SECOND AMENDMENT TO THE
                      PUBLIC SERVICE COMPANY OF NEW MEXICO
                               SERVICE BONUS PLAN


         THIS  SECOND  AMENDMENT  TO THE  PUBLIC  SERVICE  COMPANY OF NEW MEXICO
SERVICE  BONUS PLAN is  effective  the 7th day of December  1998,  by the Public
Service  Company  of  New  Mexico,  a  New  Mexico  corporation  ("PNM"  or  the
"Company").

         WHEREAS,  the Company  established  the Public  Service  Company of New
Mexico Service Bonus Plan (the "Plan") on October 23, 1984, which was amended on
November 20, 1985;

         WHEREAS, under Section 9.01 of the Plan, the Company reserved the right
at any time to amend the Plan;

         WHEREAS,  on December 7, 1998,  the  Compensation  and Human  Resources
Committee of the PNM Board of Directors  approved certain benefits upon a Change
in Control (as defined in the First  Restated  and Amended  Executive  Retention
Plan) and authorized certain amendments to affected plans,  including this Plan;
and

         WHEREAS,  the  Company  desires to amend this Plan to  incorporate  the
approved  Change in Control  benefits to provide full and sufficient  funding of
the Public Service Company of New Mexico and Paragon  Resources,  Inc.  Deferred
Compensation Trust Agreement (the "Rabbi Trust") for any obligations or benefits
accrued as of the date of the occurrence of a Change in Control.

         NOW THEREFORE, the Company hereby amends the Plan as follows:

         ITEM 1. A new Section 6.04, entitled Change in Control, shall be added,
to read as follows:

         6.04  Change in Control.  Upon a Change in  Control,  as defined in the
         First Restated and Amended Executive  Retention Plan effective December
         7,  1998 and  incorporated  herein  by  reference,  the  Company  shall
         sufficiently  fund the Public Service Company of New Mexico and Paragon
         Resources,  Inc.  Deferred  Compensation  Trust  Agreement  (the "Rabbi
         Trust") to provide in full for any benefits  accrued  under the Plan as
         of the date of the occurrence of the Change in Control.

         ITEM 2. Except as herein above amended, the Company hereby readopts and
redeclares each and every provision of the Plan.


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         IN WITNESS  WHEREOF,  Public Service  Company of New Mexico caused this
Second  Amendment to the Public Service Company of New Mexico Service Bonus Plan
to be  executed by its  authorized  officers  effective  as of the date and year
first above written.


                                    PUBLIC SERVICE COMPANY OF NEW MEXICO


Date:_________________              By_________________________________________
                                               BENJAMIN F. MONTOYA
                                       President and Chief Executive Officer










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