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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...EXHIBIT 10.135 UNITED STATES DISTRICT COURT DISTRICT OF NEW MEXICO

CONSENT DECREE

Date lodged in Court March 10, 2005 Date entered by Court. ____________ THE GRAND CANYON TRUST and ) SIERRA CLUB, ) ) Plaintiffs, ) ) THE STATE OF NEW MEXICO, ) ) Plaintiff-Intervenor, ) ) v. ) CV 02-552 BB/ACT (ACE) ) PUBLIC SERVICE COMPANY OF ) NEW MEXICO, ) ) Defendant. ) 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...I. BACKGROUND WHEREAS, on May 16, 2002, Grand Canyon Trust and Sierra Club ("Plaintiffs") filed a citizen suit against Public Service Company of New Mexico ("PNM") in the United States District Court for th e District of New Mexico in the above cause alleging certain violations of the Clean Air Act ("C AA") at PNM's San Juan Generating Station ("San Juan") near Farmington, New Mexico; and WHEREAS, Plaintiffs' complaint alleged that PNM had viol ated, and was continuing to violate, the twenty (20) percent opacity emission limit at San Juan Units 1, 3 and 4, and that PNM was op erating San Juan Units 3 and 4 without a prevention of significant deterioration ("PS D") permit in violation of the CAA; and WHEREAS, after discovery, Plaintiffs and PNM filed atleast four cross motions for summary judgment on both Plaintiffs' claims for re lief and PNM's defenses; and WHEREAS, on May 1, 2003, the Court granted Plaintiffs' motion for summary judgment on standing; and WHEREAS, on August 20, 2003, the Court granted PNM's motion for summary judgment on Plaintiffs' PSD claim; and WHEREAS, the Court held a bench trial from November 17-19, 2003, on PNM's general defenses to Plaintiffs' opacity claim; and WHEREAS, on February 2, 2004, the Court dismissed after tr ial PNM's general defenses to Plaintiffs' opacity claim; and WHEREAS, on April 29, 2004, Plaintiffs served a second notice of intent to sue PNM regarding additional CAA violations at San Juan; and WHEREAS, on May 26, 2004, PNM agreed to the entry of an Order that found 42,008 -2- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...opacity limit violations at San Juan that would be addressed in the remedy phase of the case; and WHEREAS, on September 12, 2003, the State of New Mexico, through the New Mexico Environment Department ("Department"), issued a draft administrative compliance order to PNM alleging that San Juan had violated on numerous occasions the limits for nitrogen oxides, sulfur dioxide, particulate matter, an d opacity in its New So urce Review and Title V permits; and WHEREAS, on May 14, 2004, the Department issued a revised draft administrativ e compliance order to PNM alleging that San Juan had violated on nu merous occasions the limits for nitrogen ox ides, sulfur dioxide, particulate matter, and opacity in its New Source Review and Title V permits, the deviation reporting requirements in its Title V permit, and its obligation to implement good air pollution control practices; and WHEREAS, contemporaneously with the lodging of this Co nsent Decree, the Department has moved to intervene in Plaintiffs' action as a party-plaintiff and ha s filed a complaint pursuant to Section 30 4(a) of the CAA, 42 U.S.C. § 7604(a), alleging the same violations contained in the draft administrative compliance orders issued on September 12, 2003 and May 14, 2004; and WHEREAS, Plaintiffs, the Department, and PNM have met on numerous occasions in an effort to resolve all of the issues and claims that are the subject of the complaints, draft compliance orders and second notice of intent to sue; and WHEREAS, Plaintiffs, the Department, and PNM agree that th e settlement of these disputes without further litigation and through this Consent Decree is in the public interest, and is a fair, reas onable, and appropriate means of resolving the claims in the complaints, draft compliance orders and second notice of intent to sue because it requir es the installation and -3- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...operation of pollution control equipment for particulate matter, nitrogen oxides, sulfur dioxide, and mercury at the four (4) S an Juan units, at an estimated expenditure of more than $200 million. This relief is ex pected to correct all of the CAA violations alleged in the complaints, draft compliance orders and second notic e of intent to sue, represents remedial relief sufficient to offset Plaintiffs' and the Department's cl aims for civil penalties, and reflects PN M's commitment to redu ce substantially the emission of nitrogen oxides, sulfur dioxide, pa rticulate matter and mercury from San Juan; and WHEREAS, PNM is the operator and a co -owner of each unit at San Juan; and WHEREAS, except as otherwise stipulat ed to, PNM denies the allegations and does not admit liability for any claims or assertions in the complaints, dr aft compliance orders and second notice of intent to sue; and WHEREAS, Plaintiffs, the Department an d PNM consent to the entry of this Co nsent Decree without further trial or appeal; NOW THEREFORE, it is hereby AGREED, ORDERED AND DECREED as follows: II. DEFINITIONS 1. Unless otherwise expressly provided herein, the terms used in this Consent Decree that are defined in the CAA, or regula tions implementing the CAA, shall have the meanings set forth in the CAA an d its implementing regulations. 2. Whenever the terms set forth below are used in this Consent Decree, the following definitions shall apply: "Act" or "CAA" means the Clean Air Act, 42 U.S.C.A. § 7401 et seq. "Average emission rate" means the to tal amount of a pollutant emitted from an emission unit during a given time period, expressed in pounds per million Bt u ("Ib./MMBtu"), derived for -4- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...participate matter in accordance with Meth od 5, 40 C.F.R. Part 60, and for SO 2 and NO X in accordance with 40 C.F.R. Part 75. An "hourly average" emission rate means the average emission ra te of pollutants disc harged from the stack during a sixty (60) minute period, beginning on the hour. A "d aily average" emission rate means the numerical average of the hourly average emission rates in an operating day, a "s even day average" emission ra te means the numerical average of the hourly average emission rates for the operating days that occur within a period of seven (7) consecutive calendar days, and a "30 day average" emission rate means the numeri cal average of the hourly average emission rates for the operating days that occur within a period of thirty (30) consecutive calendar da ys. Unless explicitly specified elsewhere in this Decree, all average emission rates and average emission reduction efficiencies shall in clude all periods of startup, shutdown, malfunction, and emergency. All averages sha ll exclude inappropriate data (e.g., malfunction of the monitoring system) as specified elsewhere in this Decree and in the applicable EPA testing re gulations at 40 C.F.R. Part 60, Appendix A, and Part 75. "Block average" means an average emission rate for th e operating days occurring over a specified period of consecutive calendar days. A new "block average" is generated for every specified period. "Business day" means any day of the week except Satu rday, Sunday and a federal or New Mexico holiday. "Calendar day" means any twenty four (24) hour period between 12:00 midnight and the following midnight, Mountain Standard Time. "CEMS" means continuous emissions mo nitoring system, which consists of the total equipment used to sample, analyze, and record on a continuous basis emissions-related -5- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...parameters other than Opacity. "COMS" means continuous opacity mon itoring system, which consists of th e total equipment used to sample, analyze, and record Opacity on a continuous basis. "Consent Decree" or "Decree" means this Consent Decree. "Court" means the United Stat es District Court for the District of New Mexico. "Day" means a calendar day. In computing any period of time under this Decree, ex cept in computing compliance with emission limitations, where the last day would fall on a Sa turday, Sunday or federal or New Mexico holiday, the period shall run until the close of the next business day. "Department" means the New Mexico Environment Depart ment, and any successor departments or agencies. "Emergency means any situation arising from sudden and re asonably unforeseeable events beyond the control of PNM, including acts of God, which situat ion requires immediate corrective action to restore normal operation of San Juan. An emergency shall not include noncompliance to the extent caused by improperly de signed equipment, lack of preventive maintenance, or careless or improper operation. "EPA" means the United States Envi ronmental Protection Agency, and any successor departments or agencies. "Excess opacity reading" means each six (6) minute period of time during which the opacity of emissions from a stack at a San Juan unit excee ds twenty (20) percent. "Malfunction" means any sudden, infre quent and not reasonably preventable failure of air pollution control equipment, process equipment, or of a proces s to operate in a normal or usual manner. Failures that are cause d in part by poor maintenance or careless opera tion are not malfunctions. -6- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ..."NSR Permit" means PNM's NSR Permit 63-M2, issued January 22, 1997. "NO X " means total oxides of nitrogen, except nitrous oxide, which are ex pressed as nitrogen dioxide using EPA Reference Method 7. "Opacity" means the degree to which emissions reduce th e transmission of light and obscure the view of an object in the background. "Operating day means a calendar day in which fuel is combus ted in a unit for at least th ree (3) hours. If fuel is combusted for more than three (3) hours during a calendar day, the calculation of that day's emissions for the unit shall be based upon the average emission rate of pollution during hours in which fuel was combusted in the unit, and shall not include any time in which fuel was not combusted. "Operating Permit" means PNM's Operating Permit P0 62, which became effective on August 7, 1998. "Parties" means collectively the Plai ntiffs, the Department and PNM. "Party" means Plaintiffs, the Department or PNM, individually. "PM" means any airborne, finely divided solid or liquid mate rial, other than un combined water, with an aerodynamic diameter smaller than 100 micrometers, and which is expressed as PM using EPA Reference Method 5. "Plaintiffs" means collectively The Gran d Canyon Trust and Sierra Club. "PNM" means Public Service Company of New Mexico, a publicly owned corporation doing business in the State of New Mexico. "Quarter" means a calendar quarter consistin g of three (3) full months, beginning on the first day of either January, April, July, or October. -7- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ..."Rolling average emission ra te" means an average emissi on rate or average SO 2 percentage reduction that is generated each calendar day based on the average emission rate or average SO 2 percentage reduction for the operating days within a multiple-day period. A new av erage emission rate or average SO 2 percentage reduction is generated each calendar day. "San Juan" means the San Juan Generating Station, comprised of four (4) fossil fuel-fir ed steam generating units (as that term is defined at 40 C.F.R. § 60.41 (a)) and associated equipment, located west of Farmington, New Mexico. "Shutdown" means the cessation of operation of a fossil fuel-fired steam generating unit at San Juan for any purpose or reason. "SO 2 " means sulfur dioxide. "SO 2 percentage reduction" means the amount of SO 2 reduced by SO 2 removal equipment de termined by (1) measuring the conc entration of SO 2 in the flue gas upstream of the scrubb er inlet (expressed as A), and (2) the contemporaneous concentration of SO 2 measured downstream of the scrubber outlet and any scrubber by-pass return (expressed as B), and performing the following calculation: 100 - 100(B ÷ A). An "hourly average" SO 2 percentage reduction means the numerical average of SO 2 percentage reduction values recorded in a sixty (60) minute period during which pollutants are discharged from the stack, be ginning on the hour. A "daily average" SO 2 percentage reduction means the numerical average of the hourly average SO 2 percentage reduction values in an operating day. "Annual average" SO 2 percentage reduction means the numerical average of the hourly average SO 2 percentage reduction values for a period of 365 consecutive calendar days. All averages sha ll exclude inappropriate data (e.g., malf unction of the moni toring system) as specified elsewhere in this Decree and in the applicable EPA testing regulations at 40 C.F.R Part 60, Appendix A, and Part 75. -8- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ..."Startup" means the setting in operation of a fossil fuel-fired steam generating unit at San Juan for any purpose or reason. "State" means the State of New Mexico , including all of its departments, agencies, and instrumentalities. "Unit 1", "Unit 2", "Unit 3", and "Unit 4" mean each of th e four (4) fossil fuel-fired steam generating units and associated equipmen t at San Juan. III. JURISDICTION AND VENUE 3. This Court has jurisdiction over the Parties to and the subject matte r of this action under Section 304 of the Act, 42 U.S.C. § 7604, the citizen suit provision, and under 28 U.S.C. §§ 1331,1345, and 1355. 4. Venue is proper in this Judicial District under Sections 304(c) and 113(b) of the Act, 42 U.S.C. §§ 7604(c) and 7413(b), and under 28 U.S.C. §§ 1391 and 1395. IV. APPLICABILITY 5. This Decree shall apply to and be binding upon Plaintiffs, the Department, and PNM, and their officers, agents, successors, and assigns. PNM shall prov ide a copy of this Decree to each contractor, subcon tractor, laboratory, and any other entity retained to conduct, monitor or otherwise perform any of the work required by or necessary to comply with this Decree. 6. In any action to enforce this Decree, PNM shal l not assert as a defense the failure of its officers, directors, employ ees, servants, agents, orcontractors to take actions necessary to comply with this Decree, unless PNM establishes that such failure resulted from a. force mqjeure event as defined in this Decree. 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...V. EMISSION CONTROLS AND LIMITATIONS 7. PNM shall at all times, including periods of startup, shutdown, and malfunction, maintain and operate Units 1, 2, 3, and 4 in a ma nner consistent with go od air pollution control practices for minimizing emissions. 8. Prio r to installing the pollution control equipm ent described below, in addition to any other applicable requiremen t, the emissions of PM, SO 2 and NO X and opacity from San Juan shall be subject to Section XI (Stipulated Penalties). 9. PNM shall install the following pollution control equipment, and make any other capital and operational modifications necessary to achieve the following emission limitations and mercury operational requirements at San Juan by the deadlines set forth in Section VIII (Emission Limitation Co mpliance Deadlines): (a) PM and Opacity (i) PNM shall operate baghouses and demister technology on San Juan Units 1, 2, 3, and 4 to meet the following emission limitations. (ii) The PM average emission rate for each of Units 1, 2, 3, an d 4 shall not exceed 0.015 lb./MMBtu as measured by EPA Reference Me thod 5 stack tests conducted at least once each calendar quarter at times and conditions specified by the Department, and according to test protocols approved by the Department, but in all cases under conditions and in a manner no less stringent than described in EPA's 2004 Clean Air Act National Stack Te sting Guidance. PNM shall submit all results and a complete description of th e tests to Plaintiffs and the Department in the next quarterly report following PNM 's receipt of the results. (iii) The opacity limit for San Ju an Units 1, 2, 3, and 4 shall be twenty (20) percent, averaged over any 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...six (6) minute period except for on e six (6) minute average per hour -10- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...of up to twenty-seven (27) percent opacity . This limit shall apply at all times when air pollutants are being discharged into t he atmosphere, unless PNM demonstrates that an y excess opacity reading: (a) was caused by a startup, shutdown , malfunction, or emergency, or (b) occurred when both the bo iler and all fans that move flue gas in th e unit were off. Opac ity shall be measured in the stack or, if approved by EPA, after the outlet of the baghou se and corrected to stack exit. (iv) Load changes, poor coal quality, air heater cleaning, sootblowing, and high ash hoppers shall not excuse any excess opacity reading. (v) PNM shall report any ex ceedance of the opacity limit described above in the next quarterly report following the exceedance. (vi) If PNM claims that an excess opacity reading was caused by a startup, shutdown, malfunction, or emergency, or occurred when both the boiler and all fans that mo ve flue gas in the unit were of f, it shall notify the Departmen t (a) by facsimile no later than twenty-four (24) hours after the start of the next business day, and (b) in writing no later tha n ten (10) calendar days after the start of the first business day follo wing the reading (or the first reading in the event of a seri es of excess readings). With re spect to the written notification, PN M shall use the applicable excess emission form published by the Department. To the extent PNM claims a defe nse described in this subparagraph to an excess opacity reading, it shall disclose such claim in its next quarterly report following the excess opac ity reading, attach the facsimile and excess emission form fil ed with the Department, and describe any relevant revisions and amendments to the information in the facsimile and excess emission form filed with the Department , including (1) the date and time of f acsimile and written notification to the Department, (2) the cause of the excess op acity reading(s), (3) actions that PNM to ok to correct the causes of the excess opacity reading(s), (4) all actions that PNM will take to prevent the causes of th e excess opacity readin g(s) from recurring. PNM's failure -11- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...to materially comply with any requirement specified abov e shall waive any claim that an ex cess opacity reading was caused by a startup, shutdown, malfunction, or emergency, or occurred when both the boiler and all fans th at move flue gas in the unit were off. (vii) For purposes of this Consent Decree, if Pl aintiffs or the Department disagree with any claim of defense described in this subp aragraph regarding any excess op acity reading, they shall info rm PNM in writing within 180 days of such disagreement. However, an y disagreement shall not be subject to Section XII (Dispute Resolution) unless Plaintiffs or the Department expressly st ate that their disagreement represents a final determination regarding the excess opacity reading, or the Plaintiffs or the Department issue a demand for stipulated penalties regarding the excess opacity reading. Any final determination or demand for stipulated penalties shall be bindin g upon PNM within thirty (30) days of receipt unless PNM invokes Sectio n XII (Dispute Resolution). (viii) PNM shall determine comp liance with the opacity limit above on a continuous basis using data from the current COMS or an EPA-approv ed COMS at an alternative location. (ix) No later than sixty (60) days after the effe ctive date of this Decree, PNM shall submit a report to Plaintiffs and the Department th at identifies the technology and operational parameters that represent demonstrated state-ofthe-art demister control for each unit, and th at determines the extent to which the ex isting demister technology and operationa l parameters constitute demonstratedstate-of-the-art demister control for each unit. The report sh all be reviewed pursuant to Section IX (Approvals). Within ninety (90) days of approv al by Plaintiffs and the Depa rtment, PNM shall install such technology to the extent it has not already -12- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...been installed and is in operation. PNM sh all operate and maintain demonstrated stat e-of-the-art demister technology on San Juan Units 1, 2, 3, and 4, and implement operational parameters to maximize the reduction of acid mist, scrubber carry-over, and any other liquid particulate matter emitted from such units, (b) NO X (i) PNM shall design, install, and operate demonstrated state-of-the-art NO X combustion control technology on San Juan Units 1, 2, 3, and 4 to minimize the formation of NO X from each unit. PNM shall contract with one or more expert(s) on the tech nologies to identify demonstrated state-of-the-art NO X combustion control equipment and operational requirements for each unit. The expert(s) shall prepare a report desc ribing the recommended control equipment and operational requirements for each unit, including an explanation of the reasons that such equipmen t and requirements constitute demonstrated state of-the-art NO X combustion control technology. No later than 180 days after the effective date of this Decree, PNM shall submit the report to Plaintiffs and the De partment. The report shall be reviewed pursuant to Section IX (Approvals). (ii) Upon approval by Plaintiffs an d the Department, PNM shall install and operate NO X combustion control technology to meet the following NO X emission limits. (iii) The thirty (30) day rolling average emission rate for NO X for each of San Juan Units 1, 2, 3, and 4 shall not exceed 0.30 lb./MMBtu. For purposes of calculating the thirty (30) day rolling average, NO X emissions for the first three (3) hours of a cold startup after coal is fed to the boile r shall be capped at 0.30 lb./MMBtu. Cold startup is defined as a startup when the boiler is at ambient indoor temperature measured at the time fuel is first fed to the boiler. No later than si xty (60) days after the first twelve (12) months of operation of the new NO x -13- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...combustion control technology in stalled at each unit, PNM shall submit a repo rt to Plaintiffs and the Department (a) identifying the daily average NO X emission rate for each unit for every operating day in the pe riod and the thirty (30) day rolling average emission rate for ev ery calendar day of the period, (b) describing the performance of the NO X control technology at each unit , and (c) evaluating the ex tent to which the 0.30 lb./MMBtu limit can be lowered at each unit based on the performance of each unit dur ing the first twelve (12) months of operation of the new NO X combustion control technology. The report shall be reviewed pursuant to the procedure in Section IX (Approvals). Upon approval of Plaintiffs and the Department, the 0.30 lb./MMBtu limit shall be adjusted to a lower limit for the unit if the data gathered during the first twel ve (12) months of operation indicat e that a given unit is capable of meeting a lower limit, pr ovided, however, that any final NO X limit for a given unit shall add a ten (10) pe rcent margin of safety to the most repr esentative thirty (30) day average emissio n rate achieved during the first twelve (12) months of operation. (iv) PNM shall report any exceedance of the NO X limits described above in the next quarterly report following the exceedance. (v) Compliance with NO X emission limits imposed by this Decree shall be determined on a unit-specific basis using data from NO X CEMS installed and operated in accordance with 40 C.F.R. Part 75 and any other applicable requirement, (c) SO 2 (i) PNM shall take those measures necessary to reduce SO 2 emissions at San Juan to achieve and maintain the emission limits below. (ii) The annual rolling average SO 2 percentage reduction for San Juan Units 1, 2, 3, and 4 shall not be less than ninety (90) pe rcent for each unit. -14- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...(iii) The seven (7) day average emission rate of SO 2 at San Juan Units 1, 2, 3, and 4 shall not exceed 0.250 lb./MMBtu for each unit, calculated as a block average as measured by SO 2 CEMS located downstr eam of the scrubber outlet and any scrubber by-pass return. For purposes of calcu lating the block average, SO 2 emissions for the first three (3) hours of a cold startup after coal is fed to the boiler shall be capped at 0.250 lb./MMBtu. Cold startup is defined as a startu p when the boiler is at ambien t indoor temperature measured at the ti me fuel is first fed to the boiler. (iv) PNM shall report any exceedance of the limits described above in the next quarterly report following the exceedance. (v) SO 2 CEMS shall be used to demonstrate complian ce with these requir ements and shall be installed and operated in accordance with the provisions of this Decree, 40 C.F.R. Part 75 and any other applicable requirement, (d) Mercury (i) PNM shall design activated carbon in jection technology (or comp arable mercury reduction technology) for San Juan Units 3 and 4 for the purpose of maximizing mercury re duction, within the ph ysical and operational constraints of each unit, including the pollution control equipmen t to be operated at each unit after the deadlines in Section VIII ("physical and operational constraints"). No later than one year after the effec tive date of this Decree, PNM shall submit a report to Plaintiffs and the Department de scribing such design and the relevant ph ysical and operational constraints of each unit. The report shall be reviewed pursuant to Section IX (Approvals). (ii) Within the deadlines established under Section VII (Construction Comp liance Deadlines), PNM shall install and operate the mercury control technology, install -15- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...mercury CEMs, and establish operating procedures to maximize mercury reduction for Units 3 and 4 during a test period of one and one half (11⁄2 ) years from the commencement of operation of the mercury reduction technology on the first unit. No later than ninety (90) days after such te st period, PNM shall submit a report to Plai ntiffs and the Department presenting the results of PNM's efforts to redu ce mercury emissions and identi fying and discussing the bases for operational parameters to achieve maximum mercury reduction, taking into account the ph ysical and operational constraints of each unit. The report shall be reviewed pursuant to Section IX (Approvals). (iii) Upon approval by Pl aintiffs and the Department, the oper ational parameters for Units 3 and 4 shall become enforceable under this De cree. PNM shall report co mpliance with the operatio nal parameters in the quarterly reports required by this Decree. (iv) PNM shall install and operate similar mercur y reduction technology and shall be subject to similar, enforceable operational parameters at Unit s 1 and 2, to achieve maximum mercury redu ction, taking into account the physical and operational constraints of each unit. PNM shall report compliance with the opera tional parameters in the quarterly reports required by this Decree. VI. EMISSIONS MONITORING 10. PNM shall maintain , calibrate, and operate COMS to meas ure the opacity of emissions at San Juan in compliance with the requirements of its Operatin g Permit and 40 C.F.R. Part 60. 11. To the extent PNM in tends to change the current location of the COMS in the stack of a unit to a location after the bagh ouse and before the SO 2 scrubber, PNM shall request approval from EPA for any such alternative COMS location pursuant to 40 C.F.R. Parts 60 and -16- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...75 and any other applicable requirement. PNM shall provide co pies of any requests for approval and subsequent related correspondence and documents to Plaintiffs and the Department no later than seven (7 ) days after their submittal or receipt. Until EPA approves an alternative location, PNM shall use the current COMS to dete rmine compliance with the opacity limit. 12. After the effective date of this Decree, PNM shall mainta in, calibrate, and operate CEMS at San Juan Units 1, 2, 3, and 4 to measure accurately and continuously the emissions of SO 2 , NO X , and total exhaust from each unit in full compliance with the requirem ents of 40 C.F.R. Parts 60 and 75, incl uding requirements fo r heat input rate measurements. Nothing herein shall preclu de PNM from installing, certif ying, and operating integr ated CEMS equipment to measure SO 2 , NO X , opacity, or any combination thereof. 13. PNM shall ensure that any modification to a COMS or CEMS necessitated by PNM's actions under or in furtherance of this Decree shall be completed prior to the operation of the SO 2 , NO X , and PM controls required by this Decree. 14. PNM shall recertify all COMS and CEMS at San Juan as required by 40 C.F.R. Parts 60 and 75. 15. No later than se ven (7) operating days after the first passage of flue gas through the SO 2 controls for each unit, PNM shall calculate for all hours during which pollutants are discharged from the stack in each operating day: (a) the SO 2 hourly average percentage reduction, and (b) the SO 2 hourly average emission rate. 16. No later than thirty (30) days after the first st artup following construction of NO X controls for each unit, PNM shall begin to cal culate the hourly average NO X emission rate. 17. For any hour that valid, quality-assured CEM data for a un it is unavailable, PNM shall calculat e the SO 2 and NO X emissions for the unit in accor dance with the missing data -17- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...substitution procedures in 40 C.F.R. Part 75. 18. Except for COMS or CEMS breakdowns, repairs, calibration checks , and zero and span adjustments as provided in 40 C.F.R. § 60.13(e), PNM shall be bound by the data from its COMS and NO X and SO 2 CEMS, and shall not challenge the accuracy or cr edibility of its COMS and NO X and SO 2 CEMS in any action under this Decree. VII. CONSTRUCTION COMPLIANCE DEADLINES 19. PNM shall design, contract , construct, and co mplete all PM, SO 2 , NO X , and mercury controls required by this Decree according to the followi ng schedule, subject only to force majeure under Section XIII: Activity Deadline (a) San Juan Unit 4. (i) Commence physical, on-site construction of PM, SO 2 , NO X , and mercury controls 10/31/06 (ii) Complete constructi on and initiate st artup of PM, SO 2 , NO X , and mercury controls 10/31/07 10/31/07- (iii) Provide opportunity for on-site 12/31/07 inspection by Plaintiffs and Department (b) San Juan Unit 3. (i) Commence physical, on-site construction of PM, SO 2 , NO X , and mercury controls 4/30/07 (ii) Completion of construction and initiate startup of PM, SO 2 , NO X , and mercury controls 4/30/08 (iii) Provide opportunity for on-site 4/30/08 - 6/30/08 inspection by Plaintiffs and Department -18- (c) San Juan Unit 1. (i) Commence physical, on-site construction of PM, SO 2 , and NO x controls 10/31/07 (ii) Complete constructi on and initiate st artup of PM, SO 2 , and NO x controls 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...10/31/08 10/31/08- (iii) Provide opportunity for on-site 12/31/08 inspection by Plaintiffs and Department (iv) Commence construction of mercury controls 9/30/09 (v) Complete construction and initiate mercury controls 12/31/09 (d) San Juan Unit 2. (i) Commence physical, on-site construction of PM, SO 2 , andNO x controls 3/31/08 (ii) Complete constructi on and initiate st artup of PM, SO 2 , andNO x controls 3/31/09 3/31/09- (iii) Provide opportunity for on-site inspection by Plaintiffs and Department 5/31/ 09 (iv) Commence construction of mercury controls 9/30/09 (v) Complete construction and initiate mercury controls 12/31/09 (vi) Provide opportunity for on-site inspection by Plaintiffs and Department. 12/31/ 09- 3/31/10
VIII. EMISSION LIMITATION COMPLIANCE DEADLINES 20. PNM's obligation to comply with the Opacity, PM, SO 2 , and NO X emission limitations, and mercury emission reduction operational requiremen ts described in Section V (Emission Controls and Limitations) shall commence on the dates listed below, subject only to force majeure under Section X in (Force Majeure). -19- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...(a) Opacity. PM. NO x , and SO 2 Emission Limits: (i) For Unit 4, no later than ninety (90) days after completion of construction of PM, NO X , and SO 2 controls, or by December 31, 2007, whichever date is earlier. (ii) For Unit 3, no later than ninety (90) days after completion of construction of PM, NO X , and SO 2 controls, or by June 30, 2008, whichever date is earlier. (iii) For Unit 1, no later than ninety (90) days after comp letion of construction of PM, NO X , and SO 2 controls, or by December 31, 2008, whichever date is earlier. (iv) For Unit 2, no later than ninety (90) days after completion of construction of PM, NO X , and SO 2 controls, or by May 31, 2009, whichever date is earlier. (b) Mercury Reduction Operational Requirements (i) For Units 3 and 4, no later than sixty (60) days af ter approval of operational requirements for each unit, or by June 30, 2009, whichever date is earlier. (ii) For Units 1 and 2, no later than (45) days afte r completion of construction of mercury controls, or by January 30, 2010, whichever date is earlier. IX. APPROVALS 21. After receiving any report for approval under this Decree, Plaintiffs and the Department shall have twenty (20) business days from receipt of the report to provide written notice of approval or disapproval, in whole or in part. By notice from Plaintiffs or the Department to PNM, this deadline may be extended by no more than twen ty (20) additional business days. If the deadline is so extend ed then any compliance deadline related to such approv al shall be extended for the same number of days. If Plaintiffs and the Department do not pr ovide timely written notice, the report shall be deemed to be 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...approved. If the Plaintiffs and/or the Department disapprove a report, in whole or in part, the disapproving party shall state the -20- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...reason(s) and justification(s) fo r its disapproval. No later than twenty (20) bu siness days after receip t of the written notice of disapproval, PNM shall either (a) accept th e disapproving party's position, (b) resolv e the issue with the disapproving party and obtain agreement fro m the remaining party, or (c) initiate the proc edure in Section XII (D ispute Resolution). The resolution of a disapproval by one of the three methods shall constitute approval for the purpose of this Decree. N otwithstanding the above procedure, the Par ties shall make their best e ffort to resolve issues rega rding the approval of report s through informal consultation and without re sort to the procedure in Section XII (Dis pute Resolution). Plai ntiffs reserve their right to seek from PNM their reasonable costs and fees in evaluating and otherwis e addressing PNM's reports under this Section IX (Approvals). PNM reserves its right to op pose any request for costs and fees by Plaintiffs. X. REPORTING 22. No later than fort y-five (45) days after the end of each quarter, beginning with the first qua rter of 2005 and continuing until th is Decree is terminated unde r Section XXIV, PNM shall provid e a quarterly report to the Plaintiffs and the Department containing th e information for the immediately preceding quarter that PNM is required to report on a quarterly basis under this Decree. 23. Each quarterly repo rt shall begin with a cover letter, sign ed by a representative of PNM, that summarizes the information contained in the report. 24. Each quarterly report shall includ e, for each San Juan unit: (a) a description of constructi on deadlines achieved, proj ects completed, progress made toward meeting future deadlines, and any actual, expected or reasonably foreseeable delays; -21- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...(b) identification of all excess opac ity readings and any exceedances of the current SO 2 and NO X emission limits described in Section XI (Stipulated Penalties). (c) identification of each failure to meet a standa rd or emission limitation or oper ational requirement described in Section V (Emission Controls and Limitations) or a d eadline in Section VIII (Emi ssion Limitatio n Compliance Deadlines); (d) the quarterly report described in 40 C.F.R. § 60.7; (e) after installation of the PM contro ls, the required quarterly re ports for PM and opacity, (f) after installation of the SO 2 controls, PNM shall report on a quarterly ba sis all seven (7) day block averages that exceeded the applicable emission limi tation. PNM shall also report each day for which the annual rolling SO 2 p ercentage reduction average emission rate at any unit excee ded the applicable reduction requirement during the prior quarter. In addition, PNM sh all report on a quarterly basis a list of th e hours excluded from the determination of compliance with the applicab le emission limitation. (g) after installation of the NO X controls, the required quarterly reports for NO X emissions; (h) after installation of the mercur y control equipment, the re quired quarterly reports for mercury (Hg) emissions; and (i) a description of any stipulated penalties due or paid to the Department, or into escrow, including the reason for such paym ent(s) and the total amount held in escrow at the end of each quarter. -22- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...25. If Plaintiffs or the Department requ est clarification of any quarterl y report, including a request for information not provided in such report, PNM promptly shall prov ide such clarification or info rmation. If the information is requested in electronic form PNM shall pr ovide it to the extent available. PNM shall retain all docu ments relating to compliance with this Decree, including contracts, plans, and specifications, in accordance with Section XVIII (Record Preservation). Upon request of the Department, PNM shall supply a copy of such documents, subject to a claim of confidential business information under the New Mexico Air Quality Contro l Act. Upon request of the Plaintiffs, PNM shall provide a copy of such documents as long as Plaintiffs execute a reasonable confidentiality agreement that strictly limits release of the confidential business inform ation to Plaintiffs and their counsel and experts. If Plaintiffs do not ag ree with PNM's claim of confidential business information Plaintiffs may invoke the disp ute resolution procedure in Sect ion XII (Dispute Resolution). 26. PNM's obligation to provide quarterly reports is in addition to any other notification or rep ort required by this Decree or by PNM's operating permit, unless su ch notification or report is required on a quarterly basis. N othing in this Decree shall be interpreted to excuse or diminish PNM's obligation to provide any other notice report, or other document to the public or local , state or federal officials. XI. STIPULATED PENALTIES 27. PNM shall pay stipulated penalties for each failure by PNM to co mply with a term or condition of this Decree, unless excused by Section XIII (For ce Majeure) or Section XII (Dispute Reso lution). All stipulated penalties shall be calculated on a per unit, per day basis, unless expressly stated otherwise. Stipulated penalties shall not be assessed for any reason other than those set forth in this Section. -23- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...28. For each failure to comply with a construction commencement deadline: (a) 1 st through 30 th day after deadline - $750 (b) 31 st through 60 th day after deadline -$5,000 (c) Beyond 60 th day - $ 10,000 29. For each failure to comply with a construction completion deadline: (a) 1 st through 30 th day after deadline - $3,000 (b) 31 st through 60 th day after deadline - $ 10,000 (c) Beyond 60 th day - $20,000. 30. PNM shall maintain a record of all stipulated penalties that accrue pursuant to paragraph 28 for each unit. If PNM meets the construction co mpletion deadline for a unit, PNM shall not be obligated to pay any accrued stipulated penalties under this paragraph for that unit. If PNM does not meet th e construction completio n deadline for a unit, PNM shall pay all accrued penalties fo r that unit, including interest purs uant to 28 U.S.C. § 1961 (a). 31. For each failure to comply with a PM emission limit, $2,5 00, with the period of noncompliance commencing with the failure of a PM stack test and ending when a PM stack test demonstrates compliance, except for periods when the unit is not in operation. 32. For each exces s opacity reading from San Juan Units 1, 3, and 4, excluding only excess readings caused by a startup or shutdown, or that occurred when both the boiler and all fans that move flue gas in the unit wer e off, stipulated penalties shall be determined on a quarterly ba sis for the period of time beginn ing with the quarter in which this Decree is entered until the first quar ter in which flue gas first passes th rough the baghouse for that unit: 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...(a) Unit l: Stipulated penalties will be due for each excess op acity reading abov e the following -24- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...quarterly threshold amounts: 150 excess opacity readings/quarter for 2005; 12 5 excess opacity readings/quarter for 2006; 100 excess opacity readings/quarter for 2007; and 75 excess opacity readings/quarter for 2008 and thereafter. (b) Units 3 and 4: Stipulated penalties will be due for each excess opacity reading ab ove the following quarterl y threshold amounts, by unit: 14 excess opacity readings/quarter for 2005; 12 ex cess opacity readings/quarter for 2006; 10 excess opacity readings/quarter for 2007; and 8 excess opacity readings/quarter for 2008 and thereafter. (c) The stipulated penalty for any quarterly excess op acity readings at San Juan Units 1, 3 or 4 shall equal $1,000 per excess opacity reading above the values specified above, except that the stipulated pe nalty for the first ten (10) percent of the excess opacity readings above the quarterly thresholds for Unit 1 only shall be $750. Payment of all stipulated penalties pursuant to this paragraph shall be made, without written demand therefor into a commercially available escrow account, within thirty (30) days of the end of the applicable quarter. 33. For every calendar year, beginning on January 1, 2005 for each unit, if the av erage number of excess opacity readings per quarter for four (4 ) quarters is less than the applicable quarterl y threshold as set forth above, all stipulated penalties and interest that have accrued in the escrow account during th at year shall be refunded to PNM. However, if the average number of excess opacity readings per quarter in that cal endar year is greater than the applicable quarterly threshold as set forth above, all stipulated pe nalties and interest that have ac crued in the escrow account duri ng that year shall be paid t o the Department. In any calendar year in which there are less than 365 days before flue gas first passes through the baghouse of any unit, the number of excess opacity readings for the balance of the 365 days shall be determined by the following formula: N = (A ÷ 90)D; where: N = Number of excess opacity readings added to complete the 365 day period; A = Number of excess opacity readings from the most recent preceding complete quarter for the applicable unit; and D = Number of days needed to complete 365 day period. -25- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...34. For each failure to comply with an opac ity standard after the applicable final compliance date until termination of th is Decree, the stipulated pe nalty shall be $2,000 per ex cess reading, excluding excess emissions caused by startup, shutdown, malfunction, and emergency. 35. For each failure to comply with a current SO 2 emission limit at San Juan between the effective date of this Decree and the date specifiedin Paragraph 20(a), stipulated penalties shall be $1,500 per violation, excluding excess emissions excused by the Department pursuant to Section 20.2.7 NMAC. Such SO 2 emission limits are: (a) For all four (4) units combined, 13,000 pounds per hour on a rolling 3-hour average, (b) For all four (4) units comb ined, 0.55 lb./MMBtu on a roll ing 30-day average, and (c) For all four (4) units comb ined, 0.46 lb./MMBtu on a roll ing hourly annual average. (d) For Units 1, 3 and 4, by unit, 1.2 lb./MMBtu on a rolling 3-hour average. (e) For Unit 2, seventy-two (72) percent SO 2 reduction on a 30-day rolling average. 36. For each failure to comply with any SO 2 emission limit in Section V (Emission Controls and Limitations) after the date specified in Section VIII (Emission Limitation Compliance Deadlines), $5,000 per violation. 37. For each failure to comply with a current NO X emission limit at San Juan between the effective date of this Decree and the date specified in Section VIII (Emission Li mitation Compliance De adlines), excluding only excess readings caused by a startup or shutdown, stipulated penaltie s shall be determined on a quarterly basis as provided in paragraph 38. The -26- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...current NO X emission limits are: (a) For all four(4) units combined, 9, 000 pounds per hour on a rolling twenty-four (24) hour period. (b) For Units 1, 3 and 4, by unit, 0.45 lb./MMBtu on a rolling three (3) hour average. (c) For Unit 2, 0.7 lb./MMBtu on a rolling thre e (3) hour average. 38. The quarterly excess NO X emission thresholds, by unit, are as follows: (a) Unit l: Stipulated penalties will be due for each hour of excess NO X emissions above the following quarterly threshold amounts: 20 excess NO X emissions/quarter fo r 2005; 15 excess NO X emissions/quarter for 20 06 and thereafter. (b) Units 2, 3 and 4: Stipulated penalties will be due for each hour of excess NO X emissions above the following quarterly threshold amounts: 2 excess NO X emission/quarter for each unit for 2005 and thereafter. (c) The stipulated pe nalty for any quarterly excess NO X emission at San Juan shall equal $5,000 per each hour of excess NO X emission above the values specified above. Payment of all s tipulated penalties pu rsuant to this p aragraph shall be made, without written demand therefor in to a commercially available es crow account, wi thin thirty (30) days of the end of the applicable quarter. 39. For every calendar year, beginning on January 1, 2005 for each unit, if the average number of hourly excess N O X emissions per quarter for four (4) quarters is less than the applicable quarterly thre shold as set forth above, all stipulated penalties and interest that have accrued in the escrow account during that year shall be refunded to PNM. However, if the average number of hourly excess NO X emissions per quarter in that calendar yearis greater than the applicable quarterly threshold as set forth above, a ll stipulated penalties and interest that have accrued in the escr ow account during that year sh all be paid to the Department. In any calendar year in which there are less than 365 days before the NO X emission limit deadline in Section VIII -27- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...(Emission Limitation Compliance Deadlines) applicable to an y unit, the number of excess hourly NO X emissions for the balance of the 365 days shall be dete rmined by the following formula: N = (A ÷ 90)D; where: N = Number of excess hourly NO X emissions added to complete the 365 day period; A = Number of excess hourly NO X emissions from the most recent preceding complete quarter for the applicable unit; and D = Number of days needed to complete 365 day period. 40. For each failur e to comply with the NO X emission limit after the date specified in Section VIII (Emission Limitatio n Compliance Deadlines), $5,000 per violation. 41. For each failur e to comply with a merc ury reduction operational requirement, $5,000 per violation. 42. For the failure to comply with any other material re quirement in the Decree, $1,000 per violation. 43. Plaintiffs and th e Department will consult regarding demands for stipulated penalties. Plainti ffs or the Department may demand stipulated penalties individually or jointly, and the fact that one party does not make a demand for stipulated penalties shall no t be relevant to the merits of any other demand . Plaintiffs and the Department shall provide t o the other a copy of any written demand for stipulated penalt ies at the same time that the demand is served on PNM. 44. No later than thir ty (30) days after receipt of a written demand for stipulated penalties, PNM shall pay the stipulated penalties to the Department. Payment shall be by ch eck, made payable to the State of New Mexico, and delivered to: 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...-28- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...Office of General Counsel New Mexico Environment Department Post Office Box 26110 Santa Fe, New Mexico 87502 The check shall be accomp anied by a transmittal letter re ferencing this Decree and attachin g a copy of the written demand. PNM shall send a copy of the check and transmittal letter to the legal representatives for the Plaintiffs. 45. If PNM disputes th e written demand for stipulated penalties, no later than thirty (30) days a fter receipt, PNM shall pay the stipulated pe nalties into a commercially available in terest-bearing escrow account (interest computed consistent with 28 U.S.C. § 1961 (a)) and invoke the procedures in Section XII (Dispute Resolution). 46. PNM's liability fo r stipulated penalties shall not depend on the date that Plaintiffs or the Department send or that PNM receives the written demand. Stipulated penalties shall apply during any period of dispute resolution; provided, however, that PNM may request that the Court reduce or eliminat e stipulated penalties that accrue during the dispute resolution period if the Court deems that PNM pursued the dispute in good faith and not for the purpose of delay, without regard to whether PNM prevails in the dispute. 47. Plaintiffs and th e Department reserve all rights to purs ue any other remedies for violations of this Decree to which they are entitle d, including inju nctive relief. XII. DISPUTE RESOLUTION 48. Any dispute identified in th is Decree to be resolved by dispute resolu tion shall be subject to the procedures in this Section. The dispute resolution pro cedure of this Section XII (Dispute Resolu tion) shall be the exclusive mechanism to resolve such disputes. All other disputes re garding this Decree shall be resolved only in the context of an action by Plaintiff s or
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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...the Department to enforce this Decree. 49. The dispute reso lution procedure shall be invoked upon the giving of written notice by one of the parties to all others advising of a dispute and stating the reasons therefor. The part y receiving such notice shall acknowledge receipt of the notice and the Parties shall expeditiously sc hedule a meeting to begin informal negotiations not later than fourteen (14) days from the rece ipt of such notice. Such period of info rmal negotiations shal l not extend beyond thirty (30) calendar days from the date of the first meeting of the parties, unless the parties agree to extend this period. 50. If the parties ar e unable to resolve the di spute through the informal process described above , the disputing party waives its right to further dispute the issu e unless it files a petition with the Court describing the disp ute and serves it on the other parties. The other party or parties to the dispute shall have thirty (30) days after receipt of the petition to file and serve a written resp onse. In judicial proceedings un der this Section, the petitioning party shall carry the burdens of proof and persuasion. This Court shall have exclusive jurisd iction over any disputes unde r this Section XII (Dispute Resolution). 51. The invocatio n of the dispute resolution procedure under this Section shall not extend, postpone, or affect any obligation of any Party under this Decree not directly in dispute, unle ss the Parties or the Court agre e otherwise. Stipulated penalties with respect to the disputed matter shall continue to accrue , but payment shall be stayed pending resolution of the dispute. 52. Plaintiffs reserv e the right to seek from PNM their reas onable costs, incl uding attorney and expert witness fees, expended in any dispute resolution proce ss. PNM reserves its right to object to any such request by Plaintiffs.
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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...XIII. FORCE MAJEURE 53. For the purpose of this Decree, "force majeure" is defined as any event arising contractors, or employees, that delays, prevents, or can r easonably be anticipated to delay or prev ent compliance with this Decree and that could not be overcome with due diligence. 54. PNM's unanticipa ted or increased costs or changed fina ncial circumstances shall not constitut e f

orce majeure. The absence of an approval under this Decree, or the De partment's failure to issue a permit if one is legally required before implementing the obligation at issue, or the stay of a permit if issued, shall not constitute force majeure, unless PNM demonstrates that (a) it submitted a tim ely and complete application or other re quest for approval, (b ) it complied with all requirements for such application or other request for approval, and (c) it diligently and timely responded to all requests for additional information. 55. If any event occu rs which causes or may cause a delay by PNM in meeting any deadline of this Decree, whether or not attributable to force majeure, PNM shall give written notice to Plai ntiffs and the Department no later than ten (10) business days after the date on which PNM first knew or reasonably should have known that the event might cause a delay. PNM shall be deemed to have notice of any event that a contractor or subcontract or retained to implement this Decree had or reasonably should have had, unless through the affirmative misrepresentation of such contractor or subcontractor PNM was not provided such no tice. No later than fifteen (15) days af ter service of the written notice, PNM shall submit a written report to Plain tiffs and the Department providin g (a) the reasons for the delay, (b) the anticipated length of the delay, (c) a description of the obligation has been or would be delayed, (d) a description of al l actions taken and to be taken to prevent or minimize the delay, (e) a timetable for those -31- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...actions, (f) a schedule for complyin g with any deadline in this Decree which has b een or would be affect ed by the event, and (g) the rationale and supporting documentation for a claim, if any, that the delay was or would be attributable to force majeure. 56. If Plaintiffs and the Department agree that the delay has been or would be caused by force majeure, the Parties may stipulate to an exte nsion of the deadline for the length of time necessary to accommodate the force majeure. In establishing a new deadline, Plainti ffs and the Department shall take into consideration PNM's evidence regarding weather, outage schedules, and remobiliza tion requirements. If the Par ties cannot agree to the leng th of the extension, PNM may invoke the procedure in Sec tion XII (Dispute Resolution). 57. If Plaintiffs and/ or the Department do not agree that the delay or anticipated delay has been or would be caused by force majeure, no later than twenty (20) days after receiving PNM's written report, Plaintiffs and/or the Department shall notify PNM in writing of this decision. The decision shall be final and binding on PNM unless PNM invokes the procedure in Section X II (Dispute Resolution). 58. PNM shall have th e burden of proving that any delay or anticipated delay has been or would be caused by force majeure (including proving that PNM gave timely notice), and of proving the duration and extent of any delay (s). 59. PNM's material fa ilure to comply with the notification and reporting requirements of this Section XII (Force Majeure) shall constitute a waiver of any claim of force majeure for the delay or anticipat ed delay at issue. 60. The extension of one deadline based on a specific even t shall not constitut e an extension of any other deadline unless agreed by the Pa rties or directed by this Court. -32- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...61. If PNM fails to comply with a deadline in this Decree due to force majeure, PNM shall be excused only from complying with that deadline and from payi ng stipulated penalties for failing to comply with that deadline, and only for that period of time excused by force majeure. XIV. MODIFICATION 62. Any material modification of this Decree shall be in writing, signed by the Parties, and approved by this Court. Non-material modifications of this Decree shall be made upon written agreement of the Parties and shall be filed with the Court. XV. NOTICE TO PARTIES 63. Whenever this Decree requires a Party to prov ide notice or submit a document to another Party, the notice or document shall be sent to the following persons in electronic (.pdf) format unless the size or other characteristic of the noti ce or document require the submission of a hard copy. For Plaintiffs

-33- Geor g e Ha y s, Es q . Attorney at Law Steven Sugarman, Esq. 236 West Portal Avenue, #110 Belin & Sugarman San Francisco, CA 94127 618 Paseo de Peralta Phone: 415-566-5414 Santa Fe, NM 87501 Fax: 415-731-1609 Phone: 505-983-1700 georgehays@mindspring.com Fax: 505-983-0036 sugarman@bs-law.com For the Department Reed Zars, Es q . Sandra El y , Chief Attorney at Law Air Quality Bureau 910 Kearney St. New Mexico Environment Department Laramie, WY 82070 2048 Galisteo Street Phone: 307-745-7979 Santa Fe, NM 87505 Fax: 307-745-7999 Phone: 505-827-1494 rzars@lariat.org Fax: 505-827-1523 sandra_ely@nmenv.state.nm.us 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...Eric Ames, Esq. Office of General Counsel New Mexico Environment Department 1190 St. Francis Dr. P.O. Box 26110 Santa Fe,NM 87502-6110 Phone: 505-827-2982 Fax: 505-827-1628 eric_ames@nmenv.state.nm.us For PNM Rick Alvidrez, Esq. Ke leher & McLeod, P.A. P.O. Drawer AA Albuquerque, NM 87103 Phone: 505-346-9150 Fax: 505-346-1370 rla@keleher-law.com Randy E. Brogdon, Esq. Troutman Sanders LLP Bank of America Plaza, Suite 5200 600 Peachtree St. NE Atlanta, GA 30308-2216 Phone:(404)885-3147 Fax: (404) 962-6892 Randy.Brogdon@troutmansanders.com Hugh Smith Senior Vice President, Energy Resources Public Service Company of New Mexico 2401 Aztec Rd, NE Albuquerque, NM 87107 Phone: (505) 855-6296 Fax:(505) 855-6327 HSmithl@pnm.com 64. A Party may change the name, title, address, te lephone number, fax number, or email address of a contact person identified above by prov iding written notice to the other Parties. Such change shall not constitute a modification for the purpose of Section XIV (Modification). -34- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...XVI. ENTRY AND INSPECTION 65. Nothing in this Decree shall be construe d to limit or impair the Department's authority under the applicable laws and re gulations to enter and inspect San Juan. XVII. AVAILABILITY OF INFORMATION 66. Nothing in this Decree shall be construe d to limit or impair the Department's authority under the applicable laws and re gulations to require PNM to provid e information regarding San Juan. XVIII. RECORD PRESERVATION 67. For at least ten (10) year s after termination of this Decree, PNM shall maintain all records, documents, data, and other information related to this Decree. Nothing in this De cree shall be construed as a waiver of any attorney client, attorney work product, or other privilege that PNM might otherwise possess. XIX. COMPLIANCE WITH APPLICABLE LAWS 68. PNM shall undertak e the obligations required by this D ecree in accordance with applicable federal, state, and local laws and regulations. 69. This Decree is no t a permit. The emission limits and rela ted requirements contained in this Decree, however, shall be incorporated in to permits consistent with Section XXIII (Integration w ith Permits). This Decree does not relieve PNM of its responsibility to comply with all federal, state, and lo cal laws and regulations and orders of this Court. 70. Notwithstanding the foregoing, if any current or future fe deral, state, or local law or regula tion conflicts with, or have the effect of relaxing, any requirement in this Decree, the more string ent requirement shall apply. -35- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...XX. EFFECT OF SETTLEMENT 71. This Decree constitu tes a complete and final release of a ll civil claims for violations allege d in the complaints, draft compliance orders, and second notice of intent to sue th rough the effective date of this Decree. 72. Nothing in this De cree shall be construed to create any ri ghts in or grant any cause of action to any person not a Party to this Decree. The preceding sentence sh all not be construed to waive or nullify any rights that a p erson not a signatory to this Decree may have under applicable la w. Plaintiffs and the Departmentexpressly reserve all rights, defenses, claims, demands, and causes of action that they might have against PNM with respect to any matter, transaction, or occurrence relating to San Juan that is not addressed in this Decree. PNM expr essly reserves all rights and defenses which it may have to any claim, demand, or cause of action relating to San Juan that is not addresse d in this Decree. The Parties expressly reserve all rights, defenses, claims, demands, and cause s of action which each Party may have against any person not a Party to this Decree with respect to an y matter, transaction, or occurrence relating to San Juan. Nothing in this Decree shal l be construed as a waiver of any privilege by a Party. 73. As long as PNM re mains in compliance with th e requirements in this Decree, Plaintiffs and the Department covenant not to sue PNM, its officers, employees, agents, successors, or assign s for matters alleged in the complaints, draft compliance orders, and seco nd notice of intent to sue. Nothing herein shall prevent Plaintiffs or the Department from seeking any legal or equitable remedy to enforce the requirements of this Decree. This covenant not to sue does not pertain to any matters not alleged in the complaints, draft compliance orders, or seco nd notice of intent to sue. Plaintiffs and the Department expressly reserve all rights, de fenses, claims, demands, and causes of action which they may have against PNM with respect -36- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...to any matter, transaction, or occurrence that was not alleged in the complaints, draft complian ce orders, or second notice of intent to sue. PNM represents and warrants that it has not noti fied Plaintiffs or the Departme nt of any claims or alleged violations that are not included in the matt ers alleged in the complaint, draft complian ce orders, or second notice of intent t o sue at San Juan, and Plaintiffs and the Department represent an d warrant that they are not pres ently aware of any claims or alleged violations at San Juan that are not included in the matters alleged in the co mplaint, draft compliance orders, or secon d notice of intent to sue. 74. Nothing herein shall prevent the Department from ta king appropriate action to address conditions at San Juan that cons titute an emergency situation or that present an immediate thre at to public health or the environment. 75. This covenant not to sue shall su rvive the termination of th is Decree as an agreement between PNM, Plaintiffs and the Department. This Decree sh all not be used to establis h the liability of PNM in any action, except to enforce the provisions of this Decree. 76. Plaintiffs Gran d Canyon Trust and Sierra Club, and the Department, but not the Attorney General acting to represent the interests of residential and small business customers, agree not to contest, appeal or otherwis e challenge a request by any owner of San Juan to recover th e costs to install and operate the pollution control equipment described in this Decree before the New Mexico Public Regulation Commission ("NMPRC") or any other rate-making regulatory agency. PNM's obligations in this Decree shall not be affected by whethe r any costs associated with the pollution control equipment are deemed recove rable by the NMPRC or any other rate-making regulatory agency. XXI. RETENTION OF JURISDICTION 77. The Court shall retain jurisdictionof this matter for the purpose of implementing -37- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...and enforcing the terms and conditions of the Decree and adjudicating disputes unde r Section XII (Dispute Resolution) until termination of the Decree. XXII. ENFORCEMENT 78. This Decree is an enfo rceable document. If PNM violat es any requirement of this Decree, Plaintiffs and/or the Department may request any legal or equitable remedy from th is Court to achieve full comp liance with such requirement. PNM reserves all rights and defenses to an enforcement action by Plaintiffs or the Department not expressly precluded by this Decree, and nothing in this Decr ee shall constitute a waiver of such rights or defenses. XXIII. INTEGRATION WITH PERMITS 79. All requirements set forth in Section V (Emission Controls and Limitations) and Section VI (Emissions Monitoring ), including all applicable definitions in Section II (Definitions), shall be incorporat ed as applicable requirements into San Juan's Operating Pe rmit. For incorporation of these applicable requirem ents into PNM's operating permit, the requirements of this Decree sha ll be modified such that the role of Plaintiffs and the Department is assumed by the Department. 80. No later than one hundred and eighty (180) days after th e effective date of this Decree, PNM shall submit an application to revise its NSR permit to authorize the construction of pollution control equi pment required by Section V (Emission Controls and Limitation s) of this Decree, if legally required. PNM shall consult with the Department to ensure that the permit applicatio n is administratively and techni cally complete. Plaintiffs may only challenge a provision in such permit to the extent it is not consistent with, or is no t addressed by, this Decree. 81. PNM shall incorporate all applicable requirem ents in the Sections described -38- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...above at such time as it is required to renew its Operating Permit for San Juan; pr ovided, however, that PNM may seek to modify its Operating Permit after the first renewal to incorporate any NO X limit or mercury operational requirements to the extent they became applicable after such renewal. The Department shall include in the revised operating permit those emission limits and other requirements in the curre nt operating and NSR permits; provided, howe ver, the Department shall not relax any limit or requirement of this Decree. PN M shall consult with the De partment to ensure that the permit application is administratively and technically complete. Plaintiffs may only challenge a provision in such permit to th e extent it is not consistent with, or is not addressed by, this Decree. 82. PNM shall provide a copy of each permit application to Plaintiffs at the same time it is filed with the Department. 83. After termination of this Decree, PNM shall not, in any subsequent application for a modified or renewed Title V permit, seek to revise any applicable requirement in the Sections described above that is to be incorporated into a Title V permit to the extent any such revision would render such requirement less stringent. This agreement shall surviv e as an enforceable obligation between PNM, and Plaintiffs and the Department. XXIV. TERMINATION OF CONSENT DECREE 84. This Decree shall remain an enforceable order of the Court until Plai ntiffs and the Department agree, or the Court determines in response to a petition by a Party, that (a) all requirements of the Decree have been satisfied, (b) PNM has installed all controls and has been in ma terial compliance with all emission limitatio ns for twelve (12) consecutive months (except for the mercury operatio nal requirements for Units 1 an d 2 for which six (6) months co mpliance will be sufficient), (c) all applicable requirements of the Decr ee have been incorporated into the -39- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...Operating Permit for San Juan, and (d) PN M has paid any stipulated penalties due under the Decree. Termination of this Decree shall not affect any matter expressly set forth in this Decree that is to survive as an agreement among or between Plaintiffs, the Department, and PNM. XXV. COSTS 85. PNM agrees that, pursuant to Section 304 of th e Act, 42 U.S.C. § 7604(d-), Pl aintiffs are entitled to recover their reasonable costs of litigation in this action, including attorney and expert witness fees. The issue of the amount of suc h costs is reserved. If PNM and Plaintiffs ar e unable to reach an agreem ent regarding the amount of such costs, Plaintiffs may p etition the Court for a dete rmination of such amount. Furthe rmore, Plaintiffs expressly rese rve their right to petition the Cou rt for recovery of additional costs and fees incurred after they sign this Decree, and PNM reserves its ri ght to oppose any such petition. XXVI. SEVERABILITY 86. If any provision or authority of this Decree is he ld by a court of competent jurisd iction to be invalid, if that provision or authority is severable from the remainder of the Decree, the remainder of the Decree shall remain in force and shall not be affected by the court's order and ruling. If the application of this Decree to any Party or circumstance is held b y a court of competent jurisdiction to be invalid, the application of this Decree to other Parties or circum stances shall remain in force and shall not be affected thereby. XXVII. HEADINGS 87. Any section or paragraph heading in this Decree is provided solely as a matte r of convenience to the reader and shall not be construed to alter the m eaning of any provision of this Decree. -40- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...XXVIII. NOTICE OF DECREE 88. The Parties agree to cooperate in good faith in order to obtain the Court's review and entry of this Decree. 89. Pursuant to 42 U.S.C. § 7604(c)(3), this Decree shall be lodged with the Court and simultaneously presented to the United States for review and comment for a period not to exceed forty five (45) days. After the review period, the Decree may be entered by the Court. If the D ecree is not entered by the Cour t, the Parties shall retain all rights they had in this litigation or under state law before the lo dging of the Decree. 90. The Parties agree to cooperate in good faith to obtain prompt review of this Decree by the United States and the Court. If the United States or the Court comment on the Decree, and as a consequence the Decree is not entered, the Parties agree to discuss such comments and attempt to make such revisi ons as necessary to obtain entry of the Decree. XXIX. EFFECTIVE DATE 91. This effective date of this Decree shall be th e date on which the Court approv es and enters this Decree. XXX. SIGNATORIES AND ASSIGNMENT 92. Each undersigned representative of a Party to this Decr ee certifies that he or she is fully authorized to enter into the term s and conditions of this Decree and to execute an d legally bind such Party to this document. 93. The Parties agree no t to oppose entry of this Decree by this Court or challenge any provision o f this Decree. 94. If PNM proposes to sell or transfer all or part of its ow nership interest in any of San Juan, prior to such sale or transfer PNM shall advise the purchaser or transferee in writing of 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...the purchaser's or transferee's obligation to comply with the terms of this Decree, and PNM shall send a copy of such written notification to the Plaintiffs and the Department at least th irty (30) days before such proposed sale or transfer. 95. The sale or transf er of all or part of PNM's ownership interest in San Juan, or any modificat ion of its status as operator of San Juan, sh all not relieve PNM of its obligations to pe rform under this Decree unless agreed upon by the Parties. 96. If the Plaintiffs and the Department agree, the Partie s and any purchaser or transferee that has become a party defendant to this Decree may execute a modification that relieves PNM of its liability unde r this Decree with respect to the ownership interest to be sold or transferred, and makes the purchaser or transf eree liable for all obligations a nd liabilities applicable to the purchased or transferred ownership interest. XXXI. COUNTERPARTS 97. This Decree maybe signed in counterparts. The undersigned Parties enter into this Decree and submit it to this Co urt for approval and entry.

_______________________________ ________ UNITED STATES DISTRICT COURT JU DGE Dated this _________ day of ___________________, 2005

-42- GRAND CANYON TRUST /s/ Rick Moore Date 3/9/05 Rick Moore Associate Director Approved as to form: 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? .../s/ Steven Sugarman Steven Sugarman BELIN & SUGARMAN 618 Paseo de Peralta Santa Fe, NM 87501 505-983-1700
/s/ Reed Zars Reed Zars Attorney at Law 910 Kearny St. Laramie, WY 82070 307-745-7979 /s/ George E. Hays George Hays Attorney at Law 236 West Portal Avenue, #110 San Francisco, CA 94127 415-566-5414 A ttorneys for Plaintiffs Grand Canyon Trust and Sierra Club

-43- SIERRA CLUB /s/ Aaron Isherwood Date March 9, 2005 Aaron Isherwood Sierra Club Environmental Law Program

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...PUBLIC SERVICE COMPANY OF NEW MEXICO /s/ Jeffry E. Sterba Date 3/9/05 Jeffry E. Sterba, Chairman President and CEO Approved as to form:
/s/ Richard L. Alvidrez for Daniel S. Reinhardt Randy E. Brogdon TROUTMAN SANDERS, LLP Bank of America Plaza Suite 5200 600 Peachtree Street NE Atlanta, GA 30308-2216 (404) 885-3000 FAX - (404) 885-3995 Richard L. Alvidrez KELEHER & McLEOD, P.A PO Box AA Albuquerque, New Mexico 87103 (505) 346-4646 FAX (505) 346-1370 Henry V. Nickel HUNTON & WILLIAMS 1900 K. Street, NW Washington, D.C. 20006 (202) 955-1500 A ttorneys for Defendant Public Service Company of New Mexico -45- 

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_ dll/EDGAR p ro.dll?FetchFilin g HtmlSection1? ...N EW MEXICO ENVIRONMENT DEPARTMENT /s/ Ron Curry Date 3/9/05 Ron Curry, Cabinet Secretary N ew Mexico Environment Department Approved as to form:
/s/ Eric Ames Eric Ames, Esq. Assistant General Counsel Special Assistant Attorney General N ew Mexico Environment Department 1190 St. Francis Drive Santa Fe, New Mexico 87502-6110 (505) 827-2982 -46- 

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