UNITED
      STATESSECURITIES
      AND EXCHANGE COMMISSIONWashington,
      D.C.  20549FORM
      10-Q(Mark
      One)[X]
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the quarterly period ended June 30,
      2009Commission
            
            Name
      of Registrants, State of Incorporation,
            
            I.R.S.
      EmployerFile
      Number
            
            Address
      and Telephone Number
            
            Identification
      No.001-32462
            
            PNM
      Resources, Inc.
            
            85-0468296(A
      New Mexico Corporation)Alvarado
      SquareAlbuquerque,
      New Mexico  87158(505)
      241-2700001-06986
            
            Public
      Service Company of New Mexico
            
            85-0019030(A
      New Mexico Corporation)Alvarado
      SquareAlbuquerque,
      New Mexico  87158(505)
      241-2700002-97230
            
            Texas-New
      Mexico Power Company
            
            75-0204070(A
      Texas Corporation)577
      N. Garden Ridge Blvd.Lewisville,
      Texas  75067(972)
      420-4189





Indicate
by check mark whether PNM Resources, Inc. (“PNMR”) and Public Service Company of
New Mexico (“PNM”) (1) have 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) have been subject to such filing
requirements for the past 90 days.  YES   ü    NO





Indicate
by check mark whether Texas-New Mexico Power Company (“TNMP”) (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      NO  ü     (NOTE:  As
a voluntary filer, not subject to the filing requirements, TNMP filed all
reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months.)





Indicate
by check mark whether the registrants have submitted electronically and posted
on its corporate Web sites, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such
files).  YES___    NO___  (NOTE:  No
Interactive Data Files required to be submitted.)








Indicate
by check mark whether PNMR is a large accelerated filer, an accelerated filer,
or a non-accelerated filer (as defined in Rule 12b-2 of the Act).





Large
      accelerated filer ü
            Accelerated
      filer
            Non-accelerated
      filer





Indicate
by check mark whether each of PNM and TNMP is a large accelerated filer,
accelerated filer, or non-accelerated filer (as defined in Rule 12b-2 of the
Act).





Large
      accelerated filer
            Accelerated
      filer
            Non-accelerated
      filer ü





Indicate
by check mark whether any of the registrants is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES       NO  ü





As of
July 28, 2009, 86,673,174 shares of common stock, no par value per share, of
PNMR were outstanding.





The total
number of shares of common stock of PNM outstanding as of July 28, 2009 was
39,117,799 all held by PNMR (and none held by non-affiliates).





The total
number of shares of common stock of TNMP outstanding as of July 28, 2009 was
6,358 all held indirectly by PNMR (and none held by
non-affiliates).





PNM
AND TNMP MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H) (1) (a) AND
(b) OF FORM 10-Q AND ARE THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT PURSUANT TO GENERAL INSTRUCTION (H) (2).





This
combined Form 10-Q is separately filed by PNMR, PNM and TNMP.  Information
contained herein relating to any individual registrant is filed by such
registrant on its own behalf.  Each registrant makes no representation as
to information relating to the other registrants.   When this
Form 10-Q is incorporated by reference into any filing with the SEC made by
PNMR, PNM or TNMP, as a registrant, the portions of this Form 10-Q that relate
to each other registrant are not incorporated by reference
therein.








2


PNM
RESOURCES, INC. AND SUBSIDIARIES


PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY


TEXAS-NEW
MEXICO POWER COMPANY AND SUBSIDIARIES





INDEX





Page
      No.GLOSSARY
            4PART
      I.  FINANCIAL INFORMATIONITEM
      1.  FINANCIAL STATEMENTS (UNAUDITED)PNM RESOURCES, INC. AND
      SUBSIDIARIESCondensed
      Consolidated Statements of Earnings (Loss)
            6Condensed
      Consolidated Balance Sheets
            7Condensed
      Consolidated Statements of Cash Flows
            9Condensed
      Consolidated Statements of Changes in PNMR Common Stockholders’
      Equity
            11Condensed
      Consolidated Statements of Comprehensive Income (Loss)
            12PUBLIC
      SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIESCondensed
      Consolidated Statements of Earnings (Loss)
            13Condensed
      Consolidated Balance Sheets
            14Condensed
      Consolidated Statements of Cash Flows
            16Condensed
      Consolidated Statements of Changes in PNM Common Stockholder’s
      Equity
            18Condensed
      Consolidated Statements of Comprehensive Income (Loss)
            19TEXAS-NEW
      MEXICO POWER COMPANY AND SUBSIDIARIESCondensed
      Consolidated Statements of Earnings (Loss)
            20Condensed
      Consolidated Balance Sheets
            21Condensed
      Consolidated Statements of Cash Flows
            23Condensed
      Consolidated Statements of Changes in Common Stockholder’s
      Equity
            25Condensed
      Consolidated Statements of Comprehensive Income (Loss)
            26NOTES TO CONDENSED CONSOLIDATED
      FINANCIAL STATEMENTS
            27ITEM
      2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION
            72AND
      RESULTS OF OPERATIONSITEM
      3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
      RISK
            92ITEM
      4.  CONTROLS AND PROCEDURES
            98PART
      II.  OTHER INFORMATIONITEM
      1.  LEGAL PROCEEDINGS
            99ITEM
      1A.  RISK FACTORS
            99ITEM
      4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
            99ITEM
      6.  EXHIBITS
            100SIGNATURE
            102








3


GLOSSARY


Definitions:Afton
            Afton
      Generating StationAG
            New
      Mexico Attorney GeneralALJ
            Administrative
      Law JudgeAltura
            Optim
      Energy Twin Oaks, LP; formerly known as Altura Power L.P.Altura
      Cogen
            Optim
      Energy Altura Cogen, LLC; formerly known as Altura Cogen, LLC (the CoGen
      Lyondell Power Generation Facility)AOCI
            Accumulated
      Other Comprehensive IncomeAPS
            Arizona
      Public Service Company, which is the operator and a co-owner of PVNGS
      and
              Four
      CornersAPB
            Accounting
      Principles BoardBART
            Best
      Available Retrofit TechnologyBoard
            Board
      of Directors of PNMRCal
      PX
            California
      Power ExchangeCascade
            Cascade
      Investment, L.L.C.Continental
            Continental
      Energy Systems, L.L.C.CRHC
            Cap
      Rock Holding Corporation, a subsidiary of ContinentalCTC
            Competition
      Transition ChargeDecatherm
            Million
      BTUsDelta
            Delta-Person
      Limited PartnershipDOE
            Department
      of EnergyECJV
            ECJV
      Holdings, LLCEIP
            Eastern
      Interconnection ProjectEITF
            Emerging
      Issues Task ForceEnergyCo
            EnergyCo,
      LLC, a limited liability company, owned 50% by each of PNMR and ECJV;
      now
              known
      as Optim EnergyEPA
            United
      States Environmental Protection AgencyEPE
            El
      Paso Electric CompanyERCOT
            Electric
      Reliability Council of TexasESPP
            Employee
      Stock Purchase PlanFASB
            Financial
      Accounting Standards BoardFERC
            Federal
      Energy Regulatory CommissionFIN
            FASB
      Interpretation NumberFIP
            Federal
      Implementation PlanFirst
      Choice
            First
      Choice Power, L. P. and SubsidiariesFour
      Corners
            Four
      Corners Power PlantFPPAC
            Fuel
      and Purchased Power Adjustment ClauseFSP
            FASB
      Staff PositionGAAP
            Generally
      Accepted Accounting Principles in the United States of
    AmericaGEaR
            Gross
      Earnings at RiskGHG G
            Greenhouse
      Gas EmissionsGWh
            Gigawatt
      hoursIBEW
            International
      Brotherhood of Electrical Workers, Local 611KWh
            Kilowatt
      HourLBB
            Lehman
      Brothers Bank, FSB, a subsidiary of LBHLBH
            Lehman
      Brothers Holdings Inc.LCC
            Lyondell
      Chemical CompanyLordsburg
            Lordsburg
      Generating StationLuna
            Luna
      Energy FacilityMD&A
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      OperationsMoody’s
            Moody’s
      Investor Services, Inc.MW
            MegawattMWh
            Megawatt
      HourNavajo
      Acts
            Navajo
      Nation Air Pollution Prevention and Control Act, the Navajo Nation Safe
      Drinking Water Act, and the Navajo
              Nation Pesticide ActNDT
            Nuclear
      Decommissioning Trusts for PVNGSNinth
      Circuit
            United
      States Court of Appeals for the Ninth CircuitNMED
            New
      Mexico Environment Department




4


NMGC
            New
      Mexico Gas Company, a subsidiary of ContinentalNMPRC
            New
      Mexico Public Regulation CommissionNOX
            Nitrogen
      OxidesNOI
            Notice
      of InquiryNRC
            United
      States Nuclear Regulatory CommissionOCI
            Other
      Comprehensive IncomeOptim
      Energy
            Optim
      Energy, LLC, a limited liability company, owned 50% by each of PNMR and
      ECJV; formerly known as EnergyCoPCRBs
            Pollution
      Control Revenue BondsPG&E
            Pacific
      Gas and Electric Co.PNM
            Public
      Service Company of New Mexico and SubsidiariesPNM
      Facility
            PNM’s
      $400 Million Unsecured Revolving Credit FacilityPNMR
            PNM
      Resources, Inc. and SubsidiariesPNMR
      Facility
            PNMR’s
      $600 Million Unsecured Revolving Credit FacilityPPA
            Purchased
      Power AgreementPRP
            Potential
      Responsible PartyPUCT
            Public
      Utility Commission of TexasPVNGS
            Palo
      Verde Nuclear Generating StationRCT
            Reasonable
      Cost ThresholdREC
            Renewable
      Energy CertificatesREP
            Retail
      Electricity ProviderRFP
            Request
      for ProposalRMC
            Risk
      Management CommitteeSEC
            United
      States Securities and Exchange CommissionSFAS
            FASB
      Statement of Financial Accounting StandardsSJCC
            San
      Juan Coal CompanySJGS
            San
      Juan Generating StationSO2
            Sulfur
      DioxideSPS
            Southwestern
      Public Service CompanySRP
            Salt
      River ProjectS&P
            Standard
      and Poor’s Ratings ServicesTECA
            Texas
      Electric Choice ActTerm
      Loan Agreement
            PNM’s
      $300 Million Unsecured Delayed Draw Term Loan FacilityTNMP
      Bridge Facility
            TNMP’s
      $100 Million Bridge Term Loan Credit AgreementTNMP
      Facility
            TNMP’s
      $200 Million Unsecured Revolving Credit FacilityTNMP
            Texas-New
      Mexico Power Company and SubsidiariesTNP
            TNP
      Enterprises, Inc. and SubsidiariesTwin
      Oaks
            Assets
      of Twin Oaks Power, L.P. and Twin Oaks Power III, L.P.Valencia
            Valencia
      Energy FacilityVaR
            Value
      at RiskAccounting Pronouncements (as amended and
      interpreted):




FIN
      46R
            FIN
      46R “Consolidation of
      Variable Interest Entities an Interpretation of ARB No.
      51”FIN
      48
            FIN
      No. 48 “Accounting for
      Uncertainty in Income Taxes”FSP
      FAS 157-2
            FSP
      FAS 157-2 “Effective
      Date of FASB Statement No. 157”SFAS
      5
            SFAS
      No. 5 “Accounting for
      Contingencies”SFAS
      57
            SFAS
      No. 57 “Related Party
      Disclosures”SFAS
      106
            SFAS
      No. 106 “Employers'
      Accounting for Postretirement Benefits Other Than
      Pensions”SFAS
      112
            SFAS
      No. 112 “Employers’
      Accounting for Postemployment Benefits – an amendment of FASB Statements
      No. 5 and 43”SFAS
      128
            SFAS
      No. 128 “Earnings per
      Share”SFAS
      133
            SFAS
      No. 133 “Accounting for
      Derivative Instruments and Hedging Activities”SFAS
      142
            SFAS
      No. 142 “Goodwill and
      Other Intangible Assets”SFAS
      144
            SFAS
      No. 144 “Accounting for
      the Impairment or Disposal of Long-Lived Assets”SFAS
      157
            SFAS
      No. 157 “Fair Value
      Measurements”SFAS
      160
            SFAS
      No. 160 “Noncontrolling
      Interests in Consolidated Financial Statements – an amendment of ARB No.
      51”SFAS
      161
            SFAS
      No. 161 “Disclosures
      about Derivative Instruments and Hedging Activities—an amendment of FASB
      Statement No. 133”


5


PART
I. FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS


PNM
RESOURCES, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(LOSS)


(Unaudited)





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In thousands, except per shareamounts)Operating Revenues:Electric
            
            $
            401,035
            
            
            $
            580,243
            
            
            $
            786,838
            
            
            $
            944,645Other
            
            
            75
            
            
            
            67
            
            
            
            136
            
            
            
            167Total operating revenues
            
            
            401,110
            
            
            
            580,310
            
            
            
            786,974
            
            
            
            944,812Operating Expenses:Cost
      of energy
            
            
            175,253
            
            
            
            398,698
            
            
            
            356,501
            
            
            
            633,079Administrative
      and general
            
            
            61,550
            
            
            
            59,392
            
            
            
            123,687
            
            
            
            106,754Energy
      production costs
            
            
            47,134
            
            
            
            45,557
            
            
            
            95,691
            
            
            
            96,761Impairment
      of goodwill and other intangible assets
            
            
            -
            
            
            
            136,179
            
            
            
            -
            
            
            
            136,179Regulatory
      disallowances
            
            
            27,286
            
            
            
            -
            
            
            
            27,286
            
            
            
            30,248Depreciation
      and amortization
            
            
            36,946
            
            
            
            34,650
            
            
            
            73,017
            
            
            
            68,686Transmission
      and distribution costs
            
            
            16,398
            
            
            
            15,110
            
            
            
            30,416
            
            
            
            28,486Taxes
      other than income taxes
            
            
            11,665
            
            
            
            13,484
            
            
            
            25,595
            
            
            
            26,350Total operating expenses
            
            
            376,232
            
            
            
            703,070
            
            
            
            732,193
            
            
            
            1,126,543Operating income (loss)
            
            
            24,878
            
            
            
            (122,760
            )
            
            
            54,781
            
            
            
            (181,731
            )Other Income and Deductions:Interest
      income
            
            
            11,223
            
            
            
            4,412
            
            
            
            16,446
            
            
            
            9,942Gains
      (losses) on investments held by NDT
            
            
            2,469
            
            
            
            (677
            )
            
            
            (1,913
            )
            
            
            (4,382
            )Other
      income
            
            
            5,157
            
            
            
            1,227
            
            
            
            28,321
            
            
            
            2,117Equity
      in net earnings (loss) of Optim Energy
            
            
            (7,353
            )
            
            
            (2,523
            )
            
            
            (5,958
            )
            
            
            (27,606
            )Other
      deductions
            
            
            (2,272
            )
            
            
            (3,199
            )
            
            
            (4,632
            )
            
            
            (7,081
            )Net other income (deductions)
            
            
            9,224
            
            
            
            (760
            )
            
            
            32,264
            
            
            
            (27,010
            )Interest Charges:Interest
      on long-term debt
            
            
            30,089
            
            
            
            24,197
            
            
            
            54,289
            
            
            
            43,105Other
      interest charges
            
            
            1,728
            
            
            
            7,823
            
            
            
            6,477
            
            
            
            16,750Total interest charges
            
            
            31,817
            
            
            
            32,020
            
            
            
            60,766
            
            
            
            59,855Earnings (Loss) before Income Taxes
            
            
            2,285
            
            
            
            (155,540
            )
            
            
            26,279
            
            
            
            (268,596
            )Income Taxes (Benefit)
            
            
            (1,134
            )
            
            
            (10,425
            )
            
            
            6,452
            
            
            
            (52,477
            )Earnings (Loss) from Continuing Operations
            
            
            3,419
            
            
            
            (145,115
            )
            
            
            19,827
            
            
            
            (216,119
            )Earnings (Loss)  from Discontinued Operations, net of
      IncomeTaxes
      (Benefit) of $(1,861), $1,824, $41,981 and $15,479
            
            
            (2,611
            )
            
            
            2,762
            
            
            
            79,063
            
            
            
            25,261Net Earnings (Loss)
            
            
            808
            
            
            
            (142,353
            )
            
            
            98,890
            
            
            
            (190,858
            )Earnings Attributable to Valencia Non-controlling Interest
            
            
            (2,775
            )
            
            
            (1,001
            )
            
            
            (5,354
            )
            
            
            (1,001
            )Preferred Stock Dividend Requirements of Subsidiary
            
            
            (132
            )
            
            
            (132
            )
            
            
            (264
            )
            
            
            (264
            )Net Earnings (Loss) Attributable to PNMR
            
            $
            (2,099
            )
            
            $
            (143,486
            )
            
            $
            93,272
            
            
            $
            (192,123
            )Earnings (Loss) from Continuing Operations Attributable to PNMR per Common
      Share:Basic
            
            $
            0.01
            
            
            $
            (1.79
            )
            
            $
            0.16
            
            
            $
            (2.74
            )Diluted
            
            $
            0.01
            
            
            $
            (1.79
            )
            
            $
            0.16
            
            
            $
            (2.74
            )Net Earnings (Loss) Attributable to PNMR per Common
      Share:Basic
            
            $
            (0.02
            )
            
            $
            (1.76
            )
            
            $
            1.02
            
            
            $
            (2.42
            )Diluted
            
            $
            (0.02
            )
            
            $
            (1.76
            )
            
            $
            1.02
            
            
            $
            (2.42
            )Dividends Declared per Common Share
            
            $
            0.125
            
            
            $
            0.125
            
            
            $
            0.250
            
            
            $
            0.355





The
accompanying notes, as they relate to PNMR, are an integral part of these
financial statements.


6


PNM
RESOURCES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)





June
      30,
            
            
            December
      31,2009
            
            
            2008(In
      thousands)ASSETSCurrent Assets:Cash
      and cash equivalents
            
            $
            26,022
            
            
            $
            140,619Special
      deposits
            
            
            50
            
            
            
            3,480Accounts
      receivable, net of allowance for uncollectible accounts of $15,307 and
      $21,466
            
            
            110,729
            
            
            
            119,174Unbilled
      revenues
            
            
            89,314
            
            
            
            81,126Other
      receivables
            
            
            96,192
            
            
            
            73,083Materials,
      supplies, and fuel stock
            
            
            48,626
            
            
            
            49,397Regulatory
      assets
            
            
            1,238
            
            
            
            1,541Derivative
      instruments
            
            
            71,862
            
            
            
            51,250Income
      taxes receivable
            
            
            -
            
            
            
            49,584Current
      assets of discontinued operations
            
            
            -
            
            
            
            107,986Other
      current assets
            
            
            76,997
            
            
            
            75,393Total current assets
            
            
            521,030
            
            
            
            752,633Other Property and Investments:Investment
      in PVNGS lessor notes
            
            
            153,830
            
            
            
            168,729Equity
      investment in Optim Energy
            
            
            237,358
            
            
            
            239,950Investments
      held by NDT
            
            
            118,143
            
            
            
            111,671Other
      investments
            
            
            30,056
            
            
            
            32,966Non-utility
      property, net of accumulated depreciation of $3,257 and
    $2,582
            
            
            8,444
            
            
            
            9,135Total other property and investments
            
            
            547,831
            
            
            
            562,451Utility Plant:Electric
      plant in service
            
            
            4,462,670
            
            
            
            4,329,169Common
      plant in service and plant held for future use
            
            
            158,167
            
            
            
            147,5764,620,837
            
            
            
            4,476,745Less
      accumulated depreciation and amortization
            
            
            1,588,693
            
            
            
            1,545,9503,032,144
            
            
            
            2,930,795Construction
      work in progress
            
            
            149,885
            
            
            
            202,556Nuclear
      fuel, net of accumulated amortization of $17,500 and
    $16,018
            
            
            66,464
            
            
            
            58,674Net utility plant
            
            
            3,248,493
            
            
            
            3,192,025Deferred Charges and Other Assets:Regulatory
      assets
            
            
            488,492
            
            
            
            629,141Goodwill
            
            
            321,310
            
            
            
            321,310Other
      intangible assets, net of accumulated amortization of $4,972 and
      $4,672
            
            
            26,867
            
            
            
            27,167Derivative
      instruments
            
            
            19,663
            
            
            
            25,620Non-current
      assets of discontinued operations
            
            
            -
            
            
            
            561,915Other
      deferred charges
            
            
            87,475
            
            
            
            75,720Total deferred charges and other assets
            
            
            943,807
            
            
            
            1,640,873$
            5,261,161
            
            
            $
            6,147,982





The
accompanying notes, as they relate to PNMR, are an integral part of these
financial statements.


7


PNM
RESOURCES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)





June
      30,
            
            
            December
      31,2009
            
            
            2008(In
      thousands, except share information)LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent Liabilities:Short-term
      debt
            
            $
            185,000
            
            
            $
            744,667Current
      installments of long-term debt
            
            
            38,004
            
            
            
            205,694Accounts
      payable
            
            
            88,899
            
            
            
            174,068Accrued
      interest and taxes
            
            
            53,477
            
            
            
            51,618Regulatory
      liabilities
            
            
            5,632
            
            
            
            1,746Derivative
      instruments
            
            
            52,379
            
            
            
            33,951Current
      liabilities of discontinued operations
            
            
            -
            
            
            
            77,082Other
      current liabilities
            
            
            126,555
            
            
            
            139,562Total current liabilities
            
            
            549,946
            
            
            
            1,428,388Long-term Debt
            
            
            1,531,010
            
            
            
            1,379,011Deferred Credits and Other Liabilities:Accumulated
      deferred income taxes
            
            
            469,343
            
            
            
            572,719Accumulated
      deferred investment tax credits
            
            
            21,800
            
            
            
            23,834Regulatory
      liabilities
            
            
            356,004
            
            
            
            327,175Asset
      retirement obligations
            
            
            68,091
            
            
            
            63,492Accrued
      pension liability and postretirement benefit cost
            
            
            242,622
            
            
            
            246,136Derivative
      instruments
            
            
            8,034
            
            
            
            6,934Non-current
      liabilities of discontinued operations
            
            
            -
            
            
            
            94,615Other
      deferred credits
            
            
            145,608
            
            
            
            149,237Total deferred credits and other liabilities
            
            
            1,311,502
            
            
            
            1,484,142Total liabilities
            
            
            3,392,458
            
            
            
            4,291,541Commitments and Contingencies (See Note 9)Cumulative Preferred Stock of Subsidiarywithout
      mandatory redemption requirements ($100 stated value, 10,000,000 shares
      authorized:issued and outstanding 115,293 shares)
            
            
            11,529
            
            
            
            11,529Equity:PNMR
      Convertible Preferred Stock, Series A without mandatory redemption
      requirements(no stated value, 10,000,000 shares authorized: issued and outstanding
      477,800 shares)
            
            
            100,000
            
            
            
            100,000PNMR
      common stockholders’ equity:Common stock outstanding (no par value, 120,000,000 shares authorized:
      issuedand outstanding 86,670,187 and 86,531,644 shares)
            
            
            1,289,349
            
            
            
            1,288,168Accumulated other comprehensive income (loss), net of income
      taxes
            
            
            (31,059
            )
            
            
            30,948Retained earnings
            
            
            409,134
            
            
            
            327,290Total PNMR common stockholders’ equity
            
            
            1,667,424
            
            
            
            1,646,406Non-controlling
      interest in Valencia
            
            
            89,750
            
            
            
            98,506Total equity
            
            
            1,857,174
            
            
            
            1,844,912$
            5,261,161
            
            
            $
            6,147,982





The
accompanying notes, as they relate to PNMR, are an integral part of these
financial statements.





8


PNM
RESOURCES, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six
      Months Ended June 30,2009
            
            
            2008(In
      thousands)Cash
      Flows From Operating Activities:Net
      earnings (loss)
            
            $
            98,890
            
            
            $
            (190,858
            )Adjustments
      to reconcile net earnings (loss) to net cash flows from operating
      activities:Depreciation and amortization
            
            
            84,843
            
            
            
            79,991Amortization of pre-payments on PVNGS firm-sales contracts
            
            
            (12,805
            )
            
            
            (4,084
            )Bad debt expense
            
            
            25,672
            
            
            
            15,285Deferred income tax expense (benefit)
            
            
            (52,100
            )
            
            
            (23,498
            )Equity in net (earnings) loss of Optim Energy
            
            
            5,958
            
            
            
            27,606Net unrealized (gains) losses on derivatives
            
            
            (2,307
            )
            
            
            5,174Realized losses on investments held by NDT
            
            
            1,913
            
            
            
            4,382Impairment of goodwill and other intangible assets
            
            
            -
            
            
            
            136,179Gain on sale of PNM Gas
            
            
            (110,727
            )
            
            
            -Gain on reacquired debt
            
            
            (7,316
            )
            
            
            -Stock-based compensation expense
            
            
            1,520
            
            
            
            2,431Regulatory disallowances
            
            
            27,286
            
            
            
            30,248Increase in legal reserve
            
            
            12,600
            
            
            
            -Other, net
            
            
            (281
            )
            
            
            (1,140
            )Changes in certain assets and liabilities:Accounts
      receivable and unbilled revenues
            
            
            (52,414
            )
            
            
            (16,174
            )Materials,
      supplies, and fuel stock
            
            
            921
            
            
            
            (5,936
            )Other
      current assets
            
            
            (2,441
            )
            
            
            (17,920
            )Other
      assets
            
            
            666
            
            
            
            (4,482
            )Accounts
      payable
            
            
            (93,078
            )
            
            
            (41,485
            )Accrued
      interest and taxes
            
            
            51,641
            
            
            
            (15,559
            )Other
      current liabilities
            
            
            (7,210
            )
            
            
            32,953Other
      liabilities
            
            
            (5,601
            )
            
            
            (573
            )Net
      cash flows from operating activities
            
            
            (34,370
            )
            
            
            12,540Cash Flows From Investing Activities:Utility plant additions
            
            
            (126,637
            )
            
            
            (162,005
            )Proceeds from sales of investments held by NDT
            
            
            75,850
            
            
            
            77,047Purchases of investments held by NDT
            
            
            (77,236
            )
            
            
            (77,650
            )Proceeds from sale of PNM Gas
            
            
            640,620
            
            
            
            -Return of principal on PVNGS lessor notes
            
            
            11,913
            
            
            
            10,986Reduction in restricted special deposits
            
            
            359
            
            
            
            3,696Other, net
            
            
            (15,078
            )
            
            
            (2,148
            )Net
      cash flows from investing activities
            
            
            509,791
            
            
            
            (150,074
            )





The
accompanying notes, as they relate to PNMR, are an integral part of these
financial statements.





9


PNM
RESOURCES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six
      Months Ended June 30,2009
            
            
            2008(In
      thousands)Cash Flows From Financing Activities:Short-term
      borrowings (repayments), net
            
            
            (559,667
            )
            
            
            (321,717
            )Long-term
      borrowings
            
            
            309,242
            
            
            
            452,750Repayment
      of long-term debt
            
            
            (314,079
            )
            
            
            (148,935
            )Issuance
      of common stock
            
            
            1,213
            
            
            
            249,547Proceeds
      from stock option exercise
            
            
            -
            
            
            
            86Purchase
      of common stock to satisfy stock awards
            
            
            (907
            )
            
            
            (1,245
            )Excess
      tax (shortfall) from stock-based payment arrangements
            
            
            (645
            )
            
            
            (513
            )Dividends
      paid
            
            
            (23,103
            )
            
            
            (35,889
            )Payments
      received on PVNGS firm-sales contracts
            
            
            15,347
            
            
            
            73,173Other,
      net
            
            
            (17,444
            )
            
            
            (9,612
            )Net
      cash flows from financing activities
            
            
            (590,043
            )
            
            
            257,645Change in Cash and Cash Equivalents
            
            
            (114,622
            )
            
            
            120,111Cash and Cash Equivalents at Beginning of Period
            
            
            140,644
            
            
            
            17,791Cash and Cash Equivalents at End of Period
            
            $
            26,022
            
            
            $
            137,902Supplemental Cash Flow Disclosures:Interest
      paid, net of capitalized interest
            
            $
            58,937
            
            
            $
            62,639Income
      taxes paid (refunded), net
            
            $
            49,039
            
            
            $
            (4,702
            )





Supplemental schedule of noncash investing and financing
      activities:Activities related to the consolidation of Valencia as of May 30, 2008
      (see
              Note 16):Utility
      plant additions
            
            $
            87,310Increase
      in short-term borrowings
            
            $
            82,468








The
accompanying notes, as they relate to PNMR, are an integral part of these
financial statements.


10


PNM
RESOURCES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN PNMR COMMON STOCKHOLDERS’
EQUITY


(Unaudited)





Accumulated
            
            
            
            
            
            Total
      PNMRCommon
      Stock
            
            
            Other
            
            
            
            
            
            CommonNumber
      of
            
            
            Aggregate
            
            
            Comprehensive
            
            
            Retained
            
            
            Stockholders’Shares
            
            
            Value
            
            
            Income
      (Loss)
            
            
            Earnings
            
            
            Equity(Dollars
      in thousands)Balance
      at December 31, 2008
            
            
            86,531,644
            
            
            $
            1,288,168
            
            
            $
            30,948
            
            
            $
            327,290
            
            
            $
            1,646,406Purchase
      of common stock to satisfy stock
              awards
            
            
            -
            
            
            
            (907
            )
            
            
            -
            
            
            
            -
            
            
            
            (907
            )Tax
      shortfall from stock-based compensation arrangements
            
            
            -
            
            
            
            (645
            )
            
            
            -
            
            
            
            -
            
            
            
            (645
            )Stock-based
      compensation expense
            
            
            -
            
            
            
            1,520
            
            
            
            -
            
            
            
            -
            
            
            
            1,520Sale
      of common stock
            
            
            90,341
            
            
            
            786
            
            
            
            -
            
            
            
            -
            
            
            
            786Common
      stock issued to ESPP
            
            
            48,202
            
            
            
            427
            
            
            
            -
            
            
            
            -
            
            
            
            427Net
      earnings attributable to PNMR
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            93,272
            
            
            
            93,272Total
      other comprehensive income (loss)
            
            
            -
            
            
            
            -
            
            
            
            (62,007
            )
            
            
            -
            
            
            
            (62,007
            )Dividends
      declared on common stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (11,428
            )
            
            
            (11,428
            )Balance
      at June 30, 2009
            
            
            86,670,187
            
            
            $
            1,289,349
            
            
            $
            (31,059
            )
            
            $
            409,134
            
            
            $
            1,667,424





The
accompanying notes, as they relate to PNMR, are an integral part of these
financial statements.





11


PNM
RESOURCES, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)


(Unaudited)





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Net Earnings (Loss)
            
            $
            808
            
            
            $
            (142,353
            )
            
            $
            98,890
            
            
            $
            (190,858
            )Other Comprehensive Income (Loss):Unrealized Gain (Loss) on Investment Securities:Unrealized
      holding gains (losses) arising duringthe period, net of income tax (expense) benefitof $(2,778), $(1,089), $(3,034) and $412
            
            
            4,239
            
            
            
            1,662
            
            
            
            4,629
            
            
            
            (629
            )Reclassification
      adjustment for (gains) included innet earnings (loss), net of income tax expenseof $118, $824, $313 and $1,726
            
            
            (180
            )
            
            
            (1,257
            )
            
            
            (478
            )
            
            
            (2,634
            )Pension liability adjustment, net of income tax benefitof $0, $0, $42,487, and $0
            
            
            -
            
            
            
            -
            
            
            
            (64,830
            )
            
            
            -Fair Value Adjustment for Designated Cash Flow Hedges:Change
      in fair market value, net of income tax (expense) benefitof $688, $14,069, $(10,106) and $20,858
            
            
            (1,038
            )
            
            
            (20,224
            )
            
            
            14,098
            
            
            
            (30,430
            )Reclassification
      adjustment for (gains) losses included innet earnings (loss), net of income tax expense (benefit)of $4,555,  $(848), $10,656 and $1,403
            
            
            (6,337
            )
            
            
            1,250
            
            
            
            (15,426
            )
            
            
            (2,102
            )Total Other Comprehensive Income (Loss)
            
            
            (3,316
            )
            
            
            (18,569
            )
            
            
            (62,007
            )
            
            
            (35,795
            )Comprehensive Income (Loss)
            
            
            (2,508
            )
            
            
            (160,922
            )
            
            
            36,883
            
            
            
            (226,653
            )Comprehensive Income Attributable to Valencia Non-controlling
      Interest
            
            
            (2,775
            )
            
            
            (1,001
            )
            
            
            (5,354
            )
            
            
            (1,001
            )Preferred Stock Dividend Requirements of Subsidiary
            
            
            (132
            )
            
            
            (132
            )
            
            
            (264
            )
            
            
            (264
            )Comprehensive Income (Loss) Attributable to PNMR
            
            $
            (5,415
            )
            
            $
            (162,055
            )
            
            $
            31,265
            
            
            $
            (227,918
            )





The
accompanying notes, as they relate to PNMR, are an integral part of these
financial statements.





12


PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(LOSS)


(Unaudited)





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Electric Operating Revenues
            
            $
            226,541
            
            
            $
            386,058
            
            
            $
            458,496
            
            
            $
            638,723Operating Expenses:Cost
      of energy
            
            
            91,125
            
            
            
            247,589
            
            
            
            192,657
            
            
            
            383,284Administrative
      and general
            
            
            30,373
            
            
            
            31,409
            
            
            
            60,063
            
            
            
            58,236Energy
      production costs
            
            
            49,522
            
            
            
            47,974
            
            
            
            100,466
            
            
            
            101,556Impairment
      of goodwill
            
            
            -
            
            
            
            51,143
            
            
            
            -
            
            
            
            51,143Regulatory
      disallowances
            
            
            26,615
            
            
            
            -
            
            
            
            26,615
            
            
            
            30,248Depreciation
      and amortization
            
            
            22,925
            
            
            
            20,896
            
            
            
            45,354
            
            
            
            41,866Transmission
      and distribution costs
            
            
            10,727
            
            
            
            9,598
            
            
            
            19,801
            
            
            
            18,505Taxes
      other than income taxes
            
            
            5,695
            
            
            
            7,086
            
            
            
            13,495
            
            
            
            14,105Total operating expenses
            
            
            236,982
            
            
            
            415,695
            
            
            
            458,451
            
            
            
            698,943Operating income (loss)
            
            
            (10,441
            )
            
            
            (29,637
            )
            
            
            45
            
            
            
            (60,220
            )Other Income and Deductions:Interest
      income
            
            
            12,557
            
            
            
            4,878
            
            
            
            18,518
            
            
            
            10,969Gains
      (losses) on investments held by NDT
            
            
            2,469
            
            
            
            (677
            )
            
            
            (1,913
            )
            
            
            (4,382
            )Other
      income
            
            
            3,517
            
            
            
            609
            
            
            
            3,833
            
            
            
            1,157Other
      deductions
            
            
            (996
            )
            
            
            (1,116
            )
            
            
            (1,861
            )
            
            
            (3,430
            )Net other income and deductions
            
            
            17,547
            
            
            
            3,694
            
            
            
            18,577
            
            
            
            4,314Interest Charges:Interest
      on long-term debt
            
            
            17,845
            
            
            
            14,766
            
            
            
            35,030
            
            
            
            25,296Other
      interest charges
            
            
            (453
            )
            
            
            2,857
            
            
            
            (431
            )
            
            
            6,430Total interest charges
            
            
            17,392
            
            
            
            17,623
            
            
            
            34,599
            
            
            
            31,726Earnings (Loss) before Income Taxes
            
            
            (10,286
            )
            
            
            (43,566
            )
            
            
            (15,977
            )
            
            
            (87,632
            )Income Taxes (Benefit)
            
            
            (5,140
            )
            
            
            2,441
            
            
            
            (8,488
            )
            
            
            (14,648
            )Earnings (Loss) from Continuing Operations
            
            
            (5,146
            )
            
            
            (46,007
            )
            
            
            (7,489
            )
            
            
            (72,984
            )Earnings (Loss) from Discontinued Operations, net of
IncomeTaxes
      of $(1,861), $1,824, $41,981 and $15,479
            
            
            (2,611
            )
            
            
            2,762
            
            
            
            79,063
            
            
            
            25,261Net Earnings (Loss)
            
            
            (7,757
            )
            
            
            (43,245
            )
            
            
            71,574
            
            
            
            (47,723
            )Earnings Attributable to Valencia Non-controlling Interest
            
            
            (2,775
            )
            
            
            (1,001
            )
            
            
            (5,354
            )
            
            
            (1,001
            )Net Earnings (Loss) Attributable to PNM
            
            
            (10,532
            )
            
            
            (44,246
            )
            
            
            66,220
            
            
            
            (48,724
            )Preferred Stock Dividend Requirements
            
            
            (132
            )
            
            
            (132
            )
            
            
            (264
            )
            
            
            (264
            )Net Earnings (Loss) Available for PNM Common Stock
            
            $
            (10,664
            )
            
            $
            (44,378
            )
            
            $
            65,956
            
            
            $
            (48,988
            )





The
accompanying notes, as they relate to PNM, are an integral part of these
financial statements.


13


PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)





June
      30,
            
            
            December
      31,2009
            
            
            2008(In
      thousands)ASSETSCurrent Assets:Cash
      and cash equivalents
            
            $
            8,098
            
            
            $
            46,596Special
      deposits
            
            
            -
            
            
            
            3,430Accounts
      receivable, net of allowance for uncollectible accounts of $1,493 and
      $1,345
            
            
            63,830
            
            
            
            74,257Unbilled
      revenues
            
            
            38,263
            
            
            
            37,350Other
      receivables
            
            
            95,971
            
            
            
            72,096Materials,
      supplies, and fuel stock
            
            
            46,755
            
            
            
            47,254Regulatory
      assets
            
            
            1,238
            
            
            
            1,541Derivative
      instruments
            
            
            43,160
            
            
            
            28,852Current
      assets of discontinued operations
            
            
            -
            
            
            
            107,986Other
      current assets
            
            
            44,915
            
            
            
            49,690Total current assets
            
            
            342,230
            
            
            
            469,052Other Property and Investments:Investment
      in PVNGS lessor notes
            
            
            183,931
            
            
            
            200,711Investments
      held by NDT
            
            
            118,143
            
            
            
            111,671Other
      investments
            
            
            8,515
            
            
            
            9,951Non-utility
      property
            
            
            977
            
            
            
            976Total other property and investments
            
            
            311,566
            
            
            
            323,309Utility Plant:Electric
      plant in service
            
            
            3,550,127
            
            
            
            3,430,818Common
      plant in service and plant held for future use
            
            
            17,619
            
            
            
            17,4003,567,746
            
            
            
            3,448,218Less
      accumulated depreciation and amortization
            
            
            1,233,746
            
            
            
            1,204,4242,334,000
            
            
            
            2,243,794Construction
      work in progress
            
            
            116,062
            
            
            
            156,997Nuclear
      fuel, net of accumulated amortization of $17,500 and
    $16,018
            
            
            66,464
            
            
            
            58,674Net utility plant
            
            
            2,516,526
            
            
            
            2,459,465Deferred Charges and Other Assets:Regulatory
      assets
            
            
            358,510
            
            
            
            494,481Derivative
      instruments
            
            
            10,900
            
            
            
            17,744Goodwill
            
            
            51,632
            
            
            
            51,632Non-current
      assets of discontinued operations
            
            
            -
            
            
            
            561,915Other
      deferred charges
            
            
            52,962
            
            
            
            51,137Total deferred charges and other assets
            
            
            474,004
            
            
            
            1,176,909$
            3,644,326
            
            
            $
            4,428,735





The
accompanying notes, as they relate to PNM, are an integral part of these
financial statements.





14


PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)





June
      30,
            
            
            December
      31,2009
            
            
            2008(In
      thousands, except share information)LIABILITIES
      AND STOCKHOLDER’S EQUITYCurrent Liabilities:Short-term
      debt
            
            $
            45,000
            
            
            $
            340,000Current
      installments of long-term debt
            
            
            36,000
            
            
            
            36,000Accounts
      payable
            
            
            40,925
            
            
            
            90,502Affiliate
      accounts payable
            
            
            8,695
            
            
            
            17,607Accrued
      interest and taxes
            
            
            93,931
            
            
            
            50,125Regulatory
      liabilities
            
            
            5,632
            
            
            
            1,746Derivative
      instruments
            
            
            17,793
            
            
            
            7,884Current
      liability of discontinued operations
            
            
            -
            
            
            
            77,082Other
      current liabilities
            
            
            90,984
            
            
            
            93,131Total current liabilities
            
            
            338,960
            
            
            
            714,077Long-term Debt
            
            
            1,019,724
            
            
            
            1,019,717Deferred Credits and Other Liabilities:Accumulated
      deferred income taxes
            
            
            311,484
            
            
            
            414,995Accumulated
      deferred investment tax credits
            
            
            21,800
            
            
            
            23,834Regulatory
      liabilities
            
            
            322,955
            
            
            
            292,146Asset
      retirement obligations
            
            
            67,261
            
            
            
            62,696Accrued
      pension liability and postretirement benefit cost
            
            
            227,266
            
            
            
            229,683Derivative
      instruments
            
            
            684
            
            
            
            569Non-current
      liabilities of discontinued operations
            
            
            -
            
            
            
            94,615Other
      deferred credits
            
            
            121,554
            
            
            
            124,929Total deferred credits and liabilities
            
            
            1,073,004
            
            
            
            1,243,467Total liabilities
            
            
            2,431,688
            
            
            
            2,977,261Commitments and Contingencies (See Note 9)Cumulative Preferred Stockwithout
      mandatory redemption requirements ($100 stated value, 10,000,000
      authorized:issued and outstanding 115,293 shares)
            
            
            11,529
            
            
            
            11,529Equity:PNM
      common stockholder’s equityCommon stock outstanding (no par value, 40,000,000 shares authorized:
      issuedand outstanding 39,117,799 shares)
            
            
            932,523
            
            
            
            932,523Accumulated other comprehensive income (loss), net of income
      taxes
            
            
            (43,296
            )
            
            
            17,746Retained earnings
            
            
            222,132
            
            
            
            391,170Total
      PNM common stockholder’s equity
            
            
            1,111,359
            
            
            
            1,341,439Non-controlling interest in Valencia
            
            
            89,750
            
            
            
            98,506Total
      equity
            
            
            1,201,109
            
            
            
            1,439,945$
            3,644,326
            
            
            $
            4,428,735





The
accompanying notes, as they relate to PNM, are an integral part of these
financial statements.








15


PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six
      Months Ended June 30,2009
            
            
            2008(In
      thousands)Cash
      Flows From Operating Activities:Net
      earnings (loss)
            
            $
            71,574
            
            
            $
            (47,723
            )Adjustments to reconcile net earnings (loss) to net cash flows from
      operating activities:Depreciation and amortization
            
            
            52,399
            
            
            
            49,662Amortization of prepayments on PVNGS firm-sales contracts
            
            
            (12,805
            )
            
            
            (4,084
            )Deferred income tax expense
            
            
            (52,714
            )
            
            
            (3,365
            )Net unrealized (gains) losses on derivatives
            
            
            1,956
            
            
            
            (8,832
            )Realized losses on investments held by NDT
            
            
            1,913
            
            
            
            4,382Gain on sale of PNM Gas
            
            
            (110,727
            )
            
            
            -Regulatory disallowances
            
            
            26,615
            
            
            
            30,248Increase in legal reserve
            
            
            12,600
            
            
            
            -Impairment of goodwill
            
            
            -
            
            
            
            51,143Other, net
            
            
            1,003
            
            
            
            2,248Changes in certain assets and liabilities:Accounts
      receivable and unbilled revenues
            
            
            (18,664
            )
            
            
            17,623Materials,
      supplies, and fuel stock
            
            
            650
            
            
            
            (6,073
            )Other
      current assets
            
            
            2,807
            
            
            
            19,823Other
      assets
            
            
            6,664
            
            
            
            (1,208
            )Accounts
      payable
            
            
            (57,485
            )
            
            
            (50,553
            )Accrued
      interest and taxes
            
            
            44,004
            
            
            
            9,124Other
      current liabilities
            
            
            (18,282
            )
            
            
            (6,240
            )Other
      liabilities
            
            
            (3,484
            )
            
            
            (2,253
            )Net cash flows from operating activities
            
            
            (51,976
            )
            
            
            53,922Cash
      Flows From Investing Activities:Utility plant additions
            
            
            (102,857
            )
            
            
            (134,187
            )Proceeds from sales of NDT investments
            
            
            75,850
            
            
            
            77,047Purchases of NDT investments
            
            
            (77,236
            )
            
            
            (77,650
            )Proceeds from sale of PNM Gas
            
            
            640,620
            
            
            
            -Return of principal on PVNGS lessor notes
            
            
            13,680
            
            
            
            12,645Reduction in restricted special deposits
            
            
            359
            
            
            
            3,696Other, net
            
            
            (15,340
            )
            
            
            2,540Net
      cash flows from investing activities
            
            
            535,076
            
            
            
            (115,909
            )





The
accompanying notes, as they relate to PNM, are an integral part of these
financial statements.





16


PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six
      Months Ended June 30,2009
            
            
            2008(In
      thousands)Cash Flows From Financing Activities:Short-term
      borrowings (repayments), net
            
            
            (295,000
            )
            
            
            (316,817
            )Long-term
      borrowings
            
            
            -
            
            
            
            350,000Payments
      received on PVNGS firm-sales contracts
            
            
            15,347
            
            
            
            73,173Dividends
      paid
            
            
            (235,258
            )
            
            
            (264
            )Other,
      net
            
            
            (6,712
            )
            
            
            (3,912
            )Net
      cash flows from financing activities
            
            
            (521,623
            )
            
            
            102,180Change in Cash and Cash Equivalents
            
            
            (38,523
            )
            
            
            40,193Cash and Cash Equivalents at Beginning of Period
            
            
            46,621
            
            
            
            4,331Cash and Cash Equivalents at End of Period
            
            $
            8,098
            
            
            $
            44,524Supplemental Cash Flow Disclosures:Interest
      paid, net of capitalized interest
            
            $
            34,456
            
            
            $
            33,175Income
      taxes paid (refunded), net
            
            $
            45,740
            
            
            $
            (1,855
            )Supplemental schedule of noncash investing and financing
      activities:Activities related to the consolidation of Valencia as of May 30, 2008
      (see
              Note
      16):Utility
      plant additions
            
            
            
            
            
            $
            87,310Increase
      in short-term borrowings
            
            
            
            
            
            $
            82,468








The
accompanying notes, as they relate to PNM, are an integral part of these
financial statements.





17


PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN PNM COMMON STOCKHOLDER’S
EQUITY


(Unaudited)





Accumulated
            
            
            
            
            
            Total
      PNMCommon
      Stock
            
            
            Other
            
            
            
            
            
            CommonNumber
      of
            
            
            Aggregate
            
            
            Comprehensive
            
            
            Retained
            
            
            Stockholder’sShares
            
            
            Value
            
            
            Income
      (Loss)
            
            
            Earnings
            
            
            Equity(Dollars
      in thousands)Balance
      at December 31, 2008
            
            
            39,117,799
            
            
            $
            932,523
            
            
            $
            17,746
            
            
            $
            391,170
            
            
            $
            1,341,439Net
      earnings attributable to PNM
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            66,220
            
            
            
            66,220Total
      other comprehensive income (loss)
            
            
            -
            
            
            
            -
            
            
            
            (61,042
            )
            
            
            -
            
            
            
            (61,042
            )Dividends
      on preferred stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (264
            )
            
            
            (264
            )Dividends
      on common stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (234,994
            )
            
            
            (234,994
            )Balance
      at June 30, 2009
            
            
            39,117,799
            
            
            $
            932,523
            
            
            $
            (43,296
            )
            
            $
            222,132
            
            
            $
            1,111,359





The
accompanying notes, as they relate to PNM, are an integral part of these
financial statements.





18


PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)


(Unaudited)





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Net Earnings (Loss)
            
            $
            (7,757
            )
            
            $
            (43,245
            )
            
            $
            71,574
            
            
            $
            (47,723
            )Other Comprehensive Income (Loss):Unrealized Gain (Loss) on Investment Securities:Unrealized
      holding gains (losses) arising duringthe period, net of income tax (expense) benefitof $(2,778), $(1,089), $(3,034) and $412
            
            
            4,239
            
            
            
            1,662
            
            
            
            4,629
            
            
            
            (629
            )Reclassification
      adjustment for (gains) included innet earnings (loss), net of income tax expenseof $118, $824, $313 and $1,726
            
            
            (180
            )
            
            
            (1,257
            )
            
            
            (478
            )
            
            
            (2,634
            )Pension liability adjustment, net of income tax benefitof $0, $0, $42,487 and $0
            
            
            -
            
            
            
            -
            
            
            
            (64,830
            )
            
            
            -Fair Value Adjustment for Designated Cash Flow Hedges:Change
      in fair market value, net of income tax (expense)benefit of $519, $8,434, $(6,940) and $9,134
            
            
            (791
            )
            
            
            (12,870
            )
            
            
            10,590
            
            
            
            (13,937
            )Reclassification
      adjustment for (gains) losses included innet earnings (loss), net of income tax expense (benefit)of
      $3,330, $(225), $7,179 and $374
            
            
            (5,081
            )
            
            
            343
            
            
            
            (10,953
            )
            
            
            (571
            )Total Other Comprehensive Income (Loss)
            
            
            (1,813
            )
            
            
            (12,122
            )
            
            
            (61,042
            )
            
            
            (17,771
            )Comprehensive Income (Loss)
            
            
            (9,570
            )
            
            
            (55,367
            )
            
            
            10,532
            
            
            
            (65,494
            )Comprehensive Income Attributable to Valencia Non-controlling
      Interest
            
            
            (2,775
            )
            
            
            (1,001
            )
            
            
            (5,354
            )
            
            
            (1,001
            )Comprehensive Income (Loss) Attributable to PNM
            
            $
            (12,345
            )
            
            $
            (56,368
            )
            
            $
            5,178
            
            
            $
            (66,495
            )





The
accompanying notes, as they relate to PNM, are an integral part of these
financial statements.


19


TEXAS-NEW
MEXICO POWER COMPANY AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(LOSS)


(Unaudited)





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Electric Operating Revenues
            
            $
            46,819
            
            
            $
            47,118
            
            
            $
            88,044
            
            
            $
            89,346Operating Expenses:Cost
      of energy
            
            
            8,694
            
            
            
            7,935
            
            
            
            17,289
            
            
            
            15,747Administrative
      and general
            
            
            7,720
            
            
            
            7,074
            
            
            
            16,049
            
            
            
            13,645Impairment
      of goodwill
            
            
            -
            
            
            
            34,456
            
            
            
            -
            
            
            
            34,456Regulatory
      disallowances
            
            
            670
            
            
            
            -
            
            
            
            670
            
            
            
            -Depreciation
      and amortization
            
            
            8,915
            
            
            
            8,777
            
            
            
            17,513
            
            
            
            17,136Transmission
      and distribution costs
            
            
            5,669
            
            
            
            5,508
            
            
            
            10,610
            
            
            
            9,972Taxes,
      other than income taxes
            
            
            4,719
            
            
            
            4,931
            
            
            
            9,396
            
            
            
            9,370Total operating expenses
            
            
            36,387
            
            
            
            68,681
            
            
            
            71,527
            
            
            
            100,326Operating income (loss)
            
            
            10,432
            
            
            
            (21,563
            )
            
            
            16,517
            
            
            
            (10,980
            )Other Income and Deductions:Interest
      income
            
            
            9
            
            
            
            4
            
            
            
            9
            
            
            
            5Other
      income
            
            
            494
            
            
            
            606
            
            
            
            911
            
            
            
            1,020Other
      deductions
            
            
            (23
            )
            
            
            (10
            )
            
            
            (48
            )
            
            
            (28
            )Net other income and deductions
            
            
            480
            
            
            
            600
            
            
            
            872
            
            
            
            997Interest Charges:Interest
      on long-term debt
            
            
            7,066
            
            
            
            2,801
            
            
            
            8,078
            
            
            
            7,209Other
      interest charges
            
            
            872
            
            
            
            1,564
            
            
            
            3,955
            
            
            
            2,145Net interest charges
            
            
            7,938
            
            
            
            4,365
            
            
            
            12,033
            
            
            
            9,354Earnings (Loss) Before Income Taxes
            
            
            2,974
            
            
            
            (25,328
            )
            
            
            5,356
            
            
            
            (19,337
            )Income Taxes
            
            
            1,208
            
            
            
            3,425
            
            
            
            2,169
            
            
            
            5,686Net Earnings (Loss)
            
            $
            1,766
            
            
            $
            (28,753
            )
            
            $
            3,187
            
            
            $
            (25,023
            )





The
accompanying notes, as they relate to TNMP, are an integral part of these
financial statements.





20


TEXAS-NEW
MEXICO POWER COMPANY AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)





June
      30,
            
            
            December
      31,2009
            
            
            2008(In
      thousands)ASSETSCurrent Assets:Cash
      and cash equivalents
            
            $
            79
            
            
            $
            124Special
      deposits
            
            
            50
            
            
            
            50Accounts
      receivable
            
            
            13,567
            
            
            
            11,457Unbilled
      revenues
            
            
            6,433
            
            
            
            6,421Other
      receivables
            
            
            2,637
            
            
            
            480Affiliate
      accounts receivable
            
            
            5,863
            
            
            
            7,110Materials
      and supplies
            
            
            1,847
            
            
            
            1,625Income
      taxes receivable
            
            
            -
            
            
            
            9Other
      current assets
            
            
            1,828
            
            
            
            958Total current assets
            
            
            32,304
            
            
            
            28,234Other Property and Investments:Other
      investments
            
            
            556
            
            
            
            550Non-utility
      property
            
            
            2,111
            
            
            
            2,111Total other property and investments
            
            
            2,667
            
            
            
            2,661Utility Plant:Electric
      plant in service
            
            
            829,780
            
            
            
            815,588Common
      plant in service and plant held for future use
            
            
            488
            
            
            
            488830,268
            
            
            
            816,076Less
      accumulated depreciation and amortization
            
            
            295,446
            
            
            
            291,228534,822
            
            
            
            524,848Construction
      work in progress
            
            
            24,764
            
            
            
            30,948Net utility plant
            
            
            559,586
            
            
            
            555,796Deferred Charges and Other Assets:Regulatory
      assets
            
            
            129,983
            
            
            
            134,660Goodwill
            
            
            226,665
            
            
            
            226,665Derivative
      instruments
            
            
            723
            
            
            
            -Other
      deferred charges
            
            
            32,263
            
            
            
            23,982Total deferred charges and other assets
            
            
            389,634
            
            
            
            385,307$
            984,191
            
            
            $
            971,998





The
accompanying notes, as they relate to TNMP, are an integral part of these
financial statements.





21


TEXAS-NEW
MEXICO POWER COMPANY AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)





June
      30,
            
            
            December
      31,2009
            
            
            2008(In
      thousands, except share information)LIABILITIES
      AND STOCKHOLDER’S EQUITYCurrent Liabilities:Short-term
      debt
            
            $
            -
            
            
            $
            150,000Short-term
      debt – affiliate
            
            
            44,500
            
            
            
            14,100Current
      installments of long-term debt
            
            
            -
            
            
            
            167,690Accounts
      payable
            
            
            5,404
            
            
            
            11,846Affiliate
      accounts payable
            
            
            1,902
            
            
            
            1,238Accrued
      interest and taxes
            
            
            32,060
            
            
            
            35,118Other
      current liabilities
            
            
            3,519
            
            
            
            3,111Total current liabilities
            
            
            87,385
            
            
            
            383,103Long-term Debt
            
            
            309,399
            
            
            
            -Deferred Credits and Other Liabilities:Accumulated
      deferred income taxes
            
            
            109,711
            
            
            
            111,193Regulatory
      liabilities
            
            
            33,049
            
            
            
            35,028Asset
      retirement obligations
            
            
            741
            
            
            
            711Accrued
      pension liability and postretirement benefit cost
            
            
            15,356
            
            
            
            16,453Other
      deferred credits
            
            
            2,629
            
            
            
            1,820Total deferred credits and other liabilities
            
            
            161,486
            
            
            
            165,205Total liabilities
            
            
            558,270
            
            
            
            548,308Commitments and Contingencies (See Note 9)Common Stockholder’s Equity:Common
      stock outstanding ($10 par value, 12,000,000 shares
      authorized:issued and outstanding 6,358 shares)
            
            
            64
            
            
            
            64Paid-in-capital
            
            
            425,899
            
            
            
            427,320Accumulated
      other comprehensive income (loss), net of income taxes
            
            
            323
            
            
            
            (142
            )Retained
      earnings (deficit)
            
            
            (365
            )
            
            
            (3,552
            )Total common stockholder’s equity
            
            
            425,921
            
            
            
            423,690$
            984,191
            
            
            $
            971,998





The
accompanying notes, as they relate to TNMP, are an integral part of these
financial statements.








22


TEXAS-NEW
MEXICO POWER COMPANY AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six
      Months Ended June 30,2009
            
            
            2008(In
      thousands)Cash
      Flows From Operating Activities:Net
      earnings (loss)
            
            $
            3,187
            
            
            $
            (25,023
            )Adjustments
      to reconcile net earnings (loss) tonet cash flows from operating activities:Depreciation and amortization
            
            
            20,469
            
            
            
            19,072Regulatory disallowances
            
            
            670
            
            
            
            -Impairment of goodwill
            
            
            -
            
            
            
            34,456Deferred income tax expense (benefit)
            
            
            (1,740
            )
            
            
            (2,712
            )Other, net
            
            
            165
            
            
            
            (1,242
            )Changes in certain assets and liabilities:Accounts receivable and unbilled revenues
            
            
            (2,122
            )
            
            
            (4,310
            )Materials
      and supplies
            
            
            (222
            )
            
            
            5Other
      current assets
            
            
            (2,884
            )
            
            
            47Other assets
            
            
            (727
            )
            
            
            (668
            )Accounts payable
            
            
            (6,442
            )
            
            
            514Accrued interest and taxes
            
            
            (3,049
            )
            
            
            1,614Other current liabilities
            
            
            2,322
            
            
            
            1,456Other liabilities
            
            
            (1,366
            )
            
            
            305Net cash flows from operating activities
            
            
            8,261
            
            
            
            23,514Cash Flows From Investing Activities-Utility
      plant additions
            
            
            (19,006
            )
            
            
            (22,464
            )Net
      cash flows from investing activities
            
            
            (19,006
            )
            
            
            (22,464
            )





The
accompanying notes, as they relate to TNMP, are an integral part of these
financial statements.





23


TEXAS-NEW
MEXICO POWER COMPANY AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six
      Months Ended June 30,2009
            
            
            2008(In
      thousands)Cash
      Flow From Financing Activities:Short-term
      borrowings (repayments), net
            
            
            (150,000
            )
            
            
            150,000Short-term
      borrowings (repayments) – affiliate
            
            
            30,400
            
            
            
            (1,304
            )Long-term
      borrowings
            
            
            309,242
            
            
            
            -Repayment
      of long-term debt
            
            
            (167,690
            )
            
            
            (148,935
            )Dividends
      paid
            
            
            (1,421
            )
            
            
            -Other,
      net
            
            
            (9,831
            )
            
            
            (925
            )Net
      cash flows from financing activities
            
            
            10,700
            
            
            
            (1,164
            )Change
      in Cash and Cash Equivalents
            
            
            (45
            )
            
            
            (114
            )Cash
      and Cash Equivalents at Beginning of Period
            
            
            124
            
            
            
            187Cash
      and Cash Equivalents at End of Period
            
            $
            79
            
            
            $
            73Supplemental
      Cash Flow Disclosures:Interest paid, net of capitalized interest
            
            $
            9,716
            
            
            $
            10,112Income taxes paid (refunded), net
            
            $
            4,593
            
            
            $
            (858
            )








The
accompanying notes, as they relate to TNMP, are an integral part of these
financial statements.





24


TEXAS-NEW
MEXICO POWER COMPANY AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY


(Unaudited)





Accumulated
            
            
            
            
            
            TotalCommon
      Stock
            
            
            
            
            
            Other
            
            
            Retained
            
            
            CommonNumber
      of
            
            
            Aggregate
            
            
            Paid-in
            
            
            Comprehensive
            
            
            Earnings
            
            
            Stockholder’sShares
            
            
            Value
            
            
            Capital
            
            
            Income
      (Loss)
            
            
            (Deficit)
            
            
            Equity(Dollars
      in thousands)Balance
      at December 31, 2008
            
            
            6,358
            
            
            $
            64
            
            
            $
            427,320
            
            
            $
            (142
            )
            
            $
            (3,552
            )
            
            $
            423,690Net
      earnings
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,187
            
            
            
            3,187Total
      other comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            465
            
            
            
            -
            
            
            
            465Dividends
      declared on common stock
            
            
            -
            
            
            
            -
            
            
            
            (1,421
            )
            
            
            -
            
            
            
            -
            
            
            
            (1,421
            )Balance
      at June 30, 2009
            
            
            6,358
            
            
            $
            64
            
            
            $
            425,899
            
            
            $
            323
            
            
            $
            (365
            )
            
            $
            425,921





The
accompanying notes, as they relate to TNMP, are an integral part of these
financial statements.





25


TEXAS-NEW
MEXICO POWER COMPANY AND SUBSIDIARIES


A
WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)


(Unaudited)





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Net
      Earnings (Loss)
            
            $
            1,766
            
            
            $
            (28,753
            )
            
            $
            3,187
            
            
            $
            (25,023
            )Other
      Comprehensive Income:Fair
      Value Adjustment for Designated Cash Flow Hedges:Change
      in fair market value, net of income tax (expense)benefit of $(497), $0, $(198) and $0
            
            
            898
            
            
            
            -
            
            
            
            357
            
            
            
            -Reclassification adjustment for (gains) losses included innet earnings, net of income tax expense (benefit)
      of$(60),
      $0, $(60), and $0
            
            
            108
            
            
            
            -
            
            
            
            108
            
            
            
            -Total
      Other Comprehensive Income
            
            
            1,006
            
            
            
            -
            
            
            
            465
            
            
            
            -Comprehensive
      Income (Loss)
            
            $
            2,772
            
            
            $
            (28,753
            )
            
            $
            3,652
            
            
            $
            (25,023
            )





The
accompanying notes, as they relate to TNMP, are an integral part of these
financial statements.








26


PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


(1)
            Significant
      Accounting Policies and Responsibility for Financial
      Statements





Financial
Statement Preparation and Presentation





In the
opinion of management, the accompanying unaudited interim Condensed Consolidated
Financial Statements reflect all normal and recurring accruals and adjustments
that are necessary to present fairly the consolidated financial position at June
30, 2009 and December 31, 2008, and the consolidated results of operations and
comprehensive income for the three months and six months ended June 30, 2009 and
2008, and cash flows for the six months ended June 30, 2009 and 2008 in
conformity with generally accepted accounting principles in the United
States.  The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period.  Actual results could ultimately differ from
those estimated.  The results of operations presented in the
accompanying Condensed Consolidated Financial Statements are not necessarily
representative of operations for an entire year.





These
Condensed Consolidated Financial Statements are unaudited, and certain
information and note disclosures normally included in the annual Consolidated
Financial Statements have been condensed or omitted, as permitted under the
applicable rules and regulations.  Readers of these financial
statements should refer to PNMR’s, PNM’s and TNMP’s audited Consolidated
Financial Statements and Notes thereto that are included in their respective
2008 Annual Reports on Form 10-K, as amended (with respect to PNMR and PNM) by
the Current Report on Form 8-K filed on May 18, 2009 (collectively, the “2008
Annual Reports”).





The Notes
to Condensed Consolidated Financial Statements include disclosures for PNMR,
PNM, and TNMP.  For discussion purposes, this report will use the term
“Company” when discussing matters of common applicability to PNMR, PNM and
TNMP.  Discussions regarding only PNMR, PNM or TNMP will be indicated
as such.  Certain amounts in the 2008 Condensed Consolidated Financial
Statements and Notes thereto have been reclassified to conform to the 2009
financial statement presentation.





GAAP
defines subsequent events as events or transactions that occur after the balance
sheet date but before financial statements are issued or are available to be
issued.  Based on their nature, magnitude, and timing, certain
subsequent events may be required to be reflected at the balance sheet date
and/or required to be disclosed in the financial statements.  The
Company has evaluated subsequent events through the date the financial
statements are issued, which is August 5, 2009, as required by
GAAP.





Principles
of Consolidation





The
Condensed Consolidated Financial Statements of each of PNMR, PNM, and TNMP
include their accounts and those of subsidiaries in which that entity owns a
majority voting interest.  PNMR’s primary subsidiaries are PNM, TNMP,
and First Choice.  PNM consolidates the PVNGS Capital Trust and
Valencia.  PNMR shared services’ administrative and general expenses,
which represent costs that are primarily driven by corporate level activities,
are allocated to the business segments.  Other significant
intercompany transactions between PNMR, PNM, and TNMP include energy purchases
and sales, transmission and distribution services, lease payments, dividends
paid on common stock, and interest paid by PVNGS Capital Trust to
PNM.  All intercompany transactions and balances have been
eliminated.  See Note 12.





27
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Dividends
on Common Stock





Dividends
on PNMR’s common stock are declared by its Board.  The timing of the
declaration of dividends is dependent on the timing of meetings and other
actions of the Board.  This has historically resulted in dividends
considered to be attributable to the second quarter of each year being declared
through actions of the Board during the third quarter of the
year.  The Board declared dividends on common stock considered to be
for the second quarter of $0.125 per share in July 2009 and August
2008.  The amounts declared in July 2009 and August 2008 are reflected
as being in the second quarter and included in “Dividends Declared per Common
Share” on the PNMR Condensed Consolidated Statements of Earnings
(Loss).





In
addition to the dividend of $220.0 million paid by PNM to PNMR following the
sale of PNM Gas discussed in Note 2, PNM paid a dividend of $15.0 million in the
six months ended June 30, 2009.  Also, TNMP paid a dividend of $1.4
million to its parent, which then paid that amount to PNMR.  Since
TNMP had deficit retained earnings at the time of the dividend, the dividend was
recorded as a reduction of TNMP’s paid-in-capital.





(2)
            Disposition





PNM
Gas Sale





On
January 12, 2008, PNM reached a definitive agreement to sell its natural gas
operations, which comprised the PNM Gas segment, to NMGC, a subsidiary of
Continental, for $620.0 million in cash, subject to adjustment based on the
actual level of working capital at closing.  PNM received an
additional $20.6 million at closing and $12.7 million in July 2009 related to
working capital true-ups.  In a separate transaction conditioned upon
the sale of the natural gas operations, PNMR proposed to acquire CRHC,
Continental's regulated Texas electric transmission and distribution business,
for $202.5 million in cash. On July 22, 2008, PNMR and Continental agreed to
terminate the agreement for the acquisition of CRHC.  Under the
termination agreement, Continental agreed to pay PNMR $15.0 million upon the
closing of the PNM Gas transaction.  PNM completed the sale of PNM Gas
on January 30, 2009 and recognized a gain of $72.8 million, after income taxes
of $37.9 million, in 2009, which is included in discontinued operations on the
Condensed Consolidated Statements of Earnings (Loss).  PNMR recognized
an additional pre-tax gain of $15.0 million due to the CRHC termination payment,
which is included in other income on the Condensed Consolidated Statements of
Earnings (Loss).  In connection with the sale, PNM retained
obligations under the frozen PNM pension and executive retirement plans for
employees transferred to NMGC.  PNM had a regulatory asset related to
these plans, which was removed from regulatory assets and transferred to AOCI.
The after-tax charge to AOCI was $64.8 million.





PNM used
proceeds from the sale to retire short-term debt and paid a dividend of $220.0
million to PNMR. The remaining funds were invested in a money market fund to be
used to pay income taxes on the gain from the sale.  PNMR used the
dividend from PNM and the $15.0 million from Continental to retire debt. There
were no material prior relationships between the PNMR and Continental parties
other than in respect of the transactions described herein. PNM and PNMR
Services Company provide certain corporate administrative and customer service
support at cost to NMGC under a transition services agreement. The agreement
term began January 30, 2009 and terminated in July 2009 with the exception of
shared meter reading services, which will continue through 2010. See Note 14 for
financial information concerning PNM Gas, which is classified as discontinued
operations in the accompanying financial statements.





(3)
            Segment
      Information





The
following segment presentation is based on the methodology that management uses
for making operating decisions and assessing performance of its various business
activities.  A reconciliation of the segment presentation to the GAAP
financial statements is provided.





28
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


PNM
Electric





PNM
Electric includes the retail electric utility operations of PNM that are subject
to traditional rate regulation by the NMPRC.  PNM Electric provides
integrated electricity services that include the generation, transmission and
distribution of electricity for retail electric customers in New Mexico as well
as the sale of transmission to third parties.  PNM Electric also
includes the generation and sale of electricity into the wholesale
market.  This includes optimization of PNM’s jurisdictional assets, as
well as its capacity excluded from retail rates.  See Note
10.  Although the FERC has jurisdiction over the wholesale rates, they
are not subject to traditional regulation.





TNMP
Electric





TNMP
Electric is a regulated utility operating in Texas.  TNMP’s operations
are subject to traditional rate regulation by the PUCT.  TNMP provides
regulated transmission and distribution services in Texas under the
TECA.





PNM
Gas





PNM Gas
distributed natural gas to most of the major communities in New Mexico, subject
to traditional rate regulation by the NMPRC.  The customer base of PNM
Gas included both sales-service customers and transportation-service
customers.  PNM Gas purchased natural gas in the open market and sold
it at cost to its sales-service customers.  As a result, increases or
decreases in gas revenues resulting from gas price fluctuations did not impact
gross margin or earnings.  As described in Note 2, PNM completed the
sale of its gas operations on January 30, 2009.  PNM Gas is reported
as discontinued operations in the accompanying financial statements and is not
included in the segment information presented below.  Financial
information regarding PNM Gas is presented in Note 14.





First
Choice





First
Choice is a certified REP operating in Texas, which allows it to provide
electricity to residential, small commercial, and governmental
customers.  Although First Choice is regulated in certain respects by
the PUCT, it is not subject to traditional rate of return
regulation.





Optim
Energy





Optim
Energy is treated as a separate segment for PNMR.  PNMR’s investment
in Optim Energy is held in the Corporate and Other segment and is accounted for
using the equity method of accounting. Optim Energy’s revenues and expenses are
not included in PNMR’s consolidated revenues and expenses or the following
tables.  See Note 11.





Corporate
and Other





PNMR
Services Company is included in the Corporate and Other segment.





The
following tables present summarized financial information for PNMR by reportable
segment. Excluding PNM Gas, which is presented as discontinued operations, PNM
has only one operating segment.  TNMP operates in only one reportable
segment.  Therefore, tabular segment information is not presented for
PNM and TNMP.





29
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


PNMR
SEGMENT INFORMATION





PNM
            
            
            TNMP
            
            
            First
            
            
            CorporateElectric
            
            
            Electric
            
            
            Choice
            
            
            and
      Other
            
            
            ConsolidatedThree Months Ended
      June 30, 2009
            
            
            
            
            
            
            
            (In
      thousands)Operating
      revenues
            
            $
            226,541
            
            
            $
            36,640
            
            
            $
            137,950
            
            
            $
            (21
            )
            
            $
            401,110Intersegment
      revenues
            
            
            -
            
            
            
            10,179
            
            
            
            -
            
            
            
            (10,179
            )
            
            
            -Total
      revenues
            
            
            226,541
            
            
            
            46,819
            
            
            
            137,950
            
            
            
            (10,200
            )
            
            
            401,110Cost
      of energy
            
            
            91,125
            
            
            
            8,694
            
            
            
            85,613
            
            
            
            (10,179
            )
            
            
            175,253Gross
      margin
            
            
            135,416
            
            
            
            38,125
            
            
            
            52,337
            
            
            
            (21
            )
            
            
            225,857Other
      operating expenses
            
            
            122,932
            
            
            
            18,778
            
            
            
            26,081
            
            
            
            (3,758
            )
            
            
            164,033Depreciation
      and amortization
            
            
            22,925
            
            
            
            8,915
            
            
            
            469
            
            
            
            4,637
            
            
            
            36,946Operating
      income (loss)
            
            
            (10,441
            )
            
            
            10,432
            
            
            
            25,787
            
            
            
            (900
            )
            
            
            24,878Interest
      income
            
            
            12,557
            
            
            
            9
            
            
            
            14
            
            
            
            (1,357
            )
            
            
            11,223Equity
      in net earnings (loss) of Optim Energy
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (7,353
            )
            
            
            (7,353
            )Other
      income (deductions)
            
            
            4,990
            
            
            
            471
            
            
            
            (81
            )
            
            
            (26
            )
            
            
            5,354Net
      interest charges
            
            
            (17,392
            )
            
            
            (7,938
            )
            
            
            (777
            )
            
            
            (5,710
            )
            
            
            (31,817
            )Earnings
      (loss) before income taxes
            
            
            (10,286
            )
            
            
            2,974
            
            
            
            24,943
            
            
            
            (15,346
            )
            
            
            2,285Income
      taxes (benefit)
            
            
            (5,140
            )
            
            
            1,208
            
            
            
            8,989
            
            
            
            (6,191
            )
            
            
            (1,134
            )Earnings
      (loss) from continuing operations
            
            
            (5,146
            )
            
            
            1,766
            
            
            
            15,954
            
            
            
            (9,155
            )
            
            
            3,419Valencia
      non-controlling interest
            
            
            (2,775
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,775
            )Subsidiary
      preferred stock dividends
            
            
            (132
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (132
            )Segment
      earnings (loss) from continuing
              operations attributable to PNMR
            
            $
            (8,053
            )
            
            $
            1,766
            
            
            $
            15,954
            
            
            $
            (9,155
            )
            
            $
            512Six Months Ended June
      30, 2009Operating
      revenues
            
            $
            458,485
            
            
            $
            68,562
            
            
            $
            260,124
            
            
            $
            (197
            )
            
            $
            786,974Intersegment
      revenues
            
            
            11
            
            
            
            19,482
            
            
            
            -
            
            
            
            (19,493
            )
            
            
            -Total
      revenues
            
            
            458,496
            
            
            
            88,044
            
            
            
            260,124
            
            
            
            (19,690
            )
            
            
            786,974Cost
      of energy
            
            
            192,657
            
            
            
            17,289
            
            
            
            166,036
            
            
            
            (19,481
            )
            
            
            356,501Gross
      margin
            
            
            265,839
            
            
            
            70,755
            
            
            
            94,088
            
            
            
            (209
            )
            
            
            430,473Other
      operating expenses
            
            
            220,440
            
            
            
            36,725
            
            
            
            55,413
            
            
            
            (9,903
            )
            
            
            302,675Depreciation
      and amortization
            
            
            45,354
            
            
            
            17,513
            
            
            
            987
            
            
            
            9,163
            
            
            
            73,017Operating
      income
            
            
            45
            
            
            
            16,517
            
            
            
            37,688
            
            
            
            531
            
            
            
            54,781Interest
      income
            
            
            18,518
            
            
            
            9
            
            
            
            49
            
            
            
            (2,130
            )
            
            
            16,446Equity
      in net earnings (loss) of Optim Energy
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,958
            )
            
            
            (5,958
            )Other
      income (deductions)
            
            
            59
            
            
            
            863
            
            
            
            (81
            )
            
            
            20,935
            
            
            
            21,776Net
      interest charges
            
            
            (34,599
            )
            
            
            (12,033
            )
            
            
            (1,776
            )
            
            
            (12,358
            )
            
            
            (60,766
            )Earnings
      (loss) before income taxes
            
            
            (15,977
            )
            
            
            5,356
            
            
            
            35,880
            
            
            
            1,020
            
            
            
            26,279Income
      taxes (benefit)
            
            
            (8,488
            )
            
            
            2,169
            
            
            
            12,888
            
            
            
            (117
            )
            
            
            6,452Earnings
      (loss) from continuing operations
            
            
            (7,489
            )
            
            
            3,187
            
            
            
            22,992
            
            
            
            1,137
            
            
            
            19,827Valencia
      non-controlling interest
            
            
            (5,354
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (5,354
            )Subsidiary
      preferred stock dividends
            
            
            (264
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (264
            )Segment
      earnings (loss) from continuing operations
              attributable to PNMR
            
            $
            (13,107
            )
            
            $
            3,187
            
            
            $
            22,992
            
            
            $
            1,137
            
            
            $
            14,209




At
      June 30, 2009:Total
      Assets
            
            $
            3,644,326
            
            
            $
            984,191
            
            
            $
            258,827
            
            
            $
            373,817
            
            
            $
            5,261,161Goodwill
            
            $
            51,632
            
            
            $
            226,665
            
            
            $
            43,013
            
            
            $
            -
            
            
            $
            321,310




30
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)




PNM
            
            
            TNMP
            
            
            First
            
            
            CorporateElectric
            
            
            Electric
            
            
            Choice
            
            
            and
      Other
            
            
            Consolidated(In
      thousands)Three Months Ended
      June 30, 2008Operating
      revenues
            
            $
            386,034
            
            
            $
            32,209
            
            
            $
            162,224
            
            
            $
            (157
            )
            
            $
            580,310Intersegment
      revenues
            
            
            24
            
            
            
            14,909
            
            
            
            -
            
            
            
            (14,933
            )
            
            
            -Total
      revenues
            
            
            386,058
            
            
            
            47,118
            
            
            
            162,224
            
            
            
            (15,090
            )
            
            
            580,310Cost
      of energy
            
            
            247,589
            
            
            
            7,935
            
            
            
            158,082
            
            
            
            (14,908
            )
            
            
            398,698Gross
      margin
            
            
            138,469
            
            
            
            39,183
            
            
            
            4,142
            
            
            
            (182
            )
            
            
            181,612Operating
      expenses
            
            
            147,210
            
            
            
            51,969
            
            
            
            72,803
            
            
            
            (2,260
            )
            
            
            269,722Depreciation
      and amortization
            
            
            20,896
            
            
            
            8,777
            
            
            
            579
            
            
            
            4,398
            
            
            
            34,650Operating
      income (loss)
            
            
            (29,637
            )
            
            
            (21,563
            )
            
            
            (69,240
            )
            
            
            (2,320
            )
            
            
            (122,760
            )Interest
      income
            
            
            4,878
            
            
            
            4
            
            
            
            393
            
            
            
            (863
            )
            
            
            4,412Equity
      in net earnings (loss) of Optim Energy
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,523
            )
            
            
            (2,523
            )Other
      income (deductions)
            
            
            (1,184
            )
            
            
            596
            
            
            
            (7
            )
            
            
            (2,054
            )
            
            
            (2,649
            )Net
      interest charges
            
            
            (17,623
            )
            
            
            (4,365
            )
            
            
            (320
            )
            
            
            (9,712
            )
            
            
            (32,020
            )Earnings
      (loss) before income taxes
            
            
            (43,566
            )
            
            
            (25,328
            )
            
            
            (69,174
            )
            
            
            (17,472
            )
            
            
            (155,540
            )Income
      taxes (benefit)
            
            
            2,441
            
            
            
            3,425
            
            
            
            (8,755
            )
            
            
            (7,536
            )
            
            
            (10,425
            )Earnings
      (loss) from continuing operations
            
            
            (46,007
            )
            
            
            (28,753
            )
            
            
            (60,419
            )
            
            
            (9,936
            )
            
            
            (145,115
            )Valencia
      non-controlling interest
            
            
            (1,001
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,001
            )Subsidiary
      preferred stock dividends
            
            
            (132
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (132
            )Segment
      earnings (loss) from continuing operations
              attributable to PNMR
            
            $
            (47,140
            )
            
            $
            (28,753
            )
            
            $
            (60,419
            )
            
            $
            (9,936
            )
            
            $
            (146,248
            )Six Months Ended June
      30, 2008Operating
      revenues
            
            $
            638,673
            
            
            $
            60,027
            
            
            $
            246,393
            
            
            $
            (281
            )
            
            $
            944,812Intersegment
      revenues
            
            
            50
            
            
            
            29,319
            
            
            
            -
            
            
            
            (29,369
            )
            
            
            -Total
      revenues
            
            
            638,723
            
            
            
            89,346
            
            
            
            246,393
            
            
            
            (29,650
            )
            
            
            944,812Cost
      of energy
            
            
            383,284
            
            
            
            15,747
            
            
            
            263,351
            
            
            
            (29,303
            )
            
            
            633,079Gross
      margin
            
            
            255,439
            
            
            
            73,599
            
            
            
            (16,958
            )
            
            
            (347
            )
            
            
            311,733Operating
      expenses
            
            
            273,793
            
            
            
            67,443
            
            
            
            88,258
            
            
            
            (4,716
            )
            
            
            424,778Depreciation
      and amortization
            
            
            41,866
            
            
            
            17,136
            
            
            
            1,049
            
            
            
            8,635
            
            
            
            68,686Operating
      income (loss)
            
            
            (60,220
            )
            
            
            (10,980
            )
            
            
            (106,265
            )
            
            
            (4,266
            )
            
            
            (181,731
            )Interest
      income
            
            
            10,969
            
            
            
            5
            
            
            
            870
            
            
            
            (1,902
            )
            
            
            9,942Equity
      in net earnings (loss) of Optim Energy
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (27,606
            )
            
            
            (27,606
            )Other
      income (deductions)
            
            
            (6,655
            )
            
            
            992
            
            
            
            (72
            )
            
            
            (3,611
            )
            
            
            (9,346
            )Net
      interest charges
            
            
            (31,726
            )
            
            
            (9,354
            )
            
            
            (614
            )
            
            
            (18,161
            )
            
            
            (59,855
            )Earnings
      (loss) before income taxes
            
            
            (87,632
            )
            
            
            (19,337
            )
            
            
            (106,081
            )
            
            
            (55,546
            )
            
            
            (268,596
            )Income
      taxes (benefit)
            
            
            (14,648
            )
            
            
            5,686
            
            
            
            (21,597
            )
            
            
            (21,918
            )
            
            
            (52,477
            )Earnings
      (loss) from continuing operations
            
            
            (72,984
            )
            
            
            (25,023
            )
            
            
            (84,484
            )
            
            
            (33,628
            )
            
            
            (216,119
            )Valencia
      non-controlling interest
            
            
            (1,001
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,001
            )Subsidiary
      preferred stock dividends
            
            
            (264
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (264
            )Segment  earnings
      (loss) from continuing operations
              attributable to PNMR
            
            $
            (74,249
            )
            
            $
            (25,023
            )
            
            $
            (84,484
            )
            
            $
            (33,628
            )
            
            $
            (217,384
            )At
      June 30, 2008:Total
      assets*
            
            $
            3,549,985
            
            
            $
            949,879
            
            
            $
            544,531
            
            
            $
            463,284
            
            
            $
            5,507,679Goodwill
            
            $
            51,632
            
            
            $
            226,665
            
            
            $
            88,559
            
            
            $
            -
            
            
            $
            366,856





*  Excludes
total assets of PNM Gas discontinued operations of $619,114.


31
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)





(4)
            Energy
      Related Derivative Contracts and Fair Value
  Disclosures





Note 8 of
Notes to Consolidated Financial Statements in the 2008 Annual Reports contains
information regarding energy related derivative contracts and fair value
disclosures.  See Note 7 for additional information regarding an
interest rate swap.





Energy
Related Derivative Contracts





Overview





The
Company is exposed to certain risks relating to its ongoing business
operations.  The primary objective for the use of derivative
instruments, including energy contracts, options, and futures, is to manage
price risk associated with forecasted purchases of energy or fuel used to
generate electricity, or to manage anticipated generation capacity in excess of
forecasted demand from existing customers.  Substantially all of the
Company’s energy related derivative contracts are entered into to manage
commodity risk and the Company does not currently engage in speculative trading,
which it ceased in the second quarter of 2008.  Effective January 1,
2009, the Company adopted SFAS 161, which enhanced disclosures for derivative
instruments and hedging activities.





Commodity
Risk





Marketing
and procurement of energy often involve market risks associated with managing
energy commodities and establishing open positions in the energy markets,
primarily on a short-term basis.  The Company routinely enters into
various derivative instruments such as forward contracts, option agreements and
price basis swap agreements to economically hedge price and volume risk on power
commitments and fuel requirements and to minimize the risk of market
fluctuations in wholesale portfolios. The Company monitors the market risk of
its commodity contracts using VaR and GEaR calculations to maintain total
exposure within management-prescribed limits.





PNM’s
unregulated operations are managed primarily through a net asset-backed
marketing strategy, whereby PNM’s aggregate net open forward contract position
is covered by its forecasted excess generation capabilities or market
purchases.  PNM would be exposed to market risk if its generation
capabilities were to be disrupted or if its retail load requirements were to be
greater than anticipated.  If all or a portion of the net open
contract position were required to be covered as a result of the aforementioned
unexpected situations, commitments would have to be met through market
purchases.  As discussed in Note 10, effective July 1, 2009,
additional resources that had been part of unregulated operations were included
in rates subject to the jurisdiction of the NMPRC pursuant to the Resource
Stipulation thereby mitigating PNM’s exposure to market risk.





First
Choice is responsible for energy supply related to the sale of electricity to
retail customers in Texas.  TECA contains no provisions for the
specific recovery of fuel and purchased power costs.  The rates
charged to First Choice customers are negotiated with each
customer.  As a result, changes in purchased power costs can affect
First Choice’s operating results with respect to margins and changes in retail
customer load requirements.  First Choice is exposed to market risk to
the extent that it has not hedged fixed price load commitments or to the degree
that market price movements affect customer retention, customer additions or
customer attrition.  Additionally, volumetric fluctuations in First
Choice retail load requirements due to weather or other conditions may subject
First Choice to market risk.  First Choice’s strategy is to minimize
its exposure to fluctuations in market energy prices by matching sales contracts
with supply instruments designed to preserve targeted margins.





32
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Accounting
for Derivatives





Under
derivative accounting and related rules for energy contracts, the Company
accounts for its various derivative instruments for the purchase and sale of
energy based on the Company’s intent.  Energy contracts that meet the
definition of a derivative under SFAS 133 and do not qualify for the normal
sales and purchases exception are recorded on the balance sheet at fair value at
each period end.  The changes in fair value are recognized in earnings
unless specific hedge accounting criteria are met.  Derivatives that
meet the normal sales and purchases exception within SFAS 133 are not marked to
market but rather recorded in results of operations when the underlying
transactions settle.





For
derivative transactions meeting the definition of a cash flow or fair value
hedge, the Company documents the relationships between the hedging instruments
and the items being hedged.  This documentation includes the strategy
that supports executing the specific transaction and the methods utilized to
assess the effectiveness of the hedges.  Changes in the fair value of
contracts qualifying for cash flow hedge accounting are included in AOCI to the
extent effective.  Ineffectiveness gains and losses were immaterial
for the three months and six months ended June 30, 2009 and 2008.  The
amounts shown as current assets and current liabilities relate to contracts that
will be settled in the next twelve months.  Gains or losses related to
cash flow hedge instruments are reclassified from AOCI when the hedged
transaction settles and impacts earnings.  Based on market prices at
June 30, 2009, after-tax gains of $12.1 million for PNMR and $18.2
million for PNM would be reclassified from AOCI into earnings during the next
twelve months. However, the actual amount reclassified into earnings will vary
due to future changes in market prices.  As of June 30, 2009, the
maximum length of time over which the Company is hedging its exposure to the
variability in future cash flows is through December 2011.





The
contracts recorded at fair value that do not qualify or are not designated for
hedge accounting are classified as either economic hedges or trading
transactions.  Economic hedges are defined as derivative instruments,
including long-term power agreements, used to economically hedge generation
assets, purchased power and fuel costs, and customer load
requirements.  Changes in the fair value of economic hedges are
reflected in results of operations, with changes related to sales contracts
included in operating revenues and changes related to purchase contracts
included in cost of energy.  Trading transactions include speculative
transactions, which the Company ceased in 2008.  Also included in this
category are transactions that lock in margin with no forward market risk and
are not economic hedges; changes in the fair value of these transactions are
reflected on a net basis in operating revenues.





Fair
value is defined under SFAS 157 as the price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date.  Fair value is based on
current market quotes as available and is supplemented by modeling techniques
and assumptions made by the Company to the extent quoted market prices or
volatilities are not available.  External pricing input availability
varies based on commodity location, market liquidity, and term of the
agreement.  As stated in SFAS 157, valuations of derivative assets and
liabilities must take into account nonperformance risk including the effect of
the Company’s own credit standing.  The Company regularly assesses the
validity and availability of pricing data for its derivative
transactions.  Although management uses its best judgment in
estimating the fair value of these instruments, there are inherent limitations
in any estimation technique.





At June
30, 2009, amounts recognized for the right to reclaim cash collateral are $21.8
million for PNMR and $5.2 million for PNM.  PNMR and PNM had
obligations to return cash collateral of $0.3 million.





33
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


The
following tables do not include activity related to PNM Gas.  See Note
14.





Commodity
Derivatives





Commodity
derivative instruments are summarized as follows:




Economic
      Hedges
            
            
            Trading
      Transactions
            
            
            Qualified
      Cash Flow HedgesJune 30,
              2009
            
            
            December 31,
              2008
            
            
            June 30,
              2009
            
            
            December 31,
              2008
            
            
            June
      30,
              2009
            
            
            December
      31,
              2008(in
      thousands)PNMRCurrent assets
            
            $
            22,473
            
            
            $
            5,699
            
            
            $
            19,218
            
            
            $
            19,469
            
            
            $
            30,171
            
            
            $
            26,082Deferred
charges
            
            
            1,602
            
            
            
            2,060
            
            
            
            6,129
            
            
            
            7,594
            
            
            
            11,209
            
            
            
            15,96624,075
            
            
            
            7,759
            
            
            
            25,347
            
            
            
            27,063
            
            
            
            41,380
            
            
            
            42,048Current liabilities
            
            
            (24,689
            )
            
            
            (12,630
            )
            
            
            (18,701
            )
            
            
            (18,142
            )
            
            
            (8,989
            )
            
            
            (3,179
            )Long-term
      liabilities
            
            
            (1,530
            )
            
            
            (551
            )
            
            
            (5,483
            )
            
            
            (6,365
            )
            
            
            (1,021
            )
            
            
            (18
            )(26,219
            )
            
            
            (13,181
            )
            
            
            (24,184
            )
            
            
            (24,507
            )
            
            
            (10,010
            )
            
            
            (3,197
            )Net
            
            $
            (2,144
            )
            
            $
            (5,422
            )
            
            $
            1,163
            
            
            $
            2,556
            
            
            $
            31,370
            
            
            $
            38,851PNMCurrent
      assets
            
            $
            12,421
            
            
            $
            2,976
            
            
            $
            667
            
            
            $
            347
            
            
            $
            30,072
            
            
            $
            25,529Deferred
      charges
            
            
            351
            
            
            
            2,060
            
            
            
            -
            
            
            
            -
            
            
            
            10,549
            
            
            
            15,68412,772
            
            
            
            5,036
            
            
            
            667
            
            
            
            347
            
            
            
            40,621
            
            
            
            41,213Current
      liabilities
            
            
            (17,334
            )
            
            
            (7,785
            )
            
            
            (448
            )
            
            
            (86
            )
            
            
            (11
            )
            
            
            (13
            )Long-term
      liabilities
            
            
            (652
            )
            
            
            (551
            )
            
            
            -
            
            
            
            -
            
            
            
            (32
            )
            
            
            (18
            )(17,986
            )
            
            
            (8,336
            )
            
            
            (448
            )
            
            
            (86
            )
            
            
            (43
            )
            
            
            (31
            )Net
            
            $
            (5,214
            )
            
            $
            (3,300
            )
            
            $
            219
            
            
            $
            261
            
            
            $
            40,578
            
            
            $
            41,182





In 2007,
First Choice entered into a series of forward trades that arbitraged basis
differentials among certain ERCOT delivery zones.  During the three
months ended March 31, 2008, these trades were negatively affected by extreme
transmission congestion within the ERCOT market. This congestion resulted in
historically high basis differences between the various delivery zones. As a
result, in the first quarter of 2008, First Choice recorded a total pre-tax loss
of $47.1 million in the trading margins from these speculative trades that is
reflected in electric revenues. Because of continued market volatility and the
concern that the forward basis market would continue to deteriorate, First
Choice decided to end any further speculative trading and flattened remaining
speculative positions.  At June 30, 2009 and December 31, 2008, the
trading transactions column of the above table includes $18.6 million and $19.1
million of current assets, $6.1 million and $7.6 million of deferred charges,
$18.3 million and $18.1 million of current liabilities, and $5.5 million and
$6.4 million of long-term liabilities related to the flattened speculative
positions of First Choice.  No significant additional costs are
expected related to speculative trading.





34
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


The
following table presents the effect of PNMR’s and PNM’s commodity derivative
instruments, excluding qualified cash flow hedging instruments, on
earnings:





Gain
      (Loss) Recognized in EarningsThree
      Months Ended
            
            
            Six
      Months EndedJune
      30, 2009
            
            
            June
      30, 2009Location
            
            Economic
              Hedges
            
            
            Trading
      Transactions
            
            
            Economic
              Hedges
            
            
            Trading
      Transactions(In
      thousands)PNMR
            Electric
      operating revenues
            
            $
            1,210
            
            
            $
            100
            
            
            $
            3,788
            
            
            $
            95Cost
      of energy
            
            
            4,096
            
            
            
            -
            
            
            
            (9,969
            )
            
            
            -Total
      gain (loss)
            
            $
            5,306
            
            
            $
            100
            
            
            $
            (6,181
            )
            
            $
            95PNM
            Electric
      operating revenues
            
            $
            1,210
            
            
            $
            19
            
            
            $
            3,788
            
            
            $
            80Cost
      of energy
            
            
            910
            
            
            
            -
            
            
            
            (10,873
            )
            
            
            -Total
      gain (loss)
            
            $
            2,120
            
            
            $
            19
            
            
            $
            (7,085
            )
            
            $
            80





The
following table presents the impact, excluding tax effects, of PNMR’s and PNM’s
qualified commodity cash flow hedge instruments on OCI, as well as the location
and amount of income reclassified from AOCI as the hedged transactions settled
and impacted earnings:





Gain
      (Loss)Recognized
            
            
            Reclassified
      from AOCI into EarningsIn
      OCI
            
            
            Location
            
            Amount(In
      thousands)
            
            
            
            
            (In
      thousands)Three
      Months Ended June 30, 2009PNMR
            
            $
            (5,014
            )
            
            Electric
      operating revenues
            
            $
            8,462Cost
      of energy
            
            
            (6,047
            )Total
            
            $
            2,415PNM
            
            $
            (9,721
            )
            
            Electric
      operating revenues
            
            $
            8,462Cost
      of energy
            
            
            (52
            )Total
            
            $
            8,410Six Months Ended June 30,
      2009PNMR
            
            $
            (6,246
            )
            
            Electric
      operating revenues
            
            $
            18,137Cost
      of energy
            
            
            (8,207
            )Total
            
            $
            9,930PNM
            
            $
            (602
            )
            
            Electric
      operating revenues
            
            $
            18,137Cost
      of energy
            
            
            (5
            )Total
            
            $
            18,132





35
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Commodity
contract volume positions are presented in Decatherms for gas related contracts
and in MWh for power related contracts.  The table below presents the
PNMR’s and PNM’s net volume positions at June 30, 2009:





Decatherms
            
            
            MWhEconomic
              Hedges
            
            
            Trading
              Transactions
            
            
            Qualified
      Cash Flow Hedges
            
            
            Economic
              Hedges
            
            
            Trading
              Transactions
            
            
            Qualified
      Cash Flow HedgesPNMR
            
            
            11,483,940
            
            
            
            (993,221
            )
            
            
            10,573,560
            
            
            
            962,050
            
            
            
            5
            
            
            
            (1,075,505
            )PNM
            
            
            7,365,000
            
            
            
            -
            
            
            
            -
            
            
            
            422,800
            
            
            
            5
            
            
            
            (1,185,930
            )





In
connection with managing its commodity risks, the Company enters into master
agreements with certain counterparties.  If the Company is in a net
liability position under an agreement, some agreements provide that the
counterparties can request collateral from the Company if the Company’s credit
rating is downgraded; other agreements provide that the counterparty may request
collateral to provide it with “adequate assurance” that the Company will
perform; and others have no provision for collateral.





The table
below presents information about the Company’s contingent requirements to
provide collateral under commodity contracts having an objectively determinable
collateral provision that are in net liability positions as of June 30, 2009 and
are not fully collateralized with cash.  Contractual liability
represents commodity derivative contracts recorded at fair value on the balance
sheet, determined on an individual contract basis without offsetting amounts for
individual contracts that are in an asset position and could be offset under
master netting agreements with the same counterparty.  The table only
reflects cash collateral that has been posted under the existing contracts and
does not reflect letters of credit under the Company’s revolving credit
facilities that have been issued as collateral.  Net exposure is the
net contractual liability for all contracts, including those designated as
normal purchases and sales, offset by existing cash collateral and by any
offsets available under master netting agreements, including both asset and
liability positions.





Contingent
      Feature
            
            Contractual
      Liability
            
            
            Existing
      Cash Collateral
            
            
            Net
      Exposure(In
      thousands)PNMRCredit
      rating  downgrade
            
            $
            (33,182
            )
            
            $
            3,290
            
            
            $
            (24,944
            )PNMCredit
      rating downgrade
            
            $
            (5,831
            )
            
            $
            1,000
            
            
            $
            (267
            )





Non-Derivative
Financial Instruments





The
carrying amounts reflected on the Condensed Consolidated Balance Sheets
approximate fair value for cash, temporary investments, receivables, and
payables due to the short period of maturity.  Available-for-sale
securities are carried at fair value.  The carrying amount and fair
value of other non-derivative financial instruments (including current
maturities) are:


36
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)





June
      30, 2009
            
            
            December
      31, 2008Carrying
              Amount
            
            
            Fair
      Value
            
            
            Carrying
              Amount
            
            
            Fair
      Value(In
      thousands)PNMRLong-term
      debt
            
            $
            1,569,014
            
            
            $
            1,489,906
            
            
            $
            1,584,705
            
            
            $
            1,310,771Investment
      in PVNGS lessor notes
            
            $
            174,407
            
            
            $
            181,270
            
            
            $
            185,637
            
            
            $
            190,077Other
      investments
            
            $
            30,056
            
            
            $
            37,159
            
            
            $
            32,966
            
            
            $
            42,459PNMLong-term
      debt
            
            $
            1,055,724
            
            
            $
            927,463
            
            
            $
            1,055,717
            
            
            $
            834,157Investment
      in PVNGS lessor notes
            
            $
            208,425
            
            
            $
            216,587
            
            
            $
            221,422
            
            
            $
            225,987Other
      investments
            
            $
            8,515
            
            
            $
            9,607
            
            
            $
            9,951
            
            
            $
            10,949TNMPLong-term
      debt
            
            $
            309,399
            
            
            $
            361,281
            
            
            $
            167,690
            
            
            $
            167,690Other
      investments
            
            $
            556
            
            
            $
            556
            
            
            $
            550
            
            
            $
            550





The fair
value of long-term debt shown above was primarily determined using quoted market
values, as were certain items included in other investments.  To the
extent market values were not available, fair value was determined by
discounting the cash flows for the instrument using quoted interest rates for
comparable instruments.





Available-for-sale
securities for PNMR and PNM consist of PNM assets held in trust for its share of
decommissioning costs of PVNGS and PNM’s executive retirement
program.  The trusts hold equity and fixed income
securities.  The carrying value, gross unrealized gains and losses and
estimated fair value of investments in available-for-sale securities are as
follows:





Unrealized
      Gains
            
            
            Unrealized
      (Losses)
            
            
            Fair
      Value(In
      thousands)June 30, 2009Equity
      securities
            
            $
            2,830
            
            
            $
            -
            
            
            $
            56,377Municipal
      bonds
            
            
            948
            
            
            
            -
            
            
            
            34,085U.S.
      Government securities
            
            
            35
            
            
            
            -
            
            
            
            13,491Corporate
      bonds
            
            
            162
            
            
            
            -
            
            
            
            6,495Foreign
      government bonds
            
            
            7
            
            
            
            -
            
            
            
            326Cash
      investments
            
            
            -
            
            
            
            -
            
            
            
            8,095$
            3,982
            
            
            $
            -
            
            
            $
            118,869December 31, 2008Equity
      securities
            
            $
            1,181
            
            
            $
            -
            
            
            $
            50,941Municipal
      bonds
            
            
            708
            
            
            
            -
            
            
            
            31,509U.S.
      Government securities
            
            
            90
            
            
            
            -
            
            
            
            14,262Corporate
      bonds
            
            
            115
            
            
            
            -
            
            
            
            6,034Foreign
      government bonds
            
            
            29
            
            
            
            -
            
            
            
            391Cash
      investments
            
            
            -
            
            
            
            -
            
            
            
            9,345$
            2,123
            
            
            $
            -
            
            
            $
            112,482





37
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


The
proceeds and gross realized gains and losses on the disposition of
available-for-sale securities for PNMR and PNM are shown in the following
table.  Realized gains and losses are determined by specific
identification of costs of securities sold.





Three
      Months Ended
              June
      30, 2009
            
            
            Six
      Months Ended
              June
      30, 2009(In
      thousands)Proceeds
      from sales
            
            $
            33,394
            
            
            $
            74,931Gross
      realized gains
            
            $
            1,886
            
            
            $
            3,412Gross
      realized (losses)
            
            $
            (1,342
            )
            
            $
            (5,659
            )





Held-to-maturity
securities are those investments in debt securities that the Company has the
ability and intent to hold until maturity.  Held-to-maturity
securities consist of the investment in PVNGS lessor notes and certain items
within other investments, including the EIP lessor note.





The
Company has no available-for-sale or held-to-maturity securities for which
carrying value exceeds fair value.  Accordingly, there are no
impairments considered to be “other than temporary” that are included in AOCI
and not recognized in earnings.





At June
30, 2009, the available-for-sale and held-to-maturity debt securities had the
following final maturities:





Fair
      Value(1)Available-for-Sale
            
            
            Held-to-MaturityPNMR
      and PNM
            
            
            PNMR
            
            
            PNM(In
      thousands)Within
      1 year
            
            $
            247
            
            
            $
            117
            
            
            $
            117After
      1 year through 5 years
            
            
            14,077
            
            
            
            60,296
            
            
            
            60,296After
      5 years through 10 years
            
            
            6,653
            
            
            
            155,103
            
            
            
            165,055Over
      10 years
            
            
            33,420
            
            
            
            -
            
            
            
            -$
            54,397
            
            
            $
            215,516
            
            
            $
            225,468





Other
      Fair Value Disclosures





The
Company determines the fair values of its derivative and other instruments based
on the hierarchy established in SFAS 157, which requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. SFAS 157 describes three levels of inputs that may be used
to measure fair value.  Level 1 inputs are quoted prices (unadjusted)
in active markets for identical assets or liabilities that the reporting entity
has the ability to access at the measurement date.  Level 2 inputs are
inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly.  Level 3
inputs are unobservable inputs for the asset or liability.  Level 3
inputs used in determining fair values for the Company consist of internal
valuation models.  The fair value determinations of items recorded at
fair value on the Condensed Consolidated Balance sheet at June 30, 2009 and
December 31, 2008 are as follows:


38
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)





Assets
and Liabilities Fair Value Measurements





Total(1)
            
            
            Quoted
      Prices in Active Market for Identical Assets
              (Level
      1)
            
            
            Significant
      Other Observable Inputs
              (Level
      2)
            
            
            Significant
      Unobservable Inputs
              (Level
      3)June 30,
      2009
            
            
            
            
            (In
      thousands)PNMRAssetsCommodity derivatives
            
            $
            90,802
            
            
            $
            5,985
            
            
            $
            83,975
            
            
            $
            -NDT
            
            
            118,143
            
            
            
            72,829
            
            
            
            45,314
            
            
            
            -Interest rate swap
            
            
            723
            
            
            
            -
            
            
            
            723
            
            
            
            -209,668
            
            
            
            78,814
            
            
            
            130,012
            
            
            
            -LiabilitiesCommodity derivatives
            
            
            (60,413
            )
            
            
            (13,162
            )
            
            
            (44,773
            )
            
            
            (1,636
            )Net
            
            $
            149,255
            
            
            $
            65,652
            
            
            $
            85,239
            
            
            $
            (1,636
            )PNMAssetsCommodity derivatives
            
            $
            54,060
            
            
            $
            802
            
            
            $
            53,258
            
            
            $
            -NDT
            
            
            118,143
            
            
            
            72,829
            
            
            
            45,314
            
            
            
            -172,203
            
            
            
            73,631
            
            
            
            98,572
            
            
            
            -LiabilitiesCommodity derivatives
            
            
            (18,477
            )
            
            
            (2,190
            )
            
            
            (15,158
            )
            
            
            (1,129
            )Net
            
            $
            153,726
            
            
            $
            71,441
            
            
            $
            83,414
            
            
            $
            (1,129
            )




December 31,
      2008PNMRAssetsCommodity derivatives
            
            $
            76,870
            
            
            $
            9,390
            
            
            $
            66,953
            
            
            $
            13NDT
            
            
            111,671
            
            
            
            69,150
            
            
            
            42,521
            
            
            
            -Other
            
            
            811
            
            
            
            811
            
            
            
            -
            
            
            
            -189,352
            
            
            
            79,351
            
            
            
            109,474
            
            
            
            13LiabilitiesCommodity derivatives
            
            
            (40,885
            )
            
            
            (12,052
            )
            
            
            (27,897
            )
            
            
            (422
            )Net
            
            $
            148,467
            
            
            $
            67,299
            
            
            $
            81,577
            
            
            $
            (409
            )PNMAssetsCommodity derivatives
            
            $
            46,596
            
            
            $
            -
            
            
            $
            45,519
            
            
            $
            13NDT
            
            
            111,671
            
            
            
            69,150
            
            
            
            42,521
            
            
            
            -Other
            
            
            811
            
            
            
            811
            
            
            
            -
            
            
            
            -159,078
            
            
            
            69,961
            
            
            
            88,040
            
            
            
            13LiabilitiesCommodity derivatives
            
            
            (8,453
            )
            
            
            (510
            )
            
            
            (6,457
            )
            
            
            (422
            )Net
            
            $
            150,625
            
            
            $
            69,451
            
            
            $
            81,583
            
            
            $
            (409
            )





(1)The Level 1, 2 and 3 columns in the above table are presented based
      on the nature of each instrument.  The total column is presented
      based on the balance sheet classification of the instruments and reflect
      unit of account reclassifications between commodity derivative assets and
      commodity derivative liabilities of $0.8 million for PNMR and zero for PNM
      at June 30, 2009 and $0.5 million for PNMR and $1.1 million for PNM at
      December 31, 2008.




39
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


A
reconciliation of the changes in Level 3 fair value measurements is as
follows:





Level
3 Fair Value Assets and Liabilities





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30, 2009
            
            
            June
      30, 2009PNMR
            
            
            PNM
            
            
            PNMR
            
            
            PNM(In
      thousands)Balance
      at beginning of period
            
            $
            (2,211
            )
            
            $
            (1,865
            )
            
            $
            (409
            )
            
            $
            (409
            )Total
      gains (losses) included in earnings
            
            
            (14
            )
            
            
            (14
            )
            
            
            (2,102
            )
            
            
            (2,102
            )Total
      gains (losses) included in other comprehensive income
            
            
            (359
            )
            
            
            -
            
            
            
            (772
            )
            
            
            -Purchases,
      issuances, and settlements(1)
            
            
            948
            
            
            
            750
            
            
            
            1,647
            
            
            
            1,382Balance
      at end of period
            
            $
            (1,636
            )
            
            $
            (1,129
            )
            
            $
            (1,636
            )
            
            $
            (1,129
            )Total
      gains (losses) included in earnings attributable to the change in
      unrealized gains or losses relating to assets still held at the end of the
      period
            
            $
            685
            
            
            $
            685
            
            
            $
            (786
            )
            
            $
            (786
            )





(1)Includes fair value reversal of contracts settled,unearned and prepaid
      option premiums received and paid during the period for contracts still
      held at end of period
              and the 2008 sale of PNM Electric wholesale
  contracts.





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30, 2008
            
            
            June
      30, 2008PNMR
            
            
            PNM
            
            
            PNMR
            
            
            PNM(In
      thousands)Balance
      at December 31, 2007
            
            
            
            
            
            
            
            $
            2,061
            
            
            $
            2,679Adoption
      of SFAS 157
            
            
            
            
            
            
            
            
            16,407
            
            
            
            16,407Balance
      at beginning of period
            
            $
            32,946
            
            
            $
            33,348
            
            
            
            18,468
            
            
            
            19,086Total
      gains included in earnings
            
            
            (3,302
            )
            
            
            (3,574
            )
            
            
            12,088
            
            
            
            11,396Total
      gains included in other comprehensive income
            
            
            87
            
            
            
            -
            
            
            
            87
            
            
            
            -Purchases,
      issuances, and settlements(1)
            
            
            (9,868
            )
            
            
            (10,108
            )
            
            
            (10,780
            )
            
            
            (10,816
            )Balance
      at June 30, 2008(2)
            
            $
            19,863
            
            
            $
            19,666
            
            
            $
            19,863
            
            
            $
            19,666Total
      gains included in earnings attributable to the change in unrealized gains
      or losses relating to assets still held at the end of the
      period
            
            $
            9,980
            
            
            $
            10,481
            
            
            $
            15,814
            
            
            $
            16,510




(1)
            Represents
      unearned and prepaid option premiums received and paid during the period
      for contracts still held at end of period and sale of PNM Electric
      wholesale contracts.


(2)
            There
      were no transfers in or out of Level 3 during the
  period.





40
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Gains and
losses (realized and unrealized) for Level 3 fair value measurements included in
earnings are reported in operating revenues and cost of energy as
follows:





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30, 2009
            
            
            June
      30, 2009Operating
      Revenues
            
            
            Cost
      of
              Energy
            
            
            Operating
      Revenues
            
            
            Cost
      of
              EnergyPNMR
            
            (In
      thousands)Total
      gains (losses) included in earnings
            
            $
            78
            
            
            $
            (92
            )
            
            $
            237
            
            
            $
            (2,339
            )Change
      in unrealized gains or (losses)
              relating to assets still held at reporting date
            
            $
            -
            
            
            $
            685
            
            
            $
            -
            
            
            $
            (786
            )





PNMTotal
      gains (losses) included in earnings
            
            $
            78
            
            
            $
            (92
            )
            
            $
            237
            
            
            $
            (2,339
            )Change
      in unrealized gains or (losses)
              relating to assets still held at reporting date
            
            $
            -
            
            
            $
            685
            
            
            $
            -
            
            
            $
            (786
            )





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30, 2008
            
            
            June
      30, 2008Operating
              Revenues
            
            
            Cost
      of
              Energy
            
            
            Operating
              Revenues
            
            
            Cost
      of
              EnergyPNMR
            
            (In
      thousands)Total
      gains (losses) included in earnings
            
            $
            18,306
            
            
            $
            (21,608
            )
            
            $
            14,514
            
            
            $
            (2,426
            )Change
      in unrealized gains or losses
              relating to assets still held at reporting date
            
            $
            (611
            )
            
            $
            10,591
            
            
            $
            (806
            )
            
            $
            16,620PNMTotal
      gains (losses) included in earnings
            
            $
            17,626
            
            
            $
            (21,200
            )
            
            $
            13,897
            
            
            $
            (2,501
            )Change
      in unrealized gains or losses
              relating to assets still held at reporting date
            
            $
            -
            
            
            $
            10,481
            
            
            $
            -
            
            
            $
            16,510


41
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)





(5)
            Earnings
      Per Share





In
accordance with SFAS 128, dual presentation of basic and diluted earnings (loss)
per share has been presented in the Condensed Consolidated Statements of
Earnings (Loss) of PNMR.  Information regarding the computation of
earnings (loss) per share is as follows:







Three Months Ended
              June 30,
            
            Six Months Ended
              June 30,2009
            
            
            
            2008
            
            
            
            2009
            
            
            2008(In
      thousands, except per share amounts)Earnings
      (Loss) Attributable to PNMR:Earnings
      (loss) from continuing operations
            
            $
            3,419
            
            
            $
            (145,115
            )
            
            $
            19,827
            
            
            $
            (216,119
            )Earnings
      from continuing operations attributable to Valencia non-controlling
      Interest
            
            
            (2,775
            )
            
            
            (1,001
            )
            
            
            (5,354
            )
            
            
            (1,001
            )Preferred
      stock dividend requirements of subsidiary
            
            
            (132
            )
            
            
            (132
            )
            
            
            (264
            )
            
            
            (264
            )Earnings
      (loss) from continuing operations attributable to PNMR
            
            
            512
            
            
            
            (146,248
            )
            
            
            14,209
            
            
            
            (217,384
            )Earnings
      (loss) from discontinued operations
            
            
            (2,611
            )
            
            
            2,762
            
            
            
            79,063
            
            
            
            25,261Net
      Earnings (Loss) Attributable to PNMR
            
            $
            (2,099
            )
            
            $
            (143,486
            )
            
            $
            93,272
            
            
            $
            (192,123
            )Average
      Number of Common Shares:Outstanding
      during period
            
            
            86,632
            
            
            
            81,698
            
            
            
            86,593
            
            
            
            79,274Equivalents
      from convertible preferred stock
            
            
            4,778
            
            
            
            -
            
            
            
            4,778
            
            
            
            -Average
      Shares - Basic
            
            
            91,410
            
            
            
            81,698
            
            
            
            91,371
            
            
            
            79,274Dilutive
      Effect of Common Stock Equivalents (a)-Stock
      options and restricted stock
            
            
            126
            
            
            
            -
            
            
            
            117
            
            
            
            -Average
      Shares - Diluted
            
            
            91,536
            
            
            
            81,698
            
            
            
            91,488
            
            
            
            79,274Per
      Share of Common Stock – Basic:Earnings
      (loss) from continuing operations
            
            $
            0.01
            
            
            $
            (1.79
            )
            
            $
            0.16
            
            
            $
            (2.74
            )Earnings
      (loss) from discontinued operations
            
            
            (0.03
            )
            
            
            0.03
            
            
            
            0.86
            
            
            
            0.32Net
      Earnings (Loss)
            
            $
            (0.02
            )
            
            $
            (1.76
            )
            
            $
            1.02
            
            
            $
            (2.42
            )Per
      Share of Common Stock – Diluted:Earnings
      (loss) from continuing operations
            
            $
            0.01
            
            
            $
            (1.79
            )
            
            $
            0.16
            
            
            $
            (2.74
            )Earnings
      (loss) from discontinued operations
            
            
            (0.03
            )
            
            
            0.03
            
            
            
            0.86
            
            
            
            0.32Net
      Earnings (Loss)
            
            $
            (0.02
            )
            
            $
            (1.76
            )
            
            $
            1.02
            
            
            $
            (2.42
            )





(a)
            Excludes
      the effect of anti-dilutive common stock equivalents related to
      out-of-the-money stock options of 3,347,884 at June 30,
      2009.  Due to losses in the three months and six months ended
      June 30, 2008, no potentially dilutive securities are reflected in the
      average number of common shares used to compute earnings (loss) per share
      since any impact would be
anti-dilutive.





42
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


(6)
            Stock-Based
      Compensation





Information
concerning stock-based compensation plans is contained in Note 13 of Notes to
Consolidated Financial Statements in the 2008 Annual Reports.





Stock
Options





The
following table represents stock option activity for the six months ended June
30, 2009:





Weighted-Weighted-
            
            
            Aggregate
            
            
            AverageAverage
            
            
            Intrinsic
            
            
            RemainingExercise
            
            
            Value
            
            
            Contract
      LifeOptions
      for PNMR Common Stock
            
            Shares
            
            
            Price
            
            
            (In
      thousands)
            
            
            (Years)Outstanding
      at beginning of period
            
            
            3,725,907
            
            
            $
            21.54Granted
            
            
            786,064
            
            
            $
            8.21Exercised
            
            
            -
            
            
            $
            -Forfeited
            
            
            (138,573
            )
            
            $
            20.22Outstanding
      at end of period
            
            
            4,373,398
            
            
            $
            19.19
            
            
            $
            2,089
            
            
            
            6.56Options
      exercisable at end of period
            
            
            3,105,747
            
            
            $
            22.09
            
            
            $
            56
            
            
            
            5.50Options
      available for future grant
            
            
            5,212,519





The
following table provides additional information concerning stock option
activity:





Six
      Months Ended
              June
      30,Options
      for PNMR Common Stock
            
            2009
            
            
            2008(In
      thousands,
              except
      per share amounts)Weighted-average
      grant date fair value per share of options granted
            
            $
            1.62
            
            
            $
            1.39Total
      intrinsic value of options exercised during the period
            
            $
            -
            
            
            $
            15





The
Company uses the Black-Scholes option pricing model to estimate the fair value
of stock-based awards with the following weighted-average assumptions for
options granted in the six months ended June 30, 2009:





Dividend
      yield
            
            
            6.27
            %Expected
      volatility
            
            
            42.03
            %Risk-free
      interest rates
            
            
            1.56
            %Expected
      life (years)
            
            
            4.48





The
assumptions above are based on multiple factors, including historical exercise
patterns of employees in relatively homogeneous groups with respect to exercise
and post-vesting employment termination behaviors, expected future exercising
patterns for these same homogeneous groups and both the implied and historical
volatility of PNMR’s stock price.





43
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Restricted
Stock





The
following table summarizes nonvested restricted stock activity for the six
months ended June 30, 2009:





Weighted-AverageNonvested
      Restricted
            
            
            
            
            Grant-DatePNMR
      Common Stock
            
            Shares
            
            
            Fair
      ValueNonvested
      at beginning of period
            
            
            195,626
            
            
            $
            17.43Granted
            
            
            98,000
            
            
            $
            7.66Vested
            
            
            (96,685
            )
            
            $
            8.62Forfeited
            
            
            -
            
            
            $
            -Nonvested
      at end of period
            
            
            196,941
            
            
            $
            11.69





The total
fair value of shares of restricted stock that vested during the six months ended
June 30, 2009 was $0.8 million.  During the three months ended June
30, 2009, the Company issued restricted stock agreements to certain executives
that are based upon the Company achieving specified performance targets, partly
for 2009 and partly for the 2009 through 2011 period.  The
determination of the number of restricted shares ultimately issued depends on
the levels at which the performance criteria are achieved and can not be
determined until after the performance periods end. The Company would issue a
maximum of 172,200 shares if all of the performance criteria are achieved at the
optimal level and all the executives remain eligible.  The Company
records compensation cost for these awards based upon periodic estimates of the
levels that the performance targets will be achieved.





(7)
            Capitalization





Information
concerning financing activities is contained in Note 6 of Notes to Consolidated
Financial Statements in the 2008 Annual Reports.





Short-term
Debt





PNMR and
PNM have revolving credit facilities for borrowings up to $600.0 million under
the PNMR Facility and $400.0 million under the PNM Facility that primarily
expire in 2012 and local lines of credit amounting to $10.0 million and $8.5
million.  TNMP had a revolving credit facility for borrowings up to
$200.0 million under the TNMP Facility that was scheduled to expire May 13,
2009.  The maximum borrowing amount under the TNMP Facility was
reduced to $75.0 million on March 23, 2009.  On April 30, 2009, TNMP
entered into the $75.0 million TNMP Revolving Credit Facility described under
Financing Activities below and the TNMP Facility terminated.  PNMR and
PNM had commercial paper programs under which they could have issued up to
$400.0 million and $300.0 million of commercial paper.  The Company
suspended the commercial paper programs due to market conditions and no
commercial paper has been issued since March 11, 2008.  The revolving
credit facilities served as support for the commercial paper
programs.  Operationally, this meant the aggregate borrowings under
the commercial paper program and the revolving credit facility for each of PNMR
and PNM could not exceed the maximum amount of the revolving credit facility for
that entity.  The commercial paper programs were terminated on July 2,
2009.  At June 30, 2009, the weighted average interest rates were
1.56% and 0.96% for the PNMR Facility and the PNM
Facility.  Short-term debt outstanding consists of:





44
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)





June
      30,
            
            
            December
      31,Short-term
      Debt
            
            2009
            
            
            2008(In
      thousands)PNMCommercial
      paper
            
            $
            -
            
            
            $
            -Revolving
      credit facility
            
            
            45,000
            
            
            
            340,000Local
      lines of credit
            
            
            -
            
            
            
            -45,000
            
            
            
            340,000TNMP
      – Revolving credit facility
            
            
            -
            
            
            
            150,000PNMRCommercial
      paper
            
            
            -
            
            
            
            -Revolving
      credit facility
            
            
            140,000
            
            
            
            254,667Local
      lines of credit
            
            
            -
            
            
            
            -$
            185,000
            
            
            $
            744,667





At July
28, 2009, PNMR, PNM, and TNMP had $383.7 million, $316.3 million, and $73.5
million of availability under their respective revolving credit facilities and
local lines of credit, including reductions of availability due to outstanding
letters of credit.  Total availability at July 28, 2009, on a
consolidated basis, was $773.5 million for PNMR. LBB is a lender under the PNMR
Facility.  LBH, the parent of LBB, has filed for bankruptcy
protection.  Subsequent to the bankruptcy filing by LBH, LBB declined
to fund a borrowing request under the PNMR Facility amounting to $5.3 million.
The availability includes $27.4 million that represents the unfunded portion of
the PNMR Facility attributable to LBB.  At July 28, 2009, PNMR and PNM
had cash investments of $3.3 million and $5.6 million and TNMP had no such
investments.





As of
June 30, 2009, TNMP had outstanding borrowings of $44.5 million from PNMR under
its intercompany loan agreement.





Financing
Activities





On
January 5, 2009, PNMR commenced a tender offer whereby it offered to repurchase
up to $150.0 million of its 9.25% senior unsecured notes due
2015.  The tender offer requested the holders of the notes to submit
the amount of notes they would be willing to sell to PNMR and at the price they
would be willing to sell, within the range of 83% to 93% of face value,
including additional compensation of 3% of face value for those holders that
tendered their notes and did not withdraw them prior to the stated early
participation date. Prior to expiration of the offer, $157.5 million of notes
were tendered to PNMR for purchase.  Under the applicable rules for
this type of arrangement, PNMR was able to purchase $157.0 million of notes at
the 93% cap price.  On February 5, 2009, PNMR repurchased and retired
these notes for $146.0 million plus accrued interest. On February 26, 2009, PNMR
purchased an additional $0.4 million of the 9.25% senior unsecured notes at 93%
of face value in a private transaction.  PNMR recognized a pre-tax
gain on these transactions of $7.3 million, net of related transaction costs and
write-off of the proportionate amount of the deferred costs of the original
issuance of the notes.





On
October 31, 2008, TNMP entered into a $100.0 million term loan credit agreement
with two lenders (the “TNMP Bridge Facility”) to provide an additional source of
funds to repay TNMP’s $167.7 million of senior unsecured notes that matured
January 15, 2009.  On January 14, 2009, TNMP borrowed $100.0 million
under the TNMP Bridge Facility.  On January 15, 2009, TNMP repaid the
entire principal and interest due on the $167.7 million principal amount
outstanding of 6.25% senior unsecured notes utilizing the proceeds from the TNMP
Bridge Facility and inter-company borrowings from PNMR.


45
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


On March
23, 2009, TNMP issued $265.5 million aggregate principal amount of 9.50% First
Mortgage Bonds, due 2019, Series 2009A at a price equal to 97.643% of their face
value.  The bonds bear interest at the rate of 9.50% per annum of
their face value. TNMP may redeem some or all of the bonds at any time at a
redemption price that reflects a make-whole provision, plus accrued
interest.  The bonds are secured by a first mortgage on substantially
all of TNMP’s property.





On March
25, 2009, TNMP entered into a $50.0 million loan agreement with Union Bank, N.
A. (the “2009 Term Loan Agreement”).   TNMP borrowed $50.0
million under this agreement on March 30, 2009.  Borrowings under the
2009 Term Loan Agreement must be repaid by March 25, 2014 and are secured by
$50.0 million aggregate principal amount of TNMP first mortgage bonds (the
“Series 2009B Bonds”).  Through hedging arrangements, TNMP has
established fixed interest rates for the 2009 Term Loan Agreement of 6.05% for
the first three years and 6.30% thereafter.  The hedging obligations
are also secured by the Series 2009B Bonds.  The hedge is accounted
for as a cash-flow hedge and its June 30, 2009 pre-tax fair value of $0.7
million is included in other deferred charges on the Condensed Consolidated
Balance Sheets and in AOCI.  Amounts reclassified from AOCI are
included in other interest expense.  The fair value determination was
made using Level 2 inputs under SFAS 157.





TNMP used
the proceeds received from the 9.50% First Mortgage Bonds and the 2009 Term Loan
Agreement to repay the $100.0 million borrowed under the TNMP Bridge Facility
and the $150.0 million outstanding under the TNMP Facility.  The
remaining proceeds, after offering expenses, were used to reduce intercompany
borrowings from PNMR.





On April
30, 2009, TNMP entered into a new $75.0 million revolving credit facility (the
“TNMP Revolving Credit Facility”) and the existing TNMP Facility was
terminated.  Borrowings under the TNMP Revolving Credit Facility are
secured by $75.0 million aggregate principal amount of first mortgage bonds of
TNMP (the “Series 2009C Bonds”).  The TNMP Revolving Credit Facility
will expire in April 2011.





On
February 26, 2009, the Finance Committee of the PNMR Board authorized PNMR
to provide support for the debt of TNMP by approving additional loans to TNMP as
a contingency in the event TNMP was unable to obtain external financing
sufficient to pay amounts borrowed under the TNMP Facility and the TNMP Bridge
Facility when they came due.  With the completion of the financing
described above, the PNMR support terminated on April 30, 2009.





On May
23, 2003, PNM issued $36.0 million of 4.00% PCRB senior unsecured notes, which
have a scheduled maturity in 2038, but were subject to mandatory repurchase and
remarketing on July 1, 2009.  PNM repurchased these notes for $36.0
million on July 1, 2009 utilizing available cash balances and borrowings under
the PNM Facility.  PNM intends to hold these bonds (without legally
canceling them) and anticipates remarketing the bonds at some point in the
future depending upon market conditions. For financial reporting purposes, the
debt will be considered extinguished and removed from the balance
sheets.





Common
Stock





PNMR
offers new shares of PNMR common stock through the PNMR Direct Plan and an
equity distribution agreement.  The equity distribution agreement was
terminated in July 2009.  For the six months ended June 30, 2009, PNMR
sold 90,341 shares of its common stock through the PNMR Direct Plan for net
proceeds of $0.8 million.  On July 15, 2009, PNMR began purchasing
shares of its common stock on the open market rather than issuing additional
shares to satisfy subscriptions under the PNMR Direct Plan.  PNMR also
issued 48,202 shares of its common stock for $0.4 million through its ESPP
during the six months ended June 30, 2009.  The ESPP was terminated
effective June 30, 2009.





46
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Convertible
Preferred Stock





In
November 2008, PNMR issued 477,800 shares of Series A convertible preferred
stock.  The Series A convertible preferred stock is convertible into
PNMR common stock in a ratio of 10 shares of common stock for each share of
preferred stock.  The Series A convertible preferred stock is entitled
to receive dividends equivalent to any dividends paid on PNMR common stock as if
the preferred stock had been converted into common stock.  The Series
A convertible preferred stock is entitled to vote on all matters voted upon by
common stockholders, except for the election of the Board.  In the
event ofliquidation of PNMR,
preferred holders would receive a preference of$0.10 per common share
equivalent.  After that preference, common holders would receive an
equivalent liquidation preference per share and all remaining distributions
would be shared ratably between common and preferred holders.  The
terms of the Series A convertible preferred stock result in it being
substantially equivalent to common stock.  Therefore, for earnings per
share purposes the number of common shares into which the Series A convertible
preferred stock is convertible is included in the weighted average number of
common shares outstanding for periods after the Series A convertible preferred
stock was issued.  Similarly, dividends on the Series A convertible
preferredstock are
considered to be common dividends in the accompanying Condensed Consolidated
Financial Statements.





(8)
            Pension
      and Other Postretirement Benefit
Plans





PNMR and
its subsidiaries maintain qualified defined benefit pension plans,
postretirement benefit plans providing medical and dental benefits, and
executive retirement programs (“PNM Plans” and “TNMP Plans”).  PNMR
maintains the legal obligation for the benefits owed to participants under these
plans.





Readers
should refer to Note 12 of Notes to the Consolidated Financial Statements in the
2008 Annual Reports for additional information on these plans.





PNM
Plans





The
following tables present the components of the PNM Plans’ net periodic benefit
cost (income):





Three
      Months Ended June 30,Pension
      Plan
            
            
            Other
      Postretirement Benefits
            
            
            Executive
      Retirement Program2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Components
      of Net PeriodicBenefit
      Cost (Income)Service cost
            
            $
            -
            
            
            $
            -
            
            
            $
            104
            
            
            $
            178
            
            
            $
            15
            
            
            $
            14Interest cost
            
            
            8,610
            
            
            
            8,317
            
            
            
            1,847
            
            
            
            2,086
            
            
            
            284
            
            
            
            284Expected long-term return on assets
            
            
            (9,691
            )
            
            
            (10,336
            )
            
            
            (1,458
            )
            
            
            (1,532
            )
            
            
            -
            
            
            
            -Amortization of net loss
            
            
            955
            
            
            
            481
            
            
            
            822
            
            
            
            1,204
            
            
            
            7
            
            
            
            13Amortization of prior service cost
            
            
            79
            
            
            
            79
            
            
            
            (1,065
            )
            
            
            (1,422
            )
            
            
            3
            
            
            
            3Net
      periodic benefit cost (income)
            
            $
            (47
            )
            
            $
            (1,459
            )
            
            $
            250
            
            
            $
            514
            
            
            $
            309
            
            
            $
            314





47
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)





Six
      Months Ended June 30,Pension
      Plan
            
            
            Other
      Postretirement Benefits
            
            
            Executive
      Retirement Program2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Components
      of Net PeriodicBenefit
      Cost (Income)Service cost
            
            $
            -
            
            
            $
            -
            
            
            $
            209
            
            
            $
            356
            
            
            $
            29
            
            
            $
            28Interest cost
            
            
            17,220
            
            
            
            16,634
            
            
            
            3,694
            
            
            
            4,172
            
            
            
            568
            
            
            
            568Expected long-term return on assets
            
            
            (19,382
            )
            
            
            (20,672
            )
            
            
            (2,916
            )
            
            
            (3,064
            )
            
            
            -
            
            
            
            -Amortization of net loss
            
            
            1,909
            
            
            
            962
            
            
            
            1,645
            
            
            
            2,408
            
            
            
            13
            
            
            
            26Amortization of prior service cost
            
            
            158
            
            
            
            158
            
            
            
            (2,131
            )
            
            
            (2,844
            )
            
            
            5
            
            
            
            6Curtailment (gain) (1)
            
            
            -
            
            
            
            -
            
            
            
            (2,943
            )
            
            
            -
            
            
            
            -
            
            
            
            -Net
      periodic benefit cost (income)
            
            $
            (95
            )
            
            $
            (2,918
            )
            
            $
            (2,442
            )
            
            $
            1,028
            
            
            $
            615
            
            
            $
            628





(1)The January 2009
      sale of PNM Gas resulted in the retiree medical obligation associated with
      the gas designated employees to cease.  This action meets the
      definition
              of a curtailment under SFAS 106 and resulted in a curtailment gain in the
      first quarter 2009, which is reflected in the gain on sale of PNM
      Gas.





PNM does
not anticipate making any contributions to its pension plan trust during
2009.  Based on current law and estimates of portfolio performance,
PNM anticipates making contributions to its pension plan trust of approximately
$21.7 million in 2010 and a total of $134.6 million for
2011-2013.  PNM contributed $1.4 million and $1.8 million to trusts
for other postretirement benefits for the three months ended June 30, 2009 and
2008 and $2.1 million and $2.8 million for the six months ended June 30, 2009
and 2008.  PNM expects to make contributions totaling $2.7 million
during the year ended December 31, 2009 to the trust for other postretirement
benefits.  Disbursements under the executive retirement program, which
are funded by the Company and considered to be contributions to the plan, were
$0.4 million in the three months ended June 30, 2009 and 2008, $0.8 million for
the six months ended June 30, 2009 and 2008, and are expected to total $1.5
million during 2009.





TNMP
Plans





The
following tables present the components of the TNMP Plans’ net periodic benefit
cost (income):





Three
      Months Ended June 30,Pension
      Plan
            
            
            Other
      Postretirement Benefits
            
            
            Executive
      Retirement Program2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Components
      of Net PeriodicBenefit
      Cost (Income)Service cost
            
            $
            -
            
            
            $
            -
            
            
            $
            65
            
            
            $
            71
            
            
            $
            -
            
            
            $
            -Interest cost
            
            
            1,099
            
            
            
            1,061
            
            
            
            183
            
            
            
            179
            
            
            
            19
            
            
            
            19Expected long-term return on assets
            
            
            (1,523
            )
            
            
            (1,659
            )
            
            
            (124
            )
            
            
            (122
            )
            
            
            -
            
            
            
            -Amortization of net gain
            
            
            -
            
            
            
            (36
            )
            
            
            (66
            )
            
            
            (68
            )
            
            
            -
            
            
            
            -Amortization of prior service cost
            
            
            -
            
            
            
            -
            
            
            
            15
            
            
            
            15
            
            
            
            -
            
            
            
            -Net
      Periodic Benefit Cost (Income)
            
            $
            (424
            )
            
            $
            (634
            )
            
            $
            73
            
            
            $
            75
            
            
            $
            19
            
            
            $
            19


48
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)





Six
      Months Ended June 30,Pension
      Plan
            
            
            Other
      Postretirement Benefits
            
            
            Executive
      Retirement Program2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Components
      of Net PeriodicBenefit
      Cost (Income)Service cost
            
            $
            -
            
            
            $
            -
            
            
            $
            130
            
            
            $
            142
            
            
            $
            -
            
            
            $
            -Interest cost
            
            
            2,198
            
            
            
            2,122
            
            
            
            366
            
            
            
            358
            
            
            
            38
            
            
            
            38Expected long-term return on assets
            
            
            (3,047
            )
            
            
            (3,318
            )
            
            
            (247
            )
            
            
            (244
            )
            
            
            -
            
            
            
            -Amortization of net gain
            
            
            -
            
            
            
            (72
            )
            
            
            (132
            )
            
            
            (136
            )
            
            
            -
            
            
            
            -Amortization of prior service cost
            
            
            -
            
            
            
            -
            
            
            
            30
            
            
            
            30
            
            
            
            -
            
            
            
            -Net
      Periodic Benefit Cost (Income)
            
            $
            (849
            )
            
            $
            (1,268
            )
            
            $
            147
            
            
            $
            150
            
            
            $
            38
            
            
            $
            38





TNMP made
no contributions to its pension plan trust in either the first half of 2009 or
2008 and no contributions are anticipated for 2009.  Based on current
law and estimates of portfolio performance, TNMP anticipates making
contributions to its pension plan trust of approximately $1.8 million in 2010
and a total of $7.5 million for 2011-2013.TNMP contributed $0.3
million and zero to the trust for other post-retirement benefits for the three
months ended June 30, 2009 and 2008 and $0.3 million and $0.2 million for the
six months ended June 30, 2009 and 2008.   TNMP expects to make
contributions totaling $0.3 million during the year ended December 31, 2009 to
the trust for other postretirement benefits.  Disbursements under the
executive retirement program, which are funded by the Company and considered to
be contributions to the plan, were less than $0.1 million in the three and six
months ended June 30, 2009 and 2008, and are expected to total $0.2 million
during 2009.





(9)
            Commitments
      and Contingencies





Overview





There are
various claims and lawsuits pending against the Company.  The Company
is also subject to federal, state and local environmental laws and regulations,
and is currently participating in the investigation and remediation of numerous
sites.  In addition, the Company periodically enters into financial
commitments in connection with its business operations.  The Company
is also involved in various legal proceedings in the normal course of its
business.  It is not possible at this time for the Company to
determine fully the effect of all litigation and other legal proceedings on its
results of operations or financial position.  It is the Company’s
policy to accrue for expected costs in accordance with SFAS 5, when it is
probable that a liability has been incurred and the amount to be incurred is
reasonably estimable.  The Company cannot make any assurances that the
amount of reserves or potential insurance coverage will be sufficient to cover
the cash obligations that might be incurred as a result of litigation or
regulatory proceedings.   Outside legal costs for these and
regulatory matters are accrued when the expenses are incurred.  The
Company does not expect that any known lawsuits, environmental costs, and
commitments will have a material adverse effect on its financial condition,
results of operations, or cash flows, although the outcome of litigation,
investigations, and other legal proceedings is inherently
uncertain.





With
respect to some of the items listed below, the Company has determined that a
loss is not probable or that, to the extent probable, is not reasonably
estimable.  In some cases, the Company is not able to predict with any
degree of certainty the range of possible loss that could be
incurred.  Notwithstanding these facts, the Company has assessed these
matters based on current information and made judgments concerning their
potential outcome, giving due consideration to the nature of the claim, the
amount and nature of damages sought, and the probability of
success.  Such judgments are made subject to the known uncertainty of
litigation.  The Company has established appropriate reserves for
matters where it is probable a loss has been incurred and the amount of loss is
reasonably estimable.  During the three months ended June 30, 2009,
such reserves were increased by $12.6 million, which was


49
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


recorded
as a reduction of operating revenues.  The actual outcomes of the
items listed below could ultimately differ from the judgments made and the
differences could be material.




Commitments
and Contingencies Related to the Environment





Nuclear
Spent Fuel and Waste Disposal





Nuclear
power plant operators are required to enter into spent fuel disposal contracts
with the DOE, and the DOE is required to accept and dispose of all spent nuclear
fuel and other high-level radioactive wastes generated by domestic power
reactors.  Although the Nuclear Waste Policy Act required the DOE to
develop a permanent repository for the storage and disposal of spent nuclear
fuel by 1998, the DOE has announced that the repository cannot be completed
before at least 2017.  In November 1997, the United States Court of
Appeals for the District of Columbia Circuit issued a decision preventing the
DOE from excusing its own delay, but refused to order the DOE to begin accepting
spent nuclear fuel.  Based on this decision and the DOE’s delay, a
number of utilities, including APS (on behalf of itself and the other PVNGS
owners including PNM), filed damages actions against the DOE in the Court of
Federal Claims and is currently pursuing that damages claim. In August
2008, the United States Court of Appeals for the Federal Circuit issued
decisions in three damages actions brought by other nuclear utilities that could
result in a decrease in the amount of PNM’s recoverable damages; however,
additional appeals in those actions are possible and APS continues to monitor
the status of those actions.  The trial in the APS matter began on
January 28, 2009 and closing arguments were heard in late May.  The
court has not indicated when it will reach its decision in the
matter.  PNM currently estimates that it will incur approximately
$46.1 million (in 2007 dollars) over the life of PVNGS for its share of the fuel
costs related to the on-site interim storage of spent nuclear fuel during the
operating life of the plant.  PNM accrues these costs as a component
of fuel expense, meaning that the charges are accrued as the fuel is
burned.  At June 30, 2009 and December 31, 2008, PNM had $14.8 million
and $14.5 million recorded as a liability on its Consolidated Balance Sheets for
interim storage costs.





The
Clean Air Act





Regional
Haze





In 1999,
the EPA announced final regional haze rules and in 2005, the EPA issued the
final rule addressing regional haze and guidelines for BART determinations. The
rule calls for all states to establish goals and emission reduction strategies
for improving visibility in national parks and wilderness areas.  In
October 2006, the EPA issued the final BART alternatives rule which made
revisions to the 2005 regional haze rules.  In particular, the
alternatives rule defines how an SO2 emissions
trading program developed by the Western Regional Air Partnership, a voluntary
organization of western states, tribes and federal agencies, can be used by
western states.  New Mexico will be participating in the SO2 program,
which is a trading program that will be implemented if SO2 reduction
milestones, which are still being developed, are not met.





In
November 2006, the NMED requested a BART analysis for NOX and particulates for
each of the four units at SJGS.  PNM submitted the analysis to the
NMED in early June 2007, recommending against installing additional pollution
control equipment on any of the SJGS units beyond those planned at that time,
the installation of which was recently completed.  PNM has provided
additional data in response to requests from the NMED.  The NMED is
presently reviewing the analysis and supplemental data.  Potentially,
additional NOX emission reductions could be required.  The nature and
cost of compliance with these potential requirements cannot be determined at
this time.





50
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


In
addition, EPA requested APS to perform a BART analysis for Four
Corners.  APS completed the analysis and submitted it to the EPA on
January 30, 2008.  In December 2008, APS provided additional data in
response to a request from the EPA.  APS’ recommendations include the
installation of certain pollution control equipment that APS believes
constitutes BART.  Once APS receives the EPA’s final determination as
to what constitutes BART for Four Corners, APS will have five years to complete
the installation of the equipment and to achieve the emission limits established
by the EPA.  However, in order to coordinate with the plant’s other
scheduled activities, APS will begin implementing initial portions of APS’
recommended plan later this year for Four Corners on a voluntary
basis.   Until the EPA makes a final determination on this
matter, PNM cannot accurately estimate the expenditures that may be
required.  As a result, PNM’s current environmental expenditure
estimates do not include amounts for Four Corners BART
expenditures.





While the
Company continues to monitor these matters, at the present time, the Company
cannot predict whether the agencies will agree with either PNM’s or APS’ BART
recommendations.  If the agencies disagree with those recommendations
for SJGS or Four Corners, the Company cannot predict the nature of the BART
controls the agencies may ultimately mandate or the resulting financial or
operational impact.





Ozone
Non-Attainment





In March
2009, the NMED published its draft recommendation of area designations for the
2008 revised ozone national ambient air quality standard.  The draft
recommended that San Juan County, New Mexico be designated as non-attainment for
ozone.  SJGS is situated in San Juan County.  However, the
NMED subsequently determined that the monitor indicating high ozone levels was
not reliable and did not recommend to the EPA that San Juan County be designated
as non-attainment.  EPA will make a final designation for the status
of San Juan County in March 2010.  The Company cannot predict the
outcome of this matter or if additional NOX controls would be required as a
result of ozone non-attainment designation.





Navajo
Nation Environmental Issues





Four
Corners is located on the Navajo Reservation and is held under an easement
granted by the federal government as well as a lease from the Navajo
Nation.  The Navajo Acts, enacted in 1995 by the Navajo Nation,
purport to give the Navajo Nation Environmental Protection Agency authority to
promulgate regulations covering air quality, drinking water, and pesticide
activities, including those activities that occur at Four Corners.  In
October 1995, the Four Corners participants filed a lawsuit in the District
Court of the Navajo Nation, Window Rock District, challenging the applicability
of the Navajo Acts as to Four Corners.  The District Court stayed
these proceedings pursuant to a request by the parties and the parties are
seeking to negotiate a settlement.





In 2000,
the Navajo Tribal Council approved operating permit regulations under the Navajo
Nation Air Pollution Prevention and Control Act.  The Four Corners
participants believe that the regulations fail to recognize that the Navajo
Nation did not intend to assert jurisdiction over Four Corners.  Each
of the Four Corners participants filed a petition with the Navajo Nation Supreme
Court for review of the operating permit regulations.  Those
proceedings have been stayed, pending the outcome of the settlement negotiations
mentioned above.





In May
2005, APS and the Navajo Nation signed a Voluntary Compliance Agreement (“VCA”)
resolving the dispute regarding the Navajo Nation Air Pollution Prevention and
Control Act portion of the lawsuit.  On March 21, 2006, the EPA
determined that the Navajo Nation was eligible for “treatment as a state” for
the purpose of entering into a supplemental delegation agreement with the EPA to
administer the Clean Air Act Title V, Part 71 federal permit program over Four
Corners.  The EPA entered into the supplemental delegation agreement
with the Navajo Nation on the same day.  Because the EPA’s approval
was consistent with the requirements of the VCA, APS sought dismissal of the
pending litigation in the Navajo Nation Supreme Court, as well as the pending
litigation in the Navajo Nation District Court to the extent the claims relate
to the Clean Air Act, and the Courts have dismissed the claims accordingly. The
agreement does not address or resolve any dispute relating to other aspects of
the Navajo Acts.


51
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


The
Company cannot currently predict the outcome of these matters.





Four
Corners Federal Implementation Plan Litigation





On April
30, 2007, the EPA adopted a source specific FIP to set air quality standards at
Four Corners.  The FIP essentially federalizes the requirements
contained in the New Mexico State Implementation Plan, which Four Corners has
historically followed.  The FIP also includes a requirement to
maintain and enhance dust suppression methods.  APS filed a petition
for review in the U.S. District Court of Appeals for the Tenth Circuit seeking
revisions to the FIP to clarify certain requirements and allow operational
flexibility.  The Sierra Club intervened in this action and with other
parties filed a petition for review with the same court challenging the FIP’s
compliance with the Clean Air Act.  APS intervened in that
action.  In APS’ lawsuit, APS challenges two key provisions of the
FIP:  a 20% opacity limit on certain fugitive dust emissions and a 20%
stack opacity limit on Units 4 and 5.  During 2008, the EPA
voluntarily moved to vacate the fugitive dust provisions of the FIP, and on
April 14, 2009, the court granted EPA’s motion.  The court also
rejected the Sierra Club’s challenges to the FIP and ruled in favor of the 20%
stack opacity limit.  APS filed a petition for rehearing related to
the stack opacity limit finding because APS does not believe that EPA properly
established that limit.  The Company does not believe that compliance
with this limit will have a material adverse impact on the Company’s financial
position, results of operations or cash flows.





Section 114
Request





On April
6, 2009, APS received a request from the EPA under Section 114 of the Clean Air
Act seeking detailed information regarding projects at and operations of Four
Corners.  APS is in the process of responding to this request, and the
Company is currently unable to predict the timing or content of EPA’s response
or any resulting actions.





Santa
Fe Generating Station





PNM and
the NMED conducted investigations of gasoline and chlorinated solvent
groundwater contamination detected beneath the site of the former Santa Fe
Generating Station to determine the source of the contamination pursuant to a
1992 settlement agreement between PNM and the NMED.





PNM
believes that the data compiled indicates observed groundwater contamination
originated from off-site sources.  However, to avoid a prolonged legal
dispute, PNM agreed to a settlement agreement with the NMED under which PNM
agreed to supplement remediation facilities by installing an additional
extraction well and two new monitoring wells to address remaining gasoline
contamination in the groundwater at and in the vicinity of the
site.  PNM will continue to operate the remediation facilities until
the groundwater meets applicable federal and state standards or until such time
as the NMED determines that additional remediation is not required, whichever is
earlier.  The well continues to operate and meets federal drinking
water standards.  PNM is not able to assess the duration of this
project.





The
Superfund Oversight Section of the NMED has conducted multiple investigations
into the chlorinated solvent plume in the vicinity of the site of the former
Santa Fe Generating Station.  In February 2008, a NMED site inspection
report was submitted to the EPA, which states that neither the source nor extent
of contamination has been determined and also states that the source may not be
the former Santa Fe Generating Station.  The NMED investigation is
ongoing.  The Company is unable to predict the outcome of this
matter.





52
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Coal
Combustion Waste Disposal





EPA is in
the process of conducting an assessment of coal combustion product (“CCP”)
impoundments, including the issuance of Information Collection Requests (“ICRs”)
to and onsite inspections of facilities that have surface impoundments that
handle CCPs.  This is primarily in response to the incident that
occurred at Tennessee Valley Authority’s Kingston Power Plant in December
2008.  The agency is also developing national standards for CCP
disposal and evaluating regulatory options that include regulations under
non-hazardous waste standards, hazardous waste standards, or a combination of
both.  A proposed rule is expected by year end.





SJGS did
not receive an ICR since it does not operate any CCP
impoundments.  SJCC currently disposes of CCPs consisting of fly ash,
bottom ash, and gypsum from SJGS in the surface mine pits adjacent to the
plant.  The Office of Surface Mining (“OSM”) developed draft proposed
regulations for the mine placement of CCPs.  OSM’s rulemaking effort
is currently tabled by the Obama Administration, but the agency is expected to
propose regulations later this year.  PNM cannot predict the outcome
of the EPA’s actions regarding CCP regulation and whether such actions will have
a material adverse impact on its operations or financial
position.  The Company continues to advocate for the non-hazardous
regulation of CCPs.  It also believes the proper place for oversight
of mine placement of CCPs is through the OSM and state mining and mining
reclamation agencies.





Gila
River Indian Reservation Superfund Site





In April
2008, the EPA informed PNM that it may be a PRP in the Gila River Indian
Reservation Superfund Site in Maricopa County, Arizona.  PNM, along
with SRP, APS and EPE, owns a parcel of property on which a transmission pole
and a portion of a transmission line are located.  The property abuts
the Gila River Indian Community boundary and, at one time, may have been part of
an airfield where crop dusting took place.  Currently, the EPA is only
seeking payment from PNM and other PRPs for past cleanup-related costs involving
contamination from the crop dusting.  Based upon the total amount of
cleanup costs reported by the EPA in its letter to PNM, the resolution of this
matter is not expected to have a material adverse impact on PNM’s financial
position, results of operations, or cash flows.





Other
Commitments and Contingencies





Coal
Supply





The coal
requirements for SJGS are being supplied by SJCC, a wholly owned subsidiary of
BHP Billiton.  APS purchases all of Four Corners’ coal requirements
from a supplier with a long-term lease of coal reserves with the Navajo
Nation.  In 2003, PNM completed a comprehensive review of the final
reclamation costs for both the surface mines that previously provided coal to
SJGS and the current underground mine providing coal.  Based on this
study, PNM revised its estimates of the final reclamation of the surface
mine.  In addition, the estimate for decommissioning the Four Corners
mine was revised.  Based on the most recent estimates, the final cost
of surface mine reclamation is expected to be $130.5 million in future dollars
excluding contract buyout costs paid to SJCC.  As of June 30, 2009 and
December 31, 2008, $30.2 million and $33.8 million was recognized on PNM’s
Consolidated Balance Sheet for the obligation for surface mine reclamation using
the fair value method to determine the liability.  At June 30, 2009
and December 31, 2008, the balance on PNM’s Consolidated Balance Sheets for the
reclamation liability related to underground mining activities was $1.8 million
and $1.6 million.





In 2003,
the NMPRC granted PNM permission to collect as a part of its rates up to $100.0
million of surface mine final reclamation costs.  In the 2007 Electric
Rate Case, PNM requested recovery of increased surface mine decommissioning
costs, as well as underground mine reclamation costs. Recovery of the final
underground mine reclamation costs was allowed; however, the NMPRC denied
recovery of amounts for surface mine decommissioning in excess of $100.0
million. PNM has filed an appeal of this issue in the New Mexico Supreme
Court.  See Note 10.  The Company cannot predict the outcome
of this appeal.





53
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


PVNGS
Liability and Insurance Matters





The PVNGS
participants have insurance for public liability resulting from nuclear energy
hazards to the full limit of liability under federal law.  This
potential liability is covered by primary liability insurance provided by
commercial insurance carriers in the amount of $300 million and the balance by
an industry-wide retrospective assessment program.  If losses at any
nuclear power plant covered by the program exceed the accumulated funds, PNM
could be assessed retrospective premium adjustments.  The maximum
assessment per reactor under the program for each nuclear incident is $117.5
million, subject to an annual limit of $17.5 million per incident, to be
periodically adjusted for inflation.  Based on PNM’s 10.2% interest in
the three PVNGS units, PNM’s maximum potential assessment per incident for all
three units is $36.0 million, with an annual payment limitation of $5.4
million.





The PVNGS
participants maintain “all risk” (including nuclear hazards) insurance for
property damage to, and decontamination of, property at PVNGS in the aggregate
amount of $2.75 billion, a substantial portion of which must first be applied to
stabilization and decontamination.  The participants have also secured
insurance against portions of any increased cost of generation or purchased
power and business interruption resulting from a sudden and unforeseen
accidental outage of any of the three units.  The property damage,
decontamination, and replacement power coverages are provided by Nuclear
Electric Insurance Limited (“NEIL”).  PNM is subject to retrospective
assessments under all NEIL policies if NEIL’s losses in any policy year exceed
accumulated funds.  The maximum amount of retrospective assessments
PNM could incur under the current NEIL policies totals
$7.3 million.  The insurance coverage discussed in this and the
previous paragraph is subject to policy conditions and exclusions.





Water
Supply





Because
of New Mexico’s arid climate and periodic drought conditions, there is a growing
concern in New Mexico about the use of water for power plants.  PNM
has secured water rights in connection with the existing plants at Afton, Luna
and Lordsburg.  Water availability does not appear to be an issue for
these plants at this time.





The “four
corners” region of New Mexico, in which SJGS and Four Corners are located,
experienced drought conditions during 2002 through 2004 that could have affected
the water supply for PNM’s generation plants.  In future years, if
adequate precipitation is not received in the watershed that supplies the four
corners region, the plants could be impacted.  Consequently, PNM, APS
and BHP Billiton have undertaken activities to secure additional water supplies
for SJGS, Four Corners and related mines.  PNM has reached an
agreement for a voluntary shortage sharing agreement with tribes and other water
users in the San Juan Basin for a term ending December 31,
2012.  Further, PNM and BHP Billiton have reached agreement on a
long-term supplemental contract relating to water for SJGS with the Jicarilla
Apache Nation that ends in 2016.  APS and BHP Billiton have entered
into a similar contract for Four Corners.    Although the
Company does not believe that its operations will be materially affected by the
drought conditions at this time, it cannot forecast the weather situation or its
ramifications, or how regulations and legislation may impact the Company’s
situation in the future, should the shortages occur in the future.





54
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


PVNGS
Water Supply Litigation





A summons
was served on APS in 1986 that required all water claimants in the Lower Gila
River Watershed of Arizona to assert any claims to water on or before January
20, 1987, in an action pending in the Maricopa County Superior
Court.  PVNGS is located within the geographic area subject to the
summons.  APS’ rights and the rights of the other PVNGS participants
to the use of groundwater and effluent at PVNGS are potentially at issue in this
action.  APS filed claims that dispute the court’s jurisdiction over PVNGS’
groundwater rights and their contractual rights to effluent relating to PVNGS
and, alternatively, seek confirmation of those rights.  In 1999, the
Arizona Supreme Court issued a decision finding that certain groundwater rights
may be available to the federal government and Indian tribes.  In
addition, the Arizona Supreme Court issued a decision in 2000 affirming the
lower court’s criteria for resolving groundwater claims.  Litigation
on both these issues has continued in the trial court.  No trial dates
have been set in these matters.  PNM does not expect that this
litigation will have a material adverse impact on its results of operation or
financial position.





NRC
Matters




Because
of several NRC findings relating to situations at PVNGS Unit 3 in 2004 and 2006,
PVNGS was subject to a heightened level of oversight by the NRC.  On
March 24, 2009, the NRC informed APS that it was removing PVNGS Unit 3 from the
"multiple/repetitive degraded cornerstone" column of the NRC's Action Matrix
(“Column 4”), removing PVNGS Units 1 and 2 from the “one degraded cornerstone”
column (“Column 3”), and returning all three units of the plant to routine
inspection and oversight by the NRC.  This notification follows the
NRC's completion of its inspections of the corrective actions taken by PVNGS to
address performance deficiencies that caused the NRC to place Unit 3 into Column
4 and Units 1 and 2 into Column 3.  The NRC has closed the
confirmatory action letter that outlined the performance deficiencies and
associated corrective actions.




San
Juan River Adjudication





In 1975,
the State of New Mexico filed an action entitled “State of New Mexico v. United
States, et al.”, in the District Court of San Juan County, New Mexico, to
adjudicate all water rights in the San Juan River Stream System.  The
Company was made a defendant in the litigation in 1976.  The action is
expected to adjudicate water rights used at Four Corners and at
SJGS.  In 2005, the Navajo Nation and various parties announced a
settlement of the Nation’s reserved surface water rights.  On March
30, 2009, President Obama signed legislation confirming the settlement with the
Navajo Nation.  The Company cannot determine the effect, if any, of
any water rights adjudication on the present arrangements for water at SJGS and
Four Corners.  Final resolution of the case cannot be expected for
several years. The Company is unable to predict the ultimate outcome of this
matter.





Conflicts
at San Juan Mine Involving Oil and Gas Leaseholders





SJCC,
through leases with the federal government and the State of New Mexico, owns
coal interests with respect to the San Juan underground mine.  Certain
gas producers have leases in the area of the underground coal mine and have
asserted claims against SJCC that its coal mining activities are interfering
with gas production.  SJCC has reached settlement with several gas
leaseholders and has other potential claimants.  PNM cannot predict
the outcome of any future disputes between SJCC and other gas
leaseholders.





55
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Right
of Way Matters





Many of
PNM’s electric transmission and distribution facilities are located on lands
that require the grant of rights-of-way from governmental entities, Native
American tribes, or private parties.  Several of the agreements
granting the rights-of-way have expired or will expire within the next few
years.  PNM is actively reviewing these matters and negotiating with
certain parties, as appropriate, for the renewal of these
rights-of-way.  However, there can be no assurance that all of these
rights-of-way will be renewed.  If PNM is not successful in renewing
the rights-of-way on Native American lands, it could be forced to remove its
facilities from or abandon its facilities on the property covered by the
rights-of-way and seek alternative routes for its transmission or distribution
facilities.  With respect to non-tribal government land and private
land, PNM may have condemnation rights. If rights-of-way are renewed, it is
likely they will be renewed at prices that are higher than historical levels,
based on current renewal experience.  Rights-of-way costs have
historically been recovered in rates charged to customers.  PNM will
seek to recover such costs in future rates.





Republic
Savings Bank Litigation





In 1992,
Meadows Resources, Inc. (“MRI”), an inactive subsidiary of PNMR, and its
subsidiaries (“Plaintiffs”) filed suit against the Federal government in the
United States Court of Claims, alleging breach of contract arising from the
seizure of Republic Savings Bank (“RSB”).  RSB was seized and
liquidated after Federal legislation prohibited certain accounting practices
previously authorized by contracts with the Federal government.  The
Federal government filed a counterclaim alleging breach of obligation to
maintain RSB’s net worth and moved to dismiss Plaintiffs’ claims for lack of
standing.





Plaintiffs
filed a motion for summary judgment in December 1999 on the issue of liability
and on the issue of damages.  The Federal government filed a cross
motion for summary judgment and opposed Plaintiffs’ motion.





On
January 25, 2008, the court entered its opinion granting the Federal
government’s motion to dismiss MRI, denying the Federal government’s motion for
summary judgment and granting the remaining Plaintiffs’ motion for summary
judgment on the issues of liability and damages, awarding the Plaintiffs damages
in the amount of $14.9 million. MRI had previously received payment from the
FDIC in the amount of $0.3 million.  This payment reduces the amount
of damages owed to $14.6 million.





The
matter is currently pending before the U. S. Court of Appeals for the Federal
Circuit on appeal by the Federal government and cross-appeal by
Plaintiffs.  Oral argument is scheduled for August 7,
2009.  PNMR is unable to predict the outcome of this
litigation.





Western
United States Wholesale Power Market





Various
circumstances, including electric power supply shortages, weather conditions,
gas supply costs, transmission constraints and alleged market manipulation by
certain sellers, resulted in the well-publicized California and Western markets
energy crisis of 2000-2001 and the bankruptcy filings of the Cal PX and
PG&E.  As a result of the conditions in the Western markets during this
time period, between late-2000 and mid-2003, FERC, the California Attorney
General and private parties initiated investigations, litigation, and other
proceedings relevant to PNM and other sellers in the Western markets at FERC and
in both California State and Federal District Courts, seeking a determination
whether sellers of wholesale electric energy during the crisis period, including
PNM, should be ordered to pay monetary refunds to buyers of such energy. 
These proceedings continue at FERC as well as before the U.S. Court of Appeals
for the Ninth Circuit.  PNM has participated in these proceedings at FERC,
the Federal District Courts and the Ninth Circuit, including filing appeals to
that court.  Both FERC and the Ninth Circuit continue to hold settlement
and mediation conferences, in which PNM continues to
participate.





56
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


In 2005,
PNM filed a "cost offset" claim at FERC, seeking to reduce its liability for
refunds based on its costs of securing and/or providing the power sold to
California.  In doing so, PNM sought treatment as a power marketer, rather
than a vertically integrated utility, based on its configuration at the time as
a "merchant utility."  FERC's orders on cost-offsets prior to that time
allowed marketers, but not utilities, to earn a margin above costs and claim all
energy purchases as costs (whereas utilities were severely limited in their
ability to claim purchases as costs).  FERC rejected PNM's treatment as a
marketer in an order issued in late 2005 and PNM sought rehearing.  In
June 2009, FERC denied PNM’s request for rehearing.  PNM anticipates
it will appeal this matter to the Ninth Circuit.





The Company cannot predict the ultimate outcome of the appeals or any FERC
decision resulting therefrom.  At this time, it is unclear whether PNM will
ultimately be directed to make refunds as a result of these court and FERC
decisions, or whether settlement may be reached.





Complaint
Against Southwestern Public Service Company





In
September 2005, PNM filed a complaint under the Federal Power Act against SPS.
PNM argued that SPS’ rates for sale of interruptible energy were excessive and
that SPS had been overcharging PNM for deliveries of energy through its fuel
cost adjustment clause practices.  PNM also intervened in a complaint
proceeding brought by other customers raising similar arguments relating to SPS’
fuel cost adjustment clause practices (the “Golden Spread complaint
proceeding”).  Additionally, in November 2005, SPS filed an electric
rate case at FERC proposing to unbundle and raise rates charged to customers
effective July 2006. PNM intervened in the case and objected to the proposed
rate increase. In September 2006, PNM and SPS filed a settlement agreement
providing for resolution of issues relating to rates for sales of interruptible
energy, but not resolving the fuel clause issues. In September 2008, FERC issued
its order approving the settlement between PNM and SPS.





In April
2008, FERC issued its order in the Golden Spread complaint
proceeding.  FERC affirmed in part and reversed in part an ALJ’s
initial decision, which had, among other things, ordered SPS to pay refunds to
PNM with respect to the fuel clause issues.  FERC affirmed the
decision of the ALJ that SPS violated its fuel cost adjustment clause
tariffs.   However, FERC shortened the refund period applicable
to the violation of the fuel cost adjustment clause issues.PNM
and SPS have filed petitions for rehearing and clarification of the scope of the
remedies that were ordered and reversal of various rulings in the order. FERC
has not yet acted upon the requests for rehearing or clarification and they
remain pending further decision.  PNM cannot predict the final outcome
of the case at FERC.





Begay
v. PNM et al





A
putative class action was filed against PNM and other utilities on February 11,
2009 in the United States District Court in Albuquerque.  Plaintiffs
claim to be allottees, members of the Navajo Nation, who pursuant to the Dawes
Act of 1887, were allotted ownership in land carved out of the Navajo Nation.
Plaintiffs, including an allottee association, make broad, general assertions
that defendants, including PNM, are right-of-way grantees with rights-of-way
across the allotted lands and are either in trespass or have paid insufficient
fees for the grant of rights-of-way or both.  The plaintiffs, who have sued
the defendants for breach of fiduciary duty, seek a constructive
trust.  They have also included a breach of trust claim against the
United States and its Secretary of the Interior.  PNM and the other
defendants have filed motions to dismiss this action.  PNM is unable
to determine the outcome of this case but intends to defend it
vigorously.





57
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


(10)
            Regulatory
      and Rate Matters





PNMR





First
Choice Price-to-Beat Base Rate Reset





Based on
the terms of the Texas stipulation related to the acquisition of TNP, First
Choice made a filing to reset its price-to-beat base rates in 2005. First
Choice’s price-to-beat base rate case was consolidated with TNMP’s 60-day rate
review (see “60-Day Rate Review” below). First Choice requested that the PUCT
recognize in its new price-to-beat base rates the TNMP rate reduction and the
synergy savings credit provided for in the TNP acquisition stipulation. In 2006,
TNMP, First Choice, the PUCT staff and other parties filed a non-unanimous
settlement agreement (“NUS”).  The PUCT unanimously approved the NUS
on November 2, 2006 and made First Choice’s new price-to-beat base rates
effective on December 1, 2006, as First Choice had requested.  As
price-to-beat rates expired on December 31, 2006, the approved rates are no
longer applicable.  In January 2007, TNMP’s 60-Day Rate Review
proceeding and the underlying NUS were appealed by various Texas cities to a
Texas District Court.  TNMP and First Choice have intervened in this
appeal.   The Company is unable to predict the outcome of this
matter.





First
Choice Request for ERCOT Alternative Dispute Resolution





In June
2008, First Choice filed a request for alternative dispute resolution with ERCOT
alleging that ERCOT incorrectly applied its protocols with respect to congestion
management during the first quarter of 2008.  First Choice requested
that ERCOT resolve the dispute by restating certain elements of its first
quarter 2008 congestion management data and by refunding to First Choice
allegedly overstated congestion management charges.  The amount at
issue in First Choice’s claim can only be determined by running ERCOT market
models with corrected inputs but First Choice believes that the amount is
significant.  ERCOT protocols provide that ERCOT will notify
potentially impacted market participants and subsequently consider the merits of
First Choice’s allegations.  The Company is unable to predict the
outcome of this matter.





PNM





2007
Electric Rate Case





On
February 21, 2007, PNM filed a general electric rate case (“2007 Electric Rate
Case”) requesting the NMPRC approve an increase in service fees to all of PNM’s
retail customers except those formerly served by TNMP.  The request
was designed to provide PNM’s electric utility an opportunity to earn a 10.75
percent return on equity.  The application also requested
authorization to implement a FPPAC through which changes in the cost of fuel and
purchased power, above or below the costs included in base rates, will be passed
through to customers on a monthly basis.  On April 24, 2008, the NMPRC
issued a final order that resulted in a revenue increase of $34.4
million.  The rate increase provides for a 10.1 percent return on
equity.New rates
reflecting the $34.4 million increase were effective for bills rendered on and
after May 1, 2008.  In its final order, the NMPRC disallowed recovery
of costs associated with the RECs used to meet the New Mexico Renewable Energy
Portfolio Standards that were being deferred as regulatory
assets.  The NMPRC also ruled that recovery of surface coal mine
decommissioning costs be capped at $100 million.  The order resulted
in PNM being unable to assert it is probable, as defined under GAAP, that the
costs previously deferred on PNM’s balance sheet will be recoverable through
future rates charged to its customers.  Accordingly, as of March 31,
2008, PNM recorded regulatory disallowances for pre-tax write offs of $19.6
million for coal mining decommissioning costs and $10.6 million for deferred REC
costs.  PNM appealed the NMPRC’s treatment of coal mine
decommissioning and the RECs to the New Mexico Supreme Court.  Under
the terms of the stipulation in the 2008 Electric Rate Case described below, PNM
dismissed its appeal of the treatment of the REC costs shortly after that
stipulation was approved.  If the appeal of the coal mine
decommissioning costs is successful, those costs will be restored to PNM’s
balance sheet. Oral argument


58
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


before
the New Mexico Supreme Court was held on July 20, 2009 and a decision is
pending.  PNM is unable to predict the outcome of this
matter.





Emergency
FPPAC





On March
20, 2008, PNM and the IBEW filed a joint motion in the general electric rate
case requesting NMPRC authorization to implement an Emergency FPPAC on an
interim basis.On
May 22, 2008, the NMPRC issued a final order that approved the Emergency FPPAC
with certain modifications.  The Emergency FPPAC permits PNM to
recover its actual fuel and purchased power costs up to $0.024972 per kWh, which
is an increase of $0.008979 per kWh above the fuel costs included in base
rates.  PNM implemented the Emergency FPPAC from June 2, 2008 through
the effective date of the 2008 Electric Rate Case described
below.  The actual fuel and purchased power costs did not exceed the
annual cap during the period the Emergency FPPAC was in effect.  The
Emergency FPPAC provided that if PNM’s base load generating units subject to
NMPRC jurisdiction did not operate at or above a specified capacity factor and
PNM was required to obtain replacement power to serve jurisdictional customers,
PNM would be required to make a filing with the NMPRC seeking approval of the
replacement power costs.  In the required filing, PNM has stated that
the costs of the replacement power amounting to $8.0 million were prudently
incurred and should be approved.





The
Albuquerque Bernalillo County Water Utility Authority and the New Mexico
Industrial Energy Consumers Inc. filed notices of appeal to the New Mexico
Supreme Court, which seek to have vacated the NMPRC order approving the
Emergency FPPAC. The appeals have been consolidated and PNM has been granted
party status.  Oral argument before the New Mexico Supreme Court is
scheduled for August 10, 2009.  PNM is unable to predict the final
outcome of these appeals.





The NMPRC order approving the Emergency
FPPAC required PNM to pay for an audit of PNM’s monthly FPPAC reports and a
prudence review of PNM’s fuel and purchased power costs, to be conducted by
auditors selected by the NMPRC.  Costs of the audit incurred by PNM
will be recoverable through future rate proceedings.  The NMPRC has
selected an auditor and the audit has begun.  Results of the audit are
not yet known.





2008
Electric Rate Case





On
September 22, 2008, PNM filed a general rate case (“2008 Electric Rate Case”)
requesting the NMPRC to approve an increase in electric service rates to all PNM
retail customers except those formerly served by TNMP. The proposed rates were
designed to increase annual operating revenue by $123.3 million, based on a
March 31, 2008 test period and calculating base fuel costs using a projection of
costs for the 12 months ending March 31, 2009. PNM also proposed a FPPAC in the
general form authorized by the NMPRC, but with PNM retaining 25% of off-system
sales margins and crediting 75% against fuel and purchased power
costs.





On March
6, 2009, PNM, the NMPRC staff and most of the intervening parties filed a
stipulation to resolve all issues in the case, including the approval of the
Resource Stipulation described below. No party opposed the
stipulation.   The stipulation provided for an increase in annual
non-fuel revenues of $77.3 million, of which 65% ($50.2 million) would be
implemented for bills beginning on July 1, 2009 and the remaining 35% ($27.1
million) to be implemented in rates as of April 1, 2010.  The
stipulation was amended to reduce the rate increase to $77.1 million and was
approved by the NMPRC on June 18, 2009. The new rates went into effect for bills
rendered beginning July 1, 2009.  As an offset to the non-fuel revenue
increase, PNM implemented a credit to customers totaling $26.3 million,
representing the amount of revenues from past sales of SO2
allowances.  This amount will be credited to ratepayers over 21 months
beginning July 1, 2009. The crediting mechanism will also be used to credit
customers with revenues received by PNM from future sales of SO2
allowances.  PNM recorded a regulatory disallowance expense and a
regulatory liability for the $26.3 million to be credited to ratepayers. The
stipulation also provides that a revised FPPAC go into effect with the new
rates.  The stipulation provides that 100% of off-systems sales
margins be credited against fuel and purchased power costs in the
FPPAC.  The FPPAC factor will be set annually beginning July 1,
2010.


59
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Resource
Stipulation





In
anticipation of the 2008 Electric Rate Case, on September 10, 2008, a
stipulation (the “Resource Stipulation”) executed by PNM, the NMPRC staff, the
AG and the Coalition for Clean Affordable Energy, and later joined by the New
Mexico Industrial Energy Consumers Inc., was filed with the NMPRC. The NMPRC
approved the Stipulation on May 26, 2009.  The Resource Stipulation
allows recovery in rates of costs related to and resolves all issues in the
proceedings regarding 1) the Valencia PPA, 2) PNM’s proposed acquisition of an
ownership interest in Unit 2 of PVNGS currently being leased, including carrying
costs of $2.1 million, and 3) the application to own and operate Lordsburg and
PNM’s interest in Luna as jurisdictional assets.





In June
2007, a wholly-owned subsidiary of PNMR purchased 100% of a trust, which owns a
2.26% undivided interest, representing 29.8 MW, in PVNGS Unit 2 and a 0.76%
undivided interest in certain PVNGS common facilities, as well as a lease under
which such facilities are leased to PNM.  The Resource Stipulation
allows the Unit 2 interest to be transferred to PNM and the acquisition costs to
be recovered beginning with the 2008 Electric Rate Case.  On July 24,
2009, PNM purchased the trust from the other PNMR subsidiary for $39.1 million
in cash.  The purchase price was equal to the net book value of the
underlying assets less deferred taxes and miscellaneous accruals. The other PNMR
subsidiary paid a dividend of that same amount to PNMR.  PNMR then
made an equity contribution of that amount to PNM.  The trust has
$32.0 million of debt owing to the PVNGS Capital Trust, which is consolidated by
PNM.  The transfer has no impact on the financial statements of PNMR.
The impacts on the financial statements of PNM are to increase net plant in
service by $73.7 million, increase common stock by $39.1 million, reduce
investment in lessor notes by $32.0 million, reflecting the elimination of the
debt owed by the trust to the PVNGS Capital Trust, and increase deferred income
taxes and other accruals by $2.6 million.





Renewable
Portfolio Standard





The
Renewable Energy Act of 2004 was enacted to encourage the development of
renewable energy in New Mexico.  The act, as amended, establishes a
mandatory renewable energy portfolio standard requiring a utility to acquire a
renewable energy portfolio equal to 5% of retail electric sales by January 1,
2006, increasing to 10% by 2011, 15% by 2015 and 20% by 2020.  The
NMPRC requires renewable energy portfolios to be “fully diversified” beginning
in 2011 when no less than 20% of the renewable portfolio requirement must be met
by wind energy, no less than 20% by solar energy, no less than 10% by other
renewable technologies, and no less than 1.5% by distributed generation. The act
provides for streamlined proceedings for approval of utilities’ renewable energy
procurement plans, assures utilities recovery of costs incurred consistent with
approved procurement plans and requires the NMPRC to establish a RCT for the
procurement of renewable resources to prevent excessive costs being added to
rates. The NMPRC has established a RCT that began at 1% of all customers’
aggregated overall annual electric charges, increasing by 0.2% annually until
2011, at which time it will be 2%, and then increasing by 0.25% annually until
reaching 3% in 2015.





On July
1, 2009, PNM filed its annual Renewable Energy Portfolio Procurement Plan for
2010 with the NMPRC.  Under the plan, which requires NMPRC
approval, PNM would rely on a mixture of solar, wind, biogas and the
purchase of RECs to meet its renewable energy requirements for 2010,
which is set at 6% of retail energy sales by NMPRC rule, provided that
renewable resource costs are below the RCT, which is 1.8% of overall average
retail rates for 2010 and 2% for 2011.  The plan describes that PNM will
meet its renewable energy requirements in 2010, but will require additional
resources in 2011.  However, to be compliant with the RCT, PNM will not be
able to fully meet the resource diversity requirements of the NMPRC's rules,
particularly the solar resource diversity requirements.   The plan
commits PNM to provide additional details on new projects later
this year.





60
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NMPRC
Rulemaking on Disincentives to Energy Efficiency Programs





In
January 2008, the NMPRC issued a NOI to identify disincentives in utility
expenditures on energy efficiency and measures to address those disincentives,
including specific ratemaking alternatives and appointed a Hearing Examiner to
conduct workshops to develop proposals for possible rule
changes.  Based on the workshops  amendments were proposed
to the NMPRC energy efficiency rule that would allow utilities to collect $0.01
per KWh for energy savings and $10 per kilowatt for demand savings related to
energy efficiency programs and an alternative proposal that would add a
decoupling mechanism to the rule.  PNM filed comments and testimony
addressing the proposed rule and response comments and rebuttal testimony have
been filed.  A public hearing was held on June 26, 2009 and a decision
is pending.  PNM is unable to predict the final outcome of this
proceeding.





PNM
Electric Energy Efficiency and Load Management Programs





The NMPRC
requires public utilities to file annually a plan to implement energy efficiency
and load management programs. Costs to implement approved programs are recovered
through a rate rider. On September 15, 2008, PNM filed its annual plan which
included new programs, modifications to existing programs and a request to
recover program costs.  After proceedings before the NMPRC, a final
order approving the programs was issued on May 19, 2009.  The costs of
the programs will be recovered through a rate rider amounting to 1.881% of
customers’ bills, before taxes and franchise fees based on program costs of
$14.1 million beginning in August 2009. The new programs are being
implemented.





On July
7, 2009, the NMPRC ordered an investigation into whether it is
prudent for PNM to continue certain load management programs initiated in 2008,
considering its recent addition of supply-side resources.  PNM
offers these programs through contracts with third-party
vendors that contain substantial fees for
early termination.  PNM is required to file testimony
addressing the prudence of continuing these programs, but no
procedural schedule has been established.  The projected budget for
these programs in 2010 is $5.7 million.  PNM is unable to predict the
outcome of this proceeding.





Investigation
on Establishing a Policy Linking Utility Earnings to Quality of Customer
Service





On May
28, 2009, the NMPRC ordered an investigation to consider the development of a
service quality incentive mechanism for utilities in New Mexico, including PNM.
The parties are to look at quality of service mechanisms established in other
NMPRC orders, as well as the mechanisms that have been implemented in other
states. The parties are free to propose alternative types of mechanisms that are
more appropriately suited to the utilities. PNM is active participant in the
case. The Hearing Examiner has ordered workshops to occur through October 2009.
PNM is unable to predict the outcome of this proceeding.





Rates
for Former TNMP Customers in New Mexico





PNM
serves the former New Mexico customers of TNMP (“TNMP-NM”) under rates approved
by the NMPRC in its order approving PNMR’s acquisition of TNMP.  Under
that order, rates charged to customers were set through December 31,
2010.  In January 2009, the NMPRC directed PNM to estimate the revenue
requirement increase that would be reflected in a TNMP-NM rate application for
rates effective January 2011.  PNM estimated that the rate increase
could be between 40% and 56% depending on fuel costs. In April 2009, the NMPRC
directed PNM, the NMPRC staff, and other parties to attempt to reach consensus
on ways to mitigate the impact of this potential rate increase and appointed a
mediator.  Discussions are ongoing.  No date has been set
for completion of this process.  PNM cannot predict the ultimate
outcome of this matter.





61
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Third-Party
Arrangements for Renewable Distributed Generation





On June
16, 2009, the NMPRC initiated a proceeding and requested legal briefs on the
topic of whether third-party arrangements for renewable generation are
permissible under New Mexico law.  Initial briefs by utilities, the
NMPRC staff and intervenors were filed on July 31, 2009.  Response
briefs are due by August 31, 2009.  In its initial brief, PNM stated
that third-party arrangements that involve the sale of electricity to retail
customers in the service territory of existing utilities were not legally
permissible.  Other utilities’ and the NMPRC staff’s briefs reached
similar conclusions.  Certain intervenors argued in their briefs that
such arrangements were generally permissible.  PNM cannot at this time
predict the outcome of this proceeding.





TNMP





TNMP
Competitive Transition Charge True-Up Proceeding





The
purpose of the true-up proceeding was to quantify and reconcile the amount of
stranded costs that TNMP may recover from its transmission and distribution
customers.  A 2004 PUCT decision established $87.3 million as TNMP’s
stranded costs.  TNMP and other parties have made a series of appeals
on the ruling and it is currently before the Texas Supreme Court. TNMP is unable
to predict if the Texas Supreme Court will review the decision or the ultimate
outcome of this matter.





Interest
Rate for Calculating Carrying Charges on TNMP’s Stranded Cost





The PUCT
approved an amendment to the true-up rule in 2006, which results in a lower
interest rate that TNMP is allowed to collect on the unsecuritized true-up
balance through a CTC. The PUCT concluded that the correct rate at which a
utility should accrue carrying costs through a CTC is the weighted average of an
adjusted form of its marginal cost of debt and its unadjusted historical cost of
debt, with the weighting based on the utility’s most recently authorized capital
structure.  The revised rate affects TNMP by lowering the previously
approved carrying cost rate of 10.93%.  After regulatory proceedings,
the PUCT issued an order approving the 8.31% rate proposed by TNMP and the PUCT
staff. Various municipal intervenors (“Cities”) appealed the PUCT’s order to the
District Court in Austin, Texas, with TNMP as an intervenor.  The
District Court affirmed the PUCT’s decision and the Cities filed an appeal in
the Texas 3rd Court
of Appeals.  Oral argument was held on February 26,
2009.  On May 1, 2009, the Court of Appeals affirmed the decisions of
the lower court as requested by TNMP.





Interest
Rate Compliance Tariff





Following
the revision of the interest rate on TNMP’s carrying charge, TNMP filed a
compliance tariff to implement the new 8.31% rate. TNMP’s filing proposed to put
the new rates into effect on February 1, 2008.  Intervenors asserted
objections to the compliance filing.  PUCT staff urged that the PUCT
make the new rate effective as of December 27, 2007 when the PUCT’s order
establishing the correct rate became final.  After regulatory
proceedings, the PUCT issued an order making the new rate retroactive to July
20, 2006.  TNMP filed an appeal of this order in the District Court in
Austin, Texas.  While there is inherent uncertainty in this type of
proceeding, TNMP believes it will ultimately be successful in overturning any
ruling that the effective date should be prior to December 27,
2007.





60-Day
Rate Review





In 2005,
TNMP made a required 60-day rate review filing.  TNMP’s case
establishes a CTC for recovery of the true-up balance.  As noted
above, TNMP’s 60-day rate review, along with First Choice’s price-to-beat rate
reset filing, were consolidated.  See “First Choice Price-To-Beat Base
Rate Reset” above for further updates.  In 2006, the PUCT issued a
signed order which would allow TNMP to begin collecting its true-up balance,
which includes carrying charges, over a 14-year period.  The order
also allows TNMP to collect expenses associated with several cases over a
three-year period.  TNMP began collecting its CTC and its rate case
expenses on December 1, 2006.  In


62
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


January
2007, this proceeding was appealed by various Texas cities to the District
Court, in Austin, Texas.  TNMP and First Choice have intervened.TNMP is unable to predict
the ultimate outcome of this matter.





2008
Rate Case





On August
29, 2008, TNMP filed with the PUCT for an $8.7 million increase in revenues,
requesting that new rates go into effect in September 2009.  In its
request, TNMP also asked for permission to implement a catastrophe reserve fund
similar to those approved for other transmission and distribution companies in
Texas. Catastrophe funds help pay for a utility system’s recovery from natural
disasters and acts of terrorism.  On October 10, 2008, the PUCT issued
a preliminary order permitting TNMP to file supplemental testimony on costs
caused by Hurricane Ike.




In
December 2008, the parties in the TNMP rate case requested that the case be
abated and the ALJ granted the request.  The abatement suspended
procedural deadlines until after the submittal of supplemental testimony by TNMP
relating to costs incurred during Hurricane Ike and anticipated increased
financing costs.  On March 31, 2009, TNMP filed its supplemental testimony,
requesting an additional revenue increase of $15.7 million annually. On June 22,
2009, TNMP and the other parties in the rate case announced that a unanimous
settlement had been reached. The stipulation of the settlement terms was filed
on July 13, 2009 and along with all supporting testimony was admitted into
evidence on July 17, 2009.  The case was remanded to the PUCT for
approval and is on the PUCT agenda for its August 13, 2009 meeting. Subject to
final approval by the PUCT, the settlement resolves all issues in the rate case
and permits TNMP to increase revenues by $12.7 million annually.  This
increase reflects interest and other costs associated with its March 2009 debt
refinancing and the settlement adjusts the interest rate TNMP is allowed to
collect on its CTC to reflect those costs.  The rate increase includes
recovery of $17.6 million of Hurricane Ike restoration costs plus carrying costs
over five years although $0.7 million of the costs incurred by TNMP were not
included and were written off in the three months ended June 30,
2009.  The settlement authorizes a catastrophe reserve of $1.0 million
funded over an eight year period. TNMP is unable to predict if the PUCT will
approve the stipulation or the ultimate outcome of this matter.




Once the
rate case is finalized by the PUCT, TNMP may update its transmission rates
annually to reflect changes in its invested capital.  Updated rates
would reflect the addition and retirement of transmission facilities, including
appropriate depreciation, federal income tax and other associated taxes, and the
approved rate of return on such facilities.




Senate
Bill 769





On April 16, 2009, the Governor of Texas signed into law Senate Bill 769 (“SB
769”) concerning the recovery of hurricane costs by utilities.  SB 769
authorizes the PUCT, after a full review, to permit an electric utility to
obtain timely recovery of system restoration costs, and permits utilities to use
securitization financing for the recovery of such costs. Appropriately incurred
costs can be approved in any future proceeding.





(11)
            Optim
      Energy





Optim
Energy was created by PNMR and ECJV, a wholly owned subsidiary of Cascade, to
serve expanding U.S. markets, principally the areas of Texas covered by
ERCOT.  PNMR and ECJV each have a 50 percent ownership interest in
Optim Energy, a limited liability company.  See Note 22 of the Notes
to Consolidated Financial Statements in the 2008 Annual Reports.  PNMR
has no commitments or guarantees with respect to Optim Energy.





Optim
Energy jointly developed a 550 MW combined-cycle natural gas unit with NRG
Energy, Inc. at the existing NRG Cedar Bayou Generating Station near Houston,
which was completed in June 2009.   Optim Energy’s share of this
unit is 275 MW.  Optim Energy financed its portion of the Cedar Bayou
construction with borrowings under its existing credit facility and operating
cash flows.





63
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Optim
Energy has a bank financing arrangement expiring in May 2012, which includes a
revolving line of credit.  This facility also provides for bank
letters of credit to be issued as credit support for certain contractual
arrangements entered into by Optim Energy.  Cascade and ECJV have
guaranteed Optim Energy’s obligations on this facility and, to secure Optim
Energy’s obligation to reimburse Cascade and ECJV for any payments made under
the guaranty, have a first lien on all assets of Optim Energy and its
subsidiaries.





In June
2009, Optim Energy notified the lender under the above bank financing agreement,
Cascade and ECJV of a default or potential default under the credit agreement
and certain other agreements entered into between Optim Energy and various of
the above parties. The default or potential default arises out of the
construction of the substation at the Cedar Bayou facility. The substation was
built or partially built on lands belonging to an affiliate of NRG Energy, Inc.
in which the Cedar Bayou plant does not have a leasehold estate and by operation
of certain credit agreements of NRG affiliates, various lenders (“NRG Lenders”)
have a lien or liens on such real property and may have a lien or liens on the
substation.  Optim Energy has obtained waivers from the lender under
its bank financing agreement, Cascade and ECJV. These waivers terminate on
October 20, 2009 unless, by that date, a release is obtained from the NRG
Lenders and the lease covering the Cedar Bayou facility is amended to add the
lands upon which the substation is located. At this time, Optim Energy believes
that these documents will be obtained prior to October 20, 2009.





Summarized
financial information for Optim Energy is as follows:





Results
of Operations





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Operating
      revenues
            
            $
            57,855
            
            
            $
            130,305
            
            
            $
            136,253
            
            
            $
            218,073Cost
      of sales
            
            
            44,097
            
            
            
            85,770
            
            
            
            89,815
            
            
            
            196,630Gross
      margin
            
            
            13,758
            
            
            
            44,535
            
            
            
            46,438
            
            
            
            21,443Non-fuel
      operations and maintenance expenses
            
            
            3,828
            
            
            
            4,947
            
            
            
            9,809
            
            
            
            9,603Administrative
      and general expenses
            
            
            10,295
            
            
            
            7,697
            
            
            
            20,304
            
            
            
            13,799Impairment
      of intangible assets
            
            
            -
            
            
            
            21,795
            
            
            
            -
            
            
            
            21,795Depreciation
      and amortization expense
            
            
            7,425
            
            
            
            7,658
            
            
            
            15,084
            
            
            
            15,227Taxes
      other than income tax
            
            
            3,244
            
            
            
            3,609
            
            
            
            6,573
            
            
            
            7,269Operating
      income (loss)
            
            
            (11,034
            )
            
            
            (1,171
            )
            
            
            (5,332
            )
            
            
            (46,250
            )Other
      income and (deductions)
            
            
            (129
            )
            
            
            449
            
            
            
            (73
            )
            
            
            706Net
      interest charges
            
            
            (3,020
            )
            
            
            (4,789
            )
            
            
            (5,500
            )
            
            
            (11,357
            )Earnings (loss) before income taxes
            
            
            (14,183
            )
            
            
            (5,511
            )
            
            
            (10,905
            )
            
            
            (56,901
            )Income
      taxes (benefit)(1)
            
            
            (51
            )
            
            
            91
            
            
            
            111
            
            
            
            (293
            )Net earnings (loss)
            
            $
            (14,132
            )
            
            $
            (5,602
            )
            
            $
            (11,016
            )
            
            $
            (56,608
            )50
      percent of net earnings (loss)
            
            $
            (7,066
            )
            
            $
            (2,801
            )
            
            $
            (5,508
            )
            
            $
            (28,304
            )Plus
      amortization of basis difference in Optim Energy
            
            
            (287
            )
            
            
            278
            
            
            
            (450
            )
            
            
            698PNMR equity in net earnings (loss) of Optim Energy
            
            $
            (7,353
            )
            
            $
            (2,523
            )
            
            $
            (5,958
            )
            
            $
            (27,606
            )





(1)Represents the Texas Margin Tax, which is considered an income
tax.





64
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Financial
Position





June
      30,
            
            
            December
      31,2009
            
            
            2008(In
      thousands)Current
      assets
            
            $
            165,569
            
            
            $
            151,677Net
      property plant and equipment
            
            
            957,805
            
            
            
            946,420Deferred
      assets
            
            
            212,163
            
            
            
            224,776Total assets
            
            
            1,335,537
            
            
            
            1,322,873Current
      liabilities
            
            
            98,343
            
            
            
            104,826Long-term
      debt
            
            
            755,000
            
            
            
            730,778Other
      long-term liabilities
            
            
            7,916
            
            
            
            7,763Total liabilities
            
            
            861,259
            
            
            
            843,367Owners’
      equity
            
            $
            474,278
            
            
            $
            479,50650 percent of owners’ equity
            
            $
            237,139
            
            
            $
            239,753Unamortized PNMR basis difference in Optim Energy
            
            
            219
            
            
            
            197PNMR equity investment in Optim Energy
            
            $
            237,358
            
            
            $
            239,950





Optim
Energy has a hedging program that covers a multi-year period.  The
level of hedging at any given time varies depending on current market conditions
and other factors.  Economic hedges that do not qualify for or are not
designated as cash flow hedges or normal purchases/sales under SFAS 133 are
derivative instruments that are required to be marked-to-market.  Due
to the extreme ERCOT market volatility experienced in the first quarter of 2008,
Optim Energy made the decision to exit its speculative trading business and
close out its speculative trading positions.  Optim Energy incurred
settled and forward speculative losses of $2.4 million in the first quarter of
2008.  The market volatility contributed to Optim Energy recording
forward mark-to-market losses of $47.1 million on its economic hedges in the
first quarter of 2008 and $8.1 million of gains in the second quarter of
2008.  Optim Energy recorded mark-to-market losses of $15.8 million
and $6.4 million on economic hedges during the three months and six months ended
June 30, 2009.





The
contribution of Altura created a basis difference between PNMR’s recorded
investment in Optim Energy and 50 percent of Optim Energy’s
equity.  While the portion of the basis difference related to contract
amortization will only continue through 2010, other basis differences, including
a difference related to emission allowances, will continue to exist through the
life of the Altura plant.  For the three months and six months ended
June 30, 2009 and 2008, the basis difference adjustment detailed above relates
mainly to contract amortization with insignificant offsets related to the other
minor basis difference components.





On
January 6, 2009, LCC filed for bankruptcy protection under Chapter 11 of the
U.S. Bankruptcy Code.  LCC is Optim Energy’s counterparty in several
agreementsfor power
and steam sales.  In addition, LCC leases Optim Energy the land
for the Altura Cogen facility and provides other services, including water, to
that facility.  The pre-petition amount
due from LCC as of June 30, 2009 is immaterial to Optim Energy’s results and has
been fully reserved.  LCC has continued to perform under the existing
contracts since its bankruptcyfiling.





The
assets of Altura transferred to Optim Energy included the development rights for
a possible expansion of the Twin Oaks plant, which was classified as an
intangible asset.  In the three months ended June 30, 2008, Optim
Energy made a strategic decision not to pursue the Twin Oaks expansion and wrote
off the development rights as an impairment of intangible assets amounting to
$21.8 million.





65
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


(12)
            Related
      Party Transactions





PNMR,
PNM, TNMP, and Optim Energy are considered related parties as defined in
SFAS 57.  PNMR Services Company provides corporate services to
PNMR, its subsidiaries, and Optim Energy.  Additional information
concerning the Company’s related party transactions is contained in Note 20 of
the Notes to Consolidated Financial Statements in the 2008 Annual
Reports.





See Note
11 for information concerning Optim Energy.  The table below
summarizes the nature and amount of other related party transactions of PNMR,
PNM and TNMP:





Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Electricity, transmission and related services billings:TNMP
      to PNMR
            
            $
            10,179
            
            
            $
            14,909
            
            
            $
            19,482
            
            
            $
            29,319Services billings:PNMR
      to PNM*
            
            
            16,845
            
            
            
            23,438
            
            
            
            33,873
            
            
            
            44,866PNMR
      to TNMP
            
            
            5,018
            
            
            
            5,038
            
            
            
            10,302
            
            
            
            9,597PNM
      to TNMP
            
            
            133
            
            
            
            23
            
            
            
            266
            
            
            
            59PNMR
      to Optim Energy
            
            
            1,365
            
            
            
            2,541
            
            
            
            2,779
            
            
            
            4,965Optim
      Energy to PNMR
            
            
            89
            
            
            
            106
            
            
            
            216
            
            
            
            106Income tax sharing payments from:PNM
      to PNMR
            
            
            45,740
            
            
            
            -
            
            
            
            45,740
            
            
            
            (1,855
            )TNMP
      to PNMR
            
            
            3,027
            
            
            
            -
            
            
            
            3,027
            
            
            
            (858
            )Interest payments:TNMP
      to PNMR
            
            
            171
            
            
            
            28
            
            
            
            601
            
            
            
            117





* PNM
shared services include billings to PNM Gas of zero and $6.1 million for the
three months ended June 30, 2009 and 2008, and $0.9 and $11.6 for the six months
ended June 30, 2009 and 2008.





(13)
            New
      Accounting Pronouncements





Note 21
of Notes to Consolidated Financial Statements in the 2008 Annual Reports
contains information regarding recently issued accounting pronouncements that
could have a material impact on the Company.  See Note 4 regarding the
implementation of SFAS 161.





FSP FAS
157-2 delayed the effective date of SFAS 157 for nonfinancial assets and
liabilities, until January 1, 2009, at which time it was adopted by the
Company.  The Company applied this FSP as of April 1, 2009 to the fair
value determinations made by the Company in evaluating intangible assets for
potential impairment.  This FSP did not have a significant impact on
the Company’s financial statements.





In April
2009, the FASB issued the following three FSPs, which were effective for interim
and annual reporting periods ending after June 15, 2009.  The Company
has adopted these FSPs and the required disclosures are reflected in Note
4.  The FSPs did not have a significant impact.





66
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


FSP
FAS 157-4 – Determining the Fair Value When the Volume and Level Activity for
the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly





FSP FAS
157-4 amends SFAS 157 by providing additional guidance on determining fair value
when the volume and level of activity for an asset or liability have
significantly decreased when compared to normal market activity for the asset or
liability, as well as providing additional guidance for determining fair values
in inactive markets.





FSP
FAS 107-1 and APB 28-1 – Interim Disclosures about Fair Value of Financial
Instruments





FSP FAS
107-1 and APB 28-1 requires disclosures about fair value of financial
instruments, previously required in annual financial statements, to be included
for interim reporting periods of publicly traded companies.





FSP
FAS 115-2 and FAS 124-2 – Recognition and Presentation of Other-Than-Temporary
Impairments





FSP FAS
115-2 and FAS 124-2 amends the other-than-temporary impairment guidance for debt
securities to make the guidance more operational and to improve the presentation
and disclosure of other-than-temporary impairments on debt and equity securities
in interim and annual financial statements, as well as requiring disclosures
about investment securities, previously required in annual financial statements,
to be included for interim reporting periods of publicly traded
companies.





SFAS
165 – Subsequent Events





In May
2009, the FASB issued SFAS 165 to establish a general standard for accounting
and disclosing events that occur after the balance sheet date but before
financial statements are issued.  SFAS 165 sets forth the period after
the balance sheet date in which management should evaluate subsequent events,
the circumstances under which events should be recognized, and the disclosures
that should be made.  SFAS 165 is effective for interim and annual
reporting periods ending after June 15, 2009 and did not have any significant
impact on the Company’s financial statements.





SFAS
167 – Amendments to FASB Interpretation No. 46(R)





In June
2009, the FASB issued SFAS 167 amending FIN 46(R), which requires entities to
perform analysis on the Company’s variable interest entities to determine
whether a controlling interest exists and therefore require
consolidation.  SFAS 167 provides additional guidance and ongoing
reassessments of the status of variable interest entities.  SFAS 167
is effective for interim and annual reporting periods beginning after November
15, 2009.  The Company is assessing the impact of this statement, but
does not believe it will have a material impact on the Company’s financial
statements.





SFAS
168 – The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles





In June
2009, the FASB issued SFAS 168, making the FASB Accounting Standards
Codification the single authoritative source of GAAP in the United
States.  The Codification is effective for interim and annual
reporting periods ending after September 15, 2009.  SFAS 168 will not
affect the Company’s financial statements other than affect the manner in which
accounting pronouncements are referred to in them.





67
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


(14)
            Discontinued
      Operations





As
discussed in Note 2, PNM sold its gas operations, which comprised the PNM Gas
segment.  Under GAAP, the assets and liabilities of PNM Gas were
considered to be held-for-sale at December 31, 2008 and presented as
discontinued operations on the accompanying balance sheets.  The PNM
Gas results of operations are excluded from continuing operations and presented
as discontinued operations on the statements of earnings.  In
accordance with SFAS 144, no depreciation is recorded on assets held for sale in
2008.  Summarized financial information for PNM Gas is as
follows:





Results
of Operations





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(In
      thousands)Operating
      revenues
            
            $
            -
            
            
            $
            95,568
            
            
            $
            65,695
            
            
            $
            316,024Cost
      of energy
            
            
            -
            
            
            
            64,917
            
            
            
            44,698
            
            
            
            225,747Gross
      margin
            
            
            -
            
            
            
            30,651
            
            
            
            20,997
            
            
            
            90,277Operating
      expenses
            
            
            4,194
            
            
            
            22,991
            
            
            
            10,010
            
            
            
            44,433Depreciation
      and amortization
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Operating
      income
            
            
            (4,194
            )
            
            
            7,660
            
            
            
            10,987
            
            
            
            45,844Other
      income (deductions)
            
            
            -
            
            
            
            502
            
            
            
            292
            
            
            
            1,443Net
      interest charges
            
            
            -
            
            
            
            (3,576
            )
            
            
            (962
            )
            
            
            (6,547
            )Gain
      on disposal
            
            
            (278
            )
            
            
            -
            
            
            
            110,727
            
            
            
            -Segment
      earnings (loss) before income taxes
            
            
            (4,472
            )
            
            
            4,586
            
            
            
            121,044
            
            
            
            40,740Income
      taxes
            
            
            (1,861
            )
            
            
            1,824
            
            
            
            41,981
            
            
            
            15,479Segment
      earnings (loss)
            
            $
            (2,611
            )
            
            $
            2,762
            
            
            $
            79,063
            
            
            $
            25,261





In
connection with the sale of the gas operations, PNM retained obligations for
certain liabilities related to the period preceding the sale. At the date of the
sale, PNM recorded liabilities for these items that were probable of being
incurred and for which amounts were reasonably estimable.  In the
second quarter of 2009, PNM expensed $4.2 million associated with the settlement
of certain of these retained liabilities.





(15)
            Business
      Improvement Plan




As
discussed in Note 24 of the Notes to Consolidated Financial Statements in the
2008 Annual Reports, the Company began a business improvement process that
included a comprehensive cost structure analysis of its operations and a
benchmarking analysis to similar-sized utilities.  During 2007 and
2008, the Company implemented a series of initiatives designed to manage future
operational costs, maintain financial strength and strengthen its regulated
utilities.   The multi-phase process includes a business
improvement plan to streamline internal processes and reduce the Company’s work
force.  The utility-related process enhancements are designed to
improve and centralize business functions.




The
Company has existing plans providing severance benefits to employees who are
involuntarily terminated due to elimination of their positions.  Under
SFAS 112, the severance benefits payable under the Company’s existing plans
should be recorded when it is probable that a liability has been incurred and
the amount can be reasonably estimated.  No significant costs were
incurred during the three months and six months ended June 30,
2009.  During the three months and six months ended June 30, 2008, the
Company recorded pre-tax severance benefits payable of $0.3 million and $0.5
million and other costs, primarily consulting fees, related to the business
improvement plan of $1.2 million and $3.2 million.  Substantially all
of these costs were recorded by PNMR.


68
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


(16)
            Variable
      Interest Entities





Information
regarding the Company’s assessment of potential variable interest entities is
contained in Note 9 of Notes to the Consolidated Financial Statements in the
2008 Annual Reports.





On April
18, 2007, PNM entered into a PPA to purchase all of the electric capacity and
energy from Valencia, a natural gas-fired power plant near Belen, New
Mexico.  Valencia became operational on May 30, 2008.  A
third-party built, owns and operates the facility while PNM is the sole
purchaser of the electricity generated. The total construction cost for the
facility was $90.0 million. The term of the PPA is for 20 years beginning June
1, 2008, with the full output of the plant estimated to be 148
MW.  During the term of the PPA, PNM has the option to purchase and
own up to 50% of the plant or the variable interest entity. PNM estimates that
the plant will typically operate during peak periods of energy demand in summer
(less than 18% of the time on an annual basis).  PNM is obligated to
pay fixed charges and variable charges under this PPA.  For the three
months and six months ended June 30, 2009, PNM paid $4.0 million and $8.0
million for fixed charges and $0.1 million and $0.1 million for variable
charges.  PNM does not have any other financial obligations related to
Valencia and creditors of Valencia do not have any recourse against PNM’s
assets.





PNM has
evaluated the accounting treatment of this arrangement and concluded that the
third party entity that owns Valencia is a variable interest entity and that PNM
is the primary beneficiary of the entity under FIN 46R since PNM will absorb the
majority of the variability in the cash flows of the plant.  As the
primary beneficiary, PNM has consolidated the entity in its financial statements
beginning on the commercial operations date.  Accordingly, the assets,
liabilities, operating expenses, and cash flows of Valencia are included in the
consolidated financial statements of PNM although PNM has no legal ownership
interest or voting control of the variable interest entity.  The
owner’s equity and net income of Valencia are considered attributable to
non-controlling interest.  PNM did not consolidate the variable
interest entity prior to May 30, 2008 since PNM had no financial
risk.





The
Company adopted SFAS 160 beginning January 1, 2009.  SFAS 160 changes
the way companies measure and present an acquisition of a non-controlling
(minority) interest and changes in a controlling interest.  On the
balance sheet, SFAS 160 results in minority interests being reflected in
stockholders’ equity rather than as a liability.  On the income
statement, earnings attributable to minority interests are removed from net
earnings to arrive at earnings attributable to the controlling
interest.  PNM and PNMR have reclassified prior periods to be
consistent with this presentation.





Summarized
financial information for Valencia is as follows:





Results
of Operations





Three
      Months Ended
            
            
            Six
      Months Ended
            
            
            May
      30, 2008 toJune
      30, 2009
            
            
            June
      30, 2009
            
            
            June
      30,2008(In
      thousands)Operating
      revenues
            
            $
            4,494
            
            
            $
            8,552
            
            
            $
            1,416Operating
      expenses
            
            
            (1,719
            )
            
            
            (3,198
            )
            
            
            (190
            )Interest
      expense
            
            
            -
            
            
            
            -
            
            
            
            (225
            )Earnings
      attributable to non-controlling interest
            
            $
            2,775
            
            
            $
            5,354
            
            
            $
            1,001





69
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Financial
Position





June
      30,
            
            
            December
      31,2009
            
            
            2008(In
      thousands)Current
      assets
            
            $
            2,931
            
            
            $
            9,925Net
      property, plant and equipment
            
            
            87,763
            
            
            
            89,011Total assets
            
            
            90,694
            
            
            
            98,936Current
      liabilities
            
            
            944
            
            
            
            430Owners’
      equity – non-controlling interest
            
            $
            89,750
            
            
            $
            98,506





Changes
in Owners Equity – Non-controlling Interest





Six
      Months EndedJune
      30, 2009(In
      thousands)Balance
      at beginning of period
            
            $
            98,506Earnings
      attributable to non-controlling interest
            
            
            5,354Net
      equity transactions with Valencia’s owner
            
            
            (14,110
            )Balance
      at end of period
            
            $
            89,750





(17)
            Goodwill
      and Other Intangible Assets





Under the
provisions of SFAS 142, the Company evaluates its goodwill and non-amortizing
intangible assets for impairment annually at the reporting unit level or more
frequently if circumstances indicate that the goodwill or intangible assets may
be impaired.  The goodwill and other intangible assets were recorded
upon PNMR’s acquisition of TNP and were pushed down to the businesses
acquired.  In connection with the transfer of TNMP’s New Mexico
operations to PNM in 2007, $102.8 million of goodwill was transferred to
PNM.





The
Company performs its required annual testing of these assets as of April
1.  Application of the impairment test requires judgment, including
the identification of reporting units, assignment of assets and liabilities to
reporting units and determination of the fair value of each reporting
unit.    The fair value of each reporting unit is estimated
using a discounted cash flow methodology.  This analysis requires
significant judgments, including estimation of future cash flows, which is
dependent on internal forecasts, estimation of long-term growth rates for the
business and determination of appropriate weighted average cost of capital for
each reporting unit.  Changes in these estimates and assumptions could
materially affect the determination of fair value and the conclusion of
impairment for each reporting unit.





As a
result of its annual testing in 2008, goodwill impairments of $43.2 million at
First Choice, $51.1 million at PNM, and $34.5 million at TNMP were recorded
during the three months ended June 30, 2008.  In addition, First
Choice recorded a $7.4 million impairment of its trade name.  During
the remainder of 2008, First Choice recorded additional impairments of goodwill
of $45.5 million, trade name of $35.2 million, and customer list of $4.8
million.  The impairments resulted from many economic factors,
including the decline of the market capitalization of PNMR’s common stock
significantly below book value and the significant challenges First Choice faced
in the ERCOT market during 2008, including the impacts of Hurricane Ike and
depressed economic conditions.  In addition, the general economic
downturn significantly impacted the weighted average cost of capital applied in
determining the fair values of PNMR’s reporting units.  See Note 25 of
Notes to Consolidated Financial Statements in the 2008 Annual
Reports.





70
 PNM
RESOURCES, INC. AND SUBSIDIARIES
 PUBLIC
SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
 TEXAS-NEW MEXICO POWER COMPANY
AND
SUBSIDIARIES
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


The 2009
annual evaluation did not indicate impairments at any of PNMR’s reporting
units.  While the market capitalization of PNMR’s common stock was
still significantly below book value at April 1, 2009, PNMR’s stock price has
increased since that date.  In addition, improved regulatory treatment
has been experienced by PNM in New Mexico and by TNMP in
Texas.  Furthermore, the First Choice business has stabilized in 2009,
primarily due to more predictable power and fuel price patterns in the ERCOT
market.  These factors have resulted in more predictable earnings and
increased fair values of the reporting units.








71





ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS





The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations for PNMR is presented on a combined basis, including
certain information applicable to PNM and TNMP.  The MD&A for PNM
and TNMP is presented as permitted by Form 10-Q General Instruction H
(2).  For discussion purposes, this report will use the term “Company”
when discussing matters of common applicability to PNMR, PNM and
TNMP.  A reference to a “Note” in this Item 2 refers to the
accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
included in Item 1, unless otherwise specified.  Certain of the tables
below may not appear visually accurate due to rounding.





MD&A
FOR PNMR





BUSINESS
AND STRATEGY





Overview





The
overall strategy of PNMR is to “Build America’s Best Merchant Utility” through
concentrated effort on its core regulated and unregulated electric
businesses.  PNM sold its gas operations on January 30, 2009 and is
now positioned to focus on its regulated electric business.  The
growth of the unregulated electric business is expected through the further
development of Optim Energy and restoring profitability at First
Choice.





The focus
on the electric businesses also includes environmental sustainability
efforts.  These efforts include environmental upgrades, energy
efficiency, expansion of the renewable energy portfolio of generation resources,
and climate change.





Another
initiative of PNMR is the separation of its merchant operations from PNM
Electric, which has been accomplished in several steps.  In June 2008,
PNMR completed the sale of certain wholesale power, natural gas and transmission
contracts as an initial step in separating its merchant plant activities from
PNM.  In addition, Luna and Lordsburg were required to be separated by
January 1, 2010 under a NMPRC regulatory order.  In June 2009, the
NMPRC approved PNM’s request in its 2008 Electric Rate Case that these units be
included in retail rates.  See Note 10. PVNGS Unit 3, which is not
subject to the separation order, may remain in PNM.  PNM has entered
into contracts for
the sale of capacity and energy from its entire ownership interest in PVNGS Unit
3 through December 31, 2010.





Critical
to PNMR’s success for the foreseeable future is the financial health of PNM,
PNMR’s largest subsidiary, primarily driven by achieving overall favorable
regulatory treatment.  As discussed in Note 10, on September 22, 2008,
PNM filed its 2008 Electric Rate Case requesting the NMPRC to approve an
increase in electric service rates to all PNM retail customers except those
formerly served by TNMP. The proposed rates were designed to increase annual
operating revenue by $123.3 million. PNM also proposed a more customary
FPPAC.  In June 2009, the NMPRC approved a stipulation resolving all
issues in the rate case, including the inclusion of additional sources of power
in determining rates.  The approved stipulation allows for an increase
in annual non-fuel revenues of $77.1 million, 65% of which was implemented for
bills rendered beginning July 1, 2009 and the remainder of which will be
implemented March 31, 2010.  As an offset to the non-fuel revenue increase,
PNM implemented a credit to customers totaling $26.3 million, representing the
amount of revenues from past sales of SO2
allowances.  This amount will be credited to customers over 21 months
beginning July 1, 2009.  PNM recorded an expense for the regulatory
disallowance and a regulatory liability for the amount to be credited to
customers. The stipulation also provides that a more traditional FPPAC go into
effect with the new rates.  The stipulation provides that 100% of
off-systems sales margins be credited against fuel and purchased power costs in
the FPPAC.





On April
6, 2009, the Governor of New Mexico signed Senate Bill 477 into law, which
became effective June 19, 2009.  SB 477 is designed to promote more
timely recovery of reasonable costs of providing utility service in two
ways.  First, SB 477 requires the NMPRC, when setting rates, to use
the test period that best reflects the conditions the utility will experience
when new rates are anticipated to go into effect.  The NMPRC is
required to give due consideration that a future test period may be the one that
best meets this test.  A future test period is defined as one that
begins no later than the time new rates are to go into
effect.  Traditionally, the NMPRC has used




72


a
historical test period, adjusted for known and measurable changes occurring
within five to six months after the end of the test period, which reflects costs
that could be up to two years old at the time new rates become
effective.  Second, SB 477 requires the NMPRC to include construction
work in progress in rate base, without an offset for allowance for funds used
during construction, for environmental improvement projects and generation and
transmission projects for which a certificate of public convenience and
necessity has been issued.   This provision will allow utilities
to collect costs as projects are being built rather than waiting until they are
finished to include them in rate base, so long as the projects will be used and
useful no later than two years after the rate case seeking inclusion is
filed.




On August
29, 2008, TNMP filed with the PUCT for an $8.7 million increase in
revenues.  The PUCT issued a preliminary order permitting TNMP to file
supplemental testimony on costs caused by Hurricane Ike and costs related to
financing completed in March 2009. The supplemental testimony was filed on March
31, 2009, which requested an additional revenue increase of $15.7
million.  On June 22, 2009, TNMP and the other parties in the rate
case announced that a unanimous settlement had been reached. The case was
remanded to the PUCT for approval and is on the PUCT agenda for its August 13,
2009 meeting.  Subject to final approval by the PUCT, the settlement
resolves all issues in the rate case and permits TNMP to increase its rates by
$12.7 million annually.  This increase reflects interest and other costs
associated with debt refinancing in March 2009 and the settlement adjusts the
interest rate TNMP is allowed to collect on its CTC to reflect those
costs.  The rate increase includes recovery of Hurricane Ike
restoration costs plus carrying costs over five years.  TNMP is unable
to predict if the PUCT will approve the stipulation or the ultimate outcome of
this matter.  Once the rate case is finalized by the PUCT, TNMP may
update its transmission rates annually to reflect changes in its invested
capital.  Updated rates would reflect the addition and retirement of
transmission facilities, including appropriate depreciation, federal income tax
and other associated taxes, and the approved rate of return on such
facilities.







As a REP,
First Choice operates in the highly competitive Texas retail
market.  During 2008, the Texas market experienced extreme price
volatility and transmission congestion.  This caused First Choice to
incur losses in its speculative trading portfolio and led to termination of
speculative activities in 2008.  These anomalies also negatively
impacted the margins realized from end use customers.  These
conditions were exacerbated by the impacts of Hurricane Ike and depressed
economic conditions resulting in very high levels of customer turnover and
levels of uncollectible accounts significantly higher than historical
experience.  During 2009, the Texas retail market has become more
stable and both power and natural gas prices decreased significantly, resulting
in a substantial increase in margins realized by First Choice.  These
factors and increased focus on growing commercial accounts, customer credit
standards, and improved customer service have contributed to an improvement in
the results of operations at First Choice.





The
recent and unprecedented disruption in the credit markets has had a significant
adverse impact on numerous financial institutions, including several of the
financial institutions that have dealings with the Company. However, at this
point in time, the Company’s existing liquidity instruments have not been
materially impacted by the credit environment and management does not expect
that it will be materially impacted in the near future. The Company is closely
monitoring its liquidity and the credit markets.  In addition, there
has been a significant decline in the level of prices of marketable equity
securities, including those held in trusts maintained for future payments of
benefits under pension and retiree medical plans.  The stock market
decline will likely result in increased levels of funding and expense applicable
to these trusts.





In the
last half of 2008 and early 2009, global economic conditions deteriorated
dramatically, encompassing the U.S. residential housing market, and global and
domestic equity and credit markets, which resulted in reduced usage of
electricity by the Company’s customers.  The tightening of the credit
markets coupled with extreme volatility in commodity markets has had a direct,
negative impact on several of First Choice’s competitors in the ERCOT retail
market.





73


Optim
Energy





PNMR’s
strategy for unregulated operations is focused on some of the nation’s growing
power markets.  PNMR intends to capitalize on the growth opportunities
in these markets through its participation and ownership in Optim
Energy.  Optim Energy’s anticipated business lines will consist
of:





·
            Development,
      operation and ownership of diverse generation
  assets


·
            Wholesale
      marketing to optimize its assets





RESULTS
OF OPERATIONS





Executive
Summary





A summary
of net earnings (loss) attributable to PNMR is as follows:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(In
      millions, except earnings per share)Earnings
      (loss) from continuing operations
            
            $
            0.5
            
            
            $
            (146.2
            )
            
            $
            146.7
            
            
            $
            14.2
            
            
            $
            (217.4
            )
            
            $
            231.6Earnings
      (loss) from discontinued operations,
              net of income taxes
            
            
            (2.6
            )
            
            
            2.8
            
            
            
            (5.4
            )
            
            
            79.1
            
            
            
            25.3
            
            
            
            53.8Net
      earnings (loss)
            
            $
            (2.1
            )
            
            $
            (143.5
            )
            
            $
            141.4
            
            
            $
            93.3
            
            
            $
            (192.1
            )
            
            $
            285.4Average
      diluted common and common equivalent
              shares
            
            
            91.5
            
            
            
            81.7
            
            
            
            9.8
            
            
            
            91.5
            
            
            
            79.3
            
            
            
            12.2Earnings
      (loss) from continuing operations per
              diluted share
            
            $
            0.01
            
            
            $
            (1.79
            )
            
            $
            1.80
            
            
            $
            0.16
            
            
            $
            (2.74
            )
            
            $
            2.90Net
      earnings (loss) per diluted share
            
            $
            (0.02
            )
            
            $
            (1.76
            )
            
            $
            1.74
            
            
            $
            1.02
            
            
            $
            (2.42
            )
            
            $
            3.44





The components of the change in earnings (loss) from
continuing operations attributable to PNMR are:





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30, 2009
            
            
            June
      30, 2009(In
      millions)PNM
      Electric
            
            $
            39.0
            
            
            $
            61.1TNMP
      Electric
            
            
            30.6
            
            
            
            28.2First
      Choice
            
            
            76.4
            
            
            
            107.5Corporate
      and Other
            
            
            3.7
            
            
            
            21.8Optim
      Energy
            
            
            (3.0
            )
            
            
            13.0Net change
            
            $
            146.7
            
            
            $
            231.6





Detailed
information regarding the changes in earnings (loss) from continuing and
discontinued operations are included in the segment information below. The
increase in the number of common and common equivalent shares is primarily due
to additional shares of PNMR common stock issued in May 2008 and PNMR’s
convertible preferred stock.  See Note 5 and Note 6 of Notes to
Consolidated Financial Statements in the 2008 Annual Reports.





Segment
Information





The
following discussion is based on the segment methodology that PNMR’s management
uses for making operating decisions and assessing performance of its various
business activities.  See Note 3 for more information on PNMR’s
operating segments.





The
following discussion and analysis should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto.  Trends
and contingencies of a material nature are discussed to the extent
known.  Refer also to Disclosure Regarding Forward Looking Statements
in Item 2 and to Part II, Item 1A. Risk Factors.





74


PNM
Electric





The table
below summarizes operating results for PNM Electric:




Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(In
      millions)Total
      revenues
            
            $
            226.5
            
            
            $
            386.1
            
            
            $
            (159.6
            )
            
            $
            458.5
            
            
            $
            638.7
            
            
            $
            (180.2
            )Cost
      of energy
            
            
            91.1
            
            
            
            247.6
            
            
            
            (156.5
            )
            
            
            192.7
            
            
            
            383.3
            
            
            
            (190.6
            )Gross
      margin
            
            
            135.4
            
            
            
            138.5
            
            
            
            (3.1
            )
            
            
            265.8
            
            
            
            255.4
            
            
            
            10.4Other
      operating expenses
            
            
            122.9
            
            
            
            147.2
            
            
            
            (24.3
            )
            
            
            220.4
            
            
            
            273.8
            
            
            
            (53.4
            )Depreciation
      and amortization
            
            
            22.9
            
            
            
            20.9
            
            
            
            2.0
            
            
            
            45.4
            
            
            
            41.9
            
            
            
            3.5Operating
      income (loss)
            
            
            (10.4
            )
            
            
            (29.6
            )
            
            
            19.2
            
            
            
            -
            
            
            
            (60.2
            )
            
            
            60.2Other
      income (deductions)
            
            
            17.5
            
            
            
            3.7
            
            
            
            13.9
            
            
            
            18.6
            
            
            
            4.3
            
            
            
            14.3Net
      interest charges
            
            
            (17.4
            )
            
            
            (17.6
            )
            
            
            0.2
            
            
            
            (34.6
            )
            
            
            (31.7
            )
            
            
            (2.9
            )Earnings
      (loss) before income taxes
            
            
            (10.3
            )
            
            
            (43.6
            )
            
            
            33.3
            
            
            
            (16.0
            )
            
            
            (87.6
            )
            
            
            71.6Income
      (taxes) benefit
            
            
            5.1
            
            
            
            (2.4
            )
            
            
            7.5
            
            
            
            8.5
            
            
            
            14.6
            
            
            
            (6.1
            )Valencia
      non-controlling interest
            
            
            (2.8
            )
            
            
            (1.0
            )
            
            
            (1.8
            )
            
            
            (5.4
            )
            
            
            (1.0
            )
            
            
            (4.4
            )Preferred
      stock dividend requirements
            
            
            (0.1
            )
            
            
            (0.1
            )
            
            
            -
            
            
            
            (0.3
            )
            
            
            (0.3
            )
            
            
            -Segment earnings (loss)
            
            $
            (8.1
            )
            
            $
            (47.1
            )
            
            $
            39.0
            
            
            $
            (13.1
            )
            
            $
            (74.2
            )
            
            $
            61.1





The table
below summarizes the significant changes to total revenues, cost of energy, and
gross margin:





2009/2008
      ChangeThree
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,Total
            
            
            Cost
      of
            
            
            Gross
            
            
            Total
            
            
            Cost
      of
            
            
            GrossRevenues
            
            
            Energy
            
            
            Margin
            
            
            Revenues
            
            
            Energy
            
            
            Margin(In
      millions)Regulated
      margins
            
            $
            (26.4
            )
            
            $
            (34.8
            )
            
            $
            8.4
            
            
            $
            (23.7
            )
            
            $
            (59.9
            )
            
            $
            36.2Unregulated
      margins
            
            
            (59.0
            )
            
            
            (45.2
            )
            
            
            (13.8
            )
            
            
            (115.2
            )
            
            
            (99.8
            )
            
            
            (15.4
            )Sale
      of merchant portfolio
            
            
            (79.6
            )
            
            
            (76.7
            )
            
            
            (2.9
            )
            
            
            (56.4
            )
            
            
            (51.3
            )
            
            
            (5.1
            )Net
      unrealized economic hedges
            
            
            5.4
            
            
            
            3.3
            
            
            
            2.1
            
            
            
            15.1
            
            
            
            27.5
            
            
            
            (12.4
            )Consolidation
      of Valencia PPA
            
            
            -
            
            
            
            (3.1
            )
            
            
            3.1
            
            
            
            -
            
            
            
            (7.1
            )
            
            
            7.1Total increase (decrease)
            
            $
            (159.6
            )
            
            $
            (156.5
            )
            
            $
            (3.1
            )
            
            $
            (180.2
            )
            
            $
            (190.6
            )
            
            $
            10.4





The
following table shows PNM Electric operating revenues by customer class,
including intersegment revenues and average number of customers:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(In
      millions, except customers)Residential
            
            $
            69.8
            
            
            $
            66.6
            
            
            $
            3.2
            
            
            $
            143.6
            
            
            $
            137.8
            
            
            $
            5.8Commercial
            
            
            82.7
            
            
            
            81.7
            
            
            
            1.0
            
            
            
            152.6
            
            
            
            149.2
            
            
            
            3.4Industrial
            
            
            19.0
            
            
            
            25.4
            
            
            
            (6.4
            )
            
            
            38.0
            
            
            
            51.1
            
            
            
            (13.1
            )Public
      authority
            
            
            4.8
            
            
            
            4.6
            
            
            
            0.2
            
            
            
            9.2
            
            
            
            8.1
            
            
            
            1.1Other
      retail
            
            
            3.7
            
            
            
            3.4
            
            
            
            0.3
            
            
            
            6.7
            
            
            
            6.3
            
            
            
            0.4Transmission
            
            
            7.4
            
            
            
            8.5
            
            
            
            (1.1
            )
            
            
            15.1
            
            
            
            15.0
            
            
            
            0.1Firm
      requirements wholesale
            
            
            6.1
            
            
            
            11.1
            
            
            
            (5.0
            )
            
            
            13.6
            
            
            
            23.4
            
            
            
            (9.8
            )Other
      sales for resale
            
            
            34.9
            
            
            
            112.3
            
            
            
            (77.4
            )
            
            
            78.4
            
            
            
            205.8
            
            
            
            (127.4
            )Mark-to-market
      activity
            
            
            (1.9
            )
            
            
            72.5
            
            
            
            (74.4
            )
            
            
            1.3
            
            
            
            42.0
            
            
            
            (40.7
            )$
            226.5
            
            
            $
            386.1
            
            
            $
            (159.6
            )
            
            $
            458.5
            
            
            $
            638.7
            
            
            $
            (180.2
            )Average
      retail customers (thousands)
            
            
            498.7
            
            
            
            494.7
            
            
            
            4.0
            
            
            
            498.3
            
            
            
            494.3
            
            
            
            4.0





75


The
following table shows PNM Electric GWh sales by customer class:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(Gigawatt
      hours)Residential
            
            
            727.2
            
            
            
            718.2
            
            
            
            9.0
            
            
            
            1,522.9
            
            
            
            1,575.9
            
            
            
            (53.0
            )Commercial
            
            
            976.1
            
            
            
            1,016.2
            
            
            
            (40.1
            )
            
            
            1,831.7
            
            
            
            1,926.6
            
            
            
            (94.9
            )Industrial
            
            
            362.3
            
            
            
            410.4
            
            
            
            (48.1
            )
            
            
            717.6
            
            
            
            852.2
            
            
            
            (134.6
            )Public
      authority
            
            
            64.7
            
            
            
            64.3
            
            
            
            0.4
            
            
            
            116.4
            
            
            
            116.2
            
            
            
            0.2Other
      retail
            
            
            -
            
            
            
            0.2
            
            
            
            (0.2
            )
            
            
            -
            
            
            
            0.5
            
            
            
            (0.5
            )Transmission
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Firm
      requirements wholesale
            
            
            156.3
            
            
            
            264.2
            
            
            
            (107.9
            )
            
            
            340.0
            
            
            
            559.2
            
            
            
            (219.2
            )Other
      sales for resale
            
            
            1,172.0
            
            
            
            1,548.8
            
            
            
            (376.8
            )
            
            
            2,232.1
            
            
            
            2,987.2
            
            
            
            (755.1
            )Mark-to-market
      activity
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -3,458.6
            
            
            
            4,022.3
            
            
            
            (563.7
            )
            
            
            6,760.7
            
            
            
            8,017.8
            
            
            
            (1,257.1
            )





Decreases
in PNM Electric’s regulated revenues in 2009 were driven by lower retail loads
associated with cooler temperatures and reduced operations of a major industrial
customer.  Regulated revenues are further reduced due to the
expiration of a firm requirements wholesale contract in December
2008.  These decreases were partially offset with a base rate increase
and implementation of a FPPAC beginning in the second quarter 2008. In 2009,
regulated margins improved as decreases to cost of energy due to lower natural
gas and economy purchase power costs more than offset the decreases to regulated
revenues.





Prior to
May 2009, the revenues and costs associated with Luna, Lordsburg, and the
Valencia PPA were included in unregulated margins.  Upon approval of
the Resource Stipulation (see Note 10), the Valencia PPA and fuel costs of Luna
and Lordsburg, net of off-system revenues, are recovered through regulatory
rates.  Unregulated revenues and margins increased due to more
favorable pricing terms under the forward sales agreement at PVNGS, but were
more than offset by decreased revenues and margins due to lower market prices
achieved from sales from unregulated assets and costs incurred under the
Valencia PPA, prior to inclusion in regulated rates.





Unregulated
revenues, cost of energy, and margins are lower related to the sale of the
merchant portfolio in June 2008.  PNM’s merchant portfolio included
certain wholesale power, natural gas and transmission contracts that reflected a
significant portion of unregulated activity at PNM.  In the second
quarter of 2009, PNM increased its legal reserve by a pre-tax charge to
unregulated revenues of $12.6 million.  See Note 9.





Prior to
the approval of the Resource Stipulation, PNM Electric analyzed results
associated with the Valencia PPA as costs of energy and reflected it in
unregulated margins. As discussed above, subsequent to May 2009, the cost of
energy associated with the Valencia PPA will be recovered through regulatory
rates.  Under FIN 46R the Valencia PPA is consolidated, which results
in costs being reflected as operating expenses and non-controlling interest that
otherwise would have been included in cost of energy if Valencia was not
consolidated.





On June
18, 2009, the NMPRC approved new electric rates associated with the 2008
Electric Rate Case to be implemented for bills rendered beginning July 1,
2009.  Pursuant to the final order, PNM recorded a pre-tax expense in
the second quarter of $26.3 million establishing a regulatory liability to
provide for a credit to customers over a 21-month period for prior sales of
SO2
emission allowances and expensed $0.3 million in deferred rate case expenses
associated with the 2007 Electric Rate Case.  In the first quarter of
2008 PNM wrote-off $10.6 million deferred costs for RECs and $19.6 million for
coal mine decommissioning costs associated with the settlement of the 2007
Electric Rate Case.





Other
decreases in operating expenses include a $51.1 million impairment of goodwill
recognized in the second quarter of 2008.  There was no impairment to
goodwill in the second quarter of 2009 based on the annual impairment
analysis.





Timing of
planned maintenance and outages in second quarter of 2009 at Luna and SJGS
increased operating expenses that were partially offset with outage costs
incurred in 2008 at Four Corners.  Increases in administrative and
general expenses associated with medical and pension expenses are offset with
lower corporate overhead costs and labor savings.  Operating expenses
also include a reduction to property taxes associated with a settlement on
property values.





76


Increases
in depreciation expense are primarily driven by the completion of the
environmental upgrades on all four units at SJGS and increases in distribution
and transmission plant.





Increases
in other income in the second quarter were driven by recognition of a regulatory
asset for carrying costs of $2.1 million relating to the transfer of an interest
in PVNGS Unit 2 to PNM pursuant to the Resource Stipulation and an increase of
$3.6 million associated with improved performance of the NDT
assets.  In addition, PNM recognized FIN 48 interest income of $5.9
million in the three months ended June 30, 2009, including $4.7 million related
to certain income tax positions associated with a change in book to tax
differences on capitalization, compared to FIN 48 interest expense recognized in
2008.





In the
second quarter 2009, the increase in interest charges associated with higher
rates on long-term debt is offset by a reduction in outstanding short-term
borrowings from the second quarter 2008.  For the six months ended
June 30, 2009 interest charges increased due to higher long-term interest
rates.





TNMP
Electric





The table
below summarizes the operating results for TNMP Electric:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(In
      millions)Total
      revenues
            
            $
            46.8
            
            
            $
            47.1
            
            
            $
            (0.3
            )
            
            $
            88.0
            
            
            $
            89.3
            
            
            $
            (1.3
            )Cost
      of energy
            
            
            8.7
            
            
            
            7.9
            
            
            
            0.8
            
            
            
            17.3
            
            
            
            15.7
            
            
            
            1.6Gross margin
            
            
            38.1
            
            
            
            39.2
            
            
            
            (1.1
            )
            
            
            70.8
            
            
            
            73.6
            
            
            
            (2.9
            )Other
      operating expenses
            
            
            18.8
            
            
            
            52.0
            
            
            
            (33.2
            )
            
            
            36.7
            
            
            
            67.4
            
            
            
            (30.7
            )Depreciation
      and amortization
            
            
            8.9
            
            
            
            8.8
            
            
            
            0.1
            
            
            
            17.5
            
            
            
            17.1
            
            
            
            0.4Operating income (loss)
            
            
            10.4
            
            
            
            (21.6
            )
            
            
            32.0
            
            
            
            16.5
            
            
            
            (11.0
            )
            
            
            27.5Other
      income (deductions)
            
            
            0.5
            
            
            
            0.6
            
            
            
            (0.1
            )
            
            
            0.9
            
            
            
            1.0
            
            
            
            (0.1
            )Net
      interest charges
            
            
            (7.9
            )
            
            
            (4.4
            )
            
            
            (3.5
            )
            
            
            (12.0
            )
            
            
            (9.4
            )
            
            
            (2.6
            )Earnings (loss) before income taxes
            
            
            3.0
            
            
            
            (25.3
            )
            
            
            28.3
            
            
            
            5.4
            
            
            
            (19.3
            )
            
            
            24.7Income
      (taxes)
            
            
            (1.2
            )
            
            
            (3.4
            )
            
            
            2.2
            
            
            
            (2.2
            )
            
            
            (5.7
            )
            
            
            3.5Segment earnings (loss)
            
            $
            1.8
            
            
            $
            (28.8
            )
            
            $
            30.6
            
            
            $
            3.2
            
            
            $
            (25.0
            )
            
            $
            28.2





The table
below summarizes the significant changes to total revenues, cost of energy, and
gross margin:




2009/2008
      ChangeThree
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,Total
            
            
            Cost
      of
            
            
            Gross
            
            
            Total
            
            
            Cost
      of
            
            
            GrossRevenues
            
            
            Energy
            
            
            Margin
            
            
            Revenues
            
            
            Energy
            
            
            Margin(In
      millions)Customer
      usage/load
            
            $
            (0.2
            )
            
            $
            -
            
            
            $
            (0.2
            )
            
            $
            (1.8
            )
            
            $
            -
            
            
            $
            (1.8
            )Service
      fees
            
            
            (0.2
            )
            
            
            -
            
            
            
            (0.2
            )
            
            
            (0.4
            )
            
            
            -
            
            
            
            (0.4
            )Other
            
            
            0.1
            
            
            
            0.8
            
            
            
            (0.6
            )
            
            
            0.9
            
            
            
            1.6
            
            
            
            (0.7
            )Total increase (decrease)
            
            $
            (0.3
            )
            
            $
            0.8
            
            
            $
            (1.1
            )
            
            $
            (1.3
            )
            
            $
            1.6
            
            
            $
            (2.9
            )





77


The
following table shows TNMP Electric operating revenues by customer class,
including intersegment revenues, and average number of customers:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(In
      millions, except customers)Residential
            
            $
            17.3
            
            
            $
            17.7
            
            
            $
            (0.4
            )
            
            $
            31.7
            
            
            $
            33.0
            
            
            $
            (1.3
            )Commercial
            
            
            19.2
            
            
            
            18.9
            
            
            
            0.3
            
            
            
            35.2
            
            
            
            35.5
            
            
            
            (0.3
            )Industrial
            
            
            3.2
            
            
            
            3.3
            
            
            
            (0.1
            )
            
            
            6.1
            
            
            
            6.5
            
            
            
            (0.4
            )Other
            
            
            7.1
            
            
            
            7.2
            
            
            
            (0.1
            )
            
            
            15.0
            
            
            
            14.3
            
            
            
            0.7$
            46.8
            
            
            $
            47.1
            
            
            $
            (0.3
            )
            
            $
            88.0
            
            
            $
            89.3
            
            
            $
            (1.3
            )Average
      customers (thousands) (1)
            
            
            230.7
            
            
            
            229.3
            
            
            
            1.4
            
            
            
            230.4
            
            
            
            228.3
            
            
            
            2.1





(1)
            Under
      TECA, customers of TNMP Electric in Texas have the ability to choose First
      Choice or any other REP to provide energy.  The average
      customers reported above include 88,057 and 119,497 customers of TNMP
      Electric for the three months ended June 30, 2009 and 2008, and 89,228 and
      121,923 customers for the six months ended June 30, 2009 and 2008, who
      have chosen First Choice as their REP.  These customers are also
      included in the First Choice
segment.





The
following table shows TNMP Electric GWh sales by customer class:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(Gigawatt
      hours(1))Residential
            
            
            617.9
            
            
            
            637.4
            
            
            
            (19.5
            )
            
            
            1,127.8
            
            
            
            1,175.9
            
            
            
            (48.1
            )Commercial
            
            
            584.4
            
            
            
            587.2
            
            
            
            (2.8
            )
            
            
            1,044.8
            
            
            
            1,060.9
            
            
            
            (16.1
            )Industrial
            
            
            529.6
            
            
            
            516.6
            
            
            
            13.0
            
            
            
            953.7
            
            
            
            1,059.7
            
            
            
            (106.0
            )Other
            
            
            26.2
            
            
            
            26.3
            
            
            
            (0.1
            )
            
            
            52.0
            
            
            
            52.8
            
            
            
            (0.8
            )1,758.1
            
            
            
            1,767.5
            
            
            
            (9.4
            )
            
            
            3,178.3
            
            
            
            3,349.3
            
            
            
            (171.0
            )





(1)
            The
      GWh sales reported above include 281.0 and 433.0 GWhs for the three months
      ended June 30, 2009 and 2008 and 529.4 and 828.0 GWhs for the six months
      ended June 30, 2009 and 2008, used by customers of TNMP Electric, who have
      chosen First Choice as their REP.  These GWhs are also included
      below in the First Choice segment.





Increases
in the average customer count in the second quarter 2009 were more than offset
by milder weather, resulting in lower retail sales and
margin.   Decrease in miscellaneous service fee revenues also
contributed to lower retail sales and margin.  In the second quarter
2009, TNMP recognized a charge to other revenues of $0.5 million for a billing
dispute related to prior periods.  Other changes to revenues, cost of
energy, and gross margin relate to transmission prices charges to and from other
transmission and distribution providers.





The decrease in operating expenses is
related to a $34.5 impairment of goodwill recognized in the second quarter of
2008.  There was no impairment to goodwill in the second quarter of
2009 based on the annual impairment analysis.  Other than the
impairment, operating expenses increased in 2009 related to higher pension and
medical expenses and escalation of labor and administrative
costs.  These increases were partially offset by lower property and
street rental taxes.





Based on a stipulation filed with the
PUCT to settle TNMP’s 2008 rate case, in the second quarter 2009, TNMP expensed
$0.7 million of Hurricane Ike restoration costs that had previously been
deferred.  See Note 10 for further discussion of the TNMP rate
case.





Repayment
of long-term debt outstanding in the second quarter 2008 ulitizing short-term
borrowings at lower interest costs resulted in savings in interest
charges.  As described in Note 7, TNMP issued $315.5 million aggregate
principal amount of long-term debt in March 2009, that bears interest at rates
above the short-term debt rates, which has  resulted in increased
interest expense since issuance and will increase interest expense in future
periods.





78


PNM
Gas





The table
below summarizes the operating results for PNM Gas, which is classified as
discontinued operations in the Condensed Consolidated Statements of Earnings
(Loss):





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(In
      millions)Total
      revenues
            
            $
            -
            
            
            $
            95.6
            
            
            $
            (95.6
            )
            
            $
            65.7
            
            
            $
            316.0
            
            
            $
            (250.3
            )Cost
      of energy
            
            
            -
            
            
            
            64.9
            
            
            
            (64.9
            )
            
            
            44.7
            
            
            
            225.7
            
            
            
            (181.0
            )Gross margin
            
            
            -
            
            
            
            30.7
            
            
            
            (30.7
            )
            
            
            21.0
            
            
            
            90.3
            
            
            
            (69.3
            )Other
      operating expenses
            
            
            4.2
            
            
            
            23.0
            
            
            
            (18.8
            )
            
            
            10.0
            
            
            
            44.4
            
            
            
            (34.4
            )Depreciation
      and amortization
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Operating income
            
            
            (4.2
            )
            
            
            7.7
            
            
            
            (11.9
            )
            
            
            11.0
            
            
            
            45.8
            
            
            
            (34.8
            )Other
      income (deductions)
            
            
            -
            
            
            
            0.5
            
            
            
            (0.5
            )
            
            
            0.3
            
            
            
            1.4
            
            
            
            (1.1
            )Net
      interest charges
            
            
            -
            
            
            
            (3.6
            )
            
            
            3.6
            
            
            
            (1.0
            )
            
            
            (6.5
            )
            
            
            5.5Gain
      on disposal
            
            
            (0.3
            )
            
            
            -
            
            
            
            (0.3
            )
            
            
            110.7
            
            
            
            -
            
            
            
            110.7Earnings (loss) before income taxes
            
            
            (4.5
            )
            
            
            4.6
            
            
            
            (9.1
            )
            
            
            121.0
            
            
            
            40.7
            
            
            
            80.3Income
      (taxes) benefit
            
            
            1.9
            
            
            
            (1.8
            )
            
            
            3.7
            
            
            
            (42.0
            )
            
            
            (15.5
            )
            
            
            (26.5
            )Segment earnings (loss)
            
            $
            (2.6
            )
            
            $
            2.8
            
            
            $
            (5.4
            )
            
            $
            79.1
            
            
            $
            25.3
            
            
            $
            53.8





PNM
completed the sale of the PNM Gas business on January 30, 2009.  The
Company is reporting this segment as discontinued operations as required under
GAAP.  PNM Gas purchased natural gas in the open market and sold it at
no profit to its sales-service customers. As a result, increases or decreases in
gas revenues driven by gas costs did not impact the gross margin or operating
income of PNM Gas. Increases or decreases to gross margin caused by changes in
sales-service volumes represented margin earned on the delivery of gas to
customers based on regulated rates.





As a result of the sale, the above
table reflects operations from the PNM Gas business from January 1, 2009 through
January 30, 2009, compared to full periods of operations in 2008.  In
the second quarter of 2009, PNM expensed $4.2 million associated with retained
liabilities from discontinued operations. In 2009, a pre-tax gain of $110.7
million was recognized on the sale of the PNM Gas business.





First
Choice





The table
below summarizes the operating results for First Choice:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(In
      millions)Total
      revenues
            
            $
            138.0
            
            
            $
            162.2
            
            
            $
            (24.2
            )
            
            $
            260.1
            
            
            $
            246.4
            
            
            $
            13.7Cost
      of energy
            
            
            85.6
            
            
            
            158.1
            
            
            
            (72.5
            )
            
            
            166.0
            
            
            
            263.4
            
            
            
            (97.4
            )Gross margin
            
            
            52.3
            
            
            
            4.1
            
            
            
            48.2
            
            
            
            94.1
            
            
            
            (17.0
            )
            
            
            111.1Other
      operating expenses
            
            
            26.1
            
            
            
            72.8
            
            
            
            (46.7
            )
            
            
            55.4
            
            
            
            88.3
            
            
            
            (32.9
            )Depreciation
      and amortization
            
            
            0.5
            
            
            
            0.6
            
            
            
            (0.1
            )
            
            
            1.0
            
            
            
            1.0
            
            
            
            -Operating income (loss)
            
            
            25.8
            
            
            
            (69.2
            )
            
            
            95.0
            
            
            
            37.7
            
            
            
            (106.3
            )
            
            
            144.0Other
      income (deductions)
            
            
            (0.1
            )
            
            
            0.4
            
            
            
            (0.5
            )
            
            
            -
            
            
            
            0.8
            
            
            
            (0.9
            )Net
      interest charges
            
            
            (0.8
            )
            
            
            (0.3
            )
            
            
            (0.5
            )
            
            
            (1.8
            )
            
            
            (0.6
            )
            
            
            (1.2
            )Earnings (loss) before income taxes
            
            
            24.9
            
            
            
            (69.2
            )
            
            
            94.1
            
            
            
            35.9
            
            
            
            (106.1
            )
            
            
            142.0Income
      (taxes) benefit
            
            
            (9.0
            )
            
            
            8.8
            
            
            
            (17.8
            )
            
            
            (12.9
            )
            
            
            21.6
            
            
            
            (34.5
            )Segment earnings (loss)
            
            $
            16.0
            
            
            $
            (60.4
            )
            
            $
            76.4
            
            
            $
            23.0
            
            
            $
            (84.5
            )
            
            $
            107.5





79


The
following table summarizes the significant changes to total revenues, cost of
energy, and gross margin:





2009/2008
      ChangeThree
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,Total
            
            
            Cost
      of
            
            
            Gross
            
            
            Total
            
            
            Cost
      of
            
            
            GrossRevenues
            
            
            Energy
            
            
            Margin
            
            
            Revenues
            
            
            Energy
            
            
            Margin(In
      millions)Weather
            
            $
            (3.0
            )
            
            $
            (2.8
            )
            
            $
            (0.2
            )
            
            $
            (3.5
            )
            
            $
            (3.0
            )
            
            $
            (0.5
            )Customer
      growth/usage
            
            
            (16.9
            )
            
            
            (16.9
            )
            
            
            -
            
            
            
            (36.9
            )
            
            
            (29.4
            )
            
            
            (7.5
            )Retail
      margins
            
            
            (6.3
            )
            
            
            (50.4
            )
            
            
            44.0
            
            
            
            5.1
            
            
            
            (68.5
            )
            
            
            73.6Trading
      margins
            
            
            2.0
            
            
            
            -
            
            
            
            2.0
            
            
            
            49.0
            
            
            
            -
            
            
            
            49.0Unrealized
      economic hedges
            
            
            -
            
            
            
            (2.4
            )
            
            
            2.4
            
            
            
            -
            
            
            
            3.5
            
            
            
            (3.5
            )Total
      increase (decrease)
            
            $
            (24.2
            )
            
            $
            (72.5
            )
            
            $
            48.2
            
            
            $
            13.7
            
            
            $
            (97.4
            )
            
            $
            111.1





The
following table shows First Choice operating revenues by customer class,
including intersegment revenues, and actual number of customers:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(In
      millions, except customers)Residential
            
            $
            92.8
            
            
            $
            109.7
            
            
            $
            (16.9
            )
            
            $
            168.7
            
            
            $
            186.4
            
            
            $
            (17.7
            )Mass-market
            
            
            6.4
            
            
            
            13.7
            
            
            
            (7.3
            )
            
            
            14.7
            
            
            
            29.6
            
            
            
            (14.9
            )Mid-market
            
            
            33.7
            
            
            
            37.8
            
            
            
            (4.1
            )
            
            
            65.8
            
            
            
            73.4
            
            
            
            (7.6
            )Trading
      gains (losses)
            
            
            0.1
            
            
            
            (1.9
            )
            
            
            2.0
            
            
            
            -
            
            
            
            (49.0
            )
            
            
            49.0Other
            
            
            5.0
            
            
            
            2.9
            
            
            
            2.1
            
            
            
            10.9
            
            
            
            6.0
            
            
            
            4.9$
            138.0
            
            
            $
            162.2
            
            
            $
            (24.2
            )
            
            $
            260.1
            
            
            $
            246.4
            
            
            $
            13.7Actual
      customers (thousands) (1,2)
            
            
            243.3
            
            
            
            253.8
            
            
            
            (10.5
            )
            
            
            243.3
            
            
            
            253.8
            
            
            
            (10.5
            )





(1)
            See
      note above in the TNMP Electric segment discussion about the impact of
      TECA.





(2)
            Due
      to the competitive nature of First Choice’s business, actual customer
      count at June 30 is presented in the table above as a more representative
      business indicator than the average customers that are shown in the table
      for TNMP customers.





The
following table shows First Choice GWh electric sales by customer
class:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(Gigawatt
      hours) (1)Residential
            
            
            644.1
            
            
            
            709.1
            
            
            
            (65.0
            )
            
            
            1,145.9
            
            
            
            1,272.8
            
            
            
            (126.9
            )Mass-market
            
            
            37.3
            
            
            
            68.2
            
            
            
            (30.9
            )
            
            
            79.3
            
            
            
            163.0
            
            
            
            (83.7
            )Mid-market
            
            
            273.8
            
            
            
            304.5
            
            
            
            (30.7
            )
            
            
            522.5
            
            
            
            583.3
            
            
            
            (60.8
            )Other
            
            
            2.9
            
            
            
            5.4
            
            
            
            (2.5
            )
            
            
            5.3
            
            
            
            9.8
            
            
            
            (4.5
            )958.1
            
            
            
            1,087.2
            
            
            
            (129.1
            )
            
            
            1,753.0
            
            
            
            2,028.9
            
            
            
            (275.9
            )





(1)
            See
      note above in the TNMP Electric segment discussion about the impact of
      TECA.





A
decrease in the number of customers and usage over 2008 levels resulted in
decreased sales revenues for both the second quarter and year-to-date
2009.  However, significantly lower purchased power costs in 2009
resulted in an increase in retail margins.  Other revenues have also
increased as a result of higher miscellaneous fees in 2009.





Year-to-date
2008 trading losses were primarily the result of a series of speculative forward
trades that arbitraged basis differentials among certain ERCOT delivery zones
that decreased trading margins by $49.0 million.  Because of continued
market volatility and concern that the forward basis market would continue to
deteriorate, First Choice ended any further speculative trading in
2008.  No significant additional costs have been incurred in 2009 and
none are expected in the future related to speculative trading.  Gains
or losses on unrealized economic hedges represent unrealized fair value
estimates related to forward energy contracts and are not necessarily indicative
of the amounts that will be realized upon settlement.


80


The
allowance for uncollectible accounts and related bad debt expense is based on
collections and write-off experience.  Due to economic conditions,
higher average final bills, and an increase in customer churn, the default rates
experienced late in 2008 and early 2009 rose significantly.  As a
result, bad debt expense increased, which reduced segment earnings by $11.8
million year-to-date and $1.1 million in the second quarter of 2009 compared to
2008.  Management of First Choice is currently addressing the bad debt
situation by undertaking several initiatives in 2009 to reduce bad debt
expense.  These initiatives include efforts to reduce the default rate
experienced for customers switching to another REP and increased focus on
identifying new customer prospects that are more likely to demonstrate desired
payment behavior, including requiring higher credit scores and increased
deposits.  In addition, possible regulatory changes are under
discussion with the PUCT that would impede a customer's ability to switch
REPs until past due balances are paid.





Increased
operational costs, largely attributable to customer acquisition expenses and
related services, in 2009 resulted in a decrease in segment
earnings compared to 2008. However, total operating expenses decreased
significantly for the three and six months ended June 30, 2009 due to impairments of goodwill of
$43.2 million and the First Choice trade name of $7.4 million pre-tax ($4.8
million after-tax) recorded in the second quarter of 2008 as a result of the
annual impairment assessment.  No impairments were recorded in
2009.





Corporate
and Other





The table below summarizes the
operating results for Corporate and Other:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(In
      millions)Total
      revenues
            
            $
            (10.2
            )
            
            $
            (15.1
            )
            
            $
            4.9
            
            
            $
            (19.7
            )
            
            $
            (29.7
            )
            
            $
            10.0Cost
      of energy
            
            
            (10.2
            )
            
            
            (14.9
            )
            
            
            4.7
            
            
            
            (19.5
            )
            
            
            (29.3
            )
            
            
            9.8Gross
      margin
            
            
            -
            
            
            
            (0.2
            )
            
            
            0.2
            
            
            
            (0.2
            )
            
            
            (0.3
            )
            
            
            0.1Other
      operating expenses
            
            
            (3.8
            )
            
            
            (2.3
            )
            
            
            (1.5
            )
            
            
            (9.9
            )
            
            
            (4.7
            )
            
            
            (5.2
            )Depreciation
      and amortization
            
            
            4.6
            
            
            
            4.4
            
            
            
            0.2
            
            
            
            9.2
            
            
            
            8.6
            
            
            
            0.6Operating
      income (loss)
            
            
            (0.9
            )
            
            
            (2.3
            )
            
            
            1.4
            
            
            
            0.5
            
            
            
            (4.3
            )
            
            
            4.8Equity
      in net earnings (loss) of
              Optim
      Energy
            
            
            (7.4
            )
            
            
            (2.5
            )
            
            
            (4.9
            )
            
            
            (6.0
            )
            
            
            (27.6
            )
            
            
            21.6Other
      income (deductions)
            
            
            (1.4
            )
            
            
            (2.9
            )
            
            
            1.5
            
            
            
            18.8
            
            
            
            (5.5
            )
            
            
            24.3Net
      interest charges
            
            
            (5.7
            )
            
            
            (9.7
            )
            
            
            4.0
            
            
            
            (12.4
            )
            
            
            (18.2
            )
            
            
            5.8Earnings
      (loss) before income
              taxes
            
            
            (15.3
            )
            
            
            (17.5
            )
            
            
            2.2
            
            
            
            1.0
            
            
            
            (55.5
            )
            
            
            56.5Income
      (taxes) benefit
            
            
            6.2
            
            
            
            7.5
            
            
            
            (1.3
            )
            
            
            0.1
            
            
            
            21.9
            
            
            
            (21.8
            )Segment
      earnings (loss)
            
            $
            (9.2
            )
            
            $
            (9.9
            )
            
            $
            0.7
            
            
            $
            1.1
            
            
            $
            (33.6
            )
            
            $
            34.7





The
Corporate and Other Segment includes consolidation eliminations of revenues and
cost of energy between business segments, primarily related to TNMP’s sale of
transmission to First Choice.





Other
operating expenses decreased due to $1.5 million and $4.7 million of costs,
primarily severances and consulting charges, related to the business improvement
plan, that were incurred in three and six months ended June 30, 2008 but not in
2009.  Other operating expenses also decreased due to reduced
consulting expenses and an overall reduction in labor due to the business
improvement plan and synergies from the divestiture of PNM Gas, offset by an
increase in incentive compensation expense.  The decrease includes an
offset to depreciation expense described below.





Depreciation
expense increased in the three and six months ended June 30, 2009 compared to
2008 related to an increase in asset base, which is offset in other operating
expenses as a result of allocation of these costs to other business
segments.





Corporate
and Other results include earnings associated with Optim
Energy.  Further explanation of equity in Optim Energy’s results of
operations is shown below.





81


Other
income and deductions increased in the three and six months ended June 30, 2009
compared to 2008 primarily due to a $15.0 million fee received upon termination
of the CRHC acquisition agreement received in the first quarter of 2009 and a
gain of $7.3 million on the re-acquisition of $157.4 million of PNMR’s 9.25%
senior unsecured notes.





Interest
charges decreased in the three and six months ended June 30, 2009 compared to
2008 primarily due to lower long-term borrowings creating favorable variances of
$3.4 million and $4.6 million.  Additionally, favorable variances in
the three and six months ended June 30, 2009 occurred due to lower short-term
borrowings at lower short-term borrowing rates of $2.6 million and $6.3 million.
These favorable variances are offset by higher long term interest rates on
senior unsecured notes that were re-marketed in 2008 resulting in increased
expense of $1.2 million and $4.0 million in the three and six month periods
ended June 30, 2009, after reflecting the re-acquisition of $157.4 million of
that debt in February 2009.





Optim
Energy





The table
below summarizes the operating results for Optim Energy:





Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            Change(In
      millions)Total
      revenues
            
            $
            57.9
            
            
            $
            130.3
            
            
            $
            (72.4
            )
            
            $
            136.3
            
            
            $
            218.1
            
            
            $
            (81.8
            )Cost
      of energy
            
            
            44.1
            
            
            
            85.8
            
            
            
            (41.7
            )
            
            
            89.8
            
            
            
            196.6
            
            
            
            (106.8
            )Gross margin
            
            
            13.8
            
            
            
            44.5
            
            
            
            (30.7
            )
            
            
            46.4
            
            
            
            21.4
            
            
            
            25.0Other
      operating expenses
            
            
            17.4
            
            
            
            38.0
            
            
            
            (20.6
            )
            
            
            36.7
            
            
            
            52.5
            
            
            
            (15.8
            )Depreciation
      and amortization
            
            
            7.4
            
            
            
            7.7
            
            
            
            (0.3
            )
            
            
            15.1
            
            
            
            15.2
            
            
            
            (0.1
            )Operating income (loss)
            
            
            (11.0
            )
            
            
            (1.3
            )
            
            
            (9.7
            )
            
            
            (5.3
            )
            
            
            (46.2
            )
            
            
            40.9Other
      income
            
            
            (0.1
            )
            
            
            0.4
            
            
            
            (0.5
            )
            
            
            (0.1
            )
            
            
            0.7
            
            
            
            (0.8
            )Net
      interest charges
            
            
            (3.0
            )
            
            
            (4.8
            )
            
            
            1.8
            
            
            
            (5.5
            )
            
            
            (11.4
            )
            
            
            5.9Earnings (loss) before income taxes
            
            
            (14.2
            )
            
            
            (5.5
            )
            
            
            (8.7
            )
            
            
            (10.9
            )
            
            
            (56.9
            )
            
            
            46.0Income
      (tax) benefit on margin
            
            
            0.1
            
            
            
            (0.1
            )
            
            
            0.2
            
            
            
            (0.1
            )
            
            
            0.3
            
            
            
            (0.4
            )Net earnings (loss)
            
            $
            (14.1
            )
            
            $
            (5.6
            )
            
            $
            (8.5
            )
            
            $
            (11.0
            )
            
            $
            (56.6
            )
            
            $
            45.650
      percent of net earnings (loss)
            
            $
            (7.1
            )
            
            $
            (2.8
            )
            
            $
            (4.3
            )
            
            $
            (5.5
            )
            
            $
            (28.3
            )
            
            $
            22.8Plus
      amortization of basis difference in
              Optim
      Energy
            
            
            (0.3
            )
            
            
            0.3
            
            
            
            (0.6
            )
            
            
            (0.5
            )
            
            
            0.7
            
            
            
            (1.2
            )PNMR equity in net earnings (loss) of
              Optim Energy
            
            $
            (7.4
            )
            
            $
            (2.5
            )
            
            $
            (4.9
            )
            
            $
            (6.0
            )
            
            $
            (27.6
            )
            
            $
            21.6





Altura
(Twin Oaks), Altura Cogen, and Cedar Bayou 4 generating stations are Optim
Energy’s core business.  In June 2009, Cedar Bayou 4 was completed
ahead of schedule and slightly under budget, contributing favorably to gross
margin. However, depressed gas and power prices and outages at the Altura
generating station reduced gross margin for the three and six months ended June
30, 2009.





Optim
Energy has a hedging program that covers a multi-year period.  The
level of hedging at any given time varies depending on current market conditions
and other factors.  Economic hedges that do not qualify for or are not
designated as cash flow hedges or normal purchases/sales under SFAS 133 are
derivative instruments that are required to be
marked-to-market.  Extreme ERCOT market volatility in 2008 resulted in
significant mark-to-market losses in the six months ended June 30, 2008, which
did not recur in 2009, resulting in favorable variance of $32.6 million on the
forward mark-to-market valuations of Optim Energy's economic hedges recorded in
gross margin.  Extreme heat and market congestion resulted in high
market heat rates on June 30, 2009, which contributed to a $23.9 million
unfavorable variance in the forward mark-to-market valuations on economic hedges
for the three months ended June 30, 2009, compared to the same period in
2008.  Due to the extreme market volatility discussed above, Optim
Energy made the decision to exit its speculative trading business and close out
its speculative trading positions in early 2008.  Optim incurred
speculative losses of $2.4 million in the first quarter of 2008 and has since
settled all speculative positions.





82


Other
operating expenses for the three and six months ended June 30, 2009 are
significantly lower than the same period in 2008 due to a $21.8 million
impairment charge in 2008 that did not occur in 2009.  Excluding the
impact of the impairment, operating expenses were higher in 2009 due to outage
costs for Twin Oaks and additional expenses related to increased employees at
Optim Energy.    Also, reduced interest rates resulted in
lower interest expense for the three and six months ended June 30,
2009.





The
contribution of Altura created a basis difference between PNMR’s recorded
investment in Optim Energy and 50 percent of Optim Energy’s
equity.  The PNMR net earnings impact does not equal 50 percent of the
Optim Energy amortization because of this basis difference.  While the
portion of the basis difference related to contract amortization will only
continue through 2010, other basis differences, including a difference related
to emission allowances, will continue to exist through the life of the Altura
plant.  The basis difference adjustment detailed above relates
primarily to contract amortization with insignificant offsets related to the
other minor basis difference components.





On
January 6, 2009, LCC filed for bankruptcy protection under Chapter 11 of the
U.S. Bankruptcy Code.  LCC is Optim Energy’s counterparty in several
agreements for power and steam sales.  In addition, LCC leases Optim
Energy the land for the Altura Cogen facility and provides other services,
including water, to that facility.  The pre-petition amount due from
LCC as of June 30, 2009 is immaterial to Optim Energy’s results and has been
fully reserved.  LCC has continued to perform under the existing
contracts since the filing.





LIQUIDITY
AND CAPITAL RESOURCES





Statements
of Cash Flows





The
changes in PNMR’s cash flows for the six months ended June 30, 2009 compared to
2008 are summarized as follows:





Six
      Months Ended June 30,2009
            
            
            2008
            
            
            Change(In
      millions)Net
      cash flows from:Operating
      activities
            
            $
            (34.4
            )
            
            $
            12.6
            
            
            $
            (47.0
            )Investing
      activities
            
            
            509.8
            
            
            
            (150.1
            )
            
            
            659.9Financing
      activities
            
            
            (590.0
            )
            
            
            257.6
            
            
            
            (847.6
            )Net
      change in cash and cash equivalents
            
            $
            (114.6
            )
            
            $
            120.1
            
            
            $
            (234.7
            )





The
change in PNMR’s cash flows from operating activities relate primarily to the
payment of taxes related to the sale of PNM Gas and earnings in 2009 compared to
a tax refund in 2008. The sale of PNM Gas also contributed to the decrease as
the Company benefited from only one month of operations in 2009 versus six
months in 2008. The decrease was partially offset by $15.0 million PNMR received
in 2009 due to the termination of the CRHC acquisition agreement.





The
changes in cash flows from investing activities relate primarily to the proceeds
from the sale of PNM Gas. Reduced utility plant additions in 2009, mostly at
PNM, also contributed to the change.





The
changes in cash flows from financing activities relate primarily to the use of
the proceeds from the sale of PNM Gas to retire short-term borrowings at PNM and
PNMR, as well as the retirement of long term borrowings at PNMR. The receipt of
prepayments on PVNGS firm-sales contracts in 2008 and reduced common stock
dividend payments in 2009 also contributed to the change. At TNMP, the
retirement of both short-term and long-term borrowings was financed by new
long-term borrowings.





83


Financing
Activities





See Note
7 for information concerning the Company’s financing activities during the six
months ended June 30, 2009.  Additional information on the Company’s
financing activities is contained in Note 6 of Notes to Consolidated Financial
Statements in the 2008 Annual Report.





Capital
Requirements





Total
capital requirements consist of construction expenditures and cash dividend
requirements for both common and preferred stock.  PNMR’s Series A
convertible preferred stock is entitled to receive dividends equivalent to any
dividends paid on PNMR common stock as if the preferred stock had been converted
into common stock.  The main focus of PNMR’s current construction
program is upgrading generation resources, upgrading and expanding the electric
and gas transmission and distribution systems, and purchasing nuclear
fuel.  Projections, including amounts expended through June 30, 2009,
for total capital requirements for 2009 are $329.9 million, including
construction expenditures of $283.8 million.  Total capital
requirements for the years 2009-2013 are projected to be $1,596.0 million,
including construction expenditures of $1,365.5 million.  This
projection includes $18.0 million for the recently completed SJGS environmental
project to install low NOX combustion control and mercury reduction
technologies, as well as equipment to increase SO2 controls.
These amounts do not include forecasted construction expenditures of Optim
Energy or possible construction expenditures for renewable energy resources that
may be owned by PNM.  These estimates are under continuing review and
subject to on-going adjustment, as well as to board review and
approval.





During
the first six months of 2009, the Company utilized cash generated from
operations and cash on hand, as well as its liquidity arrangements and proceeds
from the sale of PNM Gas, to meet its capital requirements, including
construction expenditures, and the financing activities described in Note
7.





As
discussed in Note 11, Optim Energy co-developed a generating unit, which was
completed in June 2009. Optim Energy’s share of the construction costs was
$206.7 million, including financing costs, and was financed through Optim
Energy’s credit facility and operating cash flows.  If Optim Energy
undertakes additional projects, which require funds that would exceed the
capacity of its current credit facility and Optim Energy is unable to obtain
additional financing capabilities, PNMR and ECJV may be asked to provide
additional funding, but such funding would be at the option of PNMR and
ECJV.  PNMR is unable to predict if additional funding will be
required or, if required, the amount or timing of additional funds that would be
provided to Optim Energy.





Liquidity





PNMR’s
liquidity arrangements include the PNMR Facility and the PNM Facility both of
which primarily expire in 2012 and the TNMP Revolving Credit Facility, which
expires in April 2011.  These facilities provide short-term borrowing
capacity and also allow letters of credit to be issued, which reduce the
available capacity under the facilities.  Both PNMR and PNM also have
lines of credit with local financial institutions. In addition, PNM had
long-term debt aggregating $36.0 million that was scheduled for mandatory
repurchase and remarketing on July 1, 2009.  PNM repurchased these
bonds on July 1, 2009 utilizing available cash balances and borrowings under the
PNM Facility.  PNM intends to hold these bonds (without legally
canceling them) and anticipates remarketing the bonds at some point in the
future depending upon market conditions.





Although
accessing the capital markets at the current time could be difficult as well as
costly, the Company currently believes that its internal cash generation,
existing credit arrangements, and access to public and private capital markets
will provide sufficient resources to meet the Company’s capital requirements and
retire or refinance its debt at maturity.  To cover the difference in
the amounts and timing of cash generation and cash requirements, the Company
intends to use short-term borrowings under its current and future liquidity
arrangements.  However, if the current market difficulties continue
for an extended period of time or worsen, the Company may not be able to access
the capital markets or renew credit facilities when they expire.  In
such event, the Company would seek to improve cash flows by reducing capital
expenditures and PNM would consider seeking authorization for the issuance of
first mortgage bonds in order to improve access to the capital markets, as well
as any other alternatives that may remedy the situation at that
time.





84


In
addition to cash received from the sale of PNM Gas, the financings described in
Note 7, and its internal cash generation, the Company anticipates that it will
be necessary to obtain additional long-term financing in the form of debt
refinancing, new debt issuances, and/or new equity in order to fund its capital
requirements during the 2010-2013 period.





The
Company’s ability, if required, to access the capital markets at a reasonable
cost and to provide for other capital needs is largely dependent upon its
ability to earn a fair return on equity, its results of operations, its credit
ratings, its ability to obtain required regulatory approvals and conditions in
the financial markets.





A summary
of these arrangements as of July 28, 2009 is as follows:





PNMR
            
            
            PNM
            
            
            TNMP
            
            
            PNMRSeparate
            
            
            Separate
            
            
            Separate
            
            
            Consolidated(In
      millions)Financing
      Capacity:Revolving credit facility
            
            $
            600.0
            
            
            $
            400.0
            
            
            $
            75.0
            
            
            $
            1,075.0Local lines of credit
            
            
            10.0
            
            
            
            8.5
            
            
            
            -
            
            
            
            18.5Total
      financing capacity
            
            $
            610.0
            
            
            $
            408.5
            
            
            $
            75.0
            
            
            $
            1,093.5Amounts
      outstanding as of July 28, 2009:Revolving credit facility
            
            $
            135.0
            
            
            $
            69.0
            
            
            $
            -
            
            
            $
            204.0Local lines of credit
            
            
            5.2
            
            
            
            -
            
            
            
            -
            
            
            
            5.2Total short-term debt outstanding
            
            
            140.2
            
            
            
            69.0
            
            
            
            -
            
            
            
            209.2Letters of credit
            
            
            86.1
            
            
            
            23.2
            
            
            
            1.5
            
            
            
            110.8Total short term-debt and letters of credit
            
            $
            226.3
            
            
            $
            92.2
            
            
            $
            1.5
            
            
            $
            320.0Remaining
      availability as of July 28, 2009
            
            $
            383.7
            
            
            $
            316.3
            
            
            $
            73.5
            
            
            $
            773.5Cash
      investments as of July 28, 2009
            
            $
            3.3
            
            
            $
            5.6
            
            
            $
            -
            
            
            $
            8.9





The above
table excludes intercompany debt.  The remaining availability under
the revolving credit facilities varies based on a number of factors, including
the timing of collections of accounts receivables and payments for construction
and operating expenditures.  LBB was a lender under the PNMR Facility
and the PNM Facility.  LBH, the parent of LBB, has filed for
bankruptcy protection.  Subsequent to the bankruptcy filing by LBH,
LBB declined to fund a borrowing request under the PNMR Facility amounting to
$5.3 million. The above availability includes $27.4 million that represents the
unfunded portion of the PNMR Facility attributable to LBB.





For
offerings of debt and equity securities registered with the SEC, PNMR has two
effective shelf registration statements, one expiring on August 17, 2009 for
equity and one expiring in April 2011 for debt.  These shelf
registration statements have unlimited availability and can be amended to
include additional securities, subject to certain restrictions and
limitations.  Due to market conditions, PNMR suspended the offering of
new shares of common stock through an equity distribution agreement and the
program was terminated in July 2009.  PNMR can also offer new shares
of PNMR common stock through the PNM Resources Direct Plan and anticipates
filing a separate shelf registration statement in August 2009 to continue the
registration of shares under this plan.  In April 2008, PNM filed a
new shelf registration statement for the issuance of up to $750.0 million of
senior unsecured notes that was declared effective on April 29,
2008.  As of July 28, 2009, PNM had $600.0 million of remaining
unissued securities registered under this and a prior shelf registration
statement.





85


As
discussed above and in Note 7, the recent disruption in the current credit
markets has had a significant adverse impact on a number of financial
institutions and several of the financial institutions that the Company deals
with have been impacted. However, at this point in time, the Company’s liquidity
has not been materially impacted by the current credit environment and
management does not expect that it will be materially impacted in the
near-future.





Off-Balance
Sheet Arrangements





PNMR’s
off-balance sheet arrangements include PNM’s operating lease obligations for
PVNGS Units 1 and 2, the EIP transmission line, and the entire output of Delta,
a gas-fired generating plant.  These arrangements help ensure PNM the
availability of lower-cost generation needed to serve customers.  See
MD&A – Off-Balance Sheet Arrangements and Note 7 of Notes to Consolidated
Financial Statements in the 2008 Annual Report.





Commitments
and Contractual Obligations





PNMR, PNM
and TNMP have contractual obligations for long-term debt, operating leases,
purchase obligations and certain other long-term liabilities. See MD&A – Commitments
and Contractual Obligations in the 2008 Annual Report.





Contingent
Provisions of Certain Obligations





As
discussed in the 2008 Annual
Reports, PNMR, PNM and TNMP have a number of debt obligations and other
contractual commitments that contain contingent provisions.  Some of
these, if triggered, could affect the liquidity of the Company.  The
contingent provisions include contractual increases in the interest rate charged
on certain of the Company’s short-term debt obligations in the event of a
downgrade in credit ratings and the requirement to provide security under
certain contractual agreements. The Company believes its financing arrangements
are sufficient to meet the requirements of the contingent
provisions.





Capital
Structure





The
capitalization tables below include the current maturities of
long-term debt, but do not include operating lease obligations as
debt.











June
      30,
            
            
            December
      31,2009
            
            
            2008PNMRPNMR
      common stockholders’ equity
            
            
            49.8
            %
            
            
            49.3
            %Convertible
      preferred stock
            
            
            3.0
            %
            
            
            3.0
            %Preferred
      stock of subsidiary
            
            
            0.3
            %
            
            
            0.3
            %Long-term
      debt
            
            
            46.9
            %
            
            
            47.4
            %Total
      capitalization
            
            
            100.0
            %
            
            
            100.0
            %





PNMPNM
      common stockholder’s equity
            
            
            51.0
            %
            
            
            55.7
            %Preferred
      stock
            
            
            0.5
            %
            
            
            0.5
            %Long-term
      debt
            
            
            48.5
            %
            
            
            43.8
            %Total
      capitalization
            
            
            100.0
            %
            
            
            100.0
            %





TNMPCommon
      equity
            
            
            57.9
            %
            
            
            71.6
            %Long-term
      debt
            
            
            42.1
            %
            
            
            28.4
            %Total
      capitalization
            
            
            100.0
            %
            
            
            100.0
            %


86


OTHER
ISSUES FACING THE COMPANY





Climate
Change Issues





In May
2007, the U.S. Supreme Court held that the EPA has the authority to regulate GHG
under the Clean Air Act.  This decision, coupled with an increased
focus in Congress on legislation to address climate change, has heightened the
importance of this issue for the energy industry.   Although there
continues to be debate over the details and best design for state and federal
programs, increased state and federal legislative and regulatory activities
calling for regulation of GHG indicate that climate change protection
legislation and regulation are likely in the future.





In July
2008, EPA published the Greenhouse Gas Advanced Notice of Proposed
Rulemaking.   The notice identified, but did not choose among, options
for GHG regulation and requested comments on the options
presented.   Absent Congressional action, in due course we would
expect the EPA to adopt regulations relating to GHG.





In April
2009, the EPA released its proposed endangerment finding stating that the
atmospheric concentrations of six key greenhouse gases (carbon dioxide, methane,
nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride)
endanger the public health and welfare of current and future
generations.  The EPA believes that science shows that the high levels
of these six greenhouse gases are clearly the result of human emissions and are
very likely the cause of the increase in average temperatures and other climatic
changes.   The EPA also found that the combined emissions of
carbon dioxide, methane, nitrous oxides, and hydrofluorcarbons from new motor
vehicles contribute to the atmospheric concentration of these greenhouse gases
and to climate change.   The proposed findings do not by
themselves impose any requirements on industry or other entities, but the
findings do set the groundwork for the EPA to regulate GHG from new and existing
stationary sources such as power plants and for new motor vehicles.





In
addition, several legislative initiatives are under consideration in Congress
that would regulate GHG. These initiatives range from general limitations on GHG
to the imposition of a so-called “cap and trade” system to the imposition of a
tariff on GHG.  It is unclear whether or when legislation will be
passed, although the new administration and several leading members of Congress
have expressed their intent to pass legislation as soon as
practicable.





On June
26, 2009, the United States House of Representatives passed H.R. 2454, the
American Clean Energy and Security Act of 2009.  This bill, commonly
referred to as the Waxman-Markey Bill, if ultimately passed into legislation,
would establish an economy-wide program, with cap and trade as its cornerstone,
regulating GHG.  The bill defines specific emissions reductions
requirements and timelines, provides for the allocation of free allowances to
electric utilities in the early years of the program to help mitigate cost
impacts to ratepayers and allows for compliance flexibility through cost control
mechanisms including the establishment of an offset program that will further
help mitigate costs to consumers.  The basic framework of the part of
the bill that addresses global warming is consistent with the framework proposed
by United States Climate Action Partnership (“USCAP”) in its Blueprint for Legislative
Action, discussed below.





87


Pursuant
to New Mexico law, each utility must submit an integrated resource plan to the
NMPRC every three years to evaluate renewable energy, energy efficiency, load
management, distributed generation and conventional supply-side resources on a
consistent and comparable basis.  The integrated resource plan is
required to take into consideration risk and uncertainty of fuel supply, price
volatility and costs of anticipated environmental regulations when evaluating
resources options to meet supply needs of PNM’s customers.  The NMPRC
issued an order in June 2007, requiring that New Mexico utilities factor a
standardized cost of carbon emissions into their integrated resource plans using
prices ranging between $8 and $40 per metric ton of CO2 emitted
and escalating these costs by 2.5% per year.  Under the NMPRC order,
each utility must analyze these standardized prices as projected operating costs
in 2010 and thereafter.  Reflecting the developing nature of this
issue, the NMPRC order states that these prices may be changed in the future to
account for additional information or changed
circumstances.   PNM is required, however, to use these prices
for purposes of its integrated resource plan, and the prices may not reflect the
costs that it ultimately will incur.  PNM’s integrated resource plan
filed with the NMPRC in September 2008 showed that incorporation of the NMPRC
required carbon emissions costs did not significantly change the dispatch of
existing facilities or the resource decisions regarding future facilities over
the next 20 years.  Much higher GHG costs than assumed in the NMPRC
analysis are necessary to impact the dispatch of existing resources or future
resource decisions. The primary consequence of GHG costs was an increase to
generation portfolio costs.





In 2007,
five western states (Arizona, California, New Mexico, Oregon and Washington)
entered into an accord, called the Western Regional Climate Action Initiative
(the “WCI”), to reduce GHG from automobiles and certain industries, including
utilities.  Since then, Montana, Utah, British Columbia, Manitoba,
Ontario, and Quebec have joined as partners in the
WCI.    The WCI released design recommendations for elements
of a regional cap and trade program in September 2008, and has created several
subcommittees to develop detailed implementation recommendations.  The
subcommittees are slated to complete their work in 2010.  Under the
WCI recommendations, GHG from the electricity sector and fossil fuel consumption
of the industrial and commercial sectors will be capped at then current levels
and subject to regulation starting in 2012.  Over time, producers will
be required to reduce their GHG.   Implementation of the design
elements for GHG reductions will fall to each state and province.  In
New Mexico, PNM believes this will require new legislation and
rulemaking.  The Company expects to participate in the legislative and
rulemaking processes in New Mexico and will not be able to fully assess the
implications of New Mexico regulation of GHG until the legislative and
rulemaking processes have progressed significantly.  In the event
federal cap and trade legislation is adopted, it may replace state and regional
initiatives.





In
December 2008, New Energy Economy (“NEE”), a non-profit environmental advocacy
organization, petitioned the New Mexico Environmental Improvement Board (“EIB”)
to amend existing regulations and adopt new regulations requiring a cap on GHG,
including a statewide GHG limit of 25% below 1990 levels by 2020.  The
proposal provides for an absolute cap without the ability to purchase allowances
from other entities to cover GHG.  The EIB ordered legal briefs to be
filed on the issue of the EIB’s authority to regulate GHG.  After
review of the briefs and a hearing in April 2009, the EIB decided it does have
authority to regulate GHG.  During the hearing, NEE agreed to amend
its proposal to be a cap and trade program.  At the EIB meeting held
on July 7, 2009, the NMED outlined its proposed schedule for the adoption and
implementation of regulations necessary to implement the proposals under the
WCI. PNM and other interested parties filed a motion to temporarily stay further
action on the NEE petition pending introduction of the NMED’s WCI regulatory
proposals so that the NMED proposal could be considered together with the NEE
proposal.  On August 3, 2009, the EIB denied the motion for the
temporary stay.  The EIB will commence a hearing on the NEE proposal
beginning in May 2010.  NEE and the NMED sought to bifurcate the
proceeding to consider the “science of climate change” at an initial hearing and
proposals to implement regulation to reduce GHG at a subsequent
hearing.  The EIB took the issue of bifurcation under advisement and
the scope of the hearing to commence in May 2010 remains undefined.





Also in
February 2009, legislation was introduced in the New Mexico legislature
proposing to require the implementation by EIB of a cap and trade system
designed to reduce GHG. This legislation died in committee during the session.
 The New Mexico House of Representatives did pass a memorial, which
requests the New Mexico Legislative Council to direct the appropriate committee
to study the WCI final design recommendations as well as federal proposals
relating to reducing GHG.  The memorial is a study of impacts and not
a regulation. The memorial further states that the committee is requested to
report its findings and recommendations to the New Mexico legislature by
December 2010.





88





Approximately
82.6% of PNM’s owned and leased generating capacity consists of coal or
gas-fired generation that produces GHG.  All of Optim Energy’s owned
generation produces GHG.  Based on our current forecasts, we do not
expect our output of GHG to increase significantly in the
near-term.  Many factors affect the amount of GHG, including plant
performance.  For example, if PVNGS experienced prolonged outages, it may
require PNM to utilize other power supply resources such as gas-fired
generation, which could increase GHG.  Because of our dependence on
fossil-fueled generation, any legislation that imposes a limit or cost on GHG
will impact the cost at which we produce electricity.  While PNM
expects to be entitled to recover that cost through rates, the timing and
outcome of proceedings for cost recovery is uncertain.  In addition,
to the extent that we recover any additional costs through rates, our customers
may reduce their demand, relocate facilities to other areas with lower energy
costs or take other actions that ultimately will adversely impact
us.





Given the
geographic location of our facilities and customers, we generally have not been
exposed to the extreme weather events and other physical impacts commonly
attributed to climate change, with the possible exception of drought conditions
periodically, and we generally do not expect physical changes to be of material
consequence to us in the near-term. Drought conditions in northwestern New
Mexico could impact the availability of water for cooling coal
plants.  Water shortage sharing agreements have been in place since
2003, although no shortage has been declared due to sufficient snow pack in the
San Juan Basin.  PNM also has a supplemental water contract in place
with the Jicarilla Tribe to help address any water shortages from primary
sources. The contract expires December 31, 2016.





In 2006,
the Company became a founding member of the USCAP, a coalition currently
consisting of 35 businesses and national environmental organizations calling on
the federal government to enact national legislation to reduce GHG at the
earliest practicable date.   USCAP released A Call To Action, a set of
principles and recommendations outlining a policy framework for federal climate
protection legislation in January 2007, and released its Blueprint for Legislative Action to
the U.S. Congress and the Obama Administration in December
2008.   As a member of USCAP, it is the Company’s position that a
mandatory, economy-wide, market-driven approach that includes a cap and trade
program, combined with other complementary state and federal policies, is the
most cost effective and environmentally efficient means of addressing GHG
reductions.  The Company intends to continue working with USCAP,
government agencies, and Congress to advocate for federal action to address this
challenging environmental issue that is closely linked with the U.S. economy,
energy supply, and energy security.





In 2008,
PNMR’s interests in generating plants, through PNM and Optim
Energy, emitted approximately 7.9 million metric tons of carbon dioxide,
the vast majority of its GHG.  By comparison, the total GHG in the United
States in 2006, the latest year for which the EPA has compiled this data, were
approximately 7 billion metric tons, of which approximately 6 billion metric
tons were carbon dioxide.  Electricity generation accounted for
approximately 2.3 billion metric tons of the carbon dioxide
emissions.





PNM has
several programs underway to mitigate its GHG, and thereby to reduce its climate
change risk.  These include the release of two RFPs in mid-2008 for
additional renewable generation capacity and the launch of customer-owned solar
generation programs.  See Note 10.  PNM expects to produce
approximately 35,000 GWh of electricity from renewable resources over the next
19 years, avoiding nearly 20 million metric tons of GHG. Also in 2008, PNM filed
requests for approval to implement additional electric energy efficiency and
load management programs with the NMPRC and expects approval this year. Over the
next 19 years, PNM projects the expanded energy efficiency and load management
programs will provide the equivalent of approximately 15,000 GWh of electricity,
which will avoid about 8.5 million metric tons of GHG. These estimates are
subject to change given that it is difficult to estimate avoidance accurately
because of the many variables that impact it, including changes in demand for
electricity.





89


The Board
is updated by management and regularly considers the issues around climate
change, our GHG and potential financial consequences that might result from
climate change and the possible regulation of GHG.  In particular, our
management periodically reports to the Board on all of the matters discussed in
this section.  In December 2008, the Board established a new
stand-alone committee, the Public Policy and Sustainability Committee. This
committee will monitor Company practices and procedures to assess the
sustainability impacts of our operations and products on the
environment.  This committee also will have responsibility to review
the Company’s environmental management systems, monitor the implementation of
the Company’s corporate environmental policy, monitor the promotion of energy
efficiency, and our use of renewable energy resources.  The committee
will report to the Board on a periodic basis regarding the Company’s activities
and initiatives in these areas.





The
regulation of GHG is expected to have a material impact on the utility industry
both in terms of increased costs associated with fossil fuels and increased
opportunities associated with fuels other than fossil fuels, but it is premature
to attempt to quantify the possible costs and other implications of these
impacts on the Company.





Economic
Stimulus Projects





Through
the American Recovery and Reinvestment Act of 2009 (“ARRA”), the Federal
government is making a number of programs available for utilities to develop
renewable resources, improve reliability, create jobs, and generally to benefit
their customers from the availability of economic stimulus
funding.  PNM and TNMP are eligible for several of the ARRA programs
and are evaluating opportunities under the ARRA programs to take advantage of
them to the extent deemed to be viable and prudent.





TNMP
submitted a Letter of Intent on July 14, 2009 to notify DOE that it intends to
submit an application for a grant under DOE’s Smart Grid Investment Grant
Program (“SGIG”) to support TNMP’s smart grid program.  This program
would deploy smart meters, utilize supervisory control and data acquisition
systems, and automate substations and distribution circuits by among other
things increasing system reliability and efficiency and providing operators,
retailers and customer with valuable information.  The application,
expected to be for a project of approximately $100 million, is planned to be
submitted in August 2009.  If the application is approved, the SGIG
will provide federal financial assistance in the form of grants up to 50 percent
of eligible project costs.  Also, TNMP plans to apply for DOE loan
guarantees under ARRA for a transmission line storm hardening project in Texas
and PNM plans to submit similar applications for wind and solar renewable
generation projects in New Mexico. Furthermore, PNM plans to file a request for
federal financial assistance in the form of grants up to 50 percent of the costs
of a solar project, which would include storage of energy, in New
Mexico.  Costs are still under review for all of the TNMP and PNM
projects.  The Company is unable to predict if its applications will
be approved or when approval would be received.





Other
Matters





As
discussed under Employees in Item 1. Business in the 2008 Annual Reports, PNM
had a collective bargaining agreement with the IBEW that expired April 30, 2009.
The IBEW and PNM reached a tentative agreement on May 1, 2009 for the period of
May 1, 2009 to April 30, 2012. The tentative agreement includes wage increase
provisions of 2% for 2009, 2010 and 2011 effective on May 1 of each
year.  The tentative agreement was ratified by the  IBEW on May
13, 2009.





See Notes
9 and 10 herein and Notes 16, 17 and 18 in the 2008 Annual Reportsfor a discussion of commitments and contingencies, rate and regulatory
matters and environmental issues facing the Company.





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





The
preparation of financial statements in accordance with GAAP requires Company
management to select and apply accounting policies that best provide the
framework to report the results of operations and financial position for PNMR,
PNM, and TNMP.  The selection and application of those policies
requires management to make difficult, subjective and/or complex judgments
concerning reported amounts of revenue and expenses during the reporting period
and the reported amounts of assets and liabilities at the date of the financial
statements.  As a result, there exists the likelihood that materially
different amounts would be reported under different conditions or using
different assumptions.


90


As of
June 30, 2009, there have been no significant changes with regard to the
critical accounting policies disclosed in PNMR’s, PNM’s, and TNMP’s Annual
Reports for the year ended December 31, 2008.  The policies disclosed
included unbilled revenues, regulatory accounting, impairments, decommissioning
costs, derivatives, pension and other postretirement benefits, accounting for
contingencies, income taxes, and market risk.





MD&A
FOR PNM





RESULTS
OF OPERATIONS





PNM’s
continuing operations are presented in the PNM Electric segment, which is
identical to the segment presented above in Results of Operations for
PNMR.  PNM’s discontinued operations are presented in the PNM Gas
segment, which is identical to the total earnings from discontinued operations,
net of income taxes, shown on the Condensed Consolidated Statements of Earnings
for both PNM and PNMR.  See Note 14.





MD&A
FOR TNMP





RESULTS
OF OPERATIONS





TNMP
operates in only one reportable segment, TNMP Electric, as presented above in
Results of Operations for PNMR.





DISCLOSURE
REGARDING FORWARD LOOKING STATEMENTS





Statements
made in this filing that relate to future events or PNMR’s, PNM’s, or TNMP’s
expectations, projections, estimates, intentions, goals, targets and strategies,
are made pursuant to the Private Securities Litigation Reform Act of
1995.  Readers are cautioned that all forward-looking statements are
based upon current expectations and estimates and PNMR, PNM, and TNMP assume no
obligation to update this information.





Because
actual results may differ materially from those expressed or implied by these
forward-looking statements, PNMR, PNM, and TNMP caution readers not to place
undue reliance on these statements.  PNMR’s, PNM’s, and TNMP’s
business, financial condition, cash flow and operating results are influenced by
many factors, which are often beyond their control, that can cause actual
results to differ from those expressed or implied by the forward-looking
statements.  These factors include:





·
            Conditions
      affecting the Company’s ability to access the financial markets or Optim
      Energy’s access to additional debt financing following the utilization of
      its existing credit facility, including actions by ratings agencies
      affecting the Company’s credit
ratings,


·
            The
      recession, its consequent extreme disruption in the credit markets, and
      its impacts on the electricity usage of the Company’s
      customers,


·
            State
      and federal regulatory and legislative decisions and actions, including
      the TNMP electric rate case filed in 2008 and appeals of prior regulatory
      proceedings,


·
            The
      ability of PNM to meet the renewable energy requirements established by
      the NMPRC, including the resource diversity requirement, within the
      specified cost parameters, and the Company’s
      ability to obtain federal and/or state funding and incentives for the
      development of alternative or renewable
  energy,


·
            The
      performance of generating units, including PVNGS, SJGS, Four Corners, and
      Optim Energy generating units, and transmission
  systems,


·
            The
      risk that Optim Energy is unable to identify and implement profitable
      acquisitions or that PNMR and ECJV will not agree to make additional
      capital contributions to Optim
Energy,


·
            The
      potential unavailability of cash from PNMR’s subsidiaries or Optim Energy
      due to regulatory, statutory or contractual
  restrictions,


·
            The
      impacts of the decline in the values of marketable equity securities on
      the trust funds maintained to provide nuclear decommissioning funding and
      pension and other postretirement benefits, including the levels of funding
      and expense,


·
            The
      ability of First Choice to attract and retain customers and collect
      amounts billed,


·
            Changes
      in ERCOT protocols,


·
            Changes
      in the cost of power acquired by First
Choice,


·
            Collections
      experience,


91


·
            Insurance
      coverage available for claims made in
  litigation,


·
            Fluctuations
      in interest rates,


·
            Weather,


·
            Water
      supply,


·
            Changes
      in fuel costs,


·
            Availability
      of fuel supplies,


·
            The
      risk that replacement power costs incurred by PNM related to not meeting
      the specified capacity factor for its generating units under its Emergency
      FPPAC will not be approved by the
NMPRC,


·
            The
      risk that PNM may not be able to renew rights-of-way on Native American
      lands or that the costs of rights-of-way are not allowed to be recovered
      through rates charged to customers,


·
            The
      effectiveness of risk management and commodity risk
      transactions,


·
            Seasonality
      and other changes in supply and demand in the market for electric
      power,


·
            Variability
      of wholesale power prices and natural gas
  prices,


·
            Volatility
      and liquidity in the wholesale power markets and the natural gas
      markets,


·
            Uncertainty
      regarding the ongoing validity of government programs for emission
      allowances,


·
            The
      risk that the resolution of the bankruptcy of LCC results in significant
      adverse impacts on the operations of the Altura Cogen facility and Optim
      Energy,


·
            Changes
      in the competitive environment in the electric
  industry,


·
            The
      risk that the Company and Optim Energy may have to commit to substantial
      capital investments and additional operating costs to comply with new
      environmental control requirements including possible future requirements
      to address concerns about global climate
change,


·
            The
      risks associated with completion of generation, transmission,
      distribution, and other projects, including construction delays and
      unanticipated cost overruns,


·
            The
      outcome of legal proceedings,


·
            Changes
      in applicable accounting principles,
and


·
            The
      performance of state, regional, and national
  economies.





Any
material changes to risk factors occurring after the filing of PNMR’s, PNM’s, or
TNMP’s 2008 Annual Reports are disclosed in Item 1A, Risk Factors, in Part II of
this Form 10-Q.





For
information about the risks associated with the use of derivative financial
instruments see Item 3. “Quantitative and Qualitative Disclosures About Market
Risk.”





SECURITIES
ACT DISCLAIMER





Certain
securities described in this report have not been registered under the
Securities Act of 1933, as amended, or any state securities laws and may not be
reoffered or sold in the United States absent registration or an applicable
exemption from the registration requirements of the Securities Act of 1933 and
applicable state securities laws.  This Form 10-Q does not constitute
an offer to sell or the solicitation of an offer to buy any
securities.





ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





PNMR controls the scope of
its various forms of risk through a comprehensive set of policies and procedures
and oversight by senior level management and the Board.  The Board’s
Finance Committee sets the risk limit parameters.  The RMC, comprised
of corporate and business segment officers, oversees all of the risk management
activities, which include commodity risk, credit risk, interest rate risk, and
business risk.  The RMC has oversight for the ongoing evaluation of
the adequacy of the risk control organization and policies.  PNMR has
risk control organizations, which are assigned responsibility for establishing
and enforcing the policies, procedures and limits and evaluating the risks
inherent in proposed transactions, on an enterprise-wide basis.





92


The RMC’s
responsibilities specifically include: establishment of policies regarding risk
exposure levels and activities in each of the business segments; authority to
approve the types of derivatives entered into; authority to establish a general
policy regarding counterparty exposure and limits; authorization and delegation
of transaction limits; review and approval of controls and procedures for
derivative activities; review and approval of models and assumptions used to
calculate mark-to-market and market risk exposure; authority to approve and open
brokerage and counterparty accounts for derivatives; review of hedging and risk
activities; the extent and type of reporting to be performed for monitoring of
limits and positions; and quarterly reporting to the Audit and Finance
Committees on these activities.  The RMC also proposes risk limits,
such as VaR and GEaR, to the Finance Committee for their approval.





It is the
responsibility of each business segment to create its own control procedures and
policies within the parameters established by the Corporate Financial Risk
Management Policy, approved by the Finance Committee.  The RMC reviews
and approves these policies, which are created with the assistance of the Risk
Management Department and the Vice President and Treasurer.  Each
business segment’s policies address the following
controls:  authorized instruments and markets; authorized personnel;
policies on segregation of duties; policies on mark-to-market accounting;
responsibilities for deal capture; confirmation procedures; responsibilities for
reporting results; statement on the role of derivative transactions; and limits
on individual transaction size (nominal value).





To the
extent an open position exists, fluctuating commodity prices can impact
financial results and financial position, either favorably or
unfavorably.  As a result, the Company cannot predict with certainty
the impact that its risk management decisions may have on its businesses,
operating results or financial position.





Information
concerning accounting for derivatives and the risks associated with PNMR’s
commodity contracts is set forth in Note 4.  Note 4 also contains a
summary of the fair values of mark-to-market energy related derivative contracts
included in the Condensed Consolidated Balance Sheets.





The
following table details the changes in the net asset or liability balance sheet
position of PNMR from one period to the next for mark-to-market energy
transactions other than cash flow hedges:





Trading
            
            
            Economic
              Hedges
            
            
            TotalJune
      30,  2009
            
            (In
      thousands)Sources of fair value gain (loss):Net
      fair value at beginning of period
            
            $
            2,556
            
            
            $
            (5,422
            )
            
            $
            (2,866
            )Amount
      realized on contracts delivered during period
            
            
            (1,488
            )
            
            
            9,881
            
            
            
            8,393Changes
      in fair value
            
            
            95
            
            
            
            (6,181
            )
            
            
            (6,086
            )Net
      change recorded as mark-to-market
            
            
            (1,393
            )
            
            
            3,700
            
            
            
            2,307Unearned/prepaid
      option premiums
            
            
            -
            
            
            
            (422
            )
            
            
            (422
            )Net fair value at end of period
            
            $
            1,163
            
            
            $
            (2,144
            )
            
            $
            (981
            )





June
      30, 2008Sources of fair value gain (loss):Net
      fair value at beginning of period
            
            $
            (1,577
            )
            
            $
            (13,136
            )
            
            $
            (14,713
            )Adoption
      of SFAS 157
            
            
            -
            
            
            
            17,253
            
            
            
            17,253Adjusted
      beginning fair value
            
            
            (1,577
            )
            
            
            4,117
            
            
            
            2,540Amount
      realized on contracts delivered during period
            
            
            (21,756
            )
            
            
            7,519
            
            
            
            (14,237
            )Changes
      in fair value
            
            
            (2,046
            )
            
            
            10,726
            
            
            
            8,680Net
      change recorded as mark-to-market
            
            
            (23,802
            )
            
            
            18,245
            
            
            
            (5,557
            )Unearned/prepaid
      option premiums
            
            
            (10,036
            )
            
            
            (49
            )
            
            
            (10,085
            )Net
      fair value at end of period
            
            $
            (35,415
            )
            
            $
            22,313
            
            
            $
            (13,102
            )





The
following table provides the maturity of the net assets (liabilities), giving an
indication of when these mark-to-market amounts will settle and generate (use)
cash.  The following values were determined using broker quotes and
option models:


93


Fair
Value of Mark-to-Market Instruments at June 30, 2009





Less
      than1
      year
            
            
            1-3
      Years
            
            
            4+
      Years
            
            
            TotalPNMR
            
            
            
            
            (In
      thousands)Trading
      transactions
            
            $
            517
            
            
            $
            646
            
            
            $
            -
            
            
            $
            1,163Economic
      hedges
            
            
            (2,216
            )
            
            
            (258
            )
            
            
            330
            
            
            
            (2,144
            )Total
            
            $
            (1,699
            )
            
            $
            388
            
            
            $
            330
            
            
            $
            (981
            )





The net
change in fair value of PNMR’s commodity derivative instruments designated as
cash flow hedging instruments was $(7,481) for the six months ended June 30,
2009 and $(6,555) for the six months ended June 30, 2008.





Risk
Management Activities





PNM
measures the market risk of its long-term contracts and wholesale activities
using a VaR calculation to measure price movements.  The VaR
calculation reports the possible market loss for the respective
transactions.  This calculation is based on the transaction’s fair
market value on the reporting date.  Accordingly, the VaR calculation
is not a measure of the potential accounting mark-to-market loss.  PNM
utilizes the Monte Carlo VaR simulation model.  The Monte Carlo model
utilizes a random generated simulation based on historical volatility to
generate portfolio values.  The quantitative risk information,
however, is limited by the parameters established in creating the
model.  The instruments being evaluated may trigger a potential loss
in excess of calculated amounts if changes in commodity prices exceed the
confidence level of the model used.  The VaR methodology employs the
following critical parameters:  historical volatility estimates,
market values of all contractual commitments, appropriate market-oriented
holding periods, and seasonally adjusted and cross-commodity correlation
estimates.  The VaR calculation considers PNM’s forward position for
calendar years 2009 and 2010.  PNM uses a holding period of three days
as the estimate of the length of time that will be needed to liquidate the
positions.  The volatility and the correlation estimates measure the
impact of adverse price movements both at an individual position level as well
as at the total portfolio level.  The two-tailed confidence level
established is 95% (99% was utilized in 2008).  For example, if VaR is
calculated at $10.0 million, it is estimated that in 950 out of 1,000 market
simulations the pre-tax gain or loss in liquidating the portfolio would not
exceed $10.0 million in the three days that it would take to liquidate the
portfolio.





PNM
measures VaR for all transactions that are not directly asset-related and have
economic risk.  For the six months ended June 30, 2009, the average,
high, and low VaR amounts for these transactions were less than $0.1
million.  The VaR amount for these transactions at June 30, 2009 was
less than $0.1 million.  For the six months ended June 30, 2008, the
average VaR amount for these transactions was $0.7 million with high and low VaR
amounts for the period of $1.4 million and $0.4 million.  The total
VaR amount for these transactions at June 30, 2008 was $1.3
million.





First
Choice measures the market risk of its retail sales commitments and supply
sourcing activities using a GEaR calculation to monitor potential risk exposures
related to taking contracts to settlement and a VaR calculation to measure
short-term market price impacts.





Because
of its obligation to serve customers, First Choice must take certain contracts
to settlement.  Accordingly, a measure that evaluates the settlement
of First Choice’s positions against earnings provides management with a useful
tool to manage its portfolio.  First Choice uses a hold-to-maturity at
risk for 12 months calculation for its GEaR measurement.  The
calculation utilizes the same Monte Carlo simulation approach described above at
a 95% confidence level and includes the retail load and supply portfolios.
Management believes the GEaR results are a reasonable approximation of the
potential variability of earnings against forecasted earnings.  The
quantitative risk information, however, is limited by the parameters established
in creating the model.  The instruments being evaluated may trigger a
potential loss in excess of calculated amounts if changes in commodity prices
exceed the confidence level of the model used.  The GEaR calculation
considers First Choice’s forward position for the next twelve months and holds
each position to settlement.  The volatility and the correlation
estimates measure the impact of adverse price movements both at an individual
position level as well as at the total portfolio level.  For example,
if GEaR is calculated at $10.0 million, it is estimated that in 950 out of 1,000
market scenarios calculated by the model the losses against the Company’s
forecasted earnings over the next twelve months would not exceed $10.0
million.


94


For the
six months ended June 30, 2009, the average GEaR amount was $6.1 million, with
high and low GEaR amounts for the period of $11.4 million and $2.2
million.  The total GEaR amount at June 30, 2009 was $4.3
million.  For the six months ended June 30, 2008, the average GEaR
amount for these transactions was $22.2 million, with high and low GEaR amounts
for the period of $44.3 million and $12.6 million.  The total GEaR
amount for these transactions at June 30, 2008 was $15.3 million.





First
Choice utilizes a short-term VaR measure to manage its market
risk.  The VaR limit is based on the same total portfolio approach as
the GEaR measure; however, the VaR measure is intended to capture the effects of
changes in market prices over a 10-day holding period.  This holding
period is considered appropriate given the nature of First Choice’s supply
portfolio and the constraints faced by First Choice in the ERCOT
market.  The calculation utilizes the same Monte Carlo simulation
approach described above at a 95% confidence level.  The VaR amount
for these transactions was $0.8 million at June 30, 2009.  For the six
months ended June 30, 2009, the high, low and average mark-to-market VaR amounts
were $2.0 million, $0.2 million and $0.9 million.  The VaR amount for
these transactions was $4.6 million at June 30, 2008.  For the six
months ended June 30, 2008, the high, low and average mark-to-market VaR amounts
were $12.1 million, $1.6 million and $5.9 million.





The
Company's risk measures are regularly monitored by the Company's
RMC.  The RMC has put in place procedures to ensure that increases in
risk measures that exceed the prescribed limits are reviewed and, if deemed
necessary, acted upon to reduce exposures.  In the first quarter of
2008, First Choice experienced speculative pre-tax trading losses of $47.1
million. These transactions triggered exceedences of the GEaR limit and the
10-day VaR limit, which contributed to the decision to exit the basis
transactions and speculative trading.  There were no such exceedences
in the first six months of 2009.





The VaR
and GEaR limits represent an estimate of the potential gains or losses that
could be recognized on the Company’s portfolios, subject to market risk, given
current volatility in the market, and are not necessarily indicative of actual
results that may occur, since actual future gains and losses will differ from
those estimated.  Actual gains and losses may differ due to actual
fluctuations in market prices, operating exposures, and the timing thereof, as
well as changes to the underlying portfolios during the year.





Credit
Risk





The
Company conducts counterparty risk analysis across business segmentsand uses a
credit management process to assess the financial conditions of
counterparties.  Credit exposure is regularly monitored by the RMC.
The RMC has put procedures in place to ensure that increases in credit risk
measures that exceed the prescribed limits are reviewed and, if deemed
necessary, acted upon to reduce exposures.





The
following table provides information related to credit exposure as of June 30,
2009.  The table further delineates that exposure by the credit
worthiness (credit rating) of the counterparties and provides guidance as to the
concentration of credit risk to individual counterparties.





Schedule
of Credit Risk Exposure


June
30, 2009





Number
            
            
            Exposure(b)
            
            
            of
            
            
            ofCredit
            
            
            Counter-
            
            
            Counter-Risk
            
            
            parties
            
            
            partiesRating
      (a)
            
            Exposure
            
            
            >10%
            
            
            >10%(Dollars
      in thousands)PNMRExternal
      ratings:Investment
      grade
            
            $
            90,138
            
            
            
            3
            
            
            $
            42,170Split
      ratings
            
            
            189
            
            
            
            -
            
            
            
            -Non-investment
      grade
            
            
            22
            
            
            
            -
            
            
            
            -Internal
      ratings:Investment
      grade
            
            
            74
            
            
            
            -
            
            
            
            -Non-investment
      grade
            
            
            174
            
            
            
            -
            
            
            
            -Total
            
            $
            90,597
            
            
            
            
            
            
            $
            42,170


95





(a)
            TheRatingincluded in
      “Investment Grade” is for counterparties with a minimum S&P rating of
      BBB- or Moody's rating of Baa3.  If the counterparty has
      provided a guarantee by a higher rated entity (e.g., its parent),
      determination is based on the rating of its guarantor.  The
      category “Internal Ratings - Investment Grade” includes those
      counterparties that are internally rated as investment grade in accordance
      with the guidelines established in the Company’s credit
      policy.


(b)
            The
      Credit Risk Exposure is the gross credit exposure, including long-term
      contracts, forward sales and short-term sales. The exposure captures the
      amounts from receivables/payables for realized transactions, delivered and
      unbilled revenues, and mark-to-market gains/losses (pursuant to contract
      terms).  Exposures are offset according to legally enforceable
      netting arrangements but are not reduced by available credit
      collateral.  Credit collateral includes advance payments, cash
      deposits, letters of credit, and parental guarantees received from
      counterparties.  Amounts are presented before the application of
      such credit collateral instruments.  At June 30, 2009, the
      Company held advance payments of $36.4 million and credit collateral of
      less than $0.1 million to offset its credit
  exposure.





The
following table provides an indication of the maturity of credit risk by credit
ratings of the counterparties.





Maturity
      of Credit Risk Exposure


June
30, 2009





GreaterLess
      than
            
            
            
            
            
            than
            
            
            TotalRating
            
            2
      Years
            
            
            2-5
      Years
            
            
            5
      Years
            
            
            Exposure(In
      thousands)PNMRExternal
      ratings:Investment
      grade
            
            $
            89,583
            
            
            $
            268
            
            
            $
            287
            
            
            $
            90,138Split
      ratings
            
            
            189
            
            
            
            -
            
            
            
            -
            
            
            
            189Non-investment
      grade
            
            
            22
            
            
            
            -
            
            
            
            -
            
            
            
            22Internal
      ratings:Investment
      grade
            
            
            74
            
            
            
            -
            
            
            
            -
            
            
            
            74Non-investment
      grade
            
            
            174
            
            
            
            -
            
            
            
            -
            
            
            
            174Total
            
            $
            90,042
            
            
            $
            268
            
            
            $
            287
            
            
            $
            90,597





The
Company provides for losses due to market and credit risk.  Credit
risk for PNMR's and PNM’s largest counterparty as of June 30, 2009 and December
31, 2008 was $18.9 million and $52.3 million.





Interest
Rate Risk





PNMR has
long-term debt which subjects it to the risk of loss associated with movements
in market interest rates.  The majority of PNMR’s long-term debt is
fixed-rate debt and does not expose PNMR’s earnings to a major risk of loss due
to adverse changes in market interest rates.  However, the fair value
of all long-term debt instruments would increase by approximately 3.48%, if
interest rates were to decline by 50 basis points from their levels at June 30,
2009.  In general, an increase in fair value would impact earnings and
cash flows to the extent not recoverable in rates if PNM were to reacquire all
or a portion of its debt instruments in the open market prior to their
maturity.  As described in Note 7, TNMP has long-term debt of $50.0
million that bears interest at a variable rate.  However, TNMP has
also entered into a hedging arrangement that effectively results in this debt
bearing interest at a fixed rate, thereby eliminating interest rate
risk.  At July 28, 2009, PNMR has $209.2 million of consolidated
short-term debt outstanding under its revolving credit facilities and local
lines of credit, which allow for a maximum aggregate borrowing capacity of
$1,093.5 million.  These facilities bear interest at variable rates,
which averaged 1.37% of July 28, 2009 borrowings, and the Company is exposed to
interest rate risk to the extent of future increases in variable interest
rates.





96


The
securities held by PNM in the NDT and in trusts for pension and other
post-employment benefits had an estimated fair value of $497.5 million at June
30, 2009, of which 29.8% were fixed-rate debt securities that subject PNM to
risk of loss of fair value with movements in market interest
rates.  If interest rates were to increase by 50 basis points from
their levels at June 30, 2009, the decrease in the fair value of the fixed-rate
securities would be 2.8%, or $4.2 million.  The securities held by
TNMP in trusts for pension and other post-employment benefits had an estimated
fair value of $58.5 million at June 30, 2009, of which 24.2% were fixed-rate
debt securities that subject TNMP to risk of loss of fair value with movements
in market interest rates.  If interest rates were to increase by 50
basis points from their levels at June 30, 2009, the decrease in the fair value
of the fixed-rate securities would be 2.9%, or $0.4 million.





PNM and
TNMP do not directly recover or return through rates any losses or gains on the
securities in the trusts for nuclear decommissioning or pension and other
post-employment benefits.  However, the overall performance of these
trusts does enter into the periodic determinations of expense and funding
levels, which are factored into the rate making process to the extent applicable
to regulated operations.  PNM and TNMP are at risk for shortfalls in
funding of obligations due to investment losses, including those from the equity
market and alternatives investment risks discussed below to the extent not
ultimately recovered through rates charged to customers.





Equity
Market Risk





The NDT
and trusts established for PNM’s pension and post-employment benefits hold
certain equity securities at June 30, 2009.  These equity securities
expose PNM to losses in fair value should the market values of the underlying
securities decline.  Equity securities comprised 53.5% of the
securities held by the various PNM trusts as of June 30, 2009.  PNM
does not recover or earn a return through rates on any losses or gains on these
equity securities.  The trusts established for TNMP’s pension and
post-employment benefits hold certain equity securities.  These equity
securities expose TNMP to losses in fair value should the market values of the
underlying securities decline.  Equity securities comprised 51.4% of
the securities held by the TNMP trusts as of June 30, 2009.  There has
been a significant decline in the general price levels of marketable equity
securities in late 2008 and in early 2009. The impacts of these declines were
considered in the funding and expense valuations performed for 2009, which
resulted in reduced amounts of income related to the pension plans being
recorded in 2009 and will likely require increased levels of funding beginning
in 2010.  See Note 8.





Alternatives
Investment Risk





The
Company has a target of investing 20% of its pension assets in the alternatives
asset class, which amounted to 25.6% as of June 30, 2009.  This
includes real estate, private equity, and hedge funds. The private equity and
hedge fund investments are limited partner structures that are multi-manager
multi-strategy funds. This investment approach gives broad diversification and
minimizes risk compared to a direct investment in any one component of the
funds. The general partner oversees the selection and monitoring of the
underlying managers. The Company’s Corporate Investment Committee, assisted by
its investment consultant, monitors the performance of the funds and general
partner’s investment process. There is risk associated with these funds due to
the nature of the strategies and techniques and the use of investments that do
not have readily determinable fair value.  The valuation of the
alternative asset class has also been impacted by the significant decline in the
general price levels of marketable equity securities.





97


ITEM
4.  CONTROLS AND PROCEDURES





PNMR





Evaluation
of disclosure controls and procedures





PNMR
maintains disclosure controls and procedures designed to ensure that it is able
to collect the information it is required to disclose in the reports it files
with the SEC, and to process, summarize and disclose this information within the
time periods specified in the rules of the SEC.  Based on an
evaluation of its disclosure controls and procedures as of the end of the period
covered by this report conducted by management, with the participation of the
Chief Executive and Chief Financial Officer, the Chief Executive and Chief
Financial Officer conclude that these controls and procedures are effective to
ensure that PNMR meets the requirements of SEC Regulation 13A, Rule 13a-15(e)
and Rule 15d-15(e).





Changes
in internal controls





There
have been no changes in PNMR’s internal controls over financial reporting for
the quarter ended June 30, 2009, that have materially affected, or are
reasonably likely to materially affect, PNMR’s internal control over financial
reporting.





PNM





Evaluation
of disclosure controls and procedures





PNM
maintains disclosure controls and procedures designed to ensure that it is able
to collect the information it is required to disclose in the reports it files
with the SEC, and to process, summarize and disclose this information within the
time periods specified in the rules of the SEC.  Based on an
evaluation of its disclosure controls and procedures as of the end of the period
covered by this report conducted by management, with the participation of the
Chief Executive and Chief Financial Officer, the Chief Executive and Chief
Financial Officer conclude that these controls and procedures are effective to
ensure that PNM meets the requirements of SEC Regulation 13A, Rule 13a-15(e) and
Rule 15d-15(e).





Changes
in internal controls





There
have been no changes in PNM’s internal controls over financial reporting for the
quarter ended June 30, 2009, that have materially affected, or are reasonably
likely to materially affect, PNM’s internal control over financial
reporting.





TNMP





Evaluation
of  disclosure controls and procedures





TNMP
maintains disclosure controls and procedures designed to ensure that it is able
to collect the information it is required to disclose in the reports it files
with the SEC, and to process, summarize and disclose this information within the
time periods specified in the rules of the SEC.  Based on an
evaluation of its disclosure controls and procedures as of the end of the period
covered by this report conducted by management, with the participation of the
Chief Executive and Chief Financial Officer, the Chief Executive and Chief
Financial Officer conclude that these controls and procedures are effective to
ensure that TNMP meets the requirements of SEC Regulation 13A, Rule 13a-15(e)
and Rule 15d-15(e).





Changes
in internal controls





There
have been no changes in TNMP’s internal controls over financial reporting for
the quarter ended June 30, 2009, that have materially affected, or are
reasonably likely to materially affect, TNMP’s internal control over financial
reporting.





98


PART
II – OTHER INFORMATION





ITEM
1.  LEGAL PROCEEDINGS





See Notes
9 and 10 in the Notes to Condensed Consolidated Financial Statements for
information related to the following matters, for PNMR, PNM and TNMP,
incorporated in this item by reference.





·
            Navajo
      Nation Environmental Issues


·
            Four
      Corners Federal Implementation Plan
Litigation


·
            Santa
      Fe Generating Station


·
            Gila
      River Indian Reservation Superfund
Site


·
            PVNGS
      Water Supply Litigation


·
            San
      Juan River Adjudication


·
            Western
      United States Wholesale Power
Market


·
            Begay
      v. PNM et al


·
            PNM
      – 2007 Electric Rate Case


·
            PNM
      – Emergency FPPAC


·
            TNMP
      – Competitive Transition Charge True-Up
  Proceeding


·
            TNMP
      – Interest Rate Compliance Tariff





ITEM
1A.  RISK FACTORS





As of the
date of this report, there have been no material changes with regard to
the  Risk Factors disclosed in PNMR’s, PNM’s and TNMP’s Annual Reports
for the year ended December 31, 2008.





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





The
Annual Meeting of Shareholders of PNMR was held on May 19, 2009.  The
matters voted on at the meeting and the results were as follows:





The
election of the following nominees to serve as directors until the Annual
Meeting of Shareholders in 2010 (reflects voting of common stock only; holders
of Series A convertible preferred stock are not entitled to vote on
directors):





Director
            Votes
      For
            Votes
      WithheldAdelmo
      E. Archuleta
            78,237,113
            1,387,382Julie
      A. Dobson
            77,799,862
            1,824,633Robert
      R. Nordhaus
            78,209,857
            1,414,638Manuel
      T. Pacheco, Ph.D
            77,780,759
            1,843,736Robert
      M. Price
            78,069,810
            1,554,685Bonnie
      S. Reitz
            77,946,949
            1,677,546Donald
      K. Schwanz
            78,185,432
            1,439,063Jeffry
      E. Sterba
            76,914,128
            2,710,367Joan
      B. Woodard, Ph.D
            77,952,993
            1,671,502





The approval of an amendment to the PNM
Resources, Inc. Second Amended and Restated Omnibus Performance Equity
Plan:





Votes
      For
            Votes
      Against
            Abstentions
            Broker
      Non-VotesCommon
      and preferred stock voting together as a single class
            59,610,733
            13,059,489
            788,565
            10,943,708





99


The
approval of the selection of Deloitte & Touche LLP as independent auditors
for the fiscal year ending December 31, 2009:





Votes
      For
            Votes
      Against
            AbstentionsCommon
      and preferred stock voting together as a single class
            83,933,182
            349,729
            119,584





ITEM
6.  EXHIBITS





3.1
            PNMR
            Articles
      of Incorporation of PNM Resources, as amended to date (incorporated by
      reference to Exhibit 3.1 to PNMR’s Current Report on Form 8-K filed
      November 21, 2008)3.2
            PNM
            Restated
      Articles of Incorporation of PNM, as amended through May 31, 2002
      (incorporated by reference to Exhibit 3.1.1 to the Company’s Quarterly
      Report on Form 10-Q for the quarter ended June 30,
2002)3.3
            TNMP
            Articles
      of Incorporation of TNMP, as amended through July 7, 2005 (incorporated by
      reference to Exhibit 3.1.2 to the Company’s Quarterly Report on Form 10-Q
      for the quarter ended June 30, 2005)3.4
            PNMR
            Bylaws
      of PNM Resources, Inc. with all amendments to and including February 17,
      2009 (incorporated by reference to Exhibit 3.1 to PNMR’s Current Report on
      Form 8-K filed February 20, 2009)3.5
            PNM
            Bylaws
      of PNM with all amendments to and including May 31, 2002 (incorporated by
      reference to Exhibit 3.1.2 to the Company’s Report on Form 10-Q for the
      fiscal quarter ended June 30, 2002)3.6
            TNMP
            Bylaws
      of TNMP as adopted on August 4, 2005 (incorporated by reference to Exhibit
      3.2.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      June 30, 2005)12.1
            PNMR
            Ratio
      of Earnings to Fixed Charges12.2
            PNM
            Ratio
      of Earnings to Fixed Charges12.3
            TNMP
            Ratio
      of Earnings to Fixed Charges31.1
            PNMR
            Chief
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            PNMR
            Chief
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.3
            PNM
            Chief
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.4
            PNM
            Chief
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.5
            TNMP
            Chief
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.6
            TNMP
            Chief
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
            PNMR
            Chief
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002




100


32.2
            PNMR
            Chief
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.3
            PNM
            Chief
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.4
            PNM
            Chief
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.5
            TNMP
            Chief
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.6
            TNMP
            Chief
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002





101


SIGNATURE





Pursuant
to the requirements 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.





PNM
      RESOURCES, INC.
              PUBLIC
      SERVICE COMPANY OF NEW MEXICO
              TEXAS-NEW
      MEXICO POWER COMPANY(Registrants)Date:   August
      5, 2009
            /s/
      Thomas G. SategnaThomas
      G. SategnaVice
      President and Corporate Controller(Officer
      duly authorized to sign this
report)








102