC COMPANY

SCHEDULE NO. 01

RESIDENTIAL SERVICE RATE

This rate is not available under the following conditions:

1. If a separate meter and service are provided to garages, barns and similar structures and/or wells even though their use may be in connection with the residence.

2. When it is evident, both visually and/or electrically, that activity of a business or professional character is being conducted in the residence. Service to a combination residential and commercial establishment will be supplied under the appropriate commercial service rate, but the portion used as living quarters may be wired and metered separately and served on the Residential Service Rate.

3. When service in the primary residence is resold or shared with one or more other family residences, i.e., a garage apartment or a separate living quarters connected to the main residence electric service, or a duplex with one meter. The additional residence or separate living quarters may be placed on the residential rate if local zoning ordinances permit such use and the additional residence is served and metered separately.

4. When the customer operates devices which cause undue fluctuation of voltage. Service may be limited where the customer has an abnormally large connected load or kilowatt demand.

5. For a recognized or accepted boarding or rooming house.

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ATTACHMENT “B” TO THE

RATE AGREEMENT

(Decommissioning Schedule)

Attachment B

El Paso Electric Company

Annual Decommissioning Funding Plan

Total Company Basis

Total Station

Year	Estimated Deposits	Estimated Income	Estimated Net Accumulation	Cash Outlays		Estimated Costs
2004			113,253,148			392,150,437
2005	6,168,907	8,703,932	128,125,986			412,904,943
2006	6,685,850	9,838,873	144,650,709			434,757,880
2007	6,950,651	11,091,325	162,692,684			457,767,381
2008	7,225,938	12,458,391	182,377,013			481,994,655
2009	7,893,456	13,960,036	204,230,505			507,504,154
2010	8,206,085	15,615,332	228,051,921			534,363,741
2011	8,531,094	17,419,253	254,002,268			562,644,867
2012	9,419,278	19,399,135	282,820,682			592,422,767
2013	9,792,338	21,580,908	314,193,929			623,776,660
2014	10,180,174	23,955,595	348,329,698			656,789,952
2015	11,415,973	26,561,846	386,307,516			691,550,468
2016	11,868,114	29,435,965	427,611,595			728,150,680
2017	12,338,162	32,561,214	472,510,970			766,687,953
2018	14,190,816	35,995,531	522,697,318			807,264,806
2019	14,752,857	39,792,601	577,242,775			849,989,182
2020	15,337,159	43,918,743	636,498,677			894,974,741
2021	18,577,418	48,473,130	703,549,226			942,341,154
2022	19,313,196	53,545,717	776,408,139			992,214,428
2023	20,078,114	59,056,770	855,543,023			1,044,727,237
2024	24,714,858	65,083,721	944,493,973	(847,629	)	1,099,126,791
2025	17,567,078	71,519,641	1,031,813,818	(1,766,874	)	1,155,437,538
2026	8,761,103	76,232,061	1,093,486,237	(23,320,745	)	1,192,033,916
2027	2,243,965	76,662,413	1,094,652,568	(77,740,047	)	1,173,267,717
2028	—	74,301,726	1,060,386,003	(108,568,291	)	1,121,048,494
2029	—	67,314,645	960,670,936	(167,029,712	)	1,004,510,090
2030	—	57,327,366	818,138,967	(199,859,335	)	847,236,783
2031	—	44,118,104	629,624,941	(232,632,130	)	647,132,518
2032	—	30,008,390	428,260,267	(196,895,997	)	437,763,466
2033	—	19,795,448	282,507,777	(165,547,938	)	286,622,496
2034	—	10,463,311	149,325,578	(109,975,814	)	150,544,024
2035	—	4,310,701	61,519,522	(92,116,757	)	61,519,522

Assumptions:

Date of Cost Study:	1992 TLG
Rate of Cost Escalation:	5.2925	%
Rate of Earnings:	7.3310	%

ATTACHMENT “C” TO THE

RATE AGREEMENT

(Proposed Franchise)

ORDINANCE NO.                 

AN ORDINANCE GRANTING A FRANCHISE

TO EL PASO ELECTRIC COMPANY

AND WAIVING APPLICATION PROCEDURES

BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF EL PASO:

Section 1. Grant. There is hereby granted by the City of El Paso, Texas (the “City”) to El Paso Electric Company, a Texas corporation (the “Company”), its successors and assigns, for the term commencing August 2, 2005 and extending through July 31, 2030 (the “Franchise Term”), a franchise to construct, reconstruct, repair, maintain, use and operate in, over, or under the present and future streets, alleys, public ways, parks, and public places of the City of El Paso, facilities for the transmission and distribution of electrical energy and broadband over power line communications services (“BPL”) for the use of the City and the inhabitants thereof and properties therein, with all usual and customary appurtenances for such transmission and distribution (this “Franchise”). Provided, this Franchise does not include places where the City’s authority to permit such installations is or hereafter may be withdrawn by the State, or where the Texas Department of Transportation or other State agency constructs or maintains such public facility or place and lawfully excludes the authority of the City to permit such public utility and BPL installations therein.

Section 2. Required Construction. Prior to July 31, 2012, the Company will initiate physical construction of its next generation plant, a base load or intermediate load generation plant within the city limits of the City of El Paso and shall complete said construction by July 31, 2017. If the Company does not initiate or complete the required construction by the dates set

1

forth above, this Franchise shall terminate two (2) years after the unmet deadline. The generation plant shall not be powered from uranium fuel.

Section 3. Police Power. Work done in connection with the construction, repair, maintenance and operation of such facilities is subject to the continuing police power of the City; and the Company shall comply with all present and future laws, ordinances and regulations, including the Texas Accessibility Standards as adopted by the Texas Department of Licensing and Regulation, except such as conflict with any provision hereof lawfully surrendering the City’s authority.

The City shall have power at any time to require the Company to remove and abate, at the Company’s expense, any installation or structure that is dangerous to life or property, and in case the Company, after notice, fails or refuses to act, the City shall have the power to remove or abate the same at the expense of the Company, all without compensation or liability for damages to the Company.

The City shall have the power at any time to require the Company to change the route and position of its poles, lines, conduits or other construction at the Company’s expense when the El Paso City Council (the “City Council”) shall find, by resolution, that such change is necessary in the closing, opening or relocating of streets or alleys, or water or sewer lines, the changing of grade of streets or alleys, the construction and maintenance of parks and public improvements, the construction of private buildings, the construction or use of driveways, and under other conditions which the City Council shall find necessary under the lawful exercise of its police power. Provided, however, the Company shall be entitled to be paid for its costs and expense of any relocation, raising or lowering of its wires or cables required by the City if such expenses or costs are reimbursable or payable to the Company or to the City by the State of Texas, the United States, or any agency or subdivision of either whether directly or indirectly. The City shall not

2

be liable to the Company for any damages to poles, lines, conduits or other construction occurring in the change of the grade of streets, alleys or public places after notice to the Company has been provided. The City shall use its best reasonable efforts to consult and confer with the Company before requiring any such relocation or raising or lowering of its lines or cables, with a view to accomplishing the result reasonably and economically.

The Company shall promptly restore to as good condition as before working thereon, and to the reasonable satisfaction of the City, all streets excavated by it. The Company shall never tear up, bore nor excavate any pavement or street at any time without first obtaining permission of the City, but such permission shall be given if such action is necessary, reasonable and in accordance with this Franchise.

Section 4. Underground Conduits. The Company may be required by the City Council to place its wires and cables in underground conduits within the fire limits herein described and such fire limits as may hereafter be established. No poles, except distribution poles for drop or distribution wires, shall be set for carrying wires or cables within the present fire limits, except by express consent of the City Council or by consent of the City Manager which he may give to facilitate rendition of service immediately upon unforeseen damage to the system, or upon other emergency. The present fire limits for the purposes of this Franchise are bounded by the south side of Main Drive, the west side of Campbell Street, the north side of Overland Avenue, and the east side of Santa Fe Street.

Section 5. Interference with Public or Private Property. All poles placed within the City and all excavations or other construction in the streets, alleys or public places shall be so done as to interfere as little as possible with the use of streets, alleys and public places and with the use of private property, in accordance with any direction given by or under the authority of the City Council under the police and regulatory power of the City. Future installations by the

3

Company shall not conflict with then existing gas pipes, water pipes, telephone lines or conduits, or sewers. Nothing herein shall be construed in any way to restrict or limit the Company’s right of eminent domain as to private property.

Section 6. Trimming Trees. The Company may trim trees upon and overhanging the streets, alleys, sidewalks and public places of the City so as to prevent the branches of such trees from coming in contact with the wires or cables of the Company. When so ordered by the City, such trimming shall be done under the supervision and direction of any City official to whom such duty may be delegated. The City Council may require pole lines that border on public parks to be relocated or removed to adjacent alleys. The City agrees to use its best efforts, while both designing and planting public areas, to coordinate with the Company to minimize the need for subsequent tree trimming and relocation and removal of lines.

Section 7. Wire Changes to Permit Moving of Structures. The Company on request of any person shall remove or raise or lower its wires temporarily to permit the moving of houses or other bulky structures. The expense of such temporary removal, raising or lowering of wires, shall be paid by the benefited party or parties, and the Company may require such payment in advance. The Company shall be given not less than ninety-six (96) hours advance notice to arrange for such temporary wire changes.

Section 8. Furnishing Service. The Company shall furnish service under fair rules and regulations (which rules and regulations shall be subject to supervision and control of the City Council) to any person, firm or corporation which shall demand service within the City, upon such terms and conditions as may be required by the City, and shall make connections therefor on demand without unreasonable delay; provided that the extension of service demanded is not prohibited by State or Federal law.

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The Company shall have the right to operate and control all meters, wires, appliances and appurtenances owned by the Company. In case of refusal or failure on the part of any customer to pay the Company proper charges for electricity consumed, or to observe reasonable rules and regulations established by the Company, the Company shall have the right to disconnect its service and wires to the premises of such customer and to remove all facilities furnished and owned by the Company.

Section 9. Other Utility Installations. The City reserves the right to install and permit to be installed, gas, water and other utility lines, and do and permit to be done, any work that may be deemed necessary or proper by the City Council in, across, over or under any street, alley, or public place occupied by the Company, and to change any curb or sidewalk or the grade of any street. In doing or permitting such work, the City shall not be liable to the Company for any damage so occasioned. Provided, however, the City shall not require the Company (except as provided in Section 3 herein) to move its lines entirely from any street, alley, or public place. If the City shall require the Company to adapt or conform its lines or in any way or manner to alter, relocate or change its property to enable any other corporation or person except the City to use with greater convenience such street, alley, or public place, the Company shall not be bound to make any such changes until such other corporation or person shall have undertaken with solvent bond to reimburse the Company for any loss and expense which will be caused by or arise out of such alteration, relocation or change of the Company property; provided, however, that the City shall never be liable for such reimbursement.

Section 10. Indemnification. The Company shall indemnify and save the City harmless from all claims, demands or causes of action against the City for injury to persons or property occasioned by or arising out of the construction, reconstruction, maintenance, repair or operation of its system or by the conduct of its business in the City.

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Section 11. Quality of System and Service. The Company shall construct, install and maintain its system with economical and up-to-date apparatus and equipment, in reasonable operating condition at all normal times. The service shall be sufficient to meet all reasonable demands without undue interruption or fluctuation, except when interrupted, prevented, or impaired by fires, strikes, riots, war, storms, floods, State or Federal restrictions, or other occurrences beyond the control of the Company, in any of which events the Company shall do all things reasonably within its power to restore normal, efficient and economical service.

Section 12. Reports; Rate Regulation. The City shall have the right to keep informed as to the construction, reconstruction, maintenance, repair and operation of the properties of the Company, and its accounting in connection therewith, as affect the rates charged and service rendered within the City, and to keep informed of the reasonableness of the Company’s rates. The Company will furnish such pertinent information as may from time to time be reasonably required by the City; and the original records of the Company shall be open to inspection by the City at any reasonable time.

Annually and no later than March 31 the Company will file with the City Clerk a detailed operating statement for the previous calendar year, showing income, expenditures, profit or loss, and rate of return, and the basis therefor.

The City shall have power to fix and regulate the electric rates and charges of the Company so far as not prohibited by law or the City Charter. The City shall have the power to enter into settlement agreements with the Company which may expand or limit the City’s rights under this Franchise.

If the Company applies to the City for an increase in its rates or charges, it shall furnish the City Council with all proof necessary for the Council to act advisedly and shall provide all facts, data and information demanded by the Council. When said application to increase rates or

6

charges is made, the City Council may employ such engineers, accountants, attorneys and other special representatives (the “Consultants”) as the Council may deem necessary and appropriate to determine the reasonableness of the proposed rates and charges. The reasonable compensation paid to and expenses incurred by the Consultants related to the review of the proposed rates and charges shall be paid by the Company.

The Company will not resort to any court action with reference to the establishment or regulation of its rates, charges or service without first making application to the City Council and allowing reasonable time for full investigation and hearing.

If the City shall order a reduction in rates, and the courts shall sustain such rates as set by the City or shall approve any rate lower than the rate contended for by the Company, the rate sustained by the courts shall be retroactive to the date when the rate contended for by the City was first ordered by the City to go into effect, and any excess collected by the Company shall be refunded to the persons paying the same; and the Company shall pay all costs and expenses incurred by the City in preparing for and conducting any litigation relating to a reduction in rates, provided that such costs and expenses are determined to be reasonable by the courts in which said litigation is tried.

Section 13. Compensation. As full compensation to the City for the rights herein granted to the Company, the Company shall pay the following consideration:

(a) At or before the acceptance of this Franchise, the Company will pay the City Fifty Thousand Dollars ($50,000) and the cost of advertising this Ordinance (the “Acceptance Fee”).

(b) The Company will pay to the City on a quarterly basis during the life of this Franchise a street rental charge of three and one-quarter percent (3.25 %) of the gross revenues the Company receives for the generation, transmission and distribution of electrical energy and other services within the City and four percent (4%) of BPL-related gross revenues within the

7

City of El Paso (the “Street Rental Charge”). The Company shall pay the Street Rental Charge to the City by electronic funds transfer or by other means of immediately available funds within forty-five (45) days of the end of each calendar quarter (the “Payment Date”) with the first payment due November 14, 2005 for the sixty (60) days ending September 30, 2005. If the Street Rental Charge or any portion thereof is not paid on or before the Payment Date, the unpaid balance shall bear interest at a daily rate equivalent to the prime rate of interest as published by the Wall Street Journal for that date, plus one percent (1%) per annum from the Payment Date until the date such payment is made. If any payment shall be more than thirty (30) days late, the interest shall be paid at such prime rate plus three percent (3%) per annum.

(c) The Company will pay to the City, as a Supplemental Franchise Fee, those amounts calculated under Paragraph 1(d)(iii) of that certain Rate Agreement entered into by and between the Company and the City which was passed and approved by the City Council on July 12, 2005 and amounts to which the Company and the City agree from time to time.

The consideration set forth in paragraphs (a), (b) and (c) of this Section shall be in lieu of any other tax or charge, by whatever name called, for the privileges granted in this Franchise. The City will not assess against the Company any additional street rental charge, pole tax, inspection tax, charge for the occupancy of the places to which this Franchise relates under Section 1, or tax on this Franchise as property. This does not bar the City from assessing against the Company or its property ad valorem taxes levied on property, fees charged for the services of the Departments of Public Inspection or Engineering, excise taxes levied, or other taxes, fees and charges which are general and not compensation for the privileges herein granted. This does not relieve the Company of its obligation to pay any amount legally charged under state law or under Section 12 or other provisions of this Franchise or City ordinances now codified as Sections 15.04.070 through 15.04.110 of the El Paso Municipal Code.

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Should the City not have the legal power to agree that payment of the foregoing consideration shall be in lieu of any of the additional taxes or charges as above set forth, the City will apply so much of such payment as may be necessary to the satisfaction of the Company’s obligation to pay the additional tax or charge herein agreed to be waived.

The payment or rendition of the consideration provided in this Franchise shall not, except as otherwise provided herein, in any way limit any of the privileges or rights of the City which it may now or hereafter have under the Constitution and laws of Texas and the Charter of the City.

Section 14. Assignment.

(a) If the Company shall assign this Franchise to any other person or corporation (the “Assignee”) acquiring and duly authorized to acquire, own and operate the Company’s property and to carry on the Company’s business as then conducted, the Assignee shall execute and deliver to the City an agreement in writing to be bound by all of the Company’s obligations, liabilities and undertakings under this Franchise, the Assignee shall thereupon be deemed to be substituted for the Company, and the Company shall stand released from all obligations under this Franchise except such as have already accrued. If the Assignee fails to file such agreement within thirty (30) days after said assignment, this Franchise shall terminate.

(b) This grant shall not be assignable without the express consent of the governing body of the City. Said consent shall be evidenced by an ordinance that fully recites the terms and conditions, if any, upon which such consent is given. If the governing body does not grant said consent then this Agreement shall terminate. In the context of this Agreement, consent is required in the event of any merger or acquisition of the Company, sale of substantially all of the assets of the Company or change in control of the Company. A formal assignment of the Franchise is required subsequent to merger or acquisition. “Change in Control” is defined to mean the occurrence of any of the following : (i) the sale, lease, transfer, conveyance or other

9

disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” or “group” (as such terms are defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes the “beneficial owner” (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, or more than 50% of the voting stock of the Company, or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. For purposes of this definition, any transfer of an equity interest of an entity that was formed for the purpose of acquiring voting stock of the Company shall be deemed to be a transfer of such portion of such voting stock as corresponds to the portion of the equity of such entity that has been so transferred.

Section 15. Forfeiture. After reasonable notice and opportunity to be heard, and a reasonable time for correcting any violation of this Franchise, the City Council may forfeit this Franchise if the Company fails to perform its obligations under this Franchise, maintain its property in good order or to furnish efficient public utility service at reasonable rates. If court proceedings are instituted to determine the legality of such forfeiture and the Company does not prevail, the Company will pay the reasonable expenses incurred by the City in connection with such litigation. If the Company does prevail, the City will pay the reasonable expenses incurred by the Company in connection with such litigation. In the absence of agreement between the City and the Company, the reasonableness of any litigation expenses pursuant to this Section will be determined by an appropriate court of law.

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The right to forfeit this Franchise shall be in addition to the penalties provided in Section 3.18 of the City Charter, and other penalties provided by law.

Section 16. Acceptance. This Franchise shall take effect if and only if: (a) It is passed and approved by the City Council; and (b) within thirty (30) days after this Franchise has been passed and approved by the City Council, the Company files with the City Clerk the receipt received from the City Cashier for its payment of the Acceptance Fee and the Company’s written acceptance of this Franchise. This Franchise shall then become effective August 2, 2005 whereupon the prior franchise granted September 12, 1995 and all rights and obligations created thereby shall terminate.

Section 17. Waiver of Application Process. The City Council finds that all relevant facts about the Company are known to the City Council and waives the application process required by Section 15.08.012 H. of the El Paso Municipal Code.

PASSED AND APPROVED this 12^th day of July, 2005.

	CITY OF EL PASO:
ATTEST:	/s/ John F. Cook
	John F. Cook, Mayor
/s/ Richarda Duffy Momsen
Richarda Duffy Momsen, City Clerk
APPROVED AS TO FORM:	APPROVED AS TO CONTENT:
/s/ Jorge Villegas	/s/ William F. Studer Jr.
Jorge Villegas	William F. Studer, Jr.
Assistant City Attorney	Deputy City Manager
	Financial Services

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ACCEPTANCE

The Franchise granted by the City of El Paso on July 12, 2005 is hereby accepted this 21 day of July, 2005.

EL PASO ELECTRIC COMPANY, GRANTEE
BY	/s/  Gary R. Hedrick
ITS	CEO and President

STATE OF TEXAS

COUNTY OF EL PASO

This instrument was acknowledged before me on this 21st day of July, 2005 by J.J. Jimenez.

[seal]

/s/ J.J. Jimenez

Notary Public, State of Texas

My commission expires: July 3, 2006

Received for filing this              day of                         , 2005.

Richarda Duffy Momsen, City Clerk

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EX-15

Exhibit 15

August 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 August 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 public accounting firm, or a report prepared or certified by an independent registered public 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: August 8, 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: August 8, 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

August 8, 2005

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q for the quarter ended June 30, 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