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, 1996
                                       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)

 Texas          4100 International Plaza, P. O. Box 2943,       Commission File
(State of              Fort Worth, Texas 76113                  Number: 1-8847
incorporation)    (Address and zip code of 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 January 31, 1997             on which registered


Common stock, no par value        13,011,454            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. \X\

     The aggregate  market value of TNP  Enterprises,  Inc. common stock held by
nonaffiliates on January 31, 1997, was $355,560,068  based on the common stock's
closing  price on the New York  Stock  Exchange  on the same date of $27.50  per
share.
                                                                               

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

 Texas           4100 International Plaza, P. O. Box 2943,      Commission File
(State of               Fort Worth, Texas 76113                 Number: 2-97230
incorporation)       (Address and zip code of 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 M, 8.7% due 2006; Series T, 
                        11.25% due 1997; and 
                        Series U, 9.25% due 2000                    None

Secured debentures:     12.5% due 1999; 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 1997 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, 1996

     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
          TNP's Service Areas..............................................   4
          Seasonality of Business..........................................   5
          Sources of Energy................................................   5
          Government Regulation............................................   6
          Employees and Executive Officers.................................   6
Item 2.   PROPERTIES.......................................................   7
          Administrative and Service Facilities............................   7
          Generating Facilities............................................   8
          Transmission and Distribution Facilities.........................   8
Item 3.   LEGAL PROCEEDINGS................................................   8
Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............   8

                                     Part II

Item 5.   MARKET FOR REGISTRANTS' COMMON EQUITY
          AND RELATED STOCKHOLDER MATTERS..................................   8
Item 6.   SELECTED FINANCIAL DATA..........................................   9
Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS..............................  11
          Competitive Conditions...........................................  11
          Results of Operations............................................  12
          Liquidity and Capital Resources..................................  15
          Other Matters....................................................  16
Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................  17
          TNP Enterprises, Inc. and Subsidiaries...........................  19
          Texas-New Mexico Power Company and Subsidiaries..................  24
          Notes to Consolidated Financial Statements.......................  29
          Selected Quarterly Consolidated Financial Data...................  40
Item 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE..............................  40

                                    Part III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............  41
          Directors........................................................  41
          Executive Officers...............................................  41
Item 11.  EXECUTIVE COMPENSATION...........................................  41
Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...  41
Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................  41

                                     Part IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..  41

<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, 1996


                                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
EPS...................Earnings (loss) per share of common stock
Facility Works........Facility Works, Inc., a wholly owned subsidiary of TNPE,
                      formerly known as Community Public Service Company
FERC..................Federal Energy Regulatory Commission
FMB(s)................One or more First Mortgage Bonds issued by TNP
GWH...................Gigawatt-Hours
IRS...................Internal Revenue Service
ITC...................Investment Tax Credits
KWH...................Kilowatt-Hours
MW....................Megawatts
MWH...................Megawatt-Hours
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 TNP
TGC II................Texas Generating Company II, a wholly owned subsidiary of 
                      TNP
TNP One...............A two-unit, lignite-fueled, circulating fluidized-bed 
                      generating plant located in Robertson County, Texas
TNP...................Texas-New Mexico Power Company, a wholly owned subsidiary 
                      of TNPE
TNPE..................TNP Enterprises, Inc.
TU....................Texas Utilities Electric Company
Unit 1................The first completed electric generating unit of TNP One
Unit 2................The second completed electric generating unit of TNP One



Statement Regarding Forward Looking Information

     The discussions in this document that are not historical facts,  including,
but not limited  to,  statements  regarding  TNPE and TNP's  business  strategy,
projected  sources and uses of cash,  and projected  operations,  are based upon
current expectations. Actual results may differ materially. Among the facts that
could  cause the  results to differ  materially  are the  following:  changes in
regulations; results of regulatory proceedings; future acquisitions or strategic
partnerships;  general  business  and  economic  conditions;  and other  factors
described  from time to time in TNPE and TNP's reports filed with the Securities
and Exchange Commission. TNPE and TNP 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

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

     Facility Works is a wholly owned  subsidiary of TNPE that began  operations
in early 1996.  Facility  Works  provides  energy and utility  related  facility
services to commercial  and  institutional  customers in mostly  nonmetropolitan
areas.  Facility  Works  provides  lighting and  electrical  services;  heating,
cooling and power-related services; and energy-management services.
 
     TNPE, TNP, TGC, TGC II and Facility Works are all Texas corporations. Their
executive offices are located at 4100  International  Plaza, P.O. Box 2943, Fort
Worth,  Texas  76113  and  their  telephone  number  is (817)  731-0099.  Unless
otherwise indicated,  all financial information in this report is presented on a
consolidated basis.

TNP's Service Areas

     TNP provides electric service to 85 Texas and New Mexico municipalities and
adjacent rural areas with more than 218,000 customers.  TNP's ser vice 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 north of
Dallas-Fort Worth International  Airport, to municipalities along the Red River.
TNP  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.  The North-Central Region previously included service territory in a
portion of the Texas Panhandle that TNP sold in September 1995.

   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.

     TNP's sales in all  regions are  primarily  to retail  customers.  Revenues
contributed  by each  operating  region and its  percentage  of total  operating
revenues in 1996, 1995, and 1994,  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 ($000's)

           Region                   1996                         1995                          1994        
     <S>                  <C>             <C>           <C>              <C>          <C>              <C>   

     Gulf Coast           $  269,535       53.6%        $  250,165        51.5%       $  241,285        50.5%
     North-Central           134,236       26.7            130,200        26.8           122,945        25.7
     Panhandle                -             -                7,322         1.5             9,650         2.0
     Mountain                 98,966       19.7             98,136        20.2           104,109        21.8
        Total             $  502,737      100.0%        $  485,823       100.0%       $  477,989       100.0%
</TABLE>


<PAGE>
   Franchises and Certificates of Public Convenience and Necessity

     TNP 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 1997 to
2039.  Three Texas  franchises,  comprising 23% of total company  revenues,  are
scheduled to expire in 1997, 1998 and 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.  TNP intends to negotiate and execute new or
amended franchise agreements to be effective before existing franchises expire.

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

Seasonality of Business

     TNP experiences  increased  sales and operating  revenues during the summer
months as a result of increased air conditioner  usage in hot weather.  In 1996,
approximately  41% of annual revenues were recorded in June, July,  August,  and
September.

Sources of Energy

     TNP owns one 300 MW  lignite-fueled  generating  facility,  TNP One. During
1996,  TNP One provided  approximately  28% of TNP's total energy  requirements.
Power generated at TNP One is transmitted over TNP's own  transmission  lines to
other utilities'  transmission  systems for delivery to TNP's Texas service area
systems. To maintain a reliable power supply for its customers and to coordinate
interconnected  operations,  TNP is a member of the Electric Reliability Council
of Texas and the Western Systems Coordinating Council.

     TNP purchases the remainder of its electricity from various  suppliers with
diversified  fuel sources.  During 1996,  approximately  80% of the purchases of
power were made under firm contracts, while 20% was purchased through short-term
spot market  purchases.  The  availability and cost of purchased power to TNP is
subject to changes in supplier  costs,  regulations  and laws,  fuel costs,  and
other factors.  TNP is pursuing various  opportunities to reduce purchased power
costs.

     The following table sets forth certain information concerning TNP's sources
of electric energy in 1996.

                                                Year Contract     Percent of
                                                   Expires     Energy Provided
   TEXAS
   Generation
   TNP One....................................      -               35%
   Purchased Power
   Texas Utilities (1)........................    1999              24
   Clear Lake Cogeneration L.P................    2004              17
   Other (primarily co-generators)............    Various           24

     Total                                                         100%

   NEW MEXICO
   Purchased Power
   Public Service Co. of New Mexico(2) (3)....    1999               7%
   El Paso Electric Co.(3)....................    2002              13
   Southwest Public Service Co. (3)...........    2001               7
   Other (primarily short-term contracts) (4).       -              73

     Total                                                         100%
                           
     (1) TNP has  notified  TU of its  intent to cease  purchasing  full  
         requirements  power  and  energy effective January 1, 1999, as 
         described in Note 12.
     (2) TNP has  notified  PNM of its  intent to cease  purchasing  full  
         requirements  power and  energy effective  January 1,  1999 under an
         existing  agreement.  TNP  continues to purchase  power from
         PNM under both old and newly executed agreements.
     (3) These suppliers may not terminate service to TNP without FERC
         authorization.
     (4) Suppliers under the short-term contracts include Tucson Electric
         Power Co., Public Service Co. of New Mexico, El Paso Electric Co.
         and Southwest Public Service Co.

     Management   believes  that  current  supply   arrangements  and  available
capacities  on the wholesale  market are adequate to satisfy  TNP's  foreseeable
power requirements.


   Recovering Purchased Power and Fuel Costs

     Purchased power is recovered from TNP customers through power cost recovery
adjustment clauses authorized by the PUCT and NMPUC. These clauses enable TNP to
recover this  significant  component of operating  expenses within two months of
billing by its suppliers.

     Fuel costs are recovered  from TNP's Texas  customers  through a fixed fuel
recovery  factor  approved  by the  PUCT.  The  fixed  fuel  recovery  factor is
described at Item 7, "Pass-Through  Expenses--Fuel,"  which is incorporated here
by reference.

Government Regulation

     TNP is subject to PUCT and NMPUC regulation.  Some of its activities,  such
as issuing  securities,  are also subject to FERC regulation.  Recent regulatory
developments  are  changing  competitive  conditions  in  the  electric  utility
industry. These changes are discussed in Item 7, "Competitive Conditions," which
is incorporated here by reference.

     In addition to regulation as a utility,  TNP'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.  TNP was allotted
sufficient  emission allowances to comply with the Clean Air Act of 1990 through
the year 2000.  During 1996,  1995, and 1994, TNP incurred  expenses  related to
air,  water,  and solid waste  pollution  abatement  (including  ash removal) of
approximately $6.1 million, $5.5 million, and $5.9 million, respectively.

Employees And Executive Officers

     At December  31, 1996,  TNP had 819  employees  and Facility  Works had 116
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 TNPE  and  TNP,  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 TNPE

   Kevern R. Joyce         50    Chairman, President, & Chief Executive Officer
   Jack V. Chambers, Jr.   47    Senior Vice President
   John P. Edwards         54    Senior Vice President
   Manjit S. Cheema        42    Vice President & Chief Financial Officer
   Ralph Johnson           53    Vice President
   John A. Montgomery      35    Vice President
   Michael D. Blanchard    46    Corporate Secretary & General Counsel
   Patrick L. Bridges      38    Treasurer

   Name                    Age   Position with TNP

   Kevern R. Joyce         50    Chairman, President, & Chief Executive Officer
   Jack V. Chambers, Jr.   47    Senior Vice President & Chief Customer Officer
   Manjit S. Cheema        42    Senior Vice President & Chief Financial Officer
   John P. Edwards         54    Senior Vice President - Corporate Relations
   Ralph Johnson           53    Senior Vice President - Power Resources
   Dennis R. Cash          43    Vice President - Human Resources
   Allan B. Davis          59    Vice President & Regional Customer Officer
   Melissa D. Davis        39    Vice President & Regional Customer Officer
   Larry W. Dillon         42    Vice President & Regional Customer Officer
   W. Douglas Hobbs        53    Vice President - Business Development
   Michael D. Blanchard    46    Corporate Secretary & General Counsel
   Patrick L. Bridges      38    Treasurer
   Scott Forbes            39    Controller

     Kevern R. Joyce  joined TNPE and TNP in April 1994 as  President  and Chief
Executive Officer. He became Chairman in April 1995. From 1992 until April 1994,
Mr. Joyce served as Senior Vice President and Chief Operating Officer of TEP.

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

     John P. Edwards joined TNP and TNPE in July 1996 as Senior Vice President -
Corporate Relations.  From October 1994 until joining TNP and TNPE he was Senior
Vice  President/Customer  Group and  Special  Assistant  to the Chief  Operating
Officer,  Tennessee Valley Authority.  His primary responsibilities were general
administrative   in  nature   for  TVA's   transmission   operations,   customer
relationship, rate and regulatory affairs. From July 1990 until October 1994, he
was    President/CEO    of    Old    Dominion    Electric     Cooperative    and
Virginia-Maryland-Delaware Association of Electric Cooperatives.

     Manjit S. Cheema joined TNP in June 1994. He was Treasurer of TNP from June
1994 until  September  1995. In December  1994, he became Vice President & Chief
Financial  Officer of TNPE and TNP,  and in July  1996,  he became  Senior  Vice
President & Chief Financial Officer of TNP. From March 1990 until he joined TNPE
and TNP, Mr.  Cheema was Assistant  Treasurer and Manager of Financial  Planning
and Budgeting for TEP.

     Ralph Johnson  joined TNP and TNPE as Vice  President in February  1995. In
July 1996, he was named Senior Vice President - Power Resources. From March 1991
until he joined TNP and TNPE,  Mr.  Johnson was  Assistant  General  Manager for
Tri-State  Generation and Transmission  Association in Denver,  Colorado,  which
sells power to rural electric cooperatives.

     John A. Montgomery  became  President of Facility Works in April 1996. From
December 1995 to December 1996 he served as TNP's Vice President - Marketing. He
became Vice President of TNPE in April 1996.  From February 1994 until he joined
TNP, he served as Director  of  Marketing  and  Regional  Marketing  Director of
Greyhound  Lines,  Inc.,  a bus  transportation  company.  From  August  1990 to
February 1994, Mr. Montgomery was President of Viva Brands International,  Inc.,
a tropical fruit beverage company that he founded.

     Michael D.  Blanchard has been Corporate  Secretary and General  Counsel of
TNP and TNPE since 1987.

     Patrick L.  Bridges was  appointed  Treasurer  of TNPE and TNP in September
1995.  He  served as TNP's  Director  - Finance  from  1994 to  September  1995,
Assistant  Treasurer from 1993 to September 1995,  Manager - Revenue  Accounting
during 1993, and Manager - Forecasting from 1990 to 1993.

     Dennis R. Cash has served TNP as Vice  President  - Human  Resources  since
1994.  From  1990  until  1994  he was  General  Manager  - or  Manager  - Human
Resources.

     Allan B. Davis has been a TNP Vice President and Regional  Customer Officer
since 1994.  From 1991 to 1994,  he was TNP's Vice  President - Chief  Engineer,
Chief Engineer, or Assistant Chief Engineer.
 
     Melissa D. Davis became a TNP Vice President and Regional  Customer Officer
in February 1997. From September 1995 to February 1997 she was TNP' Controller.
From 1994 to  September  1995,  she was  Director  -  Financial  Accounting  and
Assistant Controller of TNP. She served as Division Accounting Manager from 1991
to 1994.

     Larry W. Dillon has been a TNP Vice President and Regional Customer Officer
since 1994. From 1993 to 1994, he was TNP's Vice President - Operations.  He was
TNP's Division Manager from 1990 to 1993.

     W. Douglas Hobbs was appointed as Vice President - Business  Development of
TNP in February 1997. He was a TNP Vice President and Regional  Customer Officer
from April 1994 to February  1997. He served as TNP One Plant Manager from April
1992 to 1994.

     Scott  Forbes  was  appointed  TNP's  Controller  in  February  1997.  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. From 1991 to 1993 he
was Manager - Regulatory  and  Financial  Reporting  with Gulf States  Utilities
Company.

Item 2.      PROPERTIES.

     Substantially  all of TNP's real and  personal  property  secures its FMBs.
Substantially  all of TNP's real and  personal  property  in Texas  secures  its
revolving credit facilities and debentures. TNP's long-term debt is described in
Note 9.

Administrative and Service Facilities

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

     TNP  owns or  leases  local  offices  in 37 of the  municipalities  that it
serves. TNP owns 14 construction/service centers in Texas and New Mexico.

Generating Facilities

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

Transmission and Distribution Facilities

     Management believes that TNP's transmission and distribution facilities are
of sufficient capacity to serve existing customers adequately and to 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.  TNP  generally  constructs  its  transmission  and
distribution  facilities  on easements  or public  rights of way and not on real
property held in fee simple.


Item 3.      LEGAL PROCEEDINGS.

     The  information  set forth in Notes 2, 4, and 12 regarding  regulatory and
legal matters is incorporated here by reference.

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 1996.


                                     PART II

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

     TNPE's  common  stock is traded on the New York  Stock  Exchange  under the
symbol  "TNP." The high and low sales  prices  of,  and the amount of  dividends
declared and paid on,  TNPE's  common stock during each quarter in 1996 and 1995
were as follows:

                                                                   TNPE
                              MARKET PRICE RANGE                 DIVIDENDS
                           1996                1995                PAID     
     QUARTER          HIGH      LOW       HIGH       LOW        1996    1995
     _______          ____      ___       ____       ___        ____    ____
     First          $23 1/4  $18 1/2    $16      $14 5/8      $ 0.22  $ 0.20
     Second          28 5/8   22         16 3/4   15            0.22    0.20
     Third           28 1/8   23         17 3/4   16            0.245   0.20
     Fourth          28 1/8   24 1/2     19 1/8   17 1/2        0.245   0.22
                                                              $ 0.930 $ 0.82

     As of January 31, 1997,  there were  approximately  4,980 record holders of
TNPE common stock.

     TNPE holds all 10,705  outstanding  common  shares of TNP.  During 1996 and
1995, TNP paid common dividends to TNPE as follows:

                           TNP DIVIDENDS PAID ($000's)
                    QUARTER          1996                1995
                    First         $   2,400           $      -
                    Second            2,400                  -
                    Third             2,700                  -
                    Fourth            3,200               2,400
                      Total       $  10,700           $   2,400


<PAGE>

<TABLE>
<CAPTION>
Item 6.  SELECTED FINANCIAL DATA

     The following table sets forth selected financial data of TNPE and TNP for 1992 through 1996.

                                                    1996             1995            1994            1993            1992
                                                -------------   --------------  --------------  -------------   -------------
                                                            (In thousands except per share amounts and percentages)
<S>                                             <C>             <C>             <C>             <C>             <C> 
TNP ENTERPRISES, INC.
 
Consolidated results
    Operating revenues                          $    502,737    $     485,823   $     477,989   $    474,242    $    443,827
    Net income (loss) (1)                       $     23,053    $      41,505   $     (17,441)  $     11,605    $     10,930
Total assets                                    $  1,006,784    $   1,030,433   $   1,054,488   $  1,086,938    $  1,182,707
Cash flows
    Construction expenditures                   $     28,006    $      28,689   $      29,038   $     26,360    $     22,410
    Cash internally generated as a percentage
      of construction expenditures                       194%             275%            105%           123%            213%
Common shares outstanding
    Weighted average                                  11,543           10,901          10,750         10,641           8,545
    End of year                                       13,006           10,920          10,866         10,696          10,598
Per share of common stock
    Earnings (loss) (1)                         $       1.98    $        3.75   $       (1.70)  $       1.01    $       1.17
    Cash dividends declared                     $       0.93    $        0.82   $        1.22   $       1.63    $       1.63
    Book value                                  $      21.41    $       19.91   $       17.01   $      19.97    $      20.62
Capitalization
    Common shareholders' equity                 $    278,474    $     217,457   $     184,869   $    213,627    $    218,535
    Preferred stock                                    3,420            3,600           8,680          9,560          10,440
    Long-term debt, less current maturities          533,964          611,925         682,832        678,994         742,087
                                                -------------   --------------  --------------  -------------   -------------
       Total capitalization                     $    815,858    $     832,982   $     876,381   $    902,181    $    971,062
                                                =============   ==============  ==============  =============   =============
Capitalization ratios
    Common shareholders' equity                         34.1%            26.1%           21.1%          23.7%           22.5%
    Preferred stock                                      0.4              0.4             1.0            1.1             1.1
    Long-term debt, less current maturities             65.5             73.5            77.9           75.2            76.4
                                                -------------   --------------  --------------  -------------   -------------
       Total capitalization                            100.0%           100.0%          100.0%         100.0%          100.0%
                                                =============   ==============  ==============  =============   =============


TEXAS-NEW MEXICO POWER COMPANY

Consolidated results
    Operating revenues                          $    502,737    $     485,823   $     477,989   $    474,242    $    443,827
    Net income (loss) (1)                       $     26,862    $      41,809   $     (16,634)  $     11,523    $     10,845
Total assets                                    $  1,002,157    $   1,024,943   $   1,043,178   $  1,076,820    $  1,156,567
Cash flows (same as TNPE)
Capitalization
    Common shareholder's equity                 $    287,548    $     224,351   $     185,777   $    214,184    $    205,875
    Preferred stock                                    3,420            3,600           8,680          9,560          10,440
    Long-term debt, less current maturities          533,800          611,925         682,832        678,994         742,087

                                                -------------   --------------  --------------  -------------   -------------
       Total capitalization                     $    824,768    $     839,876   $     877,289   $    902,738    $    958,402
                                                =============   ==============  ==============  =============   =============
Capitalization ratios
    Common shareholder's equity                         34.9%            26.7%           21.2%          23.7%           21.5%
    Preferred stock                                      0.4              0.4             1.0            1.1             1.1
    Long-term debt, less current maturities             64.7             72.9            77.8           75.2            77.4
                                                -------------   --------------  --------------  -------------   -------------
       Total capitalization                            100.0%           100.0%          100.0%         100.0%          100.0%
                                                =============   ==============  ==============  =============   =============

(1)  TNPE's and TNP's 1995 income before the cumulative effect of change in accounting were $33,060 and $33,364, respectively.
     TNPE's 1995 EPS before the cumulative effect of change in accounting was $2.98.

(2) Cash internally generated is defined as cash generated from operations less cash dividends.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
SELECTED OPERATING STATISTICS


                                                    1996              1995             1994             1993            1992
                                               --------------   ---------------  ---------------  ---------------  --------------
TNP ENTERPRISES, INC.
Operating revenues (in thousands):
<S>                                            <C>              <C>              <C>              <C>              <C>    

    Residential                                $     206,748    $      200,455   $      194,933   $      193,484   $      175,885
    Commercial                                       150,034           148,908          141,886          138,680          128,550
    Industrial                                       129,972           113,728          122,714          124,474          121,027
    Other                                             15,983            22,732           18,456           17,604           18,365
                                               -------------    ---------------  ---------------  ---------------  ---------------
         Total                                 $     502,737    $      485,823   $      477,989   $      474,242   $      443,827
                                               ==============   ===============  ===============  ===============  ===============

Sales (MWH):
    Residential                                    2,230,558         2,141,553        2,085,621        2,047,360        1,947,593
    Commercial                                     1,725,650         1,681,130        1,618,840        1,567,083        1,499,927
    Industrial                                     3,797,776         2,704,159        2,652,844        2,567,552        2,508,837
    Other                                            108,039           113,985          114,190          104,882          109,954
                                               -------------    ---------------  ---------------  ---------------  ---------------
         Total                                     7,862,023         6,640,827        6,471,495        6,286,877        6,066,311
                                               ==============   ===============  ===============  ===============  ===============

Number of customers (at year end):
    Residential                                      187,796           183,863          185,364          181,298          178,154
    Commercial                                        29,864            29,361           30,624           30,235           30,359
    Industrial                                           135               136              142              141              155
    Other                                                224               244              237              237              229
                                               -------------    ---------------  ---------------  ---------------  ---------------
         Total                                       218,019           213,604          216,367          211,911          208,897
                                               ==============   ===============  ===============  ===============  ===============

Revenue statistics:
    Average annual use per residential
      customer (KWH)                                  11,973            11,476           11,354           11,362           11,003
    Average annual revenue per residential   
      customer (dollars)                               1,110             1,074            1,061            1,067              987
    Average revenue per KWH sold
      per residential customer (cents)                  9.27              9.36             9.35             9.45             9.03
    Average revenue per KWH sold
      total sales (cents)                               6.39              7.32             7.39             7.54             7.32

Net generation and purchases (MWH):
    Generated                                      2,296,056         2,351,000        2,336,830        2,363,493        2,247,664
    Purchased                                      5,769,173         4,612,186        4,472,306        4,385,697        4,261,129
                                               -------------    ---------------  ---------------  ---------------  ---------------
       Total                                       8,065,229         6,963,186        6,809,136        6,749,190        6,508,793
                                               ==============   ===============  ===============  ===============  ===============

Average cost per KWH purchased (cents)                  3.51              3.87             4.35             4.56             4.09

Employees (year-end)
    Texas-New Mexico Power Company                       819               858              894            1,051            1,086
    Facility Works                                       116                 -                -                -                -


</TABLE>
<PAGE>

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

           SIGNIFICANT EVENTS AND KNOWN TRENDS AFFECTING TNPE AND TNP

Competitive Conditions

     The  electric   utility  industry   continues  its  transition   toward  an
environment  of  increased  competition.  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.

   Community ChoiceSM

     In May 1996, in order to meet the issue of  competition  head on, TNP filed
an application with the PUCT requesting approval of a program known as Community
Choice that would apply to electric  services  provided by TNP in Texas. On June
21,  1996,  TNP filed an  application  with the NMPUC  requesting  approval of a
similar  Community  Choice program that would apply to electric service provided
by TNP in New Mexico.  Community Choice is a transition plan designed to address
the opportunities and challenges  presented by the increasingly  deregulated and
competitive environment of the electric services industry.

     As proposed by TNP,  Community  Choice  provided for transition  periods of
four  years in New Mexico and five  years in Texas.  Community  Choice  proposed
that,  during the transition  periods,  TNP's rates for electric  service in New
Mexico and Texas would be structured to provide TNP a reasonable  opportunity to
reduce its so-called  potential  "stranded  costs."  "Stranded  costs" means the
difference  between  what it currently  costs TNP to provide  service and what a
customer  would be willing to pay for such service in a competitive  market.  In
Texas,  TNP's potential  stranded cost relates to TNP One, its 300 MW generating
unit,  and could  potentially  be more than $250 million.  In New Mexico,  TNP's
potential  stranded  cost relates to its  purchased  power  contracts  and could
potentially be more than $10 million. At the end of the transition periods,  TNP
would  aggregate,  or combine,  its customers at the community  level and permit
these  aggregated  electrical  loads to choose the types and nature of  electric
services that will be available to individual  customers  within each aggregated
load.

     In November 1996, TNP withdrew its Community Choice filing in Texas.  Prior
to the  withdrawal  TNP had  attempted to work through the numerous  issues with
various  intervenors.  The  withdrawal  was  due to a lack of  consensus  on key
issues, including the issue of stranded costs.

     In  late  February  1997,  TNP  proposed  a  new  plan  for  transition  to
competition to the communities  within TNP's service territory in Texas. The new
plan  includes  a  five-year  transition  period and the  opportunity  to reduce
potential  stranded costs. The new plan also includes options  providing various
levels of access to the open market,  which TNP customers will be able to select
from at the end of the transition  period.  Due to the numerous issues involved,
TNP can provide no assurance  as to the timing or outcome of the new  transition
to competition plan in Texas. As discussed below,  certain gulf coast cities and
TNP agreed to delay a rate review  filing until July 1, 1997, in order to reopen
negotiations on the new transition to competition plan.

     On  February  4, 1997,  TNP filed a  stipulation  with the NMPUC  adjusting
several  of the  components  of the  original  Community  Choice  proposal.  The
stipulation  has the support of the major  stakeholders.  The revised plan gives
TNP  customers  the right to choose  their  energy  provider  after a three-year
transition  period,  freezes rates  (including  fuel and purchased  power) for a
three-year period,  and allows for customer  aggregation based on market forces.
Hearings  were held in late  February  1997.  Approval by the NMPUC is the final
step.  TNP  believes  the plan will allow it to  recover  most if not all of its
potential  stranded  costs in New Mexico,  however,  the actual  recovery of any
stranded  costs will  depend on the future  market and price for energy  through
2002.

   Impact of Competition on TNP

     The  most  significant  effect  of  competition  on TNP,  as well as  other
utilities,  will be the ability to recover potential  stranded costs, as well as
to retain and attract new  customers.  The  inability  to recover a  significant
portion of stranded  costs would  adversely  impact  TNPE's and TNP's  financial
condition.  TNP will continue to seek solutions to the recovery of its potential
stranded  costs.  Although the final  resolution  and  magnitude of the issue is
uncertain,  management  realizes it is possible that  shareholders may share the
financial burden of stranded costs with customers.

     Assuming satisfactory  resolution of the stranded costs issue, TNP believes
that current  competitive  developments on the wholesale market  ultimately will
benefit TNP and its customers.  Because TNP purchases much of its power, TNP can
take advantage of the lower transmission prices,  additional market flexibility,
and new options in obtaining  purchased power.  TNP's  competitive  position has
been strengthened with the PUCT open access to transmission  rule. TNP currently
has no significant  wholesale power sales but expects to position itself to take
advantage  of  opportunities  to serve  additional  wholesale  customers as they
arise.  Management  believes  TNP's  revenue  growth  opportunities  are  in  an
increased customer base and new services.

     TNP believes  its market  niche is in smaller to medium sized  communities.
Only two of the 85 communities in TNP's service area have  populations in excess
of 50,000.

   Control Area

     TNP  implemented a control area in Texas which became  operational  on July
31,  1996.  The  control  area is an  electrical  system  which  enables  TNP to
instantaneously  balance its system  resources  with loads.  TNP had  previously
contracted  with  another  utility for these  services.  It also  permits TNP to
replace  standby  power  for TNP One with the  purchase  of  planning  reserves.
Implementation  of the control area is estimated  to result in  additional  base
revenues and cost savings of approximately $10 million annually.

   Texas Transmission Access Filing

     During  1996 the PUCT  passed a  wholesale  transmission  access rule which
establishes a regional method of transmission  pricing,  terms,  and conditions.
The purpose is to increase  competition  in wholesale  energy sales within Texas
and  establish an  Independent  System  Operator  for the  Electric  Reliability
Council  of  Texas  ("ERCOT")   transmission  system.  The  PUCT  will  set  the
transmission  pricing rules for the ERCOT region. TNP believes it should benefit
from the new rules as competition  should increase in the wholesale power market
and result in reduced  purchased power and wheeling costs.  The new transmission
fee  structure  is  scheduled  to start in early 1997.  However,  several  Texas
utilities have petitioned the PUCT to revise the new transmission rules.

   Unregulated Operations

     TNPE also  plans to meet the  effects  of  competition  on the  traditional
utility business by expanding earnings through unregulated operations.  In early
1996, TNPE formed Facility Works, a wholly owned  subsidiary,  to provide energy
and utility related facility services to commercial and institutional  customers
in  primarily   nonmetropolitan  areas.  TNPE  is  also  evaluating  unregulated
investment  and  joint  venture   opportunities  in  additional   energy-related
businesses, but has not entered into any agreements related to such activities.

Results of Operations

   Overall Results

     Income  applicable to common stock was $22.9 million for 1996,  compared to
$40.9 million in 1995.  Results for 1996 included a $3.1 million loss associated
with the start-up  operations  of Facility  Works,  and a $1.3 million after tax
reserve for the tentative settlement of litigation  associated with the Series T
FMB  retirement in 1995.  Results for 1995  included a number of one-time  items
consisting of the  cumulative  effect of the change in  accounting  for unbilled
revenues of $8.4 million,  a gain on sale of the Texas  Panhandle  properties of
$9.5 million,  and recognition of deferred  revenues  related to a favorable IRS
private  letter  ruling of $3.0  million.  Excluding  the one-time  items,  1996
earnings were $27.3 million, and 1995 earnings were $19.9 million.

     One-time  items,  net of taxes,  in 1994  consisted of the  recognition  of
regulatory  disallowances  of $20.5  million  and  reorganization  costs of $5.7
million.  Additional information concerning these one-time items is set forth in
Notes 2, 3, 4, 5, and 6.

     The following  table sets forth results of operations  for 1996,  1995, and
1994 and the impact of one-time items:
<TABLE>
<CAPTION>
                                                           1996                    1995                    1994   
                                                    _________________        _________________        ________________   
                                                    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.................   $27,283    $  2.36       $19,908      $ 1.83     $  7,997     $ 0.74
One-time items, net of income taxes:
    Start up costs of Facility Works............    (3,097)     (0.27)            -           -            -          -
    Reserve for Series T litigation settlement..    (1,300)     (0.11)            -           -            -          -
    Cumulative effect of change in accounting...         -          -         8,445        0.77            -          -
    Gain on sale of Texas Panhandle properties..         -          -         9,479        0.87            -          -
    Recognition of deferred revenues............         -          -         3,018        0.28            -          -
    Reorganization costs........................         -          -             -           -       (5,723)     (0.53)
    Regulatory disallowances....................         -          -             -           -      (20,505)     (1.91)
      Total one-time items, net.................    (4,397)     (0.38)       20,942        1.92      (26,228)     (2.44)
      
Income (loss) applicable
    to common stock.............................   $22,886    $  1.98       $40,850      $ 3.75     $(18,231)    $(1.70)
</TABLE>

<PAGE>

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

   Operating Revenues

     The following  table  summarizes the  components of operating  revenues (in
thousands).

<TABLE>
<CAPTION>
                                                                                          Increase (Decrease)
                                                                                          ___________________ 
                                                 1996         1995         1994        '96 v. '95   '95 v. '94
<S>                                          <C>          <C>          <C>             <C>          <C>   
                                             __________   _________    __________      __________   __________    
Operating revenues                           $  502,737   $ 485,823    $  477,989      $  16,914    $    7,834
 Effect of recognizing deferred
 revenue from private letter ruling                   -      (4,128)            -          4,128        (4,128)
                                             __________   _________    __________      __________   __________    
     Subtotal                                   502,737     481,695       477,989         21,042         3,706

 
Pass-through items                              244,889     228,903       243,513         15,986       (14,610)
                                             __________   _________    __________      __________   __________

Base revenues                                $  257,848   $ 252,792    $  234,476      $   5,056    $   18,316
                                             ==========   =========    ==========      ==========   ==========
</TABLE>

     Pass-through  items are the portion of operating revenues that recover from
customers the costs of purchased  power,  fuel, and standby  power.  These items
affect customer rates but do not affect operating  income.  Annual variances are
discussed under "Results of Operations--Operating Expenses."

     The base revenue  increase of $5.1 million during 1996 was  attributable to
increased  residential,  commercial,  and economy  rate  industrial  sales,  and
additional base revenues provided by the control area. The overall increase, was
partially  offset by a reduction in firm rate industrial sales and lower margins
on the industrial economy rate sales.

     Excluding the effects of one-time items,  1995 base revenues  exceeded 1994
base revenues by $18.3 million.  The increase is primarily due to rate increases
in  both  Texas  ($17.5  million   annualized)  and  New  Mexico  ($0.4  million
annualized)  resulting  from  settlement  agreements in October and May of 1994,
respectively.  Increased  sales also  contributed to the base revenue  increase.
Sales of 6,641 GWH in 1995  represented a 2.6% improvement over prior year sales
and contributed $5.1 million to the increase in 1995 base revenues.
 
     The  components  of GWH  sales  for 1996 and  1995  are  summarized  in the
following table:


                             1996         1995     Variance        %
                           ________      _______   _________    ________
    Residential             2,230         2,142          88        4.1
    Commercial              1,726         1,681          45        2.7
    Industrial:
     Firm                   1,295         1,440        (145)     (10.1)
     Economy                2,503         1,264       1,239       98.0
    Other                     108           114          (6)      (5.3)

      Total GWH sales       7,862         6,641       1,221       18.4


     Sales to residential and commercial  customers increased during 1996 due to
warmer  than usual  weather  during the second  quarter of 1996,  in addition to
colder than usual weather in Texas during the first quarter. The increase in GWH
sales resulted primarily from increased  industrial economy sales.  During 1996,
TNP entered into new sales agreements with two cogeneration  customers.  The new
economy rate sales are at significantly lower margins than traditional firm rate
industrial sales.

     Pursuant to a rate case  settlement  approved by the PUCT in October  1994,
TNP may not  increase  its base  rates in Texas  prior to March  1999  except in
certain extraordinary circumstances. Additional information about the settlement
is set forth in Note 2. In December 1996, certain cities in the Texas gulf coast
area  served by TNP  passed  resolutions  requiring  TNP to file  complete  rate
information  with those cities.  In February  1997,  those cities have agreed to
reopen  negotiations  on a new  transition  to  competition  proposal  and  have
deferred the required rate filing until July 1, 1997. If negotiations on the new
transition to  competition  proposal are not successful and the rate filings are
made, TNP  anticipates a final  resolution of the rate review with the cities in
late 1997.  Based on its  preliminary  analysis,  TNP  believes  the filing will
support the reasonableness of TNP's current rates.

     TNP is actively negotiating with a significant industrial customer in Texas
that  provided  sales of 628 GWH and annual  revenues  of $27.8  million in 1996
($9.9 million in base revenues). This customer will replace the power previously
provided  by TNP with a  cogeneration  plant,  which  is  expected  to  commence
operations in 1998. TNP is negotiating  with the customer to continue  providing
transmission,  distribution  and other  services.  Even if TNP is  successful in
these  negotiations,  base  revenues  from  this  customer  are  expected  to be
significantly less.

     In October 1996, a large industrial  customer in New Mexico gave TNP notice
to reduce their power supply  requirements under its current contract by 25 MW's
effective  December 1998, and to terminate the contract effective December 1999.
TNP  believes  the customer is  positioning  itself for access to a  competitive
power supply  market.  Due to the potential  effects that the recently  approved
Community  Choice  plan in New  Mexico  may have on which  power  supplier  this
customer may  ultimately  choose,  TNP is unable to determine the impact of this
notice at this time.

   Operating Expenses

     Operating  expenses for 1996 were $19.6  million  higher than in 1995,  due
primarily to higher pass-through expenses, property taxes and franchise taxes.

     Operating expenses for 1995 were $2.0 million lower than in 1994, excluding
the $8.8 million  reorganization costs in 1994. The decrease is primarily due to
lower pass-through expenses of $14.6 million and labor/benefits expenses of $1.0
million offset by increased income tax expense of $13.6 million.

   Pass-Through Expenses

     The following table summarizes the components of pass-through  expenses (in
thousands).
 
<TABLE>
<CAPTION>
                                                                                                                                    
                                                                        Increase (Decrease)
                                                                     ________________________
                                  1996         1995         1994      '96 v. '95   '95 v. '94
                              __________   _________    __________   ___________  ___________
<S>                           <C>          <C>          <C>          <C>          <C>    
Pass-through expenses:
   Purchased power            $  196,481   $ 178,465    $  194,595   $   18,016   $  (16,130)
   Fuel                           45,300      44,828        43,024          472        1,804
   Standby power                   3,108       5,610         5,894       (2,502)        (284)
     Total                    $  244,889   $ 228,903    $  243,513   $   15,986   $  (14,610)

</TABLE>

     Purchased  Power.  During 1996,  purchased  power expense  increased by $18
million due to the substantial  increase in the number of MWH's  purchased.  The
additional  purchases were made to meet increased sales requirements,  primarily
for two new economy rate industrial customers.

     Purchased  power  decreased  $16.1  million  in 1995.  Purchases  for Texas
service areas were shifted to lower cost suppliers for 1995 supplemental  summer
peaking capacity. This arrangement became effective May 1, 1995, and resulted in
annualized cost savings of $7.0 million. During 1995, TNP actively intervened in
a Texas rate case of a major  supplier and is benefiting  with  annualized  cost
savings  of $10.5  million.  Purchases  for New Mexico  service  areas were also
shifted to lower cost suppliers beginning mid 1994 and continuing in 1995. TNP's
customers  directly  benefit from these cost  reductions  as these  expenses are
recovered through adjustment clauses.

     Purchased power costs represent TNP's largest operating  expense.  Based on
current contracts,  TU continues as TNP's largest supplier of purchased power in
Texas and is TNP's  highest  price  supplier.  As  described in Note 12, TNP has
notified TU of its intent to cease purchasing full requirements power and energy
effective  January 1, 1999.  TNP has requested  proposals  for  purchased  power
resources to replace most of the power currently provided by TU.

     Fuel. Fuel expense in 1996 and 1995 increased $.5 million and $1.8 million,
excluding  amounts  of  nonpass-through  fuel  expenditures,   respectively,  as
compared to the  corresponding  prior years. Fuel expense is directly related to
an increased  fixed fuel recovery factor approved by the PUCT in connection with
the 1994 Texas  rate case  settlement.  The  majority  of TNP's fuel  expense is
recovered in revenues and any  difference  from actual costs is deferred until a
new factor is established. TNP expects to file a reconciliation of fuel costs in
June 1997,  for the period of October 1993  through  December  1996.  Management
believes  the  ultimate  outcome  of this  fuel  reconciliation  will not have a
material adverse effect on TNP's or TNPE's  consolidated  financial  position or
results of operations. The under-recovered fuel amount at December 31, 1996, was
$4.4 million.  TNP currently estimates that the current fixed fuel factor should
enable the recovery of under-recovered fuel costs during 1997.

   Other Operating Expenses

     Other  operating  expense was $2.0 million higher in 1996 than in 1995. The
increase  is  due  to  higher  payroll  and  payroll  related  items,  incentive
compensation and the reserve associated with the tentative  settlement of Series
T FMB  litigation.  These increases were offset in part by reduced standby power
costs  resulting  from the  implementation  of the control area in July 1996, as
discussed above.

     Other  operating  expense  was $1.0  million  lower  in 1995  than in 1994.
Payroll and payroll related items decreased $7.2 million,  primarily as a result
of the 1994 reorganization.  Offsetting these savings were the costs of employee
incentive  compensation plans adopted in 1995,  increases in customer collection
costs,  outsourcing,  outside  services,  wage and salary  increases,  and other
administrative expenses.

   Interest Charges

     During 1996 interest charges decreased $4.6 million due to the reduction in
the amount of debt and lower  interest  rates on the credit  facilities.  During
1996  TNP  retired  $91.7  million  of  FMBs  and  reduced  the  average  amount
outstanding  under the credit  facilities.  Partially  offsetting the reductions
discussed  above  was  interest  charges  of  $1.3  million  payable  to the IRS
associated  with the  resolution  of  outstanding  tax audits for the years 1990
through 1994.

     A $1.3 million decrease in 1995 interest charges, compared to 1994 resulted
from reduced long-term debt levels and decreased  interest rates associated with
the  1995  Credit  Facility.  Contributing  to  reduced  debt  levels  were  the
retirement  of $29.2 million of Series T FMBs in October 1995 with proceeds from
the sale of the Texas panhandle  properties and lower average  borrowings  under
TNP's credit facility. Increased cash flow during 1995 enabled TNP to reduce its
average borrowings under its credit facility.

     Interest  charges are  expected to continue to decrease  during 1997 due to
reduced levels of overall long-term debt, the refinancing of high cost long-term
debt with  borrowings  under the credit  facilities,  and reduced  interest rate
margins on the credit facilities.


Liquidity and Capital Resources

   Sources of Liquidity

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

     TNPE's cash flow from operations  totaled $65.2 million,  $88.4 million and
$44.3 million in 1996, 1995, and 1994. Cash flow from operations continues to be
strong, however it decreased in 1996 due to increased income tax payments.  Cash
flow from operations had increased in 1995 due to increased base revenues. TNP's
cash flow from operations mirrored that of TNPE.

     As discussed  in Note 9, TNP entered into a new credit  facility in 1996 to
supplement  the existing  credit  facility.  As of December 31, 1996, the unused
commitment  under the credit  facilities  was $195 million.  In January 1997 TNP
used  borrowings  from the credit  facilities  to retire  the $100.8  million of
outstanding  Series T FMBs,  which  reduced the available  borrowings  under the
credit facilities to $90.5 million.

     TNPE has reserved 1 million  shares of common stock for issuance  through a
new direct  stock  purchase  plan  beginning  in 1997.  The plan is  designed to
provide  investors with a convenient  method to purchase shares of TNPE's common
stock  directly  from the company and to reinvest cash  dividends.  The plan has
replaced TNPE's prior dividend reinvestment plan.

   Capital Resources

     TNPE's and TNP's capital structure continued to improve during 1996, due to
reduced debt levels and increased common equity.  TNPE's common equity increased
during  1996,  due to an  issuance  of 2 million  shares of  common  stock  with
proceeds of $47.2 million in October  1996,  in addition to strong  earnings for
the year.  Proceeds from TNPE's common stock issuance were transferred to TNP as
an equity contribution. The equity portion of TNPE's capital structure increased
from 26.1% at December 31, 1995, to 34.1% at December 31, 1996. Conversely,  the
long-term  debt ratio  decreased  from 73.5% to 65.5% for the same  period.  TNP
experienced similar results with its capital ratios.

     TNP's  capital  requirements  through  2001 are  projected to be as follows
(amounts in millions):

<TABLE>
<CAPTION>
                                                              1997       1998       1999      2000        2001
                                                            _______   ________    ________  _______    _______
<S>                                                         <C>       <C>         <C>       <C>        <C>    
     FMB and secured debenture maturities (see Note 9)      $    .1   $     .1    $  130.1  $ 100.1    $    .1
     Capital expenditures                                      28.6       29.9        31.2     32.7       34.1
       Total capital requirements                           $  28.7   $   30.0    $  161.3  $ 132.8    $  34.2

</TABLE>

     TNP believes that cash flow from operations and periodic  borrowings  under
the credit  facilities will be sufficient to meet working  capital  requirements
and planned capital requirements through 1998.

Other Matters

     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 modified  regulatory  environment.  TNP'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  TNP'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
utilities  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 regulatory assets and liabilities.

     Management  believes that, as of December 31, 1996, and for the foreseeable
future, TNP's financial statements continue to follow SFAS 71.


<PAGE>

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                          Independent Auditors' Report




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

We have audited the consolidated  financial statements of TNP Enterprises,  Inc.
and  subsidiaries  as  listed  in the  accompanying  index  at  Part  IV.  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 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 TNP Enterprises,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.

As discussed in Note 3 to the  consolidated  financial  statements,  the Company
changed its method of accounting for operating revenues in 1995.



                                          KPMG Peat Marwick LLP


Fort Worth, Texas
January 30, 1997
 



                          Independent Auditors' Report




The Board of Directors
Texas-New Mexico Power Company:

We have audited the consolidated  financial statements of Texas-New Mexico Power
Company (a wholly owned subsidiary of TNP Enterprises, Inc.) and subsidiaries as
listed  in the  accompanying  index at Part  IV.  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 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 Texas-New Mexico
Power Company and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.

As discussed in Note 3 to the  consolidated  financial  statements,  the Company
changed its method of accounting for operating revenues in 1995.



                                        KPMG Peat Marwick LLP


Fort Worth, Texas
January 30, 1997

<TABLE>
<CAPTION>
                     TNP ENTERPRISES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                        For the Years Ended December 31,


                                                                          1996            1995              1994
                                                                    ---------------  ---------------   ---------------
                                                                           (In thousands except per share amounts)
<S>                                                                 <C>              <C>               <C>  
OPERATING REVENUES                                                  $      502,737   $      485,823    $      477,989
                                                                    ---------------  ---------------   ---------------

OPERATING EXPENSES:
  Purchased power                                                          196,481          178,465           194,595
  Fuel                                                                      47,201           48,898            46,988
  Other operating and general expenses                                      73,276           71,311            72,472
  Maintenance                                                               10,672           11,522            11,966
  Reorganization costs                                                           -                -             8,782
  Depreciation of utility plant                                             38,170           37,850            36,782
  Taxes other than income taxes                                             32,727           28,865            29,651
  Income taxes                                                              10,333           12,317            (1,238)
                                                                    ---------------  ---------------   ---------------
       Total operating expenses                                            408,860          389,228           399,998
                                                                    ---------------  ---------------   ---------------

NET OPERATING INCOME                                                        93,877           96,595            77,991
                                                                    ---------------  ---------------   ---------------

OTHER INCOME (LOSS):
  Gain on sale of Texas Panhandle properties (note 4)                            -           14,583                 -
  Recognition of regulatory disallowances (note 2)                               -                -           (31,546)
  Other income and deductions, net                                          (3,799)           1,245             1,057
  Income taxes                                                               2,338           (5,403)           10,305
                                                                    ---------------  ---------------   ---------------
       Other income (loss), net of taxes                                    (1,461)          10,425           (20,184)
                                                                    ---------------  ---------------   ---------------
INCOME BEFORE INTEREST CHARGES AND
  CHANGE IN ACCOUNTING                                                      92,416          107,020            57,807
                                                                    ---------------  ---------------   ---------------
INTEREST CHARGES:
  Interest on long-term debt                                                64,654           70,544            71,568
  Other interest and amortization of debt-related costs                      4,709            3,416             3,680
                                                                    ---------------  ---------------   ---------------
            Total interest charges                                          69,363           73,960            75,248
                                                                    ---------------  ---------------   ---------------

INCOME (LOSS) BEFORE CUMULATIVE EFFECT
  OF CHANGE IN ACCOUNTING                                                   23,053           33,060           (17,441)
Cumulative effect of change in accounting for
    unbilled revenues, net of taxes (note 3)                                     -            8,445                 -
                                                                    ---------------  ---------------   ---------------

NET INCOME (LOSS)                                                           23,053           41,505           (17,441)
Dividends on preferred stock                                                   167              655               790
                                                                    ---------------  ---------------   ---------------

INCOME (LOSS) APPLICABLE TO COMMON STOCK                            $       22,886   $       40,850    $      (18,231)
                                                                    ===============  ===============   ===============

EARNINGS PER SHARE OF COMMON STOCK:
  Earnings (loss) before cumulative effect of change in accounting  $         1.98   $         2.98    $        (1.70)
  Cumulative effect of change in accounting for unbilled revenues                -             0.77                 -
                                                                    ---------------  ---------------   ---------------
                                                                                    
  Earnings (loss) per share                                         $         1.98   $         3.75    $        (1.70)
                                                                    ===============  ===============   ===============
DIVIDENDS PER SHARE OF COMMON STOCK                                 $         0.93   $         0.82    $         1.22
                                                                    ===============  ===============   ===============

WEIGHTED AVERAGE NUMBER OF COMMON AND
 COMMON EQUIVALENT  SHARES OUTSTANDING                                      11,543           10,901            10,750

                                                                   ===============  ===============   ===============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                     TNP ENTERPRISES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        For the Years Ended December 31,


                                                                     1996                1995               1994
                                                               ---------------   ----------------   -----------------
                                                                                  (In thousands)
<S>                                                            <C>               <C>                <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
  Cash received from customers                                 $      505,307    $       481,470    $        475,462
  Purchased power                                                    (198,696)          (172,486)           (193,366)
  Fuel costs paid                                                     (45,576)           (44,781)            (46,537)
  Cash paid for payroll and to other suppliers                        (75,138)           (76,735)            (85,912)
  Interest paid, net of amounts capitalized                           (69,247)           (68,484)            (76,402)
  Income taxes paid                                                   (15,684)            (1,095)                365
  Other taxes paid, net of amounts capitalized                        (32,243)           (30,556)            (30,323)
  Other operating cash receipts and payments, net                      (3,522)             1,043               1,014
                                                               ---------------   ----------------   -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                              65,201             88,376              44,301
                                                               ---------------   ----------------   -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to utility plant, net of capitalized
   depreciation and interest                                          (28,006)           (28,689)            (29,038)
  Net proceeds from sale of Texas Panhandle properties                      -             29,009                   -
  Maturities (purchases) of temporary investments                           -              5,590              (5,590)
  Additions to other property and investments                          (2,771)                 -                   -
                                                               ---------------   ----------------   -----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                   (30,777)             5,910             (34,628)
                                                               ---------------   ----------------   -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Dividends paid on preferred and common stocks                       (10,866)            (9,616)            (13,823)
  Borrowings (repayments) under revolving credit 
   facilities                                                          12,000            (42,272)              6,472
  Issuances:
     Common stock                                                      48,798                856               2,502
     Other long-term debt                                                 202                  -                   -
  Deferred expenses associated with financings                           (588)            (2,096)                  -
  Redemptions:
     Preferred stock                                                     (180)            (5,080)               (880)
     First mortgage bonds                                             (96,508)           (30,270)             (1,070)
                                                               ---------------   ----------------   -----------------
NET CASH USED IN FINANCING ACTIVITIES                                 (47,142)           (88,478)             (6,799)
                                                               ---------------   ----------------   -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                               (12,718)             5,808               2,874
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                       21,105             15,297              12,423
                                                               ---------------   ----------------   -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                     $        8,387    $        21,105    $         15,297
                                                               ===============   ================   =================
RECONCILIATION OF NET EARNINGS TO NET
     CASH PROVIDED BY OPERATING ACTIVITIES:
Net income (loss)                                              $       23,053    $        41,505    $        (17,441)
Adjustments to reconcile net income (loss) to net   
   cash provided by operating activities:
     Cumulative effect of change in accounting for 
      unbilled revenues, net of taxes                                       -             (8,445)                  -
     Gain on sale of Texas Panhandle properties                             -            (14,583)                  -
     Recognition of deferred revenues                                       -             (4,782)              1,382
     Depreciation of utility plant                                     38,170             37,850              36,782
     Amortization of debt-related costs and other 
      deferred charges                                                  3,329              4,952               5,495
     Allowance for borrowed funds used during 
      construction                                                        (99)              (162)               (275)
     Deferred income taxes (excluding effect of  
      change in accounting)                                              (193)             5,256             (10,915)
     Investment tax credits                                              (380)             1,679              (1,436)
     Reorganization costs                                                   -                  -               6,858
     Recognition of regulatory disallowances                                -                  -              31,546

Cash flows impacted by changes in current assets 
 and liabilities:
     Deferred purchased power and fuel costs                            5,696              5,997                (107)
     Accrued interest                                                  (3,103)             2,289              (4,422)
     Accrued taxes                                                     (7,372)             8,483              (1,108)
     Purchased power costs subject to refund                           (5,688)             5,688                   -
     Changes in other current assets and liabilities                    4,181              3,138              (1,387)
Other, net                                                              7,607               (489)               (671)
                                                               ---------------   ----------------   -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                      $       65,201    $        88,376    $         44,301
                                                               ===============   ================   =================

See accompanying Notes to Consolidated Financial Statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                     TNP ENTERPRISES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                  December 31,

                                                                                1996               1995
                                                                           ---------------    ----------------
                                                                                    (In thousands)
<S>                                                                        <C>                <C> 
ASSETS

UTILITY PLANT:
  Electric plant                                                           $    1,215,355     $     1,193,538
  Construction work in progress                                                       906               3,334
                                                                           ---------------    ----------------
            Total                                                               1,216,261           1,196,872
  Less accumulated depreciation                                                   282,322             252,868
                                                                           ---------------    ----------------
            Net utility plant                                                     933,939             944,004
                                                                           ---------------    ----------------

OTHER PROPERTY AND INVESTMENTS, at cost                                             3,927               1,156
                                                                           ---------------    ----------------
CURRENT ASSETS:
  Cash and cash equivalents                                                         8,387              21,105
  Customer receivables                                                             16,362              15,569
  Inventories, at lower of average cost or market:
       Fuel                                                                           367                 492
       Materials and supplies                                                       6,384               7,287
  Deferred purchased power and fuel costs                                           3,565               9,261
  Accumulated deferred income taxes                                                 1,937                 144
  Other current assets                                                              1,121                 960
                                                                           ---------------    ----------------
            Total current assets                                                   38,123              54,818
                                                                           ---------------    ----------------
DEFERRED CHARGES                                                                   30,795              30,455
                                                                           ---------------    ----------------
                                                                           $    1,006,784     $     1,030,433
                                                                           ===============    ================
CAPITALIZATION AND LIABILITIES

CAPITALIZATION:
  Common shareholders' equity:
       Common stock - no par value per share.  Authorized 50,000,000
            shares; issued 13,006,492 shares in 1996 and 10,920,060 
             in 1995                                                       $      183,771     $       134,973
       Retained earnings                                                           94,703              82,484
                                                                           ---------------    ----------------
            Total common shareholders' equity                                     278,474             217,457

  Preferred stock                                                                   3,420               3,600
  Long-term debt, less current maturities                                         533,964             611,925
                                                                           ---------------    ----------------
            Total capitalization                                                  815,858             832,982
                                                                           ---------------    ----------------
CURRENT LIABILITIES:
  Current maturities of long-term debt                                                138               1,070
  Accounts payable                                                                 28,446              22,040
  Accrued interest                                                                 10,879              13,982
  Accrued taxes                                                                    18,833              26,205
  Customers' deposits                                                               2,662               2,493
  Purchased power costs subject to refund                                               -               5,688
  Other current liabilities                                                        11,797              12,472
                                                                           ---------------    ----------------
            Total current liabilities                                              72,755              83,950
                                                                           ---------------    ----------------
REGULATORY TAX LIABILITIES                                                         10,963              26,826
ACCUMULATED DEFERRED INCOME TAXES                                                  74,844              57,381
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS                                        19,734              18,592
DEFERRED CREDITS                                                                   12,630              10,702
COMMITMENTS AND CONTINGENCIES (Notes 1, 2, 4, 8 and 12)
                                                                           ---------------    ----------------
                                                                           $    1,006,784     $     1,030,433
                                                                           ===============    ================


See accompanying Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                     TNP ENTERPRISES, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                                  December 31,


                                                                                       1996               1995
                                                                                  ---------------    ---------------
                                                                                            (In thousands)
<S>                                                                               <C>                <C>    
COMMON SHAREHOLDERS' EQUITY

    Common stock with no par value per share
       Authorized shares - 50,000,000
       Outstanding shares - 13,006,492 in 1996 and 10,920,060 in 1995             $      183,771     $      134,973
    Retained earnings                                                                     94,703             82,484
                                                                                  ---------------    ---------------
          Total common shareholders' equity                                              278,474            217,457
                                                                                  ---------------    ---------------


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

    Redeemable cumulative  preferred stock of TNP with $100 par value 
       Authorized shares - 1,000,000

                                        Redemption
                                     price at TNP's         Outstanding shares
                                           option            1996          1995
                                          ------             ----          ----
       Series B            4.65%          $ 100.00          21,600       22,800            2,160              2,280
       Series C            4.75%            100.00          12,600       13,200            1,260              1,320
                                                      ------------  ------------  ---------------    ---------------
          Total redeemable cumulative preferred stock       34,200       36,000            3,420              3,600
                                                      ------------  ------------  ---------------    ---------------


LONG-TERM DEBT
    FIRST MORTGAGE BONDS
       Series L           10.50% due 2000                                                      -              9,600
       Series M            8.70% due 2006                                                  8,100              8,200
       Series R           10.00% due 2017                                                      -             62,400
       Series S            9.63% due 2019                                                      -             19,600
       Series T           11.25% due 1997                                                100,800            100,800
       Series U            9.25% due 2000                                                100,000            100,000
       Unamortized debt discount                                                               -               (605)

    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                                                                           -             43,000
       1996 Facility                                                                      55,000                  -

    OTHER                                                                                    202                  -
                                                                                  ---------------    ---------------
          Total long-term debt                                                           534,102            612,995
           Less current maturities                                                          (138)            (1,070)
                                                                                  ---------------    ---------------
          Total long-term debt, less current maturities                                  533,964            611,925
                                                                                  ---------------    ---------------

TOTAL CAPITALIZATION                                                              $      815,858     $      832,982
                                                                                  ===============    ===============




See accompanying Notes to 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, 1994
     Balance at December 31, 1993                      10,696     $   131,615   $     82,012   $    213,627    
     Net loss                                               -               -        (17,441)       (17,441)      
     Dividends on preferred stock                           -               -           (790)          (790)          
     Dividends on common stock - $1.22 per share            -               -        (13,046)       (13,046)         
     Sale of common stock                                 170           2,502              -          2,502              
     Retirement of preferred stock                          -               -             17             17         
                                                    ------------  ------------  -------------  -------------   
        Balance at December 31, 1994                   10,866         134,117         50,752        184,869         

YEAR ENDED DECEMBER 31, 1995
     Net income                                             -               -         41,505         41,505             
     Dividends on preferred stock                           -               -           (655)          (655)           
     Dividends on common stock - $0.82 per share            -               -         (8,938)        (8,938)             
     Sale of common stock                                  54             856              -            856              
     Retirement of preferred stock                          -               -           (180)          (180)      
                                                    ------------  ------------  -------------  -------------   
        Balance at December 31, 1995                   10,920         134,973         82,484        217,457    

YEAR ENDED DECEMBER 31, 1996
     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   
                                                    ============  ============  =============  =============   
See accompanying Notes to 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 (LOSS)
                        For the Years Ended December 31,

                                                                                             
                                                     1996            1995            1994     
                                                --------------  --------------  --------------
                                                                (In thousands)
<S>                                             <C>             <C>             <C>            
OPERATING REVENUES                              $     502,737   $     485,823   $     477,989 
                                                --------------  --------------  --------------

OPERATING EXPENSES:
  Purchased power                                     196,481         178,465         194,595 
  Fuel                                                 47,201          48,898          46,988 
  Other operating and general expenses                 73,276          71,311          72,472 
  Maintenance                                          10,672          11,522          11,966 
  Reorganization costs                                      -               -           8,782 
  Depreciation of utility plant                        38,170          37,850          36,782 
  Taxes other than income taxes                        32,727          28,865          29,651 
  Income taxes                                         10,333          12,317          (1,238)
                                                 -------------  --------------  --------------
       Total operating expenses                       408,860         389,228         399,998 
                                                 -------------  --------------  --------------

NET OPERATING INCOME                                   93,877          96,595          77,991 
                                                 -------------  --------------  --------------

OTHER INCOME (LOSS) :
  Gain on sale of Texas Panhandle
   properties (note 4)                                      -          14,583               -
  Recognition of regulatory disallowances 
   (note 2)                                                 -               -         (31,546)
  Other income and deductions, net                      1,626           1,470           1,475 
  Income taxes                                            722          (5,324)         10,694 
                                                 -------------  --------------  --------------
       Other income (loss), net of taxes                2,348          10,729         (19,377)
                                                 -------------  --------------  --------------
INCOME BEFORE INTEREST CHARGES
  AND CHANGE IN ACCOUNTING                             96,225         107,324          58,614 
                                                 -------------  --------------  --------------
INTEREST CHARGES:
  Interest on long-term debt                           64,654          70,544          71,568 
  Other interest and amortization of 
   debt-related costs                                   4,709           3,416           3,680 
                                                 -------------  --------------  --------------
            Total interest charges                     69,363          73,960          75,248 
                                                 -------------  --------------  -------------- 

INCOME (LOSS) BEFORE CUMULATIVE EFFECT
  OF CHANGE IN ACCOUNTING                              26,862          33,364         (16,634)
Cumulative effect of change in accounting for
  unbilled revenues, net of taxes (note 3)                  -           8,445               -  
                                                 -------------  --------------  -------------- 

NET INCOME (LOSS)                                      26,862          41,809         (16,634)
Dividends on preferred stock                              167             655             790   
                                                 -------------  --------------  --------------  

INCOME (LOSS) APPLICABLE TO COMMON STOCK         $     26,695    $     41,154   $     (17,424)
                                                 =============  ==============  ==============
See accompanying Notes to 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,

                                                                     1996             1995            1994
                                                               ---------------   -------------   ---------------
                                                                                 (In thousands)
<S>                                                            <C>               <C>             <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
  Cash received from customers                                 $     502,954     $    481,470    $      475,462
  Purchased power                                                   (198,696)        (172,486)         (193,366)
  Fuel costs paid                                                    (45,576)         (44,781)          (46,537)
  Cash paid for payroll and to other suppliers                       (75,807)         (76,793)          (86,632)
  Interest paid, net of amounts capitalized                          (69,236)         (68,484)          (76,402)
  Income taxes paid                                                  (14,242)          (1,199)           (1,215)
  Other taxes paid, net of amounts capitalized                       (31,219)         (30,054)          (29,906)
  Other operating cash receipts and payments, net                      1,135              639             1,442
                                                               ---------------   -------------   ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                             69,313           88,312            42,846
                                                               ---------------   -------------   ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to utility plant, net of capitalized
   depreciation and interest                                         (28,006)         (28,689)          (29,038)
  Net proceeds from sale of Texas Panhandle properties                     -           29,009                 -
  Additions to other property and investments                         (1,669)               -                 -
                                                               ---------------   -------------   ---------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES                (29,675)             320           (29,038)
                                                               ---------------   -------------   ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Dividends paid on preferred and common stocks                      (10,867)          (3,078)          (11,794)
  Equity contribution from TNPE                                       47,170                -                 -
  Borrowings (repayments) under revolving credit
   facilities                                                         12,000          (42,272)            6,472
  Deferred expenses associated with financings                          (588)          (2,096)                -
  Redemptions:
     Preferred stock                                                    (180)          (5,080)             (880)
     First mortgage bonds                                            (96,508)         (30,270)           (1,070)
                                                               ---------------   -------------   ---------------
NET CASH USED IN FINANCING ACTIVITIES                                (48,973)         (82,796)           (7,272)
                                                               ---------------   -------------   ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                               (9,335)           5,836             6,536
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                      14,450            8,614             2,078
                                                               ---------------   -------------   ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                     $       5,115           14,450    $        8,614
                                                               ===============   =============   ===============
RECONCILIATION OF NET EARNINGS TO NET
     CASH PROVIDED BY OPERATING ACTIVITIES:
Net income (loss)                                              $      26,862     $     41,809    $      (16,634)
Adjustments to reconcile net income (loss) to net
   cash provided by operating activities:
     Cumulative effect of change in accounting for
      unbilled revenues, net of taxes                                      -           (8,445)                -
     Gain on sale of Texas Panhandle properties                            -          (14,583)                -
     Recognition of deferred revenues                                      -           (4,782)            1,382
     Depreciation of utility plant                                    38,170           37,850            36,782
     Amortization of debt-related costs and other
      deferred charges                                                 3,329            4,952             5,495
     Allowance for borrowed funds used during
      construction                                                       (99)            (162)             (275)
     Deferred income taxes (excluding effect of
      change in accounting)                                            1,140            5,132           (10,920)
     Investment tax credits                                             (111)           1,691            (1,374)
     Reorganization costs                                                  -                -             6,858
     Recognition of regulatory disallowances                               -                -            31,546

Cash flows impacted by changes in current assets
 and liabilities:
     Deferred purchased power and fuel costs                           5,696            5,997              (107)
     Accrued interest                                                 (3,103)           2,289            (4,422)
     Accrued taxes                                                    (8,429)           8,432            (1,108)
     Purchased power costs subject to refund                          (5,688)           5,688                 -
     Changes in other current assets and liabilities                   6,474            3,174            (3,103)
Other, net                                                             5,072             (730)           (1,274)
                                                               ---------------   -------------   ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                      $      69,313     $     88,312    $       42,846
                                                               ===============   =============   ===============


See accompanying Notes to 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,

                                                                               1996                 1995
                                                                          ---------------     ----------------
                                                                                    (In thousands)
<S>                                                                       <C>                 <C>        
ASSETS
UTILITY PLANT:
  Electric plant                                                          $    1,215,355      $     1,193,538
  Construction work in progress                                                      906                3,334
                                                                          ---------------     ----------------
            Total                                                              1,216,261            1,196,872
  Less accumulated depreciation                                                  282,322              252,868
                                                                          ---------------     ----------------
            Net utility plant                                                    933,939              944,004
                                                                          ---------------     ----------------

OTHER PROPERTY AND INVESTMENTS, at cost                                            1,884                  175
                                                                          ---------------     ----------------

CURRENT ASSETS:
  Cash and cash equivalents                                                        5,115               14,450
  Customer receivables                                                            15,521               15,569
  Inventories, at lower of average cost or market:
       Fuel                                                                          367                  492
       Materials and supplies                                                      6,384                7,287
  Deferred purchased power and fuel costs                                          3,565                9,261
  Accumulated deferred income taxes                                                1,937                  144
  Other current assets                                                             1,324                1,274
                                                                          ---------------     ----------------
            Total current assets                                                  34,213               48,477
                                                                          ---------------     ----------------

DEFERRED CHARGES                                                                  32,121               32,287
                                                                          ---------------     ----------------
                                                                          $    1,002,157      $     1,024,943
                                                                          ===============     ================
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                                            222,133              174,931
       Retained earnings                                                          65,308               49,313
                                                                          ---------------     ----------------
            Total common shareholder's equity                                    287,548              224,351

  Redeemable cumulative preferred stock                                            3,420                3,600
  Long-term debt, less current maturities                                        533,800              611,925
                                                                          ---------------     ----------------
            Total capitalization                                                 824,768              839,876
                                                                          ---------------     ----------------

CURRENT LIABILITIES:
  Current maturities of long-term debt                                               100                1,070
  Accounts payable                                                                27,254               22,040
  Accrued interest                                                                10,879               13,982
  Accrued taxes                                                                   16,901               25,330
  Customers' deposits                                                              2,662                2,493
  Purchased power costs subject to refund                                              -                5,688
  Other current liabilities                                                       10,993               12,472
                                                                          ---------------     ----------------
            Total current liabilities                                             68,789               83,075
                                                                          ---------------     ----------------

REGULATORY TAX LIABILITIES                                                        10,963               26,826
ACCUMULATED DEFERRED INCOME TAXES                                                 65,860               47,066
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS                                       19,164               17,398
DEFERRED CREDITS                                                                  12,613               10,702
COMMITMENTS AND CONTINGENCIES (Notes 1, 2, 4, 8 and 12)
                                                                          ---------------     ----------------
                                                                          $    1,002,157      $     1,024,943
                                                                          ===============     ================


See accompanying Notes to 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,

                                                                                     1996               1995
                                                                                ---------------    ---------------
                                                                                         (In thousands)
<S>                                                                             <C>               <C>    
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                                                     222,133            174,931
    Retained earnings                                                                   65,308             49,313
                                                                                ---------------   ----------------
          Total common shareholder's equity                                            287,548            224,351
                                                                                ---------------   ----------------


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

                                          Redemption
                                       price at TNP's    Outstanding shares
                                            option        1996           1995
                                            ------        ----           ----
       Series B            4.65%            100.00        21,600        22,800           2,160              2,280
       Series C            4.75%            100.00        12,600        13,200           1,260              1,320
                                                     ------------   ----------- ---------------    ---------------
          Total redeemable cumulative preferred stock     34,200        36,000           3,420              3,600
                                                     ------------   ----------- ---------------    ---------------


LONG-TERM DEBT
    FIRST MORTGAGE BONDS
       Series L           10.50% due 2000                                                     -              9,600
       Series M            8.70% due 2006                                                 8,100              8,200
       Series R           10.00% due 2017                                                     -             62,400
       Series S            9.63% due 2019                                                     -             19,600
       Series T           11.25% due 1997                                               100,800            100,800
       Series U            9.25% due 2000                                               100,000            100,000
       Unamortized debt discount                                                             -               (605)

    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                                                                         -             43,000
       1996 Facility                                                                    55,000                  -
                                                                                ---------------    ---------------
          Total long-term debt                                                         533,900            612,995
           Less current maturities                                                        (100)            (1,070)
                                                                                ---------------    ---------------
          Total long-term debt, less current maturities                                533,800            611,925
                                                                                ---------------    ---------------

TOTAL CAPITALIZATION                                                            $      824,768     $      839,876
                                                                                ===============    ===============





See accompanying Notes to 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, 1994
    Balance at December 31, 1993                   11     $    107    $  175,094   $    38,983   $  214,184 
    Net loss                                        -            -             -       (16,634)     (16,634)
    Dividends on preferred stock                    -            -             -          (790)        (790)
    Dividends on common stock                       -            -             -       (11,000)     (11,000)
    Retirement of preferred stock                   -            -            17             -           17 
                                              ----------  ----------  -----------  ------------  -----------
       Balance at December 31, 1994                11          107       175,111        10,559      185,777 
YEAR ENDED DECEMBER 31, 1995
    Net income                                      -            -             -        41,809       41,809 
    Dividends on preferred stock                    -            -             -          (655)        (655)
    Dividends on common stock                       -            -             -        (2,400)      (2,400)
    Retirement of preferred stock                   -            -          (180)            -         (180)
                                              ----------  ----------  -----------  ------------  -----------
       Balance at December 31, 1995                11          107       174,931        49,313      224,351 

YEAR ENDED DECEMBER 31, 1996
    Net income                                      -            -             -        26,862       26,862 
    Dividends on preferred stock                    -            -             -          (167)        (167)
    Dividends on common stock                       -            -             -       (10,700)     (10,700)
    Equity contribution from TNPE                   -            -        47,170             -       47,170 
    Retirement of preferred stock                   -            -            32             -           32 
                                              ----------  ----------  -----------  ------------  -----------
                                              
       Balance at December 31, 1996                11     $    107    $  222,133   $    65,308   $  287,548 
                                              ==========  ==========  ===========  ============  =========== 
See accompanying Notes to Consolidated Financial Statements.
</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 TNPE and subsidiaries include the
accounts of TNPE and its wholly owned  subsidiaries,  TNP, Facility Works, Inc.,
and TNP Operating  Company.  The  consolidated  financial  statements of TNP and
subsidiaries include the accounts of TNP and its wholly owned subsidiaries,  TGC
and TGC II. All  intercompany  transactions and balances have been eliminated in
consolidation.

     TNP is  TNPE's  principal  operating  subsidiary.  TNP is a public  utility
engaged in  generating,  purchasing,  transmitting,  distributing,  and  selling
electricity  in  Texas  and  New  Mexico.  TNP is  subject  to  PUCT  and  NMPUC
regulation. Some of TNP'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  TNPE's and TNP'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 1996 financial statements.

   Accounting for the Effects of Regulation

     Electric  utilities operate in a highly regulated  environment.  TNPE's and
TNP'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.  Included among these effects are the recognition of regulatory
assets and liabilities.  Regulatory  assets represent  revenues  associated with
certain costs that are expected to be recovered  from customers in future rates.
Regulatory  liabilities are costs  previously  collected from customers or other
amounts that reduce future  rates.  The following  table  summarizes  TNPE's and
TNP's regulatory assets and liabilities as of December 31, 1996 and 1995.

                                                   1996                 1995
                                                ________            _________
                                                         (In thousands)
  Regulatory Assets:
    Deferred purchased power and fuel costs     $  3,565            $   9,261
    Deferred charges:
      Losses on reaquired debt                    10,000                4,810
      Rate case expenses                           3,743                4,454
      Deferred accounting amounts                  4,157                4,287
      Other                                            -                  792
                                                ________            _________
        Total                                   $ 21,465            $  23,604
                                                ========            =========
 
  Regulatory Liabilities:
    Income tax related                          $ 10,963            $  26,826
    Purchased power costs subject to refund            -                5,688
                                                ________            _________
        Total                                   $ 10,963            $  32,514
                                                ========            =========

     Federal and state  legislators and regulatory  authorities  have adopted or
are considering a number of changes that are significantly impacting competitive
conditions  in  the  electric  utility  industry,   such  as  the  emergence  of
independent power producers, wholesale transmission access, and retail wheeling.
If recovery of costs through rates becomes uncertain or unlikely, whether due to
legislative  or  regulatory  changes,  competition,  or  otherwise,   accounting
standards such as SFAS 71 may no longer apply to TNPE and TNP. As a result, TNPE
and TNP could be  required  to write off all or a  portion  of their  regulatory
assets  and  liabilities.   Moreover,  to  the  extent  that  future  rates  are
insufficient  to  recover  costs,  additional  write  downs  could be  required.
Management of TNPE and TNP are currently  unable to predict the ultimate outcome
of changes in the electric  utility industry and whether the outcome will have a
significant  effect on their  consolidated  financial  position  and  results of
operations.  However,  based upon current regulatory conditions in the states in
which TNP operates,  management believes it probable that TNP will continue, for
the foreseeable  future, to meet the criteria for continued  application of SFAS
71, and it is probable  that TNP will recover  from  ratepayers  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 noncash item designed to enable a utility to capitalize interest
costs during periods of construction.  Established  regulatory  practices enable
TNP to recover these costs from  ratepayers.  The composite rates used for AFUDC
were 6.0%, 8.0%, and 8.8% in 1996, 1995, and 1994, respectively.

     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 3.1% in 1996, 1995,
and 1994, respectively.

   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

     TNP  accrues  estimated  revenues  for  energy  delivered  since the latest
billing.  Prior to January 1, 1995, TNP recognized revenue when billed. See Note
3 for the effects of the change in  recognizing  revenues  from cycle billing to
the accrual method in 1995.

     TNP sells customer  receivables to an unaffiliated company on a nonrecourse
basis.

   Purchased Power and Fuel Costs

     Electric rates include estimates of purchased power and fuel costs incurred
by TNP in purchasing  or generating  electricity.  Differences  between  amounts
collected and allowable  costs are recorded 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

     Premiums paid for an interest  rate collar will be amortized  over the term
of the related agreement.  Unamortized premiums are included in Deferred Charges
in the  consolidated  balance  sheets.  Amounts to be received or paid under the
agreement  will be  recognized  on the accrual  basis as a component of interest
expense.

   Income Taxes

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

     ITC  amounts  utilized in the federal  income tax return are  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 long-term debt and preferred stock were as follows:

                       December 31, 1996                   December 31, 1995
                       _________________                   _________________
              Carrying Amount   Fair Values       Carrying Amount    Fair Values
              _______________   ___________       _______________    ___________
                                       (In thousands)
Long-term debt     $ 533,900     $ 564,000          $ 612,995        $ 643,000
Preferred stock        3,420         1,500              3,600            1,600
Interest rate collar     295           180                  -                -


   Common Stock

     At December 31, 1996,  280,799  shares of TNPE's common stock were reserved
for issuance to TNP's 401(k) plan. Additionally, 576,947 shares of TNPE's common
stock were reserved for subsequent  issuance under other stock  compensation  or
shareholder plans.

   Shareholder Rights Plan

     TNPE has a Rights Plan that is designed to protect TNPE'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 TNPE's common
stock currently outstanding or issued until the close of business on November 4,
1998.

     Upon the occurrence of certain events, each right entitles a shareholder to
elect to purchase one share of common  stock at $45 per share or, under  certain
circumstances,  shares of common stock at half the then-current  market price or
to receive TNPE 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
TNPE'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
TNPE'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  TNPE's  outstanding  common  stock.  The  rights  expire
November 4, 1998,  unless earlier redeemed or exchanged by TNPE, and have had no
effect on EPS.

   Stock-Based Compensation

     As  discussed in Note 7, TNPE 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  stock-based  compensation.  TNP  has  elected  to  continue  to  apply  the
provisions of APB Opinion 25 in calculating  stock-based  compensation.  The pro
forma effect of applying  SFAS 123 to the equity awards during 1995 and 1996 was
immaterial.


Note 2.  Regulatory Matters

   Cities Rate Review
 
     In December 1996, certain cities in the Texas gulf coast area served by TNP
passed  resolutions  requiring TNP to file complete rate  information with those
cities.  In 1997  those  cities  have  agreed  to reopen  negotiations  on a new
transition  to  competition  proposal and have deferred the required rate filing
until  July 1,  1997.  If  negotiations  on the new  transition  to  competition
proposal is not  successful  and the rate filings are made,  TNP  anticipates  a
final  resolution of the rate review with the cities in late 1997.  Based on its
preliminary analysis, TNP believes the filing will support the reasonableness of
TNP's current rates.

   Community ChoiceSM

     On May 2, 1996, TNP filed an application with the PUCT requesting  approval
of a program  known as  Community  Choice that would apply to electric  services
provided by TNP in Texas.  On June 21, 1996, TNP filed an  application  with the
NMPUC  requesting  approval  of a similar  program  that would apply to electric
service  provided by TNP in New Mexico.  Community  Choice is a transition  plan
designed  to  address  the  opportunities   and  challenges   presented  by  the
increasingly  deregulated and competitive  environment of the electric  services
industry.

     As proposed by TNP,  Community  Choice  provided for transition  periods of
four years in New Mexico and five years in Texas. Community Choice proposed that
during the transition  periods,  TNP's rates for electric  service in New Mexico
and Texas would be structured to provide TNP a reasonable  opportunity to reduce
its so-called  potential "stranded costs." "Stranded costs" means the difference
between what it currently costs TNP to provide service and what a customer would
be willing to pay for such  service in a  competitive  market.  In Texas,  TNP's
potential  stranded  cost relates to TNP One, its 300 MW  generating  unit,  and
could  potentially  be more than $250 million.  In New Mexico,  TNP's  potential
stranded cost relates to its purchased power contracts and could  potentially be
more  than  $10  million.  At the  end  of the  transition  periods,  TNP  would
aggregate,  or combine,  its customers at the  community  level and permit these
aggregated  electrical loads to choose the types and nature of electric services
that will be available to individual customers within each aggregated load.

     In November 1996, TNP withdrew its Community Choice filing in Texas.  Prior
to the  withdrawal  TNP had  attempted to work through the numerous  issues with
various  intervenors.  The  withdrawal  was  due to a lack of  consensus  on key
issues, including the issue of stranded costs.

     In 1997 TNP  proposed  a new  plan for  transition  to  competition  to the
communities  within TNP's  service  territory in Texas.  The new plan includes a
five-year  transition  period and the opportunity to reduce  potential  stranded
costs. The new plan also entails options  providing  various levels of access to
the open market,  which TNP customers  will be able to select from at the end of
the transition period.  Due to the numerous issues involved,  TNP can provide no
assurance as to the timing or outcome of the new transition to competition  plan
in Texas.

     In 1997 TNP filed a  stipulation  with the NMPUC  adjusting  several of the
components of the original  Community Choice  proposal.  The stipulation has the
support of the major  stakeholders.  The revised  plan gives TNP  customers  the
right to choose their energy  provider  after a  three-year  transition  period,
freezes rates (including fuel and purchased power) for a three-year  period, and
allows for customer  aggregation  based on market forces.  Hearings were held in
late February  1997.  Approval by the NMPUC is the final step.  TNP believes the
plan will allow it to recover most if not all of its potential stranded costs in
New Mexico,  however,  the actual  recovery of any stranded costs will depend on
the future market and price for energy through 2002.

   Fuel Reconciliation

     TNP's fixed fuel factor  remains the same until  changed as part of general
rate case or fuel reconciliation,  or until the PUCT orders a reconciliation for
any  over  or  under   collections  of  fuel  costs.   TNP  expects  to  file  a
reconciliation  of fuel  costs in June  1997,  for the  period of  October  1993
through  December 1996.  Management  believes the ultimate  outcome of this fuel
reconciliation  will not  have a  material  adverse  effect  on TNP's or  TNPE's
consolidated financial position or results of operations.
 
   1994 Texas Rate Case Settlement

     On October 6, 1994,  the PUCT  approved a  unanimous  settlement  among the
parties in TNP's 1994 retail rate application. The rate case settlement provided
for an increase in annualized revenues in Texas of $17.5 million, or 4.5%, which
TNP implemented on October 2, 1994.

     The settlement  resolved all  outstanding  court appeals in connection with
TNP's two previous rate cases and required TNP to write off $31.5 million ($35.0
million of the original cost of TNP One).  TNP  recognized  the write-off in the
second quarter of 1994,  which resulted in an after-tax  charge of approximately
$20.5  million,  or $1.91 per share of TNPE common stock.  The  settlement  also
required  TNP to  sell  its  Texas  Panhandle  properties,  subject  to  certain
conditions.

     The  rate  case  settlement  includes  a  moratorium  restricting  TNP from
applying for rate  increases  in Texas until March 31, 1999,  subject to certain
conditions.  These  conditions  do not  allow  TNP to apply  for any  base  rate
increase  under any  circumstances  prior to March 31, 1997,  but would allow an
application  for  increased  rates to be filed after that time if certain  force
majeure events (as defined in the agreement) occur during the moratorium.


Note 3.  Change in Accounting for Unbilled Revenues

     Effective  January 1,  1995,  TNP  changed  its  method of  accounting  for
operating revenues from cycle billing to the accrual method. The change was made
in order to more closely match  revenues and expenses and more closely  conforms
to common utility industry practice. The cumulative effect of this change was to
recognize $12,993,000 of additional revenues ($8,445,000, net of taxes, or $0.77
per share). The pro forma effects of the change in accounting on 1994,  assuming
the new  method  was  applied  retroactively  to that  year,  would have been to
decrease the net loss by $1,347,000 or $0.13 per share).


Note 4.  Sale of Texas Panhandle Properties

     In September 1995, TNP sold its Texas Panhandle properties to SPS for $29.2
million, and recognized a net of tax gain of $9.5 million, or $0.87 per share of
TNPE common  stock.  The sale was  consummated  pursuant  to the sale  agreement
between TNP and SPS in connection with the Texas rate case settlement  discussed
in Note 2. The  Panhandle  properties  comprised a relatively  small  portion of
TNP's  business.  The book  value of the  Panhandle  properties  sold was  $14.3
million.  Revenues  from the  properties  for 1995 through the closing date were
$7.4 million with corresponding sales of 76.3 GWH to 7,350 customers.

     The proceeds  received from SPS were used to redeem $29.2 million of Series
T FMBs. In January 1996, TNP filed a class action  lawsuit  against John Hancock
Mutual Life Insurance  Company, a Series T bondholder.  TNP sought  confirmation
that its  redemption of Series T FMBs with proceeds from the Panhandle  sale was
within its rights under the indenture governing the FMBs.

     TNP's  lawsuit was  originally  filed  against PPM,  which  claimed to be a
bondholder and threatened to take legal action against TNP over the  redemption.
PPM  filed a  counterclaim  seeking  declarations  that  the  Series  T  partial
redemption  breached  the  indenture  governing  the FMBs and that TNP could not
redeem Series T FMBs prior to maturity  under  circumstances  like the Panhandle
sale.  Because PPM was not a bondholder,  it was dismissed from the lawsuit and,
on PPM's motion,  Jackson  National Life  Insurance  Company was  substituted as
defendant.

     As a result of federal mediation on January 30, 1997, TNP, Jackson National
Life  Insurance  Company and John Hancock  Insurance  Co.  agreed to a tentative
settlement of the lawsuit. The proposed settlement, which is subject to approval
of the  federal  judge,  calls for TNP to pay $2 million  to the  parties of the
lawsuit.  Accordingly, TNP established a reserve for the settlement in 1996. The
proposed  settlement,  if  approved,  will  allow for the end of costly  ongoing
litigation.


Note 5.  Revenues Subject to Refund

     During the third  quarter of 1995,  the IRS issued TNP a favorable  private
letter  ruling that  enabled TNP to  recognize  additional  revenues and accrued
interest of $4.9 million that  previously had been deferred.  This resulted in a
one-time after-tax earnings increase of $3.0 million, or $0.28 per share of TNPE
common stock.

     The revenues  recognized  were collected from October 1991 through  October
1994,  as a result of a Texas rate case filed in 1991.  The PUCT  allowed TNP to
collect additional annualized revenues of $1.6 million pending the resolution of
the regulatory tax treatment of disallowed  utility plant.  Recognition of these
revenues was conditioned upon TNP obtaining the ruling from the IRS.


Note 6.  Reorganization

     During the fourth quarter of 1994, TNP reduced company-wide staffing levels
by 140  positions,  or 14% of the  workforce,  as a result  of work  elimination
reviews by employee teams. The goals of the teams were to streamline  operations
and reduce future costs.  The staffing  reductions were  accomplished  primarily
through early  retirements  and  involuntary  terminations.  The aggregate costs
impacting TNP's 1994 operations  were $8,782,000  ($5,723,000,  net of taxes, or
$0.53 per share of TNPE common stock).


 Note 7. Employee Benefit Plans

   Pension Plan

     TNP has a defined  benefit pension plan covering  substantially  all of its
employees.   Benefits  are  based  on  an   employee's   years  of  service  and
compensation.  TNP's funding policy is to contribute the minimum amount required
by federal funding  standards.  The following table sets forth the plan's funded
status and amounts recognized in the consolidated balance sheets at December 31,
1996, and 1995.

                                                       1996           1995
                                                     _________      _________
                                                            (In thousands)
 Actuarial present value of benefit obligations:
   Vested benefit obligation                         $  58,466      $  59,393
   Unvested benefit obligation                           4,539          4,383
                                                     _________      _________
     Accumulated benefit obligation                  $  63,005      $  63,776
                                                     =========      =========

 Projected benefit obligation                        $  66,406      $  67,752
 Unrecognized net asset                                     83            107
 Unrecognized prior service cost                         1,588          2,536
 Unrecognized net gain from past experience             21,484         11,357
                                                     _________      _________
                                                        89,561         81,752
 Plan assets (principally marketable securities)
   at estimated fair value                              82,771         75,037
                                                      ________      _________
     Accrued pension costs (included in deferred
       credits in the consolidated balance sheets)    $  6,790      $   6,715
                                                     =========      =========

Net pension costs were comprised of the following components as determined 
using the projected unit credit actuarial method:

                                                   1996       1995       1994
                                                 _______    _______   _______
                                                         (In thousands)
 Service cost                                    $ 1,425    $ 1,071   $ 1,763
 Interest cost on projected benefit obligation     4,841      4,762     4,179
 Adjustment for actual return on plan assets     (12,398)   (13,797)      260
 Effect of reorganization costs, net                   -          -     3,537
 Net amortization and deferral                     6,207      7,607    (6,238)
                                                 _______    ________  ________
   Net pension costs                             $    75    $  (357)  $ 3,501
                                                 =======    ========  ========

     Assumptions  used in  accounting  for the pension  plan as of December  31,
1996, and 1995 were as follows:

                                                      1996            1995
                                                      ____            ____
 Discount rates                                       7.75%           7.25%
 Rates of increase in compensation levels             4.0%            4.0%
 Expected long-term rate of return on assets          9.5%            9.5%

   Postretirement Benefit Plan

     TNP sponsors a health care plan that  provides  postretirement  medical and
death  benefits to retirees who satisfied  minimum age and service  requirements
during  employment.  TNP recognizes the costs of postretirement  benefits on the
accrual  basis  during the periods  that  employees  render  service to earn the
benefits in accordance with SFAS 106, "Employers'  Accounting for Postretirement
Benefits Other Than  Pensions".  Prior to 1993, the costs of these benefits were
expensed on a  "pay-as-you-go"  basis. TNP has been permitted to recover through
rates  the  additional  costs  resulting  from the  adoption  of SFAS  106.  TNP
established a trust fund dedicated to paying these postretirement benefits.

     The  following  table  sets  forth the plan's  funded  status  and  amounts
recognized in the consolidated balance sheets at December 31, 1996, and 1995.

                                                             1996      1995
                                                           _______   _______
                                                              (In thousands)
  Accumulated postretirement benefit obligation:
    Retirees and dependents                                $13,060   $14,229
    Active employees                                         4,244     4,093
                                                           _______   _______
      Total benefits earned                                 17,304    18,322
  Plan assets (principally marketable securities)
    at estimated fair value                                  6,975     5,710
                                                           _______   _______
  Accumulated postretirement benefit
    obligation in excess of plan assets                     10,329    12,612
  Unrecognized transition obligation                       (13,721)  (14,579)
  Unrecognized net gain from past experience                 6,998     5,603
                                                           _______   _______
  Accrued postretirement benefit costs (included in
    deferred credits in the consolidated balance sheets)   $ 3,606   $ 3,636
                                                           =======   =======

     Net   postretirement   benefit  costs  were   comprised  of  the  following
components:

                                            1996          1995       1994
                                          ______        ______      ______
                                                    (In thousands)
   Service cost                           $  524        $  374      $  738
   Interest cost on postretirement
    benefit obligation                     1,259         1,265       1,642
   Reduction for actual return on plan
    assets                                  (708)         (956)        (59)
   Effect of reorganization costs, net         -             -       2,945
   Net amortization and deferral             922         1,145         784
                                          ______        ______      ______
   Net postretirement benefit costs       $1,997        $1,828      $6,050
                                          ======        ======      ======

     The  transition  obligation is being  amortized  over a 20-year period that
began in 1993.  The  assumed  health  care cost trend  rate used to measure  the
expected  cost of  benefits  was 5.7% for 1996 and is assumed to trend  downward
slightly  each year to 4.3% for 2003 and  thereafter.  That  assumed  rate has a
significant effect on the amounts reported. For example,  increasing the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated  postretirement  benefit  obligation as of December 31, 1996, by
$2.1 million and the  aggregate of the service and interest  cost  components of
net postretirement benefit cost for 1996 by $288,000.


<PAGE>
     Additional  assumptions used in accounting for the  postretirement benefit
plan as of December 31, 1996, and 1995, were as follows:

                                                         1996         1995
                                                         ____         ____
  Discount rates                                         7.75%        7.25%
  Expected rate of return on assets (net of taxes)       5.7%         6.0%

   Incentive Plans

     TNPE and TNP 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 EPS, operations
and  maintenance  costs per KWH,  and  system  reliability  measures.  Operating
expenses for 1996 and 1995 included  costs for the various cash and equity plans
of $4.8 million and $2.0 million, respectively.

   Other Employee Benefits

     TNP 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 TNPE common stock. TNP's  contributions are
used to purchase  TNPE common  stock,  which  employees  may later  convert into
investments in other investment options.

     TNP 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 TNPE or TNP.  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 8.  Income Taxes
<TABLE>
<CAPTION>
     Components of income taxes were as follows:


                                                      TNPE                                     TNP
                                     ____________________________________     _____________________________________
                                        1996          1995         1994            1996        1995        1994
                                        ____          ____         ____            ____        ____        ____
                                                                     (In thousands)
<S>                                  <C>          <C>           <C>           <C>          <C>           <C>
Taxes on net operating income:
    Federal - current                $  8,596     $    3,108    $    (253)    $   8,596    $    3,108    $    (253)
    State - current                        86            507           55            86           507           55
    Federal - deferred                  1,381          6,700          (13)        1,381         6,700          (13)
    ITC adjustments                       270          2,002       (1,027)          270         2,002       (1,027)
                                     _________    ___________   __________    __________   ___________   __________
                                       10,333         12,317       (1,238)       10,333        12,317       (1,238)
                                     _________    ___________   __________    __________   ___________   __________
Taxes on other income (loss):
    Federal - current                    (114)         7,170        1,006          (100)        7,203          560
    Federal - deferred                 (1,574)        (1,444)     (10,902)         (241)       (1,568)     (10,907)
    ITC adjustments                      (650)          (323)        (409)         (381)         (311)        (347)
                                     _________    ___________   __________    __________   ___________   __________
                                       (2,338)         5,403      (10,305)         (722)        5,324      (10,694)
                                     _________    ___________   __________    __________   ___________   __________  
Taxes on cumulative effect
 of change in accounting,
 federal-deferred (Note 3)                  -          4,548             -            -         4,548            -
                                     _________    ___________   __________    __________   ___________   __________

    Total income taxes               $  7,995     $   22,268   $  (11,543)    $   9,611    $   22,189    $ (11,932)
                                     ========     ==========   ===========    ==========   ===========   ==========      
</TABLE>


<PAGE>
    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>
                                                      TNPE                                     TNP  
                                      ___________________________________       ___________________________________            
                                         1996        1995        1994              1996        1995       1994
                                         ____        ____        ____              ____        ____       ____
                                                                     (In thousands)
<S>                                    <C>        <C>         <C>               <C>         <C>         <C>
Tax at statutory tax rate              $ 10,850   $  17,595   $  (9,873)        $ 12,735    $  17,674   $ (9,731)
    Amortization of
      accumulated deferred ITC           (1,323)     (1,079)     (1,055)          (1,323)      (1,079)    (1,055)
    Amortization of
      excess deferred taxes                (143)       (160)       (183)            (143)        (318)      (183)
    State income taxes                       86         507          55               86          507         55
    ITC related to disallowances           (191)       (312)       (347)            (191)        (312)      (347)
    ITC adjustment                         (760)          -           -                -            -          -
    Taxes on cumulative effect
      of change in accounting,
      federal- deferred (Note 3)              -       4,548           -                -        4,548           -
    Other, net                             (524)      1,169        (140)          (1,553)       1,169        (671)
                                       _________  _________   __________        _________   _________    _________
        Actual income taxes            $  7,995   $  22,268   $ (11,543)        $  9,611    $  22,189    $(11,932)
                                       =========  =========   ==========        =========   =========    =========   

</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, 1996, and 1995, are presented below.

<TABLE>
<CAPTION>
                                                                      TNPE                            TNP 
                                                          __________________________    __________________________         
                                                              1996            1995           1996          1995
                                                              ____            ____           ____          ____     
                                                                                (In thousands)
<S>                                                       <C>            <C>            <C>            <C>
     Current deferred income taxes:
       Deferred tax assets:
         Unbilled revenues                                $     2,470    $     2,413    $     2,470    $     2,413
         Other                                                    663            264            663            264
                                                          ____________   ____________   ____________   ____________
                                                                3,133          2,677          3,133          2,677
       Deferred tax liability:
         Deferred purchased power and fuel costs               (1,196)        (2,533)        (1,196)        (2,533)
                                                          ____________   ____________   ____________   ____________
           Current deferred income taxes, net             $     1,937    $       144    $     1,937    $       144
                                                          ============   ============   ============   ============

     Noncurrent deferred income taxes:
       Deferred tax assets:
         Minimum tax credit carryforwards                 $    27,445    $    22,365    $    34,703    $    27,317
         Federal regular tax net operating
           loss carryforwards                                    -             4,240          1,724          9,604
         ITC carryforwards                                     11,255         14,399         11,823         15,591
         Regulatory related items                              16,844         17,921         16,844         17,921
         Accrued employee benefit costs                         3,486          3,323          3,486          3,323
         Other                                                  1,263          1,900            696            707
                                                          ____________   ____________    ___________   ____________    
                                                               60,293         64,148         69,276         74,463
                                                          ____________   ____________    ___________   ____________
       Deferred tax liabilities:
         Utility plant, principally due to
           depreciation and basis differences                (115,823)      (114,446)      (115,823)      (114,446)
         Deferred charges and other                            (5,565)        (4,743)        (5,565)        (4,743)
         Regulatory related items                             (13,749)        (2,340)       (13,748)        (2,340)
                                                          ____________   ____________   ____________   ____________
                                                             (135,137)      (121,529)      (135,136)      (121,529)
                                                          ____________   ____________   ____________   ____________
             Noncurrent deferred income taxes, net        $   (74,844)   $   (57,381)   $   (65,860)   $   (47,066)
                                                          ============   ============   ============   ============  
</TABLE>


<PAGE>
 Federal tax carryforwards as of December 31, 1996, were as follows:

                                                  TNPE              TNP
                                                      (In thousands)
     Net operating loss
       Amount                                 $      -          $   4,926
       Expiration period                             -               2009
     Minimum tax credits
       Amount                                 $ 27,445          $  34,703
       Expiration period                          None               None
     Investment tax credit
       Amount                                 $ 11,255          $  11,823
       Expiration period                          2005               2005

     In March 1995,  an  Internal  Revenue  Service  revenue  agent  involved in
auditing TNPE's 1990-1994  consolidated  federal income tax returns  recommended
that a private  letter ruling  concerning  eligibility of the TNP One generating
plant for ITC be revoked retroactively. Management believes that TNP's claim for
ITC is valid and is contesting the agent's recommendation.  Of the $22.5 million
of ITC at issue,  TNPE and its subsidiaries have utilized $8.2 million of ITC in
the  consolidated tax returns through 1995 and expect to utilize $1.6 million in
the 1996  consolidated  tax  returns.  TNP's  portion is $7.0  million  and $1.8
million,  respectively.  However,  since 1990 TNPE and TNP have only  recognized
$2.2 million of the ITC in results of operations.

Note 9.  Long-Term Debt

   First Mortgage Bonds

     FMBs  issued  under the Bond  Indenture  are secured by  substantially  all
utility plant owned directly by TNP. The Bond Indenture  restricts cash dividend
payments on TNP common stock as discussed in Note 11.

     TNP has the  ability to issue  additional  FMBs based on certain  financial
tests,  or based on previously  retired FMBs. As of December 31, 1996, TNP could
not issue any additional FMBs based on the required  financial  tests.  However,
TNP also has the ability to issue  additional  FMBs against  previously  retired
FMBs, as limited by an earnings  test. As of December 31, 1996,  TNP could issue
up to $91 million of FMBs at an assumed  interest rate of 9% based on previously
retired FMBs.

   Secured Debentures

     TNP's Series A, 10.75% secured  debentures and 12.5% secured debentures are
secured with a first lien on a portion of Unit 1. The 12.5%  secured  debentures
are also secured by a first lien on a portion of Unit 2. TNP's secured debenture
holders are also secured by second liens on  substantially  all utility plant in
Texas owned directly by TNP. The secured debentures also contain restrictions on
dividends and asset dispositions.
 
   Revolving Credit Facilities

     In  September   1996,  TNP  entered  into  a  new  credit  facility  ("1996
Facility").  The 1996 Facility  provides for a total  commitment of $100 million
and  supplements  the  existing  credit  facility  ("1995  Facility").  The 1995
Facility  provides for a total  commitment  of $150  million.  The 1996 Facility
commitment  expires  September  2001,  while the 1995 Facility  commitment  will
reduce to $125  million on November 3, 1998,  and to $100 million on November 3,
1999,  and will expire on November 3, 2000.  The  collateral  securing  the 1996
Facility is $100 million of  non-interest  bearing  (except upon default)  FMBs.
Collateral  securing the 1995 Facility is generally a first lien on a portion of
TNP One, a second  lien on TNP's first  mortgage  bond trust  estate  located in
Texas,  and $30 million of noninterest  bearing FMBs.  This  collateral  secures
borrowings up to $100 million.  Before increasing borrowings above $100 million,
TNP must pledge  additional  noninterest  bearing FMBs in an amount equal to the
borrowings over $100 million.

     In addition to the 1996 Facility, TNP purchased 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.

     TNP has  sufficient  liquidity  to  satisfy  the  possibility  of any known
contingencies.  Management  believes  cash flow  from  operations  and  periodic
borrowings  under its two revolving  credit  facilities  should be sufficient to
meet working  capital  requirements  and planned  capital  expenditures at least
through 1998.

     At December 31, 1996,  interest rates on borrowings under the 1996 Facility
were 7.06% and would have been 7.12% on the 1995 Facility. The composite average
borrowing rates under TNP's credit  facilities were 7.32% and 8.92% for 1996 and
1995,  respectively.  The interest rate margins on both facilities will decrease
as the ratings on TNP's FMBs improve.

     Under specified conditions, TNP's credit facilities restrict the payment of
cash  dividends on TNP 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, 1996, FMB and secured  debenture  maturities and sinking
fund requirements for the five years following 1996 are as follows:


                                             Secured          Total FMBs and
            Year             FMBs           Debentures       Secured Debentures
            ____             ____           __________       __________________
                                          (In thousands)
            1997         $      100         $        -           $     100
            1998                100                  -                 100
            1999                100            130,000             130,100
            2000            100,100                  -             100,100
            2001                100                  -                 100

     At the end of 1996,  $55 million was  outstanding  under the 1996 Facility,
which matures in 2001.  In January 1997 TNP borrowed from its credit  facilities
in order to retire the $100.8 million of 11.25% Series T FMBs.  Accordingly,  at
December  31,  1996,  the $100.8  million  was  classified  as  long-term  debt.
Following  the  retirement  of the Series T FMBs,  TNP had  available  borrowing
capacity of $90.5 million under the credit facilities.

     As of December 31,  1996,  Facility  Works had $202,000 of debt  associated
with the purchase of vehicles.


Note 10. Redeemable Cumulative Preferred Stock


     If TNP liquidates voluntarily or involuntarily,  holders of preferred stock
have  preferences  equal to amounts payable on redemption or par,  respectively,
plus  accrued  dividends.  TNP's  charter  provides  that  additional  shares of
preferred  stock may not be issued unless  certain tests are met. As of December
31, 1996, $25 million additional preferred stock could be issued.

Note 11. Capital Stock and  Dividends

    TNPE

     In October 1996,  TNPE 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 TNP as an equity contribution.

     In September  1996,  TNPE  increased its  quarterly  dividend from $0.22 to
$0.245 per share.  TNPE had reduced the quarterly  dividend by 51% from $0.41 to
$0.20  per  share  beginning  with  the  third  quarter  of  1994  due to  TNP's
restriction  (discussed  below) and other  factors  such as the  relatively  low
common equity component of TNPE's capital structure and industry considerations.

   TNP

     The Bond  Indenture  prohibits TNP from paying cash dividends on its common
stock  to  TNPE  unless  unrestricted  retained  earnings  are  available.   The
restriction became operative during 1994 due to the recognition of $35.0 million
of regulatory disallowances as discussed in Note 2 and temporarily precluded TNP
from paying cash dividends until March 1995.

     As of December 31, 1996,  $46.6 million of unrestricted  retained  earnings
were available for dividends.
 

Note 12. Commitments and Contingencies

   Fuel Supply Agreement

     TNP successfully negotiated a 20% reduction in the cost of lignite provided
by Walnut Creek Mining  Company  effective  January 1, 1995, for the life of TNP
One.  Walnut Creek Mining  Company is jointly owned by Phillips Coal Company and
Peter Kiewit Sons', Inc.


<PAGE>
 
   Wholesale Purchased Power Agreements

     TNP  purchases a  significant  portion of its  electric  requirements  from
various wholesale suppliers.  These contracts are scheduled to expire in various
years through 2010.

     TNP has  notified TU of its intent to cease  purchasing  full  requirements
power and energy effective January 1, 1999. In addition,  in July 1995 TNP filed
proceedings  with the PUCT and in a Texas state  district court to declare TNP's
wholesale  purchased  power agreement with TU null and void. On August 29, 1996,
The PUCT entered an order  declaring two of the terms of the TU Agreement  void,
but upheld the validity of the remainder of the contract.  In November 1996, TNP
filed an a appeal of the PUCT's ruling with a state district court.

     In 1996, TU supplied  approximately  43% of TNP's Texas capacity and 24% of
its Texas energy requirements. Management expects, as a result of the developing
competition  within the wholesale power market,  to enter into new  arrangements
for such capacity and energy on terms that are more favorable for its customers.
TNP has  requested  proposals  for  purchased  power  resources to replace power
currently purchased from TU.

     At December 31, 1996, TNP 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>

                                                              1997       1998       1999      2000        2001
                                                            _______   ________    ________  _______    _______
<S>                                                         <C>       <C>         <C>       <C>        <C> 
     Purchased power agreements                             $  67.4   $   52.0    $   17.1  $  16.7    $  16.4
     Fuel supply agreements                                    30.2       30.2        30.2     30.2       30.2
                                                            _______   ________    ________  _______    _______
       Total                                                $  97.6   $   82.2    $   47.3  $  46.9    $  46.6
                                                            =======   ========    ========  =======    =======  
</TABLE>

   Significant Customer

     TNP is actively negotiating with a significant major industrial customer in
Texas that  provided  GWH sales of 628 and annual  revenues of $27.8  million in
1996 ($9.9 million in base  revenues).  This customer is  constructing  a 300-MW
cogeneration  plant, the first phase of which is expected to commence operations
in  1998.   TNP  is  negotiating   with  the  customer  to  continue   providing
transmission,  distribution  and other  services.  Even if TNP is  successful in
these  negotiations,  base  revenues  from  this  customer  are  expected  to be
significantly less.

   Legal Actions

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


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

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

<TABLE>
<CAPTION>
                                                            March 31      June 30     Sept. 30       Dec. 31
                                                           __________   __________   __________   __________
                                                                (In thousands except per share amounts)
<S>                                                        <C>          <C>          <C>          <C>    
 1996
____

Operating revenues........................................ $   99,827   $  122,020   $  157,453   $  123,437
Net operating income......................................     17,786       25,327       31,237       19,527
Net income................................................        562        7,831       14,292          368
Income applicable to common stock.........................        520        7,789       14,250          327
Earnings per share of common stock........................       0.05         0.71         1.29         0.03
Dividends per share of common stock....................... $     0.22   $     0.22   $    0.245   $    0.245

Weighted average common shares outstanding................     10,986       11,028       11,080       13,032

1995
____

Operating revenues........................................ $  105,647   $  121,237   $  151,586   $  107,353
Net operating income......................................     17,044       25,100       35,147       19,304
Net income ...............................................      6,124        6,131       26,728        2,522
Income applicable to common stock.........................      5,936        5,951       26,576        2,387
Earnings per share of common stock........................       0.55         0.54         2.44         0.22
Dividends per share of common stock....................... $     0.20   $     0.20   $     0.20   $     0.22

Weighted average common shares outstanding................     10,877       10,901       10,909       10,915

</TABLE>

     Generally,   the   variations   between   quarters   reflect  the  seasonal
fluctuations of TNP's business.  In addition,  the results above are impacted by
one-time items. These items, net of taxes, are as follows:

-    reserve for  tentative  settlement  of Series T litigation  $1.3 million in
     fourth quarter of 1996 (Note 4)

-    change in accounting for unbilled revenues of $8.4 million in first quarter
     of 1995 (Note 3)

-    gain on sale of Texas Panhandle properties of $9.5 million in third quarter
     of 1995 (Note 4)

-    recognition  of  previously  deferred  revenues of $3.0 million  during the
     third quarter of 1995 (Note 5)

 


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

     See Form 8-K filed on February 25, 1997.


<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 1997 Annual Meeting of
Holders of TNPE Common Stock.

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  Directors  and  Executive  Officers"  and
     "Security  Ownership of Management  and Certain  Beneficial  Owners" in the
     proxy  statement  relating  to the 1997  Annual  Meeting of Holders of TNPE
     Common Stock.


                                     PART IV

Item 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>

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

<S>                                                                                                             <C> 
                                                                                                                Page
       Independent Auditors' Reports......................................................................       17

       TNPE
       Consolidated Statements of Income (Loss), Three Years Ended December 31, 1996......................       19
       Consolidated Statements of Cash Flows, Three Years Ended December 31, 1996.........................       20
       Consolidated Balance Sheets, December 31, 1996, and 1995...........................................       21
       Consolidated Statements of Capitalization, December 31, 1996, and 1995.............................       22
       Consolidated Statements of Common Shareholders' Equity,
         Three Years Ended December 31, 1996..............................................................       23
 
       TNP
       Consolidated Statements of Income (Loss), Three Years Ended December 31, 1996......................       24
       Consolidated Statements of Cash Flows, Three Years Ended December 31, 1996.........................       25
       Consolidated Balance Sheets, December 31, 1996, and 1995...........................................       26
       Consolidated Statements of Capitalization, December 31, 1996, and 1995.............................       27
       Consolidated Statements of Common Shareholders' Equity,
         Three Years Ended December 31, 1996..............................................................       28
       Notes to Consolidated Financial Statements.........................................................       29
       Selected Quarterly Consolidated Financial Data - TNPE..............................................       40

</TABLE>

(b)    Report on  Form 8-K

     TNPE and TNP filed a report on Form 8-K dated February 25, 1997,  reporting
     information  under Item 4 - regarding a change in  Independent  Accountants
     and the satisfactory resolution of a disagreement on accounting.

(c)  The Exhibit Index on pages 43-48 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.


Date:  March 7, 1997                   By:  \s\ M. S. Cheema      
                                       Manjit S. Cheema, Vice President &
                                       Chief Financial Officer


                                       TEXAS-NEW MEXICO POWER COMPANY


Date:  March 7, 1997                   By:  \s\ M. 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.

                                             Title                    Date


By  \s\ Kevern R. Joyce               Chairman, President,           3/7/97
    Kevern R. Joyce                   & Chief Executive Officer      


By  \s\ M. S. Cheema                  Senior Vice President          3/7/97
    Manjit S. Cheema                  & Chief Financial Officer      
                                      of TNP and Vice President  
                                      & Chief Financial
                                      Officer of TNPE

By  \s\ Scott Forbes                  Controller of TNP &            3/7/97
    Scott Forbes                      Chief Accounting 
                                      Officer of TNPE                  


By  \s\ R. Denny Alexander            Director                       3/7/97
    R. Denny Alexander


By  \s\ John A. Fanning               Director                       3/7/97
    John A. Fanning


By  \s\ Sidney M. Gutierrez           Director                       3/7/97
    Sidney M. Gutierrez


By  \s\ James R. Holland, Jr.         Director                       3/7/97
    James R. Holland, Jr.


By  \s\ Harris L. Kempner, Jr.        Director                       3/7/97
    Harris L. Kempner, Jr.


By  \s\ Dwight R. Spurlock            Director                       3/7/97
    Dwight R. Spurlock


By  \s\ Dr. Carol D. Smith Surles     Director                       3/7/97
    Dr. Carol D. Smith Surles


By  \s\ Dennis H. Withers             Director                       3/7/97
    Dennis H. Withers


<PAGE>
                                   EXHIBIT INDEX


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

  Exhibit
    No.                                            Description


TNPE  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 TNPE 1984 Form S-14, File No. 2-89800).

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

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

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

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

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

   3(g)   -  Amendment to Articles of  Incorporation  filed December 27, 1988 
             (Exhibit 3(g) to TNPE 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)   -  Rights Agreement and Form of Right  Certificate,  as amended,  
             effective  November 13, 1990 (Exhibit 2.1 to TNPE Form 8-A, File 
             No. 1-8847).

 *23      -  Independent Auditors' Consent - KPMG Peat Marwick LLP.

 *27      -  Financial Data Schedule for TNPE.

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

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

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

 *27      -  Financial Data Schedule for TNP.

TNPE and TNP 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 TNP 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 TNP 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 TNP 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 TNP 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 TNP 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 TNP 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 TNP for the quarter ended 
             September 30, 1996, File No. 2-97230).

   4(u)   -  Indenture and Security  Agreement for 12 1/2% Secured  Debentures 
             dated as of January 15,  1992 (Exhibit 4(r) to TNP 1991 Form 10-K,
             File No. 2-97230).

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

                          Contracts Relating to TNP One

  10(a)   -  Fuel Supply  Agreement,  dated  November 18, 1987,  between  
             Phillips Coal Company and TNP (Exhibit 10(j) to TNP 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 TNP (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 TNP,  to Fuel  Supply  Agreement  dated
             November 18, 1987,  between Phillips Coal Company and TNP, (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 TNP, 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 TNP 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 TNP 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 TNP 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 TNP 1991 Form 
             10-K , File No. 2-97230).

  10(d)   -  Amended and Restated Subordination Agreement, dated as of October
             1, 1988, among TNP,  Continental  Illinois  National Bank and Trust
             Company of Chicago and the Unit 1 Agent(Exhibit  10(uu) to TNP 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 TNP 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 TNP 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, TNP, 
             and TGC (Exhibit 10(g)1 to TNP 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, TNP, 
             and TGC (Exhibit 10(g)2 to TNP 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, TNP, 
             and TGC (Exhibit 10(g)3 to TNP 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, TNP,
             and TGC (Exhibit 10(f)5 to TNP 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,  TNP,
             and TGC (Exhibit 10(f)6 to TNP 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 TNP 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 TNP 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 TNP 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 TNP 1991 Form 10-K, File No. 2-97230).

  10(g)3  -  TNP Second Lien Mortgage  Modification  No. 2, dated as of 
             September  21, 1993 (Exhibit  10(h)3 to TNP 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 TNP 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, TNP, 
             Phillips Petroleum  Company,  and Peter Kiewit Son's, Inc. (Exhibit
             10(nn) to TNP 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 TNP 1988 Form 10-K, File No. 
             2-97230).

  10(k)   -  Guaranty,  dated as of October 1, 1988, by TNP of TGC obligations 
             under Unit 1 Credit Agreement  (Exhibit 10(xx)to TNP 1988 Form 10-K
             of TNP, File No. 2-97230).
 
  10(l)   -  First  Amended  and  Restated  Facility  Purchase  Agreement,  
             dated as of January 8, 1992,  between TNP and TGC (Exhibit 10(n) to
             TNP 1991 Form 10-K, 1991, File No. 2-97230).

  10(m)   -  Operating  Agreement,  dated as of October 1, 1988,  between TNP 
             and TGC (Exhibit  10(zz) to TNP 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 TNP,  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 TNP 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 TNP 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 TNP 1991 Form
             10-K, File No. 2-97230).

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

  10(q)   -  Subordination Agreement,  dated as of October 1, 1988, among TNP,
             Continental  Illinois  National  Bank and Trust Company of Chicago,
             and the Unit 2 Agent (Exhibit  10(mmm) to TNP 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 TNP 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, TNP, 
             and TGC II (Exhibit 10(u)1 to TNP 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, TNP and
             TGC II (Exhibit 10(u)2 to TNP 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, TNP, 
             and TGC II (Exhibit 10(u)3 to TNP 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, TNP, 
             and TGC II (Exhibit 10(s)4 to TNP 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,  TNP, and
             TGC II (Exhibit  10(s)5 to TNP 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 TNP 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 TNP 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 TNP 1991 Form 10-K, File No. 2-97230).

  10(t)2  -  TNP Second Lien Mortgage  Modification  No. 2, dated as of 
             September 21, 1993,  (Exhibit 10(u)2 to TNP 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.,  TNP, certain  creditors,  
             as defined  therein,  and the Collateral  Agent, as defined therein
             (Exhibit 10(xxx) to TNP 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 TNP 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 TNP 1993 Form 
             10-K of TNP, 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 TNP  1988  Form  10-K,  File  No.
             2-97230).

  10(w)   -  Non-Partition  Agreement,  dated as of May 30, 1990, among TNP, 
             TGC, and the Unit 1 Agent (Exhibit 10(ss) to TNP 1990 Form 10-K of
             TNP, 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 TNP, 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 TNP, and TGC II (Exhibit 10(dd) to TNP
             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 TNP and
             TGC II (Exhibit 10(aa)1 to TNP 1993 Form 10-K, File No. 2-97230).

  10(aa)  -  Operating  Agreement,  dated as of May 31, 1991,  between TNP 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 TNP, TGC
             II, and the Unit 2 Agent (Exhibit 10(ppp) to Amendment No. 1 to 
             File No. 33-41903).

                          Contracts Relating to TNP One

  10(cc)  -  Revolving Credit Facility  Agreement,  dated as of November 3, 
             1995,  among TNP,  certain lenders,  and Chemical Bank, as  
             Administrative  Agent and  Collateral  Agent.  (Exhibit  10(cc) to 
             Form 10-K of TNPE and TNP for 1996, File Nos. 1-8847 and 2-9730).

  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 TNPE and TNP for 1996, File Nos. 1-8847 and
             2-9730)

  10(cc)2 -  Form of Bond Agreement,  dated as of November 3, 1995,  between TNP
             and Chemical  Bank,  as  Collateral  Agent  (Exhibit E to Revolving
             Credit Facility  Agreement).  (Exhibit 10(cc)2 to Form 10-K of TNPE
             and TNP for 1996, File Nos. 1-8847 and 2-9730)

  10(cc)3 -  Form of Note  Pledge  Agreement,  dated  as of  November  3,  1995,
             between TNP and Chemical  Bank, as collateral  agent  (Exhibit F to
             Revolving Credit Facility Agreement). (Exhibit 10(cc)3 to Form 10-K
             of TNPE and TNP for 1996, File Nos. 1-8847 and 2-9730)

  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,  TNP, and TGC II (Exhibit H to the Revolving Credit
             Facility Agreement).  (Exhibit 10(cc)4 to Form 10-K of TNPE and TNP
             for 1996, File Nos. 1-8847 and 2-9730)

  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 TNPE and TNP for 1996, File Nos.
             1-8847 and 2-9730)

  10(cc)6 -  Form of Assignment and Amendment Agreement, dated as of November 3,
             1995, among TNP, 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 TNPE and TNP for 1996,
             File Nos. 1-8847 and 2-9730)

  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 TNPE and TNP for 1996, File Nos. 1-8847 and
             2-9730)

  10(cc)8 -  Form of Collateral Transfer of Notes,  Rights and Interests,  dated
             as  of  November  3,  1995,  between  TNP  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 TNPE and TNP for 1996, File Nos. 1-8847 and 2-9730)

  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 TNPE and TNP
             for 1996, File Nos. 1-8847 and 2-9730)

  10(cc)10 - Form of Collateral Transfer of Notes,  Rights and Interests,  dated
             as  of  November  3,  1995,  between  TNP  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 TNPE and TNP for 1996, File Nos. 1-8847 and 2-9730)

  10(cc)11 - Form of Amendment No. 1, dated as of November 3, 1995, to the  
             Assignment  and Security  Agreement  between TNP, and The Chase 
             Manhattan Bank, as agent (Exhibit O to the Revolving Credit
             Agreement).  (Exhibit 10(cc)11 to Form 10-K of TNPE and TNP for 
             1996, File Nos. 1-8847 and 2-9730)

                             Power Supply Contracts

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

  10(dd)1 -  Amendment,  dated January 4, 1989, to contract  between TNP and 
             Houston Lighting & Power Company (Exhibit 10(cccc) to TNP 1988 Form
             10-K).

  10(ee)  -  Amended and Restated Agreement for Electric Service dated May 14,
             1990,  between TNP and Texas Utilities  Electric  Company  (Exhibit
             10(vv) to TNP 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 TNP 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 TNP and West Texas Utilities
             Company,  as amended (Exhibit 10(e) of Form 8 applicable to TNP 
             1986 Form 10-K, File No. 2-97230).

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

  10(hh)  -  Amended and Restated Contract for Electric Service, dated April 29,
             1988, between TNP 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 TNP and SPS as amended 
             (Exhibit 10(h) of Form 8 applicable to TNP 1986 Form 10-K, File 
             No. 2-97230).

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

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

  10(jj)  -  Contract dated August 31, 1983,  between TNP and Capitol  
             Cogeneration  Company,  Ltd.  (Exhibit 10(i) of Form 8 applicable 
             to TNP 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 TNP (Exhibit  10(nnnn) to TNP 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  TNP  (Exhibit
             10(oo)2 to TNP 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 TNP (Exhibit 10(oo)3 to
             TNP 1992 Form 10-K, File No. 2-97230).

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

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

  10(ll)  -  Interchange  Agreement  between TNP and El Paso Electric  Company 
             dated April 29, 1987 (Exhibit  10(l) of Form 8 applicable to TNP 
             1986 Form 10-K, File No. 2-97230).

  10(mm)  -  Amendment No. 1, dated  November 21, 1994, to  Interchange  
             Agreement  between TNP 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 TNP and El Paso 
             Electric Company dated December 8, 1981 as amended (Exhibit 10(m)
             of Form 8 applicable to TNP 1986 Form 10-K, File No. 2-97230).

  10(oo)  -  1996 Firm Capacity & Energy Sale Agreement  between TNP and TEP
             dated,  as of January 1, 1996 (Exhibit 10(pp) to joint 1994 Form
             10-K, File Nos. 1-8847 and 2-97230).

*10(pp)   -  Agreement  for Purchase and Sale of Energy  effective as of May 1,
             1996 among TNP,  Amoco  Chemical  Company and Amoco Oil Company.

*10(qq)   -  Agreement  dated  December 30, 1994 between TNP and Union Carbide
             Corporation  ("UCC") for Purchase of Capacity and Energy from UCC.

                              Management Contracts

10(rr)    -  Form of TNP Executive Agreement for Severance  Compensation Upon 
             Change in Control and schedule of substantially identical 
             agreements.  (Exhibit 10(qq) to TNP and TNPE Form 10-K for 1996, 
             File Nos. 1-8847 and 2-97230)

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

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

*21      -  Subsidiaries of the Registrants.

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