UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   -----------

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


(X)  COMBINED  ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF  THE
     SECURITIES EXCHANGE ACT OF 1934 
     For the fiscal year ended DECEMBER 31, 1998

                                       OR
( )  TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 
     For the transition period from          to

-------------------------------------------------------------------------------

                              TNP ENTERPRISES, INC.
             (Exact name of registrant as specified in its charter)


                           4100 International Plaza,
                                P. O. Box 2943,               Commission File
 Texas                      Fort Worth, Texas 76113            Number: 1-8847
--------                   -------------------------         ------------------
(State of                 (Address and zip code of 
incorporation)             principal executive offices)
     
Telephone number, including area code:  817-731-0099             75-1907501
                                        ------------         ------------------
                                                             (I.R.S. employer
                                                            identification no.)

Securities registered pursuant to Section 12(b) of the Act:

                              Shares Outstanding           Name of each exchange
Title of each class          on February 28, 1999            on which registered
---------------------        --------------------         ----------------------

Common stock, no par value        13,373,933             New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

             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 if disclosure of delinquent  filers pursuant
      to Item 405 of  Regulation  S-K is not contained  herein,  and will not be
      contained,  to the best of registrant's  knowledge, in definitive proxy or
      information statements  incorporated by reference in Part III of this Form
      10-K or any amendment to this Form 10-K. \ \

             The aggregate  market value of TNP  Enterprises,  Inc. common stock
      held by nonaffiliates on February 28, 1999, was $385,910,255  based on the
      common  stock's  closing price on the New York Stock  Exchange on the same
      date of $29.25 per share.

--------------------------------------------------------------------------------

                         TEXAS-NEW MEXICO POWER COMPANY
             (Exact name of registrant as specified in its charter)

                           4100 International Plaza,
                                P. O. Box 2943,               Commission File
 Texas                      Fort Worth, Texas 76113            Number: 2-97230
--------                   -------------------------         ------------------
(State of                 (Address and zip code of 
incorporation)             principal executive offices)
     

Telephone number, including area code:  817-731-0099           75-0204070
                                        ------------        ------------------
                                                            (I.R.S. employer
                                                            identification no.)

Securities registered pursuant to Section 12(b) of the Act:  None 

Securities registered pursuant to Section 12(g) of the Act: 
                                                          Name of each exchange
Title of each class                                         on which registered
-------------------                                    ------------------------
First mortgage bonds:   Series U, 9.25% due 2000                  None

Secured debentures:     Series A, 10.75% due 2003                 None

              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 if disclosure of delinquent  filers pursuant
      to Item 405 of  Regulation  S-K is not contained  herein,  and will not be
      contained,  to the best of registrant's  knowledge, in definitive proxy or
      information statements  incorporated by reference in Part III of this Form
      10-K or any amendment to this Form 10-K. \X\

              TNP Enterprises,  Inc. holds all 10,705  outstanding common shares
      of Texas-New Mexico Power Company.

--------------------------------------------------------------------------------

                       DOCUMENTS INCORPORATED BY REFERENCE
          Document                                      Part Where Incorporated
          --------                                      -----------------------
Proxy Statement for 1999 Annual Meeting of 
Holders of TNP Enterprises, Inc. Common Stock                       III

<PAGE>


                      TNP ENTERPRISES INC. AND SUBSIDIARIES
                 TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

 Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998

     This  combined  annual  report  on Form  10-K is  filed  separately  by TNP
Enterprises,  Inc. and Texas-New Mexico Power Company.  Information contained in
this  report  relating  to  Texas-New  Mexico  Power  Company  is  filed  by TNP
Enterprises,  Inc. and  separately by Texas-New  Mexico Power Company on its own
behalf. Texas-New Mexico Power Company makes no representation as to information
relating to TNP Enterprises, Inc. or to any other affiliate or subsidiary of TNP
Enterprises, Inc., except as it may relate to Texas-New Mexico Power Company.

                                TABLE OF CONTENTS


Glossary of Terms..........................................................   3

                                    Part I
Item 1.   BUSINESS.........................................................   4
          Introduction.....................................................   4
          TNMP's Service Areas.............................................   4
          Seasonality of Business..........................................   5
          Sources of Energy................................................   5
          Government Regulation............................................   6
          Employees and Executive Officers.................................   6
Item 2.   PROPERTIES.......................................................   8
          Generating Facilities............................................   8
          Transmission and Distribution Facilities.........................   8
          Administrative and Service Facilities............................   8
Item 3.   LEGAL PROCEEDINGS................................................   8
Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............   9

                                   Part II

Item 5.   MARKET FOR REGISTRANTS' COMMON EQUITY
          AND RELATED STOCKHOLDER MATTERS..................................   9
Item 6.   SELECTED FINANCIAL DATA........................... ..............  10
Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS..............................  12
          Competitive Conditions...........................................  12
          Results of Operations............................................  13
          Liquidity and Capital Resources..................................  16
          Other Matters....................................................  19
Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................  20
          TNP Enterprises, Inc. and Subsidiaries...........................  24
          Texas-New Mexico Power Company and Subsidiaries..................  29
          Notes to Consolidated Financial Statements.......................  34
          Selected Quarterly Consolidated Financial Data...................  46
Item 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE..............................  46

                                  Part III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............  47
          Directors........................................................  47
          Executive Officers...............................................  47
Item 11.  EXECUTIVE COMPENSATION...........................................  47
Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...  47
Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................  47

                                  Part IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K... 47


<PAGE>

                      TNP ENTERPRISES INC. AND SUBSIDIARIES
                 TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

 Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998


                                Glossary of Terms

     As used in this combined report, the following abbreviations,  acronyms, or
capitalized terms have the meanings set forth below:

Abbreviation, Acronym,
 or Capitalized Term                           Meaning
----------------------                       -----------
AFUDC ................. Allowance for borrowed funds used during  construction
Bond Indenture......... Document  pursuant to which FMBs are issued
Clear Lake ............ Clear  Lake  Cogeneration  Limited  Partnership  
EPE ................... El Paso Electric  Company 
EPS ................... Earnings  (loss) per share of common stock 
ERCOT.................. Electric Reliability Council of Texas 
FWI.................... Facility Works, Inc., a wholly owned subsidiary of TNP 
FERC .................. Federal  Energy  Regulatory  Commission  
FMB(s)................. One or more  First Mortgage Bonds issued by TNMP 
GWH ................... Gigawatt-Hours  IRS Internal  Revenue Service
ITC ................... Investment Tax Credits 
KWH ................... Kilowatt-Hours  
MW .................... Megawatts 
MWH ................... Megawatt-Hours
NMPRC.................. New Mexico Public  Regulation  Commission  
NMPUC.................. New Mexico Public Utility Commission  
PPM.................... PPM America,  Inc. 
PUCT................... Public  Utility  Commission of Texas 
SPS ................... Southwestern  Public  Service  Company 
SFAS .................. Statement  of Financial  Accounting Standards 
TEP ................... Tucson  Electric  Power Company 
TGC ................... Texas Generating Company, a wholly owned subsidiary  of
                        TNMP 
TGC II................. Texas  Generating  Company II, a wholly owned subsidiary
                        of TNMP  
TNP One................ A  two-unit,  lignite-fueled, circulating fluidized-bed
                        generating plant located in Robertson County, Texas
TNMP................... Texas-New Mexico Power Company, a wholly owned 
                        subsidiary of TNP
TNP ................... TNP Enterprises, Inc.
Transition Plan........ TNMP's transition-to-competition plan in Texas
TU..................... Texas Utilities Electric Company
Unit 1................. The first electric generating unit of TNP One
Unit 2................. The second electric generating unit of TNP One
Y2K  .................. The Year 2000 Issue

Statement Regarding Forward Looking Information

     The discussions in this document that are not historical facts,  including,
but  not  limited  to,  the  continued   application  of  regulatory  accounting
principles,  future cash flows and the potential recovery of stranded costs, are
based upon current expectations. Actual results may differ materially. Among the
facts that could cause the results to differ  materially from  expectations  are
the  following:  legislation  in Texas and New Mexico,  the states TNMP  serves,
affecting the regulation of TNMP's  business;  changes in regulations  affecting
TNP and TNMP's businesses;  PUCT or court disapproval of litigation  settlement;
future  acquisitions or strategic  partnerships;  general  business and economic
conditions,   and  price   fluctuations  in  the  electric  power  market;   the
effectiveness  of TNMP's Y2K  mitigation  plan, and the timely Y2K compliance by
TNP' and TNMP's vendors;  and other factors described from time to time in TNP's
and TNMP's reports filed with the Securities  and Exchange  Commission.  TNP and
TNMP wish to caution  readers  not to place undue  reliance on any such  forward
looking statements, which are made pursuant to the Private Securities Litigation
Reform Act of 1995 and, as such, speak only as of the date made.

<PAGE>
                                     PART I

Item 1.      BUSINESS.

Introduction

     TNP was  organized  as a holding  company  in 1983 and  transacts  business
through  its  subsidiaries.  TNMP is a public  utility  engaged  in  generating,
purchasing, transmitting,  distributing, and selling electricity to customers in
Texas and New Mexico.  TNMP's  predecessor  was organized in 1925.  TNMP has two
subsidiaries,  TGC and TGC II, both of which were organized to facilitate TNMP's
acquisitions of TNP One, Unit 1 and Unit 2, in 1990 and 1991, respectively.

     FWI is a wholly owned  subsidiary of TNP that began operations in 1996. TNP
discontinued  the  construction   operations  of  FWI  in  the  late  1997,  and
discontinued  all remaining  operations in the third quarter of 1998. The impact
of these discontinued operations to TNP's results of operations are described in
Item 7, "Results of Operations--Overall Results," and Note 3.

     TNP, TNMP, TGC, TGC II and FWI are all Texas corporations.  Their executive
offices are located at 4100  International  Plaza,  P.O.  Box 2943,  Fort Worth,
Texas  76113  and the  telephone  number  is (817)  731-0099.  Unless  otherwise
indicated,   all  financial  information  in  this  report  is  presented  on  a
consolidated basis.

TNMP's Service Areas

     TNMP provides  electric  service to 85 Texas and New Mexico  municipalities
and adjacent rural areas with more than 228,000 customers.  TNMP serves a market
niche of smaller to medium sized communities.  Only two of the 85 communities in
TNMP's service area have  populations in excess of 50,000.  TNMP's service areas
are  organized  into  three  operating  regions:  the  Gulf  Coast  Region,  the
North-Central Region, and the Mountain Region.

   Gulf Coast Region
     The Gulf Coast Region  includes the area along the Texas Gulf Coast between
Houston  and  Galveston.  The oil  and  petrochemical  industries,  agricultural
industry and general commercial activity in the Houston area support the economy
of this area.

   North-Central Region
     The North-Central Region extends from Lewisville,  Texas, which is 10 miles
north of Dallas-Fort Worth International  Airport,  to municipalities  along the
Red  River.   TNMP  provides  electric  service  to  a  variety  of  commercial,
agricultural  and petroleum  industry  customers in this area.  This region also
includes  municipalities  and  communities  south and west of Fort  Worth.  This
area's economy depends largely on agriculture  and, to a lesser extent,  tourism
and oil production.

   Mountain Region
     The  Mountain  Region  includes  areas in southwest  and south  central New
Mexico.   This  region's   economy  is  primarily   dependent  upon  mining  and
agriculture.  Copper  mines are the major  industrial  customers in this region.
This  region also  includes  the area in far west Texas  between  Midland and El
Paso.  The economy in this area is based  primarily  on oil and gas  production,
agriculture, and food processing.

     TNMP's revenues in all regions come primarily from retail customers. TNMP's
other sales represent resale of electricity to customers  outside TNMP's system.
Revenues  contributed  by each  operating  sector  and its  percentage  of total
operating revenues in 1998, 1997, and 1996,  respectively,  are set forth in the
following  table.  No single  customer  accounted for more than 10% of operating
revenues during the years presented in the table.
<TABLE>
<CAPTION>
                           Operating Revenues ($000s)

          Sector                    1998                         1997                          1996
         --------           -----------------              -------------------         ---------------------
<S>                       <C>            <C>            <C>               <C>         <C>               <C>  
     Gulf Coast           $  295,181     50.3%          $  315,596        54.3%       $  269,535        53.6%
     North-Central           162,696     27.7              144,098        24.8           134,236        26.7
     Mountain                117,407     20.0              107,243        18.5            98,966        19.7
     Other                    11,161      2.0               13,756         2.4                 -           -
                          ----------    -----           ----------       -------      ----------       -----
        Total             $  586,445    100.0%          $  580,693       100.0%       $  502,737       100.0%
                          ==========    =====           ==========       =====        ==========       =====
</TABLE>

   Franchises and Certificates of Public Convenience and Necessity

     TNMP holds 83  franchises  with terms  ranging  from 20 to 50 years and two
franchises with indefinite terms from the 85 municipalities to which it provides
electric  service.  These  franchises  will expire on various dates from 1999 to
2039.  Three Texas  franchises,  comprising 27% of total company  revenues,  are
scheduled  to expire in 1999.  However,  Texas law does not  require an electric
utility  to  execute  a  franchise  agreement  with a Texas  municipality  to be
entitled  to  provide  or  continue  to provide  electrical  service  within the
municipality. A franchise agreement documents the mutually agreeable terms under
which the service will be provided. TNMP intends to negotiate and execute new or
amended franchise agreements to be effective before existing franchises expire.

     TNMP also holds  PUCT  certificates  of public  convenience  and  necessity
covering all Texas areas that TNMP serves. These certificates include terms that
are  customary  in the public  utility  industry.  TNMP  generally  has not been
required to have  certificates  of public  convenience  and necessity to provide
electric power in New Mexico.

Seasonality of Business

     TNMP experiences  increased sales and operating  revenues during the summer
months as a result of increased air conditioner  usage in hot weather.  In 1998,
approximately  41% of annual revenues were recorded in June, July,  August,  and
September.

Sources of Energy

     TNMP owns one 300 MW lignite-fueled  generating  facility,  TNP One. During
1998,  TNP  One  provided   approximately  20%  of  TNMP's  system  wide  energy
requirements.  Power  generated  at  TNP  One is  transmitted  over  TNMP's  own
transmission  lines to other  utilities'  transmission  systems for  delivery to
TNMP's Texas service area systems.  To maintain a reliable  power supply for its
customers and to coordinate interconnected  operations,  TNMP is a member of the
ERCOT and the Western Systems Coordinating Council.

     TNMP purchases the remainder of its electricity from various suppliers with
diversified  fuel sources.  The availability and cost of purchased power to TNMP
is subject to changes in supplier costs,  regulations and laws, fuel costs,  and
other factors.  TNMP has adequate  resources through its firm contracts to serve
its entire  customer  load.  These  contracts  allow TNMP the option to purchase
power within a specified minimum and maximum range. Purchases on the spot market
are primarily  made in lieu of firm contract  options when the spot market price
represents  savings to TNMP's  customers.  In recent  years TNMP has reduced its
reliance  upon  long-term  power  supply  contracts  in favor of  contracts of a
shorter term. This enhances  TNMP's ability to achieve  greater  purchased power
savings  during periods of decreasing  power costs,  but exposes TNMP to greater
risk in the  presence  of  rising  costs.  For  example,  TNMP  incurred  higher
purchased  power  costs in the  summer  of 1998,  when  the  spot  market  price
ofpurchased power increased sharply.

     The  following  table  illustrates  the  composition  of TNMP's  sources of
electric energy in 1998.

<TABLE>
<CAPTION>
                                                                 Year Contract                 Percent of
                                                                    Expires                  Energy Provided
<S>                                                              <C>                         <C>    
                  Generation
                  TNP One....................................        -                             20%
                  Purchased Power
                  Firm contracts expiring in 1999............        -                              4
                  Firm contracts expiring in 2000-2004
                    Texas Utilities..........................      2002                            18
                    Clear Lake Cogeneration L.P..............      2004                             8
                    Others...................................      Various                          5
                  Firm contracts expiring in 2005 or later...      2005                             2
                  Buy-sell agreements........................        -                             24
                  Spot market purchases......................        -                             19
                                                                                                 ----
                    Total                                                                         100%
                                                                                                 ====
</TABLE>

   Recovering Purchased Power and Fuel Costs

     During 1998,  fuel costs and the energy portion of purchased power costs in
the Texas  jurisdiction  were  recovered  from TNMP  customers  through the fuel
adjustment  clause  authorized  by the  PUCT.  With  the  implementation  of the
Transition  Plan,  the demand portion of purchased  power costs,  which had been
previously  passed through to customers,  are now being  recovered  through base
rates. The fixed fuel recovery factor and the related fuel reconciliation  filed
with the PUCT are described in Note 2. In New Mexico,  TNMP recovered  purchased
power costs as specified by Community ChoiceR,  which was effective May 1, 1997.
This plan  froze  rates  (including  the  recovery  of  purchased  power)  for a
three-year transition period, beginning on the effective date.

Government Regulation

     TNMP is subject to PUCT and NMPRC regulation.  Some of its activities, such
as issuing  securities,  are also subject to FERC  regulation.  Utility industry
regulation  continues  to change  both in  reaction  to, and as a primary  force
behind,  a more  competitive  industry.  These  changes are discussed in Item 7,
"Competitive Conditions."

     In addition to regulation as a utility,  TNMP's facilities are regulated by
the  Environmental  Protection  Agency  and Texas and New  Mexico  environmental
agencies.  TNP One  uses  environmentally  superior  circulating  fluidized  bed
technology that eliminates the need for expensive  scrubbers.  TNMP was allotted
sufficient  emission allowances to comply with the Clean Air Act of 1990 through
the year 2000.  After  2000,  TNMP  expects to  institute  further  controls  or
purchase emission  credits.  During 1998, 1997, and 1996, TNMP incurred expenses
related to air,  water,  and solid  waste  pollution  abatement  (including  ash
removal)  of  approximately  $4.0  million,  $5.0  million,  and  $6.1  million,
respectively.

Employees and Executive Officers

     At December 31, 1998, TNMP had 823 employees, FWI had 58 employees, and TNP
had 4 employees.  The employees are not  represented  by a union or covered by a
collective  bargaining   agreement.   Management  believes  relations  with  its
employees are good.

     Executive  officers  of TNP and  TNMP,  who  are  elected  annually  by the
respective boards of directors and serve at the discretion of the boards, are as
follows:

Name                     Age     Position with TNP

Kevern R. Joyce          52      Chairman, President, & Chief Executive Officer
Jack V. Chambers, Jr.    49      Senior Vice President
Manjit S. Cheema         44      Senior Vice President & Chief Financial Officer
John P. Edwards          56      Senior Vice President
Ralph Johnson            55      Senior Vice President
W. Douglas Hobbs         55      Vice President
R. Michael Matte         45      Vice President
John A. Montgomery       37      Vice President
Michael D. Blanchard     48      Vice President & General Counsel
Patrick L. Bridges       40      Treasurer
Michael J. Ricketts      40      Controller
Paul W. Talbot           42      Secretary

Name                     Age     Position with TNMP

Kevern R. Joyce          52      Chairman, President, & Chief Executive Officer
Jack V. Chambers, Jr.    49      Senior Vice President & Chief Customer Officer
Manjit S. Cheema         44      Senior Vice President & Chief Financial Officer
John P. Edwards          56      Senior Vice President - Corporate Relations
Ralph Johnson            55      Senior Vice President - Power Resources
Dennis R. Cash           45      Vice President & Regional Customer Officer
Allan B. Davis           61      Vice President & Regional Customer Officer
Larry W. Dillon          44      Vice President & Regional Customer Officer
John A. Montgomery       37      Vice President - Marketing
Melissa D. Davis         41      Vice President - Human Resources
Michael D. Blanchard     48      Vice President & General Counsel
Patrick L. Bridges       40      Treasurer
Scott Forbes             41      Chief Information Officer
Michael J. Ricketts      40      Controller
Paul W. Talbot           42      Secretary

     Kevern R. Joyce joined TNP and TNMP in April 1994 as President and Chief
Executive  Officer.  He became Chairman in April 1995

     Jack V.  Chambers has served as Senior Vice  President  and Chief  Customer
Officer of TNMP since 1994 and as Senior Vice President of TNP since April 1996.
He was TNMP's Sector Vice President - Revenue Production from 1990 to 1994.

     Manjit S. Cheema  joined TNMP in June 1994.  He was  Treasurer of TNMP from
June 1994 until  September  1995. In December  1994, he became Vice  President &
Chief Financial Officer of TNP and TNMP. He became Senior Vice President & Chief
Financial  Officer of TNMP in July 1996 and became Senior Vice President & Chief
Financial Officer of TNP in May 1997.

     John P. Edwards joined TNMP and TNP in July 1996 as Senior Vice President -
Corporate Relations. From October 1994 until joining TNMP and TNP, he was Senior
Vice  President/Customer  Group and  Special  Assistant  to the Chief  Operating
Officer,  Tennessee Valley Authority.  His primary responsibilities were general
administration of TVA's transmission  operations,  customer  relationships,  and
regulatory affairs.

     Ralph  Johnson  joined  TNMP and TNP in January  1995 as a  consultant  and
became Vice  President in February  1995. In July 1996, he was named Senior Vice
President - Power  Resources of TNMP. In May 1997, he was appointed  Senior Vice
President at TNP. From March 1991 until he joined TNMP and TNP, Mr.  Johnson was
Assistant General Manager for Tri-State Generation and Transmission  Cooperative
in Denver, Colorado, which sells power to rural electric cooperatives.

     Michael D. Blanchard  became Vice President and General Counsel of TNMP and
TNP in February 1998. He was Corporate Secretary and General Counsel of TNMP and
TNP from 1987 to February 1998.

     Patrick L.  Bridges was  appointed  Treasurer  of TNP and TNMP in September
1995. He served as TNMP's  Director  Finance from 1994 to September  1995 and as
Assistant Treasurer from 1993 to September 1995.

     Dennis R. Cash became a TNMP Vice President and Regional  Customer  Officer
effective March 1999. He served as Vice President - Human Resources of TNMP from
1994 until March 1999.

     Allan B. Davis has been a TNMP Vice President and Regional Customer Officer
since 1994.

     Larry W.  Dillon  has been a TNMP  Vice  President  and  Regional  Customer
Officer since 1994.

     W. Douglas Hobbs was appointed as Vice President - Business  Development of
TNP in May 1997.  He was Vice  President  -  Business  Development  of TNMP from
February  1997 to May 1997. He was a TNMP Vice  President and Regional  Customer
Officer from 1994 to February 1997.

     John A.  Montgomery  was elected  Vice  President  -  Marketing  of TNMP in
November  1998 and became  Vice  President  of TNP in April  1996.  He served as
President of FWI from April 1996 until May 1998.  From  December 1995 to January
1997 he served as TNMP's Vice President - Marketing. From February 1994 until he
joined TNMP, he served as Director of Marketing and Regional  Marketing Director
of Greyhound Lines, Inc., a bus transportation company.

     Melissa D. Davis was  appointed  Vice  President - Human  Resources of TNMP
effective March 1999. She served as a TNMP Vice President and Regional  Customer
Officer from February  1997 until March 1999.  From  September  1995 to February
1997 she was TNMP's Controller.  From 1994 to September 1995, she was Director -
Financial Accounting and Assistant Controller of TNMP.

     Scott Forbes was elected Chief Information Officer of TNMP in June 1998. He
was Controller of TNMP from February 1997 to June 1998 and was Controller of TNP
from May  1997 to June  1998.  From  September  1996 to  February  1997,  he was
Manager-Financial  Systems and Reporting. From January 1994 to September 1996 he
was  Manager-Financial  Reporting and Accounting  Policy with Entergy  Services,
Inc.

     Paul W. Talbot was elected Corporate  Secretary of TNP and TNMP in February
1998. He has been Senior Counsel of TNMP since August 1996. Before joining TNMP,
he was in the private practice of law in Dallas, Texas, for more than ten years.

     R.  Michael  Matte  became  President  of FWI in May 1998 and  became  Vice
President - Business  Development of TNP effective  November 1998.  From January
1997 until joining FWI in May 1998, he was an independent management and utility
services  consultant  in Atlanta,  Georgia.  From March 1996 to January 1997, he
served as Regional  Vice  President  Operations  for ADT Security  Services,  an
electronic  services company,  and from January 1991 to March 1996, he served as
Regional General Manager of ADT.

     Michael J.  Ricketts was elected  Controller  of TNMP and TNP in June 1998.
From November  1996 to June 1998, he was Manager - Accounting  Projects and from
1994 to November 1996, he was Supervisor - Accounting Support of TNMP.

Item 2.      PROPERTIES.

     Substantially  all of TNMP's real and personal  property  secures its FMBs.
Substantially TNMP's entire real and personal property in Texas also secures its
Series A, 10.75% secured debentures.  TNMP's long-term debt is described in Note
6.

Generating Facilities

     TNP  One  is  a  two-unit,  lignite-fueled  generating  plant,  located  in
Robertson County,  Texas. TNP One generates power for TNMP's Texas service areas
and operates as a base load facility.

Transmission and Distribution Facilities

     Management  believes that TNMP's  transmission and distribution  facilities
are of sufficient  capacity to serve  existing  customers  adequately and can be
extended and expanded to serve customer growth for the foreseeable future. These
facilities  primarily  consist of overhead and underground  lines,  substations,
transformers,  and  meters.  TNMP  generally  constructs  its  transmission  and
distribution  facilities  on easements  or public  rights of way and not on real
property held in fee simple.

Administrative and Service Facilities

     TNP's,  TNMP's and FWI's  corporate  headquarters  are located in an office
building in Fort Worth, Texas. Space in this building is leased through 2003.

     TNMP owns or leases  local  offices  in 39 of the  municipalities  that it
serves. TNMP owns 14 construction/service centers in Texas and New Mexico.

Item 3.      LEGAL PROCEEDINGS.

     TNMP and Clear Lake Limited Partnership ("Clear Lake") agreed in March 1999
to settle the lawsuit styled Clear Lake  Cogeneration  Limited  Partnership  vs.
Texas-New  Mexico Power  Company,  pending in the 234th District court of Harris
County,  Texas,  and the  parallel  proceeding  pending  before the PUCT.  These
proceedings  arose out of  disagreements  between  TNMP and Clear  Lake over the
interpretation  of certain  terms of an  agreement  under  which TNMP  purchases
cogenerated electricity from Clear Lake. The settlement,  which must be approved
by the PUCT, resolves all outstanding issues raised in these proceedings.

     Under the settlement,  TNMP,  Clear Lake and Calpine Power Services Company
(an  affiliate  of Clear  Lake)  have  entered  into a revised  purchased  power
contract,  effective  as of  October  1, 1998,  governing  energy  and  capacity
transactions between the parties. The key elements of the revised contract are:

    -     The capacity rate under which TNMP will  purchase  capacity from Clear
          Lake   is   significantly  reduced.   The  energy  rate  is  virtually
          unchanged.

    -     Clear Lake will be able to provide  250 MW of capacity  from  multiple
          sources. Except for power plants named in the agreement,  TNMP retains
          certain  rights of prior  approval  as to other  sources  of power and
          energy.

    -     TNMP will pay for the cost of  transmitting  power  from the  existing
          Clear Lake power plant to TNMP's load centers in the Gulf Coast Region
          pursuant to new PUCT  rules.  Clear Lake will  reimburse  TNMP for any
          excess  transmission  costs  that  TNMP  would  incur as a  result  of
          delivery from points other than the Clear Lake Plant.

    -     Clear Lake will no longer pay for nor receive standby power,  but will
          generally  guarantee 100%  availability of capacity and energy.  Clear
          Lake may request that TNMP obtain or generate  replacement  power at a
          negotiated fixed cost under certain limited conditions.

    -     Future   disputes   shall  be  resolved   through   consultation   and
          arbitration.

     The settlement  also provides that TNMP will pay Clear Lake $8 million when
the PUCT has  approved  the  overall  settlement  and  revised  purchased  power
contract.  The settlement calls for regulatory  recovery by TNMP of all payments
to be made by TNMP for power and  energy,  as well as the $8 million  settlement
payment.  TNMP does not expect this settlement to have a material adverse impact
on its financial position or results of operations.

    TNMP is the  defendant  in a suit  styled  Phillips  Petroleum  Company  vs.
Texas-New Mexico Power Company. This lawsuit was filed on October 1, 1997 and is
pending in the 149th Judicial District Court of Brazoria County,  Texas. In this
matter, Phillips Petroleum Company contends that it sustained economic losses of
approximately  $36 million following a one and one-half hour interruption in its
electrical  service  on May 17,  1997.  TNMP  claims  that  most,  if not all of
Phillips  Petroleum  alleged damages are barred by limitations  contained within
our tariff approved by the PUCT. The lawsuit is in the initial  discovery stage.
In regard to this matter,  TNMP believes that it has insurance  coverage on most
claims of  Phillips  Petroleum  up to a total of $31  million,  with a  $500,000
self-retention.

     Information  regarding additional  regulatory and legal matters is provided
in Notes 2 and 9.



Item 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No  matters  were  submitted  to a vote of  security  holders in the fourth
quarter of 1998.


                                     PART II

Item 5.  MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     TNP's  common  stock is traded  on the New York  Stock  Exchange  under the
symbol  "TNP." The high and low prices of, and the amount of dividends  declared
and paid on,  TNP's  common  stock  during each quarter in 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>

                                                                                            TNP
                                            MARKET PRICE RANGE                           DIVIDENDS
                                      1998                      1997                       PAID
                              --------------------     ----------------------      -----------------
             QUARTER           HIGH           LOW        HIGH           LOW          1998       1997
             -------           ----           ---        ----           ---          ----       ----
<S>                           <C>         <C>           <C>           <C>           <C>        <C>

             First            $33 7/8     $31 5/16      $27 3/4       $21 3/8       $ 0.27     $ 0.245
             Second            34 1/32     30 11/16      24            18 7/8         0.27       0.245
             Third             34 15/16    29            25 15/16      22 15/16       0.27       0.245
             Fourth            38 11/16    31 3/8        33 3/4        24 7/16        0.29       0.270
                                                                                   -------    --------
                                                                                    $ 1.10     $ 1.005
                                                                                    ======     =======
</TABLE>

     As of January 31, 1999,  there were  approximately  3,481 record holders of
TNP common stock.

     TNP holds all 10,705  outstanding  common  shares of TNMP.  During 1998 and
1997, TNMP paid common dividends to TNP as follows (in thousands):

                        QUARTER           1998                1997
                        -------           ----                ----
                         First         $  10,000          $    9,000
                         Second            3,600              11,800
                         Third             5,500               9,500
                         Fourth               -               14,000
                                         ---------          ---------
                         Total         $  19,100          $   44,300
                                         =========          =========
<PAGE>
<TABLE>
<CAPTION>

Item 6.  SELECTED FINANCIAL DATA.

     The following table sets forth selected  financial data of TNP and TNMP for
1994 through 1998.

                                                          1998             1997            1996             1995           1994
                                                     --------------  ------------   ---------------  -------------    ------------
<S>                                                  <C>             <C>            <C>              <C>              <C>   
TNP ENTERPRISES, INC.                                          (In thousands except per share amounts and percentages)
Consolidated results
    Operating revenues                                $  586,493      $  580,693     $    502,737     $   485,823      $   477,989
    Income (loss) from continuing operations before
      the cumulative effect of change in accounting   $   32,134      $   42,561     $     26,150     $    33,060      $   (17,441)
    Net income (loss)                                 $   19,424      $   29,678     $     23,053     $    41,505      $   (17,441)
Total assets                                          $  993,765      $  991,926     $  1,006,784     $ 1,030,433      $ 1,054,488
Common shares outstanding
    Weighted average                                      13,244          13,083           11,465          10,901           10,750
    End of year                                           13,294          13,133           13,006          10,920           10,866


Per share of common stock
    Earnings (loss) from continuing operations before
      the cumulative effect of change in accounting   $     2.42      $     3.24     $       2.27     $      2.98      $     (1.70)
    Earnings (loss)                                   $     1.46      $     2.26     $       2.00     $      3.75      $     (1.70)
    Cash dividends declared                           $     1.10      $     1.00     $       0.93     $      0.82      $      1.22
    Book value                                        $    23.19      $    22.71     $      21.41     $     19.91      $     17.01
Capitalization
    Common shareholders' equity                       $  308,294      $  298,241     $    278,474     $   217,457      $   184,869
    Preferred stock                                        3,060      $    3,240     $      3,420     $     3,600      $     8,680
    Long-term debt, less current maturities              459,000      $  478,041     $    533,964     $   611,925      $   682,832
                                                     ============   =============   ==============   =============    =============
       Total capitalization                           $  770,354      $  779,522     $    815,858     $   832,982      $   876,381
                                                     ============   =============   ==============   =============    =============
Capitalization ratios
    Common shareholders' equity                             40.0%           38.3%            34.1%           26.1%            21.1%
    Preferred stock                                          0.4             0.4              0.4             0.4              1.0
    Long-term debt, less current maturities                 59.6            61.3             65.5            73.5             77.9
                                                     ============   =============   ==============   =============    =============
       Total capitalization                                100.0%          100.0%           100.0%          100.0%           100.0%
                                                     ============   =============   ==============   =============    =============


TEXAS-NEW MEXICO POWER COMPANY
Consolidated results
    Operating revenues                                $  586,445      $  580,693     $    502,737     $   485,823      $   477,989
    Income (loss) before the cumulative effect
      of change in accounting                         $   34,321      $   43,918     $     26,862     $    33,364      $   (16,634)
    Net income (loss)                                 $   34,321      $   43,918     $     26,862     $    41,809      $   (16,634)
Total assets                                          $  973,566      $  967,006     $  1,002,157     $ 1,024,943      $ 1,043,178
Capitalization
    Common shareholder's equity                       $  302,096      $  287,021     $    287,548     $   224,351      $   185,777
    Preferred stock                                   $    3,060      $    3,240     $      3,420     $     3,600      $     8,680
    Long-term debt, less current maturities           $  450,000      $  477,900     $    533,800     $   611,925      $   682,832
                                                     ============   =============   ==============   =============    =============
       Total capitalization                           $  755,156      $  768,161     $    824,768     $   839,876      $   877,289
                                                     ============   =============   ==============   =============    =============
Capitalization ratios
    Common shareholder's equity                             40.0%           37.4%            34.9%           26.7%            21.2%
    Preferred stock                                          0.4             0.4              0.4             0.4              1.0
    Long-term debt, less current maturities                 59.6            62.2             64.7            72.9             77.8
                                                     ============   =============   ==============   =============    =============
       Total capitalization                                100.0%          100.0%           100.0%          100.0%           100.0%
                                                     ============   =============   ==============   =============    =============


</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                         TEXAS-NEW MEXICO POWER COMPANY
                          SELECTED OPERATING STATISTICS

                                                   1998              1997             1996             1995             1994
                                             ------------------ ---------------  ---------------  ---------------  ---------------
<S>                                          <C>                <C>              <C>              <C>              <C>       
Operating revenues (in thousands):
    Residential*                                  $    225,870    $    211,398      $   206,748      $   200,455      $   194,933
    Commercial*                                        164,800         155,539          150,034          148,908          141,886
    Industrial*                                        150,883         170,169          129,972          113,728          122,714
    Other*                                              33,731          29,831           15,983           22,732           18,456
    Power Marketing                                     11,161          13,756                -                -                -
                                             ================== ===============  ===============  ===============  ===============
         Total                                    $    586,445    $    580,693      $   502,737      $   485,823      $   477,989
                                             ================== ===============  ===============  ===============  ===============

Sales (MWH):
    Residential                                      2,439,478       2,251,119        2,230,558        2,141,553        2,085,621
    Commercial                                       1,883,422       1,772,591        1,725,650        1,681,130        1,618,840
    Industrial                                       4,981,773       5,523,907        3,797,776        2,704,159        2,652,844
    Other                                              113,535         107,847          108,039          113,985          114,190
    Power Marketing                                    425,216         494,705                -                -                -
                                             ================== ===============  ===============  ===============  ===============
         Total                                       9,843,424      10,150,169        7,862,023        6,640,827        6,471,495
                                             ================== ===============  ===============  ===============  ===============

Number of customers (at year end):
    Residential                                        197,155         192,005          187,796          183,863          185,364
    Commercial                                          30,884          30,289           29,864           29,361           30,624
    Industrial                                             138             139              135              136              142
    Other                                                  227             222              224              244              237
    Power Marketing                                         16              16                -                -                -
                                             ================== ===============  ===============  ===============  ===============
         Total                                         228,420         222,671          218,019          213,604          216,367
                                             ================== ===============  ===============  ===============  ===============

Revenue statistics:
    Average annual use per residential
      customer (KWH)                                    12,491          11,835           11,973           11,476           11,354
    Average annual revenue per residential
      customer (dollars)                                 1,157           1,111            1,110            1,074            1,061
    Average revenue per KWH sold
      per residential customer (cents)                    9.26            9.39             9.27             9.36             9.35
    Average revenue per KWH sold
      total sales (cents)                                 5.96            5.72             6.39             7.32             7.39

Net generation and purchases (MWH):
    Generated                                        2,062,958       2,089,448        2,296,056        2,351,000        2,336,830
    Purchased                                        8,256,857       8,443,990        5,769,173        4,612,186        4,472,306
                                             ================== ===============  ===============  ===============  ===============
       Total                                        10,319,815      10,533,438        8,065,229        6,963,186        6,809,136
                                             ================== ===============  ===============  ===============  ===============

Average cost per KWH purchased (cents)                    3.38            3.09             3.51             3.87             4.35

Employees (year-end)
    Texas-New Mexico Power Company                         823             811              819              858              894
    Facility Works                                          58             494              116                -                -
    TNP Enterprises                                          4               -                -                -                -

</TABLE>

<PAGE>

                                                             
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
        CONDITION AND RESULTS OF OPERATIONS.

           SIGNIFICANT EVENTS AND KNOWN TRENDS AFFECTING TNP AND TNMP

Competitive Conditions

     The  electric   utility  industry   continues  its  transition   toward  an
environment  of increased  competition.  TNMP expects the portions of operations
pertaining  to  transmission  and  distribution  to  continue  to be  regulated.
Pressures that underlie the movement toward increasing  competition are numerous
and complex.  They include  legislative  and regulatory  changes,  technological
advances,  consumer demands,  greater availability of natural gas, environmental
needs, and other factors.  The  increasingly  competitive  environment  presents
opportunities  to  compete  for new  customers,  as well as the  risk of loss of
existing customers.

     The most  significant  effect  of  competition  on  TNMP,  as well as other
utilities,  will be the ability to recover potential  stranded costs.  "Stranded
costs" is the difference between what it costs TNMP to provide energy and what a
customer  would be  willing  to pay for  energy  in a  competitive  market.  The
inability to recover a  significant  portion of stranded  costs would  adversely
impact TNP's and TNMP's financial condition. In Texas, TNMP's potential stranded
cost relates to TNP One, its 300 MW generating  unit,  and could  potentially be
more than $270 million. In New Mexico, TNMP's potential stranded cost relates to
its fixed purchased power contracts.  As of December 31, 1998, TNMP had reserved
$3.4 million for its potential stranded costs in New Mexico. Additional stranded
costs could potentially be zero to $7 million,  depending on the market price of
purchased power at the onset of competition.

     Legislators in both Texas and New Mexico have introduced bills that propose
to open the business to competition. The bills also address recovery of stranded
costs. In Texas,  TNMP's  Transition Plan includes  provisions for modifying the
plan so that it conforms to subsequently enacted legislation

     The following discusses TNMP's strategy to transition to competition and to
provide TNMP the ability to recover its  potential  stranded  costs in Texas and
New  Mexico.  Although  the  recoverability  and  amount  of  stranded  costs is
uncertain,  management  realizes  there is some  risk that  shareholders  may be
required to share the financial burden of stranded costs with customers.

   Texas Transition Plan

     On July 22, 1998, the PUCT approved  TNMP's  Transition  Plan, and issued a
final order  documenting  its approval on November 7, 1998. The Transition  Plan
includes a number of provisions that impact TNMP's financial results. They are:

           -      TNMP will  implement  a series of  residential  and commercial
                  rate  reductions  totaling 9% and 3%,  respectively,  during a
                  five-year  transition  period.  The first rate  reductions for
                  residential   and   commercial   customers   of  3%  and   1%,
                  respectively, were implemented retroactive to January 1, 1998.
                  The remaining  reductions will be effective in January of 2000
                  and 2001.

           -      TNMP's  earnings  on its Texas  operations  are  capped  at an
                  11.25%  return on equity less assumed  discounts on industrial
                  rates,  which,  for 1998,  were  $4.1  million.  In 1999,  the
                  discounts are expected to be approximately $2.9 million.  TNMP
                  will  apply  Texas  earnings  in excess of the cap to  recover
                  stranded costs related to its generation  investment (TNP One)
                  or  will  refund  them  to   customers,   according   to  PUCT
                  guidelines.

           -      The Plan includes a cap on allowed  operating  and maintenance
                  expenses  applicable to TNMP's Texas  operations based on cost
                  incurred per customer in 1996.

           -      TNMP  will  record  $15  million  of  additional  depreciation
                  annually during 1999-2002 to recover stranded costs.

           -      Finally,  the  manner  in  which  TNMP  recovers  the  cost of
                  purchased  power from its customers has changed.  In the past,
                  all of these  costs  were  passed  directly  through to TNMP's
                  customers via adjustment factors that could change as often as
                  monthly.  Under this methodology,  purchased power expense had
                  no impact on operating  income.  Effective  with the new rates
                  under the Transition Plan, only the energy-related  portion of
                  purchased  power will be passed through  directly to customers
                  via the fuel adjustment clause. The demand-related  portion of
                  purchased  power will be  recovered  through base rates and is
                  not subject to adjustment or future reconciliation. Therefore,
                  any difference, between the amount of demand-related purchased
                  power  recovered  through  TNMP's rates and the actual cost of
                  such, will affect operating income.

     Absent  legislation  implementing  retail  competition,  at the  end of the
five-year  transition  period,  TNMP  shall  file  with the PUCT a  proposal  to
voluntarily  implement  retail  access,  contingent  upon  the  approval  of  an
appropriate mechanism for recovery of any remaining stranded costs. The PUCT has
committed  to full  recovery of stranded  costs if they are  quantified  using a
market-based  methodology,  TNMP offers retail  access,  and stranded  costs are
allocated fairly to all customers.

     During the year ended December 31, 1998, the Transition Plan reduced TNMP's
operating  income as summarized in the table below (amounts in thousands  except
per share items):
<TABLE>
<CAPTION>

                                                                Pre-tax amounts              Per share
<S>                                                                <C>                        <C>

                  One-time charges:
                     Costs to implement the plan                   $  3,300                   $ 0.17
                     One-time customer refund                         1,447                     0.06
                                                                   --------                   ------
                         Subtotal                                     4,747                     0.23
                                                                   --------                   ------

                   1998 impacts:
                     Rate structure change                            9,940                     0.49
                     Lower recovery of demand
                      purchased power expenses                        7,548                     0.37
                                                                   --------                   ------
                         Subtotal                                   $17,488                     0.86
                                                                    -------                   ------

                         Total effect of the plan                   $22,235                   $ 1.09
                                                                   ========                   ======
</TABLE>

     The combination of the one-time  customer refund and  implementing the rate
structure change reduced  operating revenue by $11.4 million  (pre-tax).  TNMP's
earnings  for the year ended  December  31, 1998 did not exceed the earnings cap
imposed by the Transition  Plan.  The Transition  Plan includes a provision that
allows the PUCT to review TNMP's earnings and the related earnings cap.

   New Mexico Community Choice

     On April 11,  1997,  the  NMPUC  approved  TNMP's  plan for  transition  to
competition in its New Mexico service territory,  called Community Choice.  TNMP
implemented  Community Choice  effective May 1, 1997.  Community Choice provides
TNMP's  customers  the  right  to  choose  their  electricity  provider  after a
three-year  transition period. The plan freezes rates (including the recovery of
purchased  power)  during  the  transition   period,  and  allows  for  customer
aggregation  based on market forces.  As of December 31, 1998, TNMP had reserved
$3.4 million for its potential stranded costs in New Mexico.


   Impact of Competition on TNMP

     In addition to pursuing the  satisfactory  resolution  of the stranded cost
issue, TNMP is pursuing  strategies to retain and attract new customers.  TNMP's
competitive  position  has  been  strengthened  with  the PUCT  open  access  to
transmission rule.  Management believes TNMP's revenue growth  opportunities are
through an increased customer base and new services.

     As noted  above,  the  Transition  Plan  changes the way TNMP  recovers the
demand  component of purchased  power.  The change  increases the risk that TNMP
will have to absorb  increases in the demand cost of purchased  power,  while at
the same time it allows  TNMP to retain the  benefit of  savings  realized  from
lowering  these costs.  TNMP is actively  managing its resources to optimize the
rewards and diminish the risks in it power supply portfolio.


Results of Operations

   Overall Results

     Income  applicable to common stock was $19.3 million for 1998,  compared to
$29.5  million  in  1997.  The  1998  results   included  the  effect  of  FWI's
discontinued  operations of $12.7 million, and costs to implement the transition
plan of $3.0 million.  The 1997 results included a $12.9 million loss associated
with FWI's  discontinued  operations.  Exclusive  of  one-time  items,  the 1998
earnings  were $35.0  million,  a $7.4 million  decrease as compared to the 1997
earnings of $42.4 million.

     Income  applicable to common stock was $22.9  million in 1996.  Results for
1996 included a $3.1 million loss associated with FWI's discontinued operations,
and a $1.3 million after tax charge for the settlement of litigation  associated
with the Series T FMB  retirement in 1995.  Excluding the one-time  items,  1997
earnings were $15.1 million higher than 1996 earnings of $27.3 million.

     The following  table sets forth results of operations  for 1998,  1997, and
1996 and the impact of one-time items:
<PAGE>

<TABLE>
<CAPTION>

                                                           1998                    1997                    1996
                                                   ------------------      -------------------      -----------
                                                    Amount      EPS         Amount       EPS        Amount         EPS
                                                   -------    -------     ---------   ---------    ---------      -------
                                                                    (In thousands except per share amounts)
<S>                                                <C>        <C>         <C>         <C>          <C>            <C>

Income applicable to common
    stock before one-time items..................  $  34,969  $  2.65     $  42,403   $    3.24    $  27,283      $ 2.38
                                                   ---------  --------    ----------  ----------   ---------      ------

One-time items, net of income taxes:
    Discontinued operations of FWI...............    (12,710)   (0.96)      (12,883)      (0.98)      (3,097)      (0.27)
    Transition plan costs........................     (2,985)   (0.23)           -           -           -            -
    Series T litigation settlement...............         -         -            -           -        (1,300)      (0.11)
                                                   ---------  --------    ----------   ---------   ----------     ------
       Total one-time items, net................     (15,695)   (1.19)      (12,883)      (0.98)      (4,397)      (0.38)
                                                   ---------  --------    ----------   ---------    ---------     ------

Income applicable to common stock...............   $  19,274    $1.46     $  29,520   $    2.26    $  22,886      $ 2.00
                                                   =========  ========    ==========  ==========   ==========     ======

</TABLE>

     Beginning  in 1996,  FWI's  operations  included  construction  and service
activities.  In late 1997,  management  reevaluated FWI's strategy and adopted a
revised  strategy to  concentrate on service and  maintenance  activities and to
discontinue the  construction  segment.  In 1998, TNP elected to discontinue all
remaining operations of FWI. See Note 3 for additional information regarding the
discontinued operations.

   The operations of TNMP  currently  represent  most of TNP's  operations.  The
following   discussion  focuses  on  TNMP's  operations,   except  where  stated
otherwise.

   Operating Revenues

     The following  table  summarizes the  components of operating  revenues (in
thousands).
<TABLE>
<CAPTION>

                                                                                         Increase (Decrease)
                                                 1998        1997         1996         `98 v. `97  `97 v. `96
                                             ----------   ---------    ----------    ------------ -----------
<S>                                          <C>          <C>          <C>           <C>          <C>

Operating revenues                           $  586,445   $ 580,693    $  502,737      $   5,752    $   77,956

Purchased power & fuel expenses                 316,911     302,773       243,682         14,138        59,091
                                             ----------   ---------    ----------      ---------     ---------

Base revenues                                $  269,534   $ 277,920    $  259,055      $  (8,386)    $  18,865
                                             ==========   =========    ==========      =========     =========
</TABLE>


      Purchased   power  &  fuel   expenses   are   discussed   in  "Results  of
Operations--Operating Expenses."

      The  following  table  summarizes  the  components  of the  base  revenues
increase (decrease) from 1998 to 1997 and from 1997 to 1996 (in thousands).
<TABLE>
<CAPTION>
                                                                                       `98 v. `97   `97 v. `96
                                                                                       ----------   ----------
<S>                                                                                    <C>           <C>     

                       Weather related                                                    $11,711    $    (332)
                       Customer growth                                                      4,896        4,053
                       Reserve for Texas customer refunds                                 (10,971)          -
                       Lower recovery of Texas demand purchased power costs                (7,548)          -
                       Industrial - firm rate sales                                        (9,020)      (2,448)
                       Industrial - Texas economy rate sales                                  148        5,331
                       Transmission revenue                                                   831        8,251
                       Unbilled revenue and other                                           1,567        4,010
                                                                                        ---------    ---------
                            Base revenues increase (decrease)                            $ (8,386)     $18,865
                                                                                         =========     =======
</TABLE>

     The base revenue  decrease of $8.4 million  during 1998 resulted  primarily
from  the  implementation  of the  Texas  Transition  Plan  and  the  loss  of a
significant  industrial  customer  (see  Note 9).  As  discussed  in Note 2, the
Transition  Plan had the effect of  reducing  base rate  revenues  and  reducing
recovery of demand  purchased power costs.  Offsetting the base revenue decrease
were increased  sales due to hotter than normal  weather during the summer,  and
customer growth in the residential and commercial classes.

     The base revenue  increase of $18.9 million during 1997 resulted  primarily
from  implementing  the new  transmission  access rules  during 1997,  growth in
residential  and  commercial  customers,  and a full  year of  operation  of its
control area in Texas that TNMP  implemented  on July 31, 1996. The control area
is an electrical system that enables TNMP to instantaneously  balance its system
resources with loads. Implementation of the control area enabled TNMP to enhance
its industrial economy rate sales,  non-industrial  standby revenues,  and power
marketing  sales.  The control area also permitted TNMP to replace standby power
for TNP One with the purchase of planning reserves.

     The  components  of GWH  sales  for 1998 and  1997  are  summarized  in the
following table:
<TABLE>
<CAPTION>

                                                   1998          1997     Variance        %
                                                   ----          ----     --------     -----
<S>                                               <C>          <C>        <C>          <C>

         Residential                              2,440         2,251         189        8.4
         Commercial                               1,883         1,772         111        6.3
         Industrial:
           Firm                                     505         1,080        (575)     (53.2)
           Economy                                4,476         4,444          32        0.7
         Power marketing                            425           495         (70)     (14.1)
         Other                                      114           108           6        5.6
                                                 ------       -------     -------      -----
               Total GWH sales                    9,843        10,150        (307)      (3.0)
                                                  =====       =======     =======      =====
</TABLE>


     1998  sales  decreased  307 GWHs  (or 3%),  from  1997  levels,  due to the
movement of a significant  industrial  customer to self-generation and decreased
off-system  sales.  This decrease was partially offset by increased  residential
and commercial sales due to hotter-than-normal weather and customer growth.

     As discussed in "Competitive Conditions--Texas Transition Plan" and Note 2,
the PUCT approved the Texas  Transition  Plan during 1998. The  Transition  Plan
includes a five-year  transition  period,  with a series of rate  reductions for
residential and commercial  customers  beginning in 1998. The agreement provides
for TNMP to  recover  a portion  of its  potential  stranded  costs  during  the
transition  period.  Also,  TNMP's  earnings on Texas  operations  are capped at
11.25% return on equity less assumed discounts on industrial  rates,  which, for
1998, were $4.1 million.  Texas earnings in excess of the cap will be applied by
TNMP to recover stranded costs related to its generation investment (TNP One) or
refunded to customers. During 1998, TNMP did not have any excess earnings on its
Texas  operations.  This  was  primarily  due to  higher  than  expected  demand
purchased  power costs as discussed in "Operating  Expenses - Purchased  Power &
Fuel."

     As discussed in "Competitive  Conditions--New  Mexico Community Choice" and
Note 2, TNMP implemented its Community Choice plan in New Mexico on May 1, 1997.
The plan provides  TNMP's  customers  the right to choose their energy  provider
after a three-year  transition  period and freezes rates (including the recovery
of purchased power) during the transition  period.  The rates represent a slight
reduction  as compared to rates in effect prior to May 1997.  The reduced  rates
have not had a material adverse effect on TNP's or TNMP's financial condition.

     A significant  industrial  customer in Texas left TNMP's system in February
1998 and  replaced  the power  previously  provided  by TNMP with  power  from a
cogeneration  plant  built  by a third  party  wholesale  power  producer.  This
customer  provided sales of 629 GWH and annual revenues of $28.3 million in 1997
($10.1  million in base  revenues).  Purchases by this  customer in 1998 were 74
GWH, providing total revenues of $3.1 million and base revenues of $0.9 million.

     During late 1997, TNMP renegotiated with a large industrial customer in New
Mexico to  continue  providing  full  service  until  the end of the New  Mexico
Community Choice transition period (April 30, 2000).  Effective January 1, 1999,
this customer  reduced its firm purchased power commitment by 55%. After the end
of the transition  period,  TNMP will provide firm transmission  service to this
customer,  and this  customer  can  purchase  its KWH  requirements  on the open
market.  Currently,  TNMP is this customer's lowest cost U.S. electric supplier.
This customer  provided sales of 1,101 GWH and revenues of $39.9 million in 1998
($11.9 million in base revenues).

   Operating Expenses

     Operating  expenses for 1998 were $18.1  million  higher than in 1997,  due
primarily to higher purchased power expenses.

     Operating  expenses for 1997 were $72.4  million  higher than in 1996,  due
primarily to higher  purchased  power  expenses  stemming from  increased  sales
requirements under agreements with two cogeneration customers and income taxes.


   Purchased Power & Fuel Expenses

   The following  table  summarizes the  components of purchased  power and fuel
expenses (in thousands).
<PAGE>

<TABLE>
<CAPTION>

                                                                                       Increase (Decrease)
                                                1998         1997         1996     `98 v. `97   `97 v. `96
                                             ----------   ----------   ----------  ----------   ---------
Pass-through expenses
<S>                                          <C>          <C>          <C>         <C>          <C>  

   Purchased power                           $  155,679   $  259,605   $  196,481  $ (103,926)  $  63,124
   Fuel                                          38,299       39,676       45,300      (1,377)     (5,624)
                                             ----------   ----------   ----------  ----------   ---------
     Subtotal                                   193,978      299,281      241,781    (105,303)     57,500
   Non pass-through purchased power             121,287        1,438           -      119,849       1,438
   Other                                          1,646        2,054        1,901        (408)        153
                                             ----------   ----------   ----------  ----------   ---------
     Total                                   $  316,911   $  302,773   $  243,682  $   14,138   $  59,091
                                             ==========   ==========   ==========  ==========   =========
</TABLE>

    During 1998,  purchased  power and fuel expenses  increased by $14.1 million
due to increased purchased power expenses during the  hotter-than-normal  summer
weather,  recognition of expenses in compliance  with the  Transition  Plan, and
settlement of a billing  dispute.  As discussed in Note 2, the  Transition  Plan
changes  the method of  recovering  purchased  power  expenses  from  customers.
Effective January 1, 1998, only the energy-related portion of purchased power is
passed  through  directly to customers via the fixed fuel recovery  factor.  The
demand-related  portion of purchased power will be recovered through base rates.
Therefore,  any difference between the amount of demand-related  purchased power
recovered  through  TNMP's  rates and the  actual  costs will  affect  operating
income. Texas demand charges are $98.3 million of the $121.3 million shown above
as non pass-through  purchased  power.  Firm purchased power costs in New Mexico
account for the remainder.  Recovery of demand purchased power in Texas amounted
to $90.8  million in 1998,  resulting  in a reduction of $7.5 million in pre-tax
operating  income.  Prior to January 1, 1998,  the majority of  purchased  power
costs were recoverable from customers via a recovery clause.

    During 1997,  purchased  power and fuel expenses  increased by $59.1 million
primarily due to additional MWHs purchased to meet increased sales  requirements
from the agreements  negotiated with the two  cogeneration  customers during the
second quarter of 1996.

   Other Operating Expenses

     Other  operating  expenses in 1998  increased by $6.9  million  compared to
1997.  This resulted from  additional  transmission  expenses of $3.1 million as
compared to 1997,  and the $3.3 million  write-off of deferred  costs related to
the Transition Plan, as discussed in "Competitive  Conditions--Texas  Transition
Plan" and Note 2.

     Other operating expenses in 1997 were comparable to 1996. Cost savings from
reduced  standby  expenses  resulting  from  implementation  of the control area
offset a $2.0 million increase in the Texas transmission expenses.

   Interest Charges

     During 1998,  interest  charges  decreased  $3.2  million due  primarily to
reduced borrowings and lower interest rates on the credit facilities.

     During 1997,  interest charges decreased $12.5 million due primarily to the
retirement  of  Series  T FMBs in  January  1997 and  applying  cash  flow  from
operations  to reduce debt  levels.  The 11.25%  Series T FMBs were retired with
lower cost borrowings from the credit facilities and an equity contribution from
TNP in late 1996, resulting from its common stock sale.

     In January  1999,  TNMP  retired  its 12.5%  secured  debentures  when they
matured. It also issued $175 million of 6.25% Senior Notes due in 2009. Interest
charges  are  expected  to  continue  to  decrease  during 1999 due to the lower
interest  rate on the Senior  Notes and  reduced  borrowings  against the credit
facilities.


Liquidity and Capital Resources

   Sources of Liquidity

     The main  sources  of  liquidity  for TNP are cash  flow  from  operations,
borrowings from credit facilities and sale of additional common stock.

     TNP's cash flow from operations  totaled $72.9 million,  $103.9 million and
$65.2 million in 1998,  1997 and 1996.  Cash flow from  operations  decreased in
1998 due to  increases in  purchased  power costs and expenses for  nonregulated
activities. In addition, 1997 cash flow included $20.5 million from the one-time
factoring of unbilled accounts receivables.  Cash flow from operations increased
in 1997 from 1996 due to  factoring  unbilled  receivables  and  increased  base
revenues. The changes in TNMP's cash flow from operations mirrored those of TNP.

     TNMP has two  existing  credit  facilities  with a total of $100 million of
unused  borrowings  available,  as of December 31, 1998. In January  1999,  TNMP
entered  into a third  credit  facility  that  provides $35 million of borrowing
capacity through April 1999.

     In November  1998,  TNP  entered  into a new credit  facility  with a total
commitment  of $50  million,  and unused  borrowing  capacity  of $41 million at
December 31, 1998.  Borrowings  under this facility can be used for investing in
TNP's  subsidiaries,  payment of dividends to TNP's  shareholders,  investing in
nonregulated businesses, and other general corporate purposes.

     TNP  reserved one million  shares of common  stock for  issuance  through a
direct stock  purchase plan that began in 1997.  The plan is designed to provide
investors  with a  convenient  method to purchase  shares of TNP's  common stock
directly from the company and to reinvest cash dividends.  The plan has replaced
TNP's prior dividend  reinvestment  plan. As of December 31, 1998, the remaining
reserve for direct stock purchase plan was 946,000 shares.

   Capital Resources

     TNP's and TNMP's  capital  structure  continued to improve  during 1998, as
TNMP was able to reduce debt due to continued  strong earnings for the year. The
equity portion of TNP's capital  structure  increased from 38.3% at December 31,
1997,  to 40.0% at December  31,  1998.  Conversely,  the  long-term  debt ratio
decreased  from 61.3% to 59.6% for the same  period.  TNMP  experienced  similar
results with its capital ratios.

     TNMP's  capital  requirements  through 2003 are  projected to be as follows
(amounts in millions):
<TABLE>
<CAPTION>

                                                              1999       2000        2001     2002      2003
                                                            -------   --------    --------  --------   -------
<S>                                                         <C>       <C>         <C>       <C>        <C>

     FMB and secured debenture maturities (see Note 6)      $    -    $  100.0    $     -   $    -     $ 140.0
     Capital expenditures                                      37.7       33.5        33.8     35.3       36.5
                                                            -------   --------    --------  -------    -------

       Total capital requirements                           $  37.7   $  133.5    $   33.8  $  35.3    $ 176.5
                                                            =======   ========    ========  =======    =======
</TABLE>

     TNMP  believes  that cash flow from  operations,  borrowings in the capital
markets,  and periodic borrowings under the credit facilities will be sufficient
to meet working capital  requirements and planned capital  requirements  through
the foreseeable future.

Other Matters

Application of SFAS 71

     As a result of the  Energy  Policy Act of 1992 and  actions  of  regulatory
commissions,  the electric  utility  industry is moving toward a combination  of
competition and a modified regulatory  environment.  TNMP's financial statements
currently  reflect  assets  and costs  based on  current  cost-based  ratemaking
regulations  in accordance  with SFAS 71,  Accounting for the Effects of Certain
Types of  Regulation.  Continued  applicability  of SFAS 71 to TNMP's  financial
statements   requires  that  rates  set  by  an   independent   regulator  on  a
cost-of-service basis can actually be charged to and collected from customers.

     In the event that all or a portion of a utility's  operations cease to meet
those  criteria for various  reasons,  including  deregulation,  a change in the
method  of  regulation,  or a  change  in the  competitive  environment  for the
utility's  regulated  service,  the utility will have to discontinue SFAS 71 for
that  portion of  operations.  That  discontinuation  would be  reported  by the
write-off of unrecoverable regulatory assets and liabilities.

     As discussed in Note 2, as a result of the Community  Choice program in New
Mexico,  TNMP  discontinued  the application of SFAS 71 to its  generation/power
supply  operations in New Mexico during 1997.  The  discontinuing  of regulatory
accounting  principles  had no effect on TNMP's  financial  condition.  Also, as
discussed in "Competitive Conditions--Texas Transition Plan" and Note 2, on July
22, 1998,  the PUCT approved  TNMP's  Transition  Plan, and issued a final order
documenting  its  approval on November 7, 1998.  The PUCT has  committed to full
recovery  of  stranded  costs  if  they  are  quantified  using  a  market-based
methodology,  TNMP offers retail access, and stranded costs are allocated fairly
to all customers. Rates under the Transition Plan continue to be cost-based, and
TNMP  will  continue  to  apply  SFAS 71 to its  Texas  generation/power  supply
operations  until it  requests,  and the PUCT  approves  authority  to implement
retail competition.

   Year 2000

     TNMP is  actively  addressing  the Year 2000  Issue  (Y2K)  throughout  its
operating and office environments. Many existing computer programs were designed
and  developed  to use only two digits to identify a year in the date field.  If
not addressed, these computer systems could fail, with possible material adverse
effects on TNMP's operations.

     In mid-1997  TNMP's  information  technology  staff  began to identify  and
assess corporate  software  applications,  equipment and operating  systems.  In
early 1998, the project was expanded to include  professionals  from  throughout
the company and to  identify  and assess  embedded  systems.  TNMP's  project to
analyze Y2K has  included  the  following  phases:  identification,  assessment,
remediation/implementation and testing.

     In its analysis to identify and assess Y2K impact on company systems,  TNMP
has  conducted  extensive  studies to analyze the impact of Y2K on all operating
systems. As a result of these studies, TNMP has developed a Y2K mitigation plan.
The plan  requires  TNMP to  amend,  replace,  or  upgrade  most of its  primary
corporate  information  systems,  some of which were already  being  replaced or
upgraded  pursuant  to a  previously  approved  plan to replace or upgrade  such
systems.

     The  following is a brief summary of the  renovation  and  validation,  and
implementation  progress for the critical  business  areas of TNMP - generation,
transmission,   distribution,   energy  management,  and  corporate  information
systems.

     Generating  Units.  TNMP owns one power plant, TNP One, which is located in
Robertson County,  Texas. TNP One has two units that burn lignite as the primary
fuel source to generate power.  The total lignite supply is provided from a mine
adjacent to the power  plant.  TNP plans to increase  the coal supply to provide
for an additional  six-week  supply prior to January 1, 2000.  The plant is also
capable of burning  natural  gas,  as well as various  waste  products.  TNP One
personnel are consulting with the  manufacturers  of the Plant Control  Computer
which provides for most of the computerized operations of the boiler and turbine
controls,  as well as the Continuous  Emissions  Monitoring  System.  Integrated
testing of the Plant Control  Computer was completed on Unit 1 in early February
1999. The integrated testing on Unit 1 detected no Y2K problems. Testing will be
done on Unit 2 while the plant is down for a  maintenance  outage  this  spring.
Tests  of the  Continuous  Emissions  Monitoring  System  determined  that  only
non-critical  Y2K issues were detected.  Upgrades to that software are currently
underway. An extensive list of other minor suspect devices has been compiled and
is also in the process of being tested.

     As of March  1,  1999,  the TNP One  generation  plant  has  completed  the
assessment of all mission-critical  facilities,  and is approximately 52 percent
complete with the testing and remediation of those  facilities.  All testing and
remediation is expected to be complete by June 1999.

     Distribution  System.  TNMP is primarily a distribution  company.  Over 600
suspect  distribution  system devices have been identified and are being tested.
TNMP is  currently  testing  the devices  that have  external  clock  functions.
Devices  that  have no  external  clock  function  are  being  checked  with the
manufacturer and TNMP is reviewing their testing of those devices. All of TNMP's
critical distribution  substations have designs which contain redundant relaying
or bypass  switching  schemes to remove failed  devices and equipment for normal
operations, allowing for quick restoration of power to customers.

     As of March 1, 1999,  TNMP is 84 percent  complete on the assessment of all
Distribution System mission-critical facilities, and is approximately 53 percent
complete with the testing and remediation of those  facilities.  All testing and
remediation is expected to be complete by June 1999.

     Transmission  System.  TNMP has transmission  lines which are a part of the
transmission  grid comprised  within the Electric  Reliability  Council of Texas
(ERCOT).  The transmission  grid within ERCOT is operated by member utilities in
conjunction  with an  Independent  System  Operator.  TNMP is  participating  on
ERCOT's  Year  2000  Technical  Task  Force  and on the  Year  2000  Operational
Preparedness and Planning Task Force. TNMP will be participating in all testing,
drills and contingency planning done by the Independent System Operator.

     Testing  of  transmission  line  electronic   protective  devices  by  TNMP
personnel is underway with completion anticipated by June 1999.

     Supervisory  Control  and  Data  Acquisition  Systems  (SCADA)  and  Energy
Management  Systems.  TNMP has three  SCADA  systems  in Texas.  A SCADA  system
reports on the status on protective  devices,  allows for the remote  control of
these same devices,  and reports and tracks  critical power flow  information on
the  transmission  and  distribution  grids.  These systems are new, having been
upgraded in 1997 and 1998.  TNMP is in the process of replacing the SCADA system
in New Mexico, which is not Year 2000 compliant.

     As of March 1, 1999,  TNMP is 93 percent  complete on the assessment of all
SCADA  and  Energy  Management  Systems  mission-critical   facilities,  and  is
approximately  22 percent  complete  with the testing and  remediation  of those
facilities. All testing and remediation is expected to be complete by June 1999,
except for the New Mexico SCADA system that will be complete in August 1999.

     Information  Technology Systems. As of March 1, 1999,  approximately 90% of
TNMP's  infrastructure  supporting  its  business  systems  has been  tested and
verified as Y2K compliant. TNMP expects to have the remaining infrastructure Y2K
compliant  by the end of the  first  quarter  of 1999.  TNMP has  completed  the
upgrade of its  financial  and  accounting  system to a Y2K  compliant  version.
Integrated  testing of the upgraded financial system will be done in April 1999.
A new  customer  information  system is  expected to be  implemented  and tested
during  the  third  quarter  of 1999 and  other  corporate  information  systems
directly related to TNMP's operations are expected to be installed and tested by
September  1999. TNMP  incorporates  unit testing,  system testing,  integration
testing and acceptance testing into the verification methodology.

     Y2K  Remediation  Cost.  The costs  associated  with TNMP's Y2K efforts are
expected to be  approximately  $10.2  million.  Approximately  $9 million of the
total cost is to upgrade or replace various  information  technology systems, as
discussed above, as well as improve the infrastructure to support those systems.
TNMP does not  expect  these  costs to have a material  impact on its  financial
position or results of  operations.  TNMP  continues  to work with key  software
vendors and outside consultants to validate its Y2K compliance project. To date,
TNMP has spent  approximately  $4.3 million on Y2K remediation.  TNMP has in the
past used,  and expects to continue to use,  cash flow from  operations  to fund
costs associated with Y2K.

     Third-Party  Vendors.  In  addition  to its own  mitigation  plan,  TNMP is
actively  working  with its key vendors and other third  parties with which TNMP
has a material  relationship to assist such parties in achieving compliance with
respect  to Y2K in those  systems  affecting  TNMP's  operations.  Such  parties
include  electric  power  providers  in Texas  and New  Mexico;  the  fuel,  ash
disposal,  and limestone  contractors at TNP One;  transmission and distribution
material  suppliers;  and banking  partners.  Although  TNMP  believes that such
persons are working  diligently to properly  address Y2K, TNMP cannot  guarantee
that these third-party  systems will be timely  converted,  or that a failure to
convert by another  company or a  conversion  that is  incompatible  with TNMP's
systems, would not have a material adverse effect on TNMP.

     Contingency  Plans.  The primary  operating  processes  of TNMP's  business
(e.g.,  the production,  transmission,  and  distribution of electric power) are
subject  to  contingencies  related to  weather,  equipment  failure,  and other
factors.  TNMP has drafted Y2K contingency plans by adapting previously existing
contingency plans. TNMP will complete the Y2K contingency plan by June 1999.

     The  Risks of the  Company's  Year  2000  Issues.  Based  upon its  current
assessment  and testing of the Y2K issue,  TNMP believes the  reasonably  likely
worst-case  Y2K  scenarios  would  have the  following  impacts  upon it and its
operations. With respect to its ability to provide energy to its customers, TNMP
believes that the reasonably likely worst-case scenario is for small,  localized
interruptions  of  electrical  service that are restored in a time frame that is
within  normal  service  levels.  With respect to services that are essential to
TNMP's operations,  such as customer service, business operations,  supplies and
emergency response  capabilities,  the reasonably likely worst-case  scenario is
for  minor  disruptions  of  essential  services  with  rapid  recovery  and all
essential information and processes ultimately recovered.

     While  risks  related to the third  parties'  lack of Y2K  readiness  could
materially  and adversely  affect  TNMP's  business,  results of operations  and
financial   condition,   TNMP  expects  its  Y2K  readiness  efforts  to  reduce
significantly  its  level of  uncertainty  about the  impact of third  party Y2K
issues on both its IT systems and non-IT systems.

Item 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     TNP's and  TNMP's  involvement  in the  trading  of market  risk  sensitive
instruments is minimal and does not have a material  impact to either  company's
financial  condition or results of  operations.  As noted in Item 1, "Sources of
Energy",  TNMP's exposure to changes in the prevailing market price of power has
increased.  This  exposure is due to TNMP's  greater  reliance  on shorter  term
contracts and, as discussed in item 7, "Competitive  Conditions",  the fact that
TNMP no longer  passes the demand  component of purchased  power costs  directly
through to its customers.  As a result, TNMP is exposed to the risk of executing
new  purchased  power  contracts  at  market  prices.  Conversely,  TNMP has the
opportunity to benefit from a favorable market for purchased power.



<PAGE>


Item 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Shareholders and Board of Directors of TNP Enterprises, Inc.:


We have audited the  accompanying  consolidated  balance sheets and consolidated
statements of capitalization of TNP Enterprises, Inc. (a Texas corporation) (the
"Company")  as of  December  31,  1998 and 1997,  and the  related  consolidated
statements of income,  common  shareholders' equity and cash flows for the years
then ended.  These financial  statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of the Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years  then  ended in  conformity  with  generally  accepted  accounting
principles.



                                                            Arthur Andersen LLP



Fort Worth, Texas
February 12, 1999



<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Shareholder and Board of Directors of
Texas-New Mexico Power Company:


We have audited the  accompanying  consolidated  balance sheets and consolidated
statements  of  capitalization  of  Texas-New  Mexico  Power  Company  (a  Texas
corporation)  (the  "Company") as of December 31, 1998 and 1997, and the related
consolidated  statements of income,  common  shareholder's equity and cash flows
for the years then ended.  These financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of the Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years  then  ended in  conformity  with  generally  accepted  accounting
principles.


                                                            Arthur Andersen LLP




Fort Worth, Texas
February 12, 1999


<PAGE>

                          Independent Auditor's Report


The Board of Directors and Shareholders
TNP Enterprises, Inc.:

We have  audited the  accompanying  consolidated  statements  of income,  common
shareholders'  equity, and cash flows of TNP Enterprises,  Inc. and subsidiaries
for the year ended December 31, 1996. These  consolidated  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
amounts and  disclosures  in the  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the results of operations and cash flows of
TNP Enterprises,  Inc. and subsidiaries for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.

                                                     KPMG LLP



Fort Worth, Texas
January 30, 1997



<PAGE>


                          Independent Auditor's Report



The Board of Directors
Texas-New Mexico Power Company:

We have  audited the  accompanying  consolidated  statements  of income,  common
shareholder's equity, and cash flows of Texas-New Mexico Power Company (a wholly
owned subsidiary of TNP  Enterprises,  Inc.) and subsidiaries for the year ended
December  31,   1996.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
amounts and  disclosures  in the  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the results of operations and cash flows of
Texas-New  Mexico Power Company and subsidiaries for the year ended December 31,
1996, in conformity with generally accepted accounting principles.

                                                     KPMG LLP


Fort Worth, Texas
January 30, 1997

<PAGE>
<TABLE>
<CAPTION>

                     TNP ENTERPRISES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                        For the Years Ended December 31,


                                                                        1998              1997              1996
                                                                   ----------------  ----------------  ----------------
<S>                                                                <C>               <C>               <C>

                                                                             (In thousands except per share amounts)

OPERATING REVENUES (Note 2)                                        $       586,493   $       580,693   $       502,737
                                                                   ----------------  ----------------  ----------------

OPERATING EXPENSES:
  Purchased power and fuel                                                 316,911           302,773           243,682
  Other operating and maintenance                                           95,168            86,385            84,417
  Depreciation                                                              38,056            38,853            38,172
  Taxes other than income taxes                                             36,014            33,667            33,256
  Income taxes                                                              15,480            21,242            10,375
                                                                   ----------------  ----------------  ----------------
       Total operating expenses                                            501,629           482,920           409,902
                                                                   ----------------  ----------------  ----------------

NET OPERATING INCOME                                                        84,864            97,773            92,835
                                                                   ----------------  ----------------  ----------------

OTHER INCOME:
  Other income and deductions, net                                           1,280             1,443             1,956
  Income taxes                                                                (125)              257               722
                                                                   ----------------  ----------------  ----------------
       Other income, net of taxes                                            1,155             1,700             2,678
                                                                   ----------------  ----------------  ----------------

INCOME BEFORE INTEREST CHARGES                                              86,019            99,473            95,513
                                                                   ----------------  ----------------  ----------------
INTEREST CHARGES:
  Interest on long-term debt                                                48,393            52,557            64,654
  Other interest and amortization of debt-related costs                      5,492             4,355             4,709
                                                                   ----------------  ----------------  ----------------
       Total interest charges                                               53,885            56,912            69,363
                                                                   ----------------  ----------------  ----------------

INCOME FROM CONTINUING OPERATIONS                                           32,134            42,561            26,150

Loss from discontinued nonregulated operations, net of taxes
(Note 3)                                                                    12,710            12,883             3,097
                                                                   ----------------  ----------------  ----------------



NET INCOME                                                                  19,424            29,678            23,053
Dividends on preferred stock                                                   150               158               167
                                                                   ----------------  ----------------  ----------------

INCOME APPLICABLE TO COMMON STOCK                                  $        19,274   $        29,520   $        22,886
                                                                   ================  ================  ================


EARNINGS PER SHARE OF COMMON STOCK:
  Earnings from continuing operations                              $          2.42   $          3.24   $          2.27
  Loss from discontinued nonregulated operations                             (0.96)            (0.98)            (0.27)
                                                                   ----------------  ----------------  ----------------
EARNINGS PER SHARE                                                 $          1.46   $          2.26              2.00
                                                                   ================  ================  ================

DIVIDENDS PER SHARE OF COMMON STOCK                                $          1.10   $         1.005   $          0.93
                                                                   ================  ================  ================

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                                  13,244            13,083            11,465
                                                                   ================  ================  ================

 

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                     TNP ENTERPRISES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        For the Years Ended December 31,

                                                                               1998                1997               1996
                                                                          ----------------   ------------------ -----------------
<S>                                                                       <C>                <C>                <C>
                                                                                               (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Cash received from sales to customers                                     $     600,596      $       625,032    $      505,307
  Purchased power  and fuel costs paid                                           (318,616)            (299,554)         (244,272)
  Cash paid for payroll and to other suppliers                                   (116,852)            (125,188)          (75,138)
  Interest paid, net of amounts capitalized                                       (51,592)             (57,337)          (69,247)
  Income taxes paid                                                                (6,825)              (9,089)          (15,684)
  Other taxes paid                                                                (35,089)             (32,990)          (32,243)
  Other operating cash receipts and payments, net                                   1,250                2,979            (3,522)
                                                                          ----------------   ------------------ -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                          72,872              103,853            65,201
                                                                          ----------------   ------------------ -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to utility plant                                                      (37,534)             (28,232)          (28,006)
  Additions to other property and nonregulated investments                         (1,020)              (1,777)           (2,771)
  Withdrawals from (deposits to) escrow account                                    (1,902)                   -                 -
                                                                          ----------------   ------------------ -----------------
NET CASH USED IN INVESTING ACTIVITIES                                             (40,456)             (30,009)          (30,777)
                                                                          ----------------   ------------------ -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Dividends paid on preferred and common stocks                                   (14,729)             (13,305)          (10,866)
  Common stock issuances                                                            5,355                3,392            48,798
  Borrowings from (repayments to) revolving credit facilities - net               (11,000)              45,000            12,000
  Other long-term debt issuances                                                        -                    -               202
  Deferred expenses associated with financings                                     (7,382)                   -              (588)
  Redemptions:
     First mortgage bonds                                                          (8,000)            (100,900)          (96,508)
     Obligation - FWI investment acquisition                                            -                 (300)                -
     Other long-term debt                                                            (141)                 (61)                -
     Preferred stock                                                                 (180)                (180)             (180)
                                                                          ----------------   ------------------ -----------------
NET CASH USED IN FINANCING ACTIVITIES                                             (36,077)             (66,354)          (47,142)
                                                                          ----------------   ------------------ -----------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                            (3,661)               7,490           (12,718)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                   15,877                8,387            21,105
                                                                          ----------------   ------------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                  $      12,216      $        15,877    $        8,387
                                                                          ================   ================== =================

RECONCILIATION OF NET INCOME TO NET
 CASH PROVIDED BY OPERATING ACTIVITIES:
  Net income                                                                $      19,424      $        29,678    $       23,053
  Adjustments  to  reconcile  net  income  to net  cash  provided by
  operating activities:
     Depreciation                                                                  38,056               38,853            38,170
     Amortization of debt-related costs and other deferred charges                  4,819                3,810             3,329
     Allowance for borrowed funds used during construction                           (228)                 (47)              (99)
     Deferred income taxes                                                          4,722                7,434              (193)
     Investment tax credits                                                         1,281                1,406              (380)

Cash flows impacted by changes in current assets and liabilities:
     Deferred purchased power and fuel costs                                          894                  995             5,696
     Accounts payable                                                                 976               (1,411)            6,406
     Accrued interest                                                              (2,303)              (3,556)           (3,103)
     Accrued taxes                                                                 (3,299)              (1,244)           (7,372)
     Reserve for customer refund                                                   10,971                    -                 -
     Changes in other current assets and liabilities                               (2,215)              25,099            (1,507)
Other, net                                                                           (226)               2,836             1,201
                                                                          ----------------   ------------------ -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                   $      72,872      $       103,853    $       65,201
                                                                          ================   ================== =================







The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                     TNP ENTERPRISES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                  December 31,

                                                                                     1998                          1997
                                                                              --------------------          -------------------
<S>                                                                           <C>                           <C>             

                                                                                                (In thousands)
ASSETS

UTILITY PLANT:
  Electric plant                                                                    $   1,260,147              $     1,235,257
  Construction work in progress                                                             6,294                        2,281
                                                                              --------------------          -------------------
            Total                                                                       1,266,441                    1,237,538
  Less accumulated depreciation                                                           343,562                      314,270
                                                                              --------------------          -------------------
            Net utility plant                                                             922,879                      923,268
                                                                              --------------------          -------------------

OTHER PROPERTY AND INVESTMENTS, at cost                                                    10,384                        5,704
                                                                              --------------------          -------------------

CURRENT ASSETS:
  Cash and cash equivalents                                                                12,216                       15,877
  Accounts receivable                                                                       5,955                        8,585
  Inventories, at lower of average cost or market:
       Fuel                                                                                   677                          483
       Materials and supplies                                                               4,567                        4,440
  Deferred purchased power and fuel costs                                                   1,676                        2,570
  Accumulated deferred income taxes                                                         2,235                        1,707
  Other current assets                                                                      4,403                          982
                                                                              --------------------          -------------------
            Total current assets                                                           31,729                       34,644
                                                                              --------------------          -------------------
DEFERRED CHARGES                                                                           28,773                       28,310
                                                                              --------------------          -------------------
                                                                                   $      993,765             $        991,926
                                                                              ====================          ===================
CAPITALIZATION AND LIABILITIES

CAPITALIZATION:
  Common shareholders' equity:
       Common stock - no par value per share.  Authorized 50,000,000
            shares; issued 13,293,996 shares in 1998 and 13,132,821 in 1997        $      192,518             $        187,163
       Retained earnings                                                                  115,776                      111,078
                                                                              --------------------          -------------------
            Total common shareholders' equity                                             308,294                      298,241

  Preferred stock                                                                           3,060                        3,240
  Long-term debt, less current maturities                                                 459,000                      478,041
                                                                              --------------------          -------------------
            Total capitalization                                                          770,354                      779,522
                                                                              --------------------          -------------------

CURRENT LIABILITIES:
  Current maturities of long-term debt                                                          -                          100
  Accounts payable                                                                         28,011                       27,035
  Accrued interest                                                                          5,020                        7,323
  Accrued taxes                                                                            14,290                       17,589
  Customers' deposits                                                                       3,609                        3,249
  Reserve for customer refund                                                              10,971                            -
  Other current liabilities                                                                25,202                       26,665
                                                                              --------------------          -------------------
            Total current liabilities                                                      87,103                       81,961
                                                                              --------------------          -------------------

REGULATORY TAX LIABILITIES                                                                    957                        6,318
ACCUMULATED DEFERRED INCOME TAXES                                                          97,346                       85,250
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS                                                20,916                       21,149
DEFERRED CREDITS                                                                           17,089                       17,726
COMMITMENTS AND CONTINGENCIES (Notes 2 and 9)
                                                                              --------------------          -------------------
                                                                                   $      993,765             $        991,926
                                                                              ====================          ===================



The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                     TNP ENTERPRISES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                                  December 31,

                                                                                         1998               1997
                                                                                   ----------------- -------------------
<S>                                                                                <C>               <C>

                                                                                               (In thousands)
COMMON SHAREHOLDERS' EQUITY

     Common stock with no par value per share
        Authorized shares - 50,000,000
        Outstanding shares - 13,293,996 in 1998 and 13,132,821 in 1997               $      192,518    $        187,163
     Retained earnings                                                                      115,776             111,078
                                                                                   ----------------- -------------------
           Total common shareholders' equity                                                308,294             298,241
                                                                                   ----------------- -------------------
</TABLE>


PREFERRED STOCK
     Preferred stock with no par value 
          Authorized shares - 5,000,000 
          Outstanding shares - None

     Redeemable  cumulative   preferred  stock  of  TNMP  with  $100  par  value
        Authorized shares - 1,000,000
<TABLE>
<CAPTION>

                                Redemption
                              price at TNMP's             Outstanding shares
                                  option                   1998        1997
                                  ------                ---------   ---------
<S>                     <C>     <C>                     <C>          <C>           <C>               <C>

        Series B        4.65%   $ 100.00                  19,200      20,400                  1,920               2,040
        Series C        4.75%     100.00                  11,400      12,000                  1,140               1,200
                                                        ---------   ---------      ----------------- -------------------
           Total redeemable cumulative preferred stock    30,600      32,400                  3,060               3,240
                                                        ---------   ---------      ----------------- -------------------
</TABLE>


<TABLE>
<CAPTION>


LONG-TERM DEBT
     FIRST MORTGAGE BONDS
<S>                                                                                <C>               <C>

        Series M        8.70%  due 2006                                                           -               8,000
        Series U        9.25%  due 2000                                                     100,000             100,000

     SECURED DEBENTURES
        12.50% due 1999                                                                     130,000             130,000
        Series A 10.75% due 2003                                                            140,000             140,000

     REVOLVING CREDIT FACILITIES
        1995 Facility                                                                             -                   -
        1996 Facility                                                                        80,000             100,000
        1998 Facility                                                                         9,000                   -

     OTHER
                                                                                                  -                 141
                                                                                   ----------------- -------------------
            Total long-term debt                                                            459,000             478,141
            Less current maturities                                                               -                (100)
                                                                                   ----------------- -------------------
           Total long-term debt, less current maturities                                    459,000             478,041
                                                                                   ----------------- -------------------

TOTAL CAPITALIZATION                                                                 $      770,354    $        779,522
                                                                                   ================= ===================



The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                    TNP ENTERPRISES, INC. AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
                        For the Years Ended December 31,


                                                                              Common Shareholders' Equity
                                                     -------------------------------------------------------------------------------
                                                                   Common Stock                    Retained
                                                            Shares             Amount              Earnings               Total
                                                     ------------------   ----------------     ----------------     ----------------
                                                                                     (In thousands)
<S>                                                  <C>                  <C>                  <C>                  <C>

YEAR ENDED DECEMBER 31, 1996
     Balance at January 1, 1996                                 10,920        $   134,973         $     82,484         $    217,457
     Net income                                                      -                  -               23,053               23,053
     Dividends on preferred stock                                    -                  -                 (167)                (167)
     Dividends on common stock - $0.93 per share                     -                  -              (10,699)             (10,699)
     Sale of common stock                                        2,086             48,798                    -               48,798
     Retirement of preferred stock                                   -                  -                   32                   32
                                                     ------------------   ----------------     ----------------     ----------------
        Balance at December 31, 1996                            13,006            183,771               94,703              278,474

YEAR ENDED DECEMBER 31, 1997
     Net income                                                      -                  -               29,678               29,678
     Dividends on preferred stock                                    -                  -                 (158)                (158)
     Dividends on common stock - $1.005 per share                    -                  -              (13,158)             (13,158)
     Sale of common stock                                          127              3,392                    -                3,392
     Retirement of preferred stock                                   -                  -                   13                   13
                                                     ------------------   ----------------     ----------------     ----------------
        Balance at December 31, 1997                            13,133            187,163              111,078              298,241

YEAR ENDED DECEMBER 31, 1998
     Net income                                                      -                  -               19,424               19,424
     Dividends on preferred stock                                    -                  -                 (150)                (150)
     Dividends on common stock - $1.10 per share                     -                  -              (14,579)             (14,579)
     Sale of common stock                                          161              5,355                    -                5,355
     Retirement of preferred stock                                   -                  -                    3                    3
                                                     ------------------   ----------------     ----------------     ----------------
          Balance at December 31, 1998                          13,294           $192,518            $ 115,776            $ 308,294
                                                     ==================   ================     ================     ================


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


</TABLE>
<PAGE>
<TABLE>
<CAPTION>
           
                 TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
              (a wholly owned subsidiary of TNP Enterprises, Inc.)
                        CONSOLIDATED STATEMENTS OF INCOME
                        For the Years Ended December 31,


                                                                           1998                1997                 1996
                                                                    -------------------  ------------------   ------------------
<S>                                                                 <C>                  <C>                  <C>     

                                                                                          (In thousands)

OPERATING REVENUES (Note 2)                                             $      586,445      $      580,693       $      502,737
                                                                    -------------------  ------------------   ------------------

OPERATING EXPENSES:
  Purchased power and fuel                                                     316,911             302,773              243,682
  Other operating and maintenance                                               91,171              84,294               83,948
  Depreciation of utility plant                                                 38,054              38,851               38,170
  Taxes other than income taxes                                                 36,298              33,260               32,727
  Income taxes                                                                  16,863              22,062               10,333
                                                                    -------------------  ------------------   ------------------
       Total operating expenses                                                499,297             481,240              408,860
                                                                    -------------------  ------------------   ------------------

NET OPERATING INCOME                                                            87,148              99,453               93,877
                                                                    -------------------  ------------------   ------------------

OTHER INCOME:
  Other income and deductions, net                                                 952               1,120                1,626
  Income taxes                                                                     (52)                257                  722
                                                                    -------------------  ------------------   ------------------
       Other income, net of taxes                                                  900               1,377                2,348
                                                                    -------------------  ------------------   ------------------

INCOME BEFORE INTEREST CHARGES                                                  88,048             100,830               96,225
                                                                    -------------------  ------------------   ------------------

INTEREST CHARGES:
  Interest on long-term debt                                                    48,342              52,557               64,654
  Other interest and amortization of debt-related costs                          5,385               4,355                4,709
                                                                    -------------------  ------------------   ------------------
       Total interest charges                                                   53,727              56,912               69,363
                                                                    -------------------  ------------------   ------------------

NET INCOME                                                                      34,321              43,918               26,862
Dividends on preferred stock                                                       150                 158                  167
                                                                    -------------------  ------------------   ------------------

INCOME APPLICABLE TO COMMON STOCK                                     $         34,171     $        43,760      $        26,695
                                                                    ===================  ==================   ==================







The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                 TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
              (a wholly owned subsidiary of TNP Enterprises, Inc.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        For the Years Ended December 31,

                                                                          1998               1997                 1996
                                                                   ------------------- ------------------  -------------------
<S>                                                                <C>                 <C>                 <C>
                                                                                         (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Cash received from sales to customers                              $        579,482    $       606,803     $        502,954
  Purchased power and fuel costs paid                                        (318,616)          (299,554)            (244,272)
  Cash paid for payroll and to other suppliers                                (72,590)           (86,607)             (75,807)
  Interest paid, net of amounts capitalized                                   (51,545)           (57,331)             (69,236)
  Income taxes paid                                                            (2,786)            (8,464)             (14,242)
  Other taxes paid                                                            (35,492)           (32,980)             (31,219)
  Other operating cash receipts and payments, net                                 864              2,600                1,135
                                                                   ------------------- ------------------  -------------------

NET CASH PROVIDED BY OPERATING ACTIVITIES                                      99,317            124,467               69,313
                                                                   ------------------- ------------------  -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to utility plant                                                  (37,506)           (27,942)             (28,006)
  Withdrawals from (deposits to) escrow account                                (1,902)             1,670               (1,669)
                                                                   ------------------- ------------------  -------------------

CASH FLOWS USED IN INVESTING ACTIVITIES                                       (39,408)           (26,272)             (29,675)
                                                                   ------------------- ------------------  -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Dividends paid on preferred and common stocks                               (19,249)           (44,458)             (10,867)
  Equity contribution from TNP Enterprises                                          -                  -               47,170
  Borrowings from (repayments to) revolving credit facilities-net             (20,000)            45,000               12,000
  Deferred expenses associated with financings                                 (7,275)                 -                 (588)
  Redemptions:
    First mortgage bonds                                                       (8,000)          (100,900)             (96,508)
    Preferred stock                                                              (180)              (180)                (180)
                                                                   ------------------- ------------------  -------------------

NET CASH USED IN FINANCING ACTIVITIES                                         (54,704)          (100,538)             (48,973)
                                                                   ------------------- ------------------  -------------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                         5,205             (2,343)              (9,335)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                2,772              5,115               14,450
                                                                   ------------------- ------------------  -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                           $          7,977    $         2,772    $           5,115
                                                                   =================== ==================  ===================

RECONCILIATION OF NET INCOME TO NET
 CASH PROVIDED BY OPERATING ACTIVITIES:
  Net income                                                         $         34,321   $         43,918    $          26,862
  Adjustments to reconcile net income to net cash provided by 
  operating activities:
     Depreciation of utility plant                                             38,054             38,851               38,170
     Amortization of debt-related costs and other deferred charges              4,710              3,810                3,329
     Allowance for borrowed funds used during construction                       (228)               (47)                 (99)
     Deferred income taxes                                                      9,559             10,650                1,140
     Investment tax credits                                                     1,173              2,121                 (111)

Cash flows impacted by changes in current assets and liabilities:
     Deferred purchased power and fuel costs                                      894                995                5,696
     Accounts payable                                                           2,029             (2,395)               5,214
     Accrued interest                                                          (2,319)            (3,556)              (3,103)
     Accrued taxes                                                              2,698                850               (8,429)
     Reserve for customer refund                                               10,971                  -                    -
     Changes in other current assets and liabilities                           (4,485)            24,751                  786
Other, net                                                                      1,940              4,519                 (142)
                                                                   ------------------- ------------------  -------------------

NET CASH PROVIDED BY OPERATING ACTIVITIES                             $        99,317    $       124,467     $         69,313
                                                                   =================== ==================  ===================


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                 TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
              (a wholly owned subsidiary of TNP Enterprises, Inc.)
                           CONSOLIDATED BALANCE SHEETS
                                  December 31,

                                                                               1998                1997
                                                                          ----------------   ------------------
<S>                                                                       <C>                <C>
                                                                                     (In thousands)
ASSETS

UTILITY PLANT:
  Electric plant                                                            $   1,260,099      $     1,235,239
  Construction work in progress                                                     6,294                2,281
                                                                          ----------------   ------------------
            Total                                                               1,266,393            1,237,520
  Less accumulated depreciation                                                   343,562              314,270
                                                                          ----------------   ------------------
            Net utility plant                                                     922,831              923,250
                                                                          ----------------   ------------------

OTHER PROPERTY AND INVESTMENTS, at cost                                             2,116                  214
                                                                          ----------------   ------------------

CURRENT ASSETS:
  Cash and cash equivalents                                                         7,977                2,772
  Accounts receivable                                                                 923                2,342
  Inventories, at lower of average cost or market:
       Fuel                                                                           677                  483
       Materials and supplies                                                       4,567                4,440
  Deferred purchased power and fuel costs                                           1,676                2,570
  Accumulated deferred income taxes                                                     -                1,707
  Other current assets                                                              4,093                  222
                                                                          ----------------   ------------------
            Total current assets                                                   19,913               14,536
                                                                          ----------------   ------------------

DEFERRED CHARGES                                                                   28,706               29,006
                                                                          ----------------   ------------------
                                                                            $     973,566      $       967,006
                                                                          ================   ==================

CAPITALIZATION AND LIABILITIES

CAPITALIZATION:
  Common shareholder's equity:
       Common stock, $10 par value per share
            Authorized 12,000,000 shares; issued 10,705 shares              $         107      $           107
       Capital in excess of par value                                             222,149              222,146
       Retained earnings                                                           79,840               64,768
                                                                          ----------------   ------------------
            Total common shareholder's equity                                     302,096              287,021

  Redeemable cumulative preferred stock                                             3,060                3,240
  Long-term debt, less current maturities                                         450,000              477,900
                                                                          ----------------   ------------------
            Total capitalization                                                  755,156              768,161
                                                                          ----------------   ------------------

CURRENT LIABILITIES:
  Current maturities of long-term debt                                                  -                  100
  Accounts payable                                                                 26,888               24,859
  Accrued interest                                                                  5,004                7,323
  Accrued taxes                                                                    20,449               17,751
  Customers' deposits                                                               3,609                3,249
  Accumulated deferred income taxes                                                   649                    -
  Reserve for customer refund                                                      10,971                    -
  Other current liabilities                                                        17,076               19,148
                                                                          ----------------   ------------------
            Total current liabilities                                              84,646               72,430
                                                                          ----------------   ------------------

REGULATORY TAX LIABILITIES                                                            957                6,318
ACCUMULATED DEFERRED INCOME TAXES                                                  93,378               81,085
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS                                        22,729               21,286
DEFERRED CREDITS                                                                   16,700               17,726
COMMITMENTS AND CONTINGENCIES (Notes 2 and 9)
                                                                          ----------------   ------------------
                                                                            $     973,566      $       967,006
                                                                          ================   ==================



The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                 TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
              (a wholly owned subsidiary of TNP Enterprises, Inc.)
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                                  December 31,

                                                                                             1998              1997
                                                                                       ----------------- ------------------
<S>                                                                                    <C>               <C>
                                                                                                (In thousands)
COMMON SHAREHOLDER'S EQUITY

     Common stock, $10 par value per share
        Authorized shares - 12,000,000
        Outstanding shares - 10,705                                                      $          107    $           107
     Capital in excess of par value                                                             222,149            222,146
     Retained earnings                                                                           79,840             64,768
                                                                                       ----------------- ------------------
           Total common shareholder's equity                                                    302,096            287,021
                                                                                       ----------------- ------------------
</TABLE>


PREFERRED STOCK
     Redeemable cumulative preferred stock with $100 par value
        Authorized shares - 1,000,000
<TABLE>
<CAPTION>

                                  Redemption
                                price at TNMP's               Outstanding shares
                                    option                    1998           1997
                                    ------                    ----           ----
<S>                       <C>       <C>                   <C>            <C>           <C>               <C>

        Series B          4.65%     $ 100.00                  19,200         20,400               1,920              2,040
        Series C          4.75%       100.00                  11,400         12,000               1,140              1,200
                                                          -------------  ------------- ----------------- ------------------
           Total redeemable cumulative preferred stock        30,600         32,400               3,060              3,240
                                                          -------------  ------------- ----------------- ------------------
</TABLE>

<TABLE>
<CAPTION>
<S>                                                                                    <C>               <C>    
LONG-TERM DEBT
     FIRST MORTGAGE BONDS
        Series M          8.70%  due 2006                                                             -              8,000
        Series U          9.25%  due 2000                                                       100,000            100,000

     SECURED DEBENTURES
        12.50% due 1999                                                                         130,000            130,000
        Series A 10.75% due 2003                                                                140,000            140,000

     REVOLVING CREDIT FACILITIES
        1995 Facility                                                                                 -                  -
        1996 Facility                                                                            80,000            100,000
                                                                                       ----------------- ------------------
           Total long-term debt                                                                 450,000            478,000
            Less current maturities                                                                   -               (100)
                                                                                       ----------------- ------------------
           Total long-term debt, less current maturities                                        450,000            477,900
                                                                                       ----------------- ------------------

TOTAL CAPITALIZATION                                                                     $      755,156    $       768,161
                                                                                       ================= ==================



The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                 TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
              (a wholly owned subsidiary of TNP Enterprises, Inc.)
             CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
                        For the Years Ended December 31,


                                                                              Common Shareholder's Equity
                                                    --------------------------------------------------------------------------------
                                                                                   Capital in
                                                            Common Stock           Excess of        Retained
                                                     Shares         Amount         Par Value        Earnings            Total
                                                     ------         ------         ---------        --------            -----     
                                                                                    (In thousands)
<S>                                                  <C>        <C>                <C>              <C>               <C> 
YEAR ENDED DECEMBER 31, 1996
     Balance at January 1, 1996                            11   $         107      $    174,931     $   49,313        $     224,351
     Net income                                             -                -                -         26,862               26,862
     Dividends on preferred stock                           -                -                -           (167)                (167)
     Dividends on common stock                              -                -                -        (10,700)             (10,700)
     Equity contribution from TNP Enterprises               -                -           47,170              -               47,170
     Retirement of preferred stock                          -                -               32              -                   32
                                                    ----------  ---------------  ---------------  -------------    -----------------
        Balance at December 31, 1996                       11              107          222,133         65,308              287,548

YEAR ENDED DECEMBER 31, 1997
     Net income                                             -                -                -         43,918               43,918
     Dividends on preferred stock                           -                -                -           (158)                (158)
     Dividends on common stock                              -                -                -        (44,300)             (44,300)
     Retirement of preferred stock                          -                -               13              -                   13
                                                    ----------  ---------------  ---------------  -------------    -----------------
        Balance at December 31, 1997                       11              107          222,146         64,768              287,021

YEAR ENDED DECEMBER 31, 1998
     Net income                                             -                -                -         34,321               34,321
     Dividends on preferred stock                           -                -                -           (150)                (150)
     Dividends on common stock                              -                -                -        (19,099)             (19,099)
     Retirement of preferred stock                          -                -                3              -                    3
                                                    ----------  ---------------  ---------------  -------------    -----------------
        Balance at December 31, 1998                       11     $        107     $    222,149     $   79,840        $     302,096
                                                    ==========  ===============  ===============  =============    =================

</TABLE>

<PAGE>

                     TNP ENTERPRISES, INC. AND SUBSIDIARIES
                 TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

 Note 1.  Summary of Significant Accounting Policies

   General Information

     The consolidated  financial  statements of TNP and subsidiaries include the
accounts of TNP and its wholly owned subsidiaries,  TNMP, FWI, and TNP Operating
Company. The consolidated  financial statements of TNMP and subsidiaries include
the  accounts  of TNMP and its wholly  owned  subsidiaries,  TGC and TGC II. All
intercompany transactions and balances have been eliminated in consolidation.

     TNMP is TNP's  principal  operating  subsidiary.  TNMP is a public  utility
engaged in  generating,  purchasing,  transmitting,  distributing,  and  selling
electricity  in  Texas  and New  Mexico.  TNMP is  subject  to  PUCT  and  NMPRC
regulation. Some of TNMP's activities, including the issuance of securities, are
subject  to FERC  regulation,  and its  accounting  records  are  maintained  in
accordance with FERC's Uniform System of Accounts.

     The use of estimates is required to prepare  TNP's and TNMP's  consolidated
financial   statements  in  conformity   with  generally   accepted   accounting
principles.  Management  believes  that  estimates  are  essential  and will not
materially differ from actual results. However,  adjustments may be necessary in
the future to the extent that future  estimates or actual  results are different
from the estimates used in the 1998 financial statements.

   Accounting for the Effects of Regulation

     Electric  utilities  operate in a highly regulated  environment.  TNP's and
TNMP's  consolidated  financial  statements  reflect the  application of certain
accounting standards,  including SFAS 71, "Accounting for the Effects of Certain
Types of Regulation,"  which provide for recognition of the economic  effects of
rate  regulation.  Among these effects are the recognition of regulatory  assets
and liabilities.  Regulatory assets represent  revenues  associated with certain
costs that TNMP expects to recover from  customers in future  rates.  Regulatory
liabilities are costs previously  collected from customers or other amounts that
reduce future rates. The following table summarizes TNP's and TNMP's  regulatory
assets and liabilities as of December 31, 1998 and 1997.
<TABLE>
<CAPTION>

                                                                                  1998                 1997
                                                                              ----------            ---------
                                                                                       (In thousands)
<S>                                                                           <C>                   <C>

              Regulatory Assets:
                Deferred purchased power and fuel costs                       $    1,676            $   2,570
                Deferred charges:
                  Losses on reacquired debt                                        6,494                8,621
                  Rate case expenses                                               1,396                3,638
                  Deferred accounting amounts                                      3,221                4,026
                                                                              ----------            ---------
                     Total                                                    $   12,787            $  18,855
                                                                              ==========            =========

              Regulatory Liabilities:
                Income tax related                                            $      957            $   6,318
                                                                              ==========            =========
</TABLE>


     As discussed in Note 2, TNMP has two plans - the Texas  Transition Plan and
the New Mexico Community Choice plan - approved by the regulatory commissions in
the  respective  jurisdictions.  Based on these  plans,  management  believes it
probable  that TNMP  will  continue,  for the  foreseeable  future,  to meet the
criteria  for  continued   application  of  SFAS  71  to  its  transmission  and
distribution portions of its business,  and the generation/power  supply portion
of its business in Texas. Also, the Texas Transition Plan allows TNMP to recover
from customers the regulatory assets included in the table above.

   Utility Plant

     Utility  plant is  stated at the  historical  cost of  construction,  which
includes labor,  materials,  indirect  charges for such items as engineering and
administrative costs, and AFUDC. Property repairs and replacement of minor items
are charged to operating  expenses;  major  replacements  and  improvements  are
capitalized to utility plant.

     AFUDC is a  non-cash  item  designed  to  enable a  utility  to  capitalize
interest costs during periods of construction.  Established regulatory practices
enable TNMP to recover these costs from  customers.  The composite rate used for
AFUDC was 6.0% in each of the years 1998, 1997, and 1996.

     The costs of  depreciable  units of plant  retired  or  disposed  of in the
normal course of business are  eliminated  from utility plant  accounts and such
costs  plus  removal   expenses   less   salvage  are  charged  to   accumulated
depreciation.  When  complete  operating  units  are  disposed  of,  appropriate
adjustments  are made to accumulated  depreciation,  and the resulting  gains or
losses, if any, are recognized.

     Depreciation is provided on a  straight-line  method based on the estimated
lives of the properties as indicated by periodic depreciation studies. A portion
of depreciation of  transportation  equipment used in construction is charged to
utility plant accounts in accordance with the equipment's use. Depreciation as a
percentage of average  depreciable  cost was 3.2%, 3.3%, and 3.2% in 1998, 1997,
and 1996, respectively.  As explained in Note 2, TNMP will record $15 million of
additional depreciation annually during 1999-2002 to recover stranded costs, and
may record additional amounts of depreciation based on operation of the earnings
cap, due to implementation of the Transition Plan.

   Cash Equivalents

     All highly liquid debt  instruments with maturities of three months or less
when purchased are considered cash equivalents.

   Customer Receivables and Operating Revenues

     TNMP accrues estimated revenues for electricity  delivered since the latest
billing. TNMP, under a factoring arrangement with an unaffiliated company, sells
its customer  receivables on a nonrecourse basis. Amounts estimated to have been
delivered,  but  remaining  unbilled,  are also  sold in  connection  with  this
agreement.

   Purchased Power and Fuel Costs

     As discussed in Note 2, TNMP has two plans - the Texas  Transition Plan and
the New Mexico Community Choice plan - approved by the regulatory commissions in
the respective jurisdictions.

     In Texas, as of January 1, 1998, the recovery of the demand-related portion
of purchased  power costs has changed  pursuant to the Texas  Transition Plan as
discussed in Note 2. There are no changes to the recovery of the  energy-related
portion of purchased power costs and fuel costs.

     In New Mexico,  as of May 1, 1997,  the recovery of  purchased  power costs
changed pursuant to the New Mexico Community Choice plan discussed in Note 2.

     Prior to the  implementation  of both plans,  differences  between  amounts
collected and allowable costs were generally recovered either as purchased power
subject to refund or deferred  purchased power and fuel costs in accordance with
regulatory ratemaking policy.


   Deferred Charges

     Expenses  incurred  in issuing  long-term  debt and  related  discount  and
premium are amortized on a straight-line  basis over the lives of the respective
issues.

     Included in deferred  charges are other assets that are expected to benefit
future periods and certain costs that are deferred for  ratemaking  purposes and
amortized over periods allowed by regulatory authorities.

   Derivatives

     The initial  cost of an interest  rate collar is being  amortized  over the
term of the related agreement.  Unamortized premiums of $164,000 are included in
Deferred Charges in the consolidated  balance sheets.  Amounts to be received or
paid  under the  agreement,  if any,  will be  recognized  when they  occur as a
component of interest  expense.  As of December  31, 1998,  no such amounts have
been received or paid.

   Income Taxes

     TNP files a  consolidated  federal  income tax  return  that  includes  its
subsidiaries  and the  consolidated  operations  of TNMP.  The amounts of income
taxes recognized in TNMP's accompanying  consolidated  financial statements were
computed as if TNMP and its subsidiaries filed a separate  consolidated  federal
income tax return.

     ITC  amounts  utilized  in the  federal  income tax  return  are  generally
deferred and amortized to earnings  ratably over the estimated  service lives of
the related assets.

   Fair Values of Financial Instruments

     Fair  values  of cash  equivalents,  temporary  investments,  and  customer
receivables approximated the carrying amounts because of the short maturities of
those instruments.

     The estimated fair values of long-term debt and preferred  stock were based
on quoted market prices of the same or similar issues. The estimated fair values
of TNMP's financial instruments are as follows:
<PAGE>
<TABLE>
<CAPTION>

                                           December 31, 1998                   December 31, 1997
                                     ------------------------------       -----------------------------
                                     Carrying Amount    Fair Values       Carrying Amount   Fair Values
                                     ---------------    -----------       ---------------   -----------
                                                                (In thousands)
      Assets
<S>                                  <C>                <C>               <C>               <C>
          Interest rate collar       $           164    $     (333)       $           262   $       235

      Capitalization and Liabilities
          Long-term debt                     459,000       475,189                478,000       505,400
          Preferred stock                      3,060         1,978                  3,240         2,653
  
</TABLE>

   Common Stock

     At December 31, 1998, 81,999 shares of TNP's common stock were reserved for
issuance to TNMP's 401(k) plan, and 1,198,356  shares of TNP's common stock were
reserved for subsequent  issuance under other stock  compensation or shareholder
plans.

   Shareholder Rights Plan

     TNP has a  shareholder  rights  plan  that is  designed  to  protect  TNP's
shareholders  from coercive  takeover  tactics and inadequate or unfair takeover
bids. The rights plan provides for the  distribution of one right for each share
of TNP's  common  stock  currently  outstanding  or  issued  until  the close of
business on August 11, 2008.

     Upon the occurrence of certain events, each right entitles a shareholder to
elect to purchase one share of common stock at $100 per share or, under  certain
circumstances,  shares of common stock at half the then-current  market price or
to receive TNP common stock or other securities  having an aggregate value equal
to the excess of (i) the value of the common  stock or other  securities  on the
date the rights are  exercised  over (ii) the cash  payment that would have been
payable upon exercise of the rights if cash payment had been elected.

     Until certain  triggering events occur, the rights will trade together with
TNP's common stock and separate rights  certificates  will not be issued.  Among
the triggering events are the acquisition by a person or group of 10% or more of
TNP's outstanding common stock or the commencement of a tender or exchange offer
that, upon consummation, would result in a person or group of persons owning 15%
or more of TNP's  outstanding  common stock.  The rights expire August 11, 2008,
unless earlier redeemed or exchanged by TNP, and have had no effect on EPS.

   Stock-Based Compensation

     As discussed in Note 4, TNP has an equity based incentive compensation plan
that  awards  stock-based  compensation.  In 1995  the  FASB  issued  SFAS  123,
"Accounting  for  Stock-Based   Compensation",   that  changes  the  method  for
calculating expenses associated with stock-based  compensation.  SFAS 123, which
became  effective for 1996, also allows  companies to retain the approach as set
forth in APB  Opinion  25,  "Accounting  for  Stock  Issued to  Employees",  for
measuring expense for its stock-based compensation.  TNP has elected to continue
to  apply  the  provisions  of  APB  Opinion  25  in   calculating   stock-based
compensation. The application of SFAS 123 would have had no effect on the amount
of expense associated with TNP's stock-based compensation.

   Reclassification

     Certain  items in 1996 and 1997 were  reclassified  to  conform to the 1998
presentation.

<PAGE>

Note 2.  Regulatory Matters


     As the  electric  utility  industry  continues  its  transition  toward  an
environment of increased competition, the most significant effect of competition
on  TNMP,  as well as many  other  utilities,  will be the  ability  to  recover
potential  stranded costs.  "Stranded  costs" is the difference  between what it
currently costs TNMP to provide electricity and what a customer would be willing
to pay for such  service in a  competitive  market.  The  inability to recover a
significant  portion of stranded costs would  adversely  impact TNP's and TNMP's
financial  condition.  In Texas,  TNMP's potential  stranded cost relates to TNP
One,  its 300 MW  generating  unit,  and  could  potentially  be more  than $270
million.  As of  December  31,  1998,  TNMP had  reserved  $3.4  million for its
potential  stranded  costs  in  New  Mexico.  Additional  stranded  costs  could
potentially  be zero to $7 million,  depending  on the market price of purchased
power at the onset of competition.

     The following discusses TNMP's strategy to transition to competition and to
recover its potential stranded costs in Texas and New Mexico.

   Texas Transition Plan

     On July 22, 1998, the PUCT approved TNMP's  transition-to-competition  plan
(Transition Plan), and issued a final order documenting its approval on November
7, 1998. The Transition  Plan includes a number of provisions that impact TNMP's
financial results. They are:

            -     TNMP  will  implement a series of  residential  and commercial
                  rate  reductions  totaling 9% and 3%,  respectively,  during a
                  five-year  transition  period.  The first rate  reductions for
                  residential   and   commercial   customers   of  3%  and   1%,
                  respectively, were implemented retroactive to January 1, 1998.
                  The remaining  reductions will be effective in January of 2000
                  and 2001.

            -     TNMP's  earnings  on  its Texas  operations  are  capped at an
                  11.25%  return on equity less assumed  discounts on industrial
                  rates,  which,  for 1998,  were  $4.1  million.  In 1999,  the
                  discounts are expected to be approximately $2.9 million.  TNMP
                  will  apply  Texas  earnings  in excess of the cap to  recover
                  stranded costs related to its generation  investment (TNP One)
                  or  will  refund  them  to   customers,   according   to  PUCT
                  guidelines.

            -     The Plan includes a  cap on allowed  operating and maintenance
                  expenses  applicable to TNMP's Texas  operations based on cost
                  incurred per customer in 1996.

            -     TNMP  will  record  $15  million  of  additional  depreciation
                  annually during 1999-2002 to recover stranded costs.

            -     Finally,  the  manner  in  which  TNMP  recovers  the  cost of
                  purchased  power from its customers has changed.  In the past,
                  all of these  costs  were  passed  directly  through to TNMP's
                  customers via adjustment factors that could change as often as
                  monthly.  Under this methodology,  purchased power expense had
                  no impact on operating  income.  Effective  with the new rates
                  under the Transition Plan, only the energy-related  portion of
                  purchased  power will be passed through  directly to customers
                  via the fuel adjustment clause. The demand-related  portion of
                  purchased  power will be  recovered  through base rates and is
                  not subject to adjustment or future reconciliation. Therefore,
                  any difference, between the amount of demand-related purchased
                  power  recovered  through  TNMP's rates and the actual cost of
                  such, will affect operating income.

     Absent legislation  implementing retail competition prior to the end of the
five-year  transition  period,  TNMP shall file with the PUCT, at the end of the
transition period, a proposal to voluntarily implement retail access, contingent
upon the approval of an  appropriate  mechanism  for  recovery of any  remaining
stranded  costs.  The PUCT has committed to full  recovery of stranded  costs if
they are quantified using a market-based methodology, TNMP offers retail access,
and  stranded  costs are  allocated  fairly to all  customers.  Rates  under the
Transition Plan continue to be cost-based,  and TNMP will continue to apply SFAS
71 to its Texas  generation/power  supply operations until it requests,  and the
PUCT approves authority to implement retail competition.

     Implementation  of the Transition Plan reduced  operating  revenue by $11.4
million  (pre-tax).  The base rate reductions  accounted for $9.9 million of the
change, and a one-time customer refund accounted for the remaining $1.5 million.
TNMP's  earnings  for the year  ended  December  31,  1998,  did not  exceed the
earnings cap imposed by the Transition Plan.

   New Mexico Community Choice

     Following  NMPUC  approval on April 11, 1997,  TNMP  implemented  Community
Choice,  its plan for  transition  to  competition  for its New  Mexico  service
territory effective May 1, 1997. The plan provides TNMP's customers the right to
choose their electricity provider after a three-year transition period. The plan
freezes rates  (including the recovery of purchased power) during the transition
period,  and allows  for  customer  aggregation  based on market  forces.  As of
December 31, 1998,  TNMP had reserved  $3.4 million for its  potential  stranded
costs in New Mexico.

     As a result of the New  Mexico  Community  Choice  plan,  the power  supply
portion of TNMP's New Mexico  operations no longer qualifies for the application
of SFAS  71.  Accordingly,  in 1997,  TNMP  discontinued  regulatory  accounting
principles for the New Mexico power supply  operations.  The  discontinuation of
SFAS 71 had no effect on TNMP's financial  statements in the period of adoption.
The  transmission  and  distribution  operations  in New Mexico will continue to
follow SFAS 71.

   Fuel Reconciliation

     TNMP's fixed fuel factor in Texas remains constant until changed as part of
a  general  rate  case or fuel  reconciliation,  or  until  the  PUCT  orders  a
reconciliation  for any over or under  collections  of fuel costs.  TNMP filed a
reconciliation  of fuel  costs in June  1997,  for the  period of  October  1993
through December 1996. In January 1998, TNMP reached a stipulated agreement with
the staff of the PUCT and several other interested parties. The agreement, which
was  approved  by the PUCT on April  21,  1998,  specified  that all fuel  costs
incurred during the reconciliation  period were reasonable and necessary.  Also,
the agreement did not propose a change to the fixed fuel factor.

Note 3.  Discontinued Nonregulated Operations

     Management, with approval from the Board of Directors, authorized a plan to
discontinue the  construction  activities of FWI in late 1997.  During the third
quarter of 1998, TNP elected to discontinue all remaining operations of FWI.

     The pre-tax loss on  discontinued  operations  recognized in 1998 was $19.6
million ($12.7 million, net of taxes, or $0.96 per share). The 1998 pre-tax loss
resulted from  construction  delays,  a shortage of skilled labor,  and job site
performance problems.  Due to these reasons,  there are a few jobs not completed
at December 31, 1998. TNP expects the jobs to be completed during 1999.

     The pre-tax loss on  discontinued  operations  recognized in 1997 was $19.8
million ($12.9 million,  net of taxes, or $0.98 per share).  All losses incurred
by FWI, both  construction and service,  incurred in 1997 have been reclassified
as losses from discontinued operations.
<PAGE>
Note 4.  Employee Benefit Plans

   Pension and Postretirement Benefits Plan
     TNMP has a defined benefit pension plan covering  substantially  all of its
employees.   Benefits  are  based  on  an   employee's   years  of  service  and
compensation. TNMP's funding policy is to contribute the minimum amount required
by  federal  funding  standards.  TNMP  also  sponsors  a health  care plan that
provides  postretirement  medical and death  benefits to retirees who  satisfied
minimum age and service requirements during employment.
<TABLE>
<CAPTION>

                                                                         Pension Benefits        Postretirement Benefits
                                                                         ----------------        -----------------------
                                                                       1998           1997         1998          1997
                                                                   ---------       ---------    ----------   ----------       
                                                                                       (In thousands)
         Change in projected benefit obligation:
<S>                                                                <C>             <C>          <C>          <C>

             Benefit obligation at beginning of year               $  76,316       $  66,406    $   10,651   $   16,805
                Service cost                                           1,439           1,371           309          467
                Interest cost                                          5,055           5,074           736        1,253
                Participant contributions                                 -               -            183           92
                Plan amendments                                         (873)             -             -        (8,000)
                Actuarial (gain) or loss, including changes
                   in discount rate                                    1,366           8,273           442        1,436
                Benefits paid                                         (6,908)         (4,808)       (1,446)      (1,402)
                                                                   ---------      ----------   -----------  -----------
             Benefit obligation at end of year                      $ 76,395       $  76,316    $   10,875   $   10,651
                                                                    ========       =========    ==========   ==========
</TABLE>

     TNMP amended its pension and postretirement benefit plans effective October
1, 1997.  The  amendments  were  recognized at January 1, 1998,  for the pension
plan, and at October 1, 1997, for the postretirement benefit plan.
<TABLE>
<CAPTION>
                                                                         Pension Benefits        Postretirement Benefits
                                                                         ----------------        -----------------------
                                                                       1998           1997         1998          1997
                                                                    --------       ---------    ----------   ----------  
                                                                                       (In thousands)
<S>                                                                 <C>            <C>          <C>          <C>
         Change in plan assets:
             Fair value of plan assets at beginning of year         $ 95,751       $  82,771    $    8,274   $    6,975
                Actual return on plan assets, net of expenses          8,871          17,788         1,105          861
                Employer contributions                                    -               -          1,597        1,624
                Participant contributions                                 -               -            183           92
                Benefits paid                                         (6,908)         (4,808)       (1,223)      (1,278)
                                                                    --------       ---------    ----------   ----------
             Fair value of plan assets at end of year               $ 97,714       $  95,751    $    9,936   $    8,274
                                                                    ========       =========    ==========   ==========

         Reconciliation of funded status:
             Funded status                                          $ 21,319       $  19,435    $     (938)  $   (2,377)
             Unrecognized actuarial gain                             (25,620)        (24,779)       (6,216)      (6,168)
             Unrecognized transition (asset) or obligation               (35)            (59)        4,540       12,864
             Unrecognized prior service cost                          (2,152)         (1,434)           -        (8,000)
                                                                   ---------      ----------   -----------  -----------
                Prepaid (accrued) benefit cost                      $ (6,488)      $  (6,837)   $   (2,614)  $   (3,681)
                                                                    ========       =========    ==========   ==========

         Components of net periodic benefit cost:
             Service cost                                           $  1,439       $   1,371    $      309   $      468
             Interest cost                                             5,055           5,074           736        1,253
             Expected return on plan assets                           (6,664)         (6,219)         (484)        (434)
             Amortization of prior service cost                         (156)           (154)           -            -
             Amortization of transitional (asset) or obligation          (24)            (24)          325          857
             Recognized actuarial gain                                    -               -           (326)        (405)
                                                                   ---------      ----------   -----------  -----------
                Net periodic benefit cost                           $   (350)      $      48    $      560   $    1,739
                                                                    ========       =========    ==========   ==========

         Weighted-average assumptions as of December 31:
             Discount rate                                              6.75%          7.00%          6.75%        7.00%
             Expected long-term rate of return on plan assets           9.50%          9.50%          5.25%        5.25%
             Average rate of compensation increase                      4.00%          4.00%           N/A          N/A
</TABLE>
<PAGE>

     The assumed  health care cost trend rate used to measure the expected  cost
of benefits  was 5.3% for 1998 and is assumed to trend  downward  slightly  each
year to 4.3% for 2003 and thereafter. Assumed health care cost trend rates could
have a significant  effect on the amounts  reported for the health care plans. A
one-percentage-point  change in assumed  health care cost trend rates would have
the following effects (in thousands):
<TABLE>
                                                                       One-Percentage-Point       One-Percentage-Point
                                                                             Increase                   Decrease
                                                                       --------------------       --------------------
<S>                                                                       <C>                          <C>
         Effect on total of service and interest cost
             components for 1998                                          $         3                  $      (4)
         Effect on year-end 1998 postretirement
             benefit obligation                                                    48                        (61)

</TABLE>

   Incentive Plans

     TNP and TNMP have  several  incentive  compensation  plans.  All  employees
participate in one or more of these plans.  Incentive  compensation  is based on
meeting key financial and operational performance goals such as cash value added
or earnings  per share,  operations  and  maintenance  costs per KWH, and system
reliability measures. Operating expenses for 1998, 1997, and 1996 included costs
for the various cash and equity plans of $5.9 million,  $6.0  million,  and $4.8
million, respectively.

   Other Employee Benefits

     TNMP has a 401(k)  plan  designed  to enhance  the other  retirement  plans
available to its employees.  Employees may invest their  contributions  in fixed
income securities,  mutual funds, or TNP common stock. TNMP's  contributions are
used to purchase TNP common  stock,  which  employees may later convert to other
investment options.

     TNMP has employment  contracts with certain members of management and other
key  personnel.  The contracts  provide for lump sum  compensation  payments and
other  rights  in the  event of  termination  of  employment  or  other  adverse
treatment of such persons  following a "change in control" of TNP or TNMP.  Such
event is defined to include,  among  other  things,  substantial  changes in the
corporate structure, ownership, or board of directors of either entity.

     An excess  benefit  plan has been  provided for certain key  personnel  and
retired  employees.  The payment of benefits  under the excess  benefit  plan is
partially provided under an insurance policy arrangement for paying the benefits
that  generally  would have been provided by the pension and thrift plans except
for federal limitations.


Note 5.  Income Taxes

     Components of income taxes were as follows:
<TABLE>
<CAPTION>

                                                       TNP                                    TNMP
                                      ----------------------------------        ------------------
                                        1998          1997       1996             1998        1997        1996
                                        ----          ----       ----             ----        ----        ----
                                                                     (In thousands)
Taxes on net operating income:
<S>                                  <C>          <C>          <C>            <C>          <C>          <C>

    Federal - current                $  9,751     $   12,251   $   10,240     $   6,299    $    9,140   $    8,596
    State - current                       164            428           86           197           428           86
    Federal - deferred                  3,962          6,747           49         8,872         9,963        1,381
    ITC adjustments                     1,603          1,816           -          1,495         2,531          270
                                     --------     ----------   ----------     ---------    ----------   ----------
                                       15,480         21,242       10,375        16,863        22,062       10,333
                                     --------     ----------   ----------     ---------    ----------   ----------


Taxes on other income (loss):
    Federal - current                    (313)          (534)        (100)         (313)         (534)        (100)
    Federal - deferred                    760            687         (241)          687           687         (241)
    ITC adjustments                      (322)          (410)        (381)         (322)         (410)        (381)
                                     --------     ----------   ----------     ---------    ----------   ----------
                                          125           (257)        (722)           52          (257)        (722)
                                     --------     ----------   ----------     ---------    ----------   ----------

Tax benefit from discontinued
 nonregulated operations (Note 3)      (6,843)        (6,660)      (1,658)           -             -            -
                                     --------     ----------   ----------     ---------    ----------   ----------

    Total income taxes               $  8,762     $   14,325   $    7,995     $  16,915    $   21,805   $    9,611
                                     ========     ==========   ==========     =========    ==========   ==========
</TABLE>


     The  amounts for total  income  taxes  differ from the amounts  computed by
applying  the  appropriate  federal  income tax rate to earnings  (loss)  before
income taxes for the following reasons:
<TABLE>
<CAPTION>

                                                       TNP                                    TNMP
                                       ---------------------------------         ---------------------------------
                                         1998        1997        1996              1998         1997        1996
                                         ----        ----        ----              ----         ----        ----
                                                                     (In thousands)

<S>                                  <C>           <C>         <C>              <C>          <C>         <C>       
Tax at statutory tax rate            $  9,796      $ 15,252    $ 10,850         $ 17,864     $ 22,854    $ 12,735
    Amortization of
      accumulated deferred ITC         (1,525)       (1,403)     (1,323)          (1,525)      (1,403)     (1,323)
    Amortization of
      excess deferred taxes              (141)         (141)       (143)            (141)        (141)       (143)
    State income taxes                    197           428          86              197          428          86
    ITC related to 1995
      PUCT disallowance                  (322)         (410)       (191)            (322)        (410)       (191)
    ITC adjustment                         -             -         (760)              -            -           -
    Other, net                            757           599        (524)             842          477      (1,553)
                                     --------      --------    ---------        --------     --------    --------
        Actual income taxes          $  8,762      $ 14,325    $   7,995        $ 16,915     $ 21,805    $  9,611
                                     ========      ========    =========        ========     ========    ========

</TABLE>


     The tax  effects of  temporary  differences  that gave rise to  significant
portions of net current and net noncurrent  deferred income taxes as of December
31, 1998, and 1997, are presented below.
<TABLE>
<CAPTION>

                                                                       TNP                           TNMP
                                                           --------------------------    ----------------
                                                              1998            1997           1998          1997
                                                              ----            ----           ----          ----
                                                                                (In thousands)
     Current deferred income taxes:
<S>                                                       <C>            <C>            <C>            <C>    

       Deferred tax assets:
         Unbilled revenues                                $        91    $     2,905    $        91    $     2,905
         Other                                                  2,999             -             115
                                                          -----------    -----------      ---------    -----------
                                                                3,090          2,905            206          2,905
       Deferred tax liability:
         Deferred purchased power and fuel costs                 (855)        (1,198)          (855)        (1,198)
                                                          -----------    -----------    -----------    -----------
           Current deferred income taxes, net             $     2,235    $     1,707    $      (649)   $     1,707
                                                          ===========    ===========    ===========    ===========

     Noncurrent deferred income taxes:
       Deferred tax assets:
         Minimum tax credit carryforwards                 $    30,241    $    27,414    $    34,437    $    34,377
         ITC carryforwards                                      5,018          6,608          3,206          6,472
         Regulatory related items                              12,731         17,135         12,731         17,135
         Accrued employee benefit costs                         3,330          3,195          3,330          3,195
         Other                                                   (890)         3,449            694            787
                                                          -----------    -----------    -----------    -----------
                                                               50,430         57,801         54,398         61,966
                                                          -----------    -----------    -----------    -----------
       Deferred tax liabilities:
         Utility plant, principally due to
           depreciation and basis differences                (135,870)      (128,913)      (135,870)      (128,913)
         Deferred charges                                      (4,611)        (6,101)        (4,611)        (6,101)
         Regulatory related items                              (7,295)        (8,037)        (7,295)        (8,037)
                                                          -----------    -----------    -----------    -----------
                                                             (147,776)      (143,051)      (147,776)      (143,051)
                                                          -----------    -----------    -----------    -----------
             Noncurrent deferred income taxes, net        $   (97,346)   $   (85,250)   $   (93,378)   $   (81,085)
                                                          ===========    ===========    ===========    ===========
</TABLE>
     Federal tax carryforwards as of December 31, 1998, were as follows:
<TABLE>
<CAPTION>
                                                                                   TNP             TNMP
                                                                                   ---             ----  
                                                                                      (In thousands)
           Minimum tax credits
<S>                                                                             <C>              <C>
              Amount                                                            $ 30,241         $  34,437
              Expiration period                                                     None              None
           Investment tax credit
              Amount                                                            $  5,018         $   3,206
              Expiration period                                                     2005              2005
</TABLE>

<PAGE>

Note 6.  Long-Term Debt

   First Mortgage Bonds

     FMBs  issued  under the Bond  Indenture  are secured by  substantially  all
utility plant owned directly by TNMP. The Bond Indenture restricts cash dividend
payments on TNMP common stock as discussed in Note 7.

     The maximum amount of any additional FMBs that TNMP can issue is determined
by both a collateral  requirement and by an interest coverage  requirement.  The
collateral requirement is a function of property additions,  previuosly redeemed
FMBs,  and cash  deposited  with the  trustee.  As of  December  31,  1998,  the
collateral   requirement  was  more  restrictive  than  the  interest   coverage
requirement,  and TNMP could  therefore  issue up to $267 million of  additional
FMBs.  After the  issuance of $175 million of FMBs in January 1999 to secure the
Senior Notes, TNMP could issue an additional $92 million of FMBs.

   Secured Debentures

     TNMP's Series A, 10.75% secured  debentures ($140 million) are secured with
a first lien on a portion of Unit 1, and by second  liens on  substantially  all
utility  plant in Texas owned  directly by TNMP.  The  secured  debentures  also
contain  restrictions on dividends and asset dispositions.  TNMP's 12.5% secured
debentures ($130 million) were retired at maturity in January 1999.

   Senior Notes

     In January 1999, TNMP issued $175 million of 6.25% Senior Notes due in 2009
and used the  proceeds  to  retire  its  12.5%  secured  debentures  and  reduce
outstanding borrowings under the credit facilities. The Senior Notes were issued
under a new indenture that allows the issuance of unsecured  debt. The new notes
are initially secured by FMBs.  However,  when TNMP repays its existing FMBs and
secured  debentures,  the collateral securing the Senior Notes will be released,
and they will become  unsecured,  but will remain the senior debt obligations of
TNMP.

   Revolving Credit Facilities

     The  following  table  summarizes  the terms of TNP's and TNMP's  revolving
credit facilities at December 31,1998:
<TABLE>
<CAPTION>

                                                   Total            Amount         Commitment       1998 Average
                                                Commitment        Outstanding        Expires        Interest Rate      Security
                                                       (in thousands) 
<S>                                             <C>               <C>            <C>                <C>                <C>    

     1998 TNP Facility                           $   50,000       $    9,000      November 2003         5.62%          Unsecured
     1995 TNMP Facility                             100,000               -       November 2000         7.45%          Unsecured
     1996 TNMP Facility                              80,000           80,000     September 2001         6.96%          Unsecured
     Interim TNMP Facility                           35,000               -        April 1999            N/A           Unsecured

</TABLE>

     The composite  average  borrowing rates under TNMP's credit facilities were
6.99% and 7.15% for 1998 and 1997,  respectively.  The interest  rate margins on
the 1996 and 1995 facilities have decreased by 0.50% since the ratings on TNMP's
FMBs have been upgraded by the rating agencies.


     TNMP has a $50  million  interest  rate  collar  to  mitigate  exposure  to
variable  interest rates.  The collar sets floor and ceiling rates on the 90-day
LIBOR  rate at 5.25% and  7.50%,  respectively.  The term of the  interest  rate
collar is September 1997 through  September  2000.  TNMP also has a $100 million
interest  rate collar to mitigate the risk of  refinancing  the Series A, 10.75%
Secured  Debentures  and the 9.25% FMBs. The collar sets floor and ceiling rates
on the 10-year U. S. Treasury bond at 4.91% and 6.25%, respectively.  The collar
expires, and is exercisable only on, September 15, 2000.

     TNMP has  sufficient  liquidity  to satisfy  the  possibility  of any known
contingencies.  Management  believes  cash  flow from  operations,  the new debt
described above, and periodic  borrowings under its two credit facilities should
be  sufficient  to  meet  working  capital   requirements  and  planned  capital
expenditures at least through 1999.


     Under specified  conditions,  TNMP's credit facilities restrict the payment
of cash dividends on TNMP common stock. The credit  facilities also prohibit the
sale, lease, transfer, or other disposition of assets other than in the ordinary
course of business.

   Maturities

     As of December 31, 1998, FMB and secured  debenture  maturities and sinking
fund requirements for the five years following 1998 are as follows:

<PAGE>

<TABLE>
<CAPTION>
                                                           Credit            Secured
                            Year             FMBs        Facilities        Debentures          Total
                            ----             ----        ----------        ----------          -----
                                 (In thousands)
<S>                         <C>          <C>              <C>             <C>                <C> 

                            1999         $       -        $      -        $       -          $       -
                            2000            100,000              -                -             100,000
                            2001                 -           80,000               -              80,000
                            2002                 -               -                -                  -
                            2003                 -            9,000          140,000            149,000
</TABLE>

     In January 1999,  TNMP retired upon their  maturity,  $130 million of 12.5%
secured  debentures,  and issued $175 million of 6.25% Senior Notes due in 2009.
TNMP's Series A, 10.75%  Secured  Debentures of $140 million are callable at par
on September 15, 2000.


Note 7.  Capital Stock and Dividends

    TNP

     In November 1998, TNP increased its quarterly  dividend from $0.27 to $0.29
per share.

     In October  1996,  TNP issued 2 million  shares of common stock in a public
offering, with net proceeds of approximately $47,170,000.  The net proceeds were
transferred to TNMP as an equity contribution and used to retire debt.

   TNMP

     The 1995 and 1996 TNMP  Credit  Facilities  restrict  the  payment  of cash
dividends  by TNMP.  As of December  31,  1998,  $14.7  million of  unrestricted
retained earnings were available for dividends.


Note 8.  Segment and Related Information

     During  1998,  TNP  adopted  FASB  Statement  No. 131,  "Disclosures  about
Segments of an  Enterprise  and  Related  Information".  TNP has two  reportable
segments. The primary segment is TNMP, which provides regulated electric service
in Texas and New  Mexico.  The other  reportable  segment is FWI,  which  before
operations  were  discontinued,   provided  integrated  mechanical,  electrical,
plumbing and other  maintenance and repair  services to commercial  customers in
Texas metropolitan  areas. TNP manages the segments separately to respond to the
unique distinctions between regulated and unregulated businesses.

     The accounting  policies of the segments are the same as those described in
the summary of significant  accounting policies.  Intersegment  revenues are not
material.

     The following tables present  information about profits,  losses and assets
of TNP's reportable segments (in thousands):
<TABLE>
<CAPTION>

     1998
     -----
                                                   TNMP               FWI           All Other       Eliminations     Consolidated
                                                   ----               ---           ---------       ------------     ------------
<S>                                             <C>              <C>               <C>              <C>               <C>

     Operating revenues                         $  586,445       $       -         $       48       $       -         $  586,493
     Depreciation and amortization                  42,161               -                  2               -             42,163
     Income taxes                                   16,863               -             (1,383)              -             15,480
     Interest revenue                                  944               -                391               -              1,335
     Total interest charges                         53,727               -                158               -             53,885
     Income (loss) from continuing operations       34,321               -             (2,187)              -             32,134
     Loss from discontinued nonregulated
        operations                                      -            12,710                -                -             12,710
     Net income (loss)                              34,321          (12,710)           (2,187)              -             19,424
     Total assets                                  973,566           10,081            10,344             (226)          993,765
     Property additions                             37,506               -              1,048               -             38,554
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

     1997
     ----                                          TNMP               FWI           All Other       Eliminations     Consolidated
                                                   ----               ---           ---------       ------------     ------------
<S>                                             <C>              <C>               <C>              <C>               <C>
     Operating revenues                         $  580,693       $       -         $       -        $       -         $  580,693
     Depreciation and amortization                  40,169               -                  2               -             40,171
     Income taxes                                   22,062               -               (820)              -             21,242
     Interest revenue                                1,497               -                326               -              1,823
     Total interest charges                         56,912               -                 -                -             56,912
     Income (loss) from continuing operations       43,918               -             (1,357)              -             42,561
     Loss from discontinued nonregulated
        operations                                      -            12,883                -                -             12,883
     Net income (loss)                              43,918          (12,883)           (1,357)              -             29,678
     Total assets                                  967,006           10,239            11,748            2,933           991,926
     Property additions                             27,942               -              2,067               -             30,009
</TABLE>


<TABLE>
<CAPTION>

     1996
     ----                                          TNMP               FWI           All Other       Eliminations     Consolidated
                                                   ----               ---           ---------       ------------     ------------
<S>                                             <C>              <C>               <C>              <C>               <C>
     Operating revenues                        $   502,737      $        -        $        -       $        -        $   502,737
     Depreciation and amortization                  39,488               -                  2               -             39,490
     Income taxes                                   10,333               -                 42               -             10,375
     Interest revenue                                1,250               -                326               -              1,576
     Total interest charges                         69,363               -                 -                -             69,363
     Income (loss) from continuing operations       26,862               -               (712)              -             26,150
     Loss from discontinued nonregulated
        operations                                      -             3,097                -                -              3,097
     Net income (loss)                              26,862           (3,097)             (712)              -             23,053
     Total assets                                1,002,157            2,361             7,836           (5,570)        1,006,784
     Property additions                             28,006               -              2,771               -             30,777
</TABLE>



Note 9.   Commitments and Contingencies

   Fuel Supply Agreement

     TNMP has an  agreement  with the Walnut  Creek  Mining  Company to purchase
lignite for TNP One through at least 2017.  Depending  on the output of TNP one,
the contract could supply the plant for several years beyond 2017. Phillips Coal
Company and Peter Kiewit Sons' jointly own Walnut Creek Mining Company, Inc.

   Wholesale Purchased Power Agreements

     TNMP  purchases  approximately  80% of its  electricity  requirements  from
various wholesale suppliers.  These contracts are scheduled to expire in various
years through 2005.

     In 1998,  TU was TNMP's  largest  wholesaler  of  electricity.  In 1998, TU
supplied  approximately 32% of TNMP's Texas capacity and 23% of its Texas energy
requirements.  During 1995, pursuant to terms of the contract,  TNMP notified TU
of its intent to cease purchasing electricity at 19 of the 20 points of delivery
served by TU, effective January 1, 1999. The nineteen points of delivery account
for  approximately  70% of the  electricity  delivered  to TNMP from TU. At that
time, the TU Agreement required TNMP to continue  purchasing  electricity at the
remaining  point of  delivery  through  May of 2010.  In late 1997,  TNMP and TU
modified the agreement to change the  termination  date of the contract from May
2010 to June 2002.  Therefore,  TNMP  currently  has no  obligation  to purchase
electricity from TU beyond June 2002.

     At December 31, 1998, TNMP had various outstanding  commitments for take or
pay agreements,  including the fuel supply agreement  discussed above.  Detailed
below are the fixed and  determinable  portion of the  obligations  (amounts  in
millions):
<TABLE>
<CAPTION>

                                                              1999       2000       2001      2002        2003
                                                              ----       ----       ----      ----        ----
<S>                                                         <C>       <C>        <C>        <C>        <C>

     Purchased power agreements                             $  74.3   $   53.3    $   58.9  $  26.9    $  17.3
     Fuel supply agreements                                    32.0       32.8        33.6     34.4       35.3
                                                            -------   --------    --------  -------    -------
       Total                                                $ 106.3   $   86.1    $   92.5  $  61.3    $  52.6
                                                            =======   ========    ========  =======    =======
</TABLE>



   Significant Customer

     A significant  industrial  customer in Texas left TNMP's system in February
1998 and  replaced  the power  previously  provided  by TNMP with  power  from a
cogeneration  plant  built  by a third  party  wholesale  power  producer.  This
customer  provided sales of 629 GWH and annual revenues of $28.3 million in 1997
($10.1  million in base  revenues).  Purchases by this  customer in 1998 were 74
GWH, providing total revenues of $3.1 million and base revenues of $0.9 million.

   Legal Actions

     TNMP and Clear Lake Limited Partnership ("Clear Lake") agreed in March 1999
to settle the lawsuit styled Clear Lake  Cogeneration  Limited  Partnership  vs.
Texas-New  Mexico Power  Company,  pending in the 234th District court of Harris
County,  Texas,  and the  parallel  proceeding  pending  before the PUCT.  These
proceedings  arose out of  disagreements  between  TNMP and Clear  Lake over the
interpretation  of certain  terms of an  agreement  under  which TNMP  purchases
cogenerated electricity from Clear Lake. The settlement,  which must be approved
by the PUCT, resolves all outstanding issues raised in these proceedings.

     Under the settlement,  TNMP,  Clear Lake and Calpine Power Services Company
(an  affiliate  of Clear  Lake)  have  entered  into a revised  purchased  power
contract,  effective  as of  October  1, 1998,  governing  energy  and  capacity
transactions between the parties. The key elements of the revised contract are:

    -     The capacity rate under which TNMP will  purchase  capacity from Clear
          Lake   is   significantly  reduced.   The  energy  rate  is  virtually
          unchanged.

    -     Clear Lake will be able to provide  250 MW of capacity  from  multiple
          sources. Except for power plants named in the agreement,  TNMP retains
          certain  rights of prior  approval  as to other  sources  of power and
          energy.

    -     TNMP will pay for the cost of  transmitting  power  from the  existing
          Clear Lake power plant to TNMP's load centers in the Gulf Coast Region
          pursuant to new PUCT  rules.  Clear Lake will  reimburse  TNMP for any
          excess  transmission  costs  that  TNMP  would  incur as a  result  of
          delivery from points other than the Clear Lake Plant.

    -     Clear Lake will no longer pay for nor receive standby power,  but will
          generally  guarantee 100%  availability of capacity and energy.  Clear
          Lake may request that TNMP obtain or generate  replacement  power at a
          negotiated fixed cost under certain limited conditions.

    -     Future   disputes   shall  be  resolved   through   consultation   and
          arbitration.

     The settlement  also provides that TNMP will pay Clear Lake $8 million when
the PUCT has  approved  the  overall  settlement  and  revised  purchased  power
contract.  The settlement calls for regulatory  recovery by TNMP of all payments
to be made by TNMP for power and  energy,  as well as the $8 million  settlement
payment.  TNMP does not expect this settlement to have a material adverse impact
on its financial position or results of operations.

    Phillips  Petroleum.  TNMP  is  the  defendant  in a  suit  styled  Phillips
Petroleum Company vs. Texas-New Mexico Power Company.  This lawsuit was filed on
October 1, 1997 and is pending in the 149th Judicial  District Court of Brazoria
County,  Texas.  In this matter,  Phillips  Petroleum  Company  contends that it
sustained  economic  losses of  approximately  $36  million  following a one and
one-half  hour  interruption  in its  electrical  service on May 17, 1997.  TNMP
claims that most, if not all of Phillips Petroleum alleged damages are barred by
limitations  contained within our tariff approved by the PUCT. The lawsuit is in
the initial discovery stage. In regard to this matter, TNMP believes that it has
insurance  coverage on most claims of  Phillips  Petroleum  up to a total of $31
million, with a $500,000 self-retention.

     TNMP is involved in various  claims and other legal actions  arising in the
ordinary  course  of  business.  In the  opinion  of  management,  the  ultimate
dispositions of these matters will not have a material  adverse effect on TNMP's
and TNP's consolidated financial position or results of operations.


<PAGE>


                     TNP ENTERPRISES, INC. AND SUBSIDIARIES
                 Selected Quarterly Consolidated Financial Data
<TABLE>
<CAPTION>

     The following  selected  quarterly  consolidated  financial data for TNP is
unaudited,  and, in the opinion of TNP's  management,  is a fair  summary of the
results of operations for such periods:

                                                            March 31      June 30     Sept. 30       Dec. 31
                                                            --------      -------     --------       -------
                                                                (In thousands except per share amounts)
1998
<S>                                                        <C>          <C>         <C>           <C>   
Operating revenues........................................ $  124,581   $  143,111   $  189,439   $  129,362
Net operating income......................................     18,491       19,101       33,119       14,153
Income from continuing operations.........................      5,130        5,832       20,890          282
Net income (loss).........................................      4,626         (767)      18,561       (2,996)
Earnings per share of common stock from
   continuing operations*.................................       0.39         0.44         1.58         0.02
Earnings (loss) per share of common stock.................       0.35        (0.06)        1.40        (0.23)
Dividends per share of common stock....................... $     0.27   $     0.27   $     0.27   $     0.29

Weighted average common shares outstanding................     13,188       13,240       13,263       13,283

1997

Operating revenues........................................ $  126,222   $  132,361   $  187,035   $  135,075
Net operating income......................................     19,430       23,023       37,510       17,810
Income from continuing operations.........................      5,120        8,847       23,741        4,853
Net income (loss).........................................      4,110        7,431       20,694       (2,557)
Earnings per share of common stock from
   continuing operations*.................................       0.39         0.68         1.81         0.37
Earnings (loss) per share of common stock *...............       0.31         0.56         1.58        (0.20)
Dividends per share of common stock....................... $    0.245   $    0.245   $    0.245   $     0.27

Weighted average common shares outstanding................     13,025       13,069       13,092       13,128

</TABLE>

*    The individual quarters do not add to the yearly totals since the per share
     amounts are based upon the average number of shares outstanding during each
     quarter.

     Generally,   the   variations   between   quarters   reflect  the  seasonal
fluctuations of TNMP's business.  Provisions for losses related to discontinuing
operations at FWI's construction  segment account for the decreases in operating
results  reported  in the  fourth  quarter  of 1997,  and the  second and fourth
quarters of 1998.  Discontinuing  operations of FWI's service segment caused the
decreased  operating results shown in the third quarter of 1998.  Implementation
of the Texas Transition Plan also had a negative impact on operating  results in
the second, third, fourth quarters of 1998.




      Item 9. CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     None.



<PAGE>


                                    PART III

Item 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Directors

     The  information  required by this item is  incorporated  by  reference  to
"Election  of  Directors"  and  "Security  Ownership of  Management  and Certain
Beneficial Owners" in the proxy statement relating to the 1999 Annual Meeting of
TNP Common Shareholders.

Executive Officers

     The  information  set forth under  "Employees and  Executives" in Part I is
incorporated here by reference.

Item 11.     EXECUTIVE COMPENSATION.*

Item 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.*

Item 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.*

*    The  information  required  by Items  11,  12,  and 13 is  incorporated  by
     reference to "Compensation of Executive Officers," "Election of Directors -
     Direct  Compensation,"  and "Security  Ownership of Management  and Certain
     Beneficial  Owners"  in the proxy  statement  relating  to the 1999  Annual
     Meeting of TNP Common Shareholders.


                                     PART IV

Item 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)    The following financial statements are filed as part of this report:

                                                                           Page
Reports of Independent Public Accountants.................................... 20
Independent Auditors' Reports................................................ 22

TNP
Consolidated Statements of Income, Three Years Ended December 31, 1998....... 24
Consolidated Statements of Cash Flows, Three Years Ended December 31, 1998... 25
Consolidated Balance Sheets, December 31, 1998, and 1997..................... 26
Consolidated Statements of Capitalization, December 31, 1998, and 1997....... 27
Consolidated Statements of Common Shareholders' Equity, Three Years
  Ended December 31, 1998.................................................... 28

TNMP
Consolidated Statements of Income, Three Years Ended December 31, 1998....... 29
Consolidated Statements of Cash Flows, Three Years Ended December 31, 1998... 30
Consolidated Balance Sheets, December 31, 1998, and 1997..................... 31
Consolidated Statements of Capitalization, December 31, 1998, and 1997....... 32
Consolidated Statements of Common Shareholder's Equity, Three Years
  Ended December 31, 1998.................................................... 33
Notes to Consolidated Financial Statements................................... 34
Selected Quarterly Consolidated Financial Data - TNP......................... 46

(b) TNP and TNMP filed a Form 8-K relating to TNP's amended Shareholders' Rights
Plan on October 9, 1998.

(c)    The Exhibit Index on pages 49 - 54 is incorporated here by reference.

(d)    All  financial   statement   schedules  are  omitted,   as  the  required
       information  is not  applicable  or the  information  is presented in the
       consolidated financial statements or related Notes.



<PAGE>





                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrants  have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.

                        TNP ENTERPRISES, INC. AND TEXAS-NEW MEXICO POWER COMPANY


Date:  March 19, 1999               By:    /s/ Manjit S. Cheema
                                       --------------------------------------
                                       Manjit S. Cheema, Senior Vice President
                                       & Chief Financial Officer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrants and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

                                                            Title                                          Date
                                                            -----                                          ----

<S>                                                   <C>                                                  <C>
By  /s/ Kevern R. Joyce                               Chairman, President, & Chief Executive Officer       3/19/99
    -------------------------                                                                              -------
    Kevern R. Joyce

By  /s/ Manjit S. Cheema                              Senior Vice President & Chief Financial Officer      3/19/99
    -------------------------                          of TNMP and TNP                                     -------
    Manjit S. Cheema

By  /s/ Michael J. Ricketts                           Controller of TNMP & TNP                             3/19/99
    -------------------------                                                                              -------
    Michael J. Ricketts                                                                                    


By  /s/ R. Denny Alexander                            Director                                             3/19/99
    -------------------------                                                                              -------
    R. Denny Alexander


By  /s/ John A. Fanning                               Director                                             3/19/99
    -------------------------                                                                              -------
    John A. Fanning


By  /s/ Sidney M. Gutierrez                           Director                                             3/19/99
    -------------------------                                                                              -------
    Sidney M. Gutierrez


By  /s/ J. R. Holland, Jr.                           Director                                              3/19/99
    -------------------------                                                                              -------
    J. R. Holland, Jr.


By  /s/ Harris L. Kempner, Jr.                        Director                                             3/19/99
    -------------------------                                                                              -------
    Harris L. Kempner, Jr.


By  /s/ Dr. Carol D. Smith Surles                     Director                                             3/19/99
    -------------------------                                                                              -------
    Dr. Carol D. Smith Surles


By  /s/ Larry G. Wheeler                              Director                                             3/19/99
    -------------------------                                                                              -------
    Larry G. Wheeler


By  /s/ Dennis H. Withers                             Director                                             3/19/99
    -------------------------                                                                              -------
    Dennis H. Withers

</TABLE>


<PAGE>


                                  EXHIBIT INDEX

     Exhibits filed with this report are denoted by "*."

Exhibit
  No.                          Description
-------                       -------------
TNP incorporates the following exhibits by reference to the exhibits and filings
noted in parenthesis.

3(a) - Articles of Incorporation and Amendments through March 6, 1984 (Exhibit
       3(a) to TNP 1984 Form S-14, File No. 2-89800). 

3(b) - Amendment  to  Articles  of  Incorporation  filed  September  25, 1984
       (Exhibit 3(b) to TNP 1984 Form 10-K, File No. 1-8847).

3(c) - Amendment to Articles of  Incorporation  filed August 29, 1985 (Exhibit
       3(a) to TNP 1985 Form 10-K, File No. 1-8847).

3(d) - Amendment to Articles of Incorporation filed June 2, 1986 (Exhibit 3(a)
       to TNP 1986 Form 10-K, File No. 1-8847).

3(e) - Amendment to Articles of Incorporation filed May 10, 1988 (Exhibit 3(e)
       to TNP 1988 Form 10-K, File No. 1-8847).

3(f) - Amendment to Articles of Incorporation filed May 10, 1988 (Exhibit 3(f)
       to TNP 1988 Form 10-K, File No. 1-8847).

3(g) - Amendment to Articles of Incorporation filed December 27, 1988 (Exhibit
       3(g) to TNP 1988 Form 10-K, File No. 1-8847).

3(h) - Bylaws,  as amended  (Exhibit  3(h) to joint 1994 Form 10-K,  File Nos.
       1-8847 and 2-97230).

4(u) - Amended and Restated Rights Agreement between TNP Enterprises, Inc. and
       Bank of New York, as Rights Agent, dated August 11, 1998and Form of Right
       Certificate,  effective August 11, 1998 (Exhibit 10 to TNP Form 8-K filed
       October 9, 1998, File No. 1-8847).

*23  - Independent  Public  Accountants'  Consent - Arthur Andersen LLP.
       Independent Auditors' Consent - KPMG LLP.

*27  - Financial Data Schedule for TNP.


TNMP  incorporates  the  following  exhibits by  reference  to the  exhibits and
filings noted in parenthesis.

3(i) - Restated Articles of Incorporation. (Exhibit 3(i) to TNMP 1996 10-K, File
       No. 2-97230)

3(ii)- Bylaws,  as amended  November 15, 1994 (Exhibit  3(hh) to TNMP 1994 Form
       10-K, File No. 2-97230).

*27  - Financial Data Schedule for TNMP.


TNP and TNMP incorporate the following exhibits by reference to the exhibits and
filings noted in parenthesis.

4(a) - Indenture  of  Mortgage  and Deed of Trust  dated as of November 1, 1944
       (Exhibit 2(d) to Community  Public  Service Co.  ("CPS") 1978 Form S-7,
       File No. 2-61323).

4(b) - Seventh  Supplemental  Indenture dated as of May 1, 1963 (Exhibit 2(k) to
       CPS Form S-7, File No. 2-61323).

4(c) - Eighth Supplemental  Indenture dated as of July 1, 1963 (Exhibit 2(1), to
       CPS Form S-7, File No. 2-61323).

4(d) - Ninth Supplemental Indenture dated as of August 1, 1965 (Exhibit 2(m), to
       CPS Form S-7, File No. 2-61323).

4(e) - Tenth  Supplemental  Indenture  dated as of May 1, 1966 (Exhibit 2(n), to
       CPS Form S-7, File No. 2-61323).

4(f) - Eleventh  Supplemental  Indenture  dated as of  October 1, 1969  (Exhibit
       2(o), to CPS Form S-7, File No. 2-61323).

4(g) - Twelfth Supplemental  Indenture dated as of May 1, 1971 (Exhibit 2(p), to
       CPS Form S-7, File No. 2-61323).

4(h) - Thirteenth Supplemental Indenture dated as of July 1, 1974 (Exhibit 2(q),
       to CPS Form S-7, File No. 2-61323).

4(i) - Fourteenth  Supplemental  Indenture  dated as of March 1, 1975  (Exhibit
       2(r), to CPS Form S-7, File No. 2-61323).

4(j) - Fifteenth  Supplemental  Indenture dated as of September 1, 1976 (Exhibit
       2(e), File No. 2-57034).

4(k) - Sixteenth  Supplemental  Indenture  dated as of November 1, 1981 (Exhibit
       4(x), File No. 2-74332).

4(l) - Seventeenth  Supplemental Indenture dated as of December 1, 1982 (Exhibit
       4(cc), File No. 2-80407).

4(m)-  Eighteenth  Supplemental  Indenture  dated  as of  September  1,  1983
       (Exhibit  (a) to Form 10-Q of TNMP for the quarter  ended  September  30,
       1983, File No. 1-4756).

4(n)-  Nineteenth  Supplemental  Indenture  dated as of May 1, 1985  (Exhibit
       4(v), File No. 2-97230).

4(o) - Twentieth Supplemental Indenture dated as of July 1, 1987 (Exhibit 4(o)
       to Form  10-K of TNMP for the year  ended  December  31,  1987,  File No.
       2-97230).

4(p) - Twenty-First  Supplemental  Indenture dated as of July 1, 1989 (Exhibit
       4(p) to Form 10-Q of TNMP for the quarter  ended June 30, 1989,  File No.
       2-97230).

4(q)-  Twenty-Second  Supplemental  Indenture  dated as of January  15,  1992
       (Exhibit 4(q) to Form 10-K of TNMP for the year ended  December 31, 1991,
       File No. 2-97230).

4(r)-  Twenty-Third  Supplemental  Indenture  dated as of September  15, 1993
       (Exhibit 4(r) to Form 10-K of TNMP for the year ended  December 31, 1993,
       File No. 2-97230).

4(s)-  Twenty-Fourth  Supplemental  Indenture  dated as of  November  3, 1995
       (Exhibit 4(s) to Form 10-K of TNMP for the year ended  December 31, 1993,
       File No. 2-97230).

4(t)-  Twenty-Fifth  Supplemental  Indenture  dated as of September  10, 1996
       (Exhibit  4(t) to Form 10-Q of TNMP for the quarter  ended  September 30,
       1996, File No. 2-97230).

4(u)*- Twenty-Sixth Supplemental Indenture dated January 1, 1999.

4(v) - Indenture and Security  Agreement for 10 3/4% Secured  Debentures dated
       as of September 15, 1993  (Exhibit 4(t) to TNMP 1993 Form 10-K,  File No.
       2-97230).

4(w)*- Indenture  dated as of January 1, 1999  between TNMP and the Chase Bank
       of Texas, N. A.

4(x)*- First  Supplemental  Indenture dated as of January 1, 1999 to Indenture
       dated as of January 1, 1999 between TNMP and the Chase Bank of Texas,  N.
       A.

                            Contracts Relating to TNP One

10(a)- Fuel Supply  Agreement,  dated November 18, 1987,  between Phillips Coal
       Company and TNMP(Exhibit 10(j) to TNMP 1987 Form 10-K, File No. 2-97230).

10(a)1-Amendment  No. 1, dated as of April 1,  1988,  to Fuel  Supply  Agreement
       dated November 18, 1987,  between Phillips Coal Company and TNMP (Exhibit
       10(a)1 to Joint 1994 Form 10-K, File Nos. 1-8847 and 2-97230).

10(a)2 - Amendment  No. 2, dated as of November 29, 1994,  between  Walnut Creek
       Mining  Company and TNMP,  to Fuel Supply  Agreement  dated  November 18,
       1987,  between  Phillips Coal Company and TNMP,  (Exhibit 10(a)2 to joint
       1994 Form 10-K, File Nos. 1-8847 and 2-97230).

10(b)  - Unit 1 First  Amended and Restated  Project Loan and Credit  Agreement,
       dated as of January 8, 1992 (the "Unit 1 Credit Agreement"),  among TNMP,
       TGC,  certain  banks  (the  "Unit 1  Banks")  and  Chase  Manhattan  Bank
       (National  Association),  as  Agent  for the  Unit 1 Banks  (the  "Unit 1
       Agent"), (Exhibit 10(c) to TNMP 1991 Form 10-K, File No. 2-97230).

10(b)1 -  Participation  Agreement,  dated as of January 8, 1992,  among certain
       banks,  Participants,  and the Unit 1 Agent (Exhibit  10(c)1 to TNMP 1991
       Form 10-K, File No. 2-97230).

10(b)2 - Amendment  No. 1, dated as of September  21, 1993, to the Unit 1 Credit
       Agreement (Exhibit 10(b)2 to TNMP 1993 Form 10-K , File No. 2-97230).

10(c)  - Assignment and Security  Agreement,  dated as of January 8, 1992, among
       TGC and the Unit 1 Agent (Exhibit 10(d) to TNMP 1991 Form 10-K,  File No.
       2-97230).

10(d)  - Amended and Restated  Subordination  Agreement,  dated as of October 1,
       1988, among TNMP, Continental Illinois National Bank and Trust Company of
       Chicago and the Unit 1 Agent (Exhibit 10(uu) to TNMP 1988 Form 10-K, File
       No. 2-97230).

10(e)  - Unit 1  Mortgage  and Deed of  Trust,  dated as of  December  1,  1987,
       (Exhibit 10(ee) to TNMP 1987 Form 10-K, File No. 2-97230).

10(e)1 - Supplemental  Unit 1 Mortgage and Deed of Trust executed on January 27,
       1992, (Exhibit 10(g)4 to TNMP 1991 Form 10-K , File No. 2-97230).

10(e)2 - First TGC Modification and Extension Agreement, dated as of January 24,
       1992,  among the Unit 1 Banks,  the Unit 1 Agent,  TNMP, and TGC (Exhibit
       10(g)1 to TNMP 1991 Form 10-K, File No. 2-97230).

10(e)3 - Second TGC  Modification and Extension  Agreement,  dated as of January
       27,  1992,  among  the Unit 1 Banks,  the  Unit 1  Agent,  TNMP,  and TGC
       (Exhibit 10(g)2 to TNMP 1991 Form 10-K, File No. 2-97230).

10(e)4 - Third TGC Modification and Extension Agreement, dated as of January 27,
       1992,  among the Unit 1 Banks,  the Unit 1 Agent,  TNMP, and TGC (Exhibit
       10(g)3 to TNMP 1991 Form 10-K, File No. 2-97230).

10(e)5 - Fourth TGC Modification and Extension Agreement,  dated as of September
       29,  1993,  among  the Unit 1 Banks,  the  Unit 1  Agent,  TNMP,  and TGC
       (Exhibit 10(f)5 to TNMP 1993 Form 10-K, File No. 2-97230).

10(e)6 - Fifth TGC Modification and Extension  Agreement,  dated as of September
       29,  1993,  among  the Unit 1 Banks,  the  Unit 1  Agent,  TNMP,  and TGC
       (Exhibit 10(f)6 to TNMP 1993 Form 10-K, File No. 2-97230).

10(f)  - Indemnity  Agreement  dated December 1, 1987, by  Westinghouse,  CE and
       Zachry, (Exhibit 10(ff) to TNMP 1987 Form 10-K, File No. 2-97230).

10(g)  - Unit 1 Second Lien  Mortgage  and Deed of Trust dated as of December 1,
       1987, (Exhibit 10(jj) to TNMP 1987 Form 10-K, File No. 2-97230).

10(g)1 - Correction Second Lien Mortgage and Deed of Trust, dated as of December
       1, 1987, (Exhibit 10(vv) to TNMP 1988 Form 10-K, File No. 2-97230).

10(g)2 - Second Lien  Mortgage  and Deed of Trust  Modification,  Extension  and
       Amendment Agreement,  dated as of January 8, 1992 (Exhibit 10(i)2 to TNMP
       1991 Form 10-K, File No. 2-97230).

10(g)3 - TNMP Second Lien Mortgage Modification No. 2, dated as of September 21,
       1993 (Exhibit 10(h)3 to TNMP 1993 Form 10-K, File No. 2-97230).

10(h)  - Agreement  for  Conveyance  and Partial  Release of Liens,  dated as of
       December  1, 1987,  by PFC and the Unit 1 Agent  (Exhibit  10(kk) to TNMP
       1987 Form 10-K, File No. 2-97230).

10(i)  - Inducement  and Consent  Agreement,  dated as of June 15,  1988,  among
       Phillips  Coal  Company,  Kiewit Texas  Mining  Company,  TNMP,  Phillips
       Petroleum  Company,  and Peter Kiewit Son's, Inc. (Exhibit 10(nn) to TNMP
       1988 Form 10-K, File No. 2-97230).

10(j)  - Assumption Agreement,  dated as of October 1, 1988, by TGC, in favor of
       certain banks, the Unit 1 Agent,  and the Depositary,  as defined therein
       (Exhibit 10(ww) to TNMP 1988 Form 10-K, File No. 2-97230).

10(k)  - Guaranty, dated as of October 1, 1988, by TNMP of TGC obligations under
       Unit 1 Credit  Agreement  (Exhibit 10(xx) to TNMP 1988 Form 10-K of TNMP,
       File No. 2-97230).

10(l)  - First  Amended and Restated  Facility  Purchase  Agreement  dated as of
       January 8, 1992,  between TNMP and TGC  (Exhibit  10(n) to TNMP 1991 Form
       10-K, 1991, File No. 2-97230).

10(m)  - Operating Agreement,  dated as of October 1, 1988, between TNMP and TGC
       (Exhibit 10(zz) to TNMP 1988 Form 10-K, File No. 2-97230).

10(n)  - Unit 2 First  Amended and Restated  Project Loan and Credit  Agreement,
       dated as of January 8, 1992 (the "Unit 2 Credit Agreement"),  among TNMP,
       TGC II,  certain banks (the "Unit 2 Banks") and The Chase  Manhattan Bank
       (National  Association),  as  Agent  for the  Unit 2 Banks  (the  "Unit 2
       Agent") (Exhibit 10(q) to TNMP 1991 Form 10-K, File No. 2-97230).

10(n)1 - Amendment  No. 1, dated as of September  21, 1993, to the Unit 2 Credit
       Agreement (Exhibit 10(o)1 to TNMP 1993 Form 10-K, File No. 2-97230).

10(o)  - Assignment and Security  Agreement,  dated as of January 8, 1992, among
       TGC II and the Unit 2 Agent (Exhibit  10(r) to TNMP 1991 Form 10-K,  File
       No. 2-97230).

10(p)  - Assignment and Security  Agreement dated as of October 1, 1988, by TNMP
       to the Unit 2 Agent  (Exhibit  10(jjj) to TNMP 1988 Form  10-K,  File No.
       2-97230).

10(q)  -  Subordination  Agreement,  dated as of October 1,  1988,  among  TNMP,
       Continental  Illinois National Bank and Trust Company of Chicago, and the
       Unit 2 Agent (Exhibit 10(mmm) to TNMP 1988 Form 10-K, File No. 2-97230).

10(r)  - Unit 2 Mortgage and Deed of Trust dated as of October 1, 1988  (Exhibit
       10(uuu) to TNMP 1988 Form 10-K, File No. 2-97230).

10(r)1 - First TGC II Modification and Extension Agreement,  dated as of January
       24,  1992,  among the Unit 2 Banks,  the Unit 2 Agent,  TNMP,  and TGC II
       (Exhibit 10(u)1 to TNMP 1991 Form 10-K, File No. 2-97230).

10(r)2 - Second TGC II Modification and Extension Agreement, dated as of January
       27,  1992,  among  the  Unit 2 Banks,  the Unit 2 Agent,  TNMP and TGC II
       (Exhibit 10(u)2 to TNMP 1991 Form 10-K, File No. 2-97230).

10(r)3 - Third TGC II Modification and Extension Agreement,  dated as of January
       27,  1992,  among the Unit 2 Banks,  the Unit 2 Agent,  TNMP,  and TGC II
       (Exhibit 10(u)3 to TNMP 1991 Form 10-K, File No. 2-97230).

10(r)4 -  Fourth  TGC II  Modification  and  Extension  Agreement,  dated  as of
       September 29, 1993, among the Unit 2 Banks,  the Unit 2 Agent,  TNMP, and
       TGC II (Exhibit 10(s)4 to TNMP 1993 Form 10-K, File No. 2-97230).

10(r)5 - Fifth TGC II Modification and Extension Agreement, dated as of June 15,
       1994, among the Unit 2 Banks, the Unit 2 Agent, TNMP, and TGC II (Exhibit
       10(s)5  to TNMP Form  10-Q for  quarter  ended  June 30,  1994,  File No.
       2-97230).

10(s)  - Release and Waiver of Liens and Indemnity  Agreement,  dated October 1,
       1988, by Westinghouse,  CE, and Zachry (Exhibit 10(vvv) to TNMP 1988 Form
       10-K, File No. 2-97230).

10(t)  - Second Lien  Mortgage  and Deed of Trust,  dated as of October 1, 1988,
       (Exhibit 10(www) to TNMP 1988 Form 10-K, File No. 2-97230).

10(t)1 - Second Lien  Mortgage  and Deed of Trust  Modification,  Extension  and
       Amendment Agreement, dated as of January 8, 1992, (Exhibit 10(w)1 to TNMP
       1991 Form 10-K, File No. 2-97230).

10(t)2 - TNMP Second Lien Mortgage Modification No. 2, dated as of September 21,
       1993, (Exhibit 10(u)2 to TNMP 1993 Form 10-K, File No. 2-97230).

10(u)  -  Intercreditor  and  Nondisturbance  Agreement,  dated as of October 1,
       1988, among PFC, Texas PFC, Inc.,  TNMP,  certain  creditors,  as defined
       therein, and the Collateral Agent, as defined therein (Exhibit 10(xxx) to
       TNMP 1988 Form 10-K, File No. 2-97230).

10(u)1 -  Amendment  No. 1, dated as of January 8, 1992,  to  Intercreditor  and
       Nondisturbance  Agreement,  (Exhibit  10(x)1 to TNMP 1991 Form 10-K, File
       No. 2-97230).

10(u)2 - Amendment No. 2, dated as of September 21, 1993, to  Intercreditor  and
       Nondisturbance Agreement, (Exhibit 10(v)2 to TNMP 1993 Form 10-K of TNMP,
       File No. 2-97230).

10(v)  - Grant of Reciprocal Easements and Declaration of Covenants Running with
       the Land, dated October 1, 1988, between PFC and Texas PFC, Inc. (Exhibit
       10(yyy) to TNMP 1988 Form 10-K, File No. 2-97230).

10(w)  - Non-Partition Agreement, dated as of May 30, 1990, among TNMP, TGC, and
       the Unit 1 Agent (Exhibit 10(ss) to TNMP 1990 Form 10-K of TNMP, File No.
       2-97230).

10(x)  - Assumption  Agreement,  dated as of May 31, 1991, by TGC II in favor of
       certain banks, the Unit 2 Agent,  and the Depositary,  as defined therein
       (Exhibit 10(kkk) to Amendment No. 1 to File No. 33-41903).

10(y)  - Guaranty,  dated as of May 31, 1991,  by TNMP,  for TGC II  obligations
       under the Unit 2 Credit Agreement  (Exhibit 10(lll) to Amendment No. 1 to
       File No. 33-41903).

10(z)  - First  Amended and Restated  Facility  Purchase  Agreement  dated as of
       January 8, 1992,  between TNMP,  and TGC II (Exhibit  10(dd) to TNMP 1991
       Form 10-K, File No. 2-97230).

10(z)1 -  Amendment  No. 1 to the Unit 2 First  Amended  and  Restated  Facility
       Purchase Agreement,  dated as of September 21, 1993, between TNMP and TGC
       II (Exhibit 10(aa)1 to TNMP 1993 Form 10-K, File No. 2-97230).

10(aa) - Operating Agreement,  dated as of May 31, 1991, between TNMP and TGC II
       (Exhibit 10(nnn) to Amendment No. 1 to File No. 33-41903).

10(bb) - Non-Partition Agreement,  dated as of May 31, 1991, among TNMP, TGC II,
       and the Unit 2 Agent  (Exhibit  10(ppp)  to  Amendment  No. 1 to File No.
       33-41903).

10(cc) -  Revolving  Credit  Facility  Agreement,  dated as of November 3, 1995,
       among TNMP, certain lenders,  and Chemical Bank, as Administrative  Agent
       and Collateral  Agent.  (Exhibit  10(cc) to Form 10-K of TNP and TNMP for
       1996, File Nos. 1-8847 and 2-97230).

10(cc)1- Form of Guarantee and Pledge  Agreement,  dated as of November 3, 1995,
       between TGC II, and Chemical  Bank,  as  collateral  agent  (Exhibit D to
       Revolving  Credit Facility  Agreement).  (Exhibit 10(cc)1 to Form 10-K of
       TNP and TNMP for 1996, File Nos. 1-8847 and 2-97230).

10(cc)2- Form of Bond Agreement,  dated as of November 3, 1995, between TNMP and
       Chemical  Bank,  as  Collateral  Agent  (Exhibit  E to  Revolving  Credit
       Facility  Agreement).  (Exhibit  10(cc)2 to Form 10-K of TNP and TNMP for
       1996, File Nos. 1-8847 and 2-97230).

10(cc)3- Form of Note Pledge  Agreement,  dated as of November 3, 1995,  between
       TNMP and  Chemical  Bank,  as  collateral  agent  (Exhibit F to Revolving
       Credit Facility Agreement). (Exhibit 10(cc)3 to Form 10-K of TNP and TNMP
       for 1996, File Nos. 1-8847 and 2-97230).

10(cc)4- Form of Sixth TGC II Modification and Extension Agreement,  dated as of
       November 3, 1995,  among the Unit 2 Banks,  The Chase  Manhattan Bank, as
       agent,  TNMP,  and TGC II  (Exhibit H to the  Revolving  Credit  Facility
       Agreement).  (Exhibit 10(cc)4 to Form 10-K of TNP and TNMP for 1996, File
       Nos. 1-8847 and 2-97230).

10(cc)5- Form of Second Lien Mortgage and Deed of Trust Modification,  Extension
       and Amendment Agreement No. 3, dated as of November 3, 1995 (Exhibit I to
       the Revolving Credit Facility  Agreement).  (Exhibit 10(cc)5 to Form 10-K
       of TNP and TNMP for 1996, File Nos. 1-8847 and 2-97230).

10(cc)6- Form of  Assignment  and Amendment  Agreement,  dated as of November 3,
       1995, among TNMP, TGC II, and Chemical Bank, as administrative  agent and
       collateral agent (Exhibit J to the Revolving Credit Facility  Agreement).
       (Exhibit  10(cc)6 to Form 10-K of TNP and TNMP for 1996, File Nos. 1-8847
       and 2-97230).

10(cc)7- Form of  Assignment  of TGC II Mortgage  Lien,  dated as of November 3,
       1995, by The Chase Manhattan Bank as agent to Chemical Bank (Exhibit K to
       the Revolving Credit Facility  Agreement).  (Exhibit 10(cc)7 to Form 10-K
       of TNP and TNMP for 1996, File Nos. 1-8847 and 2-97230).

10(cc)8- Form of Collateral Transfer of Notes, Rights and Interests, dated as of
       November 3, 1995, between TNMP and Chemical Bank, as Administrative Agent
       and as  Collateral  Agent  (Exhibit L to the  Revolving  Credit  Facility
       Agreement).  (Exhibit 10(cc)8 to Form 10-K of TNP and TNMP for 1996, File
       Nos. 1-8847 and 2-97230).

10(cc)9- Form of Assignment of Second Lien Mortgage and Deed of Trust,  dated as
       of November 3, 1995,  between the Chase  Manhattan  Bank,  as Agent,  and
       Chemical  Bank,  as agent  (Exhibit M to the  Revolving  Credit  Facility
       Agreement).  (Exhibit 10(cc)9 to Form 10-K of TNP and TNMP for 1996, File
       Nos. 1-8847 and 2-97230).

10(cc)10- Form of Collateral Transfer of Notes,  Rights and Interests,  dated as
       of November 3, 1995,  between TNMP and Chemical  Bank, as  Administrative
       Agent and as Collateral Agent (Exhibit N to the Revolving Credit Facility
       Agreement). (Exhibit 10(cc)10 to Form 10-K of TNP and TNMP for 1996, File
       Nos. 1-8847 and 2-97230).

10(cc)11- Form of  Amendment  No.  1,  dated  as of  November  3,  1995,  to the
       Assignment and Security  Agreement  between TNMP, and The Chase Manhattan
       Bank, as agent (Exhibit O to the Revolving  Credit  Agreement).  (Exhibit
       10(cc)11  to Form 10-K of TNP and TNMP for 1996,  File  Nos.  1-8847  and
       2-97230).

10(cc)12- Amendment  No. 1 dated October 28, 1998 to Revolving  Credit  Facility
       Agreement dated as of November 3, 1995 among TNMP,  certain lenders,  and
       Chase Bank, N.A. (successor by merger to Chemical Bank) as Administrative
       Agent and Collateral Agent (Exhibit 10(a) to Form 10Q of TNP and TNMP for
       quarter ended September 30, 1998. (File Nos. 1-8847 and 2-97230.)

                            Power Supply Contracts

10(dd) - Contract dated May 12, 1976,  between TNMP and Houston Lighting & Power
       Company (Exhibit 5(a), File No. 2-69353).

10(dd)1- Amendment,  dated January 4, 1989, to contract between TNMP and Houston
       Lighting & Power Company  (Exhibit  10(cccc) to TNMP 1988 Form 10-K, File
       No. 2-97230).

10(ee) - Amended and Restated Agreement for Electric Service dated May 14, 1990,
       between TNMP and Texas Utilities Electric Company (Exhibit 10(vv) to TNMP
       1990 Form 10-K, File No. 2-97230).

10(ee)1- Amendment,  dated April 19, 1993, to Amended and Restated Agreement for
       Electric  Service,  between  TNMP and Texas  Utilities  Electric  Company
       (Exhibit  10(ii)1  to 1993 Form  S-2,  Registration  Statement,  File No.
       33-66232).  

10(ff) - Contract dated April 27, 1977, between TNMP and West
       Texas Utilities  Company,  as amended (Exhibit 10(e) of Form 8 applicable
       to TNMP 1986 Form 10-K, File No. 2-97230).

10(gg) -  Contract  dated  April 29,  1987,  between  TNMP and El Paso  Electric
       Company  (Exhibit 10(f) of Form 8 applicable to TNMP 1986 Form 10-K, File
       No.  2-97230).  

10(hh) - Amended and Restated  Contract for  Electric  Service,  dated April 29,
       1988,  between  TNMP and Public  Service  Company of New Mexico  (Exhibit
       10(zz)3 to Amendment No. 1 to File No. 33-41903).
       

10(ii) -  Contract  dated  December  8,  1981,  between  TNMP and SPS as amended
       (Exhibit  10(h) of Form 8  applicable  to TNMP 1986 Form  10-K,  File No.
       2-97230).

10(ii)1- Amendment,  dated  December 12, 1988, to contract  between TNMP and SPS
       (Exhibit 10(llll) to TNMP 1988 Form 10-K, File No. 2-97230).  

10(ii)2- Amendment,  dated  December 12, 1990, to contract  between TNMP and SPS
       (Exhibit 19(t) to TNMP 1990 Form 10-K, File No. 2-97230).

10(jj) - Contract dated August 31, 1983,  between TNMP and Capitol  Cogeneration
       Company, Ltd. (Exhibit 10(i) of Form 8 applicable to TNMP 1986 Form 10-K,
       File No. 2-97230).

10(jj)1-  Agreement  Substituting  a Party,  dated May 3,  1988,  among  Capitol
       Cogeneration  Company,  Ltd., Clear Lake Cogeneration Limited Partnership
       and TNMP (Exhibit 10(nnnn) to TNMP 1988 Form 10-K, File No. 2-97230).

10(jj)2- Letter  Agreements,  dated May 30, 1990,  and August 28, 1991,  between
       Clear Lake Cogeneration  Limited Partnership and TNMP (Exhibit 10(oo)2 to
       TNMP 1992 Form 10-K, File No. 2-97230).

10(jj)3- Notice of Extension Letter,  dated August 31, 1992,  between Clear Lake
       Cogeneration  Limited  Partnership and TNMP (Exhibit 10(oo)3 to TNMP 1992
       Form 10-K, File No. 2-97230).

10(jj)4- Scheduling  Agreement,  dated  September  15, 1992,  between Clear Lake
       Cogeneration  Limited  Partnership and TNMP (Exhibit 10(oo)4 to TNMP 1992
       Form 10-K, File No. 2-97230).

10(kk) - Interconnection  Agreement between TNMP and Plains Electric  Generation
       and Transmission Cooperative,  Inc. dated July 19, 1984 (Exhibit 10(j) of
       Form 8 applicable to TNMP 1986 Form 10-K, File No. 2-97230).

10(ll) - Interchange  Agreement  between TNMP and El Paso Electric Company dated
       April 29,  1987  (Exhibit  10(l) of Form 8  applicable  to TNMP 1986 Form
       10-K, File No. 2-97230).
10(mm) - Amendment  No. 1, dated  November 21, 1994,  to  Interchange  Agreement
       between TNMP and El Paso Electric  Company (Exhibit 10(nn)1 to joint 1994
       Form 10-K, File Nos. 1-8847 and 2-97230).

10(nn) - DC Terminal  Participation  Agreement between TNMP and El Paso Electric
       Company  dated  December  8,  1981 as  amended  (Exhibit  10(m) of Form 8
       applicable to TNMP 1986 Form 10-K, File No. 2-97230).

10(oo) - Agreement  for Purchase and Sale of Energy  effective as of May 1, 1996
       among TNMP, Amoco Chemical Company and Amoco Oil Company (Exhibit 10 (pp)
       to joint 1997 Form 10-K, File Nos. 1-8847 and 2-97230).

10(pp) - Agreement  dated  December  30,  1994  between  TNMP and Union  Carbide
       Corporation ("UCC") for Purchase of Capacity and Energy from UCC (Exhibit
       10(qq) to joint 1997 Form 10-K, File Nos. 1-8847 and 2-97230).

10(qq) Letter agreement dated November 24, 1997 between TNMP and Texas Utilities
       Electric  Company  (Exhibit  10(qq) to joint  1998 Form  10-K,  File Nos.
       1-8447 and 2-97230.

                            Management Contracts

10(rr) - Form of TNMP Executive Agreement for Severance Compensation Upon Change
       in Control and schedule of substantially  identical  agreements  (Exhibit
       10(rr) to joint 1998 Form 10-K, File Nos. 1-8447and 2-97230).

10(ss) - Agreement  dated March 25, 1994  between  Kevern Joyce and TNP and TNMP
       (Exhibit  10(tt) to TNP and TNMP 1994 Form  10-Q,  File Nos.  1-8847  and
       2-97230).

10(tt) - Amendment  dated  February 16, 1998 to  Agreement  dated March 25, 1994
       between Kevern Joyce and TNP and TNMP (Exhibit  10(rr) to joint 1998 Form
       10-K, File Nos. 1-8447and 2-97230).

10(uu) -  Agreement  dated  February  16,  1998  between  John  Edwards and TNMP
       (Exhibit 10(rr) to joint 1998 Form 10-K, File Nos. 1-8447and 2-97230).

10(vv) - Agreement  dated  February 16, 1998  between  Ralph S. Johnson and TNMP
       (Exhibit 10(rr) to joint 1998 Form 10-K, File Nos. 1-8447and 2-97230).

*10(ww)- Form of TNP  Incentive  Compensation  Award  Agreement  and schedule of
       substantially identical agreements.

*21    -  Subsidiaries of the Registrants.